UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No.1
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þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31,2017 2020 |
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
COMMISSION FILE NUMBER: 001-33988
Graphic Packaging Holding Company
(Exact name of registrant as specified in its charter)
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| Delaware | 26-0405422 |
(State or other jurisdiction of incorporation)incorporation or organization) | (I.R.S. employeridentification no.) |
1500 Riveredge Parkway, Suite 100 Atlanta, Georgia | |
| Atlanta | , | Georgia | 30328 |
(Address of principal executiveoffices) | (Zip Code) |
(770) 240-7200
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, $0.01 par value per share | GPK | New York Stock Exchange |
Series A Junior Participating Preferred Stock Purchase Rights | New York Stock Exchange |
Associated with the Common Stock | |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ ☑No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐ No þ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ ☑No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ ☑No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filerþ | ☑ | Accelerated filero | ☐ | Smaller reporting companyo | ☐ |
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Non-accelerated filero | ☐ | (Do not check if a smaller reporting company) | Emerging growth companyo | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No þ☑
The aggregate market value of voting and non-voting common equity held by non-affiliates at June 30, 20172020 was approximately $4$3.9 billion.
As of February 5, 201812, 2021 there were approximately 309,715,624267,755,764 shares of the registrant’s Common Stock, $0.01 par value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
The sole purpose of this Amendment No. 1 on Form 10-K/A to Graphic Packaging Holding Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on February 7, 2018 (the “Form 10-K”), is, at the request of Ernst & Young LLP, to update their opinion on internal control over financial reporting to include a previously omitted sentence (specifically, "We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB."), include paragraph headers and reorder the paragraphs in accordance with the standards of the Public Company Accounting Oversight Board (United States). No change has been made to Ernst & Young LLP’s opinion that Graphic Packaging Holding Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") criteria.
No other changes have been made to any of the disclosures in the Form 10-K. This Form 10-K/A speaks as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Form 10-K, except as set forth above.
As required by Rule 12b-15 under the Securities Exchange Act of 1934, currently-dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer have been included as exhibits to this Amendment No. 1.
TABLE OF CONTENTS OF FORM 10-K |
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| MINE SAFETY DISCLOSURES | |
| EXECUTIVE OFFICERS OF THE REGISTRANT | |
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| ITEM 16. | FORM 10-K SUMMARY | |
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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements regarding the expectations of Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”), including, but not limited to, pursuing strategic acquisition opportunities, obtaining adequate wood and fiber supplies, the deductibility of goodwill for tax purposes, the availability of net operating lossesU.S. federal income tax attributes to offset U.S. federal income taxes and the timing related to the Company's future U.S. federal income tax payments, the deductibilityanticipated reduction of goodwillInternational Paper Company's investment in Graphic Packaging International Partners, LLC, reclassification of loss on derivative instruments, termination of the U.S. pension plan and charges related to the acquisitions of Carton Craft Corporation and Seydaco Packaging Corp.,thereto, charges associated with coated recycled paperboard mill exit activities, capital investment, contractual obligations, available cash and liquidity, depreciation and amortization, interest expense, reclassification of Accumulated Other Comprehensive Loss to earnings, pension plan contributions and postretirementpost-retirement health care benefit payments in this report constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations. These risks and uncertainties include, but are not limited to, the effects of the COVID-19 pandemic on the Company's operations and business, inflation of and volatility in raw material and energy costs, changes in consumer buying habits and product preferences, competition with other paperboard manufacturers and converters, product substitution, the Company’s ability to implement its business strategies, including strategic acquisitions, the Company's ability to successfully integrate acquisitions, including the North America Consumer Packaging business of International Paper Company, productivity initiatives and cost reduction plans, the Company’s debt level, currency movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters, including those that could impact the Company’s ability to utilize its net operating lossesU.S. federal income tax attributes to offset taxable income or U.S. federal income taxes and those that impact the Company's ability to protect and use its intellectual property. Additional information regarding these and other risks is contained in Part I, Item 1A., Risk Factors. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements, except as may be required by law. Additional information regarding these and other risks is contained in Part I, Item 1A., Risk Factors.
PART I
ITEM 1.BUSINESS
Overview
Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”) is committed to providing consumer packaging that makes a world of difference. The Company is a leading provider of sustainable, paper-based packaging solutions for a wide variety of products to food, beverage, foodservice and other consumer products companies. The Company operates on a global basis, is one of the largest producers of folding cartons in the United States ("U.S."), and holds leading market positions in coated recycled paperboard ("CRB"), coated unbleached kraft paperboard (“CUK”) and coated-recycledsolid bleached sulfate paperboard (“CRB”("SBS").
The Company’s customers include many of the world’s most widely recognized companies and brands with prominent market positions in beverage, food, foodservice and other consumer products. The Company strives to provide its customers with innovative sustainable packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its low-cost paperboard mills and converting plants,facilities, its proprietary carton and packaging designs, and its commitment to quality and service.
In preparation for the combinationOn January 1, 2018, GPHC, a Delaware corporation, International Paper Company, a New York corporation (“IP”), Graphic Packaging International Partners, LLC, a Delaware limited liability company formerly known as Gazelle Newco LLC and a wholly-owned subsidiary of the Company's existing businesses withCompany (“GPIP”), and Graphic Packaging International, LLC, a Delaware limited liability company formerly known as Graphic Packaging International, Inc. and a direct subsidiary of GPIP (“GPIL”), completed a series of transactions pursuant to an agreement dated October 23, 2017, among the foregoing parties (the “Transaction Agreement”). Pursuant to the Transaction Agreement (i) a wholly-owned subsidiary of the Company transferred its ownership interest in GPIL to GPIP; (ii) IP transferred its North America Consumer Packaging (“NACP”) business to GPIP, which was then subsequently transferred to GPIL; (iii) GPIP issued membership interests to IP, and IP was admitted as a member of International PaperGPIP; and (iv) GPIL assumed certain indebtedness of IP (the "NACP Combination").
GPI Holding III, LLC, an indirect wholly-owned subsidiary of the Company ("IP"(“GPI Holding”), is the managing member of GPIP.
At the closing of the NACP Combination, GPIP issued 309,715,624 common units or 79.5% of the membership interests in GPIP to GPI Holding and 79,911,591 common units or 20.5% of the membership interests in GPIP to IP. Subject to certain restrictions, the common units held by IP are exchangeable into shares of common stock of GPHC or cash.
The following diagram illustrates the organization of the Company on January 1, 2018, immediately subsequent to the transactions described above (not including subsidiaries of GPIL):
On January 28, 2020, the Company announced that IP had notified the Company of its intent to begin the process of reducing its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million partnership units from IP for $250 million in cash. As a result, IP’s ownership interest in GPIP decreased to 18.3% as describedof January 29, 2020.
On August 10, 2020, the Company announced that IP had notified the Company of its intent to exchange additional partnership units. Per the agreement between the parties, on August 13, 2020, GPIP purchased 17.4 million partnership units from IP for $250 million in cash, which included full redemption of the remaining 3.1 million partnership units that were required to be redeemed in cash. As a result, IP's ownership interest in GPIP decreased to 14.5% as of August 13, 2020.
Unless otherwise negotiated by the parties, IP’s next opportunity to exchange its partnership units begins 180 days from the August 13, 2020 purchase date and is limited to the lesser of $250 million or 25% of the units owned immediately following the initial transaction, subject to a minimum. IP will have further opportunities to exchange its partnership units beginning 180 days after each purchase date. The Company may choose to satisfy these exchanges using shares of its common stock, cash, or a combination thereof.
During 2020, 2019 and 2018, GPIP repurchased 44.2 million partnership units from GPI Holding, which distributed the proceeds to GPHC. GPHC used the proceeds from these repurchases to repurchase 44.2 million shares of GPHC's common stock. These partnership unit repurchases increased IP's ownership interest in GPIP, which was 15.0% at December 31, 2020.
Acquisitions, Closures, and Dispositions
Over the past five years, the Company has successfully completed over ten acquisitions and expects to pursue strategic acquisition opportunities in the future as part of its overall growth strategy.
2020
On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment. For more information, see Note 194 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data" (the "Consumer Packaging Combination")Data.”
In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and to shut down the PM1 containerboard machine in West Monroe, Louisiana. During the second quarter of 2020, the Company closed the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine. For more information, see Note 20 in the Notes to Consolidated Financial Statements included herein under “Item 8., on December 29, 2017, Graphic Packaging International, Inc., the primary operating subsidiary of GPHC, underwent a statutory conversionFinancial Statements and became a Delaware limited liability company. As a result, Graphic Packaging International, Inc.'s name changed to Graphic Packaging International, LLC ("GPI"). When used herein, GPI refers to Graphic Packaging International, Inc. prior to December 29, 2017 and Graphic Packaging International, LLC after such date. As of December 29, 2017, GPI was wholly owned by Graphic Packaging International Partners, LLC, which was in turn wholly-owned by GPI Holding III, LLC, a limited liability company that is classified as a partnership for U.S. Federal income tax purposes. GPI Holding III, LLC is a wholly-owned indirect subsidiary of GPHC.Supplementary Data.”
Acquisitions and Dispositions
2017
On DecemberApril 1, 2017,2020, the Company acquired the assets of SeydacoConsumer Packaging Corp. and its affiliates National Carton and Coating Co., and Groupe Ecco Boites Pliantes Ltée (collectively, "Seydaco"Group business from Greif, Inc. ("Greif"), a folding carton producer focused on the foodservice, food, personal care,leader in industrial packaging products and household goods markets.services. The acquisition includes three folding cartonincluded seven converting facilities locatedacross the United States, which are included in Mississauga, Ontario, St.-Hyacinthe, Québec,the Americas Paperboard Packaging reportable segment. For more information, see Note 4 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Xenia, Ohio.Supplementary Data.”
In June 2020, the Company made the decision to close certain converting facilities that were acquired from Greif. The Burlington, North Carolina converting facility and the Los Angeles, California converting facility were closed in the third quarter of 2020. For more information, see Note 20 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
2019
On DecemberAugust 1, 2017, the Company closed its coated recycled paperboard mill in Santa Clara, California. This decision was made as a result of a thorough assessment of the facility's manufacturing capabilities and associated costs in the context of the Company's overall mill operating capabilities and cost structure.
On October 4, 2017, the Company acquired Norgraft Packaging, S.A. ("Norgraft"), a leading folding carton producer in Spain focused on the food and household goods markets. The acquisition includes two folding carton facilities located in Miliaño and Requejada, Spain.
On July 10, 2017,2019, the Company acquired substantially all the assets of Artistic Carton Craft CorporationCompany ("Artistic"), a diversified producer of folding cartons and its affiliate Lithocraft, Inc. (collectively, "Carton Craft").CRB. The acquisition includesincluded two folding cartonconverting facilities located in New Albany,Auburn, Indiana focused on the production of paperboard-based air filter frames and folding cartons.
The Seydaco, Norgraft, and Carton Craft transactions are referred to collectively as the "2017 Acquisitions." Seydaco and Carton Craft are includedElgin, Illinois (included in the Americas Paperboard Packaging Segment. Norgraft isreportable segment) and one CRB mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment). For more information, see Note 4 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
During 2019, the Company announced its plan to invest approximately $600 million in a new CRB mill in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral. For more information, see Note 20 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
2018
As mentioned above, on January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS paperboard and paper-based foodservice products. The NACP business included two SBS mills located in Augusta, Georgia and Texarkana, Texas (included in Paperboard Mills reportable segment), three converting facilities in the U.S. (included in the Americas Paperboard Packaging reportable segment) and one in the United Kingdom ("U.K.") (included in the Europe Paperboard Packaging Segment.reportable segment). For more information, see Note 4 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
2016
On April 29, 2016, the Company acquired Colorpak Limited ("Colorpak"), a leading folding carton supplier in Australia and New Zealand. Colorpak operates three folding carton facilities that convert paperboard into folding cartons for the food, beverage and consumer product markets. The folding carton facilities are located in Melbourne and Sydney, Australia and Auckland, New Zealand.
On March 31, 2016,June 12, 2018, the Company acquired substantially all the assets of Metro Packaging & Imaging, Inc. ("Metro"PFP, LLC and its related entity, PFP Dallas Converting, LLC (collectively, "PFP"), a single converting facility located in Wayne, New Jersey.
On February 16, 2016,converter focused on the Company acquired Walter G. Anderson, Inc. ("WG Anderson"), a folding carton manufacturer with a focus on store branded food and consumer product markets. WG Anderson operates two sheet-fed folding carton facilities located in Hamel, Minnesota and Newton, Iowa.
On January 5, 2016, the Company acquired G-Box, S.A. de C.V., ("G-Box").production of paperboard based air filter frames. The acquisition included two folding carton facilities located in Monterrey, MexicoLebanon, Tennessee and Tijuana, Mexico that service the food, beverage, and consumer product markets.
The Colorpak, Metro, WG Anderson and G-Box transactions are referred to collectively as the "2016 Acquisitions." Metro, WG Anderson and G-BoxLancaster, Texas. PFP assets are included in the Americas Paperboard Packaging Segment. Colorpak isreportable segment. For more information, see Note 4 in the Notes to Consolidated Financial Statements included in Corporate/Other/Eliminations.herein under “Item 8., Financial Statements and Supplementary Data.”
2015
On October 1, 2015,August 31, 2018, the Company sold its previously closed CRB mill site in Santa Clara, California.
On September 30, 2018, the Company acquired substantially all the folding carton assets of Staunton, VA-based Carded Graphics, LLC.the foodservice business of Letica Corporation, a subsidiary of RPC Group PLC ("Carded"Letica Foodservice"), a folding carton producer with a strong regional presence in the food, craft beerof paperboard-based cold and other consumer product markets.
On February 4, 2015, the Company acquired certain assets of Cascades' Norampac Division ("Cascades") in Canada. Cascades primarily services the foodhot cups and beverage markets and operates three folding carton convertingcartons. The acquisition included two facilities located in Cobourg, Ontario, Mississauga, OntarioClarksville, Tennessee and Winnipeg, Manitoba along with a thermo mechanical pulp ("TMP") mill located in Jonquière, Quebec and a coated-recycled board mill located in East Angus, Quebec. The Jonquière mill was closed in the third quarter of 2015.
On January 2, 2015, the Company acquired Rose City Printing and Packaging Inc. ("Rose City"). Rose City services food and beverage markets and operates two folding carton facilities located in Gresham, OR and Vancouver, WA.
The Carded, Cascades, and Rose City transactionsPittston, Pennsylvania. Letica Foodservice assets are included in the Americas Paperboard Packaging Segment.reportable segment. For more information, see Note 4 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
The acquisitions of PFP and Letica Foodservice are referred to collectively as the "2018 Acquisitions."
Capital Allocation Plan
Share Repurchases and Dividends
On January 10, 2017, the Company's28, 2019, GPHC's board of directors authorized an additional share repurchase program to allow the CompanyGPHC to purchase up to $250$500 million of the Company'sGPHC's issued and outstanding shares of common stock through open market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2017"2019 share repurchase program"). The originalA previous $250 million share repurchase program was authorized on February 4, 2015January 10, 2017 (the "2015"2017 share repurchase program").
During 2017,The following presents GPHC's share repurchases for the Company repurchased 4.5 millionyears ended December 31, 2020, 2019, and 2018:
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| Amount repurchased in millions | Amount Repurchased | Number of Shares Repurchased | | Average Price | |
| 2020 | $ | 315.6 | | 23,420,010 | | | $ | 13.48 | | |
| 2019 | $ | 127.9 | | 10,191,257 | | (a) | $ | 12.55 | | |
| 2018 | $ | 120.0 | | 10,566,144 | | | $ | 11.35 | | |
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(a) Includes 7,400,171 shares or approximately $58 million, of its common stock at an average price of $13.08, including 1.4 million shares repurchased under the 20152017 share repurchase program thereby completing that program. During 2016, the Company repurchased 13.2 million shares, or approximately $169 million, of its common stock at an average price of $12.77. During 2015, the Company repurchased 4.6 million shares, or approximately $63 million, at an average price of $13.60.
At December 31, 2017, the Company2020, GPHC had approximately $210$146.5 million of share repurchase authority remaining under the 20172019 share repurchase program.
During 20172020 and 2016, the Company2019, GPHC paid cash dividends of $93.4$84.7 million and $64.4$88.7 million, respectively.
Products
Products
The Company reports its results inhas three segments:reportable segments as follows:
Paperboard Mills includes the sixeight North American paperboard mills whichthat produce primarily CRB, CUK, and CRB. The majority of the paperboardSBS, which is consumed internally to produce paperboard packaging for the Americas and Europe Paperboard Packaging segments. The remaining paperboard is sold externally to a wide variety of paperboard packaging converters and brokers.
Americas Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to Consumer Packaged Goods ("CPG") companies, and cups, lids and food containers sold primarily to foodservice companies and quick-service restaurants ("QSR") serving the food, beverage, and consumer product markets in the Americas.
Europe Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to CPG companies serving the food, beverage and consumer product markets in Europe.
The Company also operates in three geographic areas: the Americas, Europe and Asia Pacific.
For reportable segment and geographic area information for each of the last three fiscal years, see Note 1416 in the Notes to Consolidated Financial Statements included herein under “Item 8. Financial Statements and Supplementary Data."
Paperboard Packaging
The Company’s paperboard packaging products deliver brand, marketing, sustainability and performance benefits at a competitive cost. The Company supplies paperboard cartons, carriers and carrierscontainers designed to protect and containhold products while providing:
convenience• Convenience through ease of carrying, storage, delivery, dispensing of product and food preparation for consumers;
a• A smooth surface printed with high-resolution, multi-color graphic images that help improve brand awareness and visibility of products on store shelves; and
durability,• Durability, stiffness and wet and dry tear strength; leak, abrasion and heat resistance; barrier protection from moisture, oxygen, oils and greases, as well as enhanced microwave heating performance.
The Company provides a wide range of sustainable paperboard packaging solutions for the following end-use markets:
beverage,• Beverage, including beer, soft drinks, energy drinks, teas, water and juices;
food,• Food, including cereal, desserts, frozen, refrigerated and microwavable foods and pet foods;
prepared foods,• Prepared food and drinks, including snacks, quick-serve foodsfood and drinks for restaurants and food service products;providers;
household• Household products, including dishwasher and laundry detergent, health care and beauty aids, and tissues and papers; and
air• Air filter frames.
The Company’s packaging applications meet the needs of its customers for:
Strength Packaging. The Company's products provide sturdiness to meet a variety of packaging, handling, and delivery needs, including tear and wet strength, puncture resistance, durability and compression strength (providing the ability to ship products in their own branded carton and stacking strength to meet store display packaging requirements).
Promotional Packaging. The Company offers a broad range of promotional packaging options that help differentiate its customers’ products in the marketplace. These promotional enhancements improve brand awareness and visibility on store shelves.
Convenience and Cooking Packaging. These packaging solutions improve package usage and food preparation:
beverage• Beverage multiple-packaging — multi-packs for beer, soft drinks, energy drinks, teas, water and juices;
active• Active microwave technologies — substrates that improve the preparationheating and browning of foods in the microwave; and
easy• Easy opening and closing features — dispensing features, pour spouts and sealable liners.
Barrier Packaging. The Company provides packages that protect against moisture, temperature (hot and cold), grease, oil, oxygen, sunlight, insects and other potential product-damaging factors.
Paperboard Mills and Folding Carton Facilities
The Company produces paperboard at its mills; prints, cuts, folds, and glues (“converts”) the paperboard into folding cartons and containers at its converting plants; and designs and manufactures specialized, proprietary packaging machines that package bottles and cans and, to a lesser extent, non-beverage consumer products. The Company also installs its packaging machines at customer plants and provides support, service and advanced performance monitoring of the machines.
The Company offers a variety of laminated, coated and printed packaging structures that are produced from its CRB, CUK and CRB,SBS mills, as well as other grades of paperboard that are purchased from third-party suppliers.
Below is the production at each of the Company’s paperboard mills during 2017:2020:
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| Location | Product | # of Machines | 2020 Net Tons Produced |
| West Monroe, LA | CUK | 2 | 911,520 |
| Macon, GA | CUK | 2 | 712,326 |
| Texarkana, TX | SBS | 2 | 623,207 |
| Augusta, GA | SBS | 2 | 596,821 |
| Kalamazoo, MI | CRB | 2 | 511,852 |
| Battle Creek, MI | CRB | 2 | 215,610 |
| Middletown, OH | CRB | 1 | 175,266 |
| East Angus, Québec | CRB | 1 | 99,754 |
White Pigeon, MI(a) | CRB | 1 | 34,098 |
West Monroe, LA(a) | Corrugated Medium | 1 | 60,847 |
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| Location | Product | # of Machines | 2017 Net Tons Produced |
| West Monroe, LA | CUK | 2 | 827,147 |
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| Macon, GA | CUK | 2 | 695,577 |
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| Kalamazoo, MI | CRB | 2 | 483,848 |
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| Battle Creek, MI | CRB | 2 | 210,307 |
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| Middletown, OH | CRB | 1 | 172,686 |
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Santa Clara, CA (a) | CRB | 1 | 132,124 |
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| East Angus, Québec | CRB | 1 | 93,012 |
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| West Monroe, LA | Corrugated Medium | 1 | 124,322 |
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| Mill closed December 1, 2017 and is classified as an Asset Held for Sale. |
The Company consumes most of its coated board output in its carton converting operations, which is an integral part of the customer value proposition. In 2017,2020, approximately 86%70% of combined mill productionsales of CRB, CUK and CRBSBS was consumed internally.
CUK Production. The Company is the largest of four worldwide producers of CUK. CUK is manufactured from pine-based wood fiber and is a specialized high-quality grade of coated paperboard with excellent wet and dry tear strength characteristics and printability for high resolution graphics that make it particularly well-suited for a variety of packaging applications. Both wood and recycled fibers are pulped, formed on paper machines, and clay-coated to provide an excellent printing surface for superior quality graphics and appearance characteristics.
SBS Production. The Company is one of the largest North American producers of SBS. SBS is manufactured from bleached pine and hardwood-based wood fiber and is the highest quality paperboard substrate with excellent wet and dry strength characteristics and superior printability for high-end packaging. Both wood and recycled fibers are pulped, formed on paper machines, and clay-coated to provide an excellent printing surface for superior quality graphics and appearance characteristics. SBS is also coated with polyethylene resin for wet strength liquid and food packaging end uses.
CRB Production. The Company is the largest North American producer of CRB. CRB is manufactured entirely from recycled fibers, primarily old corrugated containers (“OCC”), doubled-lined kraft cuttings from corrugated box plants (“DLK”), old newspapers (“ONP”), and box cuttings. The recycled fibers are re-pulped, formed on paper machines, and clay-coated to provide an excellent printing surface for superior quality graphics and appearance characteristics.
Corrugated Medium.The Company manufacturesexited its corrugated medium for internal use and saleproduction in the open market. Corrugated medium is combined with linerboard to make corrugated containers.June of 2020.
The Company converts CRB, CUK and CRB,SBS, as well as other grades of paperboard, into cartons and containers at converting plants the Company operates in various locations globally, including a converting plant associated with the Company's joint venture in Japan, contract converters and at licensees outside the U.S. The converting plants print, cut, fold and glue paperboard into cartons and containers designed to meet customer specifications.
Joint Venture
The Company, through its GPIL subsidiary, is a party to a Japanese joint venture, Rengo Riverwood Packaging, Ltd. (in Japan), in which it holds a 50% ownership interest. The joint venture agreement covers CUK supply, use of proprietary carton designs and marketing and distribution of packaging systems.
Sales and DistributionMarketing
The Company markets its products principally to multinational beverage, food, QSR, and other well-recognized consumer product companies. The beverage companies include Anheuser-Busch, Inc., MillerCoors LLC, PepsiCo, Inc. and The Coca-Cola Company, among others. Consumer product customers include Kraft Heinz Company, General Mills, Inc., Nestlé USA, Inc., Kellogg Company, HAVI Global Solutions, LLC and Kimberly-Clark Corporation, among others. QSR customers include McDonald's, Wendy's, Panda Express, Dairy Queen, Chipotle, Panera and KFC, among others. The Company also sells paperboard in the open market to independent and integrated paperboard converters.
DistributionSales of the Company’s principal products is primarily accomplished through sales offices in the U.S., Australia, Brazil, China, France, Germany, Italy, Japan, Mexico, Spain, the Netherlands and the United Kingdom, and, to a lesser degree, through broker arrangements with third parties.
During 2017,2020, 2019 and 2018, the Company did not have any one customer that represented 10% or more of its net sales.
Competition
Although a relatively small number of large competitors hold a significant portion of the paperboard packaging market, the Company’s business is subject to strong competition. The Company and WestRock Company ("WestRock") are the two major CUK producers in the U.S. Internationally, The Klabin Company in Brazil and Stora Enso in Sweden produce similar grades of paperboard.
In non-beverage consumer packaging and foodservice, the Company’s paperboard competes with WestRock's CUK, as well as CRB and SBS from numerous competitors, and, internationally, folding boxboard and white-lined chip. There are a large number of producers in the paperboard markets. Suppliers of paperboard compete primarily on the basis of price, strength and printability of their paperboard, quality and service.
In beverage packaging, cartons made from CUK compete with substitutes such as plastics and corrugated packaging for packaging glass or plastic bottles, cans and other primary containers. Although plastics and corrugated packaging may be priced lower than CUK, the Company believes that cartons made from CUK offer advantages over these materials in areas such as distribution, brand awareness, carton designs, package performance, package line speed, environmental friendlinesssustainability (particularly recyclability) and design flexibility.
In non-beverage consumer packaging, the Company’s paperboard competes with WestRock CUK, as well as CRB and solid bleach sulfate ("SBS") from numerous competitors, and internationally, folding boxboard and white-lined chip. There are a large number of producers in the paperboard markets. Suppliers of paperboard compete primarily on the basis of price, strength and printability of their paperboard, quality and service.
Raw Materials
The paperboard packaging produced by the Company comes from pine and hardwood trees and recycled fibers. Pine pulpwood, hardwood pulp, paper and recycled fibers (including DLK, OCC and ONP) and energy used in the manufacture of paperboard, as well as poly sheeting, plastic resins and various chemicals used in the coating of paperboard, represent the largest components of the Company’s variable costs of paperboard production.
For the West Monroe, LA, Macon, GA, Texarkana, TX, and Macon,Augusta, GA mills, the Company relies on private landowners and the open market for all of its pine pulpwoodand hardwood pulp and recycled fiber requirements, supplemented by CUK clippings that are obtained from its converting operations. The Company believes that adequate supplies from both private landowners and open market fiber sellers currently are available in close proximity to meet its fiber needs at these mills.
The paperboard grades produced at the Kalamazoo, MI, Battle Creek, MI, Middletown, OH, and East Angus, Quebec and White Pigeon, MI mills are made from 100% recycled fiber. The Company procures its recycled fiber from external suppliers and internal converting operations. The market price of each of the various recycled fiber grades fluctuates with supply and demand. The Company’s internal recycled fiber procurement function enables the Company to pay lower prices for its recycled fiber needs given the Company’s highly fragmented supplier base. The Company believes there are adequate supplies of recycled fiber to serve its mills.
In North America, the Company also converts a variety of other paperboard grades, such as SBS, in addition to paperboard that is supplied to its converting operations from its own mills. The Company purchases such paperboard requirements, including additional CRB and SBS, from outside vendors. The majority of external paperboard purchases are acquired through long-term arrangements with other major industry suppliers. The Company's European converting plants consume CUK supplied from the Company's mills and also convert other paperboard grades such as white-lined chip and folding box board purchased from external suppliers.
Energy
Energy, including natural gas, fuel, oil and electricity, represents a significant portion of the Company’s manufacturing and distribution costs. The Company has entered into contracts designed to manage risks associated with future variability in cash flows and price risk related to future energy cost increases for a portion of its natural gas requirements at its U.S. mills. The Company’s hedging program for natural gas is discussed in Note 910 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
Backlog
Orders from the Company’s principal customers are manufactured and shipped with minimal lead time. The Company did not have a material amount relating to backlog orders at December 31, 2017 or 2016.
Seasonality
The Company’s net sales, income from operations and cash flows from operations are subject to moderate seasonality, with demand usually increasing in the late spring through early fall due to increases in demand for beverage and food products.
Research and Development
The Company’s research and development team works directly with its sales, marketing and consumer insights personnel to understand long-term consumer and retailer trends and create relevant new packaging. These innovative solutions provide customers with differentiated packaging to meet customer needs. The Company’s development efforts include, but are not limited to, developing sustainable packaging to replace plastic packaging, extending the shelf life of customers’ products; reducing production and waste costs; enhancing the heat-managing characteristics of food packaging; improving the sturdiness and compression strength of packaging to allow goods to ship in their own branded container and to meet store display needs; and refining packaging appearance through new printing techniques and materials.
Sustainability represents one of the strongest trends in the packaging industry and the Company focuses on developing more sustainable and eco-friendly products and manufacturing processes and products.processes. The Company’s strategy is to combine sustainability with innovation to create new packaging solutions for its customers.
For more information on research and development expenses see Note 1 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
Patents and Trademarks
As of December 31, 2017,2020, the Company had a large patent portfolio, presently owning, controlling or holding rights to more than 2,2002,400 U.S. and foreign patents, with more than 600500 U.S. and foreign patent applications currently pending. The Company’s patent portfolio consists primarily of patents relating to packaging machinery, manufacturing methods, structural carton designs, active microwave packaging technology and barrier protection packaging. These patents and processes are significant to the Company’s operations and are supported by trademarks such as Fridge Vendor™, IntegraPak™, KeelClip™, MicroFlex-Q™, MicroRite™, Quilt Wave™, Qwik Crisp™, Tite-Pak™, and Z-Flute™. The Company takes significant steps to protect its intellectual property and proprietary rights.
CultureHuman Capital
We believe that the Company’s greatest asset is our workforce. Solving day-to-day operational and Employeesbusiness challenges in order to drive positive results for stakeholders requires attracting, developing, and retaining talented individuals with different skills, ideas, and experiences. Our Vision 2025 outlines how we will be better stewards of our planet, supporters of our people, and allies to our partners, all while generating returns for our stakeholders. Our employees play a crucial role in achieving our Vision 2025 and are guided by our shared values and growth behaviors.
The Company’s corporate vision — Inspired packaging. A worldOur people are one of difference. —the pillars of our Vision 2025 and values of integrity, respect, accountability, relationships and teamwork guide employee behavior, expectations and relations. The Company’s ongoing effortswe strive to buildengage employees in a high-performance cultureculture. In order to achieve this, we must attract, develop, and improveretain our talented workforce by providing opportunities for growth and a conducive atmosphere. Our talent acquisition, development, succession and diversity and inclusion strategies are all critical components of the mannermulti-year plan for our people. We will continue to invest in which work is done acrosscapability development areas that serve as a competitive advantage for the Company includessuch as GPI University, which is launching in 2021 and will serve as a significant focusplatform for all employees to access relevant training and development resources on continuous improvementtopics related to technical skills and leadership effectiveness. Also, central to capability development and talent management is challenging our team with new experiences that will enhance their leadership skills and technical capabilities. We will also continuously improve our processes and use technology to promote safety, automate our manufacturing processes, and achieve greater efficiencies utilizing processes likesuch as Lean Sigma and Six Sigma.
We are evolving the capabilities of our workforce as our business and strategy change. We have invested in innovation, research and development, and digital capabilities to allow us to capture sustainability supported organic growth. As our business continues to change, we will adapt our workforce to ensure that we have the necessary human capital capabilities in place to support our strategy.
As of December 31, 2017,2020, the Company had approximately 13,00018,775 employees worldwide based in over 90 locations in 15 different countries around the world. Approximately 77% of whichour employees are in the United States and 14% are in Europe. Worldwide, approximately 45%41% were represented by labor unions and covered by collective bargaining agreements or covered by works councils in Europe. As of December 31, 2017, 3992020, none of the Company’s employees were working under expired contracts, which are currently being negotiated, and 1,6022,462 were covered under collective bargaining agreements that expire within one year. The Company considers its employee relations to be satisfactory.
Environmental MattersEmployee Health and Safety
Maintaining a safe work environment is vital to the Company, and we are committed to the health, safety and wellness of our employees. Our Recorded Incident Rate, which is the rate of workplace injuries per 100 full-time employees, is approximately 1%, and we work to maintain a safety performance rating that outperforms the industry average. We seek to achieve an injury-free workplace through various safety initiatives and programs.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, while continuing to service our customers. We quickly implemented remote working, enhanced safety measures for employees continuing critical, on-site work at our facilities such as walk-through temperature scanners, plexiglass barriers between employees, and other methods of encouraging social distancing, and paid employees during necessary quarantines due to COVID-19. We will continue to monitor local COVID-19 conditions and adjust our practices to ensure the health and safety of our employees. We also demonstrated our commitment to our employees and our communities though one-time aggregate payments of $5.0 million to front-line production employees and contributions of $0.5 million to local food banks in the communities where our manufacturing operations are located.
Diversity and Inclusion
We believe that a diverse and inclusive working environment encourages creativity, innovation, and collaboration and that a diverse and inclusive culture propels our ability to serve our global customers and communities. Our commitment to diversity and inclusion is reflected in the definitions of our core values, which dictate behavioral norms. The Compensation and Management Development Committee of our Board of Directors annually reviews the processes and practices related to workforce diversity and inclusion programs to ensure continued equitable treatment of all employees and a culture of inclusion. Our goal moving forward is to not only mirror the diversity of the communities where we operate, but also to excel in unlocking the potential that a diverse workforce can generate.
Community Engagement
Building connections between our employees, their families, and our communities creates a more meaningful, fulfilling and enjoyable workplace. Our employees around the world dedicate their time and talents to improve the communities in which we live and work. Driven by our core values, making a difference for our customers, our consumers, and our community is at the root of our community engagement strategy. The Company focuses on three pillars that guide the strategy for our community service activities and philanthropic commitments: (1) putting food on the table, (2) preserving the environment, and (3) investing in education.
Governmental Regulations
The Company is subject to a broad range of foreign, federal, state and local environmental, andemployee health and safety, and other governmental regulations and employs a team of professionals in order to maintain compliance at each of its facilities. In 2020, the Company spent approximately $8.2 million of capital on projects to maintain compliance with environmental laws, regulations and the Company’s permits granted thereunder. In 2021, 2022, and 2023, the Company estimates it will spend approximately $10 million, $27 million and $20 million, respectively, for such projects, primarily the waste water treatment system upgrades at the Augusta, Georgia and Texarkana, Texas mills. For additional information on such regulation and compliance, see “Environmental Matters” in “Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1314 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
The Company did not have material capital expenditures for environmental control or compliance in 2017.
Available Information
The Company’s website is located at http://www.graphicpkg.com. The Company makes available, free of charge through its website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such materials are electronically filed or furnished to the Securities and Exchange Commission (the “SEC”). The Company also makes certain investor presentations and access to analyst conference calls, as well as certain environmental, social, and governance information available through its website. The information contained or incorporated into the Company’s website is not a part of this Annual Report on Form 10-K.
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers like the Company that file electronically with the SEC at http://www.SEC.gov.
ITEM 1A. RISK FACTORS
The following risks could affect (and in some cases have affected) the Company's actual results and could cause such results to differ materially from current estimates or expectations reflectedexpectations:
Industry Risks
Changes in certain forward-looking statements:consumer buying habits and preferences for products could have an effect on our sales volumes.
Changing consumer dietary habits and preferences have impacted sales growth for many of the food and beverage products the Company packages. Preferences are constantly changing based on, among other factors, convenience, cost and health considerations, as well as environmental and social concerns and perceptions. If these trends continue and the Company is unable to adapt to the trends, then the Company’s financial results could be adversely affected.
The Company's financial results could be adversely impacted if there are significant increases in prices for raw materials, energy, transportation and othernecessary supplies, and the Company is unable to raise prices, or improve productivity to reduce costs.
Limitations on the availability of, and increases in, the costs of raw materials, including secondary fiber, petroleum-based materials, energy, wood, transportation and other necessary goods and services, could have an adverse effect on the Company's financial results. Because negotiated sales contracts and the market largely determine the pricing for its products, the Company is at times limited in its ability to raise prices and pass through to its customers any inflationary or other cost increases that the Company may incur.
The Company uses productivity improvements to reduce costs and offset inflation. These include global continuous improvement initiatives that use statistical process control to help design and manage many types of activities, including production and maintenance. The Company's ability to realize anticipated savings from these improvements is subject to significant operational, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. If the Company cannot successfully implement cost savings plans, it may not be able to continue to compete successfully against other manufacturers. In addition, any failure to generate the anticipated efficiencies and savings could adversely affect the Company's financial results.
Changes in consumer buying habits and preferences for products could have an effect on our sales volumes.
Changing consumer dietary habits and preferences have slowed sales growth for many of the food and beverage products the Company packages. If these trends continue, the Company’s financial results could be adversely affected.
Competition and product substitution could have an adverse effect on the Company's financial results.
The Company competes with other paperboard manufacturers and carton converters, both domestically and internationally. The Company's products compete with those made from other manufacturers' CUK, board, as well as SBS and CRB, and other board substrates. Substitute products include plastic, shrink film and corrugated containers. In addition, while the Company has long-term relationships with many of its customers, the underlying contracts may be re-bid or renegotiated from time to time, and the Company may not be successful in renewing such contracts on favorable terms or at all. The Company works to maintain market share through efficiency, product innovations and strategic sourcing to its customers; however, pricing and other competitive pressures may occasionally result in the loss of a customer relationship.
Operational Risks
The Company’s financial results could be adversely impacted by global events outside the Company’s control, such as the current COVID-19 pandemic.
As a result of global events such as the current COVID-19 pandemic, there could be unpredictable disruptions to the Company’s operations that could reduce its future revenues and negatively impact the Company’s financial condition. The COVID-19 pandemic may result in supply chain and transportation disruptions to and from our facilities and affected employees could impact the Company’s ability to operate its facilities and distribute products to its customers in a timely fashion. In addition, the COVID-19 pandemic has resulted in extreme volatility and disruptions in the capital and credit markets as well as widespread furloughs and layoffs for workers in the broader economy. This volatility and loss of employment may negatively impact consumer buying habits, which could adversely affect the Company’s financial results.
The Company's future growth and financial results could be adversely impacted if the Company is unable to identify strategic acquisitions and to successfully integrate the acquired businesses.
The Company has made a significant number of acquisitions in recent years.years, including the NACP Combination, and expects to make additional strategic acquisitions in the future as part of its overall growth strategy. The Company's ability to continue to make strategic acquisitions from time to time and to integrate the acquired businesses successfully, including obtaining anticipated cost savings or synergies and expected operating results within a reasonable period of time, is an important factor in the Company's future growth. If the Company is unable to properly estimate, account for and realize the expected revenue and cash flow growth and other benefits from its acquisitions, the Company may be required to spend additional time or money on integration efforts that would otherwise have been spent on the development and expansion of its business.
The Company's ability to realize the anticipated benefits from the Consumer Packaging Combination will depend, to a large extent, on its ability to integrate the businesses of legacy GPI and IP. The combination of two independent businesses is a complex, costly and time-consuming process and there can be no assurance that the Company will be able to successfully integrate the businesses, or if such integration is successfully accomplished, that such integration will not be more costly or take longer than presently contemplated. In addition, the Company's ability to realize the expected synergies and benefits from the
combined business is dependent upon the ability to complete the timely integration of operations andCompany’s information technology systems controls, procedurescould suffer interruptions, failures or breaches and policies and to preserve important customer and supplier relationships during the transition. If the Company cannot successfully integrate and manage the combinedour business and achieve the anticipated benefits from the combined business, the combinationoperations could have a material adverse effect on the Company's share price, business, cash flows,be disrupted, adversely affecting results of operations and financial position.the Company’s reputation.
The Company’s information technology systems, some of which are dependent on services provided by third parties, serve an important role in the operation of the business. These systems could be damaged or cease to function properly due to any number of causes, such as catastrophic events, power outages, security breaches, computer viruses or cyber-based attacks. The Company has contingency plans in place to prevent or mitigate the impact of these events, however, if they are not effective on a timely basis, business interruptions could occur which may adversely impact results of operations.
The Company has been, and likely will continue to be, subject to computer hacking, acts of vandalism or theft, malware, ransomware, computer viruses or other malicious codes, phishing, employee error or malfeasance, catastrophes, unforeseen events or other cyber-attacks. To date, the Company has seen no material impact on our business or operations from these attacks or events. Any future significant compromise or breach of data security, whether external or internal, or misuse of customer, associate, supplier or Company data, could result in significant costs, interrupted operations, lost sales, fines, lawsuits, and damage to the Company's reputation. However, the ever-evolving threats mean the Company and its third-party service providers and vendors must continually evaluate and adapt their respective systems and processes and overall security environment, as well as those of any companies acquired. There is relying on IPno guarantee that these measures will be adequate to provide a wide rangesafeguard against all data security breaches, system compromises or misuses of services requireddata. In addition, the regulatory environment related to operateinformation security, data collection and use, and privacy is becoming increasingly rigorous, with new and constantly changing requirements applicable to the combinedCompany's business. Compliance with such requirements could also result in additional costs.
The Company could experience material disruptions at our facilities or increases in the cost of insurance.
Although the Company takes appropriate measures to minimize the risk and effect of material disruptions to the business under a Transition Services Agreement ("TSA")conducted at our facilities, natural disasters such as earthquakes, hurricanes, tornadoes, floods and fires, as well as other unexpected disruptions such reliance may continue for an extended period.
Duringas the integrationunavailability of critical raw materials, power outages and equipment breakdowns or failures can reduce production and increase manufacturing costs. These types of disruptions, whether caused by climate change or other events, could materially adversely affect our earnings, depending upon the duration of the Consumer Packaging Combination, the Company will be dependent on IPdisruption and our ability to continueshift business to perform elementsother facilities or find other sources of such critical functions as information technology, finance, logistics and operations for parts of the IP business under a TSA. Operating under a TSA exposes the Companymaterials or energy. Any losses due to risks that the costs of operating the combined business may be greater than planned, that the services provided will not meet the requirements in an effective manner and that the Companythese events may not be ablecovered by our existing insurance policies and insurance coverage may be subject to maintain appropriate controls while operating undercertain deductibles. The premiums for insurance coverage have recently increased and may continue to increase, along with the TSA.level of deductibles. In addition, if the Company cannot integrate systemsavailability of some insurance coverage may decline due to insurance company losses from extensive property damage caused by natural disasters and operations,increased cyber security breaches. In addition, given the Company may needCompany's integrated supply chain, managing board supply and properly planning for mill outages and downtime must be integrated with the converting plants forecast. Any inability to operate underdo so could adversely affect the TSA for longer than expected.Company's financial results.
The Company may not be able to develop and introduce new products and adequately protect its intellectual property andproprietary rights, which could harm its future success and competitive position.
The Company works to increase market share and profitability through product innovation and the introduction of new products. The inability to develop new or better products that satisfy customer and consumer preferences in a timely manner may impact the Company's competitive position.
The Company's future success and competitive position also depends, in part, upon its ability to obtain and maintain protection for certain proprietary carton and packaging machine technologies used in its value-added products, particularly those incorporating the Fridge Vendor, IntegraPak, KeelClip, MicroFlex-Q, MicroRite, Quilt Wave, Qwik Crisp, Tite-Pak, and Z-Flute technologies. Failure to protect the Company's existing intellectual property rights may result in the loss of valuable technologies or may require it to license other companies' intellectual property rights. It is possible that any of the patents owned by the Company may be invalidated, rendered unenforceable, circumvented, challenged or licensed to others or any of its pending or future patent applications may not be issued within the scope of the claims sought by the Company, if at all. Further, others may develop technologies that are similar or superior to the Company's technologies, duplicate its technologies or design around its patents, and steps taken by the Company to protect its technologies may not prevent misappropriation of such technologies.
The Company's capital spending may not achieve the desired benefits, which could adversely impact future financial results.
The Company could experience material disruptions at our facilities.
Althoughinvests significant amounts of cash on capital projects each year which have expected returns to the Company. The Company's ability to execute on these projects in order to achieve planned outcomes, including obtaining expected returns and strategic long-term goals within a reasonable period of time, is an important factor in the Company's financial results and commitments to the market. As these investments start up, the Company takes appropriate measuresmay experience unanticipated business disruptions and not achieve the desired benefits or timelines. In addition, the Company's acquisitions may require more capital than expected to minimize the riskachieve synergies or expected operating results. Additional spending and effect of material disruptions to the business conducted at our facilities, natural disasters such as hurricanes, tornadoes, floods and fires, as well as other unexpected disruptions such as the unavailability of critical raw materials, power outages and equipment failures can reduce production and increase manufacturing costs. These types of disruptions could materiallyunachieved benefits may adversely affect our earnings, depending upon the durationCompany's cash flow and results of the disruption and ouroperations.
The Company may face a shortage of a skilled workforce at its facilities.
The Company's ability to shiftmaintain or expand its business depends on attracting, training and retaining a skilled workforce. Changing demographics and workforce trends may result in a loss of knowledge and skills as experienced workers retire. Failure to other facilitiesattract and retain a skilled workforce may result in operational inefficiencies or find other sources of materials or energy. Any losses duerequire additional capital investments to these eventsreduce reliance on labor, which may not be covered by our existing insurance policies or may be subject to certain deductibles.adversely impact the Company's results.
The Company is subject to the risks of doing business in foreign countries.
The Company has converting plants and one paper mill in 11 countries outside of the U.S. and sells its products worldwide. For 2017,2020, before intercompany eliminations, net sales from operations outside of the U.S. represented approximately 17%21% of the Company’s net sales. The Company’s revenues from foreign sales fluctuate with changes in foreign currency exchange rates. The Company pursues a currency hedging program in order to reduce the impact of foreign currency exchange fluctuations on financial results. AtIn addition, at December 31, 2017,2020, approximately 22%16% of itsthe Company's total assets were denominated in currencies other than the U.S. dollar.
The Company is also subject to the following significant risks associated with operating in foreign countries:
•Compliance with and enforcement of environmental, health and safety and labor laws and other regulations of the foreign countries in which the Company operates;
•Export compliance;
•Imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries; and
•Imposition of new or increases in capital investment requirements and other financing requirements by foreign governments.
The Company’s information technology systemsIn addition to these general risks, uncertainties surrounding the United Kingdom’s withdrawal from the European Union (commonly referred to as “Brexit”) could suffer interruptions, failures or breaches andadversely affect our U.K. business, operations could be disrupted adversely effecting results of operations and the Company’s reputation.
The Company’s information technology systems, some of which are dependent on services provided by third parties, serve an important role in the operation of the business. These systems could be damaged or cease to function properly due to any number of causes, such as catastrophic events, power outages, security breaches, computer viruses or cyber-based attacks. The Company has contingency plans in place to prevent or mitigate the impact of these events, however, if they are not effective on a timely basis, business interruptions could occur which may adversely impact results of operations.
Increased cyber-security threats also pose a potential risk to the security of the Company’s information technology systems, as well as the confidentiality, integrity and availability of data stored on those systems. Any breach could result in disclosure or misuse of confidential or proprietary information, including sensitive customer, vendor, employee or financial information. Such events could cause damage to the Company’s reputation and result in significant recovery or remediation costs, which may adversely impact results of operations.
The Company is subject to environmental, health and safety laws and regulations, andcosts to comply with such laws and regulations, or any liability or obligationimposed under new laws or regulations, could negatively impact its financialcondition and results of operations.
The Company is subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those governing discharges to air, soil and water, the management, treatment and disposal of hazardous substances, the investigation and remediation of contamination resulting from releases of hazardous substances, and the health and safety of employees. The Company cannot currently assess the impact that future emission standards, climate control initiatives and enforcement practices will have onpotentially the Company's operationsrelationships with customers, suppliers and capital expenditure requirements. Environmental liabilities and obligations may result in significant costs, which could negatively impact the Company's financial position, results of operations or cash flows. See Note 13 in the Notes to Consolidated employees.
Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”Risks
The Company's indebtedness may adversely affect its financial condition and itsability to react to changes inits business.
As of December 31, 2017,2020, the Company had an aggregate principal amount of $2,287.0$3,666.6 million of outstanding debt. Subsequent to December 31, 2017, in connection with the consummation of the Consumer Packaging Combination, GPI entered into a Third Amended and Restated Credit Agreement dated as of January 1, 2018 (the “Amended and Restated Credit Agreement”). There were no additional borrowings under the Amended and Restated Credit Agreement in connection with the consummation of the Consumer Packaging Combination. However, GPI entered into an Amended and Restated Credit Agreement dated as of January 1, 2018 and effective as of January 8, 2018 (the “Term Loan Credit Agreement”) by which GPI assumed a $660.0 million term loan previously incurred by IP. See Note 19 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
Because of the Company's debt level, a portion of its cash flows from operations areis dedicated to payments on indebtedness and the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be restricted in the future.
Additionally, the Company’s Third Amended and Restated Credit Agreement Term Loan(as amended by the Incremental Facility Amendment) and the Amended and Restated Credit Agreement (collectively, the “Current Credit Agreement”) and the indentures governing the 4.75% Senior Notes due 2021 (redeemed January 2021), 4.875% Senior Notes due 2022, and 4.125% Senior Notes due 2024, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028 and 3.50% Senior Notes due 2029 (the “Indentures”) may prohibit or restrict, among other things, the disposal of assets, the incurrence of additional indebtedness (including guarantees), the incurrence of liens, payment of dividends, share repurchases, the making of acquisitions and other investments and certain other types of transactions. These restrictions could limit the Company’s flexibility to respond to changing market conditions and competitive pressures. The debt obligations and restrictions may also leave the Company more vulnerable to a downturn in general economic conditions or its business, or unable to carry out capital expenditures that are necessary or important to its growth strategy and productivity improvement programs.
As of December 31, 2017,2020, approximately 45%35% of the Company’s debt is subject to variable rates of interest and exposes the Company to increased debt service obligations in the event of increased market interest rates.
The Company's pension plans are currently underfunded,
Legal and the Company may be required to make cash payments to the plans, reducing the cash available for its business.Regulatory Risks
The Company's cash flows may be adversely impacted by the Company's pension funding obligations. The Company's pension funding obligations are dependent upon multiple factors resulting from actual plan experience and assumptions of future experience. The Company has unfunded obligations of $26.4 millionis subject to environmental, health and safety laws and regulations, andcosts to comply with such laws and regulations, or any liability or obligationimposed under its domestic and foreign defined benefit pension plans. The funded status of these plans is dependent upon various factors, including returns on invested assets, the level of certain market interest rates and the discount rate used to determine the pension obligations. Unfavorable returns on the plan assets or unfavorable changes in applicablenew laws or regulations, could materially changenegatively impact its financialcondition and results of operations.
The Company is subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those governing discharges to air, soil and water, the timingmanagement, treatment and amountdisposal of required plan funding,hazardous substances, the investigation and remediation of contamination resulting from releases of hazardous substances, recycling of packaging, and the health and safety of employees. The Company cannot currently assess the impact that future emission standards, climate control initiatives, regulation changes and enforcement practices will have on the Company's operations and capital expenditure requirements. Environmental liabilities and obligations may result in significant costs, which would reducecould negatively impact the Company's financial position, results of operations or cash availableflows. See Note 14 in the Notes to the Company for other purposes.Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Headquarters
The Company leases its principal executive offices in Atlanta, GA.
Operating Facilities
A listing of the principal properties owned or leased and operated by the Company is set forth below. The Company’s buildings are adequate and suitable for the business of the Company and have sufficient capacity to meet current requirements. The Company also leases certain smaller facilities, warehouses and office space throughout the U.S. and in foreign countries from time to time.
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| | | | |
| Location | Related Products or Use of Facility |
| Mills: | |
| Augusta, GA | SBS |
| Battle Creek, MI | CRB |
| East Angus, Québec | CRB |
| Kalamazoo, MI | CRB |
| Macon, GA | CUK |
| Middletown, OH | CRB |
Santa Clara, CA(a)
Texarkana, TX | CRBSBS |
| West Monroe, LA | CUK; Corrugated Medium;Medium(a); Research and Development |
White Pigeon, MI(a) | CRB |
| |
| Other: | |
Atlanta, GA(b) | Headquarters, Research and Development, Packaging Machinery and Design |
Concord, NH(b) | Research and Development, Design Center |
| Crosby, MN | Packaging Machinery Engineering, Design and Manufacturing |
Louisville, CO(b) | Research and Development |
| Menomonee Falls, WI | Foodservice Rebuild Center |
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| |
| | | | | | | | |
| | |
| | |
| North American Converting Plants: | | International Converting Plants: |
Atlanta, GA(b) | Monroe, LA(b) | Auckland, New Zealand(b) |
| Auburn, IN | Monterrey, Mexico(b) | Bremen, Germany(b) |
Burlington, NC(c) | New Albany, IN(c)(d) | Auckland, New Zealand(b)
Bristol, United Kingdom |
| Carol Stream, IL | Newton, IA | Bremen, GermanyCoalville, United Kingdom(b)
|
| Centralia, IL | North Portland, OR | Bristol,Gateshead, United Kingdom(b) |
| Charlotte, NC | Oroville, CA(b)
| Coalville, United Kingdom(b)
|
Cobourg, Ontario(b)
| Pacific, MO | Gateshead, United Kingdom(b)
|
Elk Grove, IL (b)(c)
| Perry, GAOmaha, NE | Hoogerheide, Netherlands |
Fort Smith, AR (c)Chicago, IL(b)
| Queretaro, MexicoOroville, CA(b)
| Newcastle Upon Tyne, United Kingdom(b)
|
Gordonsville, TN(b)
| Solon, OH | Igualada, Spain |
Gresham, OR(b)
Clarksville, TN | Staunton, VAPacific, MO | Jundiai, Sao Paulo, Brazil |
Hamel, MNCobourg, Ontario(b) | St.-Hyacinthe, Québec(b)
Perry, GA | Leeds, United Kingdom |
| Elgin, IL | Pineville, NC | Masnieres, France(b) |
Elk Grove, IL(b)(d) | Pittston, PA | Melbourne, Australia(b) |
Fort Smith, AR(d) | Prosperity, SC | Miliaño, Spain |
Gordonsville, TN(b) | Queretaro, Mexico(b) | Newcastle Upon Tyne, United Kingdom(b) |
| Grand Rapids, MI | Randleman, NC | Portlaoise, Ireland(b) |
Gresham, OR(b) | Shelbyville, IL | Requejada, Spain |
| Hamel, MN | Solon, OH | Sneek, Netherlands |
| Irvine, CA | Tijuana, Mexico(b)
Staunton, VA | Masnieres, FranceSydney, Australia(b)
|
| Kalamazoo, MI | Tuscaloosa, ALSt.-Hyacinthe, Québec(b) | Melbourne, AustraliaWinsford, United Kingdom (b)
|
| Kendallville, IN | Tijuana, Mexico(b) | |
| Kenton, OH | Tuscaloosa, AL | |
| Kingston Springs, TN | Valley Forge, PA | |
| Lancaster, TX | Vancouver, WA(b) | Miliaño, Spain |
| Lawrenceburg, TN | Valley Forge, PAVisalia, CA | |
Portlaoise, IrelandLebanon, TN (b)
| Wausau, WI | |
Los Angeles, CA(b)(c) | Wayne, NJ | |
| Lumberton, NC | Wayne, NJWest Monroe, LA(d) | Requejada, Spain |
| Marion, OH | Wausau, WIWinnipeg, Manitoba | Sneek, Netherlands |
Menasha, WIMississauga, Ontario(b)(d)
| West Monroe, LA (c)Xenia, OH(b)
| Sydney, Australia(b)
|
Mississauga, Ontario(b)(c)
| Xenia, OH(b)
| |
| Mitchell, SD | Winnipeg, Manitoba | |
Monterrey, Mexico(b)
| | |
Note:
|
| | | | |
(a) | Mill closed December 1, 2017 and is classified as an Asset Held for Sale.Closed in the second quarter of 2020. |
(b) | Leased facility. |
(c) | Closed in third quarter of 2020. |
| (d) | Multiple facilities in this location. |
(d)
| Facility closed during 2016 and is classified as an Asset Held for Sale. |
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of lawsuits arising in the ordinary conduct of its business. Although the timing and outcome of these lawsuits cannot be predicted with certainty, the Company does not believe that disposition of these lawsuits will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. See Note 1314 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
| |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G.(3) of Form 10-K, the following list is included as an unnumbered item in Part I of this Report in lieu of being included in the definitive proxy statement that will be filed within 120 days after December 31, 2017.2020.
Michael P. Doss51, 54, is a Director and the President and Chief Executive Officer of Graphic Packaging Holding Company. He was elected to the Board of Directors on May 20, 2015. Prior to January 1, 2016, Mr. Doss held the position of President and Chief Operating Officer from May 20, 2015 through December 31, 2015 and Chief Operating Officer from January 1, 2014 until May 19, 2015. Prior to these positions he served as the Executive Vice President, Commercial Operations of Graphic Packaging Holding Company. Prior to this Mr. Doss held the position of Senior Vice President, Consumer Packaging Division. Prior to March 10, 2008, he had served as Senior Vice President, Consumer Products Packaging of Graphic Packaging Corporation since September 2006. From July 2000 until September 2006, he was the Vice President of Operations, Universal Packaging Division. Mr. Doss was Director of Web Systems for the Universal Packaging Division prior to his promotion to Vice President of Operations. Since joining Graphic Packaging International Corporation in 1990, Mr. Doss has held positions of increasing management responsibility, including Plant Manager at the Gordonsville, TN and Wausau, WI plants.
Stephen R. Scherger, 53,56, is the SeniorExecutive Vice President and Chief Financial Officer of Graphic Packaging Holding Company. From October 1, 2014 through December 31, 2014, Mr. Scherger was the Senior Vice President, - Finance. From April 2012 through September 2014, Mr. Scherger served as Senior Vice President, Consumer Packaging Division. Mr. Scherger joined Graphic Packaging Holding Company in April of 2012 from MeadWestvaco Corporation, where he served as President, Beverage and Consumer Electronics. Mr. Scherger was with MeadWestvaco Corporation from 1986 to 2012 and held positions including Vice President, Corporate Strategy; Vice President and General Manager, Beverage Packaging; Vice President and CFO,Chief Financial Officer, Papers Group, Vice President Asia Pacific and Latin America, Beverage Packaging, CFOChief Financial Officer Beverage Packaging and other executive-level positions.
Carla J. Chaney, 47, isMichael Farrell, 54, became the Senior Vice President, Human Resources of Graphic Packaging Holding Company, a position she has held since July 15, 2013. Ms. Chaney joined Graphic Packaging Holding Company from Exide Technologies. Ms. Chaney was with Exide Technologies from February 2012 to July 2013 and served most recently as Executive Vice President, Human Resources and Communications. Prior to Exide Technologies, Ms. Chaney held a variety of leadership roles with Newell Rubbermaid, Inc. from 2004 to 2011, including Group Vice President, Human Resources for the Home & Family business segment, Regional Vice President, Human Resources, EMEA; Corporate Vice President, Global Organization and People Development; and Vice President, Human Resources, Culinary Lifestyles Business. Ms. Chaney also worked for Georgia-Pacific from 1992 to 2004.
Alan R. Nichols, 55, is the Senior Vice President, Mills Division of Graphic Packaging Holding Company. HeCompany in September 2018. Prior to that, he served as the Senior Vice President, Supply Chain from January to September 2018. Prior to January 2018, Mr. Farrell served as Vice President, Recycled Board Mills of Graphic Packaging International, LLC and its predecessor companies (“GPI”) from AugustJanuary 1, 2013; and Senior Manufacturing Manager of GPI from October 28, 2009 until December 31, 2012. From December 11, 2008 until March 2009. From March 2008 until August 2008,October 27, 2009, Mr. Nichols was Vice President, CRB Mills. Prior to the Altivity Transaction, Mr. Nichols served as Vice President, CRB Mills for Altivity Packaging, LLC from February 2007 until March 2008 andFarrell was the Division Manufacturing Manager Mills for Altivity Packagingof the West Monroe, Louisiana mill and the Consumer Products Division of Smurfit-Stone Container Corporation from August 2005 to February 2007. From February 2001September 1, 2006 until August 2005, Mr. NicholsDecember 10, 2008 he was the General Manager of the Wabash Mill for Smurfit-Stone.Middletown, Ohio mill of GPI.
Spencer H. Maurer, 48,Jean-Francois Roche, 54, is the Senior Vice President Americas Foodserviceand President, Europe, Middle East and Africa of Graphic Packaging Holding Company. Prior to December 8, 2017,assuming his current position, Mr. Maurer served as Senior Vice President, Supply Chain of Graphic Packaging Holding Company. Prior to January 1, 2017, Mr. Maurer hadRoche served as Vice President, Supply Chain of GPI since January 1, 2013.Global Accounts from October 2018 through December 2019. From April 2015 through December 1, 2009 until December 31, 2012,2019, Mr. Maurer wasRoche also served as the Vice President, Procurement of GPI.Sales, Europe, Middle East and Africa Consumer Products. Mr. Roche joined Graphic Packaging in April 2015 from LGR Packaging where he served as Chief Sales and Marketing Officer. Prior to December 2009,that Mr. Maurer held numerousRoche spent 25 years at A&R Packaging, a large Scandinavian-based multinational consumer packaging provider, working in positions withof increasing responsibility including: Plant Manager, Golden, CO from 2006 until 2009; Production Manager, Kalamazoo, MI in 2005; Directorculminating the position of Environmental Services for Commercial Operations from 2003 until 2004; DirectorSenior Vice President, Sales and Marketing. Mr. Roche also serves as the President of Environmental, Health and Safety from 1998 until 2002; and numerous positions in the Environmental, Health and Safety area with James River Corporation and Fort James Corporation (predecessors of GPI) from 1992 until 1998.European Carton Makers Association, Europe’s folding carton industry association.
Lauren S. Tashma, 51,54, is the SeniorExecutive Vice President, General Counsel and Secretary of Graphic Packaging Holding Company. She joined the Company serving in this position since February 2014. Previously, Ms. Tashma served as Senior Vice President, General Counsel and Secretary of Fortune Brands Home & Security, Inc., where she led the legal, compliance and EHS functions. Prior to that, Ms. Tashma had various roles with Fortune Brands, Inc., including Vice President and Associate General Counsel.
Hilde Van MoesekeStacey Valy Panayiotou, 47,48, is the SeniorExecutive Vice President, &Human Resources of Graphic Packaging Holding Company. She joined the Company on April 22, 2019 from The Coca-Cola Company, where she held a variety of senior Human Resources leadership roles, including Global Vice President of Talent and Development and Vice President, HR, Europe, Middle East and Africa, which consisted of Graphic Packaging Holding Company. From January 2017over 120 countries. Prior to July 1, 2017,her global talent position, Ms. Van MoesekePanayiotou served as Vice President Finance Europeof Talent and Interim EMEA Leader of GPI. From July 2015 until January 2017, Ms. Van MoesekeDevelopment, Organizational Effectiveness and Diversity and Inclusion and Learning for the Coca-Cola North America Group. Prior to that, she was the Vice President Finance Europe of GPI. Ms. Van Moeseke joined the Company in January 2014 as Director Controlling and was promoted to Director, Finance Europe in July 2014. Prior to January 2014, Ms. Van Moeseke held the position of Group Controller, Project Management, Shared Service Center and Accounting at Azelis Corporate Services S.A. for two years. She has also workedHR for the Walt DisneyWest business unit of Coca-Cola Enterprises, Inc. (CCE) and worked in corporate HR with The Coca-Cola Company. She also led the organization development function for Pactiv Corporation. Ms. Panayiotou was with The Coca-Cola Company in Europe for six years in the positionsfrom February 2006 through April 2019.
Joseph P. Yost, 50,53, is the SeniorExecutive Vice President, and President, Americas of Graphic Packaging Holding Company. Prior to January 5, 2017, Mr. Yost served as Senior Vice President, Global Beverage and Europe from September 1, 2015 to January 4, 2017, Senior Vice President, Europe from March 1, 2014 to August 31, 2015 and Senior Vice President, European Chief Integration Officer/Chief Financial Officer from February 2013 until February 2014. From 2009 until February 2013, Mr. Yost was the Senior Vice President, Supply Chain of Graphic Packaging Holding Company. From 2006 to 2009, he served as Vice President, Operations Support – Consumer Packaging for GPI.Graphic Packaging International, Inc. Mr. Yost has also served in the following positions: Director, Finance and Centralized Services from 2003 to 2006 with GPIGraphic Packaging International, Inc. and from 2000 to 2003 with Graphic Packaging Corporation; Manager, Operations Planning and Analysis – Consumer Products Division from 1999 to 2000 with Graphic Packaging Corporation; and other management positions from 1997 to 1999 with Fort James Corporation.
PART II
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ITEM 5. | ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
GPHC’s common stock (together with the associated stock purchase rights) is traded on the New York Stock Exchange under the symbol “GPK.” The historical range of the high
During 2020 and low sales price per share and dividend per share declared in each quarter of 2017 and 2016 are as follows:
|
| | | | | | | | | | | |
| | Common Stock Market Price | | |
| High | | Low | | Dividends Declared |
| 2017 | | | | | |
| First Quarter | $ | 13.85 |
| | $ | 12.00 |
| | $ | 0.075 |
|
| Second Quarter | 14.18 |
| | 12.68 |
| | 0.075 |
|
| Third Quarter | 13.98 |
| | 12.65 |
| | 0.075 |
|
| Fourth Quarter | 15.85 |
| | 13.94 |
| | 0.075 |
|
| 2016 | | | | | |
| First Quarter | $ | 13.36 |
| | $ | 10.71 |
| | $ | 0.050 |
|
| Second Quarter | 13.71 |
| | 11.95 |
| | 0.050 |
|
| Third Quarter | 14.70 |
| | 12.19 |
| | 0.050 |
|
| Fourth Quarter | 14.09 |
| | 12.24 |
| | 0.075 |
|
During 2017 and 2016, the Company2019, GPHC paid cash dividends of $93.4$84.7 million and $64.4$88.7 million, respectively.
GPHC depends on GPI for cash to pay dividends. Unless GPHC receives dividends, distributions or transfers from its subsidiaries, it cannot pay cash dividends on its common stock, because it has no independent operations. Such dividends, distributions or transfers from GPHC’s subsidiaries may be restricted because the terms of the GPI’s debt agreements and indentures limit its ability to make such payments to the Company. See "Item 1A-Risk Factors" and Note - 5 in the Notes to Consolidated Financial Statements in "Item 8-Financial Statements and Supplementary Data."
On January 10, 2017,28, 2019, the Company's board of directors authorized an additional share repurchase program to allow the Company to purchase up to $250$500 million of the Company's issued and outstanding shares of common stock through open market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2017"2019 share repurchase program"). The originalprevious $250
million share repurchase program was authorized on February 4, 2015January 10, 2017 (the "2015"2017 share repurchase program"). During 2017,
The following presents GPHC's share repurchases for the Company repurchased approximately 4.5 million shares, at a price of approximately $58 million, at an average price of $13.08, including 1.4 millionyears ended December 31, 2020, 2019, and 2018:
| | | | | | | | | | | | | | | |
| | | | | |
| Amount repurchased in millions | Amount Repurchased | Number of Shares Repurchased | | Average Price | |
| 2020 | $ | 315.6 | | 23,420,010 | | | $ | 13.48 | | |
| 2019 | $ | 127.9 | | 10,191,257 | | (a) | $ | 12.55 | | |
| 2018 | $ | 120.0 | | 10,566,144 | | | $ | 11.35 | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(a) Includes 7,400,171 shares repurchased under the 20152017 share repurchase program, which completedthereby completing that program. During 2016, the Company repurchased approximately 13.2 million shares, or approximately $169 million, under the 2015 share repurchase program at an average price of $12.77.
On February 5, 2018, there were 1,328 stockholders of record and approximately 26,400 beneficial holders of GPHC’s common stock.
During the fourth quarter of 2017,2020, pursuant to the Company did not2019 share repurchase anyprogram, GPHC purchased shares of its common stock. Asstock as follows:
Issuer Purchases of December 31, 2017, 22.3 million shares had been repurchased as part of the share repurchase programs described above. The maximum number of shares that may be purchased under the 2017 share repurchase program in the future is 13.6 million basedEquity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period (2020) | | Total Number
of Shares
Purchased | | Average
Price Paid
Per Share | | Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs | | Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Program (a) |
| October 1, through October 31, | | 3,114,123 | | | $ | 14.10 | | | 65,057,961 | | | 12,538,057 |
| November 1, through November 30, | | 1,409,349 | | | $ | 14.24 | | | 66,467,310 | | | 9,564,954 |
| December 1, through December 31, | | — | | | $ | — | | | 66,467,310 | | | 8,650,242 |
| Total | | 4,523,472 | | | | | | | |
(a) Based on the closing price of the Company'sGPHC's common stock as of December 29, 2017.the end of each period.
There2020
On March 6, 2020, GPIL completed a private offering of $450 million aggregate principal amount of its 3.50% senior unsecured notes due 2028 (the "2028 Senior Notes"). The 2028 Senior Notes were no sales of unregistered securitiessold in a private placement in reliance on Rule 144A and Regulation S under the Securities Exchange Act, as amended. The offering was completed pursuant to a purchase agreement between the Company, GPIL and Field Container Queretaro (USA), L.L.C. and BofA Securities, Inc. as representative of the initial purchasers. The Company during 2017.received net proceeds of the offering of approximately $443 million, after deducting the initial purchasers' discount and other transaction costs. The net proceeds of the offering were used to repay a portion of the outstanding borrowings under GPIL's revolving credit facility under its senior secured credit facility.
On August 28, 2020, GPIL completed a private offering of $350 million aggregate principal amount of its 3.50% senior unsecured notes due 2029 (the "2029 Senior Notes"). The 2029 Senior Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Exchange Act, as amended. The offering was completed pursuant to a purchase agreement between the Company, GPIL and Field Container Queretaro (USA), L.L.C. and BofA Securities, Inc. as representative of the initial purchasers. The Company received net proceeds of the offering of approximately $345 million, after deducting the initial purchasers' discount and other transaction costs. The net proceeds of the offering were used to repay a portion of the outstanding borrowings under GPIL's revolving credit facility under its senior secured credit facility.
2019
On June 25, 2019, GPIL completed a private offering of $300 million aggregate principal amount of its 4.75% senior unsecured notes due 2027 (the "2027 Senior Notes"). The 2027 Senior Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Exchange Act, as amended. The offering was completed pursuant to a purchase agreement between the Company, GPIL and Field Container Queretaro (USA), L.L.C. and BofA Securities, Inc. as representative of the initial purchasers. The Company received net proceeds of the offering of approximately $295 million, after deducting the initial purchasers' discount and other transaction costs. The net proceeds of the offering were used to repay a portion of the outstanding borrowings under GPIL's revolving credit facility under its senior secured credit facility.
On February 2, 2021, there were approximately 1,055 stockholders of record and approximately 36,517 beneficial holders of GPHC's common stock.
Total Return to Stockholders
The following graph compares the total returns (assuming reinvestment of dividends) of the common stock of theGraphic Packaging Holding Company, the Standard & Poor’s (“S&P”) 500 Stock Index and the Dow Jones (“DJ”) U.S. Container & Packaging Index. The graph assumes $100 invested on December 31, 20122015 in GPHC’s common stock and each of the indices. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 |
| Graphic Packaging Holding Company | $ | 100.00 | | | $ | 97.65 | | | $ | 120.89 | | | $ | 83.25 | | | $ | 130.28 | | | $ | 132.55 | |
| S&P 500 Stock Index | 100.00 | | | 111.96 | | | 136.40 | | | 130.42 | | | 171.49 | | | 203.04 | |
| Dow Jones U.S. Container & Packaging Index | 100.00 | | | 119.06 | | | 141.70 | | | 115.56 | | | 148.59 | | | 179.99 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 |
| Graphic Packaging Holding Company | $ | 100.00 |
| | $ | 148.61 |
| | $ | 210.84 |
| | $ | 201.51 |
| | $ | 199.40 |
| | $ | 252.40 |
|
| S&P 500 Stock Index | 100.00 |
| | 132.39 |
| | 150.51 |
| | 152.59 |
| | 170.84 |
| | 208.14 |
|
| Dow Jones U.S. Container & Packaging Index | 100.00 |
| | 140.71 |
| | 161.42 |
| | 154.47 |
| | 183.90 |
| | 218.88 |
|
| |
ITEM 6. | SELECTED FINANCIAL DATA |
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in conjunction with “Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements of the Company and the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| In millions, except per share amounts | 2020 | 2019 | 2018 | 2017 | 2016 | |
| Statement of Operations Data: | | | | | | |
| Net Sales | $ | 6,559.9 | | $ | 6,160.1 | | $ | 6,029.4 | | $ | 4,405.6 | | $ | 4,301.0 | | |
| Income from Operations | 524.3 | | 534.1 | | 458.2 | | 327.9 | | 407.4 | | |
| Net Income | 203.3 | | 278.1 | | 294.0 | | 300.2 | | 228.0 | | |
| Net Income Attributable to Noncontrolling Interests | (36.0) | | (71.3) | | (72.9) | | — | | — | | |
| | | | | | |
| Net Income Attributable to Graphic Packaging Holding Company | 167.3 | | 206.8 | | 221.1 | | 300.2 | | 228.0 | | |
| | | | | | |
| Net Income Attributable to Graphic Packaging Holding Company Per Share Basis: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Basic | $ | 0.60 | | $ | 0.70 | | $ | 0.71 | | $ | 0.97 | | $ | 0.71 | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Diluted | $ | 0.60 | | $ | 0.70 | | $ | 0.71 | | $ | 0.96 | | $ | 0.71 | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Balance Sheet Data: | | | | | | |
| (as of period end) | | | | | | |
| Cash and Cash Equivalents | $ | 179.0 | | $ | 152.9 | | $ | 70.5 | | $ | 67.4 | | $ | 59.1 | | |
| Total Assets | 7,804.6 | | 7,289.9 | | 7,059.2 | | 4,863.0 | | 4,603.4 | | |
| Total Debt | 3,644.2 | | 2,860.3 | | 2,957.1 | | 2,274.5 | | 2,151.9 | | |
| Total Equity | 1,840.3 | | 2,058.0 | | 2,018.5 | | 1,291.9 | | 1,056.5 | | |
| | | | | | |
| Additional Data: | | | | | | |
| Depreciation and Amortization | $ | 475.8 | | $ | 447.2 | | $ | 430.6 | | $ | 330.3 | | $ | 299.3 | | |
Capital Spending, including Packaging Machinery(a) | 646.3 | | 352.9 | | 395.2 | | 260.1 | | 294.6 | | |
| Dividends Declared per Share | 0.30 | | 0.30 | | 0.30 | | 0.30 | | 0.225 | | |
(a) During 2019, the Company announced its plan to invest approximately $600 million in a new CRB mill in Kalamazoo, Michigan. See Note 20 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
|
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| In millions, except per share amounts | 2017 | 2016 | 2015 | 2014 | 2013 |
| Statement of Operations Data: | | | | | |
| Net Sales | $ | 4,403.7 |
| $ | 4,298.1 |
| $ | 4,160.2 |
| $ | 4,240.5 |
| $ | 4,478.1 |
|
| Income from Operations | 342.7 |
| 396.0 |
| 427.1 |
| 227.8 |
| 341.6 |
|
| Net Income | 300.2 |
| 228.0 |
| 230.1 |
| 89.0 |
| 146.7 |
|
| Net Income (Loss) Attributable to Noncontrolling Interests | — |
| — |
| — |
| 0.7 |
| (0.1 | ) |
| Net Income Attributable Graphic Packaging Holding Company | 300.2 |
| 228.0 |
| 230.1 |
| 89.7 |
| 146.6 |
|
| | | | | | |
| Net Income Attributable to Graphic Packaging Holding Company Per Share Basis: | | | | | |
| Basic | $ | 0.97 |
| $ | 0.71 |
| $ | 0.70 |
| $ | 0.27 |
| $ | 0.42 |
|
| Diluted | $ | 0.96 |
| $ | 0.71 |
| $ | 0.70 |
| $ | 0.27 |
| $ | 0.42 |
|
| | | | | | |
| Balance Sheet Data: | | | | | |
| (as of period end) | | | | | |
| Cash and Cash Equivalents | $ | 67.4 |
| $ | 59.1 |
| $ | 54.9 |
| $ | 81.6 |
| $ | 52.2 |
|
| Total Assets | 4,863.0 |
| 4,603.4 |
| 4,256.1 |
| 4,137.6 |
| 4,373.1 |
|
| Total Debt | 2,274.5 |
| 2,151.9 |
| 1,875.5 |
| 1,957.7 |
| 2,238.3 |
|
| Total Equity | 1,291.9 |
| 1,056.5 |
| 1,101.7 |
| 1,012.3 |
| 1,062.3 |
|
| | | | | | |
| Additional Data: | | | | | |
| Depreciation and Amortization | $ | 330.3 |
| $ | 299.3 |
| $ | 280.5 |
| $ | 270.0 |
| $ | 277.4 |
|
| Capital Spending, including Packaging Machinery | 260.1 |
| 294.6 |
| 244.1 |
| 201.4 |
| 209.2 |
|
| Dividends Declared per Share | 0.30 |
| 0.225 |
| 0.20 |
| — |
| — |
|
ITEM 7. �� MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
| |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
|
INTRODUCTION
This management’s discussion and analysis of financial conditions and results of operations is intended to provide investors with an understanding of the Company’s past performance, financial condition and prospects. The following will be discussed and analyzed:
Overview of Business
Overview of 20172020 Results
Results of Operations
Financial Condition, Liquidity and Capital Resources
Critical Accounting Policies
New Accounting Standards
Business Outlook
OVERVIEW OF BUSINESS
The Company’s objective is to strengthen its position as a leading provider of sustainable paper-based packaging solutions. To achieve this objective, the Company offers customers its paperboard, cartons, cups, lids, foodservice containers and packaging machines, either as an integrated solution or separately. Cartons, carriers and carrierscontainers are designed to protect and containhold products. Product offerings include a variety of laminated, coated and printed packaging structures that are produced from the Company’s coated unbleached kraft (“CUK”)CRB, CUK, and coated recycled board (“CRB”), as well as other grades of paperboard that are purchased from third party suppliers.SBS paperboard. Innovative designs and combinations of paperboard, films, foils, metallization, holographics and embossing are customized to the individual needs of the customers.
The Company is implementing strategies (i) to expand market share in its current markets and to identify and penetrate new markets; (ii) to capitalize on the Company’s customer relationships, business competencies, and mills and folding carton assets; (iii) to develop and market innovative, sustainable products and applications;applications that benefit from consumer-led sustainability trends; and (iv) to continue to reduce costs by focusing on operational improvements. The Company’s ability to fully implement its strategies and achieve its objectives may be influenced by a variety of factors, many of which are beyond its control, such as inflation of raw material and other costs, which the Company cannot always pass through to its customers, and the effect of overcapacity in the worldwide paperboard packaging industry.
Significant Factors That Impact Thethe Company’s Business and Results of Operations
COVID-19 Pandemic. Many uncertainties remain regarding the current novel coronavirus (“COVID-19”) pandemic, including the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. While the COVID-19 pandemic has not materially impacted the Company's overall business, operations, or financial results to date, it may have far-reaching impacts on many aspects of the Company's operations, including impacts on customer and consumer behaviors, business and manufacturing operations, inventory, accounts receivable, the Company’s employees, and the market generally. The Company will continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business accordingly, such as to match the Company's supply with demand by adjusting mill maintenance outages and taking market downtime where appropriate such as the uncoated SBS cupstock paper machine market downtime that the Company took in Q3 of 2020 to reflect reduced demand for paperboard packaging from foodservice customers.
Impact of Inflation/Deflation. The Company’s cost of sales consists primarily of energy (including natural gas, fuel oil and electricity), pine pulpwood,and hardwood fiber, chemicals, secondary fibers, purchased paperboard, aluminum foil, ink, plastic films and resins, depreciation expense and labor. Costs increased year over year by $95.8$29.9 million in 20172020 and increased year over year by $25.0$79.1 million in 2016.2019. The higher costs in 20172020 were primarily due to secondary fiber ($40.1 million),costs of labor and benefits ($45.1 million), secondary fiber ($22.5 million), freight ($15.68.7 million), chemicals ($14.3 million) and other costs, net ($3.31.9 million), partially offset by lower costs of wood ($32.7 million), energy ($9.9 million) and external board ($5.7 million). The higher costs in 2019 were due to costs of labor and benefits ($40.4 million), wood ($39.6 million), external board ($12.1 million), partially offset by lower costs of secondary fiber ($10.5 million), and other costs, net ($2.5 million).
Because the price of natural gas experiences significant volatility, the Company has entered into contracts designed to manage risks associated with future variability in cash flows caused by changes in the price of natural gas. The Company has entered into natural gas swap contracts to hedge prices for a portion of its expected usage for 2018.2021 and 2022. Since negotiated sales contracts and the market largely determine the pricing for its products, the Company is at times limited in its ability to raise prices and pass through to its customers any inflationary or other cost increases that the Company may incur.
Commitment to Cost Reduction. In light of increasingcontinuing margin pressure throughout the packaging industry, the Company has programs in place that are designed to reduce costs, improve productivity and increase profitability. The Company utilizes a global continuous improvement initiative that uses statistical process control to help design and manage many types of activities, including production and maintenance. This includes a Six Sigma process focused on reducing variable and fixed manufacturing and administrative costs. The Company has expandedcosts and the continuous improvement initiative to include the deploymentuse of Lean Sigma principles intoin manufacturing and supply chain services.processes.
The Company’s ability to continue to successfully implement its business strategies and to realize anticipated savings and operating efficiencies is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. If the Company cannot successfully implement the strategic cost reductions or other cost savings plans it may not be able to continue to compete successfully against other manufacturers. In addition, any failure to generate the anticipated efficiencies and savings could adversely affect the Company’s financial results.
Competition and Market Factors. As some products can be packaged in different types of materials, the Company’s sales are affected by competition from other manufacturers’ CRB, CUK, SBS, folding box board, CRB and other paper substrates such as solid bleached sulfate ("SBS") and recycled clay-coated news. Additional substitute products also include plastic, shrink film and corrugated containers. In addition, while the Company has long-term relationships with many of its customers, the underlying contracts may be re-bid or renegotiated from time to time, and the Company may not be successful in renewing on favorable terms or at all. The Company works to maintain market share through efficiency, product innovation, service and strategic sourcing to its customers; however, pricing and other competitive pressures may occasionally result in the loss of a customer relationship.
In addition, the Company’s sales historically are driven by consumer buying habits in the markets its customers serve.serve, and recently we have seen net organic sales growth driven by the consumers’ desire for sustainable packaging solutions and increased at home consumption. Changes in consumer dietary habits and preferences, increases in the costs of living, unemployment rates, access to credit markets, as well as other macroeconomic factors, may negatively affect consumer spending behavior. New product introductions and promotional activity by the Company’s customers and the Company’s introduction of new packaging products also impact its sales.
Debt Obligations. The Company had an aggregate principal amount of $2,287.0$3,666.6 million of outstanding debt obligations as of December 31, 2017.2020. This debt has consequences for the Company, as it requires a portion of cash flow from operations to be used for the payment of principal and interest, exposes the Company to the risk of increased interest rates and may restrict the Company’s ability to obtain additional financing. Covenants in the Company’s Amended and Restated Credit Agreement, the Term LoanCurrent Credit Agreement and Indentures may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase stock, pay dividends, make other restricted payments and make acquisitions or other investments. The Credit Agreement and the Term LoanCurrent Credit Agreement also requirerequires compliance with a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. The Company’s ability to comply in future periods with the financial covenants will depend on its ongoing financial and operating performance, which in turn will be subject to many other factors, many of which are beyond the Company’s control. See “Covenant Restrictions” in “Financial Condition, Liquidity and Capital Resources” for additional information regarding the Company’s debt obligations.
The debt and the restrictions under the Amended and Restated Credit Agreement, the Term LoanCurrent Credit Agreement and the Indentures could limit the Company’s flexibility to respond to changing market conditions and competitive pressures. The outstanding debt obligations and the restrictions may also leave the Company more vulnerable to a downturn in general economic conditions or its business, or unable to carry out capital expenditures that are necessary or important to its growth strategy and productivity improvement programs.
OVERVIEW OF RESULTS
This management’s discussion and analysis contains an analysis of Net Sales, Income from Operations and other information relevant to an understanding of the Company's results of operations. On a consolidated basis:
• Net Sales in 2017 2020 increased by $105.6$399.8 million or 2.5%6.5%, to $4,403.7$6,559.9 million from $4,298.1$6,160.1 million in 2016 primarily2019 due to organic sales growth, and the acquisitions discussed belowGreif, Quad and increased volume,Artistic acquisitions, partially offset by lower selling pricesopen market volume of our paperboard and unfavorable foreign currency exchange rates.
• Income from Operations in 2017 2020 decreased by $53.3$9.8 million or 13.5%1.8%, to $342.7$524.3 million from $396.0$534.1 million in 2016 due2019. Transactions recorded in Business Combinations, Shutdown and Other Special Charges and Exit Activities, Net increased $23.4 million driven by higher charges for exit activities, including those related to our announced closures of White Pigeon, Michigan, CRB mill and West Monroe, Louisiana, PM1 containerboard machine, costs related to COVID-19, and increases in estimated liabilities related to the withdrawal from certain multi-employment benefit plans for facilities which have been closed. In addition, Income from Operations was negatively impacted in 2020 as compared to 2019 by non-commodity inflation (primarily labor and benefits), product mix, higher inflation including secondary fiber,levels of planned maintenance and higher levels of market downtime at the lower selling pricesuncoated SBS cupstock paper machine, and the unfavorable foreign currency exchange rates. These decreases were partially offsethigher depreciation and amortization. Income from Operations was positively impacted in 2020 as compared to 2019 by thehigher volumes from organic sales growth and acquisitions, and cost savings throughfrom continuous improvement and other programs.programs, and commodity deflation.
Acquisitions, Closures, and Dispositions
•On DecemberJanuary 31, 2020, the Company acquired a folding carton facility from Quad, a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment.
•On April 1, 2017,2020, the Company acquired the assets of SeydacoConsumer Packaging Corp.Group business from Greif, a leader in industrial packaging products and its affiliates National Carton and Coating Co., and Groupe Ecco Boites Pliantes Ltée (collectively, "Seydaco"), a folding carton producer focused on the foodservice, food, personal care, and household goods markets.services. The acquisition includes three folding cartonincluded seven converting facilities located in Mississauga, Ontario, St.-Hyacinthe, Québec, and Xenia, Ohio.
On December 1, 2017,across the Company closed its coated recycled paperboard mill in Santa Clara, California. This decision was made as a result of a thorough assessment of the facility's manufacturing capabilities and associated costsUnited States, which are included in the context of the Company's overall mill operating capabilities and cost structure.Americas Paperboard Packaging reportable segment.
•On October 24, 2017, the Company announced that it would combine its business with IP's North American Consumer Packaging business. The Company will own 79.5% of the subsidiary that owns GPI and will be the sole operator of such subsidiary and the business of GPI. See Note 19 in the Notes to Consolidated Financial Statements included herein under “Item 8. Financial Statements and Supplementary Data."
On October 4, 2017, the Company acquired Norgraft Packaging, S.A. ("Norgraft"), a leading folding carton producer in Spain focused on the food and household goods markets. The acquisition includes two folding carton facilities located in Miliaño and Requejada, Spain.
On July 10, 2017,August 1, 2019, the Company acquired substantially all the assets of Carton Craft CorporationArtistic, a diversified producer of folding cartons and its affiliate Lithocraft, Inc (collectively, "Carton Craft").CRB. The acquisition includesincluded two folding cartonconverting facilities located in New Albany,Auburn, Indiana focused onand Elgin, Illinois (included in the production of paperboard based air filter framesAmericas Paperboard Packaging reportable segment) and folding cartons.one CRB mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment).
The Seydaco, Norgraft, and Carton Craft transactions are referred to collectively as the "2017 Acquisitions."
•During 2016,2018, the Company acquired G-Box, S.A. de C.V., ("G-Box"), Walter G. Anderson, Inc., ("WG Anderson"), Metro Packaging & Imaging, Inc. ("Metro"),completed the NACP Combination and Colorpak Limited ("Colorpak"). These transactions are referred to collectively as the "2016 Acquisitions."2018 Acquisitions which included PFP and Letica Foodservice, and sold its previously closed CRB mill site in Santa Clara, California.
Share Repurchases and Dividends
Capital Allocations
On January 10, 2017, the Company's board of directors authorized an additional share repurchase program to allow the Company to purchase up to $250•During 2020, GPHC repurchased 23.4 million of the Company's issued and outstanding shares of GPHC's outstanding common stock, through open market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2017 share repurchase program"). The original $250 million share repurchase program was authorized on February 4, 2015 (the "2015 share repurchase program"). During 2017, the Company repurchased 4.5 million shares, or approximately $58for $315.6 million, at an aggregate average price of $13.08, including 1.4 million shares repurchased under the 2015 share repurchase program thereby completing that plan.$13.48 per share. At December 31, 2017, the Company2020, GPHC had approximately $210$146.5 million remainingavailable for additional repurchases under the 20172019 share repurchase program.
•During 2017, the Company2020, GPHC declared cash dividends of $83.0 million and paid cash dividends of $93.1 million and $93.4 million, respectively.$84.7 million.
RESULTS OF OPERATIONS
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 |
| Net Sales | $ | 6,559.9 | | $ | 6,160.1 | | $ | 6,029.4 | |
| Income from Operations | $ | 524.3 | | $ | 534.1 | | $ | 458.2 | |
| Nonoperating Pension and Postretirement Benefit (Expense) Income | (151.5) | | (39.5) | | 14.9 | |
| Interest Expense, Net | (128.8) | | (140.6) | | (123.7) | |
| Loss on Modification or Extinguishment of Debt | — | | — | | (1.9) | |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | $ | 244.0 | | $ | 354.0 | | $ | 347.5 | |
| Income Tax Expense | (41.6) | | (76.3) | | (54.7) | |
| Income before Equity Income of Unconsolidated Entity | $ | 202.4 | | $ | 277.7 | | $ | 292.8 | |
| Equity Income of Unconsolidated Entity | 0.9 | | 0.4 | | 1.2 | |
| Net Income | $ | 203.3 | | $ | 278.1 | | $ | 294.0 | |
| | | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 |
| Net Sales | $ | 4,403.7 |
| $ | 4,298.1 |
| $ | 4,160.2 |
|
| Income from Operations | $ | 342.7 |
| $ | 396.0 |
| $ | 427.1 |
|
| Interest Expense, Net | (89.7 | ) | (76.6 | ) | (67.8 | ) |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | $ | 253.0 |
| $ | 319.4 |
| $ | 359.3 |
|
| Income Tax Benefit (Expense) | 45.5 |
| (93.2 | ) | (130.4 | ) |
| Income before Equity Income of Unconsolidated Entity | $ | 298.5 |
| $ | 226.2 |
| $ | 228.9 |
|
| Equity Income of Unconsolidated Entity | 1.7 |
| 1.8 |
| 1.2 |
|
| Net Income | $ | 300.2 |
| $ | 228.0 |
| $ | 230.1 |
|
20172020 COMPARED WITH 20162019
Net Sales
The components of the change in Net Sales are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| | Variances | | | |
In millions | 2019 | Price | Volume/Mix | | | Foreign Exchange | | 2020 | Increase | Percent Change |
| Consolidated | $ | 6,160.1 | | $ | (1.2) | | $ | 408.0 | | | | $ | (7.0) | | | $ | 6,559.9 | | $ | 399.8 | | 6.5 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | | Variances | | | |
In millions | 2016 | Price | Volume/Mix | Foreign Exchange | 2017 | Increase | Percent Change |
| Consolidated | $ | 4,298.1 |
| $ | (27.1 | ) | $ | 135.6 |
| $ | (2.9 | ) | $ | 4,403.7 |
| $ | 105.6 |
| 2.5 | % |
The Company's Net Sales in 20172020 increased by $105.6$399.8 million or 2.5%6.5%, to $4,403.7$6,559.9 million from $4,298.1$6,160.1 million for the same period in 2016,2019, due to Net Sales of $106.9$268.6 million from the 2017Greif, Artistic and Quad Acquisitions and the 2016 Acquisitions and increased converting volume,organic sales growth including new product introductions.introductions and conversions to our paperboard packaging solutions. These increases were partially offset by lower selling pricesopen market volume of our paperboard, product mix, and unfavorable foreign currency exchange rates, primarily the British pound. GlobalBrazilian Real, Mexican Peso, and Canadian Dollar as well as lower selling prices. Core converting volumes were up, primarily in global beverage, volume increased, while softness continueddry foods, frozen foods, dairy products and cereal, offset by declines in certain consumer product markets (cerealfoodservice packaging, including cups. The COVID-19 pandemic had a positive impact on volumes in 2020 for food and dry foods).beverage packaging offset by a reduction in demand for some foodservice products.
Income from Operations
The components of the change in Income from Operations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| | Variances | | | |
| In millions | 2019 | Price | Volume/Mix | | Inflation | Foreign Exchange | Other (a) | | 2020 | Decrease | Percent Change |
| Consolidated | $ | 534.1 | | $ | (1.2) | | $ | 13.5 | | | $ | (29.9) | | $ | 0.3 | | $ | 7.5 | | | $ | 524.3 | | $ | (9.8) | | (1.8) | % |
(a) Includes the Company's cost reduction initiatives, planned mill maintenance costs, mill market downtime costs, expenses related to acquisitions and integration activities, exit activities, and shutdown and other special charges.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | | Variances | | | |
| In millions | 2016 | Price | Volume/Mix | Inflation | Foreign Exchange | Other (a) | 2017 | Decrease | Percent Change |
| Consolidated | $ | 396.0 |
| $ | (27.1 | ) | $ | (0.8 | ) | $ | (95.8 | ) | $ | (3.0 | ) | $ | 73.4 |
| $ | 342.7 |
| $ | (53.3 | ) | (13.5 | )% |
| |
(a)
| Includes the Company’s cost reduction initiatives, sales of assets, expenses related to acquisitions, integration activities, and shutdown costs. |
The Company's Income from Operations for 20172020 decreased $53.3$9.8 million or 13.5%1.8%, to $342.7$524.3 million from $396.0$534.1 million for the same period in 2016 due2019. Transactions recorded in Business Combinations, Shutdown and Other Special Charges and Exit Activities, Net increased $23.4 million driven by higher charges for exit activities, including those related to our announced closures of White Pigeon, Michigan, CRB mill and West Monroe, Louisiana, PM1 containerboard machine, costs related to COVID-19, and increases in estimated liabilities related to the withdrawal from certain multi-employment benefit plans for facilities which have been closed. In addition, Income from Operations was negatively impacted in 2020 as compared to 2019 by non-commodity inflation (primarily labor and benefits), product mix, higher inflation, includinglevels of planned maintenance and higher levels of market downtime at the impact of the hurricanes, the lower selling prices,uncoated SBS cupstock paper machine, and higher depreciation and amortization expense relatedamortization. Income from Operations was positively impacted in 2020 as compared to the2019 by higher volumes from organic sales growth and acquisitions, and the shutdown of Santa Clara. These decreases were partially offset by cost savings throughfrom continuous improvement and other programs, lower restricted stock unit expense and lower costscommodity deflation.
associated with acquisitions and integration. Inflation for 20172020 increased primarily due to secondary fiber ($40.1 million),higher costs of labor and benefits ($45.1 million), secondary fiber ($22.5 million), freight ($15.68.7 million), chemicals ($14.3 million) and other costs, net ($3.31.9 million), partially offset by lower costs for wood ($32.7 million), energy ($9.9 million) and external board ($5.7 million).
Nonoperating Pension and Postretirement Benefit
Nonoperating Pension and Postretirement Benefit was an expense of $151.5 million in 2020 versus $39.5 million in 2019. The increase was due to a settlement charge of $152.5 million incurred during the first quarter of 2020 associated with the Company's purchase of a group annuity contract that transferred the remaining pension benefit obligation under the largest U.S. Plan of approximately $713 million to an insurance company.
Interest Expense, Net
Interest Expense, Net increaseddecreased by $13.1$11.8 million to $89.7$128.8 million in 20172020 from $76.6$140.6 million in 2016.2019. Interest Expense, Net increaseddecreased due primarily to higher averagelower interest rates, partially offset by higher debt balances as compared to the same period in the prior year. As of December 31, 2017,2020, approximately 45%35% of the Company’s total debt was subject to floating interest rates.
Income Tax Expense
During 2017,2020, the Company recognized Income Tax BenefitExpense of $45.5$41.6 million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $253.0$244.0 million. During 2016,2019, the Company recognized Income Tax Expense of $93.2$76.3 million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $319.4$354.0 million. The effective tax rate for 20172020 is significantly different than the statutory rate primarily due to the tax effect of income attributable to noncontrolling interests as well as the enactmentmix of earnings between foreign and domestic tax jurisdictions. In addition, during 2020, the Tax CutsCompany recorded discrete benefits of $7.6 million and Jobs Act (the "Act") on December 22, 2017. The Act significantly reduced U.S. federal corporate income$4.1 million related to the release of valuation allowances against the net deferred tax rates which resulted in an income tax benefit in the current yearassets of $156.3 milliontwo of its Canadian subsidiaries as a result of a planned internal restructuring and the remeasurementtax effect of tax credit and other provision to return adjustments related to the Company’s domestic net Deferred Tax Liabilities. In addition, the Act requires companies to record a one-time transition tax impact based on foreign earnings and profits which resulted in additional tax expense in the current year of $20.5 million.
The Company has available net operating losses ("NOLs") of approximately $327 million for2019 U.S. federal income tax purposesreturn, respectively. The effective tax rate in 2020 is lower than the effective tax rate in 2019 primarily due to these discrete benefits as compared to 2019. Also during 2019, the Company established a valuation allowance related to the net deferred tax assets of its Australian subsidiaries.
The Company utilized its remaining U.S. federal net operating losses during 2020. However, based on tax benefits associated with planned capital projects, the anticipated reduction of International Paper's investment in GPIP, as well as tax credit carryforwards which may be usedare available to offset future taxable income. Based on these NOLs and otherU.S. federal income tax, benefits as well as the impact of U.S. tax reform on projections of future taxable income, the Company does not expect to be a meaningful U.S. federal cash taxpayer until 2021.2024.
Equity Income of Unconsolidated Entity
Equity Income of Unconsolidated Entity was $1.7$0.9 million in 20172020 and $1.8$0.4 million in 20162019 and is related to the Company’s equity investment through its GPIL subsidiary, in the joint venture, Rengo Riverwood Packaging, Ltd. joint venture.
2016
2019 COMPARED WITH 20152018
Net Sales
The components of the change in Net Sales are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| | Variances | | | |
In millions | 2018 | Price | Volume/Mix | | Foreign Exchange | | 2019 | Increase | Percent Change |
| Consolidated | $ | 6,029.4 | | $ | 131.2 | | $ | 50.2 | | | $ | (50.7) | | | $ | 6,160.1 | | $ | 130.7 | | 2.2 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | | Variances | | | |
In millions | 2015 | Price | Volume/Mix | Foreign Exchange | 2016 | Increase | Percent Change |
| Consolidated | $ | 4,160.2 |
| $ | (33.8 | ) | $ | 219.2 |
| $ | (47.5 | ) | $ | 4,298.1 |
| $ | 137.9 |
| 3.3 | % |
The Company’s Net Sales in 20162019 increased by $137.9$130.7 million, or 3.3%2.2% to $4,298.1$6,160.1 million from $4,160.2$6,029.4 million in 2015, primarily2018 due to higher selling prices and Net Sales of $280.7approximately $115 million forfrom the 2016 Acquisitions as well as the acquisition of Carded Graphics, LLC ("Carded") on October 1, 2015Artistic and Cascades' Norampac Division ("Cascades") on February 5, 2015. Net sales2018 Acquisitions. These increases were $74.5 millionpartially offset by modestly lower due to the closure or shutdown of certain assetsconverting volumes in the latter partfirst half of 2015. Global beverage volumes were up modestly while softness continued for certain consumer products, including dry foods, frozen foodsthe year and cereal. Unfavorableunfavorable foreign currency exchange rates, primarily the Euro, British pound,Pound and lower pricing also negatively impacted Net Sales.Australian dollar. The higher selling prices are the result of announced price increases which benefit from inflationary pass throughs in the converting business as well as open market sales. Core converting volumes were down, in dry and frozen foods and dairy products, partially offset by higher global beverage volumes and new product introductions.
Income from Operations
The components of the change in Income from Operations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| | Variances | | | |
| In millions | 2018 | Price | Volume/Mix | | Inflation | Foreign Exchange | Other(a) | | 2019 | Increase | Percent Change |
| Consolidated | $ | 458.2 | | $ | 131.2 | | $ | (31.2) | | | $ | (79.1) | | $ | (6.2) | | $ | 61.2 | | | $ | 534.1 | | $ | 75.9 | | 16.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | | Variances | | | |
| In millions | 2015 | Price | Volume/Mix | Inflation | Foreign Exchange | Other(a) | 2016 | Decrease | Percent Change |
| Consolidated | $ | 427.1 |
| $ | (33.8 | ) | $ | (18.7 | ) | $ | (25.0 | ) | $ | (19.1 | ) | $ | 65.5 |
| $ | 396.0 |
| $ | (31.1 | ) | (7.3 | )% |
| |
(a)
| Includes the Company’s cost reduction initiatives, sales of assets and expenses related to acquisitions, integration activities, and shutdown costs. |
The Company's Income from Operations for 2016 decreased $31.12019 increased $75.9 million or 7.3%16.6%, to $396.0$534.1 million from $427.1$458.2 million for the same period in 20152018 due to the lower pricing,higher selling prices, cost savings through continuous improvement programs, the Augusta, Georgia mill outage in 2018 (approximately $52 million), and benefits from completed capital projects and synergies. These increases were partially offset by higher inflation, product mix, the gain on the sale of the Santa Clara mill site in 2018, costs to dispose of idle and abandoned assets, costs associated with exit activities, start-up costs associated with the Monroe, Louisiana folding carton facility, increased incentive costs and unfavorable foreign currency exchange rates, higher depreciation and amortization related to purchase accountingrates. Inflation for the 2016 and Carded Acquisitions, costs and operational issues related to the onboarding of new or transferred business related to the closed or announced closure of facilities, and the approximate $15 million impact related to the downtime taken to upgrade a paper machine at West Monroe. Inflation in 2016 was primarily2019 increased due to higher labor and benefit costs ($20.6 million) secondary fiber ($10.740.4 million), net energy related costswood ($9.839.6 million), and other costsexternal board ($0.812.1 million), partially offset by lower costs for woodsecondary fiber cost ($4.8 million), chemicals ($3.6 million), freight ($3.5 million), corrugate ($3.310.5 million), and resinother costs, net ($2.5 million).
Nonoperating Pension and film ($1.7 million).Postretirement Benefit
Nonoperating Pension and Postretirement Benefit was an expense of $39.5 million in 2019 versus income of $14.9 million in 2018. The increase in expense was due to a settlement charge of $39.2 million associated with lump sum payments, as well as lower expected return on assets and higher interest costs.
Interest Expense, Net
Interest Expense, Net increased by $8.8$16.9 million to $76.6$140.6 million in 20162019 from $67.8$123.7 million in 2015.2018. Interest Expense, Net increased due primarily to higher average debt balances and higherslightly offset by lower average interest rates as compared to the prior year. As of December 31, 2016,2019, approximately 33%34% of the Company’s total debt was subject to floating interest rates.
Income Tax Expense
During 2016,2019, the Company recognized Income Tax Expense of $93.2$76.3 million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $319.4$354.0 million. During 2015,2018, the Company recognized Income Tax Expense of $130.4$54.7 million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $359.3$347.5 million. The effective tax rate for 2016 was2019 is different than the statutory rate primarily due to an agreement executed with the Internal Revenue Service. Astax effect of income attributable to noncontrolling interests as well as the mix and levels of earnings between foreign and domestic tax jurisdictions. In addition, during 2019, the Company recorded discrete expense of $4.8 million for a resultvaluation allowance against the net deferred tax assets of the agreement, the Company has amended its 2011 and 2012 U.S. federal and state income tax returns resultingCompany’s subsidiary in the utilization of previously expired net operating loss carryforwards. The Company recorded a discrete benefit during the second quarter of 2016 of $22.4 million to reflect the changes as a reduction in its net long-term deferred tax liability.Australia. The effective tax rate was also differentin 2019 is higher than the statutoryeffective tax rate in 2018 primarily due to the mixvaluation allowance as compared to 2018. During 2018, the Company released its valuation allowance against the net deferred tax assets of its French subsidiary and levels between foreignrecorded discrete benefits related to the true up of the effects of the Tax Cuts and domestic earnings, including lossesJobs Act enacted in jurisdictions with full valuation allowances.2017.
Equity Income of Unconsolidated Entity
Equity Income of Unconsolidated Entity was $1.8$0.4 million in 20162019 and $1.2 million in 20152018 and is related to the Company’s equity investment through its GPIL subsidiary in the joint venture, Rengo Riverwood Packaging, Ltd.
Segment Reporting
Effective January 5, 2017, the consumer product and beverage operating segments (previously aggregated into the Americas Paperboard Packaging reportable segment) were reorganized and combined into an Americas Converting operating segment (Americas Paperboard Packaging reportable segment). As part of this reorganization, Australia, which was previously included as part of the Americas Paperboard Packaging reportable segment, is now an operating segment and included in Corporate/Other/Elimination. Prior periods have been recast.
The Company has three reportable segments as follows:
Paperboard Mills includes the six8 North American paperboard mills whichthat produce primarily CRB, CUK, and CRB. The majority of the paperboardSBS, which is consumed internally to produce paperboard packaging for the Americas and Europe Paperboard Packaging segments. The remaining paperboard is sold externally to a wide variety of paperboard packaging converters and brokers. The Paperboard Mills segment Net Sales represents the sale of paperboard only to external customers. The effect of intercompany transfers to the paperboard packaging segments has been eliminated from the Paperboard Mills segment to reflect the economics of the integration of these segments.
Americas Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to Consumer Packaged GoodsGood ("CPG") companies, and cups, lids and food containers sold primarily to foodservice companies and quick-service restaurants ("QSR") serving the food, beverage, and consumer product markets in the Americas.
Europe Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to CPG companies serving the food, beverage and consumer product markets in Europe.
The Company allocates certain mill and corporate costs to the reportable segments to appropriately represent the economics of these segments. The Corporate and Other caption includes the Pacific Rim and Australia operating segments and unallocated corporate and one-time costs.
These segments are evaluated by the chief operating decision maker based primarily on Income from Operations, as adjusted for depreciation and amortization. The accounting policies of the reportable segments are the same as those described in Note 1 in the Notes to Consolidated Financial Statements included herein under “Item 8. Financial Statements and Supplementary Data."
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 |
| NET SALES: | | | |
| Paperboard Mills | $ | 399.7 |
| $ | 394.7 |
| $ | 480.5 |
|
| Americas Paperboard Packaging | 3,243.6 |
| 3,193.1 |
| 3,012.1 |
|
| Europe Paperboard Packaging | 593.1 |
| 569.9 |
| 603.9 |
|
| Corporate/Other/Eliminations | 167.3 |
| 140.4 |
| 63.7 |
|
| Total | $ | 4,403.7 |
| $ | 4,298.1 |
| $ | 4,160.2 |
|
| | | | |
| INCOME (LOSS) FROM OPERATIONS: | | | |
| Paperboard Mills | $ | (35.0 | ) | $ | (3.7 | ) | $ | 17.1 |
|
| Americas Paperboard Packaging | 358.2 |
| 409.0 |
| 395.2 |
|
| Europe Paperboard Packaging | 37.3 |
| 25.4 |
| 40.8 |
|
Corporate and Other(a) | (17.8 | ) | (34.7 | ) | (26.0 | ) |
| Total | $ | 342.7 |
| $ | 396.0 |
| $ | 427.1 |
|
| |
(a)
| Includes expenses related to acquisitions, integration activities and shutdown costs (excluding accelerated depreciation). |
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 |
| NET SALES: | | | |
| Paperboard Mills | $ | 988.1 | | $ | 1,094.8 | | $ | 1,078.1 | |
| Americas Paperboard Packaging | 4,650.1 | | 4,233.7 | | 4,098.3 | |
| Europe Paperboard Packaging | 764.6 | | 689.3 | | 695.9 | |
| | | |
Corporate/Other/Eliminations(a) | 157.1 | | 142.3 | | 157.1 | |
| Total | $ | 6,559.9 | | $ | 6,160.1 | | $ | 6,029.4 | |
| | | |
| (LOSS) INCOME FROM OPERATIONS: | | | |
Paperboard Mills(b) | $ | (109.9) | | $ | 33.1 | | $ | 30.6 | |
| Americas Paperboard Packaging | 638.5 | | 477.7 | | 420.1 | |
| Europe Paperboard Packaging | 65.9 | | 60.3 | | 46.1 | |
| | | |
Corporate and Other(c) | (70.2) | | (37.0) | | (38.6) | |
| Total | $ | 524.3 | | $ | 534.1 | | $ | 458.2 | |
2017
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes accelerated depreciation related to exit activities in 2020 and 2019, excludes $29.6 million related to the Augusta, Georgia mill outage in 2018.
(c) Includes expenses related to business combinations, exit activities, idle and abandoned assets, gain on sale of assets and shutdown and other special charges.
2020 COMPARED WITH 20162019
Paperboard Mills - Net Sales decreased from prior year due to customer mix, lower open market volume primarily of containerboard due to the shutdown of the PM1 containerboard machine and CUK as the Company internalized more paperboard tons, and lower selling prices.
Income from Operations decreased due to the lower selling prices, lower open market volume, higher levels of planned maintenance at the mills, higher levels of market downtime at the SBS cupstock paper machine, higher labor and benefits costs, increased depreciation expense including accelerated depreciation related to exit activities, and customer mix of open market volume partially offset by productivity improvements, including benefits from capital projects, and commodity deflation. The commodity deflation was primarily due to lower prices for wood and energy offset by higher prices for secondary fiber.
Americas Paperboard Packaging - Net Sales increased due to higher selling prices, the Greif, Artistic, and Quad acquisitions, organic sales growth including conversions to our paperboard packaging solutions, and new product introductions offset by unfavorable foreign currency exchange rates. Higher volumes in global beverage, dry foods, frozen foods, dairy products and cereal were offset by declines in foodservice packaging, including cups. In beverage, volumes increased in all categories including soft drink, craft and specialty, and big beer. COVID-19 had a positive impact on volumes in 2020 for food and beverage packaging offset by a reduction in demand for some foodservice products.
Income from Operations increased due to higher volumes including from organic sales growth and acquisitions, higher selling prices, cost savings through continuous improvement and other programs, and commodity deflation, partially offset by other inflation (primarily labor and benefits), higher levels of market downtime at the SBS cupstock paper machine, and unfavorable foreign currency exchange rates. The commodity deflation was primarily due to lower prices for wood, energy, and external board offset by higher prices for secondary fiber and freight.
Europe Paperboard Packaging - Net Sales increased due to higher pricing, increased volumes led by beverage, machine sales, and convenience, favorable mix, and favorable foreign currency exchange rates.
Income from Operations increased due to higher selling prices, increased volumes, commodity deflation, and favorable foreign currency exchange rates partially offset by higher labor and benefits, unfavorable mix, and COVID-19 costs.
2019 COMPARED WITH 2018
Paperboard Mills - Net salesSales increased from prior year due to higher selling prices and higher open market volume of SBS and CRB, due to the White Pigeon Mill acquired as part of the Artistic acquisition, partially offset by lower open market volume for CUK. The Company also internalized more CUK and SBS paperboard.
Income from Operations increased due to the higher selling prices and productivity improvements, including benefits from capital projects. These increases were partially offset by product mix, inflation, accelerated depreciation related to exit activities and modest market downtime taken for SBS. The higher inflation was primarily due to wood and labor and benefits, partially offset by lower prices for secondary fiber and energy.
Americas Paperboard Packaging - Net Sales increased due to higher selling prices and favorable foreign currency exchange rates. Volume was flat for the year as increased CRB tons were offset by decreased CUK tons, due to internalization of tons related to the acquisitions.
Loss from Operations increased due to higher inflation, primarily secondary fiber ($46.5 million)Artistic and the accelerated depreciation of $16.3 million related to the shutdown of Santa Clara,2018 Acquisitions, partially offset by productivity improvements and the higher selling prices. During 2017modestly lower converting volumes in West Monroe, LA, there was an approximate $14 million impact related to the second quarter maintenance cold outage and an approximate $18 million impact related to the first quarter planned downtime taken to upgrade a paper machine. During 2016, therehalf of the year. Certain consumer products, primarily dry and frozen foods and dairy products, experienced decreased volume, which was an approximate $15 million impact related to downtime taken in the second quarter to upgrade a paper machine in West Monroe, LA.
Americas Paperboard Packaging - Sales increased primarily due to the 2017 and 2016 Acquisitions, higher beverage volumes and new product introductions, partially offset by lower selling prices and lowerincreased volume for certain consumer products.
Income from Operations decreased due to higher inflation and the lower selling prices, partially offset by the acquisitions and cost savings through continuous improvement programs.
Europe Paperboard Packaging - Sales increased primarily due to the Norgraft acquisition and higher volume, primarily for convenience and beverage products, partially offset by unfavorable foreign currency exchange rates and lower pricing.
Income from Operations increased as a result of improved operating performance due to capital investments, other cost savings programs, and the higher volume, partially offset by the lower selling prices, higher inflation and unfavorable foreign currency exchange rates.
2016 COMPARED WITH 2015
Paperboard Mills - Net sales decreased $85.8 million primarily due to the third quarter of 2015 shutdown of the Jonquière, Quebec mill (part of the February 4, 2015 Cascades acquisition) and the October 2015 shut down of the kraft paper machine in West Monroe, LA of $74.5 million, as well as lower open market sales across all substrates. In addition, more tons were internalized due to the acquisitions.
Income from Operations decreased due to downtime taken to upgrade a paper machine at West Monroe, LA and higher inflation, partially offset by productivity improvements.
Americas Paperboard Packaging - Sales increased primarily due to Net Sales of $205.5 million for the 2016, Carded and Cascades acquisitions, higher global beverage volumes and new product introductions. These increases were partially offset by lower volume for certain consumer products and lower pricing.Beverage volumes rose across all categories except big beer.
Income from Operations increased due to the higher selling prices and productivity improvements partially offset by higher inflation and start-up costs associated with the Monroe, Louisiana folding carton facility. The higher inflation was primarily for labor and benefits and external board.
Europe Paperboard Packaging - Net Sales decreased slightly as unfavorable foreign currency exchange rates were partially offset by increased beverage, consumer product and convenience volumes and higher selling prices. The higher volumes reflect the increase in multi-pack beverage and a shift from plastics into paperboard solutions.
Income from Operations increased due to the higher selling prices, the improved volumes and cost savings through continuous improvement programs, partially offset by the lower pricing, higher depreciationinflation, primarily labor and amortization related to purchase accounting for the acquisitions,benefits and operational issues related to the onboarding of new or transferred business.
Europe Paperboard Packaging - Sales decreased primarily due toexternal board, unfavorable foreign currency exchange rates and lower pricing, partially offset by higher volume due to new product introductions.outsourcing costs.
Income from Operations decreased due to unfavorable foreign currency exchange rates and lower pricing, partially offset by improved operating performance and cost savings.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as its ability to generate sufficient funds from both internal and external sources to meet its obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.
Cash Flows
| | | | | | | | |
| Years Ended December 31, |
| In millions | 2020 | 2019 |
| Net Cash Provided by Operating Activities | $ | 824.7 | | $ | 665.8 | |
| Net Cash Used in Investing Activities | $ | (647.8) | | $ | (224.3) | |
| Net Cash Used in Financing Activities | $ | (152.0) | | $ | (360.8) | |
|
| | | | | | |
| | Years Ended December 31, |
| In millions | 2017 | 2016 |
| Net Cash Provided by Operating Activities | $ | 516.2 |
| $ | 641.4 |
|
| Net Cash Used in Investing Activities | $ | (440.6 | ) | $ | (632.5 | ) |
| Net Cash Used In Financing Activities | $ | (69.8 | ) | $ | (3.1 | ) |
Effective January 1, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230); Classification of Certain Cash Receipts and Cash Payments, which required the Company to classify consideration received for beneficial interest obtained for transferring trade receivables as investing activities instead of operating activities.
Net cash provided by operating activities in 20172020 totaled $516.2$824.7 million, compared to $641.4$665.8 million in 2016.2019. The decreaseincrease was due primarily to lower operating resultsthe restructuring of certain of the Company's accounts receivable sale and securitization programs as discussed above.well as improved operations as compared to prior year. Pension contributions in 20172020 and 2019 were $119.1$19.1 million including an additional $75and $11.3 million, contribution made in the fourth quarter to the Company's U.S. defined benefit plan. This additional contribution will allow the Company to begin the processrespectively.
Net cash used in investing activities in 20172020 totaled $440.6$647.8 million, compared to $632.5$224.3 million in 2016. Current year activities consisted primarily of capital2019. Capital spending of $260.1was $646.3 million and $189.4$352.9 million in 2020 and 2019, respectively. In 2020, the Company paid approximately $41 million and $80 million for the 2017 Acquisitions, netQuad and Greif acquisitions, respectively. Net beneficial interest decreased as a result of cash acquired.the restructuring of certain of the Company's accounts receivable sale and securitization programs. In the prior year, capital spending was $294.6 million and the Company paid $332.7$54.5 million, net of cash acquired, for the 20162019 Acquisitions. Net cash receipts related to the accounts receivable securitization and sale programs were $127.0 million and $187.7 million in 2020 and 2019, respectively.
Net cash used in financing activities in 20172020 totaled $69.8$152.0 million, compared to $3.1$360.8 million used in financing activities in 2016.2019. Current year activities include a debt offering of $450 million aggregate principal amount of 3.50% senior notes due 2028, and a debt offering of $350 million aggregate principal amount of 3.50% senior notes due 2029. The Company used the net proceeds to repay outstanding borrowings under its senior secured revolving credit facility. The Company also paid $500 million toward the redemption of IP's ownership interest in GPIP. Additionally, the Company made borrowings under revolving credit facilities of $112.1 million, primarily for the 2017 Acquisitions, additional pension contributionscapital spending, redemption of $81.8IP's ownership interest, repurchase of common stock of $315.6 million and payments on debt of $25.0$36.5 million. The Company also paid dividends and distributions of $93.4$102.8 million repurchased $62.1 million of its common stock, and withheld $10.2$9.1 million of restricted stock units to satisfy tax withholding paymentsobligations related to the payout of restricted stock units. In the prior year, the Company completed itshad a debt offering of $300 million aggregate principal amount of 4.125%4.75% senior notes due 2024 in a registered public offering and used the net proceeds to repay a portion of its outstanding borrowings under its senior secured revolving credit facility.2027. The Company also made net paymentsborrowings under revolving credit facilities primarily for capital spending, repurchase of $35.8stock of $128.8 million and payments on debt of $25.0$36.5 million. Additionally, theThe Company also paid dividends and distributions of $64.4$112.7 million repurchased $164.9 million of its common stock, and withheld $11.3$4.1 million of restricted stock units to satisfy tax withholding payments related to the payout of restricted stock units.
Liquidity and Capital Resources
The Company's liquidity needs arise primarily from debt service on its indebtedness and from the funding of its capital expenditures, debt service on its indebtedness, ongoing operating costs, working capital, share repurchases and dividend payments. Principal and interest payments under the term loan facilities and the revolving credit facilities, together with principal and interest payments on the Company's 4.75% Senior Notes due 2021 (redeemed in January 2021), 4.875% Senior Notes due 2022, and 4.125% Senior Notes due 2024, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028, and 3.50% Senior Notes due 2029 (the “Notes”), represent liquidity requirements for the Company. Based upon current levels of operations, anticipated cost savings and expectations as to future growth, the Company believes that cash generated from operations, together with amounts available under its revolving credit facilities and other available financing sources, will be adequate to permit the Company to meet its debt service obligations, necessary capital expenditure program requirements and ongoing operating costs and working capital needs, although no assurance can be given in this regard. The Company's future financial and operating performance, ability to service or refinance its debt and ability to comply with the covenants and restrictions contained in its debt agreements (see “Covenant Restrictions” below) will be subject to future economic conditions, including conditions in the credit markets, and to financial, business and other factors, many of which are beyond the Company's control, and will be substantially dependent on the selling prices and demand for the Company's products, raw material and energy costs, and the Company's ability to successfully implement its overall business and profitability strategies.
As of December 31, 2017, the Company had approximately $327 million of NOLs for U.S. federal income tax purposes. These NOLs generally may be used by the Company to offset taxable income earned in subsequent taxable years.
Accounts receivable are stated at the amount owed by the customer, net of an allowance for estimated uncollectible accounts, returns and allowances, and cash discounts. The allowance for doubtful accounts is estimated based on historical experience, current economic conditions and the creditworthiness of customers. Receivables are charged to the allowance when determined to be no longer collectible.
In addition to existing receivable sale programs from prior years, the
The Company has entered into a receivable securitization agreement in the fourth quarter of 2017agreements to sell, on a revolving basis, certain trade accounts receivable to a third party financial institution (the “2017 Agreement”). The 2017 Agreement and existinginstitutions. Transfers under these agreements are referred to collectively as the "Agreements" and meet the requirements to be accounted for as sales in accordance with the Transfers and Servicing topic of the FASB Codification. During 2017, under these Agreements, the Company sold and derecognized $1.8 billion of receivables, collected $1.6 billion on behalf of the financial institutions, and received funding of approximately $134 million by the financial institutions, resulting in deferred proceeds of approximately $102 million as of December 31, 2017. During 2016 under the Agreements, the Company sold and derecognized $1.3 billion of receivables, collected approximately $1.2 billion on behalf of the financial institutions, and received funding of approximately $116 million by the financial institutions, resulting in deferred proceeds of
approximately $31 million as of December 31, 2016. Cash proceeds related to the sales are included in cash from operating activities on the Consolidated Statements of Cash Flows in the Changes in Operating Assets and Liabilities line item.Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification"). The loss on sale is not material and is included in Other Expense, (Income), Net line item on the Consolidated Statement of Operations. The following table summarizes the activity under these programs for the year ended December 31, 2020 and 2019, respectively:
| | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 |
| Receivables Sold and Derecognized | $ | 2,849.8 | | $ | 2,654.2 | |
| Proceeds Collected on Behalf of Financial Institutions | 2,787.4 | | 2,254.9 | |
| Net Proceeds Received From Financial Institutions | 54.9 | | 66.5 | |
Deferred Purchase Price at December 31(a) | 5.3 | | 0.7 | |
| Pledged Receivables at December 31 | 201.0 | | 177.5 | |
(a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.
The Company has also entered into various factoring and supply chain financing arrangements which also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the years ended December 31, 20172020 and 2016,2019, the Company sold receivables of approximately $64$368 million and $66$238 million, respectively, related to these factoring arrangements.
Receivables sold under all programs subject to continuing involvement, which consist principally of collection services, were approximately $583$621 million and $376$562 million as of December 31, 20172020 and 2016,2019, respectively.
Covenant Restrictions
Covenants contained in the Amended and Restated Credit Agreement, the Term LoanCurrent Credit Agreement and the Indentures may, among other things, limit the ability to incur additional indebtedness, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase shares, pay dividends and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the indentures under which the Notes are issued, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions, together with disruptions in the credit markets, could limit the Company's ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.
Under the terms of the Amended and RestatedCurrent Credit Agreement, the Company must comply with a maximum Consolidated Total Leverage Ratio covenant and a minimum Consolidated Interest Expense Ratio covenant. The Third Amended and Restated Credit Agreement, which contains the definitions of these covenants, was filed as an exhibit to the Company's Form 8-K filed on January 2, 2018.
The Current Credit Agreement requires that the Company must maintain a maximum Consolidated Total Leverage Ratio of less than 4.25 to 1.00. At December 31, 2017,2020, the Company was in compliance with the Consolidated Total Leverage Ratiosuch covenant in the Credit Agreement and the ratio was 3.013.07 to 1.00.
The Company must also comply with a minimum Consolidated Interest Expense Ratio of 3.00 to 1.00. At December 31, 2017,2020, the Company was in compliance with the minimum Consolidated Interest Expense Ratiosuch covenant in the Credit Agreement and the ratio was 8.668.89 to 1.00.
As of December 31, 2017,2020, the Company's credit was rated BB+ by Standard & Poor's and Ba1 by Moody's Investor Services. Standard & Poor's and Moody's Investor Services' ratings on the Company included a stable outlook.
Capital Investment
The Company’s capital investmentinvestments in 2017 was $264.52020 were $651.3 million ($260.1646.3 million was paid), compared to $280.0$359.1 million ($294.6352.9 million was paid) in 2016.2019. During 2017,2020, the Company had capital spending of $213.1$605.7 million for improving process capabilities, $32.2$15.4 million for capital spares and $19.2$30.2 million for manufacturing packaging machinery.
Environmental Matters
Some of the Company’s current and former facilities are the subject of environmental investigations and remediations resulting from historical operations and the release of hazardous substances or other constituents. Some current and former facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future or for which indemnification claims may be asserted against the Company. Also, closures or sales of facilities may necessitate further investigation and may result in remediation at those facilities. The Company has established reserves for those facilities or issues where liability is probable and the costs are reasonably estimable.
For further discussion of the Company’s environmental matters, see Note 1314 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
Contractual Obligations and Commitments
A summary of our contractual obligations and commitments as of December 31, 20172020 is as follows:
| | | | | | | | | | | | | | | | | |
| Payments Due by Period |
| In millions | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years |
| Debt Obligations | $ | 3,527.2 | | $ | 492.2 | | $ | 1,631.3 | | $ | 300.5 | | $ | 1,103.2 | |
| Operating Leases | 234.0 | 64.1 | 92.0 | 43.6 | 34.3 |
| Finance Leases | 207.8 | 12.6 | 24.6 | 24.9 | 145.7 |
| Interest Payable | 464.5 | 98.9 | 150.0 | 104.8 | 110.8 |
Purchase Obligations(a) | 691.8 | 379.4 | 157.5 | 96.1 | 58.8 |
| | | | | |
Total Contractual Obligations(b) | $ | 5,125.3 | | $ | 1,047.2 | | $ | 2,055.4 | | $ | 569.9 | | $ | 1,452.8 | |
|
| | | | | | | | | | | | | | | |
| | Payments Due by Period |
| In millions | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years |
| Debt Obligations | $ | 2,257.0 |
| $ | 59.1 |
| $ | 1,215.5 |
| $ | 676.0 |
| $ | 306.4 |
|
| Operating Leases | 171.4 |
| 42.9 |
| 60.5 |
| 41.7 |
| 26.3 |
|
| Capital Leases | 41.1 |
| 3.7 |
| 6.8 |
| 6.1 |
| 24.5 |
|
| Interest Payable | 322.7 |
| 102.4 |
| 134.1 |
| 60.4 |
| 25.8 |
|
Purchase Obligations (a) | 667.7 |
| 151.8 |
| 129.4 |
| 75.9 |
| 310.6 |
|
Total Contractual Obligations (b) | $ | 3,459.9 |
| $ | 359.9 |
| $ | 1,546.3 |
| $ | 860.1 |
| $ | 693.6 |
|
(a)Purchase obligations primarily consist of commitments related to pine pulpwood, wood chips,for the purchase of fiber and woodchip processing andalong with commitments associated with building the new CRB paper machine in Kalamazoo, Michigan.
handling.(b) Certain amounts included in this table are based on management’s estimates and assumptions about these obligations. Because these estimates and assumptions are necessarily subjective, the obligations the Company will actually pay in the future periods may vary from those reflected in the table.
| |
(b)
| Certain amounts included in this table are based on management’s estimates and assumptions about these obligations. Because these estimates and assumptions are necessarily subjective, the obligations the Company will actually pay in the future periods may vary from those reflected in the table. |
International Operations
For 2017,2020, before intercompany eliminations, net sales from operations outside of the U.S. represented approximately 17%21% of the Company’s net sales. The Company’s revenues from export sales fluctuate with changes in foreign currency exchange rates. At December 31, 2017,2020, approximately 22%16.0% of the Company’s total assets were denominated in currencies other than the U.S. dollar. The Company has significant operations in countries that use the euro, British pound sterling, the Australian dollar, the Canadian dollar, the Mexico peso or the Japanese yen as their functional currencies. The effect of changes in the U.S. dollar exchange rate against these currencies produced a net currency translation adjustment lossgain of $44.9$17.7 million, which was recorded in Other Comprehensive (Loss) Income for the year ended December 31, 2017.2020. The magnitude and direction of this adjustment in the future depends on the relationship of the U.S. dollar to other currencies. The Company pursues a currency hedging program in order to reduce the impact of foreign currency exchange fluctuations on financial results. See “Financial Instruments” below.
Financial Instruments
The Company pursues a currency hedging program which utilizes derivatives to reduce the impact of foreign currency exchange fluctuations on its consolidated financial results. Under this program, the Company has entered into forward exchange contracts in the normal course of business to hedge certain foreign currency denominated transactions. Realized and unrealized gains and losses on these forward contracts are included in the measurement of the basis of the related foreign currency transaction when recorded. The Company also pursues a hedging program that utilizes derivatives designed to manage risks associated with future variability in cash flows and price risk related to future energy cost increases. Under this program, the Company has entered into natural gas swap contracts to hedge a portion of its forecasted natural gas usage for 2018.2021 and 2022. Realized gains and losses on these contracts are included in the financial results concurrently with the recognition of the commodity consumed. TheIn addition, the Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. The Company does not hold or issue financial instruments for trading purposes. See “Item 7A., Quantitative and Qualitative Disclosure About Market Risk.”
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIESJUDGEMENTS AND ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates, and changes in these estimates are recorded when known. The critical accounting policies used by management in the preparation of the Company’s consolidated financial statements are those that are important both to the presentation of the Company’s financial condition and results of operations and require significant judgments by management with regard to estimates used. The critical judgments by management relate to pension benefits, retained insurable risks, future cash flows associated with impairment testing for goodwill and long-lived assets, and deferred income taxes.
• Pension Benefits
The Company sponsors defined benefit pension plans (the “Plans”) for eligible employees in North America and certain international locations. The funding policy for the U.S. qualified defined benefit plans is to, at a minimum, contribute assets as required by the Internal Revenue Code Section 412. Nonqualified defined benefit U.S. plans providing benefits in excess of limitations imposed by the U.S. income tax code are not funded.
The Company’s pension incomeexpense for defined benefit pension plans was $5.5$167.9 million in 20172020 compared with pension expense of $22.4to $54.9 million in 2016.2019. The 2020 expense includes a $153.7 million charge associated with the termination and settlement of its largest U.S. plan. The 2019 expense includes a $39.2 million charge associated with lump-sum settlements with certain participants. Pension expense is calculated based upon a number of actuarial assumptions applied to each of the defined benefit plans.
The weighted average expected long-term rate of return on pension fund assets used to calculate pension expense was 5.79%4.12% and 5.90%4.74% in 20172020 and 2016,2019, respectively. The expected long-term rate of return on pension assets was determined based on several factors, including historical rates of return, input from our pension investment consultants and projected long-term returns of broad equity and bond indices. The Company evaluates its long-term rate of return assumptions annually and adjusts them as necessary.
The Company determined pension expense using both the fair value of assets and a calculated value that averages gains and losses over a period of years. Investment gains or losses represent the difference between the expected and actual return on assets. As of December 31, 2017,2020, the net actuarial loss was $267.1$105.5 million. These net losses may increase future pension expense if not offset by (i) actual investment returns that exceed the assumed investment returns, or (ii) other factors, including reduced pension liabilities arising from higher discount rates used to calculate pension obligations, or (iii) other actuarial gains, including whether such accumulated actuarial losses at each measurement date exceed the “corridor” determined under the Compensation — Retirement Benefits topic of the FASB Codification. For the largest plan, theThe actuarial loss is amortized over the average remaining life expectancy period of employees expected to receive benefits.
The discount rate used to determine the present value of future pension obligations at December 31, 20172020 was based on a yield curve constructed from a portfolio of high-quality corporate debt securities with maturities ranging from 1 year to 30 years. Each year’s expected future benefit payments were discounted to their present value at the spot yield curve rate thereby generating the overall discount rate for the Company’s pension obligations. The weighted average discount rate used to determine the pension obligations was 3.49%2.11% and 4.01%2.69% in 20172020 and 2016,2019, respectively.
The Company’s pension expense is estimated to be approximately $3$13.3 million in 2018.2021. The estimate is based on a weighted average expected long-term rate of return of 4.86%3.59%, a weighted average discount rate of 3.49%2.11% and other assumptions. Pension expense beyond 20182020 will depend on future investment performance, the Company’s contribution to the plans, changes in discount rates and other factors related to covered employees in the plans. Beginning in 2016, the Company changed its methodology of calculating the service and interest cost components of pension expense from using a yield curve aggregate approach to using individual spot rates along the yield curve.
If the discount rate assumptions for the Company’s U.S. plans were reduced by 0.25%, pension expense would increase by approximately $41 thousand$1 million and the December 31, 20172020 projected benefit obligation would increase approximately $33$10 million.
The fair value of assets in the Company’s plans was $1,340.7$516.3 million at December 31, 20172020 and $1,115.6$1,172.4 million at December 31, 2016.2019. The projected benefit obligations exceed the fair value of plan assets by $26.4$76.5 million and $163.4$83.0 million as of December 31,
2017 2020 and 2016,2019, respectively. The accumulated benefit obligation (“ABO”) exceeded the fair value of plan assets by $18.7$71.8 million at the end of 2017.2020. At the end of 2016,2019, the ABO exceeded the fair value of plan assets by $154.4$77.4 million.
• Retained Insurable Risks
The Company is self-insured for certain losses relating to workers’ compensation claims and employee medical and dental benefits. Provisions for expected losses are recorded based on the Company’s estimates, on an undiscounted basis, of the aggregate liabilities for known claims and estimated claims incurred but not reported. The Company has purchased stop-loss coverage or insurance with deductibles in order to limit its exposure to significant claims. The Company also has an extensive safety program in place to minimize its exposure to workers’ compensation claims. Self-insured losses are accrued based upon estimates of the aggregate uninsured claims incurred using certain actuarial assumptions, loss development factors followed in the insurance industry and historical experience.
• Goodwill
The Company evaluates goodwill for potential impairment annually as of October 1, as well as whenever events or changes in circumstances suggest that the fair value of a reporting unit may no longer exceed its carrying amount. Potential impairment of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit. As of October 1, 2017,2020, the Company had sixseven reporting units, fourfive of which had goodwill.
Periodically, the Company may perform a qualitative impairment analysis of goodwill associated with each of its reporting units to determine if it is more likely than not that the carrying value of a reporting unit exceeded its fair value. If the results of the qualitative analysis of any of the reporting units is inconclusive, or other facts or circumstances necessitate further analysis,if significant changes in the business have occurred since the last quantitative impairment assessment, the Company will perform a quantitative analysis for those reporting units.
As of October 1, 2020, the Company performed a quantitative impairment test. The quantitative analysis involves calculating the fair value of each reporting unit by utilizing a discounted cash flow analysis based on the Company’s forecasts,business plans, discounted using a weighted average cost of capital and market indicators of terminal year cash flows based upon a multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA").
In determiningEstimating the fair value of the reporting unit involves uncertainties as it requires management relies on and considersto consider a number of factors, including but not limited to, future operating results, business plans, economic projections forecasts including anticipatedof revenues and operating margins, estimated future cash flows, and market data and analysis, including market capitalization. Fair value determinations are sensitive to changes in the factors described above. There are inherent uncertainties related to these factors and judgments in applying themused to estimate reporting unit fair value and the related analysis of potential goodwill impairment.
The variability of the assumptions that management uses to perform the goodwill impairment test depends on a number of conditions, including uncertainty about future events and cash flows. Accordingly, the Company’s accounting estimates may materially change from period to period due to changing market factors. If the Company had used other assumptions and estimates or if different conditions occur in future periods, future operating results and cash flows could be materially impacted.
impacted, and judgments and conclusions about the recoverability of goodwill could change. The assumptions used in the goodwill impairment testing process could also be adversely impacted by certain of the risks discussed in “Item 1A., Risk Factors” and thus could result in future goodwill impairment charges.
The Company performed its annual goodwill impairment tests as of October 1, 20172020. The Company concluded that all reporting units with goodwill have a fair value that exceeds their carrying value, and concluded thatthus goodwill was not impaired. The discount rate used for each reporting unit ranged from 7.0% to 8.0%, and we utilized an EBITDA multiple of 8.5 times to calculate terminal period cash flows. The Foodservice and Australia reporting units had fair values that exceed their respective carrying values by 17% and 37%, respectively, whereas all other reporting units exceeded by more than 45%. If we had concluded that it was appropriate to increase the discount rate we used by 100 basis points to estimate the fair value of our respective reporting units, the fair value of each reporting unit would have continued to exceed its carrying amount. The Foodservice and Australia reporting units had goodwill totaling $42.9 million and $14.7 million, respectively. The Company does not believe it is likely that there will be material changes in the assumptions or estimates used to calculate the reporting unit fair values.
• Recovery of Long-Lived Assets
The Company evaluates the recovery of its long-lived assets by analyzing operating results and considering significant events or changes in the business environment that may have triggered impairment. The Company reviews long-lived assets (including property, plant and equipment and intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of such long-lived assets may not be fully recoverable by undiscounted cash flows. Measurement of the impairment loss, if any, is based on the fair value of the asset, which is determined by an income, cost or market approach. The Company evaluates the recovery of its long-lived assets by analyzing operating results and considering significant events or changes in the business environment that may have triggered impairment.
• Deferred Income Taxes and Potential Assessments
According to the Income Taxes topic of the FASB Codification, a valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The FASB Codification provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. The Company has evaluated the need to maintain a valuation allowance for deferred tax assets based on its assessment of whether it is more likely than not that deferred tax benefits would be realized through the generation of future taxable income. Appropriate consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. In determining whether a valuation allowance is required, many factors are considered, including the specific taxing jurisdiction, the carryforward period, reversals of existing taxable temporary differences, cumulative pretax book earnings, income tax strategies and forecasted earnings for the entities in each jurisdiction.
As of December 31, 2017,2020, the Company has recorded a valuation allowance of $51.5$34.4 million against its net deferred tax assets in certain foreign jurisdictions and against domestic deferred tax assets related to certain federal tax credit carryforwards, certain state net operating loss carryforwards and federal capital losscertain state tax credit carryforwards. As of December 31, 2016,2019, a total valuation allowance of $45.5$41.1 million was recorded.
As of December 31, 2017,2020, the Company has only provided for deferred U.S. income taxes attributable to future withholding tax expense related to the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd. In addition, the Company provided deferred income taxes for future Canadian withholding tax to the extent of excess cash available for distribution after consideration of working capital needs and other debt settlement of its Canadian subsidiary, Graphic Packaging International Canada, ULC. During the year ended December 31, 2020, the Company distributed its remaining paid-up capital in Canada and as a result, the Company expects to incur Canadian withholding tax on future distributions. The Company continues to assert that it is permanently reinvested in the cumulative earnings of its Canadian subsidiary in excess of the amount of cash that is on hand and available for distribution after consideration of working capital needs and other debt settlement. Due to the deemed taxation of all post-1986 earnings and profits required by the Act, the Company has determined that no deferred tax liability should be recorded related to the outside basis difference of its Canadian subsidiary of approximately $51.4 million as of December 31, 2020.
The Company has not provided for deferred U.S. income taxes on anyoutside basis differences of approximately $55 million in its undistributed earnings inother international subsidiaries because of the Company’s intention to indefinitely reinvest these earnings outside the U.S. The Company’s assertion with respect to these subsidiaries remains unchanged, despite the deemed taxation of all post-1986 earnings and profits required by the Act. In addition, the Company’s intention to indefinitely reinvest these earnings outside the U.S. remains unchanged, despite the effect of the Act. The determination of the amount of the unrecognized deferred U.S. income tax liability (primarily withholding tax in certain jurisdictions and some state tax) on the unremitted earnings or any other associated outside basis differencedifferences is not practicable because of the complexities associated with the calculation.
The Company records liabilitieshas elected to recognize global intangible low-taxed income (“GILTI”) as period cost as incurred, therefore there are no deferred taxes recognized for potential assessments. The accruals relatebasis differences that are expected to uncertain tax positions in a variety of taxing jurisdictions and are based on what management believes will beimpact the most likely outcome of these positions. These liabilities may be affected by changing interpretations of laws, rulings by tax authorities, or the expirationamount of the statute of limitations.GILTI inclusion upon reversal.
NEW ACCOUNTING STANDARDS
For a discussion of recent accounting pronouncements impacting the Company, see Note 1 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
BUSINESS OUTLOOK
Total capital investment for 20182021 is expected to be approximately $380in the range of $690 million and is expected to relate principally to the Company’s process capability improvements (approximately $320 million), acquiring capital spares (approximately $50 million), and producing packaging machinery (approximately $10 million).$710 million.
The Company also expects the following in 2018, subject to finalization of purchase accounting for the 2017 acquisitions and the Consumer Packaging Combination:2021:
• Depreciation and amortization expense between $430 million and $450of approximately $460 million, excluding approximately $6$5 million of pension amortization.
Interest expense of $125 million to $135 million, including approximately $6 million to $7amortization and $24 million of non-cash interest expense associated with amortization of debt issuance costs.accelerated depreciation related to exit activities.
• Pension plan contributions of $5between $10 million to $10and $20 million.
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not trade or use derivative instruments with the objective of earning financial gains on interest or currency rates, nor does it use leveraged instruments or instruments where there are no underlying exposures identified.
Interest Rates
The Company is exposed to changes in interest rates, primarily as a result of its short-term and long-term debt, which include both fixed and floating rate debt. The Company uses interest rate swap agreements effectively to fix the LIBOR rate on certain variable rate borrowings. At December 31, 2017,2020, the Company had active interest rate swap agreements with a notional amount of $250$200 million which will mature on October 1, 2018.expiring in January 2022.
The table below sets forth interest rate sensitivity information related to the Company’s debt.
Long-Term Debt Principal Amount by Maturity-Average Interest Rate
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expected Maturity Date | | |
In millions | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value |
| Total Debt | | | | | | | | |
| Fixed Rate | $ | 425.0 | | $ | 250.7 | | $ | 0.5 | | $ | 300.5 | | $ | — | | $ | 1,103.2 | | $ | 2,079.9 | | $ | 2,173.0 | |
| Average Interest Rate | 4.75 | % | 4.86 | % | 1.73 | % | 4.12 | % | — | % | 3.83 | % | | |
| Variable Rate | $ | 63.9 | | $ | 127.7 | | $ | 1,252.4 | | $ | — | | $ | — | | $ | — | | $ | 1,444.0 | | $ | 1,451.7 | |
| LIBOR + Spread | LIBOR + Spread | LIBOR + Spread | — | | — | | — | | — | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date |
In millions | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair Value |
| Total Debt | | | | | | | | |
| Fixed Rate | $ | 50.0 |
| $ | 200.8 |
| $ | 1.6 |
| $ | 425.4 |
| $ | 250.6 |
| $ | 306.4 |
| $ | 1,234.8 |
| $ | 1,284.0 |
|
| Average Interest Rate | 2.66 | % | 2.65 | % | 1.08 | % | 4.75 | % | 4.87 | % | 4.06 | % |
|
|
|
|
| Variable Rate | $ | — |
| $ | 994.0 |
| $ | 19.1 |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,013.1 |
| $ | 1,015.1 |
|
| Average Swap Rate is .8% — 1.4% | — |
| LIBOR + Spread |
| LIBOR + Spread |
| — |
| — |
| — |
|
|
|
|
|
Total Interest Rate Swaps-Notional Amount by Expiration-Average Swap Rate
| | | | | | | | | | | | | | | | | | | | | | | | |
| Expected Maturity Date | | |
In millions | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |
| Notional | $ | — | | $ | 200.0 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 200.0 | | |
| Average Pay Rate | — | % | 2.87 | % | — | % | — | % | — | % | — | % | — | % | |
| Average Receive Rate | — | | LIBOR | — | | — | | — | | — | | — | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date |
In millions | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total |
| Notional | $ | 250.0 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 250.0 |
|
| Average Pay Rate | 1.16 | % | — |
| — |
| — |
| — |
| — |
| — |
|
| Average Receive Rate | 1-Month LIBOR |
| — |
| — |
| — |
| — |
| — |
| — |
|
Foreign Exchange Rates
The Company enters into forward exchange contracts to effectively hedge substantially all accounts receivable resulting from transactions denominated in foreign currencies. The purpose of these forward exchange contracts is to protect the Company from the risk that the eventual functional currency cash flows resulting from the collection of these accounts receivable will be adversely affected by changes in exchange rates. At December 31, 2017, multiple foreign currency forward exchange contracts existed, with maturities ranging up to three months. Those forward currency exchange contracts outstanding at December 31, 2017, when aggregated and measured in U.S. dollars at December 31, 2017 exchange rates, had net notional amounts totaling $90.1 million. The Company continuously monitors these forward exchange contracts and adjusts accordingly to minimize the exposure.
The Company also enters into forward exchange contracts to hedge certain other anticipated foreign currency transactions. The purpose of these contracts is to protect the Company from the risk that the eventual functional currency cash flows resulting from anticipated foreign currency transactions will be adversely affected by changes in exchange rates.
During the years ended December 31, 20172020 and 2016,2019, there were no amounts reclassified to earnings in connection with forecasted transactions that were no longer considered probable of occurring and there was no amount of ineffectiveness related to changes in the fair value of foreign currency forward contracts. Additionally, there were no amounts excluded from the measure of effectiveness during the years ended December 31, 20172020 and 2016.2019.
Foreign Exchange Rates Contractual Amount by Expected
Maturity-Average Contractual Exchange Rate
| | | | | | | | |
| December 31, 2020 |
In millions | Contract Amount | Fair Value |
| FORWARD EXCHANGE AGREEMENTS: | | |
| Receive $US/Pay Yen | $ | 18.5 | | $ | (0.2) | |
| Weighted average contractual exchange rate | 104.1 | | |
| Receive $US/Pay Euro | $ | 53.8 | | $ | (1.6) | |
| Weighted average contractual exchange rate | 1.2 | | |
| Receive $US/Pay GBP | $ | 29.3 | | $ | (1.1) | |
| Weighted average contractual exchange rate | 1.3 | | |
|
| | | | | | |
| December 31, 2017 |
In millions | Contract Amount | Fair Value |
| FORWARD EXCHANGE AGREEMENTS: | | |
| Receive $US/Pay Yen | $ | 16.0 |
| $ | 0.2 |
|
| Weighted average contractual exchange rate | 110.19 |
| |
| Receive $US/Pay Euro | $ | 30.7 |
| $ | (0.4 | ) |
| Weighted average contractual exchange rate | 1.20 |
| |
| Receive $US/Pay GBP | $ | 19.4 |
| $ | (0.3 | ) |
| Weighted average contractual exchange rate | 1.34 |
| |
Derivatives not Designated as Hedges
The Company enters into forward exchange contracts to effectively hedge substantially all receivables resulting from transactions denominated in foreign currencies. The purpose of these forward exchange contracts is to protect the Company from the risk that the eventual functional currency cash flows resulting from the collection of these receivables will be adversely affected by changes in exchange rates. At December 31, 2020, multiple foreign currency forward exchange contracts existed, with maturities ranging up to two months. Those forward currency exchange contracts outstanding at December 31, 2020, when aggregated and measured in U.S. dollars at December 31, 2020 contractual rates, had net notional amounts totaling $80.0 million. The Company continuously monitors these forward exchange contracts and adjusts accordingly to minimize the exposure.
Natural Gas Contracts
The Company has hedged a portion of its expected natural gas usage for 2018.2021 and 2022. The carrying amount and fair value of the natural gas swap contracts is a net liabilityasset of $0.5$2.1 million as of December 31, 2017.2020. Such contracts are designated as cash flow hedges and are accounted for by deferring the quarterly change in fair value of the outstanding contracts in Accumulated Other Comprehensive (Loss), IncomeLoss in Shareholders’ Equity. The resulting gain or loss is reclassified into Cost of Sales concurrently with the recognition of the commodity consumed. The ineffective portion
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
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| Page |
| GRAPHIC PACKAGING HOLDING COMPANY | |
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Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 31, 20172020 | |
| |
| |
| |
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GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions, except per share amounts | 2020 | 2019 | 2018 |
| Net Sales | $ | 6,559.9 | | $ | 6,160.1 | | $ | 6,029.4 | |
| Cost of Sales | 5,459.7 | | 5,067.5 | | 5,077.0 | |
| Selling, General and Administrative | 512.6 | | 511.8 | | 472.1 | |
| Other Expense, Net | 2.0 | | 8.8 | | 7.2 | |
| Business Combinations, Shutdown and Other Special Charges, Exit Activities and Gain on Sale of Assets, Net | 61.3 | | 37.9 | | 14.9 | |
| Income from Operations | 524.3 | | 534.1 | | 458.2 | |
| Nonoperating Pension and Postretirement Benefit (Expense) Income | (151.5) | | (39.5) | | 14.9 | |
| Interest Expense, Net | (128.8) | | (140.6) | | (123.7) | |
| Loss on Modification or Extinguishment of Debt | 0 | | 0 | | (1.9) | |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | 244.0 | | 354.0 | | 347.5 | |
| Income Tax Expense | (41.6) | | (76.3) | | (54.7) | |
| Income before Equity Income of Unconsolidated Entity | 202.4 | | 277.7 | | 292.8 | |
| Equity Income of Unconsolidated Entity | 0.9 | | 0.4 | | 1.2 | |
| Net Income | $ | 203.3 | | $ | 278.1 | | $ | 294.0 | |
| Net Income Attributable to Noncontrolling Interests | (36.0) | | (71.3) | | (72.9) | |
| Net Income Attributable to Graphic Packaging Holding Company | $ | 167.3 | | $ | 206.8 | | $ | 221.1 | |
| | | |
| Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic | $ | 0.60 | | $ | 0.70 | | $ | 0.71 | |
| Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted | $ | 0.60 | | $ | 0.70 | | $ | 0.71 | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions, except per share amounts | 2017 | 2016 | 2015 |
| Net Sales | $ | 4,403.7 |
| $ | 4,298.1 |
| $ | 4,160.2 |
|
| Cost of Sales | 3,684.2 |
| 3,506.2 |
| 3,371.1 |
|
| Selling, General and Administrative | 342.7 |
| 355.7 |
| 347.7 |
|
| Other Expense (Income), Net | 3.0 |
| 3.1 |
| (7.7 | ) |
| Business Combinations and Shutdown and Other Special Charges, Net | 31.1 |
| 37.1 |
| 22.0 |
|
| Income from Operations | 342.7 |
| 396.0 |
| 427.1 |
|
| Interest Expense, Net | (89.7 | ) | (76.6 | ) | (67.8 | ) |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | 253.0 |
| 319.4 |
| 359.3 |
|
| Income Tax Benefit (Expense) | 45.5 |
| (93.2 | ) | (130.4 | ) |
| Income before Equity Income of Unconsolidated Entity | 298.5 |
| 226.2 |
| 228.9 |
|
| Equity Income of Unconsolidated Entity | 1.7 |
| 1.8 |
| 1.2 |
|
| Net Income | $ | 300.2 |
| $ | 228.0 |
| $ | 230.1 |
|
| | | | |
| Net Income Per Share — Basic | $ | 0.97 |
| $ | 0.71 |
| $ | 0.70 |
|
| Net Income Per Share — Diluted | $ | 0.96 |
| $ | 0.71 |
| $ | 0.70 |
|
The accompanying notes are an integral part of the consolidated financial statements.
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 |
| In millions | Graphic Packaging Holding Company | Noncontrolling Interest | Redeemable Noncontrolling Interest | Total |
| Net Income (Loss) | $ | 167.3 | | $ | 39.2 | | $ | (3.2) | | $ | 203.3 | |
| Other Comprehensive Income (Loss), Net of Tax | | | | |
| Derivative Instruments | 3.5 | | 0.7 | | (0.1) | | 4.1 | |
| Pension and Postretirement Benefit Plans | 99.9 | | 29.4 | | 9.5 | | 138.8 | |
| Currency Translation Adjustment | 16.5 | | 1.7 | | (0.5) | | 17.7 | |
| | | | |
| | | | |
| Total Other Comprehensive Income, Net of Tax | 119.9 | | 31.8 | | 8.9 | | 160.6 | |
| Total Comprehensive Income | $ | 287.2 | | $ | 71.0 | | $ | 5.7 | | $ | 363.9 | |
| 2019 |
| Net Income | $ | 206.8 | | $ | 55.0 | | $ | 16.3 | | $ | 278.1 | |
| Other Comprehensive (Loss) Income, Net of Tax: | | | | |
| Derivative Instruments | (5.3) | | (1.5) | | (0.4) | | (7.2) | |
| Pension and Postretirement Benefit Plans | 7.6 | | 2.3 | | 0.7 | | 10.6 | |
| Currency Translation Adjustment | 9.8 | | 2.1 | | 0.5 | | 12.4 | |
| Total Other Comprehensive Income, Net of Tax | 12.1 | | 2.9 | | 0.8 | | 15.8 | |
| Total Comprehensive Income | $ | 218.9 | | $ | 57.9 | | $ | 17.1 | | $ | 293.9 | |
| 2018 |
| Net Income | $ | 221.1 | | $ | 56.3 | | $ | 16.6 | | $ | 294.0 | |
| Other Comprehensive Loss, Net of Tax: | | | | |
| Derivative Instruments | (1.0) | | (0.2) | | (0.1) | | (1.3) | |
| Pension and Postretirement Benefit Plans | (19.4) | | (4.7) | | (1.4) | | (25.5) | |
| Currency Translation Adjustment | (18.7) | | (4.5) | | (1.3) | | (24.5) | |
| Total Other Comprehensive Loss, Net of Tax | (39.1) | | (9.4) | | (2.8) | | (51.3) | |
| Total Comprehensive Income | $ | 182.0 | | $ | 46.9 | | $ | 13.8 | | $ | 242.7 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | | 2016 | | 2015 |
| Net Income | $ | 300.2 |
| | $ | 228.0 |
| | $ | 230.1 |
|
| Other Comprehensive Income (Loss), Net of Tax: | | | | | |
| Derivative Instruments | (4.9 | ) | | 13.0 |
| | (0.7 | ) |
| Pension and Postretirement Benefit Plans | 8.8 |
| | 4.0 |
| | 26.8 |
|
| Currency Translation Adjustment | 44.9 |
| | (58.9 | ) | | (37.2 | ) |
| Total Other Comprehensive Income (Loss), Net of Tax | 48.8 |
| | (41.9 | ) | | (11.1 | ) |
| Total Comprehensive Income | $ | 349.0 |
| | $ | 186.1 |
| | $ | 219.0 |
|
The accompanying notes are an integral part of the consolidated financial statements.
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| December 31, |
| In millions, except share and per share amounts | 2020 | 2019 |
| ASSETS | | |
| Current Assets: | | |
| Cash and Cash Equivalents | $ | 179.0 | | $ | 152.9 | |
| Receivables, Net | 654.4 | | 504.5 | |
| Inventories, Net | 1,127.6 | | 1,095.9 | |
| | |
| Other Current Assets | 59.2 | | 52.3 | |
| | |
| Total Current Assets | 2,020.2 | | 1,805.6 | |
| Property, Plant and Equipment, Net | 3,560.0 | | 3,253.8 | |
| Goodwill | 1,477.6 | | 1,477.9 | |
| Intangible Assets, Net | 436.9 | | 477.3 | |
| Other Assets | 309.9 | | 275.3 | |
| Total Assets | $ | 7,804.6 | | $ | 7,289.9 | |
| | |
| LIABILITIES | | |
| Current Liabilities: | | |
| Short-Term Debt and Current Portion of Long-Term Debt | $ | 497.2 | | $ | 50.4 | |
| Accounts Payable | 825.0 | | 716.1 | |
| Compensation and Employee Benefits | 213.1 | | 168.4 | |
| Interest Payable | 30.3 | | 24.7 | |
| Other Accrued Liabilities | 291.0 | | 239.1 | |
| Total Current Liabilities | 1,856.6 | | 1,198.7 | |
| Long-Term Debt | 3,147.0 | | 2,809.9 | |
| Deferred Income Tax Liabilities | 539.6 | | 511.8 | |
| Accrued Pension and Postretirement Benefits | 129.8 | | 140.4 | |
| Other Noncurrent Liabilities | 291.3 | | 266.8 | |
| | |
| Commitments (Note 13) | | |
| Redeemable Noncontrolling Interest (Note 15) | 0 | | 304.3 | |
| | |
| SHAREHOLDERS' EQUITY | | |
| Preferred Stock, par value $.01 per share; 100,000,000 shares authorized; 0 shares issued or outstanding | 0 | | 0 | |
| Common Stock, par value $.01 per share; 1,000,000,000 shares authorized; 267,726,373 and 290,246,907 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively | 2.7 | | 2.9 | |
| Capital in Excess of Par Value | 1,714.6 | | 1,876.7 | |
| (Accumulated Deficit) Retained Earnings | (47.1) | | 56.4 | |
| Accumulated Other Comprehensive Loss | (245.9) | | (365.8) | |
| Total Graphic Packaging Holding Company Shareholders' Equity | 1,424.3 | | 1,570.2 | |
| Noncontrolling Interest | 416.0 | | 487.8 | |
| Total Equity | 1,840.3 | | 2,058.0 | |
| Total Liabilities and Shareholders' Equity | $ | 7,804.6 | | $ | 7,289.9 | |
|
| | | | | | |
| | December 31, |
| In millions, except share and per share amounts | 2017 | 2016 |
| ASSETS | | |
| Current Assets: | | |
| Cash and Cash Equivalents | $ | 67.4 |
| $ | 59.1 |
|
| Receivables, Net | 422.8 |
| 426.8 |
|
| Inventories, Net | 634.0 |
| 582.9 |
|
| Other Current Assets | 45.7 |
| 46.1 |
|
| Total Current Assets | 1,169.9 |
| 1,114.9 |
|
| Property, Plant and Equipment, Net | 1,867.2 |
| 1,751.9 |
|
| Goodwill | 1,323.0 |
| 1,260.3 |
|
| Intangible Assets, Net | 436.5 |
| 445.3 |
|
| Other Assets | 66.4 |
| 31.0 |
|
| Total Assets | $ | 4,863.0 |
| $ | 4,603.4 |
|
| | | |
| LIABILITIES | | |
| Current Liabilities: | | |
| Short-Term Debt and Current Portion of Long-Term Debt | $ | 61.3 |
| $ | 63.4 |
|
| Accounts Payable | 516.5 |
| 466.5 |
|
| Compensation and Employee Benefits | 113.4 |
| 107.3 |
|
| Interest Payable | 14.9 |
| 15.4 |
|
| Other Accrued Liabilities | 145.3 |
| 127.2 |
|
| Total Current Liabilities | 851.4 |
| 779.8 |
|
| Long-Term Debt | 2,213.2 |
| 2,088.5 |
|
| Deferred Income Tax Liabilities | 321.8 |
| 408.0 |
|
| Accrued Pension and Postretirement Benefits | 80.0 |
| 202.5 |
|
| Other Noncurrent Liabilities | 104.7 |
| 68.1 |
|
| | | |
| Commitments and Contingencies (Note 12) |
|
|
|
|
| | | |
| SHAREHOLDERS' EQUITY | | |
| Preferred Stock, par value $.01 per share; 100,000,000 shares authorized; no shares issued or outstanding | — |
| — |
|
| Common Stock, par value $.01 per share; 1,000,000,000 shares authorized; 309,715,624 and 313,533,785 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 3.1 |
| 3.1 |
|
| Capital in Excess of Par Value | 1,683.6 |
| 1,709.0 |
|
| Accumulated Deficit | (56.0 | ) | (268.0 | ) |
| Accumulated Other Comprehensive Loss | (338.8 | ) | (387.6 | ) |
| Total Shareholders' Equity | 1,291.9 |
| 1,056.5 |
|
| Total Liabilities and Shareholders' Equity | $ | 4,863.0 |
| $ | 4,603.4 |
|
The accompanying notes are an integral part of the consolidated financial statements.
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | Capital in Excess of Par Value | (Accumulated Deficit) Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Noncontrolling Interests | Total Equity |
| In millions, except share amounts | Shares | Amount |
| Balances at December 31, 2017 | 309,715,624 | | $ | 3.1 | | $ | 1,683.6 | | $ | (56.0) | | $ | (338.8) | | $ | 0 | | $ | 1,291.9 | |
| NACP Combination | — | | — | | 308.4 | | — | | — | | 424.0 | | 732.4 | |
| Net Income | — | | — | | — | | 221.1 | | — | | 56.3 | | 277.4 | |
| Reclassification to Redeemable Noncontrolling Interest for Share Repurchases | — | | — | | — | | — | | — | | (12.5) | | (12.5) | |
| Distribution of Membership Interest | — | | — | | — | | — | | — | | (19.4) | | (19.4) | |
| Other Comprehensive Loss, Net of Tax: | | | | | | | |
| Derivative Instruments | — | | — | | — | | — | | (1.0) | | (0.2) | | (1.2) | |
| Pension and Postretirement Benefit Plans | — | | — | | — | | — | | (19.4) | | (4.7) | | (24.1) | |
| | | | | | | |
| Currency Translation Adjustment | — | | — | | — | | — | | (18.7) | | (4.5) | | (23.2) | |
| | | | | | | |
Repurchase of Common Stock(a) | (10,566,144) | | (0.1) | | (57.1) | | (62.8) | | — | | — | | (120.0) | |
| Dividends Declared | — | | — | | — | | (92.3) | | — | | — | | (92.3) | |
| Recognition of Stock-Based Compensation | — | | — | | 9.5 | | — | | — | | — | | 9.5 | |
| Issuance of Shares for Stock-Based Awards | 658,299 | | — | | — | | — | | — | | — | | 0 | |
| Balances at December 31, 2018 | 299,807,779 | | $ | 3.0 | | $ | 1,944.4 | | $ | 10.0 | | $ | (377.9) | | $ | 439.0 | | $ | 2,018.5 | |
| Net Income | — | | — | | — | | 206.8 | | — | | 55.0 | | 261.8 | |
| Reclassification to Redeemable Noncontrolling Interest for Share Repurchases | — | | — | | — | | — | | — | | 12.5 | | 12.5 | |
| Redeemable Noncontrolling Interest Redemption Value Mark-Up | — | | — | | (30.2) | | — | | — | | — | | (30.2) | |
| Distribution of Membership Interest | — | | — | | — | | — | | — | | (21.6) | | (21.6) | |
| Other Comprehensive (Loss) Income, Net of Tax: | | | | | | | |
| Derivative Instruments | — | | — | | — | | — | | (5.3) | | (1.5) | | (6.8) | |
| Pension and Postretirement Benefit Plans | — | | — | | — | | — | | 7.6 | | 2.3 | | 9.9 | |
| | | | | | | |
| Currency Translation Adjustment | — | | — | | — | | — | | 9.8 | | 2.1 | | 11.9 | |
| | | | | | | |
| Repurchase of Common Stock | (10,191,257) | | (0.1) | | (55.1) | | (72.7) | | — | | — | | (127.9) | |
| | | | | | | |
| Dividends Declared | — | | — | | — | | (87.7) | | — | | — | | (87.7) | |
| | | | | | | |
| Recognition of Stock-Based Compensation | — | | — | | 17.6 | | — | | — | | — | | 17.6 | |
| Issuance of Shares for Stock-Based Awards | 630,385 | | — | | — | | — | | — | | — | | 0 | |
| Balances at December 31, 2019 | 290,246,907 | | $ | 2.9 | | $ | 1,876.7 | | $ | 56.4 | | $ | (365.8) | | $ | 487.8 | | $ | 2,058.0 | |
| | | | | | | |
| Net Income | — | | — | | — | | 167.3 | | — | | 39.2 | | 206.5 | |
| Redeemable Noncontrolling Interest Redemption Value Adjustment | — | | — | | 12.2 | | — | | — | | — | | 12.2 | |
| Distribution of Membership Interest | — | | — | | — | | — | | — | | (19.3) | | (19.3) | |
| Other Comprehensive Income, Net of Tax: | | | | | | | |
| Derivative Instruments | — | | — | | — | | — | | 3.5 | | 0.7 | | 4.2 | |
| Pension and Postretirement Benefit Plans | — | | — | | — | | — | | 99.9 | | 29.4 | | 129.3 | |
| Currency Translation Adjustment | — | | — | | — | | — | | 16.5 | | 1.7 | | 18.2 | |
| Repurchase of Common Stock | (23,420,010) | | (0.2) | | (127.6) | | (187.8) | | — | | — | | (315.6) | |
| Redemption of IP's Ownership Interest | — | | — | | (87.4) | | — | | — | | (123.5) | | (210.9) | |
| Tax Effect IP Redemption | — | | — | | 16.0 | | — | | — | | — | | 16.0 | |
| Dividends Declared | — | | — | | — | | (83.0) | | — | | — | | (83.0) | |
| | | | | | | |
| | | | | | | |
| Recognition of Stock-Based Compensation | — | | — | | 24.7 | | — | | — | | — | | 24.7 | |
| Issuance of Shares for Stock-Based Awards | 899,476 | | — | | — | | — | | — | | — | | 0 | |
| Balances at December 31, 2020 | 267,726,373 | | $ | 2.7 | | $ | 1,714.6 | | $ | (47.1) | | $ | (245.9) | | $ | 416.0 | | $ | 1,840.3 | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | Accumulated Other Comprehensive Income (Loss) | |
| | Common Stock | Capital in Excess of Par Value | | |
| In millions, except share amounts | Shares | Amount | Accumulated Deficit | Total Equity |
| Balances at December 31, 2014 | 327,044,500 |
| $ | 3.3 |
| $ | 1,796.5 |
| $ | (452.9 | ) | $ | (334.6 | ) | $ | 1,012.3 |
|
| Net Income | — |
| — |
| — |
| 230.1 |
| — |
| 230.1 |
|
| Other Comprehensive Income (Loss), Net of Tax: | | | | | | |
| Derivative Instruments | — |
| — |
| — |
| — |
| (0.7 | ) | (0.7 | ) |
| Pension and Postretirement Benefit Plans | — |
| — |
| — |
| — |
| 26.8 |
| 26.8 |
|
| Currency Translation Adjustment | — |
| — |
| — |
| — |
| (37.2 | ) | (37.2 | ) |
| Repurchase of Common Stock | (4,625,211 | ) | (0.1 | ) | (24.4 | ) | (38.5 | ) | — |
| (63.0 | ) |
| Dividends Declared | — |
| — |
| — |
| (65.5 | ) | — |
| (65.5 | ) |
| Recognition of Stock-Based Compensation | — |
| — |
| (1.1 | ) | — |
| — |
| (1.1 | ) |
| Issuance of Shares for Stock-Based Awards | 2,269,428 |
| — |
| — |
| — |
| — |
| — |
|
| Balances at December 31, 2015 | 324,688,717 |
| $ | 3.2 |
| $ | 1,771.0 |
| $ | (326.8 | ) | $ | (345.7 | ) | $ | 1,101.7 |
|
| Net Income | — |
| — |
| — |
| 228.0 |
| — |
| 228.0 |
|
| Other Comprehensive Income (Loss), Net of Tax: | | | | | | |
| Derivative Instruments | — |
| — |
| — |
| — |
| 13.0 |
| 13.0 |
|
| Pension and Postretirement Benefit Plans | — |
| — |
| — |
| — |
| 4.0 |
| 4.0 |
|
| Currency Translation Adjustment | — |
| — |
| — |
| — |
| (58.9 | ) | (58.9 | ) |
Repurchase of Common Stock(a) | (13,202,425 | ) | (0.1 | ) | (71.2 | ) | (97.5 | ) | — |
| (168.8 | ) |
| Dividends Declared | — |
| — |
| — |
| (71.7 | ) | — |
| (71.7 | ) |
| Recognition of Stock-Based Compensation | — |
| — |
| 9.2 |
| — |
| — |
| 9.2 |
|
| Issuance of Shares for Stock-Based Awards | 1,659,493 |
| — |
| — |
| — |
| — |
| — |
|
| Balances at December 31, 2016 | 313,145,785 |
| $ | 3.1 |
| $ | 1,709.0 |
| $ | (268.0 | ) | $ | (387.6 | ) | $ | 1,056.5 |
|
| Net Income | — |
| — |
| — |
| 300.2 |
| — |
| 300.2 |
|
| Other Comprehensive Income (Loss), Net of Tax: | | | | | | |
| Derivative Instruments | — |
| — |
| — |
| — |
| (4.9 | ) | (4.9 | ) |
| Pension and Postretirement Benefit Plans | — |
| — |
| — |
| — |
| 8.8 |
| 8.8 |
|
| Currency Translation Adjustment | — |
| — |
| — |
| — |
| 44.9 |
| 44.9 |
|
| Repurchase of Common Stock | (4,462,263 | ) | — |
| (24.2 | ) | (34.2 | ) | — |
| (58.4 | ) |
| Dividends Declared | — |
| — |
| — |
| (93.1 | ) | — |
| (93.1 | ) |
| Pre-2017 Excess Tax Benefit related to Share-Based Payments | — |
| — |
| — |
| 39.1 |
| — |
| 39.1 |
|
| Recognition of Stock-Based Compensation | — |
| — |
| (1.2 | ) | — |
| — |
| (1.2 | ) |
| Issuance of Shares for Stock-Based Awards | 1,032,102 |
| — |
| — |
| — |
| — |
| — |
|
| Balances at December 31, 2017 | 309,715,624 |
| $ | 3.1 |
| $ | 1,683.6 |
| $ | (56.0 | ) | $ | (338.8 | ) | $ | 1,291.9 |
|
(a) Includes 388,00083,806 shares repurchased but not settled as of December 31, 2016.2018.
The accompanying notes are an integral part of the consolidated financial statements.
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net Income | $ | 203.3 | | $ | 278.1 | | $ | 294.0 | |
| | | |
| Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: | | | |
| Depreciation and Amortization | 475.8 | | 447.2 | | 430.6 | |
| | | |
| Amortization of Deferred Debt Issuance Costs | 5.7 | | 4.7 | | 4.4 | |
| Deferred Income Taxes | (0.7) | | 52.7 | | 26.0 | |
| Amount of Postretirement Expense Greater (Less) Than Funding | 147.1 | | 41.5 | | (4.7) | |
| Gain on the Sale of Assets, net | 0 | | 0 | | (38.6) | |
| | | |
| Other, Net | 12.9 | | 15.1 | | 35.3 | |
| Changes in Operating Assets and Liabilities, Net of Acquisitions (See Note 3) | (19.4) | | (173.5) | | (1,120.8) | |
| Net Cash Provided by (Used in) Operating Activities | 824.7 | | 665.8 | | (373.8) | |
| | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Capital Spending | (616.1) | | (330.9) | | (378.8) | |
| Packaging Machinery Spending | (30.2) | | (22.0) | | (16.4) | |
| | | |
| | | |
| Acquisition of Businesses, Net of Cash Acquired | (120.6) | | (54.5) | | (89.4) | |
| Proceeds Received from Sale of Assets, Net of Selling Costs | 0 | | 0 | | 49.4 | |
| Beneficial Interest on Sold Receivables | 135.5 | | 343.6 | | 1,476.7 | |
| Beneficial Interest Obtained in Exchange for Proceeds | (8.5) | | (155.9) | | (345.5) | |
| Other, Net | (7.9) | | (4.6) | | (6.9) | |
| Net Cash (Used in) Provided by Investing Activities | (647.8) | | (224.3) | | 689.1 | |
| | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| | | |
| Repurchase of Common Stock | (315.6) | | (128.8) | | (119.1) | |
| Payments on Debt | (36.5) | | (36.5) | | (152.4) | |
| Proceeds from Issuance of Debt | 800.0 | | 300.0 | | 0 | |
| Redemption of Noncontrolling Interest | (500.0) | | 0 | | 0 | |
| Borrowings under Revolving Credit Facilities | 2,613.5 | | 2,497.5 | | 1,876.9 | |
| Payments on Revolving Credit Facilities | (2,596.8) | | (2,865.1) | | (1,787.5) | |
| Debt Issuance Costs | (13.9) | | (5.0) | | (7.9) | |
| Repurchase of Common Stock related to Share-Based Payments | (9.1) | | (4.1) | | (4.3) | |
| Dividends and Distributions Paid to GPIP Partner | (102.8) | | (112.7) | | (111.0) | |
| | | |
| Other, Net | 9.2 | | (6.1) | | (5.4) | |
| Net Cash Used In Financing Activities | (152.0) | | (360.8) | | (310.7) | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | 1.2 | | 1.7 | | (1.5) | |
| Net Increase in Cash and Cash Equivalents | 26.1 | | 82.4 | | 3.1 | |
| Cash and Cash Equivalents at Beginning of Year | 152.9 | | 70.5 | | 67.4 | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 179.0 | | $ | 152.9 | | $ | 70.5 | |
| | | |
| Non-cash Investing Activities: | | | |
| Beneficial Interest (Sold) Obtained in Exchange for Trade Receivables | $ | 135.2 | | $ | (68.8) | | $ | 1,025.7 | |
| Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities | $ | 70.5 | | $ | 73.1 | | $ | — | |
| Non-cash Investment in NACP Combinations | $ | 0 | | $ | 0 | | $ | 1,111.2 | |
| Non-cash Financing Activities: | | | |
| Right-of-Use Assets Obtained in Exchange for New Finance Lease Liabilities | $ | 0.1 | | $ | 15.5 | | $ | — | |
| Non-cash Financing of NACP Combination | $ | 0 | | $ | 0 | | $ | 660.0 | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net Income | $ | 300.2 |
| $ | 228.0 |
| $ | 230.1 |
|
| | | | |
| Non-cash Items Included in Net Income: | | | |
| Depreciation and Amortization | 330.3 |
| 299.3 |
| 280.5 |
|
| Amortization of Deferred Debt Issuance Costs | 5.1 |
| 4.8 |
| 4.1 |
|
| Deferred Income Taxes | (54.0 | ) | 76.7 |
| 110.0 |
|
| Amount of Postretirement Expense Less Than Funding | (127.1 | ) | (31.3 | ) | (39.4 | ) |
| (Gain) Loss on the Sale of Assets, net | (3.7 | ) | — |
| 1.9 |
|
| Other, Net | 2.0 |
| 25.4 |
| 21.0 |
|
| Changes in Operating Assets and Liabilities, Net of Acquisitions (See Note 3) | 63.4 |
| 38.5 |
| (19.0 | ) |
| Net Cash Provided by Operating Activities | 516.2 |
| 641.4 |
| 589.2 |
|
| | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Capital Spending | (240.9 | ) | (278.6 | ) | (228.9 | ) |
| Packaging Machinery Spending | (19.2 | ) | (16.0 | ) | (15.2 | ) |
| Acquisition of Businesses, Net of Cash Acquired | (189.4 | ) | (332.7 | ) | (163.2 | ) |
| Proceeds Received from Sale of Assets, Net of Selling Costs | 7.9 |
| — |
| — |
|
| Other, Net | 1.0 |
| (5.2 | ) | 7.5 |
|
| Net Cash Used in Investing Activities | (440.6 | ) | (632.5 | ) | (399.8 | ) |
| | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Repurchase of Common Stock | (62.1 | ) | (164.9 | ) | (63.0 | ) |
| Payments on Debt | (25.0 | ) | (25.0 | ) | (25.0 | ) |
| Proceeds from Issuance of Debt | — |
| 300.0 |
| — |
|
| Borrowings under Revolving Credit Facilities | 1,202.9 |
| 1,200.0 |
| 903.0 |
|
| Payments on Revolving Credit Facilities | (1,090.8 | ) | (1,235.8 | ) | (953.8 | ) |
| Debt Issuance Costs | — |
| (5.3 | ) | — |
|
| Repurchase of Common Stock related to Share-Based Payments | (10.2 | ) | (11.3 | ) | (21.5 | ) |
| Dividends Paid | (93.4 | ) | (64.4 | ) | (49.3 | ) |
| Other, Net | 8.8 |
| 3.6 |
| (1.3 | ) |
| Net Cash Used In Financing Activities | (69.8 | ) | (3.1 | ) | (210.9 | ) |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | 2.5 |
| (1.6 | ) | (5.2 | ) |
| Net (Decrease) Increase in Cash and Cash Equivalents | 8.3 |
| 4.2 |
| (26.7 | ) |
| Cash and Cash Equivalents at Beginning of Year | 59.1 |
| 54.9 |
| 81.6 |
|
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 67.4 |
| $ | 59.1 |
| $ | 54.9 |
|
The accompanying notes are an integral part of the consolidated financial statements.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
NOTE 1. | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”) is committed to providing consumer packaging that makes a world of difference. The Company is a leading provider of sustainable, paper-based packaging solutions for a wide variety of products to food, beverage, foodservice and other consumer products companies. The Company operates on a global basis, and is one of the largest producers of folding cartons in the United States ("U.S.") and holds leading market positions in coated-recycled paperboard ("CRB"), coated unbleached kraft paperboard (“CUK”("CUK") and coated-recycledsolid bleached sulfate paperboard (“CRB”("SBS").
The Company’s customers include many of the world'sworld’s most widely recognized companies and brands with prominent market positions in beverage, food, foodservice, and other consumer products. The Company strives to provide its customers with innovative sustainable packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its low-cost paperboard mills and converting plants,facilities, its proprietary carton and packaging designs, and its commitment to quality and service.
In preparation for the combination of the Company's existing businesses with the North America Consumer Packaging business ofOn January 1, 2018, GPHC, a Delaware corporation, International Paper Company, ("IP"a New York corporation (“IP”) as described in Note 19 - Subsequent Events, on December 29, 2017,, Graphic Packaging International Inc., the primary operating subsidiary of GPHC, underwent a statutory conversion and becamePartners, LLC, a Delaware limited liability company. Ascompany formerly known as Gazelle Newco LLC and a result, Graphic Packaging International, Inc.'s name changed to Graphic Packaging International, LLC ("GPI"wholly-owned subsidiary of the Company (“GPIP”). When used herein, GPI refers to Graphic Packaging International, Inc. prior to December 29, 2017, and Graphic Packaging International, LLC, after such date. As of December 29, 2017, GPI was wholly owned bya Delaware limited liability company formerly known as Graphic Packaging International, Partners, LLC,Inc. and a direct subsidiary of GPIP (“GPIL”), completed a series of transactions pursuant to an agreement dated October 23, 2017 among the foregoing parties (the “Transaction Agreement”). Pursuant to the Transaction Agreement (i) a wholly-owned subsidiary of the Company transferred its ownership interest in GPIL to GPIP; (ii) IP transferred its North America Consumer Packaging (“NACP”) business to GPIP, which was in turn wholly-owned by then subsequently transferred to GPIL; (iii) GPIP issued membership interests to IP, and IP was admitted as a member of GPIP; and (iv) GPIL assumed certain indebtedness of IP (the "NACP Combination").
GPI Holding III, LLC, a limited liability company thatan indirect wholly-owned subsidiary of the Company (“GPI Holding”), is classified as a partnership for U.S. Federal income tax purposes.the managing member of GPIP.
At the closing of the NACP Combination, GPIP issued 309,715,624 common units or 79.5% of the membership interests in GPIP to GPI Holding III, LLCand 79,911,591 common units or 20.5% of the membership interests in GPIP to IP. Subject to certain restrictions, the common units held by IP are exchangeable into shares of common stock of GPHC or cash.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following diagram illustrates the organization of the Company on January 1, 2018, immediately subsequent to the transactions described above (not including subsidiaries of GPIL):
On January 28, 2020, the Company announced that IP had notified the Company of its intent to begin the process of reducing its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million partnership units from IP for $250 million in cash. As a result, IP’s ownership interest in GPIP decreased to 18.3% as of January 29, 2020.
On August 10, 2020, the Company announced that IP had notified the Company of its intent to exchange additional partnership units. Per the agreement between the parties, on August 13, 2020, GPIP purchased 17.4 million partnership units from IP for $250 million in cash, which included full redemption of the remaining 3.1 million partnership units that were required to be redeemed in cash. As a result, IP's ownership interest in GPIP decreased to 14.5% as of August 13, 2020.
Unless otherwise negotiated by the parties, IP’s next opportunity to exchange its partnership units begins 180 days from the August 13, 2020 purchase date and is limited to the lesser of $250 million or 25% of the units owned immediately following the initial transaction, subject to a wholly-owned indirect subsidiaryminimum. IP will have further opportunities to exchange its partnership units beginning 180 days after each purchase date. The Company may choose to satisfy these exchanges using shares of GPHC.its common stock, cash, or a combination thereof.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During 2020, 2019 and 2018, GPIP repurchased 44.2 million partnership units from GPI Holding, which distributed the proceeds to GPHC. GPHC used the proceeds from these repurchases to repurchase 44.2 million shares of GPHC's common stock. These partnership unit repurchases increased IP's ownership interest in GPIP, which was 15.0% at December 31, 2020.
GPHC conducts no significant business and has no independent assets or operations other than its indirect ownership of all of GPI'sGPIL's membership interest.
Basis of Presentation and Principles of Consolidation
The Company’s Consolidated Financial Statements include all subsidiaries in which the Company has the ability to exercise direct or indirect control over operating and financial policies. Intercompany transactions and balances are eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to current year presentation.
The Company, through its GPIL subsidiary, is a party to a Japanese joint venture, Rengo Riverwood Packaging, Ltd. in which it holds a 50% ownership interest in a joint venture called Rengo Riverwood Packaging, Ltd. (in Japan) whichthat is accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Actual results could differ from these estimates, and changes in these estimates are recorded when known. Estimates are used in accounting for, among other things, pension benefits, retained insurable risks, slow-moving and obsolete inventory, allowance for doubtful accounts, useful lives for depreciation and amortization, impairment testing of goodwill and long-termlong-lived assets, fair values related to acquisition accounting, fair value of derivative financial instruments, share based compensation, deferred income tax assets and potential income tax assessments, and loss contingencies.
Cash and Cash Equivalents
Cash and cash equivalents include timebank deposits certificates of deposit and other marketable securities that are highly liquid with original maturities of three months or less.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accounts Receivable and Allowances
Accounts receivable are stated at the amount owed by the customer, net of an allowance for estimated uncollectible accounts, returns and allowances, and cash discounts. The allowance for doubtful accounts is estimated based on historical experience, current economic conditions and the credit worthiness of customers. Receivables are charged to the allowance when determined to be no longer collectible.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has entered into agreements for the purchasing and servicing of receivables to sell, on a revolving basis, certain trade accounts receivable to third party financial institutions. Transfers under these agreements meet the requirements to be accounted for as sales in accordance with the Transfers and Servicing topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification" or "ASC"). During 2017, the Company sold and derecognized $1.8 billion of receivables, collected $1.6 billion on behalf of the financial institutions, and received funding of approximately $134 million by the financial institutions, resulting in deferred proceeds of approximately $102 million as of December 31, 2017. During 2016, the Company sold and derecognized $1.3 billion of receivables, collected approximately $1.2 billion on behalf of the financial institutions, and received funding of approximately $116 million by the financial institutions, resulting in deferred proceeds of approximately $31 million as of December 31, 2016. Cash proceeds related to the sales are included in cash from operating activities on the Consolidated Statements of Cash Flows in the Changes in Operating Assets and Liabilities line item. The loss on sale is not material and is included in Other Expense, (Income), Net line item on the Consolidated Statement of Operations. The following table summarizes the activity under these programs for the year ended December 31, 2020 and 2019, respectively:
| | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 |
| Receivables Sold and Derecognized | $ | 2,849.8 | | $ | 2,654.2 | |
| Proceeds Collected on Behalf of Financial Institutions | 2,787.4 | 2,254.9 |
| Net Proceeds Received From Financial Institutions | 54.9 | 66.5 |
Deferred Purchase Price at December 31(a) | 5.3 | 0.7 |
| Pledged Receivables at December 31 | 201.0 | 177.5 |
(a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.
The Company has also entered into various factoring and supply chain financing arrangements which also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the years ended December 31, 20172020 and 2016,2019, the Company sold receivables of approximately $64$368 million and $66$238 million respectively, related to these factoring arrangements.
Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were approximately $583$621 million and $376$562 million as of December 31, 20172020 and 2016,2019, respectively.
Concentration of Credit Risk
The Company’s cash, cash equivalents, and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located in the U.S. and internationally and generally do not require collateral. As of and forFor the years ended December 31, 20172020, 2019, and 2016, no2018, 0 customer accounted for more than 10% of net sales.
Inventories
Inventories are stated at the lower of cost and net realizable value with cost determined principally by the first-in, first-out (“FIFO”) basis. Average cost basis is used to determine the cost of supply inventories and certain raw materials. Raw materials and consumables used in the production process such as wood chips and chemicals are valued at purchase costbased on a FIFO basis upon receipt.standard (which approximates actual), average or actual cost. Work in progress and finished goods inventories are valued at the cost of raw material consumed plus direct manufacturing costs (such as labor, utilities and supplies) as incurred and an applicable portion of manufacturing overhead. Inventories are stated net of an allowance for slow-moving and obsolete inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Betterments, renewals and extraordinary repairs that extend the life of the asset are capitalized; other repairs and maintenance charges are expensed as incurred. The Company’s cost and related accumulated depreciation applicable to assets retired or sold are removed from the accounts and the gain or loss on disposition is included in income from operations.
Interest is capitalized on assets under construction for one year or longer with an estimated spending of $1.0 million or more. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Capitalized interest was $1.2$6.9 million, $1.3$2.8 million and $0.8$2.8 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company assesses its long-lived assets, including certain identifiable intangibles, for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. To analyze recoverability, the Company
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
projects future cash flows, undiscounted and before interest, over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amount and the fair value of the assets. The Company assesses the appropriateness of the useful life of its long-lived assets periodically.
Depreciation and Amortization
Depreciation is computed using the straight-line method based on the following estimated useful lives of the related assets:
|
| | | | |
| Buildings | 40 years |
| Land improvements | 15 years |
| Machinery and equipment | 3 to 40 years |
| Furniture and fixtures | 10 years |
| Automobiles, trucks and tractors | 3 to 5 years |
Depreciation expense, including the depreciation expense of assets under capital leases, for 2017, 20162020, 2019 and 20152018 was $268.5$413.7 million, $240.0$387.9 million and $227.6$360.6 million, respectively.
Intangible Assets
Intangible assets with a determinable life are amortized on a straight-line or accelerated basis over their useful lives. The amortization expense for each intangible asset is recorded in the Consolidated Statements of Operations according to the nature of that asset.
Goodwill is the Company’s only intangible asset not subject to amortization. The following table displays the intangible assets that continue to be subject to amortization and accumulated amortization expense as of December 31, 20172020 and 2016:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
In millions | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |
| Amortizable Intangible Assets: | | | | | | | |
| Customer Relationships | $ | 965.2 | | $ | (556.4) | | $ | 408.8 | | | $ | 946.5 | | $ | (497.6) | | $ | 448.9 | |
| | | | | | | |
| Patents, Trademarks, Licenses, and Leases | 141.1 | | (113.0) | | 28.1 | | | 138.8 | | (110.4) | | 28.4 | |
| | | | | | | |
| Total | $ | 1,106.3 | | $ | (669.4) | | $ | 436.9 | | | $ | 1,085.3 | | $ | (608.0) | | $ | 477.3 | |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
In millions | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |
| Amortizable Intangible Assets: | | | | | | | |
| Customer Relationships | $ | 786.9 |
| $ | (377.2 | ) | $ | 409.7 |
| | $ | 736.0 |
| $ | (321.0 | ) | $ | 415.0 |
|
| Patents, Trademarks, Licenses, and Leases | 130.2 |
| (103.4 | ) | 26.8 |
| | 125.1 |
| (94.8 | ) | 30.3 |
|
| Total | $ | 917.1 |
| $ | (480.6 | ) | $ | 436.5 |
| | $ | 861.1 |
| $ | (415.8 | ) | $ | 445.3 |
|
The Company recorded amortization expense for the years ended December 31, 2017, 20162020, 2019 and 20152018 of $61.8$62.1 million,
$59.3 million and $52.9$70.0 million,, respectively. The Company expects amortization expense for the next five consecutive years to be approximately as follows: $62 million, $60 million, $54$57 million, $50$55 million, $53 million, and $45$49 million.
Goodwill
The Company tests goodwill for impairment annually as of October 1, as well as whenever events or changes in circumstances suggest that the estimated fair value of a reporting unit may no longer exceed its carrying amount.
The Company tests goodwill for impairment at the reporting unit level, which is an operating segment or a level below an operating segment, which is referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. However, twoTwo or more components of an operating segment are aggregated and deemed a single reporting unit if the components have similar economic characteristics.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Potential goodwill impairment is measured at the reporting unit level by comparing the reporting unit’s carrying amount (including goodwill), to the fair value of the reporting unit. When performing the quantitative analysis, the estimated fair value of each reporting unit is determined by utilizing a discounted cash flow analysis based on the Company’s forecasts, discounted using a weighted average cost of capital and market indicators of terminal year cash flows based upon a multiple of EBITDA.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is considered potentially impaired. In determining fair value, management relies on and considers a number of factors, including but not limited to, future operating results, business plans, economic projections of revenues and operating margins, forecasts including future cash flows, and market data and analysis, including market capitalization. The assumptions used are based on what a hypothetical market participant would use in estimating fair value. Fair value determinations are sensitive to changes in the factors described above. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.
Periodically, the Company may perform a qualitative impairment analysis of goodwill associated with each of its reporting units to determine if it is more likely than not that the carrying value of a reporting unit exceeded its fair value. AsHowever, the Company performed a result of its testing of goodwillquantitative impairment test as of October 1, 2017, the Company2020, and concluded goodwill was not impaired.impaired for any of its reporting units.
The following is a rollforward of goodwill by reportable segment:
| | | | | | | | | | | | | | | | | | |
| In millions | Paperboard Mills | | Americas Paperboard Packaging | Europe Paperboard Packaging | Corporate/Other(a) | Total |
| Balance at December 31, 2018 | $ | 506.8 | | | $ | 882.2 | | $ | 57.2 | | $ | 14.4 | | $ | 1,460.6 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Acquisition of Businesses | 0 | | | 12.9 | | 0 | | 0 | | 12.9 | |
| | | | | | |
| Foreign Currency Effects | 0 | | | 1.8 | | 2.6 | | 0 | | 4.4 | |
| Balance at December 31, 2019 | $ | 506.8 | | | $ | 896.9 | | $ | 59.8 | | $ | 14.4 | | $ | 1,477.9 | |
| | | | | | |
| Acquisition of Businesses | 0 | | | 0 | | 0 | | 0 | | 0 | |
| | | | | | |
| Foreign Currency Effects | (0.5) | | | 2.2 | | (1.0) | | (1.0) | | (0.3) | |
| Balance at December 31, 2020 | $ | 506.3 | | | $ | 899.1 | | $ | 58.8 | | $ | 13.4 | | $ | 1,477.6 | |
|
| | | | | | | | | | | | | | | |
| In millions | Paperboard Mills | Americas Paperboard Packaging | Europe Paperboard Packaging | Corporate/Other(a) | Total |
| Balance at December 31, 2015 | $ | 408.5 |
| $ | 698.3 |
| $ | 61.0 |
| $ | — |
| $ | 1,167.8 |
|
| Acquisition of Businesses | — |
| 98.8 |
| — |
| 14.1 |
| 112.9 |
|
| Foreign Currency Effects | — |
| (7.7 | ) | (12.0 | ) | (0.7 | ) | (20.4 | ) |
| Balance at December 31, 2016 | $ | 408.5 |
| $ | 789.4 |
| $ | 49.0 |
| $ | 13.4 |
| $ | 1,260.3 |
|
| Acquisition of Businesses | — |
| 51.4 |
| 6.3 |
| (2.3 | ) | 55.4 |
|
| Reallocation of Goodwill | — |
| (4.0 | ) | — |
| 4.0 |
| — |
|
| Foreign Currency Effects | — |
| 2.2 |
| 4.2 |
| 0.9 |
| 7.3 |
|
| Balance at December 31, 2017 | $ | 408.5 |
| $ | 839.0 |
| $ | 59.5 |
| $ | 16.0 |
| $ | 1,323.0 |
|
| |
(a)
| Includes Australia operating segment. |
(a) Includes Australia operating segment.
Retained Insurable Risks
It is the Company’s policy to self-insure or fund a portion of certain expected losses related to group health benefits and workers’ compensation claims. Provisions for expected losses are recorded based on the Company’s estimates, on an undiscounted basis, of the aggregate liabilities for known claims and estimated claims incurred but not reported.
Asset Retirement Obligations
Asset retirement obligations are accounted for in accordance with the provisions of the Asset Retirement and Environmental Obligations topic of the FASB Codification. A liability and asset are recorded equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists and the liability can be reasonably estimated. The liability is accreted over time and the asset is depreciated over the remaining life of the asset. Upon settlement of the liability, the Company will recognize a gain or loss for any difference between the settlement amount and the liability recorded. Asset retirement obligations with indeterminate settlement dates are not recorded until such time that a reasonable estimate may be made. The Company's asset retirement obligations consist primarily of landfill closure and post-closure costs at certain of our mills. At December 31, 2020 and 2019, the Company had liabilities of $11.4 million and $10.1 million, respectively. The liabilities are primarily reflected as Other Noncurrent Liabilities in the Company's Consolidated Balance Sheets.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
International Currency
The functional currency of the international subsidiaries is the local currency for the country in which the subsidiaries own their primary assets. The translation of the applicable currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. Any related translation adjustments are recorded directly to a separate component of Shareholders’ Equity, unless there is a sale or substantially complete liquidation of the underlying foreign investments. Gains and losses on foreign currency transactions are included in Other Expense, Net for the period in which the exchange rate changes.
The Company pursues a currency hedging program which utilizes derivatives to reduce the impact of foreign currency exchange fluctuations on its consolidated financial results. Under this program, the Company has entered into forward exchange contracts in the normal course of business to hedge certain foreign currency denominated transactions. Realized and unrealized
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
gains and losses on these forward contracts are included in the measurement of the basis of the related foreign currency transaction when recorded.
Revenue Recognition
The Company recognizeshas 2 primary activities, manufacturing and converting paperboard, from which it generates revenue when allfrom contracts with customers, and revenue is disaggregated primarily by geography and type of activity as further explained in "Note 16-Business Segment and Geographic Area Information."All reportable segments and the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or servicesAustralia and Pacific Rim operating segments recognize revenue under the same method, allocate transaction price using similar methods, and have been rendered,similar economic factors impacting the Company’s price to the buyer is fixed or determinable and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership.
The timinguncertainty of revenue recognitionand related cash flows.
Revenue is largely dependentrecognized on the location of title transfer which is normally either at our plant (shipping point) or upon arrival at our customer’s plant (destination). The Company recognizes revenues on itsCompany's annual and multi-year carton supply contracts aswhen the shipment occurs in accordanceCompany satisfies the performance obligation by transferring control over the product or service to a customer, which is generally based on shipping terms and passage of title under the point-in-time method of recognition. For the years ended December 31, 2020, 2019 and 2018, the Company recognized $6,536.5 million, $6,140.8 million and $6,011.9 million, respectively, of revenue from contracts with customers.
The transaction price allocated to each performance obligation consists of the title transfer discussed above.
Discountsstand-alone selling price, estimates of rebates and allowances are comprised of trade allowancesother sales or contract renewal incentives, and rebates, cash discounts and sales returns. Cash discountsreturns ("Variable Consideration") and excludes sales returnstax. Estimates are estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience. Customer rebates are determinedmade for Variable Consideration based on contract terms and historical experience of actual results and are recordedapplied to the performance obligations as they are satisfied. Purchases by the Company’s principal customers are manufactured and shipped with minimal lead time, therefore performance obligations are generally satisfied shortly after manufacturing and shipment. The Company uses standard payment terms that are consistent with industry practice.
The Company's contract assets consist primarily of contract renewal incentive payments to customers which are amortized over the period in which performance obligations related to the contract renewal are satisfied. As of December 31, 2020 and 2019, contract assets were $15.3 million and $24.3 million, respectively. The Company's contract liabilities consist principally of rebates, and as of December 31, 2020 and 2019 were $56.1 million and $49.6 million, respectively.
The Company did not have a material amount relating to backlog orders at the time of sale.December 31, 2020 or 2019.
Shipping and Handling
The Company includes shipping and handling costs in Cost of Sales.
Research and Development
Research and development costs, which relate primarily to the development and design of new packaging machines and products and are recorded as a component of Selling, General and Administrative expenses, are expensed as incurred. Expenses for the years ended December 31, 2017, 20162020, 2019 and 20152018 were $14.4$10.2 million, $14.9$9.2 million and $13.8$8.7 million,, respectively.
Business Combinations and Shutdown and Other Special Charges, Net
The following table summarizes the transactions recorded in Business Combinations and Shutdown and Other Special Charges, Net in the Consolidated Statements of Operations as of December 31:
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Net Charges Associated with Business Combinations | $ | 16.2 |
| $ | 21.2 |
| $ | 14.0 |
|
| Shutdown and Other Special Charges | 18.6 |
| 15.9 |
| 6.1 |
|
| (Gain) Loss on Sale of Assets | (3.7 | ) | — |
| 1.9 |
|
| Total | $ | 31.1 |
| $ | 37.1 |
| $ | 22.0 |
|
2017
On December 1, 2017, the Company acquired the assets of Seydaco Packaging Corp. and its affiliates National Carton and Coating Co., and Groupe Ecco Boites Pliantes Ltée (collectively, "Seydaco"), a folding carton producer focused on the foodservice, food, personal care, and household goods markets. The acquisition includes three folding carton facilities located in Mississauga, Ontario, St.-Hyacinthe, Québec, and Xenia, Ohio.
On December 1, 2017, the Company closed its coated recycled paperboard mill in Santa Clara, California. This decision was made as a result of a thorough assessment of the facility's manufacturing capabilities and associated costs in the context of the Company's overall mill operating capabilities and cost structure. The financial impact is reflected in Shutdown and Other Special Charges in the table above.
On October 4, 2017, the Company acquired Norgraft Packaging, S.A., ("Norgraft"), a leading folding carton producer in Spain focused on the food and household goods markets. The acquisition includes two folding carton facilities located in Miliaño and Requejada, Spain.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business Combinations, Shutdown and Other Special Charges, Exit Activities, and (Gain) on Sale of Assets, Net
The following table summarizes the transactions recorded in Business Combinations, Shutdown and Other Special Charges, Exit Activities and Gain on Sale of Assets, Net in the Consolidated Statements of Operations for the year ended December 31:
| | | | | | | | | | | | | | | | | |
| In millions | 2020 | | 2019 | | 2018 |
| Charges Associated with Business Combinations | $ | (1.1) | | | $ | 4.1 | | | $ | 46.8 | |
| Shutdown and Other Special Charges | 37.8 | | | 23.6 | | | 6.7 | |
Exit Activities(a) | 24.6 | | | 10.2 | | | 0 | |
| Gain on Sale of Assets | 0 | | | 0 | | | (38.6) | |
| | | | | |
| Total | $ | 61.3 | | | $ | 37.9 | | | $ | 14.9 | |
(a) Relates to the Company's CRB mills, converting facility closures and the PM1 containerboard machine exit activities (see "Note 20 — Exit Activities").
2020
During the fourth quarter of 2020, the Company incurred incremental costs associated with paying payroll to employees during necessary quarantines due to COVID-19. During the second quarter of 2020, the Company made one-time payments to front-line production employees and made contributions to local food banks in the communities where our manufacturing operations are located. The charges associated with these costs and payments were recorded in Shutdown and Other Special Charges in the table above.
The Company has established estimated liabilities related to the partial or complete withdrawal from certain multi-employment benefit plans for facilities which have been closed. During the second quarter of 2020, the Company increased its estimated withdrawal liability for these plans by $12.2 million. During the fourth quarter of 2020, the Company entered into a settlement agreement with one of its closed multi-employment benefit plans and recorded a $3.9 million reduction in its estimated withdrawal liability for this plan. These items were recorded in Shutdown and Other Special Charges in the table above. For more information, see "Note 8 — Pensions and Other Postretirement Benefits."
On July 10, 2017,January 31, 2020, the Company acquired substantially all the assets of Carton Craft Corporation and its affiliate Lithocraft, Inc (collectively, "Carton Craft"). The acquisition includes twoa folding carton facilitiesfacility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in New Albany, Indiana, focused on the production of paperboard based air filter framesOmaha, Nebraska and folding cartons.
The Seydaco, Norgraft, and Carton Craft transactions are referred to collectively as the "2017 Acquisitions." Seydaco and Carton Craft areis included in the Americas Paperboard Packaging Segment. Norgraftreportable segment. During the second quarter of 2020, the Company recorded a bargain purchase gain of $6.6 million as the net fair value of assets acquired and liabilities assumed was greater than the purchase price. The gain associated with this acquisition is included in the Europe Paperboard Packaging Segment.
The Company completed the sale of its Renton, WA facility which was classified as Asset Held for Sale on December 31, 2016. The financial impact is reflected in (Gain) Loss on Sale of Assets in the table above.
2016
On April 29, 2016, the Company acquired Colorpak Limited ("Colorpak"), a leading folding carton supplier in Australia and New Zealand. Colorpak operates three folding carton facilities that convert paperboard into folding cartons for the food, beverage and consumer product markets. The folding carton facilities are located in Melbourne, Australia, Sydney, Australia and Auckland, New Zealand.
On March 31, 2016, the Company acquired substantially all of the assets of Metro Packaging & Imaging, Inc. ("Metro"), a single folding carton facility located in Wayne, New Jersey.
On February 16, 2016, the Company acquired Walter G. Anderson, Inc., ("WG Anderson") a folding carton manufacturer with a focus on store branded food and consumer product markets. WG Anderson operates two sheet-fed folding carton facilities located in Hamel, Minnesota and Newton, Iowa.
On January 5, 2016, the Company acquired G-Box, S.A. de C.V., ("G-Box"). The acquisition includes two folding carton facilities located in Monterrey, Mexico and Tijuana, Mexico that service the food, beverage and consumer product markets.
2015
On October 1, 2015, the Company acquired the folding carton assets of Staunton, VA-based Carded Graphics, LLC. ("Carded"), a folding carton producer with a strong regional presence in the food, craft beer and other consumer product markets.
On February 4, 2015, the Company acquired certain assets of Cascades' Norampac Division ("Cascades") in Canada. Cascades services the food and beverage markets and operates three folding carton facilities located in Cobourg, Ontario, Mississauga, Ontario and Winnipeg, Manitoba along with a thermo mechanical pulp mill located in Jonquière, Quebec and a coated recycled board mill located in East Angus, Quebec. The Jonquière mill was shutdown in the third quarter of 2015.
On January 2, 2015, the Company acquired Rose City Printing and Packaging Inc. ("Rose City"). Rose City services food and beverage markets and operates two folding carton facilities located in Gresham, OR and Vancouver, WA.
As also disclosed in Note 1 - Nature of Business and Summary of Significant Accounting Policies, the Company acquired Rose City, Cascades and Carded and are included in the Americas Paperboard Packaging Segment.
Charges associated with all acquisitions are included in Net Charges Associated with Business Combinations in the table above. For more information, regarding these acquisitions see "Note 4 — Business Combinations."
In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. During the second quarter of 2020, the Company closed the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine. Charges associated with these projects are included in Exit Activities in the table above. For more information, see "Note 20 — Exit Activities."
On April 1, 2020, the Company acquired the Consumer Packaging Group business from Greif, Inc. ("Greif"), a leader in industrial packaging products and services. The acquisition included 7 converting facilities across the United States which are included in the Americas Paperboard Packaging reportable segment. Charges associated with this acquisition are included in Charges Associated with Business Combinations in the table above. For more information, see "Note 4 — Business Combinations."
In June 2020, the Company made the decision to close certain converting facilities that were acquired from Greif. The Burlington, North Carolina converting facility and the Los Angeles, California converting facility were closed in the third quarter of 2020. Charges associated with the shutdown of these converting facilities are included in Exit Activities in the table above. For more information, see "Note 20— Exit Activities."
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Acquisitions.(Continued)
Capital Allocation Plan
2019
On August 1, 2019, the Company acquired substantially all the assets of Artistic Carton Company ("Artistic"), a diversified producer of folding cartons and CRB. The acquisition included 2 converting facilities located in Auburn, Indiana and Elgin, Illinois (included in the Americas Paperboard Packaging reportable segment) and 1 CRB paperboard mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment).
On September 24, 2019, the Company announced its plan to invest approximately $600 million in a new CRB mill in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close 2 of its smaller CRB Mills in 2022 in order to remain capacity neutral. Charges associated with this project are included in Exit Activities in the table above. For more information, see "Note 20 — Exit Activities."
2018
As mentioned above, on January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS paperboard and paper-based foodservice products. The NACP business included 2 SBS mills located in Augusta, Georgia and Texarkana, Texas (included in Paperboard Mills reportable segment), 3 converting facilities in the U.S. (included in the Americas Paperboard Packaging reportable segment) and 1 in the United Kingdom ("U.K.") (included in the Europe Paperboard Packaging reportable segment).
On June 12, 2018, the Company acquired substantially all the assets of PFP, LLC and its related entity, PFP Dallas Converting, LLC (collectively, "PFP"), a converter focused on the production of paperboard based air filter frames. The acquisition included 2 facilities located in Lebanon, Tennessee and Lancaster, Texas. PFP is included in the Americas Paperboard Packaging reportable segment.
On August 31, 2018, the Company sold its previously closed coated recycled paperboard mill site in Santa Clara, California, resulting in a gain on sale of assets of $37.1 million.
On September 30, 2018, the Company acquired substantially all the assets of the foodservice business of Letica Corporation, a subsidiary of RPC Group PLC ("Letica Foodservice"), a producer of paperboard-based cold and hot cups and cartons. The acquisition included 2 facilities located in Clarksville, Tennessee and Pittston, Pennsylvania. Letica Foodservice is included in the Americas Paperboard Packaging reportable segment.
PFP and Letica Foodservice are referred to collectively as the "2018 Acquisitions."
During 2019, the Company began a three-year program to dismantle and dispose of idle and abandoned assets primarily at the paperboard mills. Charges related to this program in 2019 and 2020 were $10.4 million and $13.6 million, respectively. Expected charges for this program for 2021 are approximately $26 million. Charges associated with this program are included in Shutdown and Other Special Charges in the table above.
Share Repurchases and Dividends
On January 10, 2017, the Company's28, 2019, GPHC's board of directors authorized an additional share repurchase program to allow the CompanyGPHC to repurchasepurchase up to $250$500 million of the Company'sGPHC's issued and outstanding shares of common stock through open market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2017"2019 share repurchase program"). The originalA previous $250 million share repurchase program was authorized on February 4, 2015January 10, 2017 (the "2015"2017 share repurchase program").
During 2017, the Company repurchased 4.5 million shares, or approximately $58 million,Share repurchases are reflected as a reduction of its common stock at an average pricefor the par value of $13.08, including 1.4 millionthe shares, repurchased under the 2015with any excess of share repurchase program thereby completing that program. During 2016, the Company repurchased 13.2 million shares, or approximately $169 million,price over par value allocated between capital in excess of its common stock atpar value and accumulated deficit.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
an average price of $12.77. During 2015,The following presents GPHC's share repurchases for the Company repurchased 4.6 million shares, or approximately $63 million at an average price of $13.60.
Atyears ended December 31, 2017, the Company had approximately $210 million remaining2020, 2019, and 2018:
| | | | | | | | | | | | | | | |
| | | | | |
| Amount repurchased in millions | Amount Repurchased | Number of Shares Repurchased | | Average Price | |
| 2020 | $ | 315.6 | | 23,420,010 | |
| $ | 13.48 | | |
| 2019 | $ | 127.9 | | 10,191,257 | | (a) | $ | 12.55 | | |
| 2018 | $ | 120.0 | | 10,566,144 | |
| $ | 11.35 | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(a) Includes 7,400,171 shares under the 2017 share repurchase program thereby completing that program.
At December 31, 2020, GPHC had approximately $146.5 million remaining under the 2019 share repurchase program.
During 20172020 and 2016, the Company2019, GPHC paid cash dividends of $93.4$84.7 million and $64.4$88.7 million, respectively.
Adoption of New Accounting Standards
Effective January 1, 20172020, the Company adopted Accounting Standards Update ("ASU") No. 2016-09, Compensation-Stock Compensation2016-13, Financial Instruments - Credit Losses (Topic 718)326): Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for income taxes, among other changes, related to stock-based compensation. In the first quarter of 2017, the Company recorded a discrete benefit of approximately $2 million related to the excess benefit associated with share based payments to employees. The remaining $39 million of previously unrecognized excess tax benefits, which were prohibited from recognition due to net operating loss carryforwards, were recognized in accumulated deficit. The Company is continuing its practice of estimating forfeitures and recording cash paid for withholding taxes as a financing activity.
Effective January 1, 2017 the Company adopted ASU No. 2015-11, Inventory (Topic 330); Simplifying the Measurement of Inventory. This amendment replacedCredit Losses on Financial Instruments which amends the method of measuring inventories at lower of cost or market with a lower of cost and net realizable value method. The adoption had no impactFASB's guidance on the Company'simpairment of financial position, results of operations and cash flows.
Accounting Standards Not Yet Adopted
In August 2017,instruments. The ASU adds to U.S. GAAP an impairment model (known as the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815); Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better align the risk management activities and financial reporting for these hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The guidance"current expected credit loss model") that is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.based on expected losses rather than incurred losses. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial position, results of operations and cash flows.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718); Scope of Modification Accounting. The amendments in this ASU provide guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. If the value, vesting conditions or classification of the award changes, modification accounting will apply. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company doesdid not expect the adoption of this standard to have a material impact on the Company’s financial position, results of operations and cash flows.
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715); Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments to this ASU require the service cost component of net periodic benefit cost be reported in the same income statement line or lines as other compensation costs for employees. The other components of net periodic benefit cost are required to be reported separately from service costs and outside a subtotal of income from operations. Only the service cost component is eligible for capitalization. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments should be applied retrospectively for the income statement presentations and prospectively for the capitalization of service costs. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial position, results of operations and cash flows.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles - Goodwill and Other (Topic 350); Simplifying the Test for Goodwill Impairment which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 of the goodwill impairment model. Step 2 measures a goodwill impairment loss by comparing the implied value of a reporting unit’s goodwill with the carrying amount of that goodwill. An entity would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized is limited to the amount of goodwill allocated to that reporting unit. The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment tests performed after January 1, 2017.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this ASU provide guidance in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and will be applied prospectively.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230); Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance to clarify how certain cash receipts and payments should be presented in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. The updated guidance requires a retrospective adoption method. The Company is evaluating the impact of adoption of this standard on the Company's statement of cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. The Company is evaluating the impact of adoption on the Company's financial position, results of operation and cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Adoption of ASU No. 2014-09 requires that an entity recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard but not before the original effective date of December 15, 2016, and can be applied using a full retrospective or modified retrospective approach. The Company is adopting this standard in the first quarter of fiscal 2018 and will use the modified retrospective approach. The Company formed an implementation team including representatives from finance, sales, and legal to assist in the assessment and implementation of this standard. The Company considered whether the adoption may require acceleration of revenue for products produced by the Company without an alternative use and when the Company would have a legally enforceable right of payment. Based on the Company's contract review, relevant laws, and other procedures, the Company concluded an enforceable right of payment does not exist because the Company is only entitled to cost for unclaimed cartons should a customer terminate without cause; therefore acceleration of revenue is not required. The Company is continuing its evaluation of all other aspects of the standard, and currently does not believe the adoption of the standard will have a material impact on the Company's financial position, results of operations and cash flows.
Effective January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This amendment modifies the disclosure requirements on fair value measurements. The adoption of this standard did not have a material impact on the Company's financial disclosures.
Effective January 1, 2020, the Company adopted ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU broadens the scope of Accounting Standards Codification ("ASC") 350-40 with an updated definition of a hosting arrangement and clarifies certain aspects of accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.
Effective January 1, 2020, the Company adopted ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20); Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This amendment modifies ASC 740 to simplify the accounting for income taxes. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact of this new accounting guidance.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides temporary optional expedients and exceptions for applying GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The ASU can be adopted after its issuance date through December 31, 2022. The Company is currently evaluating the impact of this new accounting guidance.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 2. | SUPPLEMENTAL BALANCE SHEET DATA |
NOTE 2. SUPPLEMENTAL BALANCE SHEET DATA
The following tables provide disclosure related to the components of certain line items included in our consolidated balance sheets.
Receivables, Net:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Trade | $ | 608.5 | | $ | 462.7 | |
| Less: Allowance | (11.9) | | (11.5) | |
| 596.6 | | 451.2 | |
| Other | 57.8 | | 53.3 | |
| Total | $ | 654.4 | | $ | 504.5 | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Trade | $ | 279.2 |
| $ | 370.0 |
|
| Less: Allowance | (7.2 | ) | (6.7 | ) |
| | 272.0 |
| 363.3 |
|
Other (a) | 150.8 |
| 63.5 |
|
| Total | $ | 422.8 |
| $ | 426.8 |
|
| |
(a)
| Includes a receivable of approximately $102 million and $31 million for 2017 and 2016, respectively, from the financial institution under the purchasing and servicing of receivables agreements, which is a Level 3 fair value measurement. |
Inventories, Net by major class:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Finished Goods | $ | 471.3 | | $ | 434.8 | |
| Work in Progress | 132.5 | | 123.4 | |
| Raw Materials | 348.5 | | 370.0 | |
| Supplies | 175.3 | | 167.7 | |
| Total | $ | 1,127.6 | | $ | 1,095.9 | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Finished Goods | $ | 240.5 |
| $ | 238.3 |
|
| Work in Progress | 74.1 |
| 73.5 |
|
| Raw Materials | 229.4 |
| 187.2 |
|
| Supplies | 90.0 |
| 83.9 |
|
| Total | $ | 634.0 |
| $ | 582.9 |
|
Other Current Assets:
|
| | | | | | |
| In millions | 2017 | 2016 |
| Prepaid Assets | $ | 34.3 |
| $ | 34.1 |
|
| Assets Held for Sale | 10.2 |
| 5.0 |
|
| Fair Value of Derivatives, current portion | 1.2 |
| 7.0 |
|
| Total | $ | 45.7 |
| $ | 46.1 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, Plant and Equipment, Net:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Property, Plant and Equipment, at Cost: | | |
| Land and Improvements | $ | 137.2 | | $ | 130.4 | |
Buildings(a) | 671.3 | | 655.5 | |
Machinery and Equipment(b) | 6,082.0 | | 5,832.6 | |
| Construction-in-Progress | 478.3 | | 202.6 | |
| 7,368.8 | | 6,821.1 | |
Less: Accumulated Depreciation(a)(b) | (3,808.8) | | (3,567.3) | |
| Total | $ | 3,560.0 | | $ | 3,253.8 | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Property, Plant and Equipment, at Cost: | | |
| Land and Improvements | $ | 106.2 |
| $ | 105.9 |
|
| Buildings | 431.9 |
| 404.1 |
|
Machinery and Equipment (a) | 4,384.5 |
| 4,137.0 |
|
| Construction-in-Progress | 151.0 |
| 106.4 |
|
| | 5,073.6 |
| 4,753.4 |
|
Less: Accumulated Depreciation (a) | (3,206.4 | ) | (3,001.5 | ) |
| Total | $ | 1,867.2 |
| $ | 1,751.9 |
|
| |
(a)
| Includes gross assets under capital lease of $39.7 million and related accumulated depreciation of $7.4 million as of December 31, 2017 and gross assets under capital lease of $25.6 million and related accumulated depreciation of $5.0 million as of December 31, 2016. |
(a) Includes gross assets under finance lease of $105.5 million and related accumulated depreciation of $10.7 million as of December 31, 2020, and gross assets under finance lease of $105.5 million and related accumulated depreciation of $5.4 million as of December 31, 2019.
Other Assets:(b) Includes gross assets under finance lease of $36.8 million and related accumulated depreciation of $9.4 million as of December 31, 2020, and gross assets under finance lease of $36.6 million and related accumulated depreciation of $6.8 million as of December 31, 2019.
|
| | | | | | |
| In millions | 2017 | 2016 |
| Deferred Debt Issuance Costs, Net of Amortization of $10.9 million and $9.3 million for 2017 and 2016, respectively | $ | 2.9 |
| $ | 4.5 |
|
| Deferred Income Tax Assets | 6.8 |
| 3.2 |
|
| Pension Assets | 20.4 |
| 3.0 |
|
| Fair Value of Derivatives, noncurrent portion | — |
| 0.7 |
|
| Other | 36.3 |
| 19.6 |
|
| Total | $ | 66.4 |
| $ | 31.0 |
|
Other Accrued Liabilities:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Dividends Payable | $ | 20.1 | | $ | 21.8 | |
| Deferred Revenue | 21.1 | | 15.2 | |
| Accrued Customer Rebates | 40.5 | | 36.5 | |
| | |
| Fair Value of Derivatives, current portion | 8.5 | | 8.5 | |
| Other Accrued Taxes | 56.5 | | 38.4 | |
| Accrued Payables | 37.6 | | 31.4 | |
| | |
| Operating Lease Liabilities, current portion | 60.5 | | 54.8 | |
| Other | 46.2 | | 32.5 | |
| Total | $ | 291.0 | | $ | 239.1 | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Dividends Payable | $ | 23.3 |
| $ | 23.6 |
|
| Deferred Revenue | 11.6 |
| 11.4 |
|
| Accrued Customer Rebates | 15.5 |
| 8.0 |
|
| Fair Value of Derivatives, current portion | 1.2 |
| 0.8 |
|
| Other Accrued Taxes | 29.8 |
| 22.3 |
|
| Accrued Payables | 25.7 |
| 10.8 |
|
| Other | 38.2 |
| 50.3 |
|
| Total | $ | 145.3 |
| $ | 127.2 |
|
Other Noncurrent Liabilities:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Deferred Revenue | $ | 6.5 | | $ | 5.3 | |
| Multi-employer Plans | 20.0 | | 30.8 | |
| Workers Compensation Reserve | 8.7 | | 9.5 | |
| Fair Value of Derivatives, noncurrent portion | 0.4 | | 3.0 | |
| | |
| Unfavorable Supply Agreement | 26.6 | | 28.9 | |
| Deferred Compensation | 16.5 | | 12.1 | |
| Operating Lease Liabilities, noncurrent portion | 157.2 | | 151.5 | |
| Other | 55.4 | | 25.7 | |
| Total | $ | 291.3 | | $ | 266.8 | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Deferred Revenue | $ | 6.6 |
| $ | 6.7 |
|
| Multi-employer Plans | 29.0 |
| 30.4 |
|
| Workers Compensation Reserve | 10.9 |
| 10.7 |
|
| Accrued Build-to-Suit Obligation | 35.8 |
| — |
|
| Other | 22.4 |
| 20.3 |
|
| Total | $ | 104.7 |
| $ | 68.1 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 3. | SUPPLEMENTAL CASH FLOW INFORMATION |
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash Flow (Used In) Provided by (Used In) Operations Due to Changes in Operating Assets and Liabilities, net of acquisitions:
| | | In millions | 2017 | 2016 | 2015 | In millions | 2020 | 2019 | 2018 |
| Receivables, Net | $ | 49.9 |
| $ | 25.5 |
| $ | (1.5 | ) | Receivables, Net | $ | (215.7) | | $ | (107.6) | | $ | (1,158.1) | |
| Inventories, Net | (6.5 | ) | 10.5 |
| (19.7 | ) | Inventories, Net | 34.8 | | (72.8) | | (82.0) | |
| Prepaid Expenses | 0.8 |
| (1.2 | ) | 0.1 |
| |
| Other Current Assets | | Other Current Assets | (5.3) | | (9.5) | | 0.3 | |
| Other Assets | (32.8 | ) | 8.5 |
| (12.4 | ) | Other Assets | (21.5) | | (7.9) | | (1.0) | |
| Accounts Payable | 27.0 |
| 4.3 |
| 12.7 |
| Accounts Payable | 70.9 | | (8.6) | | 76.2 | |
| Compensation and Employee Benefits | 3.5 |
| (21.7 | ) | (1.9 | ) | Compensation and Employee Benefits | 40.3 | | 12.9 | | 26.9 | |
| Income Taxes | 2.3 |
| 1.7 |
| 0.9 |
| Income Taxes | 6.9 | | (4.2) | | 0.6 | |
| Interest Payable | (1.7 | ) | 5.0 |
| (1.1 | ) | Interest Payable | 5.6 | | 8.4 | | (4.1) | |
| Other Accrued Liabilities | 6.7 |
| 12.8 |
| (3.9 | ) | Other Accrued Liabilities | 30.9 | | 5.2 | | 11.8 | |
| Other Noncurrent Liabilities | 14.2 |
| (6.9 | ) | 7.8 |
| Other Noncurrent Liabilities | 33.7 | | 10.6 | | 8.6 | |
| Total | $ | 63.4 |
| $ | 38.5 |
| $ | (19.0 | ) | Total | $ | (19.4) | | $ | (173.5) | | $ | (1,120.8) | |
Cash paid for interest and cash paid, net of refunds, for income taxes was as follows:
| | | | | | | | | | | |
| In millions | 2020 | 2019 | 2018 |
| Interest | $ | 119.5 | | $ | 126.8 | | $ | 125.0 | |
| Income Taxes | $ | 27.2 | | $ | 25.8 | | $ | 25.8 | |
NOTE 4. BUSINESS COMBINATIONS
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Interest | $ | 81.8 |
| $ | 64.9 |
| $ | 60.9 |
|
| Income Taxes | $ | 15.9 |
| $ | 14.5 |
| $ | 11.2 |
|
2020
As disclosed in Note 1 - Nature of Business and Summary of Significant Accounting Policies,On January 31, 2020, the Company acquired Seydaco, Norgrafta folding carton facility from Quad, a commercial printing company. The converting facility is located in Omaha, Nebraska, close to many of the Company's existing food and Carton Craft which are referred to collectively as the "2017 Acquisitions." Seydaco and Carton Craft are included in the Americas Paperboard Packaging segment. Norgraft is included in the Europe Paperboard Packaging Segment.
beverage customers. The Company paid approximately $189$41 million net of cash acquired, for the 2017 Acquisitions using existing cash and borrowings under its revolving line of credit facility. The purchase price has been allocated to assets acquired and liabilities assumed debt of approximately $14 million. The acquisition accounting for the 2017 Acquisitions is preliminarily based on the estimated fair values as of the acquisition date. The Company recorded $4.7 million related to identifiable intangible assets (customer relationships with useful lives of fifteen years), $42.8 million related to net tangible assets (primarily working capital, land/buildings and equipment) and a bargain purchase datesgain of $6.6 million as the net fair value of assets acquired and liabilities assumed was greater than the purchase price. During 2020, Net Sales and Loss from Operations for the Quad acquisition were $78.5 million and $0.7 million, respectively.
On April 1, 2020, the Company acquired the Consumer Packaging Group business from Greif, Inc., a leader in industrial packaging products and services. The acquisition included 7 converting facilities across the United States and will allow the Company to increase its mill-to-converting plant integration over time. The Company paid approximately $80 million using existing cash and borrowings under its revolving credit facility. The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date and is subject to adjustments in subsequent periods once the third partythird-party valuations are completed.finalized. The Company recorded $13.2 million related to identifiable intangible assets (customer relationships with useful lives of fifteen years) and $66.9 million related to net tangible assets (primarily working capital, land/buildings and equipment). During 2020, Net Sales and Loss from Operations for the Consumer Packaging Group acquisition were $164.5 million and $14.3 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2019
On August 1, 2019, the Company completed the acquisition of Artistic, a diversified producer of folding cartons and CRB. The acquisition included 2 converting facilities located in Auburn, Indiana and Elgin, Illinois and 1 CRB paperboard mill located in White Pigeon, Michigan. The Company paid $52.5 million using existing cash and borrowings under its revolving credit facility. Management believes that the purchase price attributable to goodwill represents the benefits expected as the acquisitionsacquisition was made to continue to integrate paperboard from the Company’s mills, to expand its product offering and to further optimize the Company’s supply chain footprint.
Tangible assets and liabilities were valued as of the acquisition date using a market analysis and intangible assets were valued using a discounted cash flow analysis, which represents a Level 3 measurement. The Company recorded $6.5 million related to identifiable intangible assets (customer relationships), $38.5 million related to tangible assets (primarily working capital, land/buildings and equipment) and $7.5 million related to goodwill. Goodwill was recorded in the Americas Paperboard Packaging segment. The Company expects the goodwill to be deductible for tax purposes.
During 2019, Net Sales and Income from Operations from the Artistic acquisition were $31.2 million and $2.0 million, respectively.
2018
On January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS and paper-based foodservice products. The NACP business included 2 SBS mills located in Augusta, Georgia and Texarkana, Texas, 3 converting facilities in the U.S. and 1 in the U.K.
Total consideration for the NACP Combination, including debt assumed of $660 million, was $1.8 billion. Management believes that the purchase price attributable to goodwill represents the benefits expected, as the acquisition was made to continue to expand itsthe Company's product offering, integrate paperboard from the Company's mills and to further optimize the Company's supply chain footprint.
On September 30, 2018, the Company completed the Letica Foodservice acquisition. The acquisition included 2 facilities in Clarksville, Tennessee and Pittston, Pennsylvania, focused on the production of paperboard-based cold and hot cups and cartons. The Company paid approximately $95 million using existing cash and borrowings under its revolving credit facility.
On June 12, 2018, the Company completed the PFP acquisition. The Company paid approximately $34 million using existing cash and borrowings under its revolving credit facility. The acquisition included 2 manufacturing facilities in Lebanon, Tennessee and Lancaster, Texas, focused on the production of paperboard-based air filter frames.
The goodwill related to the NACP Combination is 0t deductible for tax purposes. The goodwill related to the Letica Foodservice and the PFP acquisitions is deductible for tax purposes.
As of December 31, 2018, the acquisition accounting for the NACP Combination and PFP Acquisition was complete and the acquisition accounting for Letica Foodservice was preliminary based on the estimated fair values of all assets and liabilities as of the acquisition date.
During the quarter ended March 31, 2019, the acquisition accounting for Letica Foodservice was finalized, resulting in an approximately $5 million reduction in the value of property, plant and equipment.
Net Sales and Income from Operations from the NACP Combination was $1,407.1 million and $134.7 million, respectively, for the year ended December 31, 2018.
During 2018, Net Sales and Loss from Operations from the Letica Foodservice and PFP acquisitions were $42.4 million and $1.4 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
TheIn connection with the NACP Combination, the Company expects that the goodwill relatedentered into agreements with IP for transition services, fiber procurement fees, and corrugated products and ink supply. Payments to Seydaco and Carton Craft will be deductible for tax purposes. The preliminary acquisition accountingIP for the 2017 Acquisitions is as follows:
|
| | | | | | | | | |
| In millions | Amounts Recognized as of Acquisition Date | Measurement Period Adjustments | Amounts Recognized as of Acquisition Dates (as adjusted) |
| Purchase Price | $ | 191.0 |
| $ | 1.5 |
| $ | 192.5 |
|
| Assumed Debt | 14.0 |
| — |
| 14.0 |
|
| Total Purchase Consideration | $ | 205.0 |
| $ | 1.5 |
| $ | 206.5 |
|
| | | | |
| Cash and Cash Equivalents | $ | 3.1 |
| $ | — |
| $ | 3.1 |
|
| Receivables, Net | 25.9 |
| — |
| 25.9 |
|
| Inventories, Net | 29.9 |
| 1.1 |
| 31.0 |
|
| Property, Plant and Equipment, Net | 32.6 |
| 21.9 |
| 54.5 |
|
Intangible Assets, Net(a) | — |
| 43.3 |
| 43.3 |
|
| Other Assets | 0.5 |
| — |
| 0.5 |
|
| Total Assets Acquired | 92.0 |
| 66.3 |
| 158.3 |
|
| Current Liabilities | 3.7 |
| — |
| 3.7 |
|
| Pension and Postretirement Benefits | 0.5 |
| — |
| 0.5 |
|
| Deferred Tax Liabilities | — |
| 4.6 |
| 4.6 |
|
| Other Noncurrent Liabilities | 0.7 |
| — |
| 0.7 |
|
| Total Liabilities Assumed | 4.9 |
| 4.6 |
| 9.5 |
|
| Net Assets Acquired | 87.1 |
| 61.7 |
| 148.8 |
|
| Goodwill | 117.9 |
| (60.2 | ) | 57.7 |
|
| Total Estimated Fair Value of Net Assets Acquired | $ | 205.0 |
| $ | 1.5 |
| $ | 206.5 |
|
| |
(a)
| The weighted average life of Intangibles, Net, is 18 years. The Intangible Assets, Net were valued using the income approach and are a Level 3 fair value measurement. |
During 2017, Net Salesyear ended December 31, 2020 for fiber procurement fees and Income from Operationscorrugated products were $12.1 million (related to pass through wood purchases of approximately $204 million) and $28.4 million, respectively. There were no payments to IP for transition services during the year ended December 31, 2020. Payments to IP for the 2017 Acquisitionsyear ended December 31, 2019 under these agreements were $44.5$0.1 million, $12.4 million (related to pass through wood purchases of approximately $229.1 million) and $26.6 million, respectively. Payments to IP for the year ended December 31, 2018 under these agreements were $22.0 million, $15.9 million (related to pass through wood purchases of approximately $194 million) and $28.5 million, respectively. In addition, approximately $4 million and $1.5$6 million of payments were made for purchases unrelated to these agreements for the years ended December 31, 2019 and 2018, respectively.
As also disclosed in Note 1 - Nature of Business and Summary of Significant Accounting Policies, during 2016, the Company acquired Colorpak, Metro, WG Anderson and G-Box for approximately $333 million. The acquisitions are referred to collectively as the "2016 Acquisitions" and the acquisition accounting has been finalized.
Short-Term Debt is comprised of the following:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Short Term Borrowings | $ | 3.3 | | $ | 9.3 | |
| Current Portion of Finance Lease Obligations | 5.0 | | 4.6 | |
| Current Portion of Long-Term Debt | 488.9 | | 36.5 | |
| Total | $ | 497.2 | | $ | 50.4 | |
| | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Short Term Borrowings | $ | 9.1 |
| $ | 37.1 |
|
| Current Portion of Capital Lease Obligations | 2.2 |
| 1.3 |
|
| Current Portion of Long-Term Debt | 50.0 |
| 25.0 |
|
| Total | $ | 61.3 |
| $ | 63.4 |
|
Short-term borrowings are principally at the Company’s international subsidiaries. The weighted average interest rate on short-term borrowings as of December 31, 20172020 and 20162019 was 6.1%4.9% and 3.2%2.1%, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt is comprised of the following:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2029 | $ | 350.0 | | $ | 0 | |
| Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2028 | 450.0 | | 0 | |
| Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.81%, payable in 2027 | 300.0 | | 300.0 | |
| Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.16%, payable in 2024 | 300.0 | | 300.0 | |
| Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.90%, payable in 2022 | 250.0 | | 250.0 | |
| Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.75%, payable in 2021 | 425.0 | | 425.0 | |
| | |
| Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (1.67% at December 31, 2020) payable through 2023 | 1,359.6 | | 1,396.1 | |
Senior Secured Revolving Credit Facilities with interest payable at floating rates (1.50% at December 31, 2020) payable in 2023 (a) | 84.4 | | 52.8 | |
| Finance Leases and Financing Obligations | 139.4 | | 134.2 | |
| Other | 4.9 | | 5.4 | |
| Total Long-Term Debt | 3,663.3 | | 2,863.5 | |
| Less: Current Portion | 493.9 | | 41.1 | |
| 3,169.4 | | 2,822.4 | |
| Less: Unamortized Deferred Debt Issuance Costs | 22.4 | | 12.5 | |
| Total | $ | 3,147.0 | | $ | 2,809.9 | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.19%, payable in 2024 | $ | 300.0 |
| $ | 300.0 |
|
| Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.93%, payable in 2022 | 250.0 |
| 250.0 |
|
| Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.78%, payable in 2021 | 425.0 |
| 425.0 |
|
| Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (2.84% at December 31, 2017) payable through 2019 | 925.0 |
| 950.0 |
|
| Senior Secured Revolving Credit Facilities with interest payable at floating rates (2.55% at December 31, 2017) payable in 2019 | 319.0 |
| 184.8 |
|
| Capital Lease Obligations | 30.0 |
| 17.9 |
|
| Other | 28.9 |
| 3.0 |
|
| Total Long-Term Debt | 2,277.9 |
| 2,130.7 |
|
| Less: Current Portion | 52.2 |
| 26.3 |
|
| | 2,225.7 |
| 2,104.4 |
|
| Less: Unamortized Deferred Debt Issuance Costs | 12.5 |
| 15.9 |
|
| Total | $ | 2,213.2 |
| $ | 2,088.5 |
|
(a) The effective interest rates for the Company’s Senior Secured Revolving Credit Facilities were 2.06% and 3.40% as of December 31, 2020 and 2019, respectively.
Long-Term Debt maturities (excluding capital leases) are as follows:2020
|
| | | |
| In millions |
| 2018 | $ | 50.0 |
|
| 2019 | 1,194.8 |
|
| 2020 | 20.7 |
|
| 2021 | 425.4 |
|
| 2022 | 250.6 |
|
| After 2022 | 306.4 |
|
| Total | $ | 2,247.9 |
|
Senior Notes
During August 2016, the CompanyOn March 6, 2020, GPIL completed the issuance and salea private offering of $300$450.0 million aggregate principal amount of 4.125%its senior unsecured notes due 2028. The Senior Notes due 2024. In connection with the new notes,bear interest at an annual rate of 3.50%. The net proceeds were used by the Company recorded deferred financing costto repay a portion of approximately $5.4 million.the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured credit facility.
On August 28, 2020, GPIL completed a private offering of $350.0 million aggregate principal amount of its senior unsecured notes due 2029. The Senior Notes bear interest at an annual rate of 3.50%. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured credit facility.
2019
On June 25, 2019, GPIL completed a private offering of $300.0 million aggregate principal amount of its senior unsecured notes due 2027. The Senior Notes will bear interest at an annual rate of 4.75%. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured credit facility.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt maturities (excluding finance leases and finance obligations) are as follows:
| | | | | |
| In millions |
| 2021 | $ | 488.9 | |
| 2022 | 378.4 | |
| 2023 | 1,252.9 | |
| 2024 | 300.5 | |
| 2025 | 0 | |
| After 2025 | 1,103.2 | |
| Total | $ | 3,523.9 | |
Credit Facilities
The following describes the Senior Secured Term LoanCompany's senior secured term loans and Revolving Credit Facilities:
revolving credit facilities: | | | | | | | | | | | | |
| Date | Document(a) | Provision | Expiration | |
| | | |
Date | Document(a)(b)
| Provision | Expiration |
March 2012 | | | | |
| | | | |
| | | | |
| | | | |
| January 2018 | Third Amended and Restated Credit Agreement | •$1.0 billionIncreased the domestic revolving credit facility •$1.0 billion amortizingby $200 million to $1,450 million and reduced the term loan facility •LIBORby approximately $125 million to $800 million. LIBOR plus variable spread(between 175spread (between 125 basis points and 275200 basis points) depending on consolidated total leverage ratio | March 2017 |
December 2012 | Amendment No. 1 to Credit Agreement | •$300Includes €138 million incremental term loan | March 2017 |
September 2013 | Amendment No. 2 to Credit Agreement | •Added €75 million (approximately $100 million) revolving credit facility for borrowings in Euro and Pound Sterling and a ¥2.5 billion (approximately $25 million) revolving credit facility for borrowings in Yen. LIBOR plus variable spread (between 150 basis points and 250 basis points) depending on consolidated total leverage ratioYen | September 2018January 2023 | |
June 2014January 2018 | Amendment No. 3 to Credit Agreement | •Increased revolving credit facility under which borrowings can be made in Euros or Sterling by €63 million (approximately $86 million) | September 2018 |
October 2014 | Second Amended and Restated Credit Agreement | •Increased the domestic revolving credit facility by $250 million and reduced theThis term loan indebtedness was assumed by approximately $169 million. LIBOR plus variable spread (between 125 basis pointsthe Company as part of the NACP Combination in an aggregate amount of $660 million | January 2023 | |
| October 2020 | Incremental Facility Amendment to the Third Amended and 225 basis points) depending on consolidated total leverage ratioRestated Credit Agreement | October 2019•Incremental $425 million term loan facility under the Third Amended and Restated Credit Agreement with a delayed draw feature, which was exercised in January 2021 | January 2028 | |
(a)The Company's obligations under the Third Amended and Restated Credit Agreement (as amended by the Incremental Facility Amendment) and the Amended and Restated Credit Agreement (collectively, the “Current Credit Agreement”) are secured by substantially all of the Company's domestic assets.
(b)On January 1, 2018 the Company entered intoassumed the term loan indebtedness previously incurred by IP (the “Amended and Restated Credit Agreement”) in an aggregate amount of $660 million, repayable pursuant to the same amortization schedule (expressed as a percentage of the principal amount thereof) as the Term Loan A under the Third Amended and Restated Credit Agreement that increasedand having the commitmentsame maturity date of January 1, 2023. The applicable margin interest rate pricing grid, covenants and drawn balanceother terms are substantially equivalent to those contained in the Third Amended and Restated Credit Agreement. The term loan under the Amended and Restated Credit Agreement is secured by a lien and security interest in substantially all of the domestic revolving credit facility by $200 millionassets of GPIL on a pari passu basis with the liens and reducedsecurity interests securing the term loan by $125 million. The rate is LIBOR plus variable spread (between 125 basis points and 200 basis points) depending on consolidated total leverage ratio. The maturity date has been extended to January 2023. The Third Amended and Restated Credit Agreement was filed as an exhibitpursuant to the Company's Form 8-K filed on January 2, 2018. In addition toterms of a customary intercreditor agreement among the Amended and Restated Credit Agreement, the Company assumed debt of $660.0 million as described in Note 19 - Subsequent Events.parties.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On October 15, 2020, GPIL entered into a new $425 million term loan facility under the Third Amended and Restated Credit Agreement with member banks of the Farm Credit System (the "Incremental Term A-2 Facility"). The Incremental Term A-2 Facility had a delayed draw feature, and the Company drew the entire facility on January 14, 2021. On January 15, 2021, the Company used the proceeds, together with cash on hand, to redeem its 4.75% Senior Notes due in 2021 at par. The redemption included the outstanding principal amount plus accrued and unpaid interest. The Incremental Term A-2 Facility bears interest at a fixed rate of 2.67% due quarterly, matures January 14, 2028, and does not amortize. As long as the loan is outstanding, GPIL will be eligible to receive an annual patronage credit from the participating banks, which will be paid in cash and stock in the lead member bank. Patronage payable each year is variable and based on the individual financial performance of each of the member banks then participating in the loan.
At December 31, 2017,2020, the Company and its U.S. and international subsidiaries had the following commitments, amounts outstanding and amounts available under revolving credit facilities:
| | | | | | | | | | | |
| In millions | Total Commitments | Total Outstanding | Total Available |
Senior Secured Domestic Revolving Credit Facility (a) | $ | 1,450.0 | | $ | 0 | | $ | 1,429.3 | |
| Senior Secured International Revolving Credit Facilities | 193.0 | | 84.4 | | 108.6 | |
| Other International Facilities | 57.5 | | 8.3 | | 49.2 | |
| Total | $ | 1,700.5 | | $ | 92.7 | | $ | 1,587.1 | |
|
| | | | | | | | | |
| In millions | Total Commitments | Total Outstanding | Total Available |
Senior Secured Domestic Revolving Credit Facility (a) | $ | 1,250.0 |
| $ | 218.8 |
| $ | 1,010.6 |
|
| Senior Secured International Revolving Credit Facilities | 188.1 |
| 100.2 |
| 87.9 |
|
| Other International Facilities | 67.5 |
| 38.0 |
| 29.5 |
|
| Total | $ | 1,505.6 |
| $ | 357.0 |
| $ | 1,128.0 |
|
| |
(a)
| In accordance with its debt agreements, the Company's availability under its Revolving Credit Facility has been reduced by the amount of standby letters of credit issued of $20.6 million as of December 31, 2017. These letters of credit are primarily used as security against its self-insurance obligations and workers' compensation obligations. These letters of credit expire throughout 2018 unless extended. |
(a) In accordance with its debt agreements, the Company's availability under its revolving credit facility has been reduced by the amount of standby letters of credit issued of $20.7 million as of December 31, 2020. These letters of credit are primarily used as security against its self-insurance obligations and workers' compensation obligations. These letters of credit expire at various dates through 2021 unless extended.
The Amended and Restatedfacilities under the Current Credit Agreement and the Term Loan4.75% Senior Notes due 2027, the 3.50% Senior Notes due 2028 and the 3.50% Senior Notes due 2029 are guaranteed by GPIP and certain domestic subsidiaries. The 4.75% Senior Notes due 2021 (redeemed January 15, 2021), 4.875% Senior Notes due 2022 and 4.125% Senior Notes due 2024 are guaranteed by GPHC and certain domestic subsidiaries.
The Current Credit Agreement and the indentures governing the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022, and 4.125% Senior Notes due 2024, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028 and 3.50% Senior Notes due 2029 (the “Indentures”"Indentures") limit the Company’sCompany's ability to incur additional indebtedness. Additional covenants contained in the Current Credit Agreement and the Indentures may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase stock, pay dividends and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indenture,Indentures, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions could limit the Company’s ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.
As of December 31, 2017,2020, the Company was in compliance with the covenants in the Amended and Restated Credit Agreement, the Term LoanCurrent Credit Agreement and the Indentures.
NOTE 6. LEASES
Effective January 1, 2019, the Company adopted ASC 842, which requires recognition of a right-of-use asset and lease liability for all leases at the commencement date based on the present value of lease payments over the lease term. Additional qualitative and quantitative disclosures regarding the Company's leasing arrangements are also required. The Company adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment of: (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company has elected other available practical expedients to not separate lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for warehouses, corporate and regional offices, and machinery and equipment. The Company enters into lease contracts ranging from one to 25 years with the majority of leases having terms of three to seven years, many of which include options to extend in various increments. Variable lease costs consist primarily of variable warehousing costs, common area maintenance, taxes, and insurance. The Company’s leases do not have any significant residual value guarantees or restrictive covenants.
As the implicit rate is not readily determinable for most of the Company’s leases agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company's credit spread adjusted for current market factors, including fixed rate swaps, LIBOR, and foreign currency rates.
The components of lease costs are as follows:
| | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 |
| Finance lease costs: | | |
| Amortization of right-of-use asset | $ | 7.9 | | $ | 7.6 | |
| Interest on lease liabilities | 7.9 | | 7.8 | |
| Operating lease costs | 72.1 | | 64.8 | |
| Short-term lease costs | 12.6 | | 12.9 | |
| Variable lease costs | 10.3 | | 4.4 | |
| | |
| Total lease costs, net | $ | 110.8 | | $ | 97.5 | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows from operating leases | $ | 71.9 | | $ | 64.7 | |
| Operating cash flows from finance leases | 7.9 | | 7.8 | |
| Financing cash flows from finance leases | 4.6 | | 4.2 | |
| Right-of-use assets obtained in exchange for lease obligations: | | |
| Operating leases | 70.5 | | 73.1 | |
| Finance leases | 0.1 | | 15.5 | |
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| | December 31, |
| In millions, except lease term and discount rate | Balance Sheet Classification | 2020 | 2019 |
| Operating Leases: | | | |
| Operating lease right-of-use asset | Other Assets | $ | 208.3 | | $ | 202.8 | |
| Current operating lease liabilities | Other Accrued Liabilities | $ | 60.5 | | $ | 54.8 | |
| Noncurrent operating lease liabilities | Other Noncurrent Liabilities | 157.2 | | 151.5 | |
| Total operating lease liabilities | | $ | 217.7 | | $ | 206.3 | |
| | | |
| Finance Leases: | | | |
| Property, Plant and Equipment | | $ | 142.3 | | $ | 142.1 | |
| Accumulated depreciation | | (20.1) | | (12.2) | |
| Property, Plant and Equipment, net | | $ | 122.2 | | $ | 129.9 | |
| Current finance lease liabilities | Short-Term Debt and Current Portion of Long-Term Debt | $ | 5.0 | | $ | 4.6 | |
| Noncurrent finance lease liabilities | Long-Term Debt | 134.4 | | 129.6 | |
| Total finance lease liabilities | | $ | 139.4 | | $ | 134.2 | |
| | | |
| Weighted Average Remaining Lease Term (Years) | | |
| Operating leases | | 5 | 5 |
| Finance leases | | 16 | 17 |
| | | |
| Weighted Average Discount Rate | | | |
| Operating leases | | 3.24 | % | 3.57 | % |
| Finance leases | | 5.60 | % | 5.60 | % |
Maturities of lease liabilities are as follows:
| | | | | | | | |
| In millions | | |
| Year ending December 31, | Operating Leases | Finance Leases |
| 2021 | $ | 64.1 | | $ | 12.6 | |
| 2022 | 53.0 | | 12.2 | |
| 2023 | 39.0 | | 12.4 | |
| 2024 | 25.6 | | 12.4 | |
| 2025 | 18.0 | | 12.5 | |
| Thereafter | 34.3 | | 145.7 | |
| Total lease payments | $ | 234.0 | | $ | 207.8 | |
| Less imputed interest | (16.3) | | (78.2) | |
| Total | $ | 217.7 | | $ | 129.6 | |
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 6. | STOCK INCENTIVE PLANS |
NOTE 7. STOCK INCENTIVE PLANS
The Company has one1 active equity compensation plan from which new grants may be made, the Graphic Packaging Holding Company 2014 Omnibus Stock and Incentive Compensation Plan as amended (the “2014 Plan”). Under theThe 2014 Plan the Company may grantallows for granting 20.1 million shares of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSU’s”RSUs”) and other types of stock-based and cash awards. Awards under the 2014 Plan generally vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the 2014 Plan are from the Company’sGPHC’s authorized but unissued shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award.award and are adjusted for actual performance for performance-based awards. As of December 31, 2020, there were 12.6 million shares available to be granted under the 2014 Plan.
Stock Awards, Restricted Stock and Restricted Stock Units
Under the 2014 Plan, all RSUs generally vest and become payable in three years from date of grant. RSUs granted to employees generally contain service or performance conditionsobjectives based on various financial targets or service requirementsand relative total shareholder return that must be met for the sharesRSUs to vest. Stock awards granted to non-employee directors as part of their compensation for service on the Board are unrestricted on the grant date.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Data concerning RSUs and stock awards granted in the years ended December 31:
| | | | | | | | | | | |
| 2020 | 2019 | 2018 |
| RSUs — Employees | 1,655,854 | | 2,187,603 | | 1,951,738 | |
| Weighted-average grant date fair value | $ | 15.40 | | $ | 12.37 | | $ | 14.86 | |
| Stock Awards — Board of Directors | 71,160 | | 74,760 | | 51,226 | |
| Weighted-average grant date fair value | $ | 13.49 | | $ | 12.84 | | $ | 15.03 | |
|
| | | | | | | | | |
| | 2017 | 2016 | 2015 |
| RSUs — Employees | 1,547,049 |
| 1,891,335 |
| 1,751,823 |
|
| Weighted-average grant date fair value | $ | 13.35 |
| $ | 11.20 |
| $ | 13.28 |
|
| Stock Awards — Board of Directors | 65,520 |
| 59,880 |
| 54,120 |
|
| Weighted-average grant date fair value | $ | 13.43 |
| $ | 13.36 |
| $ | 14.78 |
|
A summary of the changes in the number of unvested RSUs from December 31, 20142017 to December 31, 20172020 is presented below:
| | | | | | | | |
| RSUs | Weighted Average Grant Date Fair Value |
| Outstanding — December 31, 2017 | 3,871,934 | | $ | 13.10 | |
Granted(a) | 1,951,738 | | 14.86 | |
| Released | (744,757) | | 14.90 | |
| Forfeited | (210,553) | | 13.49 | |
Performance adjustment(b) | (408,328) | | 15.10 | |
| Outstanding — December 31, 2018 | 4,460,034 | | $ | 13.27 | |
Granted(a) | 2,187,603 | | 12.37 | |
| Released | (900,516) | | 12.00 | |
| Forfeited | (187,729) | | 13.66 | |
Performance adjustment(b) | (499,702) | | 11.57 | |
| Outstanding — December 31, 2019 | 5,059,690 | | $ | 13.27 | |
Granted(a) | 1,655,854 | | 15.40 | |
| Released | (1,415,365) | | 12.91 | |
| Forfeited | (158,473) | | 14.25 | |
| | |
| Outstanding — December 31, 2020 | 5,141,706 | | $ | 14.02 | |
(a) Grant activity for all performance-based RSUs is disclosed at target.
(b) Reflects the number of RSUs above and below target levels based on actual performance measured at the end of the performance period.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | |
| Shares | Weighted Average Grant Date Fair Value |
| Outstanding — December 31, 2014 | 7,613,698 |
| $ | 7.20 |
|
| Granted | 1,751,823 |
| 13.28 |
|
| Released | (3,657,373 | ) | 5.45 |
|
| Forfeited | (268,560 | ) | 9.32 |
|
| Outstanding — December 31, 2015 | 5,439,588 |
| $ | 10.22 |
|
| Granted | 1,891,335 |
| 11.20 |
|
| Released | (2,596,292 | ) | 7.29 |
|
| Forfeited | (66,956 | ) | 12.74 |
|
| Outstanding — December 31, 2016 | 4,667,675 |
| $ | 12.21 |
|
| Granted | 1,547,049 |
| 13.35 |
|
| Released | (1,720,327 | ) | 10.05 |
|
| Forfeited | (622,463 | ) | 13.13 |
|
| Outstanding — December 31, 2017 | 3,871,934 |
| $ | 13.10 |
|
The initial value of the service-based RSUs is based on the market value of the Company’sGPHC’s common stock on the date of grant. The 2020 performance-based RSU grants were valued using a Monte Carlo simulation as the total shareholder return contains a market condition. RSUs are recorded in Stockholders'Shareholders' Equity. The unrecognized expense at December 31, 20172020 is approximately $22$31 million and is expected to be recognized over a weighted average period of 2 years.
The value of stock awards granted to the Company's directors are based on the market value of the Company’sGPHC’s common stock on the date of grant. These awards are unrestricted on the date of grant.
During 2017, 2016,2020, 2019, and 2015, $8.92018, $33.8 million, $20.2$21.7 million and $20.4$13.8 million, respectively, were charged to compensation expense for stock incentive plans.plans and is primarily included in Selling, General and Administrative expenses in the Consolidated Statements of Operations.
During 2017, 2016,2020, 2019, and 2015,2018, RSUs with an aggregate fair value of $23.2$22.7 million, $32.0$11.1 million and $56.1$13.7 million, respectively, vested and were paid out. The RSUs vested and paid out in 20172020 were granted primarily during 2014.2017.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 7. | PENSIONS AND OTHER POSTRETIREMENT BENEFITS |
NOTE 8. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
DEFINED BENEFIT PLANS
The Company maintains both defined benefit pension plans and postretirement health care plans that provide medical and life insurance coverage to eligible salaried and hourly retired employees in North America and their dependents. The Company maintains international defined benefit pension plans which are botheither noncontributory andor contributory and are funded in accordance with applicable local laws. Pension or termination benefits are based primarily on years of service and the employees’ compensation.
Currently, the North American plans are closed to newly-hired employees.employees except as noted below. Effective July 1, 2011, the North American plans were frozen for most salaried and non-union hourly employees and replaced with a defined contribution plan.
During 2015, the remaining union plans were closed to newly-hired employees. Also in 2015,2018, the Company assumed defined benefit pension and postretirement benefit plans in the Cascades acquisition. These plans are closed to newly-hired employees. In 2016, the Company assumed a defined benefit plan in the WG Anderson acquisition, which was frozen for all participants on December 31, 2016.
During the fourth quarter of 2017, the Company made an additional $75 million contribution to its U.S. defined benefit plan. Since this plan is closed and mostly frozen, the Company has hedged a significant portion of the liabilities. This additional contribution will allow the Company to beginbegan the process of settling these liabilities through lumpterminating its largest U.S. pension plan (the "U.S. Plan"). This included freezing the plan as of December 31, 2018 and spinning off the active participants to the plan established as part of the NACP Combination (the "NACP Plan"). The NACP Plan is open for union and non-union hourly employees of locations that were part of the NACP Combination. During the third quarter of 2019, the Company offered a lump-sum benefit option to certain participants in the U.S. Plan. Lump sum payments or the purchase of annuities.
The Company, also$150.2 million were paid in the fourth quarter of 2017, made an additional contribution of $6.8 million to its U.K. defined benefit plan2019 and will continue de-risking that plan.
During the fourth quarter of 2015, the Company partially settled obligationsrecognized a non-cash settlement charge of certain of its defined benefit pension plans through lump sum payments to certain term-vested employees who were not currently receiving a monthly benefit. Term-vested employees whose future pension benefits were above an established threshold had the option to either accept the lump sum offer or continue to be entitled to their future monthly benefit. The impact of acceptance reduced the projected benefit obligation by $34.7$39.2 million and required cash payments from existing plan assets of $34.6 million.
During 2015, the Company settled obligations of a defined benefit plan associated with the Brampton, Ontario facility which was closed.payouts. In the first quarter of 2020, the Company, using the assets held within the pension trust, purchased a group annuity contract that transferred the remaining pension obligation under the U.S. Plan of approximately $713 million to an insurance company. The settlements resulted from lump sum paymentsCompany incurred an additional non-cash settlement charge of $153.7 million related to plan participants or the purchase of annuities.this transfer. These non-cash settlement charges relate to Net Actuarial Loss previously recognized in Accumulated Other Comprehensive Loss.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension and Postretirement Expense
The pension and postretirement expenses related to the Company’s plans consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | Postretirement Benefits |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
| Components of Net Periodic Cost: | | | | | | |
| Service Cost | $ | 15.4 | | $ | 14.0 | | $ | 17.3 | | $ | 0.5 | | $ | 0.5 | | $ | 0.6 | |
| Interest Cost | 14.0 | | 46.1 | | 41.8 | | 1.0 | | 1.2 | | 1.2 | |
| | | | | | |
| Expected Return on Plan Assets | (21.0) | | (54.9) | | (63.6) | | 0 | | 0 | | 0 | |
| Amortization: | | | | | | |
| Prior Service Cost (Credit) | 0.2 | | 0.2 | | 0.4 | | (0.3) | | (0.3) | | (0.3) | |
| Actuarial Loss (Gain) | 5.4 | | 10.0 | | 5.9 | | (1.7) | | (2.3) | | (1.8) | |
| Net Curtailment/Settlement Loss | 153.7 | | 39.2 | | 1.0 | | 0 | | 0 | | 0 | |
| | | | | | |
| Other | 0.2 | | 0.3 | | 0.5 | | 0 | | 0 | | 0 | |
| | | | | | |
| Net Periodic Cost (Benefit) | $ | 167.9 | | $ | 54.9 | | $ | 3.3 | | $ | (0.5) | | $ | (0.9) | | $ | (0.3) | |
|
| | | | | | | | | | | | | | | | | | |
| Pension Benefits | Postretirement Benefits |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
| Components of Net Periodic Cost: | | | | | | |
| Service Cost | $ | 8.2 |
| $ | 10.0 |
| $ | 12.8 |
| $ | 0.8 |
| $ | 0.8 |
| $ | 1.0 |
|
| Interest Cost | 42.6 |
| 43.8 |
| 54.8 |
| 1.3 |
| 1.3 |
| 1.7 |
|
| Expected Return on Plan Assets | (64.1 | ) | (61.3 | ) | (74.4 | ) | — |
| — |
| �� |
|
| Amortization: | | | | | | |
| Prior Service Cost (Credit) | 0.5 |
| 0.8 |
| 0.7 |
| (0.3 | ) | (0.2 | ) | (0.3 | ) |
| Actuarial Loss (Gain) | 6.5 |
| 27.3 |
| 19.7 |
| (2.1 | ) | (2.1 | ) | (1.6 | ) |
| Net Curtailment/Settlement Loss | — |
| 1.0 |
| 1.5 |
| — |
| — |
| — |
|
| Other | 0.8 |
| 0.8 |
| 0.9 |
| — |
| — |
| — |
|
| Net Periodic (Benefit) Cost | $ | (5.5 | ) | $ | 22.4 |
| $ | 16.0 |
| $ | (0.3 | ) | $ | (0.2 | ) | $ | 0.8 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Certain assumptions used in determining the pension and postretirement expenses were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | Postretirement Benefits |
| Year Ended December 31, |
| 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
| Weighted Average Assumptions: | | | | | | |
| Discount Rate | 2.69 | % | 4.14 | % | 3.49 | % | 3.22 | % | 4.29 | % | 3.64 | % |
| Rate of Increase in Future Compensation Levels | 2.36 | % | 2.37 | % | 2.09 | % | 0 | | 0 | | 0 | |
| Expected Long-Term Rate of Return on Plan Assets | 4.12 | % | 4.74 | % | 4.86 | % | 0 | | 0 | | 0 | |
| Initial Health Care Cost Trend Rate | 0 | | 0 | | 0 | | 6.65 | % | 9.00 | % | 9.00 | % |
| Ultimate Health Care Cost Trend Rate | 0 | | 0 | | 0 | | 4.50 | % | 4.50 | % | 4.50 | % |
| Ultimate Year | — | | — | | — | | 2028 | 2028 | 2027 |
|
| | | | | | | | | | | | |
| | Pension Benefits | Postretirement Benefits |
| | Year Ended December 31, |
| | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
| Weighted Average Assumptions: | | | | | | |
| Discount Rate | 4.01 | % | 4.41 | % | 4.02 | % | 4.10 | % | 4.29 | % | 3.95 | % |
| Rate of Increase in Future Compensation Levels | 1.45 | % | 1.49 | % | 1.45 | % | — |
| — |
| — |
|
| Expected Long-Term Rate of Return on Plan Assets | 5.79 | % | 5.90 | % | 6.81 | % | — |
| — |
| — |
|
| Initial Health Care Cost Trend Rate | — |
| — |
| — |
| 7.45 | % | 7.80 | % | 7.38 | % |
| Ultimate Health Care Cost Trend Rate | — |
| — |
| — |
| 4.50 | % | 4.50 | % | 4.96 | % |
| Ultimate Year | — |
| — |
| — |
| 2024 |
| 2024 |
| 2036 |
|
For the largest plan, the actuarial loss is amortized over the average remaining life expectancy period of employees expected to receive benefits.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Funded Status
The following table sets forth the funded status of the Company’s pension and postretirement plans as of December 31:
| | | | | | | | | | | | | | |
| | Pension Benefits | Postretirement Benefits |
| In millions | 2020 | 2019 | 2020 | 2019 |
| Change in Benefit Obligation: | | | | |
| Benefit Obligation at Beginning of Year | $ | 1,255.4 | | $ | 1,245.2 | | $ | 35.9 | | $ | 34.1 | |
| Service Cost | 15.4 | | 14.0 | | 0.5 | | 0.5 | |
| Interest Cost | 14.0 | | 46.1 | | 1.0 | | 1.2 | |
| Net Actuarial Loss | 61.9 | | 157.8 | | 0 | | 1.1 | |
| Foreign Currency Exchange | 8.9 | | 9.2 | | 0 | | 0.1 | |
| | | | |
| Settlements | (742.7) | | (150.2) | | 0 | | 0 | |
| Benefits Paid | (20.4) | | (67.2) | | (1.2) | | (1.2) | |
| | | | |
| | | | |
| Other | 0.3 | | 0.5 | | 0.1 | | 0.1 | |
| Benefit Obligation at End of Year | $ | 592.8 | | $ | 1,255.4 | | $ | 36.3 | | $ | 35.9 | |
| | | | |
| Change in Plan Assets: | | | | |
| Fair Value of Plan Assets at Beginning of Year | $ | 1,172.4 | | $ | 1,186.5 | | $ | 0 | | $ | 0 | |
| Actual Return on Plan Assets | 57.8 | | 181.7 | | 0 | | 0 | |
| Employer Contributions | 19.1 | | 11.3 | | 1.2 | | 1.2 | |
| Foreign Currency Exchange | 8.1 | | 10.3 | | 0 | | 0 | |
| Benefits Paid | (20.4) | | (67.2) | | (1.2) | | (1.2) | |
| | | | |
| Settlements | (720.7) | | (150.2) | | 0 | | 0 | |
| | | | |
| Fair Value of Plan Assets at End of Year | $ | 516.3 | | $ | 1,172.4 | | $ | 0 | | $ | 0 | |
| Plan Assets Less than Projected Benefit Obligation | $ | (76.5) | | $ | (83.0) | | $ | (36.3) | | $ | (35.9) | |
| | | | |
| Amounts Recognized in the Consolidated Balance Sheets Consist of: | | | | |
| Pension Assets | $ | 21.2 | | $ | 25.6 | | $ | 0 | | $ | 0 | |
| Accrued Pension and Postretirement Benefits Liability — Current | $ | (1.8) | | $ | (1.7) | | $ | (2.5) | | $ | (2.4) | |
| Accrued Pension and Postretirement Benefits Liability — Noncurrent | $ | (96.0) | | $ | (106.9) | | $ | (33.8) | | $ | (33.5) | |
| Accumulated Other Comprehensive Income: | | | | |
| Net Actuarial Loss (Gain) | $ | 105.5 | | $ | 279.9 | | $ | (0.9) | | $ | (0.8) | |
| Prior Service Cost (Credit) | $ | 3.8 | | $ | 3.6 | | $ | (15.3) | | $ | (17.3) | |
| Weighted Average Calculations: | | | | |
| Discount Rate | 2.11 | % | 2.69 | % | 2.52 | % | 3.22 | % |
| Rates of Increase in Future Compensation Levels | 3.62 | % | 2.36 | % | 0 | | 0 | |
| Initial Health Care Cost Trend Rate | 0 | | 0 | | 6.40 | % | 6.65 | % |
| Ultimate Health Care Cost Trend Rate | 0 | | 0 | | 4.50 | % | 4.50 | % |
| Ultimate Year | — | | — | | 2028 | 2028 |
|
| | | | | | | | | | | | |
| | Pension Benefits | Postretirement Benefits |
| In millions | 2017 | 2016 | 2017 | 2016 |
| Change in Benefit Obligation: | | | | |
| Benefit Obligation at Beginning of Year | $ | 1,279.0 |
| $ | 1,239.0 |
| $ | 40.6 |
| $ | 40.8 |
|
| Service Cost | 8.2 |
| 10.0 |
| 0.8 |
| 0.8 |
|
| Interest Cost | 42.6 |
| 43.8 |
| 1.3 |
| 1.3 |
|
| Actuarial Loss (Gain) | 76.4 |
| 79.3 |
| (3.4 | ) | (0.7 | ) |
| Foreign Currency Exchange | 22.9 |
| (36.0 | ) | 0.1 |
| 0.1 |
|
| Settlement/Curtailment (Gain) | (0.2 | ) | (3.8 | ) | — |
| 0.3 |
|
| Benefits Paid | (62.7 | ) | (58.4 | ) | (2.2 | ) | (2.1 | ) |
| Acquisition | — |
| 4.1 |
| — |
| — |
|
| Other | 0.9 |
| 1.0 |
| 0.1 |
| 0.1 |
|
| Benefit Obligation at End of Year | $ | 1,367.1 |
| $ | 1,279.0 |
| $ | 37.3 |
| $ | 40.6 |
|
| | | | | |
| Change in Plan Assets: | | | | |
| Fair Value of Plan Assets at Beginning of Year | $ | 1,115.6 |
| $ | 1,038.9 |
| $ | — |
| $ | — |
|
| Actual Return on Plan Assets | 147.1 |
| 116.3 |
| — |
| — |
|
| Employer Contributions | 119.1 |
| 51.4 |
| 2.2 |
| 2.1 |
|
| Foreign Currency Exchange | 21.6 |
| (34.6 | ) | — |
| — |
|
| Benefits Paid | (62.7 | ) | (58.4 | ) | (2.2 | ) | (2.1 | ) |
| Acquisition | — |
| 4.8 |
| — |
| — |
|
| Settlements | — |
| (2.9 | ) | — |
| — |
|
| Other | — |
| 0.1 |
| — |
| — |
|
| Fair Value of Plan Assets at End of Year | $ | 1,340.7 |
| $ | 1,115.6 |
| $ | — |
| $ | — |
|
| Plan Assets Less than Projected Benefit Obligation | $ | (26.4 | ) | $ | (163.4 | ) | $ | (37.3 | ) | $ | (40.6 | ) |
| | | | | |
| Amounts Recognized in the Consolidated Balance Sheets Consist of: | | | | |
| Pension Assets | $ | 20.4 |
| $ | 3.0 |
| $ | — |
| $ | — |
|
| Accrued Pension and Postretirement Benefits Liability — Current | $ | (1.7 | ) | $ | (1.7 | ) | $ | (2.4 | ) | $ | (2.8 | ) |
| Accrued Pension and Postretirement Benefits Liability — Noncurrent | $ | (45.1 | ) | $ | (164.7 | ) | $ | (34.9 | ) | $ | (37.8 | ) |
| Accumulated Other Comprehensive Income: | | | | |
| Net Actuarial Loss (Gain) | $ | 267.1 |
| $ | 277.8 |
| $ | (20.1 | ) | $ | (18.7 | ) |
| Prior Service Cost (Credit) | $ | 0.7 |
| $ | 1.3 |
| $ | (0.8 | ) | $ | (1.1 | ) |
| Weighted Average Calculations: | | | | |
| Discount Rate | 3.49 | % | 4.01 | % | 3.64 | % | 4.10 | % |
| Rates of Increase in Future Compensation Levels | 2.09 | % | 1.45 | % | — |
| — |
|
| Initial Health Care Cost Trend Rate | — |
| — |
| 9.00 | % | 7.45 | % |
| Ultimate Health Care Cost Trend Rate | — |
| — |
| 4.50 | % | 4.50 | % |
| Ultimate Year | — |
| — |
| 2027 |
| 2024 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company determined pension expense using both the fair value of assets and a calculated value that averages gains and losses over a period of years. Investment gains or losses represent the difference between the expected and actual return on assets. As of December 31, 2020, the net actuarial loss was $105.5 million. These net losses may increase future pension expense if not offset by (i) actual investment returns that exceed the assumed investment returns, or (ii) other factors, including reduced pension liabilities arising from higher discount rates used to calculate pension obligations, or (iii) other actuarial gains, including whether such accumulated actuarial losses at each measurement date exceed the “corridor” determined under the Compensation — Retirement Benefits topic of the FASB Codification. For the largest plan, the actuarial loss is amortized over the average remaining service period of employees expected to receive benefits.
The discount rate used to determine the present value of future pension obligations at December 31, 2020 was based on a yield curve constructed from a portfolio of high-quality corporate debt securities with maturities ranging from 1 year to 30 years. Each year’s expected future benefit payments were discounted to their present value at the spot yield curve rate thereby generating the overall discount rate for the Company’s pension obligations. The weighted average discount rate used to determine the pension obligations was 2.11% and 2.69% in 2020 and 2019, respectively.
The net actuarial loss of $61.9 million was primarily due to changes in the discount rate of $51.2 million. The weighted average discount rate at December 31, 2020 was 2.11% compared to 2.69% at December 31, 2019. The net actuarial loss was also impacted by revised census data and actual experience versus expected.
Accumulated Benefit Obligation
The accumulated benefit obligation, (“ABO”), for all defined benefit pension plans was $1,359.4$588.1 million and $1,270.0$1,249.8 million at December 31, 20172020 and 2016,2019, respectively. There are two plans where the ABO andThe projected benefit obligation ("PBO"(“PBO”) exceed plan assets. The aggregate ABO, PBO and fair value of plan assets for these plans are $37.4 million, $38.2where the PBO exceeded plan assets were $361.1 million and $25.9$266.0 million, respectively. The ABO and fair value of plan assets where the ABO exceeded plan assets were $356.5 million and $266.0 million, respectively.
Employer Contributions
The Company made contributions of $119.1$19.1 million and $51.4$11.3 million to its pension plans during 20172020 and 2016,2019, respectively. The Company also made postretirement health care benefit payments of $2.2 million and $2.1$1.2 million during 20172020 and 2016, respectively.2019. For 2018,2021, the Company expects to make contributions in the range of $10 million to $15$20 million to its pension plans and approximately $3 million to its postretirement health care plans.
Pension Assets
The Company’s overall investment strategy is to achieve a mix of investments for long-term growth and near-term benefit payments through diversification of asset types, fund strategies and fund managers. Investment risk is measured on an on-going basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews. The plans invest in the following major asset categories: cash, equity securities, fixed income securities, real estate and diversified growth funds. At December 31, 20172020 and 2016,2019, pension investments diddid not includeinclude any direct investments in the Company’s stock or the Company’s debt.
The Company implemented a de-risking or liability driven investment strategy for its U.S. and U.K. pension plans. This strategy moved assets from return seeking (equities) to investments that mirror the underlying benefit obligations (fixed income).
The weighted average allocation of plan assets and the target allocation by asset category is as follows:
| | | | | | | | | | | |
| Target | 2020 | 2019 |
| Cash | 0.4 | % | 1.2 | % | 13.6 | % |
| Equity Securities | 22.8 | | 24.2 | | 7.7 | |
| Fixed Income Securities | 60.7 | | 61.9 | | 68.6 | |
| Other Investments | 16.1 | | 12.7 | | 10.1 | |
| Total | 100.0 | % | 100.0 | % | 100.0 | % |
|
| | | | | | |
| | Target | 2017 | 2016 |
| Cash | — | % | 2.4 | % | 1.3 | % |
| Equity Securities | 46.6 |
| 11.2 |
| 40.0 |
|
| Fixed Income Securities | 53.4 |
| 82.7 |
| 53.9 |
|
| Other Investments | — |
| 3.7 |
| 4.8 |
|
| Total | 100.0 | % | 100.0 | % | 100.0 | % |
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The plans’ investment in equity securities primarily includes investments in U.S. and international companies of varying sizes and industries. The strategy of these investments is to 1) exceed the return of an appropriate benchmark for such equity classes and 2) through diversification, reduce volatility while enhancing long term real growth.
The plans’ investment in fixed income securities includes government bonds, investment grade bonds and non-investment grade bonds across a broad and diverse issuer base. The strategy of these investments is to provide income and stability and to diversify the fixed income exposure of the plan assets, thereby reducing volatility.
The Company’s approach to developing the expected long-term rate of return on pension plan assets is based on fair values and combines an analysis of historical investment performance by asset class, the Company’s investment guidelines and current and expected economic fundamentals.
In 2016, the Company implemented a de-risking or liability driven investment strategy for its U.S. pension plans. This strategy moved assets from return seeking (equities) to investments that mirror the underlying benefit obligations (fixed income). The allocation of equities and fixed income changed from 45% and 55% at December 31, 2016, to 10% and 90% at December 31, 2017.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables set forth, by category and within the fair value hierarchy, the fair value of the Company’s pension assets at December 31, 20172020 and 2016:2019:
| | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2020 | |
In millions | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Net Asset Value at December 31, 2020 |
| Asset Category: | | | | | |
| Cash | $ | 6.2 | | $ | 0.3 | | $ | 2.3 | | $ | 0 | | $ | 3.6 | |
| Equity Securities: | | | | | |
| Domestic | 117.8 | | 4.9 | | 11.6 | | 0 | | 101.3 | |
| Foreign | 7.2 | | 7.2 | | 0 | | 0 | | 0 | |
| Fixed Income Securities | 319.6 | | 18.7 | | 300.6 | | 0.3 | | 0 | |
| Other Investments: | | | | | |
| Real estate | 22.9 | | 0 | | 8.9 | | 14.0 | | 0 | |
Diversified growth fund (a) | 42.6 | | 0 | | 42.6 | | 0 | | 0 | |
| Total | $ | 516.3 | | $ | 31.1 | | $ | 366.0 | | $ | 14.3 | | $ | 104.9 | |
| | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2019 | |
| In millions | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Net Asset Value at December 31, 2019 |
| Asset Category: | | | | | |
| Cash | $ | 159.6 | | $ | 0.3 | | $ | 35.0 | | $ | 0 | | $ | 124.3 | |
| Equity Securities: | | | | | |
| Domestic | 82.9 | | 4.7 | | 0 | | 0 | | 78.2 | |
| Foreign | 7.0 | | 7.0 | | 0 | | 0 | | 0 | |
| Fixed Income Securities | 852.5 | | 17.0 | | 835.3 | | 0.2 | | 0 | |
| Other Investments: | | | | | |
| Real estate | 21.9 | | 0 | | 8.9 | | 13.0 | | 0 | |
Diversified growth fund (a) | 48.5 | | 0 | | 48.5 | | 0 | | 0 | |
| Total | $ | 1,172.4 | | $ | 29.0 | | $ | 927.7 | | $ | 13.2 | | $ | 202.5 | |
(a) The fund invests in a combination of traditional investments (equities, bonds, and foreign exchange), seeking to achieve returns through active asset allocation over a three to five-year horizon.
|
| | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2017 |
In millions | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Asset Category: | | | | |
Cash (a) | $ | 32.2 |
| $ | 0.3 |
| $ | 31.9 |
| $ | — |
|
| Equity Securities: | | | | |
Domestic (a) | 140.5 |
| 4.1 |
| 136.4 |
| — |
|
Foreign (a) | 9.1 |
| 5.8 |
| 3.3 |
| — |
|
Fixed Income Securities (a) | 1,108.6 |
| 16.1 |
| 1,092.5 |
| — |
|
| Other Investments: | | | | |
| Real estate | 10.4 |
| 9.6 |
| — |
| 0.8 |
|
Diversified growth fund (b) | 39.9 |
| — |
| 39.9 |
| — |
|
| Total | $ | 1,340.7 |
| $ | 35.9 |
| $ | 1,304.0 |
| $ | 0.8 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2016 |
| In millions | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Asset Category: | | | | |
Cash (a) | $ | 14.5 |
| $ | 0.3 |
| $ | 14.2 |
| $ | — |
|
| Equity Securities: | | | | |
Domestic (a) | 340.2 |
| 68.7 |
| 271.5 |
| — |
|
Foreign (a) | 107.0 |
| 55.5 |
| 51.5 |
| — |
|
Fixed Income Securities (a) | 600.8 |
| 194.6 |
| 406.2 |
| — |
|
| Other Investments: | | | | |
| Real estate | 14.8 |
| 14.8 |
| — |
| — |
|
Diversified growth fund (b) | 38.3 |
| — |
| 38.3 |
| — |
|
| Total | $ | 1,115.6 |
| $ | 333.9 |
| $ | 781.7 |
| $ | — |
|
| |
(a)
| The Level 2 investments are held in pooled funds and fair value is determined by net asset value, based on the underlying investments, as reported on the valuation date. |
| |
(b)
| The fund invests in a combination of traditional investments (equities, bonds, and foreign exchange), seeking to achieve returns through active asset allocation over a three to five year horizon.
|
A reconciliation of fair value measurements of plan assets using significant unobservable inputs (Level 3) is as follows:
| | | | | | | | | | |
| |
| In millions | 2020 | 2019 | | |
| Balance at January 1, | $ | 13.2 | | $ | 5.8 | | | |
| Transfers In | 1.1 | | 7.4 | | | |
| | | | |
| Balance at December 31, | $ | 14.3 | | $ | 13.2 | | | |
|
| | | | | | |
| | |
| In millions | 2017 | 2016 |
| Balance at January 1, | $ | — |
| $ | 35.9 |
|
| Transfers (Out) In | 0.8 |
| (35.9 | ) |
| Return on Assets Held at December 31 | — |
| — |
|
| Balance at December 31, | $ | 0.8 |
| $ | — |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Postretirement Health Care Trend Rate Sensitivity
Assumed health care cost trend rates affect the amounts reported for postretirement health care benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects on 2017 data:
|
| | | | | | |
| | One Percentage Point |
| In millions | Increase | Decrease |
| Health Care Cost Trend Rate Sensitivity: | | |
| Effect on Total Interest and Service Cost Components | $ | 0.1 |
| $ | (0.1 | ) |
| Effect on Year-End Postretirement Benefit Obligation | $ | 1.9 |
| $ | (1.6 | ) |
Estimated Future Benefit Payments
The following represents the Company’s estimated future pension and postretirement health care benefit payments through the year 2027:2030:
| | | | | | | | |
| In millions | Pension Plans | Postretirement Health Care Benefits |
| 2021 | $ | 24.1 | | $ | 2.5 | |
| 2022 | 26.5 | | 2.5 | |
| 2023 | 28.8 | | 2.5 | |
| 2024 | 30.6 | | 2.6 | |
| 2025 | 32.5 | | 2.3 | |
| 2026— 2030 | 181.0 | | 10.4 | |
|
| | | | | | |
| In millions | Pension Plans | Postretirement Health Care Benefits |
| 2018 | $ | 67.1 |
| $ | 2.4 |
|
| 2019 | 69.1 |
| 2.4 |
|
| 2020 | 71.7 |
| 2.7 |
|
| 2021 | 74.4 |
| 2.7 |
|
| 2022 | 76.7 |
| 2.9 |
|
| 2023— 2027 | 405.2 |
| 13.4 |
|
Amounts in Accumulated Other Comprehensive Loss Expected to Be Recognized in NetPeriodic Benefit Costs in 2018
During 2018, amounts recorded in Accumulated Other Comprehensive Loss expected to be recognized in Net Periodic Benefit Costs are as follows:
|
| | | | | | |
In millions | Pension Benefits | Postretirement Health Care Benefits |
| Recognition of Prior Service Cost | $ | 0.4 |
| $ | (0.3 | ) |
| Recognition of Actuarial Loss (Gain) | 5.6 |
| (1.8 | ) |
Multi-Employer Plans
Certain of the Company’s employees participate in multi-employer plans that provide both pension and other postretirement health care benefits to employees under union-employer organization agreements. Expense related to ongoing participation in these plans for the years ended December 31, 20172020 and 20162019 was $2.3$0.1 million and $2.7$0.6 million,, respectively.
Estimated liabilities have been established related to the partial or complete withdrawal from certain multi-employment benefit plans for facilities whichthat have been closed. During the second quarter of 2020, the Company increased its estimated withdrawal liability for these plans by $12.2 million. During the fourth quarter of 2020, the Company entered into a settlement agreement with one of its closed multi-employment benefit plans and recorded a $3.9 million reduction in its estimated withdrawal liability for this plan. Under the terms of this settlement agreement, the Company will pay $17.2 million in the first quarter of 2021. At December 31, 2017,2020, and December 31, 2016,2019, the Company has $29.0withdrawal liabilities of $37.2 million and $30.4$30.8 million, respectively, related to these plans, which is recorded inas Compensation and Employee Benefits and Other Noncurrent Liabilities for these withdrawal liabilitiesin the Company's Consolidated Balance Sheets, which represents the Company's best estimate of the expected withdrawal liability.
In 2019, the Company made a complete withdrawal from the Graphic Communication Conference of the International Brotherhood of Teamster Pension Fund ("GCC/IBT") and the PACE Industry Union-Management Pension Fund ("PIUMPF"). Liabilities of $4.4 million were recorded associated with these withdrawals.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's remaining participation in a multi-employer pension plansplan consists of contributions to three plans1 plan under the terms contained in collective bargaining agreements. The risks of participating in these multi-employer plans are different from single-employer plans in the following ways:
| |
a. | Assets contributed to the multi-employers plan by one employer may be used to provide benefits to employees of other participating employers. |
| |
b. | If a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers. |
| |
c. | If a company chooses to stop participating in a multi-employer plan, a company may be required to pay that plan an amount based on the underfunded status of the plan, referred to as the withdrawal liability. |
a. Assets contributed to the multi-employers plan by one employer may be used to provide benefits to employees of other participating employers.
b. If a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers.
c. If a company chooses to stop participating in a multi-employer plan, a company may be required to pay that plan an amount based on the underfunded status of the plan, referred to as the withdrawal liability.
The Company's participation in these plans for the year ended December 31, 2017, 20162020, 2019 and 20152018 is shown in the table below:
| | | | | Pension Protection Act Zone Status | | Company Contributions (in millions) | | | Pension Protection Act Zone Status | | Company Contributions (in millions) | |
| Multi-employer Pension Fund | EIN/Pension Plan Number | 2017 | 2016 | FIP/RP Status Implemented | 2017 | 2016 | 2015 | Surcharge Imposed | Expiration Date of Bargaining Agreement | Multi-employer Pension Fund | EIN/Pension Plan Number | 2020 | 2019 | FIP/RP Status Implemented | 2020 | 2019 | 2018 | Surcharge Imposed | Expiration Date of Bargaining Agreement |
| Central States Southeast and Southwest Areas Pension Fund | 36-6044243/001 | Red | Yes | $ | 0.1 |
| $ | 0.1 |
| $ | 0.1 |
| Yes | 7/31/2018 | Central States Southeast and Southwest Areas Pension Fund | 36-6044243/001 | Red | Yes | $ | 0.1 | | $ | 0.1 | | $ | 0.1 | | Yes | 7/31/2023 |
PACE Industry Union - Management Pension Fund(a) | 11-6166763/001 | Red | Yes | 0.1 |
| 0.1 |
| — |
| Yes | 6/15/2018 | |
Western Conference of Teamsters Pension Trust - Northwest Area(b) | 91-6145047/001 | Green | No | — |
| — |
| 0.1 |
| No | 4/30/2017 | |
Graphic Communications Conference of International Brotherhood of Teamster Pension Fund(a) | 52-6118568/001 | Red | Yes | 0.3 |
| 0.2 |
| — |
| Yes | 5/01/2019 | |
PIUMPF(a) | | PIUMPF(a) | 11-6166763/001 | Red | Yes | 0 | | 0 | | 0.1 | | Yes | 6/15/2022 |
GCC/IBT(a) | | GCC/IBT(a) | 52-6118568/001 | Red | Yes | 0 | | 0.1 | | 0.3 | | Yes | 4/30/2022 |
| Total | | $ | 0.5 |
| $ | 0.4 |
| $ | 0.2 |
| | Total | | $ | 0.1 | | $ | 0.2 | | $ | 0.5 | | |
(a) In 2016, As noted above, the WG Anderson acquisition included facilities withCompany withdrew from these plans.plans in 2019.
(b) The facility associated with this plan was closed in 2016.
The EIN Number column provides the Employer Identification Number (EIN). Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 20172020 and 20162019 is for the plan's year-end at December 31, 20162019 and December 31, 2015,2018, respectively. The zone status is based on information that the Company receives from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The "FIP/RP Status Implemented" column indicates plans for which a Financial Improvement Plan (FIP) or Rehabilitation Plan (RP) has been implemented. The Company's share of the contributions to these plans did not exceed 5% of total plan contributions for the most recent plan year.
DEFINED CONTRIBUTION PLANS
The Company provides defined contribution plans for certain eligible employees. The Company’s contributions to the plans are based upon employee contributions, a percentage of eligible compensation, and the Company’s annual operating results. Contributions to these plans for the years ended December 31, 2017, 20162020, 2019 and 20152018 were $37.7$62.0 million, $34.7$57.6 million and $29.0$54.6 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)NOTE 9. INCOME TAXES
The U.S. and international components of Income before Income Taxes and Equity Income of Unconsolidated Entity consisted of the following:
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 |
| U.S. | $ | 180.5 | | $ | 305.4 | | $ | 298.9 | |
| International | 63.5 | | 48.6 | | 48.6 | |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | $ | 244.0 | | $ | 354.0 | | $ | 347.5 | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 |
| U.S. | $ | 227.5 |
| $ | 290.0 |
| $ | 307.6 |
|
| International | 25.5 |
| 29.4 |
| 51.7 |
|
| Income before Income Taxes and Equity Income of Unconsolidated Entity | $ | 253.0 |
| $ | 319.4 |
| $ | 359.3 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The provisions for Income Tax (Expense) Benefit (Expense) on Income before Income Taxes and Equity Income of Unconsolidated Entity consisted of the following:
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 |
| Current Expense: | | | |
| U.S. | $ | (23.0) | | $ | (10.1) | | $ | (13.0) | |
| International | (19.3) | | (13.5) | | (15.7) | |
| Total Current | $ | (42.3) | | $ | (23.6) | | $ | (28.7) | |
| | | |
| Deferred (Expense) Benefit: | | | |
| U.S. | (8.5) | | (47.7) | | (31.6) | |
| International | 9.2 | | (5.0) | | 5.6 | |
| Total Deferred | $ | 0.7 | | $ | (52.7) | | $ | (26.0) | |
| Income Tax Expense | $ | (41.6) | | $ | (76.3) | | $ | (54.7) | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 |
| Current Benefit (Expense): | | | |
| U.S. | $ | 0.7 |
| $ | (5.1 | ) | $ | (7.9 | ) |
| International | (9.2 | ) | (11.4 | ) | (12.5 | ) |
| Total Current | $ | (8.5 | ) | $ | (16.5 | ) | $ | (20.4 | ) |
| | | | |
| Deferred Benefit (Expense): | | | |
| U.S. | 51.0 |
| (78.8 | ) | (110.6 | ) |
| International | 3.0 |
| 2.1 |
| 0.6 |
|
| Total Deferred | $ | 54.0 |
| $ | (76.7 | ) | $ | (110.0 | ) |
| Income Tax Benefit (Expense) | $ | 45.5 |
| $ | (93.2 | ) | $ | (130.4 | ) |
A reconciliation of Income Tax (Expense) Benefit on Income before Income Taxes and Equity Income of Unconsolidated Entity at the federal statutory rate of 35%21.0% compared with the Company’s actual Income Tax (Expense) Benefit is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | Percent | | 2019 | Percent | | 2018 | Percent |
| Income Tax Expense at U.S. Statutory Rate | $ | (51.2) | | 21.0 | % | | $ | (74.3) | | 21.0 | % | | $ | (73.0) | | 21.0 | % |
| U.S. State and Local Tax Expense | (7.7) | | 3.2 | | | (12.3) | | 3.5 | | | (11.7) | | 3.4 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Permanent Items | (1.0) | | 0.4 | | | (2.8) | | 0.8 | | | (3.8) | | 1.1 | |
| U.S. Tax Reform | 0 | | 0 | | | 0 | | 0 | | | 10.9 | | (3.1) | |
| Provision to Return Adjustments | 2.2 | | (0.9) | | | 0 | | 0 | | | 0 | | 0 | |
| | | | | | | | |
| Change in Valuation Allowance | 7.0 | | (2.9) | | | (4.6) | | 1.3 | | | 13.0 | | (3.7) | |
| International Tax Rate Differences | (3.0) | | 1.2 | | | (1.6) | | 0.5 | | | (1.9) | | 0.5 | |
| Foreign Withholding Tax | (0.8) | | 0.3 | | | (0.7) | | 0.2 | | | (0.5) | | 0.1 | |
| | | | | | | | |
| | | | | | | | |
| Change in Tax Rates | (0.4) | | 0.1 | | | (1.0) | | 0.3 | | | 1.9 | | (0.5) | |
| U.S. Federal & State Tax Credits | 9.7 | | (4.0) | | | 9.5 | | (2.7) | | | 0.3 | | (0.1) | |
| Uncertain Tax Positions | (2.3) | | 1.0 | | | (1.9) | | 0.5 | | | (0.7) | | 0.2 | |
| Capital Loss Expiration | 0 | | 0 | | | 0 | | 0 | | | (2.7) | | 0.7 | |
| Domestic Minority Interest | 5.5 | | (2.2) | | | 13.7 | | (3.9) | | | 13.7 | | (3.9) | |
| Other | 0.4 | | (0.2) | | | (0.3) | | 0.1 | | | (0.2) | | 0 | |
| Income Tax Expense | $ | (41.6) | | 17.0 | % | | $ | (76.3) | | 21.6 | % | | $ | (54.7) | | 15.7 | % |
As a result of the NACP Combination, federal and state income taxes are not recorded with respect to consolidated domestic earnings attributable to the Company’s minority interest partner, resulting in a difference between the effective tax rate and the statutory tax rate. As a result of decreases in the minority partner's interest during 2020, the difference between the effective tax rate and the statutory tax also declined.
In addition, during 2020, the Company recognized a tax benefit of approximately $7.6 million attributable to the release of a valuation allowance recorded against the net deferred tax assets of two of its Canadian subsidiaries as a result of internal restructuring. The Company also recognized a tax benefit related to updates to is 2019 financial statement income tax calculations of approximately $2.2 million primarily due to new guidance in final U.S. Treasury Regulations issued during 2020.
During 2019, the Company recognized tax expense of approximately $4.8 million associated with the establishment of a valuation allowance against the net deferred tax assets of its Australian subsidiary.
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | Percent | | 2016 | Percent | | 2015 | Percent |
| Income Tax Expense at U.S. Statutory Rate | $ | (88.5 | ) | 35.0 | % | | $ | (111.8 | ) | 35.0 | % | | $ | (125.8 | ) | 35.0 | % |
| U.S. State and Local Tax Expense | (8.7 | ) | 3.4 |
| | (10.0 | ) | 3.2 |
| | (11.4 | ) | 3.2 |
|
| IRS Agreement | — |
| — |
| | 22.8 |
| (7.2 | ) | | — |
| — |
|
| Permanent Items | (2.7 | ) | 1.0 |
| | (1.3 | ) | 0.5 |
| | 1.7 |
| (0.5 | ) |
| U.S. Tax Reform | 138.0 |
| (54.5 | ) | | — |
| — |
| | — |
| — |
|
| Change in Valuation Allowance due to Tax Reform | (2.0 | ) | 0.8 |
| | — |
| — |
| | — |
| — |
|
| Change in Valuation Allowance | (3.5 | ) | 1.4 |
| | 0.5 |
| (0.2 | ) | | 1.8 |
| (0.5 | ) |
| International Tax Rate Differences | 3.2 |
| (1.3 | ) | | 1.8 |
| (0.6 | ) | | 2.4 |
| (0.7 | ) |
| Foreign Withholding Tax | (0.4 | ) | 0.2 |
| | (0.2 | ) | 0.1 |
| | (0.2 | ) | 0.1 |
|
| Change in Tax Rates | (3.0 | ) | 1.2 |
| | 0.2 |
| (0.1 | ) | | 1.0 |
| (0.3 | ) |
| U.S. Federal & State Tax Credits | 10.2 |
| (4.0 | ) | | 3.5 |
| (1.1 | ) | | 5.5 |
| (1.5 | ) |
| Uncertain Tax Positions | (0.3 | ) | 0.1 |
| | 1.2 |
| (0.4 | ) | | (3.7 | ) | 1.0 |
|
| Other | 3.2 |
| (1.3 | ) | | 0.1 |
| — |
| | (1.7 | ) | 0.5 |
|
| Income Tax Benefit (Expense) | $ | 45.5 |
| (18.0 | )% | | $ | (93.2 | ) | 29.2 | % | | $ | (130.4 | ) | 36.3 | % |
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
U.S. Tax Reform
TheDuring 2018, the Company finalized its accounting for the income tax impact of the Tax Cuts and Jobs Act (the "Act"“Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to record/pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Act; however,resulting in certain cases, as described below, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. The Company recognized a provisional net tax benefit of $136.0 million, which is included as a component of income tax expense from continuing operations.
Provisional Amounts
Deferred tax assets and liabilities: The Company remeasured certain deferred tax assets and liabilities based on the federal rate at which they are expected to reverse in the future, which is generally 21%. The Company also remeasured the state rate at which certain deferred tax assets and liabilities are expected to reverse in the future associated with the reduction in the future federal benefit from state deferred tax assets and liabilities from 35% to 21%. However, the Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of the Company's deferred tax balance was a tax benefit of $156.3$10.9 million including the remeasurement of its federal valuation allowance.
Foreign tax effects: The one-time transition tax is based on the Company's total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes. The Company recorded a provisional amount forprimarily attributable to the one-time transition tax liability for all ofincurred on its foreign subsidiaries resulting in an increase in2017 U.S. federal income tax expense of $20.5 million. The Company has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based, in part, on the amount of those earnings held in cash and other specified assets. This amount may change whenreturn. In addition, during 2018, the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets.
The Company has not provided for any additional outside basis difference inherent in its foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. In addition, the Company is still evaluating the impact of the one-time transition tax on the outside basis differences and cumulative temporary differences inherent in these subsidiaries as of December 31, 2017 and as a result, it is not practicable to provide the amount of any cumulative temporary differences related to unrecorded differences. The Company has adjusted the existing deferred tax liability it previously recorded associated with the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd. resulting in a provisional income tax benefit of $1.7 million. The remaining deferred tax liability recorded relates to future withholding tax expense attributable to the remaining outside basis difference.
The Company has not yet made a policy election with respect to its treatment of potential global intangible low-taxed income (“GILTI”). Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the Act associated with GILTI and the expected impact of GILTI on the Company in the future.
State tax effects: As noted above, the Company remeasured certain deferred tax assets and liabilities to account for the reduction in the future federal benefit from state deferred tax assets and liabilities. In addition, the Company reassessed its previous determination of the realizability of certain state deferred tax assets based on whether or not the state’s currently enacted legislation adopts the changes made by the Act. As a result of a reduction in projected future taxable income associated with certain state’s adoption of federal tax reform, the Company has increasedreduced its valuation allowance against certain statedeferred tax assets. Of the total reduction of $13 million, approximately $10 million was related to deferred tax assets resulting in expense of $0.9 million.
Other Federal effects: As a result of the Act, the corporate alternative minimum tax ("AMT") was repealed. In addition, taxpayers with AMT credit carryovers in excess of their regular tax liability may have the credits refunded over multiple years from 2018 to 2022. However, AMT transactions, including refunds, are subject to sequestration by the Office of Management Budget. As a result, the Company has reclassed its AMT credit carryforward to a non-current federal income tax receivable and reduced the estimated refund to account for the effects of the sequester. This provisional adjustment resulted in additional tax expense of $0.6 million.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Effective Tax Rate Differences
During 2017, the Company claimed U.S. federal and state tax credits associated with various investments made by the Company in previous years, in addition to claiming U.S. federal and state research and development ("R&D") tax credits. The Company claimed U.S. federal R&D and investment tax credits of $5.2 million, excluding reductions for uncertain tax positions, and U.S. state R&D and investment tax credits of $5.0 million. Of the total state tax credits claimed in 2017, $4.3 million was reduced for uncertain tax positions or by a valuation allowance.
During the second quarter of 2016, the Company executed an agreement with the Internal Revenue Service related to certain elections made on its 2011 and 2012 tax returns. As a result of the agreement, the Company has amended its 2011 and 2012 U.S. federaldomestic and state income tax returns resulting in the utilization of previouslyattributes that expired net operating loss carryforwards. The Company recorded a discrete benefit during the second quarter of 2016 of $22.4year and therefore did not have a meaningful impact on the overall effective tax rate. Of the remaining $3 million reduction, approximately $2 million was attributable to reflect the federal and state impactrelease of the amended returns as a reduction in itsvaluation allowance against the net long-term deferred tax liability.assets of the Company’s subsidiary in France.
The tax effects of differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of December 31 were as follows:
| | | | | | | | |
| In millions | 2020 | 2019 |
| Deferred Income Tax Assets: | | |
| Compensation Based Accruals | $ | 3.6 | | $ | 3.8 | |
| Net Operating Loss Carryforwards | 40.3 | | 45.5 | |
| Postretirement Benefits | 1.4 | | 0.9 | |
| Tax Credits | 19.3 | | 37.2 | |
| Other | 8.4 | | 10.9 | |
| Valuation Allowance | (34.4) | | (41.1) | |
| Total Deferred Income Tax Assets | $ | 38.6 | | $ | 57.2 | |
| Deferred Income Tax Liabilities: | | |
| | |
| | |
| | |
| | |
| | |
| Property, Plant and Equipment | (20.8) | | (18.8) | |
| Goodwill | (2.9) | | (2.7) | |
| Other Intangibles | (11.2) | | (12.3) | |
| Investment in Partnership | (530.4) | | (532.2) | |
| | |
| Net Noncurrent Deferred Income Tax Liabilities | $ | (565.3) | | $ | (566.0) | |
| Net Deferred Income Tax Liability | $ | (526.7) | | $ | (508.8) | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Deferred Income Tax Assets: | | |
| Compensation Based Accruals | $ | 16.5 |
| $ | 20.1 |
|
| Net Operating Loss Carryforwards | 114.9 |
| 165.3 |
|
| Postretirement Benefits | 25.6 |
| 88.0 |
|
| Tax Credits | 17.6 |
| 35.3 |
|
| Other | 45.9 |
| 55.4 |
|
| Valuation Allowance | (51.5 | ) | (45.5 | ) |
| Total Deferred Income Tax Assets | $ | 169.0 |
| $ | 318.6 |
|
| Deferred Income Tax Liabilities: | | |
| Property, Plant and Equipment | (219.8 | ) | (334.6 | ) |
| Goodwill | (192.0 | ) | (284.5 | ) |
| Other Intangibles | (68.7 | ) | (99.6 | ) |
| Other | (3.5 | ) | (4.7 | ) |
| Net Noncurrent Deferred Income Tax Liabilities | $ | (484.0 | ) | $ | (723.4 | ) |
| Net Deferred Income Tax Liability | $ | (315.0 | ) | $ | (404.8 | ) |
The Company has total deferred income tax assets, excluding valuation allowance, of $220.5$73.0 million and $364.1$98.3 million as of December 31, 20172020 and 2016,2019, respectively. The Company has total deferred income tax liabilities of $484.0$565.3 million and $723.4$566.0 million as of December 31, 20172020 and 2016,2019, respectively.
As a result of NACP combination, the Company currently owns a controlling interest in GPIP, which is treated as a partnership for U.S. federal and state income tax purposes, with IP holding a minority interest. As such, the Company records income tax on its share of income allocated to it by the partnership. Accordingly, domestic deferred tax assets and liabilities are not tracked based on the inside basis difference of assets and liabilities held within GPIP. Instead, the Company’s outside basis difference in its partnership investment is recorded as a deferred tax liability and disclosed above. The deferred tax liability primarily relates to differences between book and tax basis in property, plant and equipment and intangibles inside the partnership. During 2020, IP redeemed a portion of its interest in the partnership. As a result of the redemptions, the Company recorded a decrease in its deferred tax liability of $16.0 million, which was recorded through additional paid-in capital.
According to the Income Taxes topic of the FASB Codification, a valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The FASB Codification provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient pretax income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. The Company has evaluated the need to maintain a valuation allowance for deferred tax assets based on its assessment of whether it is more likely than not that deferred tax assets will be realized through the generation of future taxable income. Appropriate consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company reviewed its deferred income tax assets as of December 31, 20172020 and 2016,2019, respectively, and determined that it is more likely than not that a portion will not be realized. A valuation allowance of $51.5$34.4 million and $45.5$41.1 million at December 31, 20172020 and 2016,2019, respectively, is maintained on the deferred income tax assets for which the Company has determined that realization is not more likely than not. Of the total valuation allowance at December 31, 2017, $31.32020, $24.6 million relates to net deferred tax assets in certain foreign jurisdictions, $3.3$0.7 million relates to a deferred tax asset related to a U.S. federal capital loss carryforward, $11.9carryforwards, $4.6 million relates to tax credit carryforwards in certain states, and the remaining $5.0$4.5 million relates to net operating losses and other deferred tax assets in certain U.S. states. The need for a valuation allowance is made on a jurisdiction-
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
by-jurisdictionjurisdiction-by-jurisdiction basis. As of December 31, 2017,2020, the Company concluded that due to cumulative pretax losses and the lack of sufficient future taxable income of the appropriate character, realization is less than more likely than not on the net deferred income tax assets related primarily to the Company’s Australia, Brazil, China France and Germany operations as well as the Company's previously discontinued Canadian operations.
The following table represents a summary of the valuation allowances against deferred tax assets as of and for the three years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively:
| | | | | | | | | | | |
| December 31, |
| In millions | 2020 | 2019 | 2018 |
| Balance Beginning of Period | $ | 41.1 | | $ | 36.3 | | $ | 51.5 | |
| Adjustments for (Income) and Expenses | (7.0) | | 4.6 | | (13.0) | |
| Additions (Deductions) | 0.3 | | 0.2 | | (2.2) | |
| Balance at End of Period | $ | 34.4 | | $ | 41.1 | | $ | 36.3 | |
|
| | | | | | | | | |
| | December 31, |
| In millions | 2017 | 2016 | 2015 |
| Balance Beginning of Period | $ | 45.5 |
| $ | 44.8 |
| $ | 53.6 |
|
| Charges to Costs and Expenses | 5.5 |
| 1.2 |
| — |
|
| Additions (Deductions) | 0.5 |
| (0.5 | ) | (8.8 | ) |
| Balance at End of Period | $ | 51.5 |
| $ | 45.5 |
| $ | 44.8 |
|
The Company utilized its remaining U.S. federal net operating loss carryforwards expire as follows:
|
| | | |
| In millions | |
| 2024 | $ | 84.0 |
|
| 2026 | 22.9 |
|
| 2027 | 93.0 |
|
| 2028 | 12.1 |
|
| 2029 | 114.6 |
|
| Total | $ | 326.6 |
|
losses during 2020. The Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718) during the first quarter of 2017 and recorded additional federal and state net operating losses of approximately $107 million that were generated through excess tax benefit deductions claimed on the Company’s 2011-2016 U.S. federal income tax returns and were previously prohibited from being recognized. The Company recognized the cumulative federal and state income tax effects of these previously unrecognized net operating losses in accumulated deficit in accordance with ASU 2016-09.
Company's U.S. state net operating loss carryforward amountscarryforwards total $243.9$198.8 million and expire in various years through 2037.2038.
International net operating loss carryforward amounts total $117.8$119.5 million, of which substantially all have no expiration date.
Tax Credit carryforwards total $17.6$19.3 million which expire in various years from 20192021 through 2037.2039.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | | | |
| In millions | 2020 | 2019 | 2018 |
| Balance at January 1, | $ | 20.7 | | $ | 15.5 | | $ | 10.5 | |
| Additions for Tax Positions of Current Year | 1.2 | | 3.2 | | 0.8 | |
| Additions for Tax Positions of Prior Years | 1.4 | | 2.4 | | 5.2 | |
| Reductions for Tax Positions of Prior Years | (3.7) | | (0.4) | | (1.0) | |
| Balance at December 31, | $ | 19.6 | | $ | 20.7 | | $ | 15.5 | |
|
| | | | | | |
| In millions | 2017 | 2016 |
| Balance at January 1, | $ | 10.1 |
| $ | 9.1 |
|
| Additions for Tax Positions of Current Year | 0.6 |
| 1.5 |
|
| Additions for Tax Positions of Prior Years | 0.7 |
| 1.1 |
|
| Reductions for Tax Positions of Prior Years | (0.9 | ) | (1.6 | ) |
| Balance at December 31, | $ | 10.5 |
| $ | 10.1 |
|
At December 31, 2017, $10.52020, $19.6 million of the total gross unrecognized tax benefits, if recognized, would affect the annual effective income tax rate. As of December 31 2020, none of the total gross unrecognized tax benefits recorded are related to indefinite lived deferred tax assets and did not have an impact on total tax expense. In addition, $0.1 million of the total change in unrecognized tax benefits relates to currency translation adjustments.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within its global operations in Income Tax Expense. The Company had an accrual for the payment of interest and penalties of $0.1 million and $0.1 million at December 31, 20172020 and 2016,2019, respectively.
The Company anticipates that $0.1 million of the total unrecognized tax benefits at December 31, 20172020 could change within the next 12 months.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.jurisdictions and our income tax filings are regularly examined by federal, state and non-U.S. tax authorities. The Company has been notified that its 2018 U.S. federal corporate and partnership income tax filings will be examined by the Internal Revenue Service. The examinations are scheduled to begin during the first quarter of 2021. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations for years before 2014 or non-U.S.2017.
As of December 31, 2020, the Company has provided for deferred income taxes attributable to future foreign withholding tax expense related to the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd. In addition, Company provided deferred income taxes for future Canadian withholding tax to the extent of excess cash available for distribution after consideration of working capital needs and other debt settlement of its Canadian subsidiary, Graphic Packaging International Canada, ULC. During the year ended December 31, 2020, the Company distributed its remaining paid-up capital in Canada and as a result, the Company expects to incur Canadian withholding tax on future distributions. The Company continues to assert that it is permanently reinvested in the cumulative earnings of its Canadian subsidiary in excess of the amount of cash that is on hand and available for distribution after consideration of working capital needs and other debt settlement. Due to the deemed taxation of all post-1986 earnings and profits required by the Act, the Company has determined that 0 deferred tax liability should be recorded related to the outside basis difference of its Canadian subsidiary of approximately $51.4 million as of December 31, 2020.
The Company has not provided for deferred U.S. income taxes on approximately $55 million of its undistributed earnings in other international subsidiaries because of the Company’s intention to indefinitely reinvest these earnings outside the U.S. The Company’s assertion remains unchanged, despite the deemed taxation of all post-1986 earnings and profits required by the Act. The determination of the amount of the unrecognized deferred U.S. income tax examinationsliability (primarily withholding tax in certain jurisdictions and some state tax) on the unremitted earnings or any other associated outside basis difference is not practicable because of the complexities associated with the calculation.
The Company has elected to recognize global intangible low-taxed income (“GILTI”) as period cost as incurred, therefore there are no deferred taxes recognized for years before 2008.basis differences that are expected to impact the amount of the GILTI inclusion upon reversal.
| |
NOTE 9. | NOTE 10. FINANCIAL INSTRUMENTS, DERIVATIVES AND HEDGING ACTIVITIES |
The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging topic of the FASB Codification and those not designated as hedging instruments under this guidance. The Company uses interest rate swaps, natural gas swaps,swap contracts, and forward foreign exchange contracts. These derivative instruments are designated as cash flow hedges and, to the extent they are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in Accumulated Other Comprehensive Loss. These changes in fair value will subsequently be reclassified to earnings, contemporaneously with and offsetting changes in the related hedged exposure.exposure, and presented in the same line of the income statement expected for the hedged item.
Interest Rate Risk
The Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. These changes in fair value will subsequently be reclassified into earnings as a component of Interest Expense, Net as interest is incurred on amounts outstanding under the term loan facility.
The following table summarizes the Company's current interest rate swap positions for each period presented as of December 31, 2017:
2020:
| | | | | | | | | | | |
| Start | End | (In Millions) Notional Amount | Weighted Average Interest Rate |
| | | |
| 12/03/2018 | 01/01/2022 | $120.0 | 2.92% |
| 12/03/2018 | 01/04/2022 | $80.0 | 2.79% |
|
| | | |
| Start | End | (In Millions)
Notional Amount | Weighted Average Interest Rate |
| 12/01/2017 | 10/01/2018 | $250.0 | 1.16% |
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
These derivative instruments are designated as cash flow hedges and, to the extent they are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in Accumulated Other Comprehensive Income (Loss).Loss. Ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. During 20172020 and 2016,2019, there were no0 amounts of ineffectiveness. During 20172020 and 2016,2019, there were no0 amounts excluded from the measure of effectiveness.
Commodity Risk
To manage risks associated with future variability in cash flows and price risk attributable to certain commodity purchases of natural gas, the Company enters into natural gas swapsswap contracts to hedge prices for a designated percentage of its expected natural gas usage. The Company has hedged a portion of its expected usage for 2018. Such contracts are designated as cash flow hedges. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Income (Loss),Loss and the resulting gain or loss is reclassified into Cost of Sales concurrently with the recognition of the commodity purchased.consumed. The ineffective portionCompany has hedged approximately 44% and 11% of the swap contract’s change in fair value, if any, would be recognized immediately in earnings.its expected natural gas usage for 2021 and 2022, respectively.
During 20172020 and 2016,2019, there were minimal0 amounts of ineffectiveness related to changes in the fair value of natural gas swap contracts. Additionally, there were no0 amounts excluded from the measure of effectiveness.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Foreign Currency Risk
The Company enters into forward foreign exchange contracts designated as cash flow hedges, to manage risks associated with foreign currency transactions and future variability of cash flows arising from those transactions that may be adversely affected by changes in exchange rates. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss and gains/losses related to these contracts are recognized in Other Expense, (Income), Net or Net Sales, when appropriate.
At December 31, 20172020 and 2016,2019, multiple forward exchange contracts existed that expire on various dates throughout the following year. Those purchased forward exchange contracts outstanding at December 31, 20172020 and 2016,2019, when aggregated and measured in U.S. dollars at contractual rates at December 31, 20172020 and 2016,2019, had notional amounts totaling $66.1$101.6 million and $55.9$87.6 million, respectively.
NoNaN amounts were reclassified to earnings during 20172020 and 20162019 in connection with forecasted transactions that were no longer considered probable of not occurring and there was no0 amount of ineffectiveness related to changes in the fair value of foreign currency forward contracts. Additionally, there were no0 amounts excluded from the measure of effectiveness during 20172020 and 2016.2019.
Derivatives not Designated as Hedges
The Company enters into forward foreign exchange contracts to effectively hedge substantially all of its accounts receivablereceivables resulting from sales transactions and intercompany loans denominated in foreign currencies in order to manage risks associated with foreign currency transactionsvariability in cash flows that may be adversely affected by changes in exchange rates. At December 31, 20172020 and 2016,2019, multiple foreign currency forward exchange contracts existed, with maturities ranging up to threetwo months. Those foreign currency exchange contracts outstanding at December 31, 20172020 and 2016,2019, when aggregated and measured in U.S. dollars at exchangecontractual rates at December 31, 20172020 and 2016,2019, respectively, had net notional amounts totaling $90.1$80.0 million and $68.1$77.4 million. Unrealized gains and losses resulting from these contracts are recognized in Other Expense, (Income), Net and approximately offset corresponding recognized but unrealized gains and losses on the remeasurement of these accounts receivable.
Foreign Currency Movement Effect
For the year ended December 31, 20172020, 2019, and 2016,2018, net currency exchange (gains)/losses included in determining Income from Operations were $3.1$2.7 million, $(2.3) million, and $4.8$1.6 million, respectively. For the year ended December 31, 2015, net currency exchange gains included in determining Income from Operations was $4.7 million.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 10. | FAIR VALUE MEASUREMENT |
NOTE 11. FAIR VALUE MEASUREMENT
The Company follows the fair value guidance integrated into the Fair ValueMeasurements and Disclosures topic of the FASB Codification in regards to financial and nonfinancial assets and liabilities. Nonfinancial assets and nonfinancial liabilities include those measured at fair value in goodwill impairment testing, asset retirement obligations initially measured at fair value, and those assets and liabilities initially measured at fair value in a business combination.
The FASB’s guidance defines fair value, establishes a framework for measuring fair value and expands the fair value disclosure requirements. The accounting guidance applies to accounting pronouncements that require or permit fair value measurements. It indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The guidance defines fair value based upon an exit price model, whereby fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance clarifies that fair value should be based on assumptions that market participants would use, including a consideration of non-performance risk.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Valuation Hierarchy
The Fair Value Measurements and Disclosures topic establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 inputs — quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 inputs — unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.
An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The Company has determined that its financial assets and financial liabilities include derivative instruments which are carried at fair value and are valued using Level 2 inputs in the fair value hierarchy. The Company uses valuation techniques based on discounted cash flow analyses, which reflects the terms of the derivatives and uses observable market-based inputs, including forward rates and uses market price quotations obtained from independentthird party derivatives brokers, corroborated with information obtained from independentthird party pricing service providers.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fair Value of Financial Instruments
As of December 31, 20172020 and 2016, the Company had a gross derivative liability of $1.2 million and $0.8 million respectively, and a gross derivative asset of $1.2 million and $7.7 million respectively, related to interest rate, foreign currency and commodity contracts.
As of December 31, 2017,2019, there has not been any significant impact to the fair value of the Company’sCompany's derivative liabilities due to its own credit risk. Similarly, there has not been any significant adverse impact to the Company’sCompany's derivative assets based on evaluation of the Company’s counterparties’Company's counterparties' credit risks. The following table summarizes the fair value of the Company's derivative instruments:
| | | | | | | | | | | | | | |
| Derivative Assets(a) | Derivative Liabilities(b) |
| December 31, | December 31, |
| In millions | 2020 | 2019 | 2020 | 2019 |
| Derivatives designated as hedging instruments: | | | | |
| Interest rate contracts | $ | 0 | | $ | 0 | | $ | 6.0 | | $ | 6.6 | |
| Foreign currency contracts | 0 | | 0 | | 2.9 | | 1.5 | |
| Commodity contracts | 2.1 | | 0 | | 0 | | 3.4 | |
| Total Derivatives | $ | 2.1 | | $ | 0 | | $ | 8.9 | | $ | 11.5 | |
(a) Derivative assets of $1.6 million are included in Other Current Assets as of December 31, 2020. Derivative asset of $0.5 million are included in Other Accrued Assets as of December 31, 2020.
(b) Derivative liabilities of $8.5 million and $8.5 million are included in Other Accrued Liabilities as of December 31, 2020 and December 31, 2019, respectively. Derivative liabilities of $0.4 million and $3.0 million are included in Other Noncurrent Liabilities as of December 31, 2020 and December 31, 2019, respectively.
The fair values of the Company’s other financial assets and liabilities at December 31, 20172020 and 20162019 approximately equal the carrying values reported on the Consolidated Balance Sheets except for Long-Term Debt. The fair value of the Company’s Long-Term Debt (excluding capitalfinance leases and deferred financing fees) was $2,299.1$3,624.7 million and $2,132.7$2,788.6 million, as compared to the carrying amounts of $2,247.9$3,523.9 million and $2,112.8 million.$2,729.3 million as of December 31, 2020 and 2019, respectively. The fair value of the Company's Long-TermTotal Debt, including the Senior Notes, are based on quoted market prices (Level 2 inputs). Level 2 valuation techniques for Long-Term Debt are based on quotations obtained from independentthird party pricing service providers.
Effect of Derivative Instruments
The pre-tax effect of derivative instruments in cash flow hedging relationships on the Company’s Consolidated Statements of Operations for the year ended December 31, 20172020 and 20162019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of Loss (Gain) Recognized in Accumulated Other Comprehensive Loss | | Location in Statement of Operations | Amount of (Gain) Loss Recognized in Statement of Operations | | | |
| Year Ended December 31, | | Year Ended December 31, | | |
| In millions | 2020 | 2019 | | 2020 | 2019 | | | |
| Commodity Contracts | $ | 0.9 | | $ | 1.4 | | | Cost of Sales | $ | 6.3 | | $ | (1.8) | | | | | |
| Foreign Currency Contracts | 2.1 | | 0.1 | | | Other Expense, Net | (0.5) | | (1.3) | | | | | |
| Interest Rate Swap Agreements | 5.8 | | 5.8 | | | Interest Expense, Net | 6.5 | | 1.4 | | | | | |
| Total | $ | 8.8 | | $ | 7.3 | | | | $ | 12.3 | | $ | (1.7) | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Loss (Gain) Recognized in Accumulated Other Comprehensive Loss | | Location in Statement of Operations (Effective Portion) | Amount of Loss (Gain) Recognized in Statement of Operations (Effective Portion) | | Location in Statement of Operations (Ineffective Portion) | Amount of Loss (Gain) Recognized in Statement of Operations (Effective Portion) |
| | Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| In millions | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
| Commodity Contracts | $ | 3.6 |
| $ | (5.0 | ) | | Cost of Sales | $ | (1.2 | ) | $ | 12.5 |
| | Cost of Sales | $ | (0.1 | ) | $ | (0.1 | ) |
| Foreign Currency Contracts | 3.1 |
| (1.4 | ) | | Other Income, Net | (0.3 | ) | 0.5 |
| | Other Income, Net | — |
| — |
|
| Interest Rate Swap Agreements | (1.0 | ) | 0.4 |
| | Interest Expense, Net | (0.6 | ) | 2.0 |
| | Interest Expense, Net | — |
| — |
|
| Total | $ | 5.7 |
| $ | (6.0 | ) | | | $ | (2.1 | ) | $ | 15.0 |
| | | $ | (0.1 | ) | $ | (0.1 | ) |
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The effect of derivative instruments not designated as hedging instruments on the Company’s Consolidated Statements of Operations for the years ended December 31, 20172020 and 20162019 is as follows:
| | | | | | | | | | | |
| In millions | | 2020 | 2019 |
| Foreign Currency Contracts | Other Expense, Net | $ | 8.7 | | $ | (0.9) | |
|
| | | | | | | |
| In millions | | 2017 | 2016 |
| Foreign Currency Contracts | Other Expense, Net | $ | 9.7 |
| $ | 3.3 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accumulated Derivative Instruments (Loss) Income (Loss)
The following is a rollforward of pre-tax Accumulated Derivative Instruments (Loss) Income (Loss) which is included in the Company’s Consolidated Balance Sheets and Consolidated Statements of Shareholders’ Equity as of December 31:
| | | | | | | | | | | |
| In millions | 2020 | 2019 | 2018 |
| Balance at January 1 | $ | (10.9) | | $ | (1.9) | | $ | (0.3) | |
| Reclassification to Earnings | 12.3 | | (1.7) | | (0.6) | |
| Current Period Change in Fair Value | (8.8) | | (7.3) | | (1.0) | |
| Balance at December 31 | $ | (7.4) | | $ | (10.9) | | $ | (1.9) | |
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| Balance at January 1 | $ | 7.5 |
| $ | (13.5 | ) | $ | (12.5 | ) |
| Reclassification to earnings | (2.1 | ) | 15.0 |
| 11.7 |
|
| Current period change in fair value | (5.7 | ) | 6.0 |
| (12.7 | ) |
| Balance at December 31 | $ | (0.3 | ) | $ | 7.5 |
| $ | (13.5 | ) |
At December 31, 2017,2020, the Company expects to reclassify $0.2$5.9 million of pre-tax gainslosses in the next twelve months from Accumulated Other Comprehensive (Loss) IncomeLoss to earnings, contemporaneously with and offsetting changes in the related hedged exposure. The actual amount that will be reclassified to future earnings may vary from this amount as a result of changes in market conditions.
NOTE 12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | |
NOTE 11. | ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME |
The components of Accumulated Other Comprehensive Income (Loss) Incomeattributable to Graphic Packaging Holding Company are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
In millions | Pretax Amount | Tax Effect | Net Amount(a) | | Pretax Amount | Tax Effect | Net Amount(a) | | Pretax Amount | Tax Effect | Net Amount |
| Derivative Instruments Gain (Loss) | $ | 4.1 | | $ | (0.6) | | $ | 3.5 | | | $ | (6.7) | | $ | 1.4 | | $ | (5.3) | | | $ | (1.1) | | $ | 0.1 | | $ | (1.0) | |
| Pension and Postretirement Benefit Plans | 126.0 | | (26.1) | | 99.9 | | | 10.1 | | (2.5) | | 7.6 | | | (24.8) | | 5.4 | | (19.4) | |
| Currency Translation Adjustment | 16.5 | | 0 | | 16.5 | | | 9.8 | | 0 | | 9.8 | | | (18.7) | | 0 | | (18.7) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other Comprehensive Income (Loss) | $ | 146.6 | | $ | (26.7) | | $ | 119.9 | | | $ | 13.2 | | $ | (1.1) | | $ | 12.1 | | | $ | (44.6) | | $ | 5.5 | | $ | (39.1) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
In millions | Pretax Amount | Tax Effect | Net Amount | | Pretax Amount | Tax Effect | Net Amount | | Pretax Amount | Tax Effect | Net Amount |
| Derivative Instruments (Loss) Gain | $ | (7.8 | ) | $ | 2.9 |
| $ | (4.9 | ) | | $ | 21.0 |
| $ | (8.0 | ) | $ | 13.0 |
| | $ | (1.0 | ) | $ | 0.3 |
| $ | (0.7 | ) |
| Pension and Postretirement Benefit Plans | 12.3 |
| (3.5 | ) | 8.8 |
| | 7.9 |
| (3.9 | ) | 4.0 |
| | 40.0 |
| (13.2 | ) | 26.8 |
|
| Currency Translation Adjustment | 44.9 |
| — |
| 44.9 |
| | (58.9 | ) | — |
| (58.9 | ) | | (37.2 | ) | — |
| (37.2 | ) |
| Other Comprehensive Income (Loss) | $ | 49.4 |
| $ | (0.6 | ) | $ | 48.8 |
| | $ | (30.0 | ) | $ | (11.9 | ) | $ | (41.9 | ) | | $ | 1.8 |
| $ | (12.9 | ) | $ | (11.1 | ) |
The balances of Accumulated Other Comprehensive Loss Attributable to Graphic Packaging Holding Company, net of applicable taxes are as follows:
| | | | | | | | |
| December 31, |
| In millions | 2020 | 2019 |
| Accumulated Derivative Instruments Loss | $ | (13.1) | | $ | (16.6) | |
| Pension and Postretirement Benefit Plans | (138.6) | | (238.5) | |
| Currency Translation Adjustment | (94.2) | | (110.7) | |
| | |
| | |
| Accumulated Other Comprehensive Loss | $ | (245.9) | | $ | (365.8) | |
|
| | | | | | |
| | December 31, |
| In millions | 2017 | 2016 |
| Accumulated Derivative Instruments Loss | $ | (10.3 | ) | $ | (5.4 | ) |
| Pension and Postretirement Benefit Plans | (226.7 | ) | (235.5 | ) |
| Currency Translation Adjustment | (101.8 | ) | (146.7 | ) |
| Accumulated Other Comprehensive Loss | $ | (338.8 | ) | $ | (387.6 | ) |
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 12. | NOTE 13. COMMITMENTS AND CONTINGENCIES |
The Company leases certain warehouses, operating facilities, office space, data processing equipment and plant equipment under long-term, non-cancelable contracts that expire at various dates (some of these leases are subject to renewal options and contain escalation clauses). Future minimum lease payments under non-cancelable capital and operating leases (with initial or remaining lease terms in excess of one year) and the future minimum lease payments at December 31, 2017, are as follows:
|
| | | | | | | | | |
| | | |
| In millions | Capital Leases | Operating Leases | Total |
| 2018 | $ | 3.7 |
| $ | 42.9 |
| $ | 46.6 |
|
| 2019 | 3.4 |
| 32.8 |
| 36.2 |
|
| 2020 | 3.4 |
| 27.7 |
| 31.1 |
|
| 2021 | 3.3 |
| 22.5 |
| 25.8 |
|
| 2022 | 2.8 |
| 19.2 |
| 22.0 |
|
| Thereafter | 24.5 |
| 26.3 |
| 50.8 |
|
| Total Minimum Lease Payments | 41.1 |
| 171.4 |
| 212.5 |
|
| Less: Amount Representing Interest | (11.1 | ) | — |
| (11.1 | ) |
| Present Value of Net Minimum Leases | $ | 30.0 |
| $ | 171.4 |
| $ | 201.4 |
|
Total rental expense was approximately $38 million, $35 million, and $29 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company has entered into other long-term contracts principally for the purchase of fiber and chip processing.processing along with commitments associated with building the new CRB paper machine in Kalamazoo, Michigan. The minimum purchase commitments extend beyond 2022.2025. At December 31, 2017,2020, total commitments under these contracts were as follows:
| | | | | |
| In millions | |
| 2021 | $ | 379.4 | |
| 2022 | 90.5 | |
| 2023 | 67.0 | |
| 2024 | 48.4 | |
| 2025 | 47.7 | |
| Thereafter | 58.8 | |
| Total | $ | 691.8 | |
|
| | | |
| In millions | |
| 2018 | $ | 151.8 |
|
| 2019 | 86.4 |
|
| 2020 | 43.0 |
|
| 2021 | 37.9 |
|
| 2022 | 38.0 |
|
| Thereafter | 310.6 |
|
| Total | $ | 667.7 |
|
| |
NOTE 13. | ENVIRONMENTAL AND LEGAL MATTERS |
NOTE 14. ENVIRONMENTAL AND LEGAL MATTERS
Environmental Matters
The Company is subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those governing discharges to air, soil and water, the management, treatment and disposal of hazardous substances, solid waste and hazardous wastes, the investigation and remediation of contamination resulting from historical site operations and releases of hazardous substances, the recycling of packaging and the health and safety of employees. Compliance initiatives could result in significant costs, which could negatively impact the Company’s consolidated financial position, results of operations or cash flows. Any failure to comply with environmental or health and safety laws and regulations or any permits and authorizations required thereunder could subject the Company to fines, corrective action or other sanctions.
Some of the Company’s current and former facilities are the subject of environmental investigations and remediations resulting from historic operations and the release of hazardous substances or other constituents. Some current and former facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future or for which indemnification claims may be asserted against the Company. Also, closures or sales of facilities may necessitate investigation and may result in remediation activities at those facilities.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has established reserves for those facilities or issues where a liability is probable and the costs are reasonably estimable. The Company believes that the amounts accrued for its loss contingencies, and the reasonably possible loss beyond the amounts accrued, are not material to the Company’s consolidated financial position, results of operations or cash flows. The Company cannot estimate with certainty other future compliance, investigation or remediation costs. Some costs relating to historic usage that the Company considers to be reasonably possible of resulting in liability are not quantifiable at this time. The Company will continue to monitor environmental issues at each of its facilities, as well as regulatory developments, and will revise its accruals, estimates and disclosures relating to past, present and future operations, as additional information is obtained.
Legal Matters
The Company is a party to a number of lawsuits arising in the ordinary conduct of its business. Although the timing and outcome of these lawsuits cannot be predicted with certainty, the Company does not believe that disposition of these lawsuits will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15. REDEEMABLE NONCONTROLLING INTEREST
As disclosed in "Note 1 - Nature of Business and Summary of Significant Accounting Policies," on January 1, 2018, the Company combined its business with IP's NACP business. Under the terms of the Transaction Agreement, GPIP issued 79,911,591 common units to IP. In connection with the closing, the Company, GPIP, GPI Holding and IP entered into an Exchange Agreement (“Exchange Agreement”), under which, subject to certain restrictions, the common units held by IP are exchangeable into common stock of the Company or cash, upon the second anniversary of the NACP combination unless certain other events occur before that time. GPHC also had the ability to call such common units exercisable starting on the same date. Upon an election of an exchange, GPHC may choose to satisfy the exchange using shares of its common stock, cash, or a combination thereof.
On January 28, 2020, the Company announced that IP had notified the Company of its intent to begin the process of reducing its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million partnership units from IP for $250 million in cash. As a result, IP's ownership interest in GPIP decreased to 18.3% as of January 29, 2020.
On August 6, 2020, the Company announced that IP had notified the Company of its intent to exchange additional partnership units. Per the agreement between the parties, on August 13, 2020, GPIP purchased 17.4 million partnership units from IP for $250 million in cash, which included all of the remaining portion of IP's redeemable ownership interest that was required to be redeemed for cash. As a result, IP's ownership interest in GPIP decreased to 14.5% as of August 13, 2020.
At December 31, 2020, the redeemable noncontrolling interest was determined as follows:
| | | | | |
| In millions | |
| |
| |
| |
| |
| |
| |
| Balance at December 31, 2018 | $ | 275.8 | |
| Net Income Attributable to Redeemable Noncontrolling Interest | 16.3 | |
| Other Comprehensive Loss, Net of Tax | 0.8 | |
| Redeemable Noncontrolling Interest Redemption Value Adjustment | 30.2 | |
Reclassification to Noncontrolling Interest for Share Repurchases(a) | (12.5) | |
| Distributions of Membership Interest | (6.3) | |
| Balance at December 31, 2019 | $ | 304.3 | |
| |
| |
| Net Loss Attributable to Redeemable Noncontrolling Interest | (3.2) | |
| Other Comprehensive Income, Net of Tax | 8.9 | |
| Redemption of IP's Ownership Interest | (296.1) | |
| Redeemable Noncontrolling Interest Redemption Value Adjustment | (12.2) | |
| Distributions of Membership Interest | (1.7) | |
| Balance at December 31, 2020 | $ | 0 | |
(a) In the second quarter of 2019, the Company recorded a reversal for the 2018 reclassification to redeemable noncontrolling interest back to noncontrolling interest related to share repurchases. The Company determined that this reclassification due to the share repurchases was not required.
Redeemable noncontrolling interest was recorded at the greater of carrying amount or redemption value at the end of each period until it was fully redeemed. The redemption value is determined by the closing price of the Company's common stock.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 14. | NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION |
Effective January 5, 2017, the consumer product and beverage operating segments (previously aggregated into the Americas Paperboard Packaging reportable segment) were reorganized and combined into an Americas Converting operating segment (Americas Paperboard Packaging reportable segment). As part of this reorganization, Australia, which was previously included as part of the Americas Paperboard Packaging reportable segment, is now an operating segment and included in Corporate/Other/Elimination. Prior periods have been recast.
The Company has three3 reportable segments as follows:
Paperboard Mills includes the six8 North American paperboard mills whichthat produce primarily CRB, CUK, and CRB. The majority of the paperboardSBS, which is consumed internally to produce paperboard packaging for the Americas and Europe Paperboard Packaging segments. The remaining paperboard is sold externally to a wide variety of paperboard packaging converters and brokers. The Paperboard Mills segment Net Sales representrepresents the sale of paperboard only to external customers. The effect of intercompany transfers to the paperboard packaging segments has been eliminated from the Paperboard Mills segment to reflect the economics of the integration of these segments.
Americas Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to Consumer Packaged Goods ("CPG") companies, and cups, lids and food containers sold primarily to foodservice companies and quick-service restaurants ("QSR") serving the food, beverage, and consumer product markets in the Americas.
Europe Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to CPG companies serving the food, beverage and consumer product markets in Europe.
The Company allocates certain mill and corporate costs to the reportable segments to appropriately represent the economics of these segments. The Corporate and Other caption includes the Pacific Rim and Australia operating segments and unallocated corporate and one-time costs.
These segments are evaluated by the chief operating decision maker based primarily on Income from Operations as adjusted for depreciation and amortization. The accounting policies of the reportable segments are the same as those described above in "Note 1 - Nature of Business and Summary of Significant Accounting Policies."
The Company did not have any one customer who accounted for 10% or more of the Company’sCompany's net sales during 2017, 20162020, 2019 or 2015.2018.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business segment information is as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 |
| NET SALES: | | | |
| Paperboard Mills | $ | 988.1 | | $ | 1,094.8 | | $ | 1,078.1 | |
| Americas Paperboard Packaging | 4,650.1 | | 4,233.7 | | 4,098.3 | |
| Europe Paperboard Packaging | 764.6 | | 689.3 | | 695.9 | |
| | | |
Corporate/Other/Eliminations(a) | 157.1 | | 142.3 | | 157.1 | |
| Total | $ | 6,559.9 | | $ | 6,160.1 | | $ | 6,029.4 | |
| | | |
| (LOSS) INCOME FROM OPERATIONS: | | | |
Paperboard Mills(b) | $ | (109.9) | | $ | 33.1 | | $ | 30.6 | |
| Americas Paperboard Packaging | 638.5 | | 477.7 | | 420.1 | |
| Europe Paperboard Packaging | 65.9 | | 60.3 | | 46.1 | |
| | | |
Corporate and Other(c) | (70.2) | | (37.0) | | (38.6) | |
| Total | $ | 524.3 | | $ | 534.1 | | $ | 458.2 | |
| | | |
| CAPITAL EXPENDITURES: | | | |
| Paperboard Mills | $ | 444.2 | | $ | 208.0 | | $ | 240.1 | |
| Americas Paperboard Packaging | 119.7 | | 94.7 | | 104.3 | |
| Europe Paperboard Packaging | 39.7 | | 34.5 | | 19.5 | |
| | | |
| Corporate and Other | 42.7 | | 15.7 | | 31.3 | |
| Total | $ | 646.3 | | $ | 352.9 | | $ | 395.2 | |
| | | |
| DEPRECIATION AND AMORTIZATION: | | | |
| Paperboard Mills | $ | 248.7 | | $ | 224.4 | | $ | 197.5 | |
| Americas Paperboard Packaging | 163.0 | | 165.1 | | 165.4 | |
| Europe Paperboard Packaging | 41.1 | | 36.7 | | 48.9 | |
| | | |
| Corporate and Other | 23.0 | | 21.0 | | 18.8 | |
| Total | $ | 475.8 | | $ | 447.2 | | $ | 430.6 | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 |
| NET SALES: | | | |
| Paperboard Mills | $ | 399.7 |
| $ | 394.7 |
| $ | 480.5 |
|
| Americas Paperboard Packaging | 3,243.6 |
| 3,193.1 |
| 3,012.1 |
|
| Europe Paperboard Packaging | 593.1 |
| 569.9 |
| 603.9 |
|
| Corporate/Other/Eliminations | 167.3 |
| 140.4 |
| 63.7 |
|
| Total | $ | 4,403.7 |
| $ | 4,298.1 |
| $ | 4,160.2 |
|
| | | | |
| INCOME (LOSS) FROM OPERATIONS: | | | |
Paperboard Mills(a) | $ | (35.0 | ) | $ | (3.7 | ) | $ | 17.1 |
|
| Americas Paperboard Packaging | 358.2 |
| 409.0 |
| 395.2 |
|
| Europe Paperboard Packaging | 37.3 |
| 25.4 |
| 40.8 |
|
Corporate and Other(b) | (17.8 | ) | (34.7 | ) | (26.0 | ) |
| Total | $ | 342.7 |
| $ | 396.0 |
| $ | 427.1 |
|
| | | | |
| CAPITAL EXPENDITURES: | | | |
| Paperboard Mills | $ | 111.4 |
| $ | 184.2 |
| $ | 145.0 |
|
| Americas Paperboard Packaging | 98.8 |
| 45.9 |
| 49.7 |
|
| Europe Paperboard Packaging | 17.3 |
| 37.1 |
| 39.9 |
|
| Corporate and Other | 32.6 |
| 27.4 |
| 9.5 |
|
| Total | $ | 260.1 |
| $ | 294.6 |
| $ | 244.1 |
|
| | | | |
| DEPRECIATION AND AMORTIZATION: | | | |
| Paperboard Mills | $ | 143.7 |
| $ | 120.3 |
| $ | 124.7 |
|
| Americas Paperboard Packaging | 125.3 |
| 124.7 |
| 107.3 |
|
| Europe Paperboard Packaging | 42.1 |
| 41.1 |
| 40.1 |
|
| Corporate and Other | 19.2 |
| 13.2 |
| 8.4 |
|
| Total | $ | 330.3 |
| $ | 299.3 |
| $ | 280.5 |
|
| |
(a)
| Includes accelerated depreciation related to shutdown of Santa Clara in 2017. |
| |
(b)
| Includes expenses related to acquisitions, integration activities and shutdown costs (excluding accelerated depreciation). |
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes Augusta, Georgia mill outage in 2018.
(c) Includes expenses related to business combinations, exit activities, idle and abandoned assets, gain on sale of assets and shutdown and other special charges.
| | | | | | | | | | | |
| December 31, |
| In millions | 2020 | 2019 | 2018 |
| ASSETS AT DECEMBER 31: | | | |
| Paperboard Mills | $ | 3,096.5 | | $ | 2,912.2 | | $ | 3,005.6 | |
| Americas Paperboard Packaging | 3,326.7 | | 3,392.3 | | 3,143.6 | |
| | | |
| Europe Paperboard Packaging | 745.9 | | 686.3 | | 603.4 | |
| | | |
| Corporate and Other | 635.5 | | 299.1 | | 306.6 | |
| Total | $ | 7,804.6 | | $ | 7,289.9 | | $ | 7,059.2 | |
|
| | | | | | | | | |
| | December 31, |
| In millions | 2017 | 2016 | 2015 |
| ASSETS AT DECEMBER 31: | | | |
| Paperboard Mills | $ | 1,487.0 |
| $ | 1,496.1 |
| $ | 1,445.0 |
|
| Americas Paperboard Packaging | 2,478.7 |
| 2,419.8 |
| 2,157.1 |
|
| Europe Paperboard Packaging | 607.1 |
| 491.9 |
| 574.0 |
|
| Corporate and Other | 290.2 |
| 195.6 |
| 80.0 |
|
| Total | $ | 4,863.0 |
| $ | 4,603.4 |
| $ | 4,256.1 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business geographic area information is as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions | 2020 | 2019 | 2018 |
| NET SALES: | | | |
| United States | $ | 5,199.9 | | $ | 4,913.2 | | $ | 4,780.9 | |
| | | |
International(a) | 1,360.0 | | 1,246.9 | | 1,248.5 | |
| | | |
| | | |
| Total | $ | 6,559.9 | | $ | 6,160.1 | | $ | 6,029.4 | |
| | | | | | | | | | | |
| In millions | 2020 | 2019 | 2018 |
| LONG-LIVED ASSETS AT DECEMBER 31: | | | |
| United States | $ | 3,252.7 | | $ | 2,975.9 | | $ | 2,954.3 | |
| | | |
International(a) | 307.3 | | 277.9 | | 285.4 | |
| | | |
| | | |
| Total | $ | 3,560.0 | | $ | 3,253.8 | | $ | 3,239.7 | |
(a) Net Sales and long-lived assets of individual countries outside of the United States are not material.
NOTE 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions | 2017 | 2016 | 2015 |
| NET SALES: | | | |
Americas(a) | $ | 3,643.3 |
| $ | 3,601.7 |
| $ | 3,492.6 |
|
| Europe | 593.1 |
| 569.9 |
| 603.9 |
|
| Asia Pacific | 215.7 |
| 198.1 |
| 117.4 |
|
| Corporate and Other | (48.4 | ) | (71.6 | ) | (53.7 | ) |
| Total | $ | 4,403.7 |
| $ | 4,298.1 |
| $ | 4,160.2 |
|
Results of operations for the four quarters of 2020 and 2019 are shown below.
| | | | | | | | | | | | | | | | | |
| 2020 |
| In millions, except per share amounts | First | Second | Third | Fourth | Total |
| Statement of Operations Data: | | | | | |
| Net Sales | $ | 1,599.1 | | $ | 1,611.0 | | $ | 1,697.7 | | $ | 1,652.1 | | $ | 6,559.9 | |
| Gross Profit | 320.8 | | 262.1 | | 255.5 | | 261.8 | | 1,100.2 | |
| Business Combinations, Shutdown and Other Special Charges and Exit Activities, Net | 18.7 | | 20.5 | | 9.0 | | 13.1 | | 61.3 | |
| Income from Operations | 160.0 | | 114.8 | | 119.1 | | 130.4 | | 524.3 | |
| Net (Loss) Income | (19.8) | | 66.7 | | 79.3 | | 77.1 | | 203.3 | |
| Net (Loss) Income Attributable to Graphic Packaging Holding Company | (12.7) | | 52.1 | | 63.7 | | 64.2 | | 167.3 | |
Net (Loss) Income Per Share Attributable to Graphic Packaging Holding Company — Basic(a) | $ | (0.04) | | $ | 0.19 | | $ | 0.23 | | $ | 0.24 | | $ | 0.60 | |
Net (Loss) Income Per Share Attributable to Graphic Packaging Holding Company — Diluted(a) | $ | (0.04) | | $ | 0.19 | | $ | 0.23 | | $ | 0.24 | | $ | 0.60 | |
(a) Does not cross foot due to rounding.
|
| | | | | | | | | |
| In millions | 2017 | 2016 | 2015 |
| ASSETS AT DECEMBER 31: | | | |
Americas(a) | $ | 4,046.4 |
| $ | 3,923.2 |
| $ | 3,590.4 |
|
| Europe | 607.1 |
| 491.9 |
| 574.0 |
|
| Asia Pacific | 209.5 |
| 188.3 |
| 91.7 |
|
| Total | $ | 4,863.0 |
| $ | 4,603.4 |
| $ | 4,256.1 |
|
(a) Includes North America and Brazil.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | | | | |
| 2019 |
| In millions, except per share amounts | First | Second | Third | Fourth(a) | Total |
| Statement of Operations Data: | | | | | |
| Net Sales | $ | 1,505.9 | | $ | 1,552.8 | | $ | 1,581.6 | | $ | 1,519.8 | | $ | 6,160.1 | |
| Gross Profit | 266.1 | | 287.8 | | 266.4 | | 272.3 | | 1,092.6 | |
| Business Combinations, Shutdown and Other Special Charges and Exit Activities, Net | 6.2 | | 9.9 | | 8.2 | | 13.6 | | 37.9 | |
| Income from Operations | 134.0 | | 144.4 | | 122.7 | | 133.0 | | 534.1 | |
| Net Income | 78.1 | | 86.1 | | 70.0 | | 43.9 | | 278.1 | |
| Net Income Attributable to Graphic Packaging Holding Company | 57.9 | | 63.8 | | 52.1 | | 33.0 | | 206.8 | |
| Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic | $ | 0.19 | | $ | 0.22 | | $ | 0.18 | | $ | 0.11 | | $ | 0.70 | |
| Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted | $ | 0.19 | | $ | 0.22 | | $ | 0.18 | | $ | 0.11 | | $ | 0.70 | |
(a) During the fourth quarter of 2019, the Company recorded an approximate $7 million immaterial prior period adjustment to reduce amortization expense related to intangible assets.
| |
NOTE 15. | QUARTERLY FINANCIAL INFORMATION (UNAUDITED) |
Results of operations for the four quarters of 2017 and 2016 are shown below.
|
| | | | | | | | | | | | | | | |
| | 2017 |
| In millions, except per share amounts | First | Second | Third | Fourth | Total |
| Statement of Operations Data: | | | | | |
| Net Sales | $ | 1,061.5 |
| $ | 1,094.7 |
| $ | 1,137.6 |
| $ | 1,109.9 |
| $ | 4,403.7 |
|
| Gross Profit | 175.0 |
| 176.9 |
| 191.6 |
| 176.0 |
| 719.5 |
|
| Business Combinations and Shutdown and Other Special Charges, Net | 8.6 |
| 6.1 |
| 3.6 |
| 12.8 |
| 31.1 |
|
| Income from Operations | 75.5 |
| 87.6 |
| 95.4 |
| 84.2 |
| 342.7 |
|
| Net Income | 37.0 |
| 42.0 |
| 47.3 |
| 173.9 |
| 300.2 |
|
| Net Income Per Share — Basic | $ | 0.12 |
| $ | 0.14 |
| $ | 0.15 |
| $ | 0.56 |
| $ | 0.97 |
|
Net Income Per Share — Diluted(a) | $ | 0.12 |
| $ | 0.14 |
| $ | 0.15 |
| $ | 0.56 |
| $ | 0.96 |
|
(a) Does not cross foot due to rounding
|
| | | | | | | | | | | | | | | |
| | 2016 |
| In millions, except per share amounts | First | Second | Third | Fourth | Total |
| Statement of Operations Data: | | | | | |
| Net Sales | $ | 1,034.0 |
| $ | 1,103.2 |
| $ | 1,103.7 |
| $ | 1,057.2 |
| $ | 4,298.1 |
|
| Gross Profit | 207.7 |
| 204.8 |
| 191.3 |
| 188.1 |
| 791.9 |
|
| Business Combinations and Shutdown and Other Special Charges, Net | 10.5 |
| 5.3 |
| 7.4 |
| 13.9 |
| 37.1 |
|
| Income from Operations | 107.2 |
| 105.6 |
| 105.1 |
| 78.1 |
| 396.0 |
|
| Net Income | 57.5 |
| 77.8 |
| 57.8 |
| 34.9 |
| 228.0 |
|
| | | | | | |
| Net Income Per Share — Basic | $ | 0.18 |
| $ | 0.24 |
| $ | 0.18 |
| $ | 0.11 |
| $ | 0.71 |
|
| Net Income Per Share — Diluted | $ | 0.18 |
| $ | 0.24 |
| $ | 0.18 |
| $ | 0.11 |
| $ | 0.71 |
|
| |
NOTE 16. | EARNINGS PER SHARE |
NOTE 18. EARNINGS PER SHARE
| | | | | | | | | | | |
| Year Ended December 31, |
| In millions, except per share data | 2020 | 2019 | 2018 |
| Net Income Attributable to Graphic Packaging Holding Company | $ | 167.3 | | $ | 206.8 | | $ | 221.1 | |
| Weighted Average Shares: | | | |
| Basic | 278.8 | | 294.1 | 309.5 |
| Dilutive effect of RSUs | 0.8 | | 0.7 | | 0.6 | |
| Diluted | 279.6 | | 294.8 | | 310.1 | |
| Earnings Per Share — Basic | $ | 0.60 | | $ | 0.70 | | $ | 0.71 | |
| Earnings Per Share — Diluted | $ | 0.60 | | $ | 0.70 | | $ | 0.71 | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| In millions, except per share data | 2017 | 2016 | 2015 |
| Net Income | $ | 300.2 |
| $ | 228.0 |
| $ | 230.1 |
|
| Weighted Average Shares: | | | |
| Basic | 311.1 |
| 320.9 |
| 329.5 |
|
| Dilutive effect of RSUs | 0.8 |
| 0.6 |
| 1.2 |
|
| Diluted | 311.9 |
| 321.5 |
| 330.7 |
|
| Earnings Per Share — Basic | $ | 0.97 |
| $ | 0.71 |
| $ | 0.70 |
|
| Earnings Per Share — Diluted | $ | 0.96 |
| $ | 0.71 |
| $ | 0.70 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| |
NOTE 17. | CHANGES IN ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME |
NOTE 19. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS
The following represents changes in Accumulated Other Comprehensive (Loss) IncomeLoss attributable to Graphic Packaging Holding Company by component for the year ended December 31, 2017 2020 (a):
|
| | | | | | | | | | | | | | | |
| In millions | Derivatives Instruments | Pension Benefit Plans | Postretirement Benefit Plans | Currency Translation Adjustments | Total |
| Balance at December 31, 2016 | $ | (5.4 | ) | $ | (250.2 | ) | $ | 14.7 |
| $ | (146.7 | ) | $ | (387.6 | ) |
| Other Comprehensive (Loss) Income before Reclassifications | (3.6 | ) | 3.3 |
| 2.6 |
| 44.9 |
| 47.2 |
|
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income (b) | (1.3 | ) | 4.4 |
| (1.5 | ) | — |
| 1.6 |
|
| Net Current-period Other Comprehensive (Loss) Income | (4.9 | ) | 7.7 |
| 1.1 |
| 44.9 |
| 48.8 |
|
| Balance at December 31, 2017 | $ | (10.3 | ) | $ | (242.5 | ) | $ | 15.8 |
| $ | (101.8 | ) | $ | (338.8 | ) |
| | | | | | | | | | | | | | | | |
| In millions | Derivatives Instruments | Pension and Postretirement Benefit Plans | | Currency Translation Adjustments | | Total |
| Balance at December 31, 2019 | $ | (16.6) | | $ | (238.5) | | | $ | (110.7) | | | $ | (365.8) | |
| Other Comprehensive (Loss) Income before Reclassifications | (5.8) | | 12.9 | | | 17.7 | | | 24.8 | |
Amounts Reclassified from Accumulated Other Comprehensive Income(a) | 9.9 | | 125.9 | | | 0 | | | 135.8 | |
| Net Current-period Other Comprehensive Income | 4.1 | | 138.8 | | | 17.7 | | | 160.6 | |
| Less: | | | | | | |
Net Current-period Other Comprehensive Income Attributable to Noncontrolling Interest(b) | (0.6) | | (38.9) | | | (1.2) | | | (40.7) | |
| Balance at December 31, 2020 | $ | (13.1) | | $ | (138.6) | | | $ | (94.2) | | | $ | (245.9) | |
| |
(a)
| All amounts are net-of-tax. |
(b)(a) See following table for details about these reclassifications.
(b) Includes amounts related to redeemable noncontrolling interest which are separately classified outside of permanent equity in the mezzanine section of the Consolidated Balance Sheets.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following represents reclassifications out of Accumulated Other Comprehensive IncomeLoss for the year ended December 31, 2017:2020:
|
| | | | | | |
| In millions | | | | |
| Details about Accumulated Other Comprehensive Income Components | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income is Presented |
| Derivatives Instruments: | | | | |
| Commodity Contracts | | $ | (1.2 | ) | | Cost of Sales |
| Foreign Currency Contracts | | (0.3 | ) | | Other Expense, Net |
| Interest Rate Swap Agreements | | (0.6 | ) | | Interest Expense, Net |
| | | (2.1 | ) | | Total before Tax |
| | | 0.8 |
| | Tax Expense |
| | | $ | (1.3 | ) | | Net of Tax |
| | | | | |
| Amortization of Defined Benefit Pension Plans: | | | | |
| Prior Service Costs | | $ | 0.5 |
| (c) | |
| Actuarial Losses | | 6.5 |
| (c) | |
| | | 7.0 |
| | Total before Tax |
| | | (2.6 | ) | | Tax Benefit |
| | | $ | 4.4 |
| | Net of Tax |
| | | | | |
| Amortization of Postretirement Benefit Plans: | | | | |
| Prior Service Credits | | $ | (0.3 | ) | (c) | |
| Actuarial Gains | | (2.1 | ) | (c) | |
| | | (2.4 | ) | | Total before Tax |
| | | 0.9 |
| | Tax Expense |
| | | $ | (1.5 | ) | | Net of Tax |
| | | | | |
| Total Reclassifications for the Period | | $ | 1.6 |
| | |
| | | | | | | | | | | | | | |
(c)
In millions | These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 7 — Pensions and Other Postretirement Benefits). |
| | |
NOTE 18.Details about Accumulated Other Comprehensive Loss Components | GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS | Amount Reclassified from Accumulated Other Comprehensive Loss | | Affected Line Item in the Statement Where Net Income is Presented |
| Derivatives Instruments: | | | | |
| Commodity Contracts | | $ | 6.3 | | | Cost of Sales |
| Foreign Currency Contracts | | (0.5) | | | Other Expense, Net |
| Interest Rate Swap Agreements | | 6.5 | | | Interest Expense, Net |
| | 12.3 | | | Total before Tax |
| | (2.4) | | | Tax Expense |
| | $ | 9.9 | | | Net of Tax |
| | | | |
| Amortization of Defined Benefit Pension Plans: | | | | |
| Prior Service Costs | | $ | 0.1 | | (a) | |
| Actuarial Losses | | 159.1 | | (a) | |
| | 159.2 | | | Total before Tax |
| | (31.7) | | | Tax Benefit |
| | $ | 127.5 | | | Net of Tax |
| | | | |
| Amortization of Postretirement Benefit Plans: | | | | |
| Prior Service Credits | | $ | (0.3) | | (a) | |
| Actuarial Gains | | (1.7) | | (a) | |
| | (2.0) | | | Total before Tax |
| | 0.4 | | | Tax Expense |
| | $ | (1.6) | | | Net of Tax |
| | | | |
| Total Reclassifications for the Period | | $ | 135.8 | | | |
This disclosure is required because(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see "Note 8 — Pensions and Other Postretirement Benefits").
NOTE 20. EXIT ACTIVITIES
During 2019, the Company announced its plans to invest approximately $600 million in a new CRB paper machine in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close 2 of its smaller CRB Mills in 2022 in order to remain capacity neutral.
In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. During the second quarter of 2020, the Company closed the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine.
In June 2020, the Company made the decision to close certain subsidiaries are guarantors of GPI debt securities.
These consolidating financial statements reflect GPHC (“the Parent”); GPI (the "Subsidiary Issuer");converting facilities that were acquired from Greif. The Burlington, North Carolina converting facility and the Subsidiary Guarantors, which consistLos Angeles, California converting facility were closed during the third quarter of all material 100% owned subsidiaries of GPI other than its foreign subsidiaries; and the nonguarantor subsidiaries (herein referred to as “Nonguarantor Subsidiaries”). The Nonguarantor Subsidiaries include all of GPI's foreign subsidiaries and the immaterial domestic subsidiaries. Separate complete financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly and severally, fully and unconditionally liable under the guarantees.2020.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company accounts for the costs associated with these closures in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets ("ASC 360"), ASC 420, Exit or Disposal Costs Obligations ("ASC 420") and ASC 712 Compensation-Nonretirement Post-Employment Benefits ("ASC 712"). The Company recorded $50.6 million and $14.9 million of exit costs during 2020 and 2019, respectively. Other costs associated with the start-up of the new CRB paper machine will be recorded in the period in which they are incurred. These costs are included in the Corporate and Other caption in "Note 16 - Business Segment and Geographic Area Information."
The following table summarizes the costs incurred during 2020 and 2019 related to these restructurings:
| | | | | | | | | | | |
| | Year Ended December 31, |
| In millions | Location in Statement of Operations | 2020 | 2019 |
Severance costs and other (a) | Business Combinations, Shutdown and Other Special Charges, Exit Activities and Gain on Sale of Assets, Net | $ | 10.4 | | $ | 7.7 | |
| Accelerated depreciation | Cost of Sales | 26.0 | | 4.7 | |
| Inventory and asset write-offs | Business Combinations, Shutdown and Other Special Charges, Exit Activities and Gain on Sale of Assets, Net | 14.2 | | 2.5 | |
| Total | | $ | 50.6 | | $ | 14.9 | |
(a) Costs incurred include activities for post-employment benefits, retention bonuses, incentives and professional services.
The following table summarizes the balance of accrued expenses related to restructuring:
| | | | | | |
| In millions | Total | |
| Balance at December 31, 2018 | $ | 0 | | |
| Costs incurred | 7.7 | | |
| Payments | (0.6) | | |
| Balance at December 31, 2019 | $ | 7.1 | | |
| Costs incurred | 11.2 | | |
| Payments | (5.9) | | |
Adjustments (a) | (0.8) | | |
| Balance at December 31, 2020 | $ | 11.6 | | |
(a) Adjustments related to changes in estimates of severance costs.
In conjunction with the closure of the 2 smaller CRB Mills in 2022, the Company currently expects to incur charges associated with these exit activities for post-employment benefits, retention bonuses and incentives in the range of $15 million to $20 million and for accelerated depreciation and inventory and asset write-offs in the range of $50 million to $60 million. Additionally, the Company expects to incur start-up charges of approximately $15 million for the new CRB paper machine in 2021. Through December 31, 2020, the Company has incurred cumulative exit activity charges for post-employment benefits, retention bonuses and incentives of $12.1 million and accelerated depreciation and inventory and asset write-offs of $27.3 million.
For the closures of the White Pigeon, Michigan CRB mill and the shutdown of the PM1 containerboard machine in West Monroe, Louisiana, the Company has incurred cumulative exit activity charges for post-employment benefits of $2.3 million and accelerated depreciation and inventory and asset write-offs of $16.6 million through December 31, 2020. The Company does not expect to incur any additional significant costs charges related to these closures.
For the closure of the facilities acquired from Greif, the Company has incurred cumulative exit activity charges for post-employment benefits of $1.4 million and for accelerated amortization of operating lease assets of $3.6 million through December 31, 2020. The Company does not expect to incur any additional significant costs charges related to these closures.
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| Net Sales | $ | — |
| $ | 3,509.0 |
| $ | 50.6 |
| $ | 1,166.6 |
| $ | (322.5 | ) | $ | 4,403.7 |
|
| Cost of Sales | — |
| 2,934.0 |
| 40.7 |
| 1,032.0 |
| (322.5 | ) | 3,684.2 |
|
| Selling, General and Administrative | — |
| 257.4 |
| 3.5 |
| 81.8 |
| — |
| 342.7 |
|
| Other (Income) Expense, Net | — |
| (6.1 | ) | 0.1 |
| 9.0 |
| — |
| 3.0 |
|
| Business Combinations and Shutdown and Other Special Charges, Net | — |
| 19.4 |
| — |
| 11.7 |
| — |
| 31.1 |
|
| Income from Operations | — |
| 304.3 |
| 6.3 |
| 32.1 |
| — |
| 342.7 |
|
| Interest Expense, Net | — |
| (84.9 | ) | — |
| (4.8 | ) | — |
| (89.7 | ) |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | — |
| 219.4 |
| 6.3 |
| 27.3 |
| — |
| 253.0 |
|
| Income Tax Benefit (Expense) | — |
| 54.9 |
| (3.5 | ) | (5.9 | ) | — |
| 45.5 |
|
| Income before Equity Income of Unconsolidated Entity | — |
| 274.3 |
| 2.8 |
| 21.4 |
| — |
| 298.5 |
|
| Equity Income of Unconsolidated Entity | — |
| — |
| — |
| 1.7 |
| — |
| 1.7 |
|
| Equity in Net Earnings of Subsidiaries | 300.2 |
| 25.9 |
| (6.1 | ) | — |
| (320.0 | ) | — |
|
| Net Income (Loss) | 300.2 |
| 300.2 |
| (3.3 | ) | 23.1 |
| (320.0 | ) | 300.2 |
|
| | | | | | | |
| Comprehensive Income (Loss) | $ | 349.0 |
| $ | 349.0 |
| $ | (26.0 | ) | $ | 78.5 |
| $ | (401.5 | ) | $ | 349.0 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| Net Sales | $ | — |
| $ | 3,462.5 |
| $ | 106.2 |
| $ | 1,051.3 |
| $ | (321.9 | ) | $ | 4,298.1 |
|
| Cost of Sales | — |
| 2,812.2 |
| 88.6 |
| 927.3 |
| (321.9 | ) | 3,506.2 |
|
| Selling, General and Administrative | — |
| 264.4 |
| 11.2 |
| 80.1 |
| — |
| 355.7 |
|
| Other (Income) Expense, Net | — |
| (3.8 | ) | — |
| 6.9 |
| — |
| 3.1 |
|
| Business Combinations and Shutdown and Other Special Charges, Net | — |
| 32.9 |
| — |
| 4.2 |
| — |
| 37.1 |
|
| Income from Operations | — |
| 356.8 |
| 6.4 |
| 32.8 |
| — |
| 396.0 |
|
| Interest (Expense) Income, Net | — |
| (72.3 | ) | — |
| (4.3 | ) | — |
| (76.6 | ) |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | — |
| 284.5 |
| 6.4 |
| 28.5 |
| — |
| 319.4 |
|
| Income Tax Expense | — |
| (81.5 | ) | (2.6 | ) | (9.1 | ) | — |
| (93.2 | ) |
| Income before Equity Income of Unconsolidated Entity | — |
| 203.0 |
| 3.8 |
| 19.4 |
| — |
| 226.2 |
|
| Equity Income of Unconsolidated Entity | — |
| — |
| — |
| 1.8 |
| — |
| 1.8 |
|
| Equity in Net Earnings of Subsidiaries | 228.0 |
| 25.0 |
| (6.1 | ) | — |
| (246.9 | ) | — |
|
| Net Income (Loss) | 228.0 |
| 228.0 |
| (2.3 | ) | 21.2 |
| (246.9 | ) | 228.0 |
|
| | | | | | | |
| Comprehensive Income (Loss) | $ | 186.1 |
| $ | 186.1 |
| $ | 16.8 |
| $ | (65.7 | ) | $ | (137.2 | ) | $ | 186.1 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| Net Sales | $ | — |
| $ | 3,363.6 |
| $ | 1.6 |
| $ | 1,037.2 |
| $ | (242.2 | ) | $ | 4,160.2 |
|
| Cost of Sales | — |
| 2,730.2 |
| (1.1 | ) | 884.2 |
| (242.2 | ) | 3,371.1 |
|
| Selling, General and Administrative | — |
| 274.9 |
| 2.5 |
| 70.3 |
| — |
| 347.7 |
|
| Other (Income) Expense, Net | — |
| (10.7 | ) | — |
| 3.0 |
| — |
| (7.7 | ) |
| Business Combinations and Shutdown and Other Special Charges, Net | — |
| 6.1 |
| — |
| 15.9 |
| — |
| 22.0 |
|
| Income from Operations | — |
| 363.1 |
| 0.2 |
| 63.8 |
| — |
| 427.1 |
|
| Interest Expense, Net | — |
| (64.9 | ) | — |
| (2.9 | ) | — |
| (67.8 | ) |
| Income before Income Taxes and Equity Income of Unconsolidated Entity | — |
| 298.2 |
| 0.2 |
| 60.9 |
| — |
| 359.3 |
|
| Income Tax Expense | — |
| (115.8 | ) | (0.2 | ) | (14.4 | ) | — |
| (130.4 | ) |
| Income before Equity Income of Unconsolidated Entity | — |
| 182.4 |
| — |
| 46.5 |
| — |
| 228.9 |
|
| Equity Income of Unconsolidated Entity | — |
| — |
| — |
| 1.2 |
| — |
| 1.2 |
|
| Equity in Net Earnings of Subsidiaries | 230.1 |
| 47.7 |
| (1.3 | ) | — |
| (276.5 | ) | — |
|
| Net Income (Loss) | $ | 230.1 |
| $ | 230.1 |
| $ | (1.3 | ) | $ | 47.7 |
| $ | (276.5 | ) | $ | 230.1 |
|
| | | | | | | |
| Comprehensive Income (Loss) | $ | 219.0 |
| $ | 219.0 |
| $ | (5.9 | ) | $ | (2.7 | ) | $ | (210.4 | ) | $ | 219.0 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and Cash Equivalents | $ | 23.3 |
| $ | 1.2 |
| $ | — |
| $ | 42.9 |
| $ | — |
| $ | 67.4 |
|
| Receivables, Net | — |
| 82.9 |
| — |
| 339.9 |
| — |
| 422.8 |
|
| Inventories, Net | — |
| 417.8 |
| — |
| 216.2 |
| — |
| 634.0 |
|
| Intercompany | — |
| 1,232.0 |
| 204.3 |
| — |
| (1,436.3 | ) | — |
|
| Other Current Assets | — |
| 33.6 |
| — |
| 12.1 |
| — |
| 45.7 |
|
| Total Current Assets | 23.3 |
| 1,767.5 |
| 204.3 |
| 611.1 |
| (1,436.3 | ) | 1,169.9 |
|
| Property, Plant and Equipment, Net | — |
| 1,532.9 |
| 0.1 |
| 334.2 |
| — |
| 1,867.2 |
|
| Investment in Consolidated Subsidiaries | 1,711.9 |
| — |
| 13.0 |
| — |
| (1,724.9 | ) | — |
|
| Goodwill | — |
| 1,154.8 |
| — |
| 168.2 |
| — |
| 1,323.0 |
|
| Other Assets | — |
| 362.1 |
| — |
| 140.8 |
| — |
| 502.9 |
|
| Total Assets | $ | 1,735.2 |
| $ | 4,817.3 |
| $ | 217.4 |
| $ | 1,254.3 |
| $ | (3,161.2 | ) | $ | 4,863.0 |
|
| | | | | | | |
| LIABILITIES | | | | | | |
| Current Liabilities: | | | | | | |
| Short-Term Debt and Current Portion of Long-Term Debt | $ | — |
| $ | 51.5 |
| $ | — |
| $ | 9.8 |
| $ | — |
| $ | 61.3 |
|
| Accounts Payable | — |
| 381.7 |
| — |
| 134.8 |
| — |
| 516.5 |
|
| Interest Payable | — |
| 14.3 |
| — |
| 0.6 |
| — |
| 14.9 |
|
| Intercompany | 420.0 |
| — |
| — |
| 1,033.1 |
| (1,453.1 | ) | — |
|
| Other Accrued Liabilities | 23.3 |
| 166.5 |
| — |
| 68.9 |
| — |
| 258.7 |
|
| Total Current Liabilities | 443.3 |
| 614.0 |
| — |
| 1,247.2 |
| (1,453.1 | ) | 851.4 |
|
| Long-Term Debt | — |
| 2,082.3 |
| — |
| 130.9 |
| — |
| 2,213.2 |
|
| Deferred Income Tax Liabilities | — |
| 295.0 |
| — |
| 26.8 |
| — |
| 321.8 |
|
| Other Noncurrent Liabilities | — |
| 114.1 |
| — |
| 70.6 |
| — |
| 184.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| EQUITY | | | | | | |
| Total Equity | 1,291.9 |
| 1,711.9 |
| 217.4 |
| (221.2 | ) | (1,708.1 | ) | 1,291.9 |
|
| Total Liabilities and Equity | $ | 1,735.2 |
| $ | 4,817.3 |
| $ | 217.4 |
| $ | 1,254.3 |
| $ | (3,161.2 | ) | $ | 4,863.0 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and Cash Equivalents | $ | — |
| $ | 0.9 |
| $ | 1.2 |
| $ | 57.0 |
| $ | — |
| $ | 59.1 |
|
| Receivables, Net | — |
| 183.7 |
| 10.1 |
| 233.0 |
| — |
| 426.8 |
|
| Inventories, Net | — |
| 403.8 |
| 16.1 |
| 163.0 |
| — |
| 582.9 |
|
| Intercompany | — |
| 1,077.5 |
| 73.3 |
| — |
| (1,150.8 | ) | — |
|
| Other Current Assets | — |
| 36.4 |
| — |
| 9.7 |
| — |
| 46.1 |
|
| Total Current Assets | — |
| 1,702.3 |
| 100.7 |
| 462.7 |
| (1,150.8 | ) | 1,114.9 |
|
| Property, Plant and Equipment, Net | — |
| 1,435.8 |
| 64.1 |
| 252.0 |
| — |
| 1,751.9 |
|
| Investment in Consolidated Subsidiaries | 1,362.9 |
| — |
| 12.3 |
| — |
| (1,375.2 | ) | — |
|
| Goodwill | — |
| 1,098.9 |
| 55.5 |
| 105.9 |
| — |
| 1,260.3 |
|
| Other Assets | — |
| 314.8 |
| 65.6 |
| 95.9 |
| — |
| 476.3 |
|
| Total Assets | $ | 1,362.9 |
| $ | 4,551.8 |
| $ | 298.2 |
| $ | 916.5 |
| $ | (2,526.0 | ) | $ | 4,603.4 |
|
| | | | | | | |
| LIABILITIES | | | | | | |
| Current Liabilities: | | | | | | |
| Short-Term Debt and Current Portion of Long-Term Debt | $ | — |
| $ | 26.0 |
| $ | — |
| $ | 37.4 |
| $ | — |
| $ | 63.4 |
|
| Accounts Payable | — |
| 354.3 |
| 8.5 |
| 103.7 |
| — |
| 466.5 |
|
| Interest Payable | — |
| 15.4 |
| — |
| — |
| — |
| 15.4 |
|
| Intercompany | 306.4 |
| — |
| — |
| 913.0 |
| (1,219.4 | ) | — |
|
| Other Accrued Liabilities | — |
| 163.2 |
| 3.0 |
| 68.3 |
| — |
| 234.5 |
|
| Total Current Liabilities | 306.4 |
| 558.9 |
| 11.5 |
| 1,122.4 |
| (1,219.4 | ) | 779.8 |
|
| Long-Term Debt | — |
| 2,042.4 |
| — |
| 46.1 |
| — |
| 2,088.5 |
|
| Deferred Income Tax Liabilities | — |
| 342.1 |
| 43.3 |
| 22.6 |
| — |
| 408.0 |
|
| Other Noncurrent Liabilities | — |
| 245.5 |
| — |
| 25.1 |
| — |
| 270.6 |
|
| | | | | | | |
| EQUITY | | | | | | |
| Total Equity | 1,056.5 |
| 1,362.9 |
| 243.4 |
| (299.7 | ) | (1,306.6 | ) | 1,056.5 |
|
| Total Liabilities and Equity | $ | 1,362.9 |
| $ | 4,551.8 |
| $ | 298.2 |
| $ | 916.5 |
| $ | (2,526.0 | ) | $ | 4,603.4 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net Income (Loss) | $ | 300.2 |
| $ | 300.2 |
| $ | (3.3 | ) | $ | 23.1 |
| $ | (320.0 | ) | $ | 300.2 |
|
| Non-cash Items Included in Net Income (Loss): | | | | | | |
| Depreciation and Amortization | — |
| 260.8 |
| 4.8 |
| 64.7 |
| — |
| 330.3 |
|
| Deferred Income Taxes | — |
| (49.0 | ) | (1.1 | ) | (3.9 | ) | — |
| (54.0 | ) |
| Amount of Postretirement Expense Less Than Funding | — |
| (113.8 | ) | — |
| (13.3 | ) | — |
| (127.1 | ) |
| Gain on the Sale of Assets, net | — |
| (3.7 | ) | — |
| — |
| — |
| (3.7 | ) |
| Equity in Net Earnings of Subsidiaries | (300.2 | ) | (25.9 | ) | 6.1 |
| — |
| 320.0 |
| — |
|
| Other, Net | — |
| 7.5 |
| — |
| (0.4 | ) | — |
| 7.1 |
|
| Changes in Operating Assets and Liabilities | — |
| 99.5 |
| (7.7 | ) | (28.4 | ) | — |
| 63.4 |
|
| Net Cash Provided by (Used In) Operating Activities | — |
| 475.6 |
| (1.2 | ) | 41.8 |
| — |
| 516.2 |
|
| | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Capital Spending | — |
| (193.2 | ) | — |
| (47.7 | ) | — |
| (240.9 | ) |
| Packaging Machinery Spending | — |
| (19.1 | ) | — |
| (0.1 | ) | — |
| (19.2 | ) |
| Acquisition of Business, Net of Cash Acquired | — |
| (127.0 | ) | — |
| (62.4 | ) | — |
| (189.4 | ) |
| Proceeds Received from Sale of Assets, Net of Selling Costs | — |
| 7.9 |
| — |
| — |
| — |
| 7.9 |
|
| Other, Net | 189.0 |
| (15.5 | ) | — |
| — |
| (172.5 | ) | 1.0 |
|
| Net Cash Provided by (Used in) by Investing Activities | 189.0 |
| (346.9 | ) | — |
| (110.2 | ) | (172.5 | ) | (440.6 | ) |
| | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Repurchase of Common Stock | (62.1 | ) | — |
| — |
| — |
| — |
| (62.1 | ) |
| Payments on Debt | — |
| (25.0 | ) | — |
| — |
| — |
| (25.0 | ) |
| Borrowings under Revolving Credit Facilities | — |
| 1,103.4 |
| — |
| 99.5 |
| — |
| 1,202.9 |
|
| Payments on Revolving Credit Facilities | — |
| (1,026.6 | ) | — |
| (64.2 | ) | — |
| (1,090.8 | ) |
| Dividends Paid | (93.4 | ) | — |
| — |
| — |
| — |
| (93.4 | ) |
| Repurchase of Common Stock related to Share-Based Payments | (10.2 | ) | — |
| — |
| — |
| — |
| (10.2 | ) |
| Other, Net | — |
| (180.2 | ) | — |
| 16.5 |
| 172.5 |
| 8.8 |
|
| Net Cash (Used in) Provided by Financing Activities | (165.7 | ) | (128.4 | ) | — |
| 51.8 |
| 172.5 |
| (69.8 | ) |
| | | | | | | |
| Effect of Exchange Rate Changes on Cash | — |
| — |
| — |
| 2.5 |
| — |
| 2.5 |
|
| | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | 23.3 |
| 0.3 |
| (1.2 | ) | (14.1 | ) | — |
| 8.3 |
|
| Cash and Cash Equivalents at Beginning of Period | — |
| 0.9 |
| 1.2 |
| 57.0 |
| — |
| 59.1 |
|
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 23.3 |
| $ | 1.2 |
| $ | — |
| $ | 42.9 |
| $ | — |
| $ | 67.4 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net Income (Loss) | $ | 228.0 |
| $ | 228.0 |
| $ | (2.3 | ) | $ | 21.2 |
| $ | (246.9 | ) | $ | 228.0 |
|
| Non-cash Items Included in Net Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and Amortization | — |
| 233.4 |
| 12.9 |
| 53.0 |
| — |
| 299.3 |
|
| Deferred Income Taxes | — |
| 77.5 |
| 1.7 |
| (2.5 | ) | — |
| 76.7 |
|
| Amount of Postretirement Expense Less Than Funding | — |
| (25.8 | ) | — |
| (5.5 | ) | — |
| (31.3 | ) |
| Equity in Net Earnings of Subsidiaries | (228.0 | ) | (25.0 | ) | 6.1 |
| — |
| 246.9 |
| — |
|
| Other, Net | — |
| 30.8 |
| — |
| (0.6 | ) | — |
| 30.2 |
|
| Changes in Operating Assets and Liabilities | — |
| 44.9 |
| (17.2 | ) | 10.8 |
| — |
| 38.5 |
|
| Net Cash Provided by Operating Activities | — |
| 563.8 |
| 1.2 |
| 76.4 |
| — |
| 641.4 |
|
| | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Capital Spending | — |
| (239.7 | ) | — |
| (38.9 | ) | — |
| (278.6 | ) |
| Package Machinery Spending | — |
| (9.4 | ) | — |
| (6.6 | ) | — |
| (16.0 | ) |
| Acquisition of Businesses, Net of Cash Acquired | — |
| (173.1 | ) | — |
| (159.6 | ) | — |
| (332.7 | ) |
| Other, Net | 240.6 |
| (166.0 | ) | — |
| — |
| (79.8 | ) | (5.2 | ) |
| Net Cash Provided by (Used in) Investing Activities | 240.6 |
| (588.2 | ) | — |
| (205.1 | ) | (79.8 | ) | (632.5 | ) |
| | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Repurchase of Common Stock | (164.9 | ) | — |
| — |
| — |
| — |
| (164.9 | ) |
| Proceeds from Issuance or Modification of Debt | — |
| 300.0 |
| — |
| — |
| — |
| 300.0 |
|
| Payments on Debt | — |
| (25.0 | ) | — |
| — |
| — |
| (25.0 | ) |
| Borrowings under Revolving Credit Facilities | — |
| 1,136.0 |
| — |
| 64.0 |
| — |
| 1,200.0 |
|
| Payments on Revolving Credit Facilities | — |
| (1,143.5 | ) | — |
| (92.3 | ) | — |
| (1,235.8 | ) |
| Debt Issuance Costs | — |
| (5.3 | ) | — |
| — |
| — |
| (5.3 | ) |
| Dividends Paid | (64.4 | ) | — |
| — |
| — |
| — |
| (64.4 | ) |
| Repurchase of Common Stock related to Share-Based Payments | (11.3 | ) | — |
| — |
| — |
| — |
| (11.3 | ) |
| Other, Net | — |
| (237.0 | ) | — |
| 160.8 |
| 79.8 |
| 3.6 |
|
| Net Cash (Used in) Provided by Financing Activities | (240.6 | ) | 25.2 |
| — |
| 132.5 |
| 79.8 |
| (3.1 | ) |
| | | | | | | |
| Effect of Exchange Rate Changes on Cash | — |
| — |
| — |
| (1.6 | ) | — |
| (1.6 | ) |
| | | | | | | |
| Net Increase in Cash and Cash Equivalents | — |
| 0.8 |
| 1.2 |
| 2.2 |
| — |
| 4.2 |
|
| Cash and Cash Equivalents at Beginning of Period | — |
| 0.1 |
| — |
| 54.8 |
| — |
| 54.9 |
|
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — |
| $ | 0.9 |
| $ | 1.2 |
| $ | 57.0 |
| $ | — |
| $ | 59.1 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| In millions | Parent | Subsidiary Issuer | Combined Guarantor Subsidiaries | Combined Nonguarantor Subsidiaries | Consolidating Eliminations | Consolidated |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net Income (Loss) | $ | 230.1 |
| $ | 230.1 |
| $ | (1.3 | ) | $ | 47.7 |
| $ | (276.5 | ) | $ | 230.1 |
|
| Non-cash Items Included in Net Income: | | | | | | |
| Depreciation and Amortization | — |
| 239.2 |
| 0.1 |
| 41.2 |
| — |
| 280.5 |
|
| Deferred Income Taxes | — |
| 108.5 |
| — |
| 1.5 |
| — |
| 110.0 |
|
| Amount of Postretirement Expense Less Than Funding | — |
| (31.4 | ) | — |
| (8.0 | ) | — |
| (39.4 | ) |
| Loss on the Sale of Assets, net | — |
| 1.9 |
| — |
| — |
| — |
| 1.9 |
|
| Equity in Net Earnings of Subsidiaries | (230.1 | ) | (47.7 | ) | 1.3 |
| — |
| 276.5 |
| — |
|
| Other, Net | — |
| 31.6 |
| — |
| (6.5 | ) | — |
| 25.1 |
|
| Changes in Operating Assets and Liabilities | 0.3 |
| (99.0 | ) | 0.3 |
| 79.4 |
| — |
| (19.0 | ) |
| Net Cash Provided by Operating Activities | 0.3 |
| 433.2 |
| 0.4 |
| 155.3 |
| — |
| 589.2 |
|
| | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Capital Spending | — |
| (188.7 | ) | (0.4 | ) | (39.8 | ) | — |
| (228.9 | ) |
| Packaging Machinery Spending | — |
| (12.5 | ) | — |
| (2.7 | ) | — |
| (15.2 | ) |
| Acquisition of Businesses, Net of Cash Acquired | — |
| (131.1 | ) | — |
| (32.1 | ) | — |
| (163.2 | ) |
| Other, Net | 133.5 |
| 78.6 |
| — |
| 9.9 |
| (214.5 | ) | 7.5 |
|
| Net Cash Provided by (Used in) Investing Activities | 133.5 |
| (253.7 | ) | (0.4 | ) | (64.7 | ) | (214.5 | ) | (399.8 | ) |
| | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Repurchase of Common Stock | (63.0 | ) | — |
| — |
| — |
| — |
| (63.0 | ) |
| Payments on Debt | — |
| (25.0 | ) | — |
| — |
| — |
| (25.0 | ) |
| Borrowings under Revolving Credit Facilities | — |
| 831.3 |
| — |
| 71.7 |
| — |
| 903.0 |
|
| Payments on Revolving Credit Facilities | — |
| (852.9 | ) | — |
| (100.9 | ) | — |
| (953.8 | ) |
| Dividends Paid | (49.3 | ) | — |
| — |
| — |
| — |
| (49.3 | ) |
| Repurchase of Common Stock Related to Share-Based Payments | (21.5 | ) | — |
| — |
| — |
| — |
| (21.5 | ) |
| Other, Net | — |
| (134.8 | ) | — |
| (81.0 | ) | 214.5 |
| (1.3 | ) |
| Net Cash (Used in) Provided by Financing Activities | (133.8 | ) | (181.4 | ) | — |
| (110.2 | ) | 214.5 |
| (210.9 | ) |
| | | | | | | |
| Effect of Exchange Rate Changes on Cash | — |
| — |
| — |
| (5.2 | ) | — |
| (5.2 | ) |
| | | | | | | |
| Net Decrease in Cash and Cash Equivalents | — |
| (1.9 | ) | — |
| (24.8 | ) | — |
| (26.7 | ) |
| Cash and Cash Equivalents at Beginning of Period | — |
| 2.0 |
| — |
| 79.6 |
| — |
| 81.6 |
|
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — |
| $ | 0.1 |
| $ | — |
| $ | 54.8 |
| $ | — |
| $ | 54.9 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 19.21. SUBSEQUENT EVENTS
On January 1, 2018, GPHC, International Paper Company (“IP”), Graphic Packaging International Partners, LLC (“GPIP”), and GPI completed a series of transactions by which the North America Consumer Packaging business of IP was combined with the businesses of GPI. Pursuant to the Transaction Agreement dated October 23, 2017, on the closing date IP transferred its business to GPIP, which subsequently transferred the business to GPI. Concurrently therewith, GPIP issued 20.5% of its membership interests to IP and IP was admitted as a member of GPIP. As a result, GPHC indirectly holds 79.5% of the membership interests in GPIP and IP holds 20.5% of the membership interests in GPIP.
In connection with consummation of the transactions with IP, GPI entered into a Third Amended and Restated Credit Agreement dated as of January 1, 2018 (the “Amended and Restated Credit Agreement”) by and among GPI and certain subsidiaries thereof as Borrowers, the lenders and agents named therein, and Bank of America, N.A., as Administrative Agent. The Amended and Restated Credit Agreement effects an “amend and extend” transaction with respect to the Company’s existing senior credit facility by which, among other things: (i) the maturity date thereof was extended to January 1, 2023, (ii) the U.S. dollar commitment portion increased by $75 million, (iii) the applicable margin interest rate pricing grid levels were reduced from those set forth in the prior credit facility, (iv) certain negative covenants contained in the prior credit facility were relaxed and (v) certain amendments were effected so as to accommodate the transactions with IP.
In addition to the Amended and Restated Credit Agreement, on January 1, 201814, 2021, the Company assumeddrew the term loan indebtedness previously incurred by IP (the “Term Loan Credit Agreement”)$425 million Incremental Term A-2 Facility and used the proceeds, together with cash on hand, to redeem its 4.75% Senior Notes due in an aggregate amount of $660.0 million, repayable pursuant to the same amortization schedule (expressed as a percentage of the principal amount thereof) as the Term Loan A under the Amended and Restated Credit Agreement and has the same maturity date of January 1, 2023. The applicable margin pricing grid, covenant and other terms are substantially equivalent to those contained in the Amended and Restated Credit Agreement. The Term Loan Credit Agreement is secured by a lien and security interest in substantially all of the assets of GPI on a pari passu basis with the liens and security interests securing the Amended and Restated Credit Agreement pursuant to the terms of a customary intercreditor agreement among the parties.2021. For more information, see "Note 5 — Debt."
Report of Independent Registered Public Accounting Firm
TheTo the Board of Directors and Shareholders of Graphic Packaging Holding Company
OpinionOpinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetssheet of Graphic Packaging Holding Company and its subsidiaries(the “Company”) as of December 31, 2020,and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020,and the results of itsoperations and itscash flows for the year then endedin conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excludedthe Consumer Packaging Group business ofGreif, Inc. and the folding carton facility of Quad/Graphics, Inc. from its assessment of internal control over financial reporting as of December 31, 2020because they were acquired by the Company in purchase business combinations during 2020. We have also excludedthe Consumer Packaging Group business ofGreif, Inc.and the folding carton facility of Quad/Graphics, Inc.from our audit of internal control over financial reporting.The Consumer Packaging Group business ofGreif, Inc. and the folding carton facility of Quad/Graphics, Inc. are wholly-owned subsidiaries whose total assets and total net sales excluded from management’s assessment and our audit of internal control over financial reporting represent 1.2% and 0.7% of total assets, respectively and 2.5% and 1.2% of total net sales, respectively,of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to theconsolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment – Foodservice Reporting Unit
As described in Note 1 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,477.6million as of December 31, 2020. As disclosed by management, the goodwill associated with the Foodservice reporting unit was $42.9millionas of December 31, 2020. Management tests goodwill for impairment annually as of October 1, as well as whenever events or changes in circumstances suggest that the estimated fair value of a reporting unit may no longer exceed its carrying amount. An impairment charge is recognized for the amount by which the carrying amount of a reporting unit exceeds its fair value. When performing the quantitative analysis, the estimated fair value of each reporting unit is determined by utilizing a discounted cash flow analysis based on the Company’s forecasts, discounted using a weighted average cost of capital and market indicators of terminal year cash flows based upon a multiple of EBITDA. In estimating the fair value of the Foodservice reporting unit, management considers a number of factors, including but not limited to, future operating results, business plans, economic projections of revenues and operating margins, estimated future cash flows, and market data and analysis.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Foodservice reporting unit is a critical audit matter are the significant judgment by management when determining the estimated fair value of the reporting unit; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to economic projections of revenues and operating margins, the weighted average cost of capital, and the terminal year EBITDA multiple. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s Foodservice reporting unit. These procedures also included, among others, testing management’s process for determining the fair value estimate; evaluating the appropriateness of the discounted cash flow analysis and evaluating the reasonableness of significant assumptions related to economic projections of revenues and operating margins, the weighted average cost of capital, and the terminal year EBITDA multiple. Evaluating assumptions related to economic projections of revenues and operating margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the discounted cash flow analysis and evaluating the reasonableness of the assumptions related to the weighted average cost of capital and terminal year EBITDA multiple.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 16, 2021
We have served as the Company’s auditor since 2020.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Graphic Packaging Holding Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Graphic Packaging Holding Company (the Company) as of December 31, 2017 and 2016, and2019, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the threetwo years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172019, and 2016, and the consolidated results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 7, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2008.from 2008 to 2020.
Atlanta, Georgia
February 7, 201810, 2020
Report
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE
The Board of Directors and Shareholders of Graphic Packaging Holding Company
Opinion on Internal Control over Financial Reporting
We have audited Graphic Packaging Holding Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Graphic Packaging Holding Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Carton Craft Corporation, Norgraft Packaging, S.A., and Seydaco Packaging Corporation, which are included in the 2017 consolidated financial statements of the Company and constituted 5.1%, and 18.0% of total and net assets, respectively, as of December 31, 2017 and 1.0%, and 0.5% of net sales and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Carton Craft Corporation, Norgraft Packaging, S.A., and Seydaco Packaging Corporation.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Graphic Packaging Holding Company as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”) and our report dated February 7, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations on Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 7, 2018
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE
|
None.
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ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.
Based on management’s evaluation as of the end of the period covered by this Annual Report on Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) were effective as of December 31, 2020, the end of the period covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company's management did not include in its assessment the internal controls for the Consumer Packaging Group business of Greif Inc. ("Greif") and the North Americanfolding carton facility of Quad/Graphics, Inc. ("Quad"), which were acquired by the Company in business combinations in 2020 and European Acquisitions in 2017, which are included in the Company's results for the year-endyear ended December 31, 2017.2020. As of December 31, 2020, the Greif and Quad acquisitions total assets represent 1.2% and 0.7% of the Company’s consolidated total assets, respectively. Net Sales attributable to the Greif and Quad acquisitions represented 2.5% and 1.2% of the Company’s consolidated Net Sales for the twelve months ended December 31, 2020, respectively.
The Company’s management, under the supervision of and with the participation of the President and Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 20172020 based on criteria for effective control over financial reporting described in Internal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment the Company’s management concluded that its internal control over financial reporting was effective as of December 31, 2017.2020.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20172020 has been audited by Ernst & YoungPricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
None.There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 9B. | OTHER INFORMATION |
ITEM 9B. OTHER INFORMATION
None.
PART III
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ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCEITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE |
Pursuant to Instruction G(3) to Form 10-K, the information relating to Directors of the Registrant, compliance with Section 16(a) of the Exchange Act, compliance with the Company’s Code of Ethics, and certain other information required by Item 10 is incorporated by reference to the Registrant’s definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2017.2020.
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ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 11 is incorporated by reference to the Registrant’s definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2017.2020.
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDER MATTERSITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDER MATTERS |
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 12 is incorporated by reference to the Registrant’s definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2017.2020.
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ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCEITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE |
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 13 is incorporated by reference to the Registrant’s definitive Proxy Statement for the 20182021 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2017.2020.
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ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 14 is incorporated by reference to the Registrant’s definitive Proxy Statement for the 20172021 Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2017.2020.
PART IV
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ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Financial statements, financial statement schedule and exhibits filed as part of this report:
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1. | Consolidated Statements of Operations for each of the three years in the period ended December 31, 2017 |
1.Consolidated Statements of Operations for each of the three years in the period ended December 31, 2020
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 20172020
Consolidated Balance Sheets as of December 31, 20172020, and 20162019
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 20172020
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 20172020
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting FirmFirms
2.All schedules are omitted as the information required is either included elsewhere in the consolidated financial statements herein or is not applicable.
3.Exhibits to Annual Report on Form 10-K for Year Ended December 31, 2020.
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2. | All schedules are omitted as the information required is either included elsewhere in the consolidated financial statements herein or is not applicable. |
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3. | Exhibits to Annual Report on Form 10-K for Year Ended December 31, 2017. |
|
| |
Exhibit Number | Description |
| 2.1 | |
| 3.1 | |
| 3.2 | |
| 3.3 | |
3.4 | |
3.53.4 | |
4.13.5 | |
4.24.1 | |
4.34.2 | |
4.44.3 | |
|
| |
10.1* | |
10.2* | |
10.3* | |
10.4* | |
10.5* | |
10.6* | |
10.7* | |
10.8* | |
10.9* | |
10.10 | Form of Indemnification Agreement, dated as of September 10, 2003, entered into by and among Registrant, GPI Holding, Inc., Graphic Packaging International, Inc. and each of Jeffrey H. Coors, Stephen M. Humphrey, Kevin J. Conway, G. Andrea Botta, John D. Beckett, Harold R. Logan, Jr., John R. Miller, Robert W. Tieken, B. Charles Ames (as emeritus director) and William K. Coors (as emeritus director). Filed as Exhibit 10.30 to Graphic Packaging Corporation’s Annual Report on Form 10-K filed on March 16, 2004 and incorporated herein by reference. |
10.11* | |
10.12* | |
10.13* | |
10.14 | |
10.15* | |
10.16* | |
10.17 | |
10.18* | |
|
| |
10.19* | |
10.20* | |
10.21 | Second Amended and Restated Credit Agreement effective October 2, 2014 among Graphic Packaging International, Inc. and certain of its subsidiaries, as Borrowers; Bank of American, N.A. as Administrative Agent, L/C Issuer, Swing Line Lender, Swing Line Euro Tranche Lender and Alternative Currency Funding Fronting Lender; Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland" New York Branch, SunTrust Bank, JPMorgan Bank, N.A. and Citibank, N.A., as Co-Syndication Agents; Compass Bank, as Documentation Agent; and several lenders from time to time parties thereto. Filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on October 7, 2014 and incorporated herein by reference. |
10.22 | |
10.23 | |
10.24* | |
10.25* | |
10.26* | |
10.27* | |
10.28* | |
10.29* | |
10.30* | |
10.31* | |
10.32* | |
10.33* | |
10.34 | |
10.35 | |
|
| |
10.36 | |
10.37* | |
10.38* | |
10.39 | |
10.404.7 | |
10.414.8 | |
10.42*4.9 | |
| 4.10 | |
| 4.11 | |
| 10.1* | |
| 10.2* | |
| 10.3* | |
| |
| |
| 10.4* | |
| 10.5* | |
| 10.6* | |
| 10.7* | |
| 10.8* | |
| 10.9* | |
| | | | | |
| 10.10 | Master Services Agreement dated November 29, 2007 by and between Graphic Packaging International, Inc. and Perot Systems Corporation. Filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 5, 2007 and incorporated herein by reference. |
| 10.11* | |
| 10.12* | |
| 10.13 | |
| |
| 10.14* | |
| 10.15* | |
| 10.16 | |
| 10.17 | |
| 10.18* | |
| 10.19* | |
| 10.20* | |
| |
| |
| |
| |
| 10.21* | |
| 10.22* | |
| 10.23* | |
| 10.24 | |
| 10.25 | |
| 10.26 | |
| 10.27* | |
| 10.28* | |
| | | | | |
| 10.29* | |
10.4310.30 | |
10.44 | |
10.4510.31 | |
10.4610.32 | |
10.4710.33 | |
10.4810.34 | |
10.4910.35 | |
10.5010.36 | |
|
| |
10.51*10.37* | |
10.52*10.38* | |
10.53*10.39* | |
10.54*10.40* | |
10.55*10.41* | |
14.110.42* | |
| 10.43* | |
| 10.44* | |
| 10.45 | |
| 10.46 | |
| | | | | |
| 10.47 | |
| 10.48 | |
| 10.49 | |
| 14.1 | |
| 21.1 | |
23.122.1 | |
| 23.1 | |
| 24.1 | |
| 31.1 | |
| 31.2 | |
| 32.1 | |
| 32.2 | |
| |
| 101.INS | Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | XBRL Taxonomy Extension Schema |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
| 104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101). |
____________
* Executive compensation plan or agreement
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GRAPHIC PACKAGING HOLDING COMPANY
(Registrant)
| | | | | | | | |
| | |
| | |
| /s/ Stephen R. Scherger | SeniorExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)
| February 23, 201816, 2021 |
| Stephen R. Scherger | |
| | |
| | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | |
| /s/ Michael P. Doss | President and Chief Executive Officer
(Principal Executive Officer) | February 16, 2021 |
| Michael P. Doss | |
| | |
/s/ Michael P. Doss | President and Chief Executive Officer
(Principal Executive Officer)
| February 23, 2018 |
Michael P. Doss | |
| | |
| /s/ Stephen R. Scherger | SeniorExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)
| February 23, 201816, 2021 |
| Stephen R. Scherger | |
| | |
/s/ Deborah R. Frank | Vice President and Chief Accounting Officer
(Principal Accounting Officer)
| February 23, 2018 |
Deborah R. Frank | |
|
| | |
Signatures/s/ Charles D. Lischer | Title | Date |
| | |
* | Director | February 23, 2018 |
G. Andrea Botta | | |
| | |
* | Director | February 23, 2018 |
David D. Campbell | | |
| | |
* | Director | February 23, 2018 |
Paul D. Carrico | | |
| | |
* | Director,Senior Vice President and Chief ExecutiveAccounting Officer
(Principal Accounting Officer) | February 23, 201816, 2021 |
Michael P. DossCharles D. Lischer | | |
| | |
* | Director | February 23, 2018 |
Robert A. Hagemann | | |
| | |
* | Director | February 23, 2018 |
Peter Kelly | | |
| | |
* | Chairman of the Board | February 23, 2018 |
Philip R. Martens | | |
| | |
* | Director | February 23, 2018 |
Larry M. Venturelli | | |
| | |
* | Director | February 23, 2018 |
Lynn A. Wentworth | | |
POWER OF ATTORNEY
Each of the directors of the Registrant whose signature appears below hereby appoints Stephen R. Scherger and Lauren S. Tashma, and each of them severally, as his or her attorney-in-fact to sign in his or her name and behalf, in any and all capacities stated below, and to file with the Securities and Exchange Commission any and all amendments to this report on Form 10-K, making such changes in this report on Form 10-K as appropriate, and generally to do all such things on their behalf in their capacities as directors and/or officers to enable the Registrant to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission.
| | | | | | | | |
| Signatures | Title | Date |
| | |
| /s/ Laurie Brlas | Director | February 16, 2021 |
| Laurie Brlas | | |
| | |
* By: | /s/ Lauren S. TashmaDavid D. Campbell | Director | February 16, 2021 |
| David D. Campbell | Lauren S. Tashma | |
| Attorney-in-Fact, pursuant to Power | |
| /s/ Paul D. Carrico | Director | February 16, 2021 |
| Paul D. Carrico | | |
| | |
| /s/ Michael P. Doss | Director, President and Chief Executive Officer | February 16, 2021 |
| Michael P. Doss | | |
| | |
| /s/ Robert A. Hagemann | Director | February 16, 2021 |
| Robert A. Hagemann | | |
| | |
| | |
| | |
| /s/ Philip R. Martens | Chairman of Attorney dated the Board | February 7, 201816, 2021 |
| Philip R. Martens | | |
| | |
| /s/ Dean A. Scarborough | Director | February 16, 2021 |
| Dean A. Scarborough | | |
| | |
| /s/ Larry M. Venturelli | Director | February 16, 2021 |
| Larry M. Venturelli | | |
| | |
| /s/ Lynn A. Wentworth | Director | February 16, 2021 |
| Lynn A. Wentworth | | |
| | |
