NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
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 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 unbleached kraft paperboard ("CUK"), coated-recycled paperboard ("CRB") and solid bleached sulfate paperboard ("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 packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its low-cost paperboard mills and converting facilities, its proprietary carton and packaging designs, and its commitment to quality and service.
On 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 (“GPIP”), and Graphic Packaging International, LLC, a Delaware limited liability company formerly known as Graphic Packaging International, Inc. and a 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 GPIP; and (iv) GPIL assumed certain indebtedness of IP (the "NACP Combination").
GPI Holding III, LLC, an indirect wholly-owned subsidiary of the Company (“GPI Holding”), is the managing member of GPIP.
At 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following diagram illustrates the organization of the Company immediately subsequent to the transactions described above (not including subsidiaries of GPIL):
GPHC conducts no significant business and has no independent assets or operations other than its indirect ownership of GPIL'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 subsidiary, GPIL, holds a
50%
ownership interest in a joint venture called Rengo Riverwood Packaging, Ltd. (in Japan) which 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-term 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of deposit and other marketable securities with original maturities of three months or less.
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.
The Company has entered into agreements 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"). The loss on sale is not material and is included in Other Expense, Net line item on the Consolidated Statement of Operations. The following table summarizes the activity under these programs as of
December 31, 2018
and
2017
, respectively:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2018
|
2017
|
Receivables Sold and Derecognized
|
$
|
3,824.5
|
|
$
|
1,846.8
|
|
Proceeds Collected on Behalf of Financial Institutions
|
3,645.9
|
|
1,639.0
|
|
Net Proceeds (Paid to) Received From Financial Institutions
|
(19.6
|
)
|
134.1
|
|
Deferred Purchase Price
(a)
|
66.9
|
|
101.7
|
|
Pledged Receivables
|
43.0
|
|
—
|
|
(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, 2018
and
2017
, the Company sold receivables of approximately
$119 million
and
$64 million
respectively, related to these factoring arrangements.
Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were approximately
$602 million
and
$583 million
as of
December 31, 2018
and
2017
, 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 for the years ended
December 31, 2018
and
2017
,
no
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 based on 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
$2.8 million
, $
1.2 million
and $
1.3 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
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 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
2018
,
2017
and
2016
was
$360.6 million
, $
268.5 million
and $
240.0 million
, respectively.
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, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
In millions
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
Amortizable Intangible Assets:
|
|
|
|
|
|
|
|
Customer Relationships
|
$
|
937.3
|
|
$
|
(442.7
|
)
|
$
|
494.6
|
|
|
$
|
786.9
|
|
$
|
(377.2
|
)
|
$
|
409.7
|
|
Patents, Trademarks, Licenses, and Leases
|
133.7
|
|
(104.5
|
)
|
29.2
|
|
|
130.2
|
|
(103.4
|
)
|
26.8
|
|
Total
|
$
|
1,071.0
|
|
$
|
(547.2
|
)
|
$
|
523.8
|
|
|
$
|
917.1
|
|
$
|
(480.6
|
)
|
$
|
436.5
|
|
The Company recorded amortization expense for the years ended
December 31, 2018
,
2017
and
2016
of
$70.0 million
,
$61.8 million
and $
59.3 million
, respectively. The Company expects amortization expense for the next five consecutive years to be as follows:
$68 million
,
$65 million
,
$56 million
,
$53 million
, and
$51 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, two or more components of an operating segment are aggregated and deemed a single reporting unit if the components have similar economic characteristics.
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. 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, operating results, business plans, economic projections, 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. As a result of its testing of goodwill as of October 1, 2018, the Company concluded goodwill was
not
impaired.
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, 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
|
|
Acquisition of Businesses
|
98.3
|
|
43.1
|
|
(0.1
|
)
|
—
|
|
141.3
|
|
Foreign Currency Effects
|
—
|
|
(0.3
|
)
|
(2.2
|
)
|
(1.2
|
)
|
(3.7
|
)
|
Balance at December 31, 2018
|
$
|
506.8
|
|
$
|
881.8
|
|
$
|
57.2
|
|
$
|
14.8
|
|
$
|
1,460.6
|
|
|
|
(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.
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.
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.
Revenue Recognition
The Company has
two
primary activities, manufacturing and converting paperboard, from which it generates revenue from contracts with customers, and revenue is disaggregated primarily by geography and type of activity as further explained in "
Note 15-Business Segment and Geographic Area Information.
"
All reportable segments and the Australia and Pacific Rim operating segments recognize revenue under the same method, allocate transaction price using similar methods, and have similar economic factors impacting the uncertainty of revenue and related cash flows.
Revenue is recognized on the Company's annual and multi-year supply contracts when the Company 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, 2018
,
2017
and
2016
, the Company recognized
$6,005.5 million
,
$4,383.0 million
and
$4,280.1 million
, respectively, of revenue from contracts with customers.
The transaction price allocated to each performance obligation consists of the stand-alone selling price, estimates of rebates and other sales or contract renewal incentives, and cash discounts and sales returns ("Variable Consideration") and excludes sales tax. Estimates are made for Variable Consideration based on contract terms and historical experience of actual results and are applied 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, 2018
and
2017
, contract assets were
$19.6 million
and
$11.7 million
, respectively. The Company's contract liabilities consist principally of rebates, and as of
December 31, 2018
and
2017
were
$42.5 million
and
$28.6 million
, respectively.
The Company did not have a material amount relating to backlog orders at December 31, 2018 or 2017.
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, 2018
,
2017
and
2016
were
$8.7 million
, $
14.4 million
and $
14.9 million
, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business Combinations, Gain on Sale of Assets and Shutdown and Other Special Charges, Net
The following table summarizes the transactions recorded in Business Combinations, Gain on Sale of Assets and Shutdown and Other Special Charges, Net in the Consolidated Statements of Operations for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2018
|
|
2017
|
|
2016
|
Charges Associated with Business Combinations
|
$
|
46.8
|
|
|
$
|
16.2
|
|
|
$
|
21.2
|
|
Shutdown and Other Special Charges
|
6.7
|
|
|
18.6
|
|
|
15.9
|
|
Gain on Sale of Assets
|
(38.6
|
)
|
|
(3.7
|
)
|
|
—
|
|
Total
|
$
|
14.9
|
|
|
$
|
31.1
|
|
|
$
|
37.1
|
|
2018
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
two
facilities located in Clarksville, Tennessee and Pittston, Pennsylvania. Letica Foodservice 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 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
two
facilities located in Lebanon, Tennessee and Lancaster, Texas. PFP is included in the Americas Paperboard Packaging reportable segment.
On January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS 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 Americas Paperboard Packaging reportable segment) and
one
in the United Kingdom ("U.K.") (included in the Europe Paperboard Packaging reportable segment).
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 included
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 included
two
folding carton facilities located in Miliaño and Requejada, Spain.
On July 10, 2017, the Company acquired substantially all the assets of Carton Craft Corporation and its affiliate, Lithocraft, Inc (collectively, "Carton Craft"). The acquisition included
two
folding carton facilities located in New Albany, 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 included in the Americas Paperboard Packaging Segment. Norgraft is included in the Europe Paperboard Packaging Segment.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In October 2017, 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 on Sale of Assets, Net 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 operated
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 operated
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 included
two
folding carton facilities located in Monterrey, Mexico and Tijuana, Mexico that service the food, beverage and consumer product markets.
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.
Capital Allocation Plan
On January 10, 2017, the Company's board of directors authorized an additional share repurchase program to allow the Company to repurchase up to
$250 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 share repurchase program"). The original
$250 million
share repurchase program was authorized on February 4, 2015 (the "2015 share repurchase program").
The following presents the Company's share repurchases for the years ended
December 31, 2018
,
2017
, and
2016
:
|
|
|
|
|
|
|
|
|
|
|
Amount repurchased in millions
|
Amount Repurchased
|
Number of Shares Repurchased
|
|
Average Price
|
2018
|
$
|
120.0
|
|
10,566,144
|
|
|
$
|
11.35
|
|
2017
|
$
|
58.4
|
|
4,462,263
|
|
(a)
|
$
|
13.08
|
|
2016
|
$
|
168.8
|
|
13,202,425
|
|
|
$
|
12.77
|
|
(a)
Includes
1,440,697
shares repurchased under the 2015 share repurchase program, thereby completing that program.
At
December 31, 2018
, the Company had approximately
$90 million
remaining under the 2017 share repurchase program.
During
2018
and 2017, GPHC paid cash dividends of
$93.1 million
and
$93.4 million
, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Adoption of New Accounting Standards
Effective January 1, 2018, the Company adopted Accounting Standards Update ("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 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, 2018, the Company adopted 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 in 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 adoption of this ASU was applied retrospectively for the reclassification of net periodic benefit expense, excluding service costs, in the Consolidated Statement of Operations. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations and cash flows.
Effective January 1, 2018, the Company adopted 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. This ASU was adopted prospectively and did not have a material impact on the Company’s financial position, results of operations and cash flows.
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
. The amendments in this ASU provide guidance on how certain cash receipts and payments should be presented in the statement of cash flows and was applied retrospectively. This ASU requires the Company to classify consideration received for beneficial interest obtained for selling trade receivables as investing instead of operating activities. The retrospective impact on the Company's consolidated statement of cash flows for 2018, 2017 and 2016 was a
$1,131.2 million
,
$708.7 million
and
$567.4 million
decrease to cash provided by operating activities and a corresponding increase to cash provided by investing activities, respectively.
Effective January 1, 2018, the Company adopted ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606),
using the modified retrospective approach. 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. 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. The Company has determined that it does not have an enforceable right of payment for products produced but not yet shipped and recognizes all revenue under the point in time method. The adoption of ASU No. 2014-09 did not have a material impact on the Company's financial position, results of operations and cash flows.
Accounting Standards Not Yet Adopted
In August 2017, 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 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. 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 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 allows a modified retrospective adoption, which the Company plans to adopt. The Company has substantially completed the data gathering and software configuration and testing for a significant majority of the Company's lease portfolio, including service agreements with embedded leases. The Company continues to perform routine testing and analysis of data inputs and reporting requirements. The adoption of this standard is expected to have a material impact on the Company’s financial position, but currently is not expected to have a material impact on the results of operations and cash flows.
In August 2018, the FASB issued 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 guidance is effective for fiscal years ending after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption to have a material impact on the Company's financial position, results of operations and cash flows.
In August 2018, the FASB issued 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 amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Disclosures that are no longer considered cost-beneficial are removed, specific requirements of disclosures are clarified, and disclosure requirements identified as relevant are added. The guidance is effective for fiscal years ending after December 15, 2020. The Company does not expect the adoption to have a material impact on the Company’s financial position, results of operations and cash flows.
|
|
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
|
2018
|
2017
|
Trade
|
$
|
475.9
|
|
$
|
279.2
|
|
Less: Allowance
|
(10.4
|
)
|
(7.2
|
)
|
|
465.5
|
|
272.0
|
|
Other
|
107.4
|
|
49.1
|
|
Total
|
$
|
572.9
|
|
$
|
321.1
|
|
Inventories, Net by major class:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Finished Goods
|
$
|
426.9
|
|
$
|
240.5
|
|
Work in Progress
|
102.2
|
|
74.1
|
|
Raw Materials
|
319.9
|
|
229.4
|
|
Supplies
|
165.4
|
|
90.0
|
|
Total
|
$
|
1,014.4
|
|
$
|
634.0
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Current Assets:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Deferred Purchase Price
|
$
|
66.9
|
|
$
|
101.7
|
|
Prepaid Assets
|
28.6
|
|
28.6
|
|
Assets Held for Sale
|
—
|
|
10.2
|
|
Contract Assets, current portion
|
9.8
|
|
5.7
|
|
Fair Value of Derivatives, current portion
|
0.7
|
|
1.2
|
|
Total
|
$
|
106.0
|
|
$
|
147.4
|
|
Property, Plant and Equipment, Net:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Property, Plant and Equipment, at Cost:
|
|
|
Land and Improvements
|
$
|
134.1
|
|
$
|
106.2
|
|
Buildings
(a)
|
608.5
|
|
431.9
|
|
Machinery and Equipment
(b)
|
5,716.2
|
|
4,384.5
|
|
Construction-in-Progress
|
201.2
|
|
151.0
|
|
|
6,660.0
|
|
5,073.6
|
|
Less: Accumulated Depreciation
(a) (b)
|
(3,420.3
|
)
|
(3,206.4
|
)
|
Total
|
$
|
3,239.7
|
|
$
|
1,867.2
|
|
|
|
(a)
|
Includes gross assets under financing obligation of
$95.5 million
and related accumulated depreciation of
$0.4 million
as of
December 31, 2018
.
|
|
|
(b)
|
Includes gross assets under capital lease of
$39.6 million
and related accumulated depreciation of
$10.0 million
as of
December 31, 2018
and gross assets under capital lease of
$39.7 million
and related accumulated depreciation of
$7.4 million
as of
December 31, 2017
.
|
Other Assets:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Deferred Debt Issuance Costs, Net of Amortization of $12.5 million and $10.9 million for 2018 and 2017, respectively
|
$
|
6.4
|
|
$
|
2.9
|
|
Deferred Income Tax Assets
|
8.2
|
|
6.8
|
|
Pension Assets
|
19.0
|
|
20.4
|
|
Contract Assets, noncurrent portion
|
9.8
|
|
6.0
|
|
Fair Value of Derivatives, noncurrent portion
|
0.1
|
|
—
|
|
Other
|
27.8
|
|
30.3
|
|
Total
|
$
|
71.3
|
|
$
|
66.4
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Accrued Liabilities:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Dividends Payable
|
$
|
22.5
|
|
$
|
23.3
|
|
Deferred Revenue
|
14.0
|
|
11.6
|
|
Accrued Customer Rebates
|
30.2
|
|
15.5
|
|
Fair Value of Derivatives, current portion
|
1.3
|
|
1.2
|
|
Other Accrued Taxes
|
44.4
|
|
29.8
|
|
Accrued Payables
|
30.3
|
|
25.7
|
|
Liabilities Payable to a Financial Institution
|
62.6
|
|
—
|
|
Other
|
35.4
|
|
38.2
|
|
Total
|
$
|
240.7
|
|
$
|
145.3
|
|
Other Noncurrent Liabilities:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Deferred Revenue
|
$
|
5.2
|
|
$
|
6.6
|
|
Multi-employer Plans
|
32.4
|
|
29.0
|
|
Workers Compensation Reserve
|
9.9
|
|
10.9
|
|
Fair Value of Derivatives, noncurrent portion
|
2.1
|
|
—
|
|
Accrued Build-to-Suit Obligation
|
—
|
|
35.8
|
|
Unfavorable Supply Agreement
|
31.2
|
|
—
|
|
Other
|
37.0
|
|
22.4
|
|
Total
|
$
|
117.8
|
|
$
|
104.7
|
|
|
|
NOTE 3.
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
Cash Flow Provided by (Used In) Operations Due to Changes in Operating Assets and Liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2018
|
|
2017
|
|
2016
|
Receivables, Net
|
$
|
(1,158.1
|
)
|
|
$
|
(658.8
|
)
|
|
$
|
(541.9
|
)
|
Inventories, Net
|
(82.0
|
)
|
|
(6.5
|
)
|
|
10.5
|
|
Other Current Assets
|
0.3
|
|
|
0.8
|
|
|
(1.2
|
)
|
Other Assets
|
(1.0
|
)
|
|
(32.8
|
)
|
|
8.5
|
|
Accounts Payable
|
76.2
|
|
|
27.0
|
|
|
4.3
|
|
Compensation and Employee Benefits
|
26.9
|
|
|
3.5
|
|
|
(21.7
|
)
|
Income Taxes
|
0.6
|
|
|
2.3
|
|
|
1.7
|
|
Interest Payable
|
(4.1
|
)
|
|
(1.7
|
)
|
|
5.0
|
|
Other Accrued Liabilities
|
11.8
|
|
|
6.7
|
|
|
12.8
|
|
Other Noncurrent Liabilities
|
8.6
|
|
|
14.2
|
|
|
(6.9
|
)
|
Total
|
$
|
(1,120.8
|
)
|
|
$
|
(645.3
|
)
|
|
$
|
(528.9
|
)
|
Cash paid for interest and cash paid, net of refunds, for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
2016
|
Interest
|
$
|
121.3
|
|
$
|
81.8
|
|
$
|
64.9
|
|
Income Taxes
|
$
|
25.8
|
|
$
|
15.9
|
|
$
|
14.5
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
NOTE 4.
|
BUSINESS COMBINATIONS
|
On January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS and paper-based foodservice products. The NACP business included
two
SBS mills located in Augusta, Georgia and Texarkana, Texas,
three
converting facilities in the U.S. and
one
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 the Company's product offering, integrate paperboard from the Company's mills and to further optimize the Company's supply chain footprint.
In conjunction with the NACP Combination, the Company executed a Tax Receivable Agreement ("TRA") with IP. Pursuant to elections under Section 754 of the Internal Revenue Code, the Company expects to obtain an increase with respect to the tax basis in the assets of GPIP and certain of its subsidiaries when IP exchanges or redeems any of its membership interests. The Company generally expects to treat redemptions or exchanges of membership interests by IP as direct purchases of membership interests for U.S. federal income tax purposes. Increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. The TRA provides for the payment by the Company to IP of
50%
of the amount of any tax benefits projected to be realized by the Company upon IP's exchange of the membership interests into GPHC common stock.
On September 30, 2018, the Company completed the Letica Foodservice acquisition. The acquisition included
two
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
two
manufacturing facilities in Lebanon, Tennessee and Lancaster, Texas, focused on the production of paperboard-based air filter frames.
The Company expects that goodwill related to the NACP Combination will
no
t be deductible for tax purposes. The Company expects that goodwill related to the Letica Foodservice and the PFP acquisitions will be deductible for tax purposes.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The acquisition accounting for the NACP Combination and PFP Acquisition is complete. Acquisition accounting for Letica Foodservice is preliminary based on the estimated fair values of all assets and liabilities as of the acquisition date. The Acquisition accounting for Letica is subject to adjustments in subsequent periods once the third party valuations are finalized and the Company has completed its review of the fair values of all assets acquired and liabilities assumed, including, but not limited to, tangible and intangible assets, fair value of contracts, and final tax adjustments. The acquisition accounting for the NACP Combination, PFP and the Letica Foodservice 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
(a)
|
$
|
1,241.7
|
|
$
|
(40.9
|
)
|
$
|
1,200.8
|
|
Assumed Debt
(b)
|
660.0
|
|
—
|
|
660.0
|
|
Total Purchase Consideration
|
$
|
1,901.7
|
|
$
|
(40.9
|
)
|
$
|
1,860.8
|
|
|
|
|
|
Receivables, Net
|
145.3
|
|
—
|
|
145.3
|
|
Inventories, Net
|
314.2
|
|
0.8
|
|
315.0
|
|
Other Current Assets
|
20.9
|
|
(9.2
|
)
|
11.7
|
|
Property, Plant and Equipment, Net
|
1,242.6
|
|
32.0
|
|
1,274.6
|
|
Intangible Assets, Net
(c)
|
136.6
|
|
13.5
|
|
150.1
|
|
Other Assets
|
6.0
|
|
(6.0
|
)
|
—
|
|
Total Assets Acquired
|
1,865.6
|
|
31.1
|
|
1,896.7
|
|
Accounts Payable
|
112.6
|
|
—
|
|
112.6
|
|
Compensation and Employee Benefits
|
21.0
|
|
(5.7
|
)
|
15.3
|
|
Current Liabilities
|
16.3
|
|
(0.1
|
)
|
16.2
|
|
Other Noncurrent Liabilities
|
41.3
|
|
(1.7
|
)
|
39.6
|
|
Total Liabilities Assumed
|
191.2
|
|
(7.5
|
)
|
183.7
|
|
Net Assets Acquired
|
1,674.4
|
|
38.6
|
|
1,713.0
|
|
Goodwill
|
227.3
|
|
(79.5
|
)
|
147.8
|
|
Total Estimated Fair Value of Net Assets Acquired
|
$
|
1,901.7
|
|
$
|
(40.9
|
)
|
$
|
1,860.8
|
|
(a)
Includes a
$123.5 million
adjustment for discounting the purchase price for lack of marketability of the membership interests issued for the NACP Combination and measurement period adjustments of
$40.5 million
, related to working capital true-ups, offset by pension settlements.
|
|
(b)
|
Assumed Debt was valued at fair market value based on quoted market prices (Level 2 inputs) obtained from independent pricing services.
|
(c)
Intangible Assets, Net consists of customer relationships which are generally amortized using either a straight-lined method, when the amortization pattern is not reliably determinable, or an accelerated method, generally over approximately
20
years. The value of customer relationships was determined using a discounted cash flow model, which includes an approximate
5%
attrition rate. Beyond the twenty-year life, the present value of cash flows were not meaningful.
During the fourth quarter of 2018, the Company recorded an approximate
$15 million
adjustment, reducing depreciation expense and a
$35 million
adjustment to record an unfavorable contract, both to reflect final valuation adjustments for the NACP Combination.
During the fourth quarter of 2018, the Company paid an additional
$0.4 million
related to the working capital true-up of PFP.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following unaudited pro forma consolidated results of operations data assumes that the NACP Combination occurred as of the beginning of the period presented. This pro forma data is based on historical information and does not necessarily reflect the actual results that would have occurred, nor is it indicative of future results of operations.
|
|
|
|
|
|
Year Ended December 31,
|
In millions, except per share data
|
2017
|
Net Sales
|
$
|
5,912.5
|
|
Net Income Attributable to Graphic Packaging Holding Company
|
367.7
|
|
Income Per Share — Basic
|
1.18
|
|
Income Per Share — Diluted
|
1.18
|
|
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
.
Total Assets increased as a result of the NACP Combination for the Paperboard Mills and Americas Paperboard Packaging reportable segments by approximately
$1.5 billion
and
$0.6 billion
, respectively, as compared to
December 31, 2017
.
In connection with the NACP Combination, the Company entered into agreements with IP for transition services, fiber procurement fees and corrugated products and ink supply. 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
$5.7 million
of payments were made for purchases unrelated to these agreements.
During 2018, Net Sales and Loss from Operations from the Letica Foodservice and PFP acquisitions were
$42.4 million
and
$1.4 million
, respectively.
As disclosed in "
Note 1 - General Information,
"
in 2017, the Company acquired Seydaco, Norgraft, 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. The Company paid approximately
$189 million
, net of cash acquired, for the 2017 Acquisitions using existing cash and borrowings under its revolving line of credit, and assumed debt of approximately
$14 million
. During the second quarter of 2018, the Company made valuation adjustments of
$0.5 million
for Carton Craft, which was recorded to goodwill. For the nine months ended September 30, 2018, the Company paid an additional
$2.4 million
related to the working capital true-up and recorded valuation adjustments of
$7.3 million
for Seydaco, which in aggregate was recorded to goodwill.
Short-Term Debt is comprised of the following:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Short Term Borrowings
|
$
|
11.7
|
|
$
|
9.1
|
|
Current Portion of Capital Lease Obligations
|
3.8
|
|
2.2
|
|
Current Portion of Long-Term Debt
|
36.5
|
|
50.0
|
|
Total
|
$
|
52.0
|
|
$
|
61.3
|
|
Short-term borrowings are principally at the Company’s international subsidiaries. The weighted average interest rate on short-term borrowings as of
December 31, 2018
and
2017
was
8.4%
and
6.1%
, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt is comprised of the following:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.18%, payable in 2024
|
$
|
300.0
|
|
$
|
300.0
|
|
Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.92%, payable in 2022
|
250.0
|
|
250.0
|
|
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.77%, payable in 2021
|
425.0
|
|
425.0
|
|
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (3.89% at December 31, 2018) payable through 2023
|
1,432.6
|
|
925.0
|
|
Senior Secured Revolving Credit Facilities with interest payable at floating rates (3.63% at December 31, 2018) payable in 2023
|
399.0
|
|
319.0
|
|
Capital Lease and Financing Obligations
|
122.9
|
|
30.0
|
|
Other
|
26.5
|
|
28.9
|
|
Total Long-Term Debt
|
2,956.0
|
|
2,277.9
|
|
Less: Current Portion
|
40.3
|
|
52.2
|
|
|
2,915.7
|
|
2,225.7
|
|
Less: Unamortized Deferred Debt Issuance Costs
|
10.6
|
|
12.5
|
|
Total
|
$
|
2,905.1
|
|
$
|
2,213.2
|
|
Long-Term Debt maturities (excluding capital leases) are as follows:
|
|
|
|
|
In millions
|
2019
|
$
|
36.5
|
|
2020
|
56.6
|
|
2021
|
489.4
|
|
2022
|
378.4
|
|
2023
|
1,567.6
|
|
After 2023
|
304.6
|
|
Total
|
$
|
2,833.1
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Credit Facilities
The following describes the Senior Secured Term Loan and Revolving Credit Facilities:
|
|
|
|
|
Date
|
Document
(a)
|
Provision
|
Expiration
(b)
|
March 2012
|
Amended and Restated Credit Agreement
|
•$1.0 billion revolving credit facility •$1.0 billion amortizing term loan facility •LIBOR plus variable spread (between 175 basis points and 275 basis points) depending on consolidated total leverage ratio
|
|
December 2012
|
Amendment No. 1 to Credit Agreement
|
•$300 million incremental term loan
|
|
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 ratio
|
|
June 2014
|
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)
|
|
October 2014
|
Second Amended and Restated Credit Agreement
|
•Increased the domestic revolving credit facility by $250 million and reduced the term loan by approximately $169 million. LIBOR plus variable spread (between 125 basis points and 225 basis points) depending on consolidated total leverage ratio
|
|
January 2018
|
Third Amended and Restated Credit Agreement
|
•Increased the domestic revolving credit facility by $200 million to $1,450 million and reduced the term loan by approximately $125 million to $800 million. LIBOR plus variable spread (between 125 basis points and 200 basis points) depending on consolidated total leverage ratio
•Assumed the term loan indebtedness as part of the NACP Combination in an aggregate amount of $660.0 million
|
January 2023
|
(a)
The Company's obligations under the Credit Agreement are secured by substantially all of the Company's domestic assets.
(b)
Expiration date is amended to most recent expiration of January 2023.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition to the Amended and Restated Credit Agreement, on January 1, 2018 the Company assumed the term loan indebtedness previously incurred by IP (the “Term Loan 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 Amended and Restated Credit Agreement and has the same maturity date of January 1, 2023. The applicable margin interest rate pricing grid, covenants 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 GPIL 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. The Amended and Restated Credit Agreement and Term Loan Credit Agreement are collectively referred to as the "Credit Agreement."
At
December 31, 2018
, 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
|
|
$
|
329.0
|
|
$
|
1,098.3
|
|
Senior Secured International Revolving Credit Facilities
|
180.8
|
|
70.0
|
|
110.8
|
|
Other International Facilities
|
65.4
|
|
38.3
|
|
27.1
|
|
Total
|
$
|
1,696.2
|
|
$
|
437.3
|
|
$
|
1,236.2
|
|
|
|
(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
$22.7 million
as of
December 31, 2018
. These letters of credit are primarily used as security against its self-insurance obligations and workers' compensation obligations. These letters of credit expire throughout
2019
unless extended.
|
The Credit Agreement is guaranteed by GPIP and certain domestic subsidiaries, and the
4.75%
Senior Notes due 2021,
4.875%
Senior Notes due 2022 and
4.125%
Senior Notes due 2024 are guaranteed by GPHC. For additional information on the financial statements of GPIP, see "
Note 17 - Guarantor Consolidating Financial Statements
”
of the Notes to the Consolidated Financial Statements of GPIL in its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission.
The 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 (the “Indentures”) limit the Company's ability to incur additional indebtedness. Additional covenants contained in the 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, 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, 2018
, the Company was in compliance with the covenants in the Amended and Restated Credit Agreement, the Term Loan Credit Agreement and the Indentures.
|
|
NOTE 6.
|
STOCK INCENTIVE PLANS
|
The Company has
one
active equity compensation plan from which new grants may be made, the Graphic Packaging Holding Company 2014 Omnibus Stock and Incentive Compensation Plan (the “2014 Plan”). Under the 2014 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units (“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’s authorized but unissued shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 contain some combination of service, performance and market objectives based on various financial targets and relative total shareholder return that must be met for the shares 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.
Data concerning RSUs and stock awards granted in the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
2017
|
2016
|
RSUs — Employees
|
1,543,410
|
|
1,547,049
|
|
1,891,335
|
|
Weighted-average grant date fair value
|
$
|
14.79
|
|
$
|
13.35
|
|
$
|
11.20
|
|
Stock Awards — Board of Directors
|
51,226
|
|
65,520
|
|
59,880
|
|
Weighted-average grant date fair value
|
$
|
15.03
|
|
$
|
13.43
|
|
$
|
13.36
|
|
A summary of the changes in the number of unvested RSUs from
December 31, 2015
to
December 31, 2018
is presented below:
|
|
|
|
|
|
|
|
Shares
|
Weighted Average Grant Date Fair Value
|
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
|
|
Granted
|
1,543,410
|
|
14.79
|
|
Released
|
(744,757
|
)
|
14.90
|
|
Forfeited
|
(210,553
|
)
|
13.49
|
|
Outstanding — December 31, 2018
|
4,460,034
|
|
$
|
13.27
|
|
The initial value of the RSUs is based on the market value of the Company’s common stock on the date of grant. The 2018 grants were valued using a Monte Carlo simulation as the total shareholder return contains a market condition. RSUs are recorded in Stockholders' Equity. The unrecognized expense at
December 31, 2018
is approximately
$27 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’s common stock on the date of grant. These awards are unrestricted on the date of grant.
During
2018
,
2017
, and
2016
,
$13.8 million
,
$8.9 million
and
$20.2 million
, respectively, were charged to compensation expense for stock incentive plans.
During
2018
,
2017
, and
2016
, RSUs with an aggregate fair value of
$13.7 million
,
$23.2 million
and
$32.0 million
, respectively, vested and were paid out. The RSUs vested and paid out in 2018 were granted primarily during 2015.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
NOTE 7.
|
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 both noncontributory and 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 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, 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 begin the process of settling these liabilities.
During 2018, the Company began the process of terminating its largest U.S. pension plan. This included freezing the plan as of December 31 and spinning off the active participants to the plan established as part of the NACP Combination. This plan is open for union and non-union hourly employees of locations that were part of the NACP Combination. During 2019, the Company expects to offer a lump-sum benefit payout option to certain plan participants prior to completing the purchase of group annuity contracts that will transfer the pension benefit obligation to an insurance company. The expected benefit obligation associated with the termination is approximately
$800 million
.
In the fourth quarter of 2017, the Company also made an additional contribution of
$6.8 million
to its U.K. defined benefit plan and will continue de-risking that plan.
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
|
2018
|
2017
|
2016
|
2018
|
2017
|
2016
|
Components of Net Periodic Cost:
|
|
|
|
|
|
|
Service Cost
|
$
|
17.3
|
|
$
|
8.2
|
|
$
|
10.0
|
|
$
|
0.6
|
|
$
|
0.8
|
|
$
|
0.8
|
|
Interest Cost
|
41.8
|
|
42.6
|
|
43.8
|
|
1.2
|
|
1.3
|
|
1.3
|
|
Expected Return on Plan Assets
|
(63.6
|
)
|
(64.1
|
)
|
(61.3
|
)
|
—
|
|
—
|
|
—
|
|
Amortization:
|
|
|
|
|
|
|
Prior Service Cost (Credit)
|
0.4
|
|
0.5
|
|
0.8
|
|
(0.3
|
)
|
(0.3
|
)
|
(0.2
|
)
|
Actuarial Loss (Gain)
|
5.9
|
|
6.5
|
|
27.3
|
|
(1.8
|
)
|
(2.1
|
)
|
(2.1
|
)
|
Net Curtailment/Settlement Loss
|
1.0
|
|
—
|
|
1.0
|
|
—
|
|
—
|
|
—
|
|
Other
|
0.5
|
|
0.8
|
|
0.8
|
|
—
|
|
—
|
|
—
|
|
Net Periodic (Benefit) Cost
|
$
|
3.3
|
|
$
|
(5.5
|
)
|
$
|
22.4
|
|
$
|
(0.3
|
)
|
$
|
(0.3
|
)
|
$
|
(0.2
|
)
|
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,
|
|
2018
|
2017
|
2016
|
2018
|
2017
|
2016
|
Weighted Average Assumptions:
|
|
|
|
|
|
|
Discount Rate
|
3.49
|
%
|
4.01
|
%
|
4.41
|
%
|
3.64
|
%
|
4.10
|
%
|
4.29
|
%
|
Rate of Increase in Future Compensation Levels
|
2.09
|
%
|
1.45
|
%
|
1.49
|
%
|
—
|
|
—
|
|
—
|
|
Expected Long-Term Rate of Return on Plan Assets
|
4.86
|
%
|
5.79
|
%
|
5.90
|
%
|
—
|
|
—
|
|
—
|
|
Initial Health Care Cost Trend Rate
|
—
|
|
—
|
|
—
|
|
9.00
|
%
|
7.45
|
%
|
7.80
|
%
|
Ultimate Health Care Cost Trend Rate
|
—
|
|
—
|
|
—
|
|
4.50
|
%
|
4.50
|
%
|
4.50
|
%
|
Ultimate Year
|
—
|
|
—
|
|
—
|
|
2027
|
|
2024
|
|
2024
|
|
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
|
2018
|
2017
|
2018
|
2017
|
Change in Benefit Obligation:
|
|
|
|
|
Benefit Obligation at Beginning of Year
|
$
|
1,367.1
|
|
$
|
1,279.0
|
|
$
|
37.3
|
|
$
|
40.6
|
|
Service Cost
|
17.3
|
|
8.2
|
|
0.6
|
|
0.8
|
|
Interest Cost
|
41.8
|
|
42.6
|
|
1.2
|
|
1.3
|
|
Actuarial Loss (Gain)
|
(101.9
|
)
|
76.4
|
|
(3.0
|
)
|
(3.4
|
)
|
Foreign Currency Exchange
|
(14.8
|
)
|
22.9
|
|
(0.2
|
)
|
0.1
|
|
Settlement/Curtailment (Gain)
|
—
|
|
(0.2
|
)
|
—
|
|
—
|
|
Benefits Paid
|
(65.4
|
)
|
(62.7
|
)
|
(1.9
|
)
|
(2.2
|
)
|
Acquisition
|
—
|
|
—
|
|
—
|
|
—
|
|
Other
|
1.1
|
|
0.9
|
|
0.1
|
|
0.1
|
|
Benefit Obligation at End of Year
|
$
|
1,245.2
|
|
$
|
1,367.1
|
|
$
|
34.1
|
|
$
|
37.3
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Year
|
$
|
1,340.7
|
|
$
|
1,115.6
|
|
$
|
—
|
|
$
|
—
|
|
Actual Return on Plan Assets
|
(79.6
|
)
|
147.1
|
|
—
|
|
—
|
|
Employer Contributions
|
5.8
|
|
119.1
|
|
1.9
|
|
2.2
|
|
Foreign Currency Exchange
|
(15.0
|
)
|
21.6
|
|
—
|
|
—
|
|
Benefits Paid
|
(65.4
|
)
|
(62.7
|
)
|
(1.9
|
)
|
(2.2
|
)
|
Acquisition
|
—
|
|
—
|
|
—
|
|
—
|
|
Settlements
|
—
|
|
—
|
|
—
|
|
—
|
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
Fair Value of Plan Assets at End of Year
|
$
|
1,186.5
|
|
$
|
1,340.7
|
|
$
|
—
|
|
$
|
—
|
|
Plan Assets Less than Projected Benefit Obligation
|
$
|
(58.7
|
)
|
$
|
(26.4
|
)
|
$
|
(34.1
|
)
|
$
|
(37.3
|
)
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets Consist of:
|
|
|
|
|
Pension Assets
|
$
|
19.0
|
|
$
|
20.4
|
|
$
|
—
|
|
$
|
—
|
|
Accrued Pension and Postretirement Benefits Liability — Current
|
$
|
(1.8
|
)
|
$
|
(1.7
|
)
|
$
|
(2.5
|
)
|
$
|
(2.4
|
)
|
Accrued Pension and Postretirement Benefits Liability — Noncurrent
|
$
|
(75.9
|
)
|
$
|
(45.1
|
)
|
$
|
(31.6
|
)
|
$
|
(34.9
|
)
|
Accumulated Other Comprehensive Income:
|
|
|
|
|
Net Actuarial Loss (Gain)
|
$
|
297.3
|
|
$
|
267.1
|
|
$
|
(1.6
|
)
|
$
|
(20.1
|
)
|
Prior Service Cost (Credit)
|
$
|
3.6
|
|
$
|
0.7
|
|
$
|
(20.2
|
)
|
$
|
(0.8
|
)
|
Weighted Average Calculations:
|
|
|
|
|
Discount Rate
|
4.14
|
%
|
3.49
|
%
|
4.29
|
%
|
3.64
|
%
|
Rates of Increase in Future Compensation Levels
|
2.37
|
%
|
2.09
|
%
|
—
|
|
—
|
|
Initial Health Care Cost Trend Rate
|
—
|
|
—
|
|
9.00
|
%
|
9.00
|
%
|
Ultimate Health Care Cost Trend Rate
|
—
|
|
—
|
|
4.50
|
%
|
4.50
|
%
|
Ultimate Year
|
—
|
|
—
|
|
2027
|
|
2027
|
|
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, 2018
, the net actuarial loss was
$297.3 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 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, 2018
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
4.14%
and
3.49%
in
2018
and
2017
, respectively.
Accumulated Benefit Obligation
The accumulated benefit obligation, (“ABO”), for all defined benefit pension plans was
$1,240.2 million
and
$1,359.4 million
at
December 31, 2018
and
2017
, respectively. There are
three
plans where the ABO and projected benefit obligation ("PBO") exceed plan assets. The aggregate ABO, PBO and fair value of plan assets for these plans are
$1,047.2 million
,
$1,052.2 million
and
$977.3 million
, respectively.
Employer Contributions
The Company made contributions of
$5.8 million
and
$119.1 million
to its pension plans during
2018
and
2017
, respectively. The Company also made postretirement health care benefit payments of
$1.9 million
and
$2.2 million
during
2018
and
2017
, respectively. For
2019
, the Company expects to make contributions of approximately
$10 million
to its pension plans and approximately
$2 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, 2018
and
2017
, pension investments did
not
include any direct investments in the Company’s stock or the Company’s debt.
The weighted average allocation of plan assets and the target allocation by asset category is as follows:
|
|
|
|
|
|
|
|
|
Target
|
2018
|
2017
|
Cash
|
—
|
%
|
5.0
|
%
|
2.4
|
%
|
Equity Securities
|
8.4
|
|
8.1
|
|
11.2
|
|
Fixed Income Securities
|
86.4
|
|
79.5
|
|
82.7
|
|
Other Investments
|
5.2
|
|
7.4
|
|
3.7
|
|
Total
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
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)
|
$
|
58.8
|
|
$
|
0.3
|
|
$
|
58.5
|
|
$
|
—
|
|
Equity Securities:
|
|
|
|
|
Domestic
(a)
|
86.4
|
|
3.6
|
|
82.8
|
|
—
|
|
Foreign
(a)
|
9.2
|
|
5.3
|
|
3.8
|
|
—
|
|
Fixed Income Securities
(a)
|
980.1
|
|
15.0
|
|
962.3
|
|
2.8
|
|
Other Investments:
|
|
|
|
|
Real estate
|
9.2
|
|
—
|
|
7.6
|
|
1.6
|
|
Diversified growth fund
(b)
|
42.8
|
|
—
|
|
41.5
|
|
1.4
|
|
Total
|
$
|
1,186.5
|
|
$
|
24.2
|
|
$
|
1,156.5
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
(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.
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of fair value measurements of plan assets using significant unobservable inputs (Level 3) is as follows:
|
|
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Balance at January 1,
|
$
|
0.8
|
|
$
|
—
|
|
Transfers In
|
5.0
|
|
0.8
|
|
Return on Assets Held at December 31
|
—
|
|
—
|
|
Balance at December 31,
|
$
|
5.8
|
|
$
|
0.8
|
|
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
2018
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
|
|
$
|
(1.7
|
)
|
Estimated Future Benefit Payments
The following represents the Company’s estimated future pension and postretirement health care benefit payments through the year 2028:
|
|
|
|
|
|
|
|
In millions
|
Pension Plans
|
Postretirement Health Care Benefits
|
2019
|
$
|
69.4
|
|
$
|
2.4
|
|
2020
|
71.9
|
|
2.6
|
|
2021
|
74.6
|
|
2.6
|
|
2022
|
77.0
|
|
2.8
|
|
2023
|
79.1
|
|
2.8
|
|
2024— 2028
|
416.3
|
|
12.6
|
|
Amounts in Accumulated Other Comprehensive Loss Expected to Be Recognized in Net
Periodic Benefit Costs in
2019
During
2019
, 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
|
$
|
0.2
|
|
$
|
(0.3
|
)
|
Recognition of Actuarial Loss (Gain)
|
9.9
|
|
(2.1
|
)
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2018
and
2017
was
$3.4 million
and
$2.3 million
, respectively.
Estimated liabilities have been established related to the partial or complete withdrawal from certain multi-employment benefit plans for facilities which have been closed. At
December 31, 2018
, and
December 31, 2017
, the Company has
$32.4 million
and
$29.0 million
, respectively, recorded in Other Noncurrent Liabilities for these withdrawal liabilities which represents the Company's best estimate of the expected withdrawal liability.
In December 2018, the Company submitted formal notification to withdraw from the PACE Industry Union-Management Pension Fund ("PIUMPF") and recorded a liability of
$4 million
which includes an estimate of the Company's portion of the accumulated funding deficiency. This estimate is subject to future revisions.
The Company's remaining participation in multi-employer pension plans consists of contributions to
three
plans 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.
|
The Company's participation in these plans for the year ended
December 31, 2018
,
2017
and
2016
is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection Act Zone Status
|
|
Company Contributions
(in millions)
|
|
|
Multi-employer Pension Fund
|
EIN/Pension Plan Number
|
2018
|
2017
|
FIP/RP Status Implemented
|
2018
|
2017
|
2016
|
Surcharge Imposed
|
Expiration Date of Bargaining Agreement
|
Central States Southeast and Southwest Areas Pension Fund
|
36-6044243/001
|
Red
|
Red
|
Yes
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
0.1
|
|
Yes
|
7/31/2023
|
PIUMPF
(a)
|
11-6166763/001
|
Red
|
Red
|
Yes
|
0.1
|
|
0.1
|
|
0.1
|
|
Yes
|
6/15/2022
|
Graphic Communications Conference of International Brotherhood of Teamster Pension Fund
(a)
|
52-6118568/001
|
Red
|
Red
|
Yes
|
0.3
|
|
0.3
|
|
0.2
|
|
Yes
|
5/01/2019
|
Total
|
|
|
|
|
$
|
0.5
|
|
$
|
0.5
|
|
$
|
0.4
|
|
|
|
(a)
In 2016, the WG Anderson acquisition included facilities with these plans.
The EIN Number column provides the Employer Identification Number (EIN). Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in
2018
and
2017
is for the plan's year-end at
December 31, 2017
and
December 31, 2016
, 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2018
,
2017
and
2016
were
$54.6 million
,
$37.7 million
and
$34.7 million
, respectively. The increase of
$16.9 million
from the prior year is due primarily to the NACP Combination.
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
|
2018
|
2017
|
2016
|
U.S.
|
$
|
298.9
|
|
$
|
227.5
|
|
$
|
290.0
|
|
International
|
48.6
|
|
25.5
|
|
29.4
|
|
Income before Income Taxes and Equity Income of Unconsolidated Entity
|
$
|
347.5
|
|
$
|
253.0
|
|
$
|
319.4
|
|
The provisions for Income Tax Benefit (Expense) on Income before Income Taxes and Equity Income of Unconsolidated Entity consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2018
|
2017
|
2016
|
Current (Expense) Benefit:
|
|
|
|
U.S.
|
$
|
(13.0
|
)
|
$
|
0.7
|
|
$
|
(5.1
|
)
|
International
|
(15.7
|
)
|
(9.2
|
)
|
(11.4
|
)
|
Total Current
|
$
|
(28.7
|
)
|
$
|
(8.5
|
)
|
$
|
(16.5
|
)
|
|
|
|
|
Deferred (Expense) Benefit:
|
|
|
|
U.S.
|
(31.6
|
)
|
51.0
|
|
(78.8
|
)
|
International
|
5.6
|
|
3.0
|
|
2.1
|
|
Total Deferred
|
$
|
(26.0
|
)
|
$
|
54.0
|
|
$
|
(76.7
|
)
|
Income Tax (Expense) Benefit
|
$
|
(54.7
|
)
|
$
|
45.5
|
|
$
|
(93.2
|
)
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of Income Tax (Expense) Benefit on Income before Income Taxes and Equity Income of Unconsolidated Entity at the federal statutory rate of
21%
compared with the Company’s actual Income Tax (Expense) Benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2018
|
Percent
|
|
2017
|
Percent
|
|
2016
|
Percent
|
Income Tax Expense at U.S. Statutory Rate
|
$
|
(73.0
|
)
|
21.0
|
%
|
|
$
|
(88.5
|
)
|
35.0
|
%
|
|
$
|
(111.8
|
)
|
35.0
|
%
|
U.S. State and Local Tax Expense
|
(11.7
|
)
|
3.4
|
|
|
(8.7
|
)
|
3.4
|
|
|
(10.0
|
)
|
3.2
|
|
IRS Agreement
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
22.8
|
|
(7.2
|
)
|
Permanent Items
|
(3.8
|
)
|
1.1
|
|
|
(2.7
|
)
|
1.0
|
|
|
(1.3
|
)
|
0.5
|
|
U.S. Tax Reform
|
10.9
|
|
(3.1
|
)
|
|
138.0
|
|
(54.5
|
)
|
|
—
|
|
—
|
|
Change in Valuation Allowance due to Tax Reform
|
—
|
|
—
|
|
|
(2.0
|
)
|
0.8
|
|
|
—
|
|
—
|
|
Change in Valuation Allowance
|
13.0
|
|
(3.7
|
)
|
|
(3.5
|
)
|
1.4
|
|
|
0.5
|
|
(0.2
|
)
|
International Tax Rate Differences
|
(1.9
|
)
|
0.5
|
|
|
3.2
|
|
(1.3
|
)
|
|
1.8
|
|
(0.6
|
)
|
Foreign Withholding Tax
|
(0.5
|
)
|
0.1
|
|
|
(0.4
|
)
|
0.2
|
|
|
(0.2
|
)
|
0.1
|
|
Change in Tax Rates
|
1.9
|
|
(0.5
|
)
|
|
(3.0
|
)
|
1.2
|
|
|
0.2
|
|
(0.1
|
)
|
U.S. Federal & State Tax Credits
|
0.3
|
|
(0.1
|
)
|
|
10.2
|
|
(4.0
|
)
|
|
3.5
|
|
(1.1
|
)
|
Uncertain Tax Positions
|
(0.7
|
)
|
0.2
|
|
|
(0.3
|
)
|
0.1
|
|
|
1.2
|
|
(0.4
|
)
|
Capital Loss Expiration
|
(2.7
|
)
|
0.7
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
Domestic Minority Interest
|
13.7
|
|
(3.9
|
)
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
Other
|
(0.2
|
)
|
—
|
|
|
3.2
|
|
(1.3
|
)
|
|
0.1
|
|
—
|
|
Income Tax Benefit (Expense)
|
$
|
(54.7
|
)
|
15.7
|
%
|
|
$
|
45.5
|
|
(18.0
|
)%
|
|
$
|
(93.2
|
)
|
29.2
|
%
|
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. In addition, during 2018, the Company finalized its accounting for the income tax impact of the Tax Cuts and Jobs Act (the “Act”) resulting in a tax benefit of
$10.9 million
primarily attributable to the one-time transition tax incurred on its 2017 U.S. federal income tax return. Finally, in 2018, the Company reduced its valuation allowance against certain deferred tax assets. Of the total reduction of
$13 million
, approximately
$10 million
was related to deferred tax assets for domestic and state income tax attributes that expired during the year 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 the release of the valuation allowance against the net deferred tax assets of the Company’s wholly-owned subsidiary in France.
During 2017, the Company recognized a provisional net income tax benefit of
$136.0 million
as a result of the effect of the enactment of the Act on December 22, 2017. The Act significantly reduced the U.S. federal corporate income tax rate which resulted in an income tax benefit of
$156.3 million
as a result of the remeasurement of the Company’s domestic net Deferred Tax Liabilities. In addition, the Act required companies to record a one-time transition tax impact based on foreign earnings & profits which resulted in additional tax expense in 2017 of
$20.5 million
.
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. federal and state income tax returns resulting 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 federal and state impact of the amended returns as a reduction in its net long-term deferred tax liability.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
|
2018
|
2017
|
Deferred Income Tax Assets:
|
|
|
Compensation Based Accruals
|
$
|
2.9
|
|
$
|
16.5
|
|
Net Operating Loss Carryforwards
|
73.4
|
|
114.9
|
|
Postretirement Benefits
|
1.0
|
|
25.6
|
|
Tax Credits
|
30.8
|
|
17.6
|
|
Other
|
7.6
|
|
45.9
|
|
Valuation Allowance
|
(36.3
|
)
|
(51.5
|
)
|
Total Deferred Income Tax Assets
|
$
|
79.4
|
|
$
|
169.0
|
|
Deferred Income Tax Liabilities:
|
|
|
Property, Plant and Equipment
|
(16.7
|
)
|
(219.8
|
)
|
Goodwill
|
(2.3
|
)
|
(192.0
|
)
|
Other Intangibles
|
(12.3
|
)
|
(68.7
|
)
|
Investment in Partnership
|
(502.1
|
)
|
—
|
|
Other
|
—
|
|
(3.5
|
)
|
Net Noncurrent Deferred Income Tax Liabilities
|
$
|
(533.4
|
)
|
$
|
(484.0
|
)
|
Net Deferred Income Tax Liability
|
$
|
(454.0
|
)
|
$
|
(315.0
|
)
|
The Company has total deferred income tax assets, excluding valuation allowance, of
$115.7 million
and
$220.5 million
as of
December 31, 2018
and
2017
, respectively. The Company has total deferred income tax liabilities of
$533.4 million
and
$484.0 million
as of
December 31, 2018
and
2017
, respectively.
During 2017, the Company executed a series of restructuring steps to facilitate the NACP combination. As a result of the restructuring steps, as of December 29, 2017, the Company’s primary operating subsidiary, GPI, converted to a Delaware limited liability company and was wholly owned by GPIP 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 and state income tax purposes. GPI Holding III, LLC is a wholly-owned indirect subsidiary of GPHC. Because it controlled all interests of GPI, GPIP and GPI Holding III, LLC as of December 31, 2017, the Company continued to disclose the tax effects of differences that give rise to deferred tax assets and deferred tax liabilities based on the assets and liabilities within the partnership. As a result of NACP combination, the Company currently owns a controlling interest in GPIP, which is now 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 no longer 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. Additionally, as a result of the NACP combination the Company’s book basis in its investment in GPIP increased resulting in an increase in its deferred tax liability of
$123.3 million
that 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, 2018
and
2017
, respectively, and determined that it is more likely than not that a portion will not be realized. A valuation allowance of
$36.3 million
and
$51.5 million
at
December 31, 2018
and
2017
, 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, 2018
,
$26.1 million
relates to net deferred tax assets in certain foreign jurisdictions,
$0.7 million
relates to U.S. federal income tax credit carryforwards,
$5.0 million
relates to tax credit carryforwards in certain states, and the remaining
$4.5 million
relates to net operating losses in certain U.S. states. The need for a valuation allowance is made on a jurisdiction-by-jurisdiction basis. As of
December 31, 2018
, 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 Brazil, China 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, 2018
,
2017
, and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In millions
|
2018
|
2017
|
2016
|
Balance Beginning of Period
|
$
|
51.5
|
|
$
|
45.5
|
|
$
|
44.8
|
|
Adjustments for (Income) and Expenses
|
(13.0
|
)
|
5.5
|
|
1.2
|
|
(Deductions) Additions
|
(2.2
|
)
|
0.5
|
|
(0.5
|
)
|
Balance at End of Period
|
$
|
36.3
|
|
$
|
51.5
|
|
$
|
45.5
|
|
The U.S. federal net operating loss carryforwards expire as follows:
|
|
|
|
|
In millions
|
|
2024
|
$
|
—
|
|
2025
|
—
|
|
2026
|
41.5
|
|
2027
|
12.1
|
|
2028
|
114.6
|
|
2029
|
—
|
|
Total
|
$
|
168.2
|
|
U.S. state net operating loss carryforward amounts total
$231.2 million
and expire in various years through 2038.
International net operating loss carryforward amounts total
$105.6 million
, of which substantially all have no expiration date.
Tax Credit carryforwards total
$30.8 million
which expire in various years from 2019 through 2037.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
Balance at January 1,
|
$
|
10.5
|
|
$
|
10.1
|
|
Additions for Tax Positions of Current Year
|
0.8
|
|
0.6
|
|
Additions for Tax Positions of Prior Years
|
5.2
|
|
0.7
|
|
Reductions for Tax Positions of Prior Years
|
(1.0
|
)
|
(0.9
|
)
|
Balance at December 31,
|
$
|
15.5
|
|
$
|
10.5
|
|
At
December 31, 2018
,
$15.5 million
of the total gross unrecognized tax benefits, if recognized, would affect the annual effective income tax rate.
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, 2018
and
2017
, respectively.
The Company anticipates that
$1.6 million
of the total unrecognized tax benefits at
December 31, 2018
could change within the next 12 months.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations for years before 2015.
As of December 31, 2018, 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. The Company has not provided for deferred U.S. income taxes on approximately
$41 million
of its undistributed earnings in 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 liability (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.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations where a registrant does not have the necessary information available in reasonable detail to complete the accounting for the income tax effects of the Act. SAB 118 prescribes a one-year measurement period in which to gather all of the necessary information and finalize the income tax accounting associated with the Act. In accordance with SAB 118, the Company recorded provisional amounts in its 2017 financial statements for the effects of the Act. As of December 31, 2018, the Company has finalized its accounting for the tax effects of enactment of the Act.
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 basis differences that are expected to impact the amount of the GILTI inclusion upon reversal.
|
|
NOTE 9.
|
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, 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.
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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the Company's current interest rate swap positions for each period presented as of
December 31, 2018
:
|
|
|
|
|
Start
|
End
|
(In Millions)
Notional Amount
|
Weighted Average Interest Rate
|
04/03/2018
|
01/01/2019
|
$150.0
|
2.03%
|
04/03/2018
|
01/01/2020
|
$150.0
|
2.25%
|
04/03/2018
|
10/01/2020
|
$150.0
|
2.36%
|
12/03/2018
|
01/01/2022
|
$120.0
|
2.92%
|
12/03/2018
|
01/04/2022
|
$80.0
|
2.79%
|
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). Ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. During 2018 and 2017, there were
no
amounts of ineffectiveness. During
2018
and
2017
, there were
no
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, the Company enters into natural gas swaps to hedge prices for a designated percentage of its expected natural gas usage. The Company has hedged a portion of its expected usage for
2019
. 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), and the resulting gain or loss is reclassified into Cost of Sales concurrently with the recognition of the commodity purchased. The ineffective portion of the swap contract’s change in fair value, if any, would be recognized immediately in earnings.
During
2018
and
2017
, there were minimal amounts of ineffectiveness related to changes in the fair value of natural gas swap contracts. Additionally, there were
no
amounts excluded from the measure of effectiveness.
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, Net or Net Sales, when appropriate.
At
December 31, 2018
and
2017
, multiple forward exchange contracts existed that expire on various dates throughout the following year. Those purchased forward exchange contracts outstanding at
December 31, 2018
and
2017
, when aggregated and measured in U.S. dollars at contractual rates at
December 31, 2018
and
2017
, had notional amounts totaling $
51.6 million
and
$66.1 million
, respectively.
No
amounts were reclassified to earnings during
2018
and
2017
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
2018
and
2017
.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Derivatives not Designated as Hedges
The Company enters into forward foreign exchange contracts to effectively hedge substantially all of receivables resulting from transactions denominated in foreign currencies in order to manage risks associated with foreign currency transactions adversely affected by changes in exchange rates. At
December 31, 2018
and
2017
, multiple foreign currency forward exchange contracts existed, with maturities ranging up to
fifteen
months. Those foreign currency exchange contracts outstanding at
December 31, 2018
and
2017
, when aggregated and measured in U.S. dollars at exchange rates at
December 31, 2018
and
2017
, respectively, had net notional amounts totaling
$62.2 million
and $
90.1 million
. Unrealized gains and losses resulting from these contracts are recognized in Other Expense, Net and approximately offset corresponding recognized but unrealized gains and losses on these accounts receivable.
Foreign Currency Movement Effect
For the year ended
December 31, 2018
,
2017
and
2016
, net currency exchange losses included in determining Income from Operations were
$1.6 million
,
$3.1 million
and
$4.8 million
, respectively.
|
|
NOTE 10.
|
FAIR VALUE MEASUREMENT
|
The Company follows the fair value guidance integrated into the
Fair Value
Measurements 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.
Valuation Hierarchy
The
Fair Value Measurements and Disclosures
topic establishes a valuation hierarchy for disclosure of the inputs 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 independent derivatives brokers, corroborated with information obtained from independent pricing service providers.
Fair Value of Financial Instruments
As of
December 31, 2018
and
2017
, the Company had a gross derivative liability of
$3.4
million and
$1.2 million
respectively, and a gross derivative asset of
$0.8
million and
$1.2 million
respectively, related to interest rate, foreign currency and commodity contracts.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of
December 31, 2018
, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to its own credit risk. Similarly, there has not been any significant adverse impact to the Company’s derivative assets based on evaluation of the Company’s counterparties’ credit risks.
The fair values of the Company’s other financial assets and liabilities at
December 31, 2018
and
2017
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 capital leases and deferred financing fees) was
$2,762.5 million
and
$2,299.1 million
, as compared to the carrying amounts of
$2,833.1 million
and
$2,247.9 million
. The fair value of the Company's Long-Term 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 independent 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, 2018
and
2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (Ineffective Portion)
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
In millions
|
2018
|
2017
|
|
2018
|
2017
|
|
2018
|
2017
|
Commodity Contracts
|
$
|
(0.7
|
)
|
$
|
3.6
|
|
|
Cost of Sales
|
$
|
(0.4
|
)
|
$
|
(1.2
|
)
|
|
Cost of Sales
|
$
|
—
|
|
$
|
(0.1
|
)
|
Foreign Currency Contracts
|
(0.3
|
)
|
3.1
|
|
|
Other Income, Net
|
0.7
|
|
(0.3
|
)
|
|
Other Income, Net
|
—
|
|
—
|
|
Interest Rate Swap Agreements
|
2.0
|
|
(1.0
|
)
|
|
Interest Expense, Net
|
(0.9
|
)
|
(0.6
|
)
|
|
Interest Expense, Net
|
—
|
|
—
|
|
Total
|
$
|
1.0
|
|
$
|
5.7
|
|
|
|
$
|
(0.6
|
)
|
$
|
(2.1
|
)
|
|
|
$
|
—
|
|
$
|
(0.1
|
)
|
The effect of derivative instruments not designated as hedging instruments on the Company’s Consolidated Statements of Operations for the years ended
December 31, 2018
and
2017
is as follows:
|
|
|
|
|
|
|
|
|
In millions
|
|
2018
|
2017
|
Foreign Currency Contracts
|
Other (Income) Expense, Net
|
$
|
(5.6
|
)
|
$
|
9.7
|
|
Accumulated Derivative Instruments Income (Loss)
The following is a rollforward of pre-tax Accumulated Derivative Instruments Income (Loss) which is included in the Company’s Consolidated Balance Sheets and Consolidated Statements of Shareholders’ Equity as of December 31:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
2016
|
Balance at January 1
|
$
|
(0.3
|
)
|
$
|
7.5
|
|
$
|
(13.5
|
)
|
Reclassification to earnings
|
(0.6
|
)
|
(2.1
|
)
|
15.0
|
|
Current period change in fair value
|
(1.0
|
)
|
(5.7
|
)
|
6.0
|
|
Balance at December 31
|
$
|
(1.9
|
)
|
$
|
(0.3
|
)
|
$
|
7.5
|
|
At
December 31, 2018
, the Company expects to reclassify
$1.3 million
of pre-tax losses in the next twelve months from Accumulated Other Comprehensive (Loss) Income 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
NOTE 11.
|
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
|
The components of Accumulated Other Comprehensive (Loss) Income Attributable to Graphic Packaging Holding Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
In millions
|
Pretax Amount
|
Tax Effect
|
Net Amount
(a)
|
|
Pretax Amount
|
Tax Effect
|
Net Amount
|
|
Pretax Amount
|
Tax Effect
|
Net Amount
|
Derivative Instruments (Loss) Gain
|
$
|
(1.1
|
)
|
$
|
0.1
|
|
$
|
(1.0
|
)
|
|
$
|
(7.8
|
)
|
$
|
2.9
|
|
$
|
(4.9
|
)
|
|
$
|
21.0
|
|
$
|
(8.0
|
)
|
$
|
13.0
|
|
Pension and Postretirement Benefit Plans
|
(24.8
|
)
|
5.4
|
|
(19.4
|
)
|
|
12.3
|
|
(3.5
|
)
|
8.8
|
|
|
7.9
|
|
(3.9
|
)
|
4.0
|
|
Currency Translation Adjustment
|
(18.7
|
)
|
—
|
|
(18.7
|
)
|
|
44.9
|
|
—
|
|
44.9
|
|
|
(58.9
|
)
|
—
|
|
(58.9
|
)
|
Other Comprehensive (Loss) Income
|
$
|
(44.6
|
)
|
$
|
5.5
|
|
$
|
(39.1
|
)
|
|
$
|
49.4
|
|
$
|
(0.6
|
)
|
$
|
48.8
|
|
|
$
|
(30.0
|
)
|
$
|
(11.9
|
)
|
$
|
(41.9
|
)
|
|
|
(a)
|
Amounts include impact of noncontrolling interest. See Note 18 - Changes in Accumulated Other Comprehensive (Loss) Income.
|
The balances of Accumulated Other Comprehensive Loss Attributable to Graphic Packaging Holding Company, net of applicable taxes are as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
In millions
|
2018
|
2017
|
Accumulated Derivative Instruments Loss
|
$
|
(11.3
|
)
|
$
|
(10.3
|
)
|
Pension and Postretirement Benefit Plans
|
(246.1
|
)
|
(226.7
|
)
|
Currency Translation Adjustment
|
(120.5
|
)
|
(101.8
|
)
|
Accumulated Other Comprehensive Loss
|
$
|
(377.9
|
)
|
$
|
(338.8
|
)
|
|
|
NOTE 12.
|
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, 2018
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Capital Leases and Financing Obligations
(a)
|
|
Operating Leases
|
2019
|
$
|
10.3
|
|
|
$
|
61.8
|
|
2020
|
10.4
|
|
|
49.8
|
|
2021
|
10.5
|
|
|
37.7
|
|
2022
|
10.1
|
|
|
30.0
|
|
2023
|
10.2
|
|
|
23.3
|
|
Thereafter
|
147.2
|
|
|
36.9
|
|
Total Minimum Lease Payments
|
$
|
198.7
|
|
|
$
|
239.5
|
|
Less: Amount Representing Interest
|
(75.8
|
)
|
|
|
Present Value of Net Minimum Leases
|
$
|
122.9
|
|
|
|
(a)
The Company executed lease agreements accounted for as a financing obligation for a notional amount of approximately
$95 million
in 2018. These lease agreements have an initial term of
20
years and
two
five
year option renewals. Rental payments for 2019 are approximately
$7 million
, with yearly escalations of approximately
2%
thereafter.
Total rental expense was approximately
$61 million
,
$38 million
, and
$35 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has entered into other long-term contracts principally for the purchase of fiber and chip processing. The minimum purchase commitments extend beyond
2023
. At
December 31, 2018
, total commitments under these contracts were as follows:
|
|
|
|
|
In millions
|
|
2019
|
$
|
83.4
|
|
2020
|
38.6
|
|
2021
|
30.2
|
|
2022
|
30.0
|
|
2023
|
29.8
|
|
Thereafter
|
131.4
|
|
Total
|
$
|
343.4
|
|
|
|
NOTE 13.
|
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, 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.
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 14.
|
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. In connection with the closing, the Company, GPIP, GPI Holding and IP entered into an Exchange Agreement (“Exchange Agreement”),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 has the ability to call such common units exercisable starting on the same date. Upon an election of an exchange, GPHC may chose to satisfy the exchange using shares of its common stock, cash, or a combination thereof. Also, under the Exchange Agreement, the Company may not issue shares of common stock in exchange for more than
61,633,409
common units without first obtaining GPHC shareholder approval.
In the fourth quarter of 2018, the Company repurchased and retired
10,566,144
shares of outstanding common stock. As a result, the number of shares that could be issued in connection with an exchange or redemption of common units held by IP before shareholder approval would be required to decrease and
1,701,834
common units were allocated from equity and are reflected as Redeemable Noncontrolling Interest on the Consolidated Balance Sheets and Consolidated Statement of Shareholders' Equity.
At
December 31, 2018
, the redeemable noncontrolling interest was determined as follows:
|
|
|
|
|
In millions
|
|
Balance at December 31, 2017
|
$
|
—
|
|
Issuance of Redeemable Noncontrolling Interest at January 1, 2018
|
255.2
|
|
Reclassification to Redeemable Noncontrolling Interest for Share Repurchases
|
12.5
|
|
Net Income Attributable to Redeemable Noncontrolling Interest
|
16.6
|
|
Other Comprehensive Loss, Net of Tax
|
(2.8
|
)
|
Distributions of Membership Interest
|
(5.7
|
)
|
Balance at December 31, 2018
|
$
|
275.8
|
|
Redeemable noncontrolling interest is recorded at the greater of carrying amount or redemption value at the end of each period. The redemption value is determined by the closing stock price of the Company.
|
|
NOTE 15.
|
BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
|
On January 1, 2018, the Company aggregated the
three
converting plants from the NACP Combination with America's Converting operating segment into one reportable segment. The Company has
three
reportable segments as follows:
Paperboard Mills
includes the
eight
North American paperboard mills which produce primarily CUK, CRB, and SBS, which is consumed internally to produce paperboard packaging for the Americas and Europe Packaging segments. The remaining paperboard is sold externally to a wide variety of paperboard packaging converters and brokers. The Paperboard Mills segment Net Sales represent 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"), all 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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’s net sales during
2018
,
2017
or
2016
.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2018
|
2017
|
2016
|
NET SALES:
|
|
|
|
Paperboard Mills
|
$
|
1,076.5
|
|
$
|
399.7
|
|
$
|
394.7
|
|
Americas Paperboard Packaging
|
4,093.9
|
|
3,243.6
|
|
3,193.1
|
|
Europe Paperboard Packaging
|
695.5
|
|
593.1
|
|
569.9
|
|
Corporate/Other/Eliminations
(a)
|
157.1
|
|
167.3
|
|
140.4
|
|
Total
|
$
|
6,023.0
|
|
$
|
4,403.7
|
|
$
|
4,298.1
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS:
|
|
|
|
Paperboard Mills
(b)
|
$
|
30.6
|
|
$
|
(35.0
|
)
|
$
|
(3.7
|
)
|
Americas Paperboard Packaging
|
420.1
|
|
358.2
|
|
409.0
|
|
Europe Paperboard Packaging
|
46.1
|
|
37.3
|
|
25.4
|
|
Corporate and Other
(c)
|
(38.6
|
)
|
(32.6
|
)
|
(23.3
|
)
|
Total
|
$
|
458.2
|
|
$
|
327.9
|
|
$
|
407.4
|
|
|
|
|
|
CAPITAL EXPENDITURES:
|
|
|
|
Paperboard Mills
|
$
|
240.1
|
|
$
|
111.4
|
|
$
|
184.2
|
|
Americas Paperboard Packaging
|
104.3
|
|
98.8
|
|
45.9
|
|
Europe Paperboard Packaging
|
19.5
|
|
17.3
|
|
37.1
|
|
Corporate and Other
|
31.3
|
|
32.6
|
|
27.4
|
|
Total
|
$
|
395.2
|
|
$
|
260.1
|
|
$
|
294.6
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION:
|
|
|
|
Paperboard Mills
|
$
|
197.5
|
|
$
|
143.7
|
|
$
|
120.3
|
|
Americas Paperboard Packaging
|
165.4
|
|
125.3
|
|
124.7
|
|
Europe Paperboard Packaging
|
48.9
|
|
42.1
|
|
41.1
|
|
Corporate and Other
|
18.8
|
|
19.2
|
|
13.2
|
|
Total
|
$
|
430.6
|
|
$
|
330.3
|
|
$
|
299.3
|
|
|
|
(a)
|
Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments, which is not material.
|
|
|
(b)
|
Includes Augusta, Georgia mill outage in 2018 and accelerated depreciation related to shutdown of the Santa Clara mill in 2017.
|
(c)
Includes expenses related to business combinations, gain on sale of assets and shutdown and other special charges.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In millions
|
2018
|
2017
|
2016
|
ASSETS AT DECEMBER 31:
|
|
|
|
Paperboard Mills
|
$
|
3,005.6
|
|
$
|
1,487.0
|
|
$
|
1,496.1
|
|
Americas Paperboard Packaging
|
3,143.6
|
|
2,478.7
|
|
2,419.8
|
|
Europe Paperboard Packaging
|
603.4
|
|
607.1
|
|
491.9
|
|
Corporate and Other
|
306.6
|
|
290.2
|
|
195.6
|
|
Total
|
$
|
7,059.2
|
|
$
|
4,863.0
|
|
$
|
4,603.4
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business geographic area information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2018
|
2017
|
2016
|
NET SALES:
|
|
|
|
Americas
(a)
|
$
|
5,170.4
|
|
$
|
3,643.3
|
|
$
|
3,601.7
|
|
Europe
|
695.5
|
|
593.1
|
|
569.9
|
|
Asia Pacific
|
217.8
|
|
215.7
|
|
198.1
|
|
Corporate and Other
|
(60.7
|
)
|
(48.4
|
)
|
(71.6
|
)
|
Total
|
$
|
6,023.0
|
|
$
|
4,403.7
|
|
$
|
4,298.1
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2018
|
2017
|
2016
|
ASSETS AT DECEMBER 31:
|
|
|
|
Americas
(a)
|
$
|
6,260.1
|
|
$
|
4,046.4
|
|
$
|
3,923.2
|
|
Europe
|
603.4
|
|
607.1
|
|
491.9
|
|
Asia Pacific
|
195.7
|
|
209.5
|
|
188.3
|
|
Total
|
$
|
7,059.2
|
|
$
|
4,863.0
|
|
$
|
4,603.4
|
|
(a)
Includes North America and Brazil.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
NOTE 16.
|
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
Results of operations for the four quarters of
2018
and
2017
are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
In millions, except per share amounts
|
First
|
Second
|
Third
|
Fourth
|
Total
|
Statement of Operations Data:
|
|
|
|
|
|
Net Sales
|
$
|
1,476.0
|
|
$
|
1,509.3
|
|
$
|
1,530.0
|
|
$
|
1,507.7
|
|
$
|
6,023.0
|
|
Gross Profit
|
222.5
|
|
235.9
|
|
256.5
|
|
231.1
|
|
946.0
|
|
Business Combinations, (Gain) on Sale of Assets and Shutdown and Other Special Charges, Net
|
26.3
|
|
8.6
|
|
(27.4
|
)
|
7.4
|
|
14.9
|
|
Income from Operations
|
74.0
|
|
110.3
|
|
166.4
|
|
107.5
|
|
458.2
|
|
Net Income
|
42.7
|
|
66.0
|
|
122.0
|
|
63.3
|
|
294.0
|
|
Net Income Attributable to Graphic Packaging Holding Company
|
29.9
|
|
49.4
|
|
94.3
|
|
47.5
|
|
221.1
|
|
Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic
(a)
|
$
|
0.10
|
|
$
|
0.16
|
|
$
|
0.30
|
|
$
|
0.16
|
|
$
|
0.71
|
|
Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted
|
$
|
0.10
|
|
$
|
0.16
|
|
$
|
0.30
|
|
$
|
0.15
|
|
$
|
0.71
|
|
(a)
Does not cross foot due to rounding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
71.6
|
|
83.8
|
|
91.4
|
|
81.1
|
|
327.9
|
|
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
|
|
NOTE 17.
|
EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions, except per share data
|
2018
|
2017
|
2016
|
Net Income Attributable to Graphic Packaging Holding Company
|
$
|
221.1
|
|
$
|
300.2
|
|
$
|
228.0
|
|
Weighted Average Shares:
|
|
|
|
Basic
|
309.5
|
|
311.1
|
|
320.9
|
|
Dilutive effect of RSUs
|
0.6
|
|
0.8
|
|
0.6
|
|
Diluted
|
310.1
|
|
311.9
|
|
321.5
|
|
Earnings Per Share — Basic
|
$
|
0.71
|
|
$
|
0.97
|
|
$
|
0.71
|
|
Earnings Per Share — Diluted
|
$
|
0.71
|
|
$
|
0.96
|
|
$
|
0.71
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
NOTE 18.
|
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
|
The following represents changes in Accumulated Other Comprehensive (Loss) Income attributable to Graphic Packaging Holding Company by component for the year ended
December 31, 2018
(a)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Derivatives Instruments
|
Pension and Postretirement Benefit Plans
|
Currency Translation Adjustments
|
Total
|
Balance at December 31, 2017
|
$
|
(10.3
|
)
|
$
|
(226.7
|
)
|
$
|
(101.8
|
)
|
$
|
(338.8
|
)
|
Other Comprehensive Loss before Reclassifications
|
(0.8
|
)
|
(28.8
|
)
|
(24.5
|
)
|
(54.1
|
)
|
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income
(b)
|
(0.5
|
)
|
3.3
|
|
—
|
|
2.8
|
|
Net Current-period Other Comprehensive Loss
|
(1.3
|
)
|
(25.5
|
)
|
(24.5
|
)
|
(51.3
|
)
|
Less:
|
|
|
|
|
Net Current-period Other Comprehensive Income Attributable to Noncontrolling Interest
(c)
|
0.3
|
|
6.1
|
|
5.8
|
|
12.2
|
|
Balance at December 31, 2018
|
$
|
(11.3
|
)
|
$
|
(246.1
|
)
|
$
|
(120.5
|
)
|
$
|
(377.9
|
)
|
|
|
(a)
|
All amounts are net-of-tax.
|
(b)
See following table for details about these reclassifications.
(c)
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 (Loss) Income for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
Derivatives Instruments:
|
|
|
|
|
Commodity Contracts
|
|
$
|
(0.4
|
)
|
|
Cost of Sales
|
Foreign Currency Contracts
|
|
0.7
|
|
|
Other Expense, Net
|
Interest Rate Swap Agreements
|
|
(0.9
|
)
|
|
Interest Expense, Net
|
|
|
(0.6
|
)
|
|
Total before Tax
|
|
|
0.1
|
|
|
Tax Expense
|
|
|
$
|
(0.5
|
)
|
|
Net of Tax
|
|
|
|
|
|
Amortization of Defined Benefit Pension Plans:
|
|
|
|
|
Prior Service Costs
|
|
$
|
0.4
|
|
(a)
|
|
Actuarial Losses
|
|
5.9
|
|
(a)
|
|
|
|
6.3
|
|
|
Total before Tax
|
|
|
(1.3
|
)
|
|
Tax Benefit
|
|
|
$
|
5.0
|
|
|
Net of Tax
|
|
|
|
|
|
Amortization of Postretirement Benefit Plans:
|
|
|
|
|
Prior Service Credits
|
|
$
|
(0.3
|
)
|
(a)
|
|
Actuarial Gains
|
|
(1.8
|
)
|
(a)
|
|
|
|
(2.1
|
)
|
|
Total before Tax
|
|
|
0.4
|
|
|
Tax Expense
|
|
|
$
|
(1.7
|
)
|
|
Net of Tax
|
|
|
|
|
|
Total Reclassifications for the Period
|
|
$
|
2.8
|
|
|
|
|
|
(a)
|
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 7 — Pensions and Other Postretirement Benefits).
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)