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 sustainable, paper-based packaging solutions for a wide variety of products to food, beverage, foodservice and other consumer products companies. The Company operates on a global basis, is one of the largest producers of folding cartons in the United States ("U.S.") and holds leading market positions in coated-recycled paperboard ("CRB"), coated unbleached kraft paperboard ("CUK") and 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 innovative sustainable packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its low-cost paperboard mills and converting 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 direct subsidiary of GPIP (“GPIL”), completed a series of transactions pursuant to an agreement dated October 23, 2017 among the foregoing parties (the “Transaction Agreement”). Pursuant to the Transaction Agreement (i) a wholly-owned subsidiary of the Company transferred its ownership interest in GPIL to GPIP; (ii) IP transferred its North America Consumer Packaging (“NACP”) business to GPIP, which was then subsequently transferred to GPIL; (iii) GPIP issued membership interests to IP, and IP was admitted as a member of 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 the closing of the NACP Combination, GPIP issued 309,715,624 common units or 79.5% of the membership interests in GPIP to GPI Holding and 79,911,591 common units or 20.5% of the membership interests in GPIP to IP. Subject to certain restrictions, the common units held by IP are exchangeable into shares of common stock of GPHC or cash.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following diagram illustrates the organization of the Company on January 1, 2018, immediately subsequent to the transactions described above (not including subsidiaries of GPIL):
On January 28, 2020, the Company announced that IP had notified the Company of its intent to begin the process of reducing its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million partnership units from IP for $250 million in cash. As a result, IP’s ownership interest in GPIP decreased to 18.3% as of January 29, 2020.
On August 10, 2020, the Company announced that IP had notified the Company of its intent to exchange additional partnership units. Per the agreement between the parties, on August 13, 2020, GPIP purchased 17.4 million partnership units from IP for $250 million in cash, which included full redemption of the remaining 3.1 million partnership units that were required to be redeemed in cash. As a result, IP's ownership interest in GPIP decreased to 14.5% as of August 13, 2020.
Unless otherwise negotiated by the parties, IP’s next opportunity to exchange its partnership units begins 180 days from the August 13, 2020 purchase date and is limited to the lesser of $250 million or 25% of the units owned immediately following the initial transaction, subject to a minimum. IP will have further opportunities to exchange its partnership units beginning 180 days after each purchase date. The Company may choose to satisfy these exchanges using shares of its common stock, cash, or a combination thereof.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During 2020, 2019 and 2018, GPIP repurchased 44.2 million partnership units from GPI Holding, which distributed the proceeds to GPHC. GPHC used the proceeds from these repurchases to repurchase 44.2 million shares of GPHC's common stock. These partnership unit repurchases increased IP's ownership interest in GPIP, which was 15.0% at December 31, 2020.
GPHC conducts no significant business and has no independent assets or operations other than its indirect ownership of 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 GPIL subsidiary, is a party to a Japanese joint venture, Rengo Riverwood Packaging, Ltd. in which it holds a 50% ownership interest that 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-lived assets, fair values related to acquisition accounting, fair value of derivative financial instruments, share based compensation, deferred income tax assets and potential income tax assessments, and loss contingencies.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits and other marketable securities that are highly liquid with 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 for the year ended December 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
Receivables Sold and Derecognized
|
$
|
2,849.8
|
|
$
|
2,654.2
|
|
Proceeds Collected on Behalf of Financial Institutions
|
2,787.4
|
2,254.9
|
Net Proceeds Received From Financial Institutions
|
54.9
|
66.5
|
Deferred Purchase Price at December 31(a)
|
5.3
|
0.7
|
Pledged Receivables at December 31
|
201.0
|
177.5
|
(a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.
The Company has also entered into various factoring and supply chain financing arrangements which also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the years ended December 31, 2020 and 2019, the Company sold receivables of approximately $368 million and $238 million respectively, related to these factoring arrangements.
Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were approximately $621 million and $562 million as of December 31, 2020 and 2019, respectively.
Concentration of Credit Risk
The Company’s cash, cash equivalents, and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located in the U.S. and internationally and generally do not require collateral. For the years ended December 31, 2020, 2019, and 2018, 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.
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 $6.9 million, $2.8 million and $2.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company assesses its long-lived assets, including certain identifiable intangibles, for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. To analyze recoverability, the Company 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 2020, 2019 and 2018 was $413.7 million, $387.9 million and $360.6 million, respectively.
Intangible Assets
Intangible assets with a determinable life are amortized on a straight-line or accelerated basis over their useful lives. The amortization expense for each intangible asset is recorded in the Consolidated Statements of Operations according to the nature of that asset.
Goodwill is the Company’s only intangible asset not subject to amortization. The following table displays the intangible assets that continue to be subject to amortization and accumulated amortization expense as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
In millions
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
Amortizable Intangible Assets:
|
|
|
|
|
|
|
|
Customer Relationships
|
$
|
965.2
|
|
$
|
(556.4)
|
|
$
|
408.8
|
|
|
$
|
946.5
|
|
$
|
(497.6)
|
|
$
|
448.9
|
|
|
|
|
|
|
|
|
|
Patents, Trademarks, Licenses, and Leases
|
141.1
|
|
(113.0)
|
|
28.1
|
|
|
138.8
|
|
(110.4)
|
|
28.4
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,106.3
|
|
$
|
(669.4)
|
|
$
|
436.9
|
|
|
$
|
1,085.3
|
|
$
|
(608.0)
|
|
$
|
477.3
|
|
The Company recorded amortization expense for the years ended December 31, 2020, 2019 and 2018 of $62.1 million,$59.3 million and $70.0 million, respectively. The Company expects amortization expense for the next five consecutive years to be approximately as follows: $60 million, $57 million, $55 million, $53 million, and $49 million.
Goodwill
The Company tests goodwill for impairment annually as of October 1, as well as whenever events or changes in circumstances suggest that the estimated fair value of a reporting unit may no longer exceed its carrying amount.
The Company tests goodwill for impairment at the reporting unit level, which is an operating segment or a level below an operating segment, which is referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Two or more components of an operating segment are aggregated and deemed a single reporting unit if the components have similar economic characteristics.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Potential goodwill impairment is measured at the reporting unit level by comparing the reporting unit’s carrying amount (including goodwill), to the fair value of the reporting unit. When performing the quantitative analysis, the estimated fair value of each reporting unit is determined by utilizing a discounted cash flow analysis based on the Company’s forecasts, discounted using a weighted average cost of capital and market indicators of terminal year cash flows based upon a multiple of EBITDA. If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is considered impaired. In determining fair value, management relies on and considers a number of factors, including but not limited to, future operating results, business plans, economic projections of revenues and operating margins, forecasts including future cash flows, and market data and analysis, including market capitalization. The assumptions used are based on what a hypothetical market participant would use in estimating fair value. Fair value determinations are sensitive to changes in the factors described above. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.
Periodically, the Company may perform a qualitative impairment analysis of goodwill associated with each of its reporting units to determine if it is more likely than not that the carrying value of a reporting unit exceeded its fair value. However, the Company performed a quantitative impairment test as of October 1, 2020, and concluded goodwill was not impaired for any of its reporting units.
The following is a rollforward of goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Paperboard Mills
|
|
Americas Paperboard Packaging
|
Europe Paperboard Packaging
|
Corporate/Other(a)
|
Total
|
Balance at December 31, 2018
|
$
|
506.8
|
|
|
$
|
882.2
|
|
$
|
57.2
|
|
$
|
14.4
|
|
$
|
1,460.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Businesses
|
—
|
|
|
12.9
|
|
—
|
|
—
|
|
12.9
|
|
|
|
|
|
|
|
|
Foreign Currency Effects
|
—
|
|
|
1.8
|
|
2.6
|
|
—
|
|
4.4
|
|
Balance at December 31, 2019
|
$
|
506.8
|
|
|
$
|
896.9
|
|
$
|
59.8
|
|
$
|
14.4
|
|
$
|
1,477.9
|
|
|
|
|
|
|
|
|
Acquisition of Businesses
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Foreign Currency Effects
|
(0.5)
|
|
|
2.2
|
|
(1.0)
|
|
(1.0)
|
|
(0.3)
|
|
Balance at December 31, 2020
|
$
|
506.3
|
|
|
$
|
899.1
|
|
$
|
58.8
|
|
$
|
13.4
|
|
$
|
1,477.6
|
|
(a) Includes Australia operating segment.
Retained Insurable Risks
It is the Company’s policy to self-insure or fund a portion of certain expected losses related to group health benefits and workers’ compensation claims. Provisions for expected losses are recorded based on the Company’s estimates, on an undiscounted basis, of the aggregate liabilities for known claims and estimated claims incurred but not reported.
Asset Retirement Obligations
Asset retirement obligations are accounted for in accordance with the provisions of the Asset Retirement and Environmental Obligations topic of the FASB Codification. A liability and asset are recorded equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists and the liability can be reasonably estimated. The liability is accreted over time and the asset is depreciated over the remaining life of the asset. Upon settlement of the liability, the Company will recognize a gain or loss for any difference between the settlement amount and the liability recorded. Asset retirement obligations with indeterminate settlement dates are not recorded until such time that a reasonable estimate may be made. The Company's asset retirement obligations consist primarily of landfill closure and post-closure costs at certain of our mills. At December 31, 2020 and 2019, the Company had liabilities of $11.4 million and $10.1 million, respectively. The liabilities are primarily reflected as Other Noncurrent Liabilities in the Company's Consolidated Balance Sheets.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
International Currency
The functional currency of the international subsidiaries is the local currency for the country in which the subsidiaries own their primary assets. The translation of the applicable currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. Any related translation adjustments are recorded directly to a separate component of Shareholders’ Equity, unless there is a sale or substantially complete liquidation of the underlying foreign investments. Gains and losses on foreign currency transactions are included in Other Expense, Net for the period in which the exchange rate changes.
The Company pursues a currency hedging program which utilizes derivatives to reduce the impact of foreign currency exchange fluctuations on its consolidated financial results. Under this program, the Company has entered into forward exchange contracts in the normal course of business to hedge certain foreign currency denominated transactions. Realized and unrealized 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 16-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, 2020, 2019 and 2018, the Company recognized $6,536.5 million, $6,140.8 million and $6,011.9 million, respectively, of revenue from contracts with customers.
The transaction price allocated to each performance obligation consists of the 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, 2020 and 2019, contract assets were $15.3 million and $24.3 million, respectively. The Company's contract liabilities consist principally of rebates, and as of December 31, 2020 and 2019 were $56.1 million and $49.6 million, respectively.
The Company did not have a material amount relating to backlog orders at December 31, 2020 or 2019.
Shipping and Handling
The Company includes shipping and handling costs in Cost of Sales.
Research and Development
Research and development costs, which relate primarily to the development and design of new packaging machines and products and are recorded as a component of Selling, General and Administrative expenses, are expensed as incurred. Expenses for the years ended December 31, 2020, 2019 and 2018 were $10.2 million, $9.2 million and $8.7 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business Combinations, Shutdown and Other Special Charges, Exit Activities, and (Gain) on Sale of Assets, Net
The following table summarizes the transactions recorded in Business Combinations, Shutdown and Other Special Charges, Exit Activities and Gain on Sale of Assets, Net in the Consolidated Statements of Operations for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
|
2019
|
|
2018
|
Charges Associated with Business Combinations
|
$
|
(1.1)
|
|
|
$
|
4.1
|
|
|
$
|
46.8
|
|
Shutdown and Other Special Charges
|
37.8
|
|
|
23.6
|
|
|
6.7
|
|
Exit Activities(a)
|
24.6
|
|
|
10.2
|
|
|
—
|
|
Gain on Sale of Assets
|
—
|
|
|
—
|
|
|
(38.6)
|
|
|
|
|
|
|
|
Total
|
$
|
61.3
|
|
|
$
|
37.9
|
|
|
$
|
14.9
|
|
(a) Relates to the Company's CRB mills, converting facility closures and the PM1 containerboard machine exit activities (see "Note 20 — Exit Activities").
2020
During the fourth quarter of 2020, the Company incurred incremental costs associated with paying payroll to employees during necessary quarantines due to COVID-19. During the second quarter of 2020, the Company made one-time payments to front-line production employees and made contributions to local food banks in the communities where our manufacturing operations are located. The charges associated with these costs and payments were recorded in Shutdown and Other Special Charges in the table above.
The Company has established estimated liabilities related to the partial or complete withdrawal from certain multi-employment benefit plans for facilities which have been closed. During the second quarter of 2020, the Company increased its estimated withdrawal liability for these plans by $12.2 million. During the fourth quarter of 2020, the Company entered into a settlement agreement with one of its closed multi-employment benefit plans and recorded a $3.9 million reduction in its estimated withdrawal liability for this plan. These items were recorded in Shutdown and Other Special Charges in the table above. For more information, see "Note 8 — Pensions and Other Postretirement Benefits."
On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment. During the second quarter of 2020, the Company recorded a bargain purchase gain of $6.6 million as the net fair value of assets acquired and liabilities assumed was greater than the purchase price. The gain associated with this acquisition is included in Charges Associated with Business Combinations in the table above. For more information, see "Note 4 — Business Combinations."
In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. During the second quarter of 2020, the Company closed the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine. Charges associated with these projects are included in Exit Activities in the table above. For more information, see "Note 20 — Exit Activities."
On April 1, 2020, the Company acquired the Consumer Packaging Group business from Greif, Inc. ("Greif"), a leader in industrial packaging products and services. The acquisition included seven converting facilities across the United States which are included in the Americas Paperboard Packaging reportable segment. Charges associated with this acquisition are included in Charges Associated with Business Combinations in the table above. For more information, see "Note 4 — Business Combinations."
In June 2020, the Company made the decision to close certain converting facilities that were acquired from Greif. The Burlington, North Carolina converting facility and the Los Angeles, California converting facility were closed in the third quarter of 2020. Charges associated with the shutdown of these converting facilities are included in Exit Activities in the table above. For more information, see "Note 20— Exit Activities."
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2019
On August 1, 2019, the Company acquired substantially all the assets of Artistic Carton Company ("Artistic"), a diversified producer of folding cartons and CRB. The acquisition included two converting facilities located in Auburn, Indiana and Elgin, Illinois (included in the Americas Paperboard Packaging reportable segment) and one CRB paperboard mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment).
On September 24, 2019, the Company announced its plan to invest approximately $600 million in a new CRB mill in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral. Charges associated with this project are included in Exit Activities in the table above. For more information, see "Note 20 — Exit Activities."
2018
As mentioned above, on January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS paperboard and paper-based foodservice products. The NACP business included two SBS mills located in Augusta, Georgia and Texarkana, Texas (included in Paperboard Mills reportable segment), three converting facilities in the U.S. (included in the Americas Paperboard Packaging reportable segment) and one in the United Kingdom ("U.K.") (included in the Europe Paperboard Packaging reportable segment).
On June 12, 2018, the Company acquired substantially all the assets of PFP, LLC and its related entity, PFP Dallas Converting, LLC (collectively, "PFP"), a converter focused on the production of paperboard based air filter frames. The acquisition included two facilities located in Lebanon, Tennessee and Lancaster, Texas. PFP is included in the Americas Paperboard Packaging reportable segment.
On August 31, 2018, the Company sold its previously closed coated recycled paperboard mill site in Santa Clara, California, resulting in a gain on sale of assets of $37.1 million.
On September 30, 2018, the Company acquired substantially all the assets of the foodservice business of Letica Corporation, a subsidiary of RPC Group PLC ("Letica Foodservice"), a producer of paperboard-based cold and hot cups and cartons. The acquisition included two facilities located in Clarksville, Tennessee and Pittston, Pennsylvania. Letica Foodservice is included in the Americas Paperboard Packaging reportable segment.
PFP and Letica Foodservice are referred to collectively as the "2018 Acquisitions."
During 2019, the Company began a three-year program to dismantle and dispose of idle and abandoned assets primarily at the paperboard mills. Charges related to this program in 2019 and 2020 were $10.4 million and $13.6 million, respectively. Expected charges for this program for 2021 are approximately $26 million. Charges associated with this program are included in Shutdown and Other Special Charges in the table above.
Share Repurchases and Dividends
On January 28, 2019, GPHC's board of directors authorized an additional share repurchase program to allow GPHC to purchase up to $500 million of GPHC's issued and outstanding shares of common stock through open market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2019 share repurchase program"). A previous $250 million share repurchase program was authorized on January 10, 2017 (the "2017 share repurchase program").
Share repurchases are reflected as a reduction of common stock for the par value of the shares, with any excess of share repurchase price over par value allocated between capital in excess of par value and accumulated deficit.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following presents GPHC's share repurchases for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount repurchased in millions
|
Amount Repurchased
|
Number of Shares Repurchased
|
|
Average Price
|
|
2020
|
$
|
315.6
|
|
23,420,010
|
|
|
$
|
13.48
|
|
|
2019
|
$
|
127.9
|
|
10,191,257
|
|
(a)
|
$
|
12.55
|
|
|
2018
|
$
|
120.0
|
|
10,566,144
|
|
|
$
|
11.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes 7,400,171 shares under the 2017 share repurchase program thereby completing that program.
At December 31, 2020, GPHC had approximately $146.5 million remaining under the 2019 share repurchase program.
During 2020 and 2019, GPHC paid cash dividends of $84.7 million and $88.7 million, respectively.
Adoption of New Accounting Standards
Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model (known as the "current expected credit loss model") that is based on expected losses rather than incurred losses. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.
Effective January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This amendment modifies the disclosure requirements on fair value measurements. The adoption of this standard did not have a material impact on the Company's financial disclosures.
Effective January 1, 2020, the Company adopted ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU broadens the scope of Accounting Standards Codification ("ASC") 350-40 with an updated definition of a hosting arrangement and clarifies certain aspects of accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.
Effective January 1, 2020, the Company adopted ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20); Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This amendment modifies ASC 740 to simplify the accounting for income taxes. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact of this new accounting guidance.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides temporary optional expedients and exceptions for applying GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The ASU can be adopted after its issuance date through December 31, 2022. The Company is currently evaluating the impact of this new accounting guidance.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2. SUPPLEMENTAL BALANCE SHEET DATA
The following tables provide disclosure related to the components of certain line items included in our consolidated balance sheets.
Receivables, Net:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Trade
|
$
|
608.5
|
|
$
|
462.7
|
|
Less: Allowance
|
(11.9)
|
|
(11.5)
|
|
|
596.6
|
|
451.2
|
|
Other
|
57.8
|
|
53.3
|
|
Total
|
$
|
654.4
|
|
$
|
504.5
|
|
Inventories, Net by major class:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Finished Goods
|
$
|
471.3
|
|
$
|
434.8
|
|
Work in Progress
|
132.5
|
|
123.4
|
|
Raw Materials
|
348.5
|
|
370.0
|
|
Supplies
|
175.3
|
|
167.7
|
|
Total
|
$
|
1,127.6
|
|
$
|
1,095.9
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, Plant and Equipment, Net:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Property, Plant and Equipment, at Cost:
|
|
|
Land and Improvements
|
$
|
137.2
|
|
$
|
130.4
|
|
Buildings(a)
|
671.3
|
|
655.5
|
|
Machinery and Equipment(b)
|
6,082.0
|
|
5,832.6
|
|
Construction-in-Progress
|
478.3
|
|
202.6
|
|
|
7,368.8
|
|
6,821.1
|
|
Less: Accumulated Depreciation(a)(b)
|
(3,808.8)
|
|
(3,567.3)
|
|
Total
|
$
|
3,560.0
|
|
$
|
3,253.8
|
|
(a) Includes gross assets under finance lease of $105.5 million and related accumulated depreciation of $10.7 million as of December 31, 2020, and gross assets under finance lease of $105.5 million and related accumulated depreciation of $5.4 million as of December 31, 2019.
(b) Includes gross assets under finance lease of $36.8 million and related accumulated depreciation of $9.4 million as of December 31, 2020, and gross assets under finance lease of $36.6 million and related accumulated depreciation of $6.8 million as of December 31, 2019.
Other Accrued Liabilities:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Dividends Payable
|
$
|
20.1
|
|
$
|
21.8
|
|
Deferred Revenue
|
21.1
|
|
15.2
|
|
Accrued Customer Rebates
|
40.5
|
|
36.5
|
|
|
|
|
Fair Value of Derivatives, current portion
|
8.5
|
|
8.5
|
|
Other Accrued Taxes
|
56.5
|
|
38.4
|
|
Accrued Payables
|
37.6
|
|
31.4
|
|
|
|
|
Operating Lease Liabilities, current portion
|
60.5
|
|
54.8
|
|
Other
|
46.2
|
|
32.5
|
|
Total
|
$
|
291.0
|
|
$
|
239.1
|
|
Other Noncurrent Liabilities:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Deferred Revenue
|
$
|
6.5
|
|
$
|
5.3
|
|
Multi-employer Plans
|
20.0
|
|
30.8
|
|
Workers Compensation Reserve
|
8.7
|
|
9.5
|
|
Fair Value of Derivatives, noncurrent portion
|
0.4
|
|
3.0
|
|
|
|
|
Unfavorable Supply Agreement
|
26.6
|
|
28.9
|
|
Deferred Compensation
|
16.5
|
|
12.1
|
|
Operating Lease Liabilities, noncurrent portion
|
157.2
|
|
151.5
|
|
Other
|
55.4
|
|
25.7
|
|
Total
|
$
|
291.3
|
|
$
|
266.8
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash Flow (Used In) Provided by Operations Due to Changes in Operating Assets and Liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
2018
|
Receivables, Net
|
$
|
(215.7)
|
|
$
|
(107.6)
|
|
$
|
(1,158.1)
|
|
Inventories, Net
|
34.8
|
|
(72.8)
|
|
(82.0)
|
|
Other Current Assets
|
(5.3)
|
|
(9.5)
|
|
0.3
|
|
Other Assets
|
(21.5)
|
|
(7.9)
|
|
(1.0)
|
|
Accounts Payable
|
70.9
|
|
(8.6)
|
|
76.2
|
|
Compensation and Employee Benefits
|
40.3
|
|
12.9
|
|
26.9
|
|
Income Taxes
|
6.9
|
|
(4.2)
|
|
0.6
|
|
Interest Payable
|
5.6
|
|
8.4
|
|
(4.1)
|
|
Other Accrued Liabilities
|
30.9
|
|
5.2
|
|
11.8
|
|
Other Noncurrent Liabilities
|
33.7
|
|
10.6
|
|
8.6
|
|
Total
|
$
|
(19.4)
|
|
$
|
(173.5)
|
|
$
|
(1,120.8)
|
|
Cash paid for interest and cash paid, net of refunds, for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
2018
|
Interest
|
$
|
119.5
|
|
$
|
126.8
|
|
$
|
125.0
|
|
Income Taxes
|
$
|
27.2
|
|
$
|
25.8
|
|
$
|
25.8
|
|
NOTE 4. BUSINESS COMBINATIONS
2020
On January 31, 2020, the Company acquired a folding carton facility from Quad, a commercial printing company. The converting facility is located in Omaha, Nebraska, close to many of the Company's existing food and beverage customers. The Company paid approximately $41 million using existing cash and borrowings under its revolving credit facility. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. The Company recorded $4.7 million related to identifiable intangible assets (customer relationships with useful lives of fifteen years), $42.8 million related to net tangible assets (primarily working capital, land/buildings and equipment) and a bargain purchase gain of $6.6 million as the net fair value of assets acquired and liabilities assumed was greater than the purchase price. During 2020, Net Sales and Loss from Operations for the Quad acquisition were $78.5 million and $0.7 million, respectively.
On April 1, 2020, the Company acquired the Consumer Packaging Group business from Greif, Inc., a leader in industrial packaging products and services. The acquisition included seven converting facilities across the United States and will allow the Company to increase its mill-to-converting plant integration over time. The Company paid approximately $80 million using existing cash and borrowings under its revolving credit facility. The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date and is subject to adjustments in subsequent periods once the third-party valuations are finalized. The Company recorded $13.2 million related to identifiable intangible assets (customer relationships with useful lives of fifteen years) and $66.9 million related to net tangible assets (primarily working capital, land/buildings and equipment). During 2020, Net Sales and Loss from Operations for the Consumer Packaging Group acquisition were $164.5 million and $14.3 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2019
On August 1, 2019, the Company completed the acquisition of Artistic, a diversified producer of folding cartons and CRB. The acquisition included two converting facilities located in Auburn, Indiana and Elgin, Illinois and one CRB paperboard mill located in White Pigeon, Michigan. The Company paid $52.5 million using existing cash and borrowings under its revolving credit facility. Management believes that the purchase price attributable to goodwill represents the benefits expected as the acquisition was made to continue to integrate paperboard from the Company’s mills, to expand its product offering and to further optimize the Company’s supply chain footprint.
Tangible assets and liabilities were valued as of the acquisition date using a market analysis and intangible assets were valued using a discounted cash flow analysis, which represents a Level 3 measurement. The Company recorded $6.5 million related to identifiable intangible assets (customer relationships), $38.5 million related to tangible assets (primarily working capital, land/buildings and equipment) and $7.5 million related to goodwill. Goodwill was recorded in the Americas Paperboard Packaging segment. The Company expects the goodwill to be deductible for tax purposes.
During 2019, Net Sales and Income from Operations from the Artistic acquisition were $31.2 million and $2.0 million, respectively.
2018
On January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS and paper-based foodservice products. The NACP business included 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.
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 goodwill related to the NACP Combination is not deductible for tax purposes. The goodwill related to the Letica Foodservice and the PFP acquisitions is deductible for tax purposes.
As of December 31, 2018, the acquisition accounting for the NACP Combination and PFP Acquisition was complete and the acquisition accounting for Letica Foodservice was preliminary based on the estimated fair values of all assets and liabilities as of the acquisition date.
During the quarter ended March 31, 2019, the acquisition accounting for Letica Foodservice was finalized, resulting in an approximately $5 million reduction in the value of property, plant and equipment.
Net Sales and Income from Operations from the NACP Combination was $1,407.1 million and $134.7 million, respectively, for the year ended December 31, 2018.
During 2018, Net Sales and Loss from Operations from the Letica Foodservice and PFP acquisitions were $42.4 million and $1.4 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2020 for fiber procurement fees and corrugated products were $12.1 million (related to pass through wood purchases of approximately $204 million) and $28.4 million, respectively. There were no payments to IP for transition services during the year ended December 31, 2020. Payments to IP for the year ended December 31, 2019 under these agreements were $0.1 million, $12.4 million (related to pass through wood purchases of approximately $229.1 million) and $26.6 million, respectively. Payments to IP for the year ended December 31, 2018 under these agreements were $22.0 million, $15.9 million (related to pass through wood purchases of approximately $194 million) and $28.5 million, respectively. In addition, approximately $4 million and $6 million of payments were made for purchases unrelated to these agreements for the years ended December 31, 2019 and 2018, respectively.
NOTE 5. DEBT
Short-Term Debt is comprised of the following:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Short Term Borrowings
|
$
|
3.3
|
|
$
|
9.3
|
|
Current Portion of Finance Lease Obligations
|
5.0
|
|
4.6
|
|
Current Portion of Long-Term Debt
|
488.9
|
|
36.5
|
|
Total
|
$
|
497.2
|
|
$
|
50.4
|
|
|
|
|
Short-term borrowings are principally at the Company’s international subsidiaries. The weighted average interest rate on short-term borrowings as of December 31, 2020 and 2019 was 4.9% and 2.1%, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt is comprised of the following:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2029
|
$
|
350.0
|
|
$
|
—
|
|
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2028
|
450.0
|
|
—
|
|
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.81%, payable in 2027
|
300.0
|
|
300.0
|
|
Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.16%, payable in 2024
|
300.0
|
|
300.0
|
|
Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.90%, payable in 2022
|
250.0
|
|
250.0
|
|
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.75%, payable in 2021
|
425.0
|
|
425.0
|
|
|
|
|
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (1.67% at December 31, 2020) payable through 2023
|
1,359.6
|
|
1,396.1
|
|
Senior Secured Revolving Credit Facilities with interest payable at floating rates (1.50% at December 31, 2020) payable in 2023 (a)
|
84.4
|
|
52.8
|
|
Finance Leases and Financing Obligations
|
139.4
|
|
134.2
|
|
Other
|
4.9
|
|
5.4
|
|
Total Long-Term Debt
|
3,663.3
|
|
2,863.5
|
|
Less: Current Portion
|
493.9
|
|
41.1
|
|
|
3,169.4
|
|
2,822.4
|
|
Less: Unamortized Deferred Debt Issuance Costs
|
22.4
|
|
12.5
|
|
Total
|
$
|
3,147.0
|
|
$
|
2,809.9
|
|
(a) The effective interest rates for the Company’s Senior Secured Revolving Credit Facilities were 2.06% and 3.40% as of December 31, 2020 and 2019, respectively.
2020
On March 6, 2020, GPIL completed a private offering of $450.0 million aggregate principal amount of its senior unsecured notes due 2028. The Senior Notes bear interest at an annual rate of 3.50%. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured credit facility.
On August 28, 2020, GPIL completed a private offering of $350.0 million aggregate principal amount of its senior unsecured notes due 2029. The Senior Notes bear interest at an annual rate of 3.50%. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured credit facility.
2019
On June 25, 2019, GPIL completed a private offering of $300.0 million aggregate principal amount of its senior unsecured notes due 2027. The Senior Notes will bear interest at an annual rate of 4.75%. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured credit facility.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt maturities (excluding finance leases and finance obligations) are as follows:
|
|
|
|
|
|
In millions
|
2021
|
$
|
488.9
|
|
2022
|
378.4
|
|
2023
|
1,252.9
|
|
2024
|
300.5
|
|
2025
|
—
|
|
After 2025
|
1,103.2
|
|
Total
|
$
|
3,523.9
|
|
Credit Facilities
The following describes the Company's senior secured term loans and revolving credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
Document(a)
|
Provision
|
Expiration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
•Includes €138 million revolving credit facility for borrowings in Euro and Pound Sterling and a ¥2.5 billion revolving credit facility for borrowings in Yen
|
January 2023
|
|
January 2018
|
Amended and Restated Credit Agreement
|
•This term loan indebtedness was assumed by the Company as part of the NACP Combination in an aggregate amount of $660 million
|
January 2023
|
|
October 2020
|
Incremental Facility Amendment to the Third Amended and Restated Credit Agreement
|
•Incremental $425 million term loan facility under the Third Amended and Restated Credit Agreement with a delayed draw feature, which was exercised in January 2021
|
January 2028
|
|
(a) The Company's obligations under the Third Amended and Restated Credit Agreement (as amended by the Incremental Facility Amendment) and the Amended and Restated Credit Agreement (collectively, the “Current Credit Agreement”) are secured by substantially all of the Company's domestic assets.
On January 1, 2018 the Company assumed the term loan indebtedness previously incurred by IP (the “Amended and Restated Credit Agreement”) in an aggregate amount of $660 million, repayable pursuant to the same amortization schedule (expressed as a percentage of the principal amount thereof) as the Term Loan A under the Third Amended and Restated Credit Agreement and having 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 Third Amended and Restated Credit Agreement. The term loan under the Amended and Restated Credit Agreement is secured by a lien and security interest in substantially all of the assets of GPIL on a pari passu basis with the liens and security interests securing the Third Amended and Restated Credit Agreement pursuant to the terms of a customary intercreditor agreement among the parties.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On October 15, 2020, GPIL entered into a new $425 million term loan facility under the Third Amended and Restated Credit Agreement with member banks of the Farm Credit System (the "Incremental Term A-2 Facility"). The Incremental Term A-2 Facility had a delayed draw feature, and the Company drew the entire facility on January 14, 2021. On January 15, 2021, the Company used the proceeds, together with cash on hand, to redeem its 4.75% Senior Notes due in 2021 at par. The redemption included the outstanding principal amount plus accrued and unpaid interest. The Incremental Term A-2 Facility bears interest at a fixed rate of 2.67% due quarterly, matures January 14, 2028, and does not amortize. As long as the loan is outstanding, GPIL will be eligible to receive an annual patronage credit from the participating banks, which will be paid in cash and stock in the lead member bank. Patronage payable each year is variable and based on the individual financial performance of each of the member banks then participating in the loan.
At December 31, 2020, the Company and its U.S. and international subsidiaries had the following commitments, amounts outstanding and amounts available under revolving credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Total Commitments
|
Total Outstanding
|
Total Available
|
Senior Secured Domestic Revolving Credit Facility (a)
|
$
|
1,450.0
|
|
$
|
—
|
|
$
|
1,429.3
|
|
Senior Secured International Revolving Credit Facilities
|
193.0
|
|
84.4
|
|
108.6
|
|
Other International Facilities
|
57.5
|
|
8.3
|
|
49.2
|
|
Total
|
$
|
1,700.5
|
|
$
|
92.7
|
|
$
|
1,587.1
|
|
(a) In accordance with its debt agreements, the Company's availability under its revolving credit facility has been reduced by the amount of standby letters of credit issued of $20.7 million as of December 31, 2020. These letters of credit are primarily used as security against its self-insurance obligations and workers' compensation obligations. These letters of credit expire at various dates through 2021 unless extended.
The facilities under the Current Credit Agreement and the 4.75% Senior Notes due 2027, the 3.50% Senior Notes due 2028 and the 3.50% Senior Notes due 2029 are guaranteed by GPIP and certain domestic subsidiaries. The 4.75% Senior Notes due 2021 (redeemed January 15, 2021), 4.875% Senior Notes due 2022 and 4.125% Senior Notes due 2024 are guaranteed by GPHC and certain domestic subsidiaries.
The Current Credit Agreement and the indentures governing the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022, 4.125% Senior Notes due 2024, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028 and 3.50% Senior Notes due 2029 (the "Indentures") limit the Company's ability to incur additional indebtedness. Additional covenants contained in the Current Credit Agreement and the Indentures may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase stock, pay dividends and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indentures, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions could limit the Company’s ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.
As of December 31, 2020, the Company was in compliance with the covenants in the Current Credit Agreement and the Indentures.
NOTE 6. LEASES
Effective January 1, 2019, the Company adopted ASC 842, which requires recognition of a right-of-use asset and lease liability for all leases at the commencement date based on the present value of lease payments over the lease term. Additional qualitative and quantitative disclosures regarding the Company's leasing arrangements are also required. The Company adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment of: (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company has elected other available practical expedients to not separate lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for warehouses, corporate and regional offices, and machinery and equipment. The Company enters into lease contracts ranging from one to 25 years with the majority of leases having terms of three to seven years, many of which include options to extend in various increments. Variable lease costs consist primarily of variable warehousing costs, common area maintenance, taxes, and insurance. The Company’s leases do not have any significant residual value guarantees or restrictive covenants.
As the implicit rate is not readily determinable for most of the Company’s leases agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company's credit spread adjusted for current market factors, including fixed rate swaps, LIBOR, and foreign currency rates.
The components of lease costs are as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
Finance lease costs:
|
|
|
Amortization of right-of-use asset
|
$
|
7.9
|
|
$
|
7.6
|
|
Interest on lease liabilities
|
7.9
|
|
7.8
|
|
Operating lease costs
|
72.1
|
|
64.8
|
|
Short-term lease costs
|
12.6
|
|
12.9
|
|
Variable lease costs
|
10.3
|
|
4.4
|
|
|
|
|
Total lease costs, net
|
$
|
110.8
|
|
$
|
97.5
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
71.9
|
|
$
|
64.7
|
|
Operating cash flows from finance leases
|
7.9
|
|
7.8
|
|
Financing cash flows from finance leases
|
4.6
|
|
4.2
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
70.5
|
|
73.1
|
|
Finance leases
|
0.1
|
|
15.5
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In millions, except lease term and discount rate
|
Balance Sheet Classification
|
2020
|
2019
|
Operating Leases:
|
|
|
|
Operating lease right-of-use asset
|
Other Assets
|
$
|
208.3
|
|
$
|
202.8
|
|
Current operating lease liabilities
|
Other Accrued Liabilities
|
$
|
60.5
|
|
$
|
54.8
|
|
Noncurrent operating lease liabilities
|
Other Noncurrent Liabilities
|
157.2
|
|
151.5
|
|
Total operating lease liabilities
|
|
$
|
217.7
|
|
$
|
206.3
|
|
|
|
|
|
Finance Leases:
|
|
|
|
Property, Plant and Equipment
|
|
$
|
142.3
|
|
$
|
142.1
|
|
Accumulated depreciation
|
|
(20.1)
|
|
(12.2)
|
|
Property, Plant and Equipment, net
|
|
$
|
122.2
|
|
$
|
129.9
|
|
Current finance lease liabilities
|
Short-Term Debt and Current Portion of Long-Term Debt
|
$
|
5.0
|
|
$
|
4.6
|
|
Noncurrent finance lease liabilities
|
Long-Term Debt
|
134.4
|
|
129.6
|
|
Total finance lease liabilities
|
|
$
|
139.4
|
|
$
|
134.2
|
|
|
|
|
|
Weighted Average Remaining Lease Term (Years)
|
|
|
Operating leases
|
|
5
|
5
|
Finance leases
|
|
16
|
17
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
Operating leases
|
|
3.24
|
%
|
3.57
|
%
|
Finance leases
|
|
5.60
|
%
|
5.60
|
%
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
In millions
|
|
|
Year ending December 31,
|
Operating Leases
|
Finance Leases
|
2021
|
$
|
64.1
|
|
$
|
12.6
|
|
2022
|
53.0
|
|
12.2
|
|
2023
|
39.0
|
|
12.4
|
|
2024
|
25.6
|
|
12.4
|
|
2025
|
18.0
|
|
12.5
|
|
Thereafter
|
34.3
|
|
145.7
|
|
Total lease payments
|
$
|
234.0
|
|
$
|
207.8
|
|
Less imputed interest
|
(16.3)
|
|
(78.2)
|
|
Total
|
$
|
217.7
|
|
$
|
129.6
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7. 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 as amended (the “2014 Plan”). The 2014 Plan allows for granting 20.1 million shares of 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 GPHC’s authorized but unissued shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award and are adjusted for actual performance for performance-based awards. As of December 31, 2020, there were 12.6 million shares available to be granted under the 2014 Plan.
Stock Awards, Restricted Stock and Restricted Stock Units
Under the 2014 Plan, all RSUs generally vest and become payable in three years from date of grant. RSUs granted to employees generally contain service or performance objectives based on various financial targets and relative total shareholder return that must be met for the RSUs 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
2019
|
2018
|
RSUs — Employees
|
1,655,854
|
|
2,187,603
|
|
1,951,738
|
|
Weighted-average grant date fair value
|
$
|
15.40
|
|
$
|
12.37
|
|
$
|
14.86
|
|
Stock Awards — Board of Directors
|
71,160
|
|
74,760
|
|
51,226
|
|
Weighted-average grant date fair value
|
$
|
13.49
|
|
$
|
12.84
|
|
$
|
15.03
|
|
A summary of the changes in the number of unvested RSUs from December 31, 2017 to December 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
RSUs
|
Weighted Average Grant Date Fair Value
|
Outstanding — December 31, 2017
|
3,871,934
|
|
$
|
13.10
|
|
Granted(a)
|
1,951,738
|
|
14.86
|
|
Released
|
(744,757)
|
|
14.90
|
|
Forfeited
|
(210,553)
|
|
13.49
|
|
Performance adjustment(b)
|
(408,328)
|
|
15.10
|
|
Outstanding — December 31, 2018
|
4,460,034
|
|
$
|
13.27
|
|
Granted(a)
|
2,187,603
|
|
12.37
|
|
Released
|
(900,516)
|
|
12.00
|
|
Forfeited
|
(187,729)
|
|
13.66
|
|
Performance adjustment(b)
|
(499,702)
|
|
11.57
|
|
Outstanding — December 31, 2019
|
5,059,690
|
|
$
|
13.27
|
|
Granted(a)
|
1,655,854
|
|
15.40
|
|
Released
|
(1,415,365)
|
|
12.91
|
|
Forfeited
|
(158,473)
|
|
14.25
|
|
|
|
|
Outstanding — December 31, 2020
|
5,141,706
|
|
$
|
14.02
|
|
(a) Grant activity for all performance-based RSUs is disclosed at target.
(b) Reflects the number of RSUs above and below target levels based on actual performance measured at the end of the performance period.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The initial value of the service-based RSUs is based on the market value of GPHC’s common stock on the date of grant. The 2020 performance-based RSU grants were valued using a Monte Carlo simulation as the total shareholder return contains a market condition. RSUs are recorded in Shareholders' Equity. The unrecognized expense at December 31, 2020 is approximately $31 million and is expected to be recognized over a weighted average period of 2 years.
The value of stock awards granted to the Company's directors are based on the market value of GPHC’s common stock on the date of grant. These awards are unrestricted on the date of grant.
During 2020, 2019, and 2018, $33.8 million, $21.7 million and $13.8 million, respectively, were charged to compensation expense for stock incentive plans and is primarily included in Selling, General and Administrative expenses in the Consolidated Statements of Operations.
During 2020, 2019, and 2018, RSUs with an aggregate fair value of $22.7 million, $11.1 million and $13.7 million, respectively, vested and were paid out. The RSUs vested and paid out in 2020 were granted primarily during 2017.
NOTE 8. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
DEFINED BENEFIT PLANS
The Company maintains both defined benefit pension plans and postretirement health care plans that provide medical and life insurance coverage to eligible salaried and hourly retired employees in North America and their dependents. The Company maintains international defined benefit pension plans which are either noncontributory or 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 2018, the Company began the process of terminating its largest U.S. pension plan (the "U.S. Plan"). This included freezing the plan as of December 31, 2018 and spinning off the active participants to the plan established as part of the NACP Combination (the "NACP Plan"). The NACP Plan is open for union and non-union hourly employees of locations that were part of the NACP Combination. During the third quarter of 2019, the Company offered a lump-sum benefit option to certain participants in the U.S. Plan. Lump sum payments of $150.2 million were paid in the fourth quarter of 2019 and the Company recognized a non-cash settlement charge of $39.2 million associated with the payouts. In the first quarter of 2020, the Company, using the assets held within the pension trust, purchased a group annuity contract that transferred the remaining pension obligation under the U.S. Plan of approximately $713 million to an insurance company. The Company incurred an additional non-cash settlement charge of $153.7 million related to this transfer. These non-cash settlement charges relate to Net Actuarial Loss previously recognized in Accumulated Other Comprehensive Loss.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension and Postretirement Expense
The pension and postretirement expenses related to the Company’s plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
Postretirement Benefits
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
2018
|
2020
|
2019
|
2018
|
Components of Net Periodic Cost:
|
|
|
|
|
|
|
Service Cost
|
$
|
15.4
|
|
$
|
14.0
|
|
$
|
17.3
|
|
$
|
0.5
|
|
$
|
0.5
|
|
$
|
0.6
|
|
Interest Cost
|
14.0
|
|
46.1
|
|
41.8
|
|
1.0
|
|
1.2
|
|
1.2
|
|
|
|
|
|
|
|
|
Expected Return on Plan Assets
|
(21.0)
|
|
(54.9)
|
|
(63.6)
|
|
—
|
|
—
|
|
—
|
|
Amortization:
|
|
|
|
|
|
|
Prior Service Cost (Credit)
|
0.2
|
|
0.2
|
|
0.4
|
|
(0.3)
|
|
(0.3)
|
|
(0.3)
|
|
Actuarial Loss (Gain)
|
5.4
|
|
10.0
|
|
5.9
|
|
(1.7)
|
|
(2.3)
|
|
(1.8)
|
|
Net Curtailment/Settlement Loss
|
153.7
|
|
39.2
|
|
1.0
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Other
|
0.2
|
|
0.3
|
|
0.5
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Net Periodic Cost (Benefit)
|
$
|
167.9
|
|
$
|
54.9
|
|
$
|
3.3
|
|
$
|
(0.5)
|
|
$
|
(0.9)
|
|
$
|
(0.3)
|
|
Certain assumptions used in determining the pension and postretirement expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
Postretirement Benefits
|
|
Year Ended December 31,
|
|
2020
|
2019
|
2018
|
2020
|
2019
|
2018
|
Weighted Average Assumptions:
|
|
|
|
|
|
|
Discount Rate
|
2.69
|
%
|
4.14
|
%
|
3.49
|
%
|
3.22
|
%
|
4.29
|
%
|
3.64
|
%
|
Rate of Increase in Future Compensation Levels
|
2.36
|
%
|
2.37
|
%
|
2.09
|
%
|
—
|
|
—
|
|
—
|
|
Expected Long-Term Rate of Return on Plan Assets
|
4.12
|
%
|
4.74
|
%
|
4.86
|
%
|
—
|
|
—
|
|
—
|
|
Initial Health Care Cost Trend Rate
|
—
|
|
—
|
|
—
|
|
6.65
|
%
|
9.00
|
%
|
9.00
|
%
|
Ultimate Health Care Cost Trend Rate
|
—
|
|
—
|
|
—
|
|
4.50
|
%
|
4.50
|
%
|
4.50
|
%
|
Ultimate Year
|
—
|
|
—
|
|
—
|
|
2028
|
2028
|
2027
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Funded Status
The following table sets forth the funded status of the Company’s pension and postretirement plans as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
Postretirement Benefits
|
In millions
|
2020
|
2019
|
2020
|
2019
|
Change in Benefit Obligation:
|
|
|
|
|
Benefit Obligation at Beginning of Year
|
$
|
1,255.4
|
|
$
|
1,245.2
|
|
$
|
35.9
|
|
$
|
34.1
|
|
Service Cost
|
15.4
|
|
14.0
|
|
0.5
|
|
0.5
|
|
Interest Cost
|
14.0
|
|
46.1
|
|
1.0
|
|
1.2
|
|
Net Actuarial Loss
|
61.9
|
|
157.8
|
|
—
|
|
1.1
|
|
Foreign Currency Exchange
|
8.9
|
|
9.2
|
|
—
|
|
0.1
|
|
|
|
|
|
|
Settlements
|
(742.7)
|
|
(150.2)
|
|
—
|
|
—
|
|
Benefits Paid
|
(20.4)
|
|
(67.2)
|
|
(1.2)
|
|
(1.2)
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
0.3
|
|
0.5
|
|
0.1
|
|
0.1
|
|
Benefit Obligation at End of Year
|
$
|
592.8
|
|
$
|
1,255.4
|
|
$
|
36.3
|
|
$
|
35.9
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Year
|
$
|
1,172.4
|
|
$
|
1,186.5
|
|
$
|
—
|
|
$
|
—
|
|
Actual Return on Plan Assets
|
57.8
|
|
181.7
|
|
—
|
|
—
|
|
Employer Contributions
|
19.1
|
|
11.3
|
|
1.2
|
|
1.2
|
|
Foreign Currency Exchange
|
8.1
|
|
10.3
|
|
—
|
|
—
|
|
Benefits Paid
|
(20.4)
|
|
(67.2)
|
|
(1.2)
|
|
(1.2)
|
|
|
|
|
|
|
Settlements
|
(720.7)
|
|
(150.2)
|
|
—
|
|
—
|
|
|
|
|
|
|
Fair Value of Plan Assets at End of Year
|
$
|
516.3
|
|
$
|
1,172.4
|
|
$
|
—
|
|
$
|
—
|
|
Plan Assets Less than Projected Benefit Obligation
|
$
|
(76.5)
|
|
$
|
(83.0)
|
|
$
|
(36.3)
|
|
$
|
(35.9)
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets Consist of:
|
|
|
|
|
Pension Assets
|
$
|
21.2
|
|
$
|
25.6
|
|
$
|
—
|
|
$
|
—
|
|
Accrued Pension and Postretirement Benefits Liability — Current
|
$
|
(1.8)
|
|
$
|
(1.7)
|
|
$
|
(2.5)
|
|
$
|
(2.4)
|
|
Accrued Pension and Postretirement Benefits Liability — Noncurrent
|
$
|
(96.0)
|
|
$
|
(106.9)
|
|
$
|
(33.8)
|
|
$
|
(33.5)
|
|
Accumulated Other Comprehensive Income:
|
|
|
|
|
Net Actuarial Loss (Gain)
|
$
|
105.5
|
|
$
|
279.9
|
|
$
|
(0.9)
|
|
$
|
(0.8)
|
|
Prior Service Cost (Credit)
|
$
|
3.8
|
|
$
|
3.6
|
|
$
|
(15.3)
|
|
$
|
(17.3)
|
|
Weighted Average Calculations:
|
|
|
|
|
Discount Rate
|
2.11
|
%
|
2.69
|
%
|
2.52
|
%
|
3.22
|
%
|
Rates of Increase in Future Compensation Levels
|
3.62
|
%
|
2.36
|
%
|
—
|
|
—
|
|
Initial Health Care Cost Trend Rate
|
—
|
|
—
|
|
6.40
|
%
|
6.65
|
%
|
Ultimate Health Care Cost Trend Rate
|
—
|
|
—
|
|
4.50
|
%
|
4.50
|
%
|
Ultimate Year
|
—
|
|
—
|
|
2028
|
2028
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company determined pension expense using both the fair value of assets and a calculated value that averages gains and losses over a period of years. Investment gains or losses represent the difference between the expected and actual return on assets. As of December 31, 2020, the net actuarial loss was $105.5 million. These net losses may increase future pension expense if not offset by (i) actual investment returns that exceed the assumed investment returns, or (ii) other factors, including reduced pension liabilities arising from higher discount rates used to calculate pension obligations, or (iii) other actuarial gains, including whether such accumulated actuarial losses at each measurement date exceed the “corridor” determined under the Compensation — Retirement Benefits topic of the FASB Codification. For the largest plan, the actuarial loss is amortized over the average remaining service period of employees expected to receive benefits.
The discount rate used to determine the present value of future pension obligations at December 31, 2020 was based on a yield curve constructed from a portfolio of high-quality corporate debt securities with maturities ranging from 1 year to 30 years. Each year’s expected future benefit payments were discounted to their present value at the spot yield curve rate thereby generating the overall discount rate for the Company’s pension obligations. The weighted average discount rate used to determine the pension obligations was 2.11% and 2.69% in 2020 and 2019, respectively.
The net actuarial loss of $61.9 million was primarily due to changes in the discount rate of $51.2 million. The weighted average discount rate at December 31, 2020 was 2.11% compared to 2.69% at December 31, 2019. The net actuarial loss was also impacted by revised census data and actual experience versus expected.
Accumulated Benefit Obligation
The accumulated benefit obligation, (“ABO”), for all defined benefit pension plans was $588.1 million and $1,249.8 million at December 31, 2020 and 2019, respectively. The projected benefit obligation (“PBO”) and fair value of plan assets where the PBO exceeded plan assets were $361.1 million and $266.0 million, respectively. The ABO and fair value of plan assets where the ABO exceeded plan assets were $356.5 million and $266.0 million, respectively.
Employer Contributions
The Company made contributions of $19.1 million and $11.3 million to its pension plans during 2020 and 2019, respectively. The Company also made postretirement health care benefit payments of $1.2 million during 2020 and 2019. For 2021, the Company expects to make contributions in the range of $10 million to $20 million to its pension plans and approximately $3 million to its postretirement health care plans.
Pension Assets
The Company’s overall investment strategy is to achieve a mix of investments for long-term growth and near-term benefit payments through diversification of asset types, fund strategies and fund managers. Investment risk is measured on an on-going basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews. The plans invest in the following major asset categories: cash, equity securities, fixed income securities, real estate and diversified growth funds. At December 31, 2020 and 2019, pension investments did not include any direct investments in the Company’s stock or the Company’s debt.
The Company implemented a de-risking or liability driven investment strategy for its U.S. and U.K. pension plans. This strategy moved assets from return seeking (equities) to investments that mirror the underlying benefit obligations (fixed income).
The weighted average allocation of plan assets and the target allocation by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
2020
|
2019
|
Cash
|
0.4
|
%
|
1.2
|
%
|
13.6
|
%
|
Equity Securities
|
22.8
|
|
24.2
|
|
7.7
|
|
Fixed Income Securities
|
60.7
|
|
61.9
|
|
68.6
|
|
Other Investments
|
16.1
|
|
12.7
|
|
10.1
|
|
Total
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The plans’ investment in equity securities primarily includes investments in U.S. and international companies of varying sizes and industries. The strategy of these investments is to 1) exceed the return of an appropriate benchmark for such equity classes and 2) through diversification, reduce volatility while enhancing long term real growth.
The plans’ investment in fixed income securities includes government bonds, investment grade bonds and non-investment grade bonds across a broad and diverse issuer base. The strategy of these investments is to provide income and stability and to diversify the fixed income exposure of the plan assets, thereby reducing volatility.
The Company’s approach to developing the expected long-term rate of return on pension plan assets is based on fair values and combines an analysis of historical investment performance by asset class, the Company’s investment guidelines and current and expected economic fundamentals.
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, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2020
|
|
In millions
|
Total
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
Net Asset Value at December 31, 2020
|
Asset Category:
|
|
|
|
|
|
Cash
|
$
|
6.2
|
|
$
|
0.3
|
|
$
|
2.3
|
|
$
|
—
|
|
$
|
3.6
|
|
Equity Securities:
|
|
|
|
|
|
Domestic
|
117.8
|
|
4.9
|
|
11.6
|
|
—
|
|
101.3
|
|
Foreign
|
7.2
|
|
7.2
|
|
—
|
|
—
|
|
—
|
|
Fixed Income Securities
|
319.6
|
|
18.7
|
|
300.6
|
|
0.3
|
|
—
|
|
Other Investments:
|
|
|
|
|
|
Real estate
|
22.9
|
|
—
|
|
8.9
|
|
14.0
|
|
—
|
|
Diversified growth fund (a)
|
42.6
|
|
—
|
|
42.6
|
|
—
|
|
—
|
|
Total
|
$
|
516.3
|
|
$
|
31.1
|
|
$
|
366.0
|
|
$
|
14.3
|
|
$
|
104.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019
|
|
In millions
|
Total
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
Net Asset Value at December 31, 2019
|
Asset Category:
|
|
|
|
|
|
Cash
|
$
|
159.6
|
|
$
|
0.3
|
|
$
|
35.0
|
|
$
|
—
|
|
$
|
124.3
|
|
Equity Securities:
|
|
|
|
|
|
Domestic
|
82.9
|
|
4.7
|
|
—
|
|
—
|
|
78.2
|
|
Foreign
|
7.0
|
|
7.0
|
|
—
|
|
—
|
|
—
|
|
Fixed Income Securities
|
852.5
|
|
17.0
|
|
835.3
|
|
0.2
|
|
—
|
|
Other Investments:
|
|
|
|
|
|
Real estate
|
21.9
|
|
—
|
|
8.9
|
|
13.0
|
|
—
|
|
Diversified growth fund (a)
|
48.5
|
|
—
|
|
48.5
|
|
—
|
|
—
|
|
Total
|
$
|
1,172.4
|
|
$
|
29.0
|
|
$
|
927.7
|
|
$
|
13.2
|
|
$
|
202.5
|
|
(a) The fund invests in a combination of traditional investments (equities, bonds, and foreign exchange), seeking to achieve returns through active asset allocation over a three to five-year horizon.
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
|
2020
|
2019
|
|
|
Balance at January 1,
|
$
|
13.2
|
|
$
|
5.8
|
|
|
|
Transfers In
|
1.1
|
|
7.4
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
$
|
14.3
|
|
$
|
13.2
|
|
|
|
Estimated Future Benefit Payments
The following represents the Company’s estimated future pension and postretirement health care benefit payments through the year 2030:
|
|
|
|
|
|
|
|
|
In millions
|
Pension Plans
|
Postretirement Health Care Benefits
|
2021
|
$
|
24.1
|
|
$
|
2.5
|
|
2022
|
26.5
|
|
2.5
|
|
2023
|
28.8
|
|
2.5
|
|
2024
|
30.6
|
|
2.6
|
|
2025
|
32.5
|
|
2.3
|
|
2026— 2030
|
181.0
|
|
10.4
|
|
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, 2020 and 2019 was $0.1 million and $0.6 million, respectively.
Estimated liabilities have been established related to the partial or complete withdrawal from certain multi-employment benefit plans for facilities that have been closed. During the second quarter of 2020, the Company increased its estimated withdrawal liability for these plans by $12.2 million. During the fourth quarter of 2020, the Company entered into a settlement agreement with one of its closed multi-employment benefit plans and recorded a $3.9 million reduction in its estimated withdrawal liability for this plan. Under the terms of this settlement agreement, the Company will pay $17.2 million in the first quarter of 2021. At December 31, 2020, and December 31, 2019, the Company has withdrawal liabilities of $37.2 million and $30.8 million, respectively, related to these plans, which is recorded as Compensation and Employee Benefits and Other Noncurrent Liabilities in the Company's Consolidated Balance Sheets, which represents the Company's best estimate of the expected withdrawal liability.
In 2019, the Company made a complete withdrawal from the Graphic Communication Conference of the International Brotherhood of Teamster Pension Fund ("GCC/IBT") and the PACE Industry Union-Management Pension Fund ("PIUMPF"). Liabilities of $4.4 million were recorded associated with these withdrawals.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's remaining participation in a multi-employer pension plan consists of contributions to one plan under the terms contained in collective bargaining agreements. The risks of participating in these multi-employer plans are different from single-employer plans in the following ways:
a. Assets contributed to the multi-employers plan by one employer may be used to provide benefits to employees of other participating employers.
b. If a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers.
c. If a company chooses to stop participating in a multi-employer plan, a company may be required to pay that plan an amount based on the underfunded status of the plan, referred to as the withdrawal liability.
The Company's participation in these plans for the year ended December 31, 2020, 2019 and 2018 is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection Act Zone Status
|
|
Company Contributions (in millions)
|
|
|
Multi-employer Pension Fund
|
EIN/Pension Plan Number
|
2020
|
2019
|
FIP/RP Status Implemented
|
2020
|
2019
|
2018
|
Surcharge Imposed
|
Expiration Date of Bargaining Agreement
|
Central States Southeast and Southwest Areas Pension Fund
|
36-6044243/001
|
Red
|
Red
|
Yes
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
0.1
|
|
Yes
|
7/31/2023
|
PIUMPF(a)
|
11-6166763/001
|
Red
|
Red
|
Yes
|
—
|
|
—
|
|
0.1
|
|
Yes
|
6/15/2022
|
GCC/IBT(a)
|
52-6118568/001
|
Red
|
Red
|
Yes
|
—
|
|
0.1
|
|
0.3
|
|
Yes
|
4/30/2022
|
Total
|
|
|
|
|
$
|
0.1
|
|
$
|
0.2
|
|
$
|
0.5
|
|
|
|
(a) As noted above, the Company withdrew from these plans in 2019.
The EIN Number column provides the Employer Identification Number (EIN). Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2020 and 2019 is for the plan's year-end at December 31, 2019 and December 31, 2018, respectively. The zone status is based on information that the Company receives from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The "FIP/RP Status Implemented" column indicates plans for which a Financial Improvement Plan (FIP) or Rehabilitation Plan (RP) has been implemented. The Company's share of the contributions to these plans did not exceed 5% of total plan contributions for the most recent plan year.
DEFINED CONTRIBUTION PLANS
The Company provides defined contribution plans for certain eligible employees. The Company’s contributions to the plans are based upon employee contributions, a percentage of eligible compensation, and the Company’s annual operating results. Contributions to these plans for the years ended December 31, 2020, 2019 and 2018 were $62.0 million, $57.6 million and $54.6 million, respectively.
NOTE 9. INCOME TAXES
The U.S. and international components of Income before Income Taxes and Equity Income of Unconsolidated Entity consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
2018
|
U.S.
|
$
|
180.5
|
|
$
|
305.4
|
|
$
|
298.9
|
|
International
|
63.5
|
|
48.6
|
|
48.6
|
|
Income before Income Taxes and Equity Income of Unconsolidated Entity
|
$
|
244.0
|
|
$
|
354.0
|
|
$
|
347.5
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The provisions for Income Tax (Expense) Benefit on Income before Income Taxes and Equity Income of Unconsolidated Entity consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
2018
|
Current Expense:
|
|
|
|
U.S.
|
$
|
(23.0)
|
|
$
|
(10.1)
|
|
$
|
(13.0)
|
|
International
|
(19.3)
|
|
(13.5)
|
|
(15.7)
|
|
Total Current
|
$
|
(42.3)
|
|
$
|
(23.6)
|
|
$
|
(28.7)
|
|
|
|
|
|
Deferred (Expense) Benefit:
|
|
|
|
U.S.
|
(8.5)
|
|
(47.7)
|
|
(31.6)
|
|
International
|
9.2
|
|
(5.0)
|
|
5.6
|
|
Total Deferred
|
$
|
0.7
|
|
$
|
(52.7)
|
|
$
|
(26.0)
|
|
Income Tax Expense
|
$
|
(41.6)
|
|
$
|
(76.3)
|
|
$
|
(54.7)
|
|
A reconciliation of Income Tax (Expense) Benefit on Income before Income Taxes and Equity Income of Unconsolidated Entity at the federal statutory rate of 21.0% compared with the Company’s actual Income Tax (Expense) Benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
Percent
|
|
2019
|
Percent
|
|
2018
|
Percent
|
Income Tax Expense at U.S. Statutory Rate
|
$
|
(51.2)
|
|
21.0
|
%
|
|
$
|
(74.3)
|
|
21.0
|
%
|
|
$
|
(73.0)
|
|
21.0
|
%
|
U.S. State and Local Tax Expense
|
(7.7)
|
|
3.2
|
|
|
(12.3)
|
|
3.5
|
|
|
(11.7)
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent Items
|
(1.0)
|
|
0.4
|
|
|
(2.8)
|
|
0.8
|
|
|
(3.8)
|
|
1.1
|
|
U.S. Tax Reform
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
10.9
|
|
(3.1)
|
|
Provision to Return Adjustments
|
2.2
|
|
(0.9)
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Change in Valuation Allowance
|
7.0
|
|
(2.9)
|
|
|
(4.6)
|
|
1.3
|
|
|
13.0
|
|
(3.7)
|
|
International Tax Rate Differences
|
(3.0)
|
|
1.2
|
|
|
(1.6)
|
|
0.5
|
|
|
(1.9)
|
|
0.5
|
|
Foreign Withholding Tax
|
(0.8)
|
|
0.3
|
|
|
(0.7)
|
|
0.2
|
|
|
(0.5)
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Tax Rates
|
(0.4)
|
|
0.1
|
|
|
(1.0)
|
|
0.3
|
|
|
1.9
|
|
(0.5)
|
|
U.S. Federal & State Tax Credits
|
9.7
|
|
(4.0)
|
|
|
9.5
|
|
(2.7)
|
|
|
0.3
|
|
(0.1)
|
|
Uncertain Tax Positions
|
(2.3)
|
|
1.0
|
|
|
(1.9)
|
|
0.5
|
|
|
(0.7)
|
|
0.2
|
|
Capital Loss Expiration
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
(2.7)
|
|
0.7
|
|
Domestic Minority Interest
|
5.5
|
|
(2.2)
|
|
|
13.7
|
|
(3.9)
|
|
|
13.7
|
|
(3.9)
|
|
Other
|
0.4
|
|
(0.2)
|
|
|
(0.3)
|
|
0.1
|
|
|
(0.2)
|
|
—
|
|
Income Tax Expense
|
$
|
(41.6)
|
|
17.0
|
%
|
|
$
|
(76.3)
|
|
21.6
|
%
|
|
$
|
(54.7)
|
|
15.7
|
%
|
As a result of the NACP Combination, federal and state income taxes are not recorded with respect to consolidated domestic earnings attributable to the Company’s minority interest partner, resulting in a difference between the effective tax rate and the statutory tax rate. As a result of decreases in the minority partner's interest during 2020, the difference between the effective tax rate and the statutory tax also declined.
In addition, during 2020, the Company recognized a tax benefit of approximately $7.6 million attributable to the release of a valuation allowance recorded against the net deferred tax assets of two of its Canadian subsidiaries as a result of internal restructuring. The Company also recognized a tax benefit related to updates to is 2019 financial statement income tax calculations of approximately $2.2 million primarily due to new guidance in final U.S. Treasury Regulations issued during 2020.
During 2019, the Company recognized tax expense of approximately $4.8 million associated with the establishment of a valuation allowance against the net deferred tax assets of its Australian subsidiary.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. In addition, during 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 subsidiary in France.
The tax effects of differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
Deferred Income Tax Assets:
|
|
|
Compensation Based Accruals
|
$
|
3.6
|
|
$
|
3.8
|
|
Net Operating Loss Carryforwards
|
40.3
|
|
45.5
|
|
Postretirement Benefits
|
1.4
|
|
0.9
|
|
Tax Credits
|
19.3
|
|
37.2
|
|
Other
|
8.4
|
|
10.9
|
|
Valuation Allowance
|
(34.4)
|
|
(41.1)
|
|
Total Deferred Income Tax Assets
|
$
|
38.6
|
|
$
|
57.2
|
|
Deferred Income Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
(20.8)
|
|
(18.8)
|
|
Goodwill
|
(2.9)
|
|
(2.7)
|
|
Other Intangibles
|
(11.2)
|
|
(12.3)
|
|
Investment in Partnership
|
(530.4)
|
|
(532.2)
|
|
|
|
|
Net Noncurrent Deferred Income Tax Liabilities
|
$
|
(565.3)
|
|
$
|
(566.0)
|
|
Net Deferred Income Tax Liability
|
$
|
(526.7)
|
|
$
|
(508.8)
|
|
The Company has total deferred income tax assets, excluding valuation allowance, of $73.0 million and $98.3 million as of December 31, 2020 and 2019, respectively. The Company has total deferred income tax liabilities of $565.3 million and $566.0 million as of December 31, 2020 and 2019, respectively.
As a result of NACP combination, the Company currently owns a controlling interest in GPIP, which is treated as a partnership for U.S. federal and state income tax purposes, with IP holding a minority interest. As such, the Company records income tax on its share of income allocated to it by the partnership. Accordingly, domestic deferred tax assets and liabilities are not tracked based on the inside basis difference of assets and liabilities held within GPIP. Instead, the Company’s outside basis difference in its partnership investment is recorded as a deferred tax liability and disclosed above. The deferred tax liability primarily relates to differences between book and tax basis in property, plant and equipment and intangibles inside the partnership. During 2020, IP redeemed a portion of its interest in the partnership. As a result of the redemptions, the Company recorded a decrease in its deferred tax liability of $16.0 million, which was recorded through additional paid-in capital.
According to the Income Taxes topic of the FASB Codification, a valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The FASB Codification provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient pretax income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. The Company has evaluated the need to maintain a valuation allowance for deferred tax assets based on its assessment of whether it is more likely than not that deferred tax assets will be realized through the generation of future taxable income. Appropriate consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company reviewed its deferred income tax assets as of December 31, 2020 and 2019, respectively, and determined that it is more likely than not that a portion will not be realized. A valuation allowance of $34.4 million and $41.1 million at December 31, 2020 and 2019, respectively, is maintained on the deferred income tax assets for which the Company has determined that realization is not more likely than not. Of the total valuation allowance at December 31, 2020, $24.6 million relates to net deferred tax assets in certain foreign jurisdictions, $0.7 million relates to U.S. federal capital loss carryforwards, $4.6 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, 2020, the Company concluded that due to cumulative pretax losses and the lack of sufficient future taxable income of the appropriate character, realization is less than more likely than not on the net deferred income tax assets related primarily to the Company’s Australia, Brazil, China and Germany 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, 2020, 2019, and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In millions
|
2020
|
2019
|
2018
|
Balance Beginning of Period
|
$
|
41.1
|
|
$
|
36.3
|
|
$
|
51.5
|
|
Adjustments for (Income) and Expenses
|
(7.0)
|
|
4.6
|
|
(13.0)
|
|
Additions (Deductions)
|
0.3
|
|
0.2
|
|
(2.2)
|
|
Balance at End of Period
|
$
|
34.4
|
|
$
|
41.1
|
|
$
|
36.3
|
|
The Company utilized its remaining U.S. federal net operating losses during 2020. The Company's U.S. state net operating loss carryforwards total $198.8 million and expire in various years through 2038.
International net operating loss carryforward amounts total $119.5 million, of which substantially all have no expiration date.
Tax Credit carryforwards total $19.3 million which expire in various years from 2021 through 2039.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
2018
|
Balance at January 1,
|
$
|
20.7
|
|
$
|
15.5
|
|
$
|
10.5
|
|
Additions for Tax Positions of Current Year
|
1.2
|
|
3.2
|
|
0.8
|
|
Additions for Tax Positions of Prior Years
|
1.4
|
|
2.4
|
|
5.2
|
|
Reductions for Tax Positions of Prior Years
|
(3.7)
|
|
(0.4)
|
|
(1.0)
|
|
Balance at December 31,
|
$
|
19.6
|
|
$
|
20.7
|
|
$
|
15.5
|
|
At December 31, 2020, $19.6 million of the total gross unrecognized tax benefits, if recognized, would affect the annual effective income tax rate. As of December 31 2020, none of the total gross unrecognized tax benefits recorded are related to indefinite lived deferred tax assets and did not have an impact on total tax expense. In addition, $0.1 million of the total change in unrecognized tax benefits relates to currency translation adjustments.
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, 2020 and 2019, respectively.
The Company anticipates that $0.1 million of the total unrecognized tax benefits at December 31, 2020 could change within the next 12 months.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions and our income tax filings are regularly examined by federal, state and non-U.S. tax authorities. The Company has been notified that its 2018 U.S. federal corporate and partnership income tax filings will be examined by the Internal Revenue Service. The examinations are scheduled to begin during the first quarter of 2021. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations for years before 2017.
As of December 31, 2020, the Company has provided for deferred income taxes attributable to future foreign withholding tax expense related to the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd. In addition, Company provided deferred income taxes for future Canadian withholding tax to the extent of excess cash available for distribution after consideration of working capital needs and other debt settlement of its Canadian subsidiary, Graphic Packaging International Canada, ULC. During the year ended December 31, 2020, the Company distributed its remaining paid-up capital in Canada and as a result, the Company expects to incur Canadian withholding tax on future distributions. The Company continues to assert that it is permanently reinvested in the cumulative earnings of its Canadian subsidiary in excess of the amount of cash that is on hand and available for distribution after consideration of working capital needs and other debt settlement. Due to the deemed taxation of all post-1986 earnings and profits required by the Act, the Company has determined that no deferred tax liability should be recorded related to the outside basis difference of its Canadian subsidiary of approximately $51.4 million as of December 31, 2020.
The Company has not provided for deferred U.S. income taxes on approximately $55 million of its undistributed earnings in other international subsidiaries because of the Company’s intention to indefinitely reinvest these earnings outside the U.S. The Company’s assertion remains unchanged, despite the deemed taxation of all post-1986 earnings and profits required by the Act. The determination of the amount of the unrecognized deferred U.S. income tax 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.
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 10. FINANCIAL INSTRUMENTS, DERIVATIVES AND HEDGING ACTIVITIES
The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging topic of the FASB Codification and those not designated as hedging instruments under this guidance. The Company uses interest rate swaps, natural gas swap contracts, and forward 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, and presented in the same line of the income statement expected for the hedged item.
Interest Rate Risk
The Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. The following table summarizes the Company's current interest rate swap positions for each period presented as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Start
|
End
|
(In Millions)
Notional Amount
|
Weighted Average Interest Rate
|
|
|
|
|
12/03/2018
|
01/01/2022
|
$120.0
|
2.92%
|
12/03/2018
|
01/04/2022
|
$80.0
|
2.79%
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
These derivative instruments are designated as cash flow hedges and, to the extent they are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in Accumulated Other Comprehensive Loss. Ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. During 2020 and 2019, there were no amounts of ineffectiveness. During 2020 and 2019, 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 purchases of natural gas, the Company enters into natural gas swap contracts to hedge prices for a designated percentage of its expected natural gas usage. 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 Loss and resulting gain or loss reclassified into Cost of Sales concurrently with the recognition of the commodity consumed. The Company has hedged approximately 44% and 11% of its expected natural gas usage for 2021 and 2022, respectively.
During 2020 and 2019, there were no 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 exchange contracts 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, 2020 and 2019, multiple forward exchange contracts existed that expire on various dates throughout the following year. Those purchased forward exchange contracts outstanding at December 31, 2020 and 2019, when aggregated and measured in U.S. dollars at contractual rates at December 31, 2020 and 2019, had notional amounts totaling $101.6 million and $87.6 million, respectively.
No amounts were reclassified to earnings during 2020 and 2019 in connection with forecasted transactions that were considered probable of not 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 2020 and 2019.
Derivatives not Designated as Hedges
The Company enters into forward exchange contracts to effectively hedge substantially all of its accounts receivables resulting from sales transactions and intercompany loans denominated in foreign currencies in order to manage risks associated with variability in cash flows that may be adversely affected by changes in exchange rates. At December 31, 2020 and 2019, multiple foreign currency forward exchange contracts existed, with maturities ranging up to two months. Those foreign currency contracts outstanding at December 31, 2020 and 2019, when aggregated and measured in U.S. dollars at contractual rates at December 31, 2020 and 2019, respectively, had net notional amounts totaling $80.0 million and $77.4 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 the remeasurement of these accounts receivable.
Foreign Currency Movement Effect
For the year ended December 31, 2020, 2019, and 2018, net currency exchange (gains)/losses included in determining Income from Operations were $2.7 million, $(2.3) million, and $1.6 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11. 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 third party derivatives brokers, corroborated with information obtained from third party pricing service providers.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fair Value of Financial Instruments
As of December 31, 2020 and 2019, 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 following table summarizes the fair value of the Company's derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets(a)
|
Derivative Liabilities(b)
|
|
December 31,
|
December 31,
|
In millions
|
2020
|
2019
|
2020
|
2019
|
Derivatives designated as hedging instruments:
|
|
|
|
|
Interest rate contracts
|
$
|
—
|
|
$
|
—
|
|
$
|
6.0
|
|
$
|
6.6
|
|
Foreign currency contracts
|
—
|
|
—
|
|
2.9
|
|
1.5
|
|
Commodity contracts
|
2.1
|
|
—
|
|
—
|
|
3.4
|
|
Total Derivatives
|
$
|
2.1
|
|
$
|
—
|
|
$
|
8.9
|
|
$
|
11.5
|
|
(a) Derivative assets of $1.6 million are included in Other Current Assets as of December 31, 2020. Derivative asset of $0.5 million are included in Other Accrued Assets as of December 31, 2020.
(b) Derivative liabilities of $8.5 million and $8.5 million are included in Other Accrued Liabilities as of December 31, 2020 and December 31, 2019, respectively. Derivative liabilities of $0.4 million and $3.0 million are included in Other Noncurrent Liabilities as of December 31, 2020 and December 31, 2019, respectively.
The fair values of the Company’s other financial assets and liabilities at December 31, 2020 and 2019 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 finance leases and deferred financing fees) was $3,624.7 million and $2,788.6 million, as compared to the carrying amounts of $3,523.9 million and $2,729.3 million as of December 31, 2020 and 2019, respectively. The fair value of the Company's Total 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 third party pricing service providers.
Effect of Derivative Instruments
The pre-tax effect of derivative instruments in cash flow hedging relationships on the Company’s Consolidated Statements of Operations for the year ended December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss (Gain) Recognized in Accumulated Other Comprehensive Loss
|
|
Location in Statement of Operations
|
Amount of (Gain) Loss Recognized in Statement of Operations
|
|
|
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
|
In millions
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
Commodity Contracts
|
$
|
0.9
|
|
$
|
1.4
|
|
|
Cost of Sales
|
$
|
6.3
|
|
$
|
(1.8)
|
|
|
|
|
|
Foreign Currency Contracts
|
2.1
|
|
0.1
|
|
|
Other Expense, Net
|
(0.5)
|
|
(1.3)
|
|
|
|
|
|
Interest Rate Swap Agreements
|
5.8
|
|
5.8
|
|
|
Interest Expense, Net
|
6.5
|
|
1.4
|
|
|
|
|
|
Total
|
$
|
8.8
|
|
$
|
7.3
|
|
|
|
$
|
12.3
|
|
$
|
(1.7)
|
|
|
|
|
|
The effect of derivative instruments not designated as hedging instruments on the Company’s Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2020
|
2019
|
Foreign Currency Contracts
|
Other Expense, Net
|
$
|
8.7
|
|
$
|
(0.9)
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accumulated Derivative Instruments (Loss) Income
The following is a rollforward of pre-tax Accumulated Derivative Instruments (Loss) Income which is included in the Company’s Consolidated Balance Sheets and Consolidated Statements of Shareholders’ Equity as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
2018
|
Balance at January 1
|
$
|
(10.9)
|
|
$
|
(1.9)
|
|
$
|
(0.3)
|
|
Reclassification to Earnings
|
12.3
|
|
(1.7)
|
|
(0.6)
|
|
Current Period Change in Fair Value
|
(8.8)
|
|
(7.3)
|
|
(1.0)
|
|
Balance at December 31
|
$
|
(7.4)
|
|
$
|
(10.9)
|
|
$
|
(1.9)
|
|
At December 31, 2020, the Company expects to reclassify $5.9 million of pre-tax losses in the next twelve months from Accumulated Other Comprehensive Loss to earnings, contemporaneously with and offsetting changes in the related hedged exposure. The actual amount that will be reclassified to future earnings may vary from this amount as a result of changes in market conditions.
NOTE 12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of Other Comprehensive Income (Loss) attributable to Graphic Packaging Holding Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
In millions
|
Pretax Amount
|
Tax Effect
|
Net Amount(a)
|
|
Pretax Amount
|
Tax Effect
|
Net Amount(a)
|
|
Pretax Amount
|
Tax Effect
|
Net Amount
|
Derivative Instruments Gain (Loss)
|
$
|
4.1
|
|
$
|
(0.6)
|
|
$
|
3.5
|
|
|
$
|
(6.7)
|
|
$
|
1.4
|
|
$
|
(5.3)
|
|
|
$
|
(1.1)
|
|
$
|
0.1
|
|
$
|
(1.0)
|
|
Pension and Postretirement Benefit Plans
|
126.0
|
|
(26.1)
|
|
99.9
|
|
|
10.1
|
|
(2.5)
|
|
7.6
|
|
|
(24.8)
|
|
5.4
|
|
(19.4)
|
|
Currency Translation Adjustment
|
16.5
|
|
—
|
|
16.5
|
|
|
9.8
|
|
—
|
|
9.8
|
|
|
(18.7)
|
|
—
|
|
(18.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
$
|
146.6
|
|
$
|
(26.7)
|
|
$
|
119.9
|
|
|
$
|
13.2
|
|
$
|
(1.1)
|
|
$
|
12.1
|
|
|
$
|
(44.6)
|
|
$
|
5.5
|
|
$
|
(39.1)
|
|
(a) Amounts exclude impact of noncontrolling interest. See "Note 19 - Changes in Accumulated Other Comprehensive Loss."
The balances of Accumulated Other Comprehensive Loss Attributable to Graphic Packaging Holding Company, net of applicable taxes are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
In millions
|
2020
|
2019
|
Accumulated Derivative Instruments Loss
|
$
|
(13.1)
|
|
$
|
(16.6)
|
|
Pension and Postretirement Benefit Plans
|
(138.6)
|
|
(238.5)
|
|
Currency Translation Adjustment
|
(94.2)
|
|
(110.7)
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
$
|
(245.9)
|
|
$
|
(365.8)
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13. COMMITMENTS
The Company has entered into other long-term contracts principally for the purchase of fiber and chip processing along with commitments associated with building the new CRB paper machine in Kalamazoo, Michigan. The minimum purchase commitments extend beyond 2025. At December 31, 2020, total commitments under these contracts were as follows:
|
|
|
|
|
|
In millions
|
|
2021
|
$
|
379.4
|
|
2022
|
90.5
|
|
2023
|
67.0
|
|
2024
|
48.4
|
|
2025
|
47.7
|
|
Thereafter
|
58.8
|
|
Total
|
$
|
691.8
|
|
NOTE 14. ENVIRONMENTAL AND LEGAL MATTERS
Environmental Matters
The Company is subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those governing discharges to air, soil and water, the management, treatment and disposal of hazardous substances, solid waste and hazardous wastes, the investigation and remediation of contamination resulting from historical site operations and releases of hazardous substances, the recycling of packaging and the health and safety of employees. Compliance initiatives could result in significant costs, which could negatively impact the Company’s consolidated financial position, results of operations or cash flows. Any failure to comply with environmental or health and safety laws and regulations or any permits and authorizations required thereunder could subject the Company to fines, corrective action or other sanctions.
Some of the Company’s current and former facilities are the subject of environmental investigations and remediations resulting from historic operations and the release of hazardous substances or other constituents. Some current and former facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future or for which indemnification claims may be asserted against the Company. Also, closures or sales of facilities may necessitate investigation and may result in remediation activities at those facilities.
The Company has established reserves for those facilities or issues where a liability is probable and the costs are reasonably estimable. The Company believes that the amounts accrued for its loss contingencies, and the reasonably possible loss beyond the amounts accrued, are not material to the Company’s consolidated financial position, results of operations or cash flows. The Company cannot estimate with certainty other future compliance, investigation or remediation costs. Some costs relating to historic usage that the Company considers to be reasonably possible of resulting in liability are not quantifiable at this time. The Company will continue to monitor environmental issues at each of its facilities, as well as regulatory developments, and will revise its accruals, estimates and disclosures relating to past, present and future operations, as additional information is obtained.
Legal Matters
The Company is a party to a number of lawsuits arising in the ordinary conduct of its business. Although the timing and outcome of these lawsuits cannot be predicted with certainty, the Company does not believe that disposition of these lawsuits will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15. REDEEMABLE NONCONTROLLING INTEREST
As disclosed in "Note 1 - Nature of Business and Summary of Significant Accounting Policies," on January 1, 2018, the Company combined its business with IP's NACP business. Under the terms of the Transaction Agreement, GPIP issued 79,911,591 common units to IP. In connection with the closing, the Company, GPIP, GPI Holding and IP entered into an Exchange Agreement (“Exchange Agreement”), under which, subject to certain restrictions, the common units held by IP are exchangeable into common stock of the Company or cash, upon the second anniversary of the NACP combination unless certain other events occur before that time. GPHC also had the ability to call such common units exercisable starting on the same date. Upon an election of an exchange, GPHC may choose to satisfy the exchange using shares of its common stock, cash, or a combination thereof.
On January 28, 2020, the Company announced that IP had notified the Company of its intent to begin the process of reducing its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million partnership units from IP for $250 million in cash. As a result, IP's ownership interest in GPIP decreased to 18.3% as of January 29, 2020.
On August 6, 2020, the Company announced that IP had notified the Company of its intent to exchange additional partnership units. Per the agreement between the parties, on August 13, 2020, GPIP purchased 17.4 million partnership units from IP for $250 million in cash, which included all of the remaining portion of IP's redeemable ownership interest that was required to be redeemed for cash. As a result, IP's ownership interest in GPIP decreased to 14.5% as of August 13, 2020.
At December 31, 2020, the redeemable noncontrolling interest was determined as follows:
|
|
|
|
|
|
In millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
$
|
275.8
|
|
Net Income Attributable to Redeemable Noncontrolling Interest
|
16.3
|
|
Other Comprehensive Loss, Net of Tax
|
0.8
|
|
Redeemable Noncontrolling Interest Redemption Value Adjustment
|
30.2
|
|
Reclassification to Noncontrolling Interest for Share Repurchases(a)
|
(12.5)
|
|
Distributions of Membership Interest
|
(6.3)
|
|
Balance at December 31, 2019
|
$
|
304.3
|
|
|
|
|
|
Net Loss Attributable to Redeemable Noncontrolling Interest
|
(3.2)
|
|
Other Comprehensive Income, Net of Tax
|
8.9
|
|
Redemption of IP's Ownership Interest
|
(296.1)
|
|
Redeemable Noncontrolling Interest Redemption Value Adjustment
|
(12.2)
|
|
Distributions of Membership Interest
|
(1.7)
|
|
Balance at December 31, 2020
|
$
|
—
|
|
(a) In the second quarter of 2019, the Company recorded a reversal for the 2018 reclassification to redeemable noncontrolling interest back to noncontrolling interest related to share repurchases. The Company determined that this reclassification due to the share repurchases was not required.
Redeemable noncontrolling interest was recorded at the greater of carrying amount or redemption value at the end of each period until it was fully redeemed. The redemption value is determined by the closing price of the Company's common stock.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company has three reportable segments as follows:
Paperboard Mills includes the eight North American paperboard mills that produce primarily CRB, CUK, 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 represents the sale of paperboard only to external customers. The effect of intercompany transfers to the paperboard packaging segments has been eliminated from the Paperboard Mills segment to reflect the economics of the integration of these segments.
Americas Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to Consumer Packaged Goods ("CPG") companies, and cups, lids and food containers sold primarily to foodservice companies and quick-service restaurants ("QSR") serving the food, beverage, and consumer product markets in the Americas.
Europe Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to CPG companies serving the food, beverage and consumer product markets in Europe.
The Company allocates certain mill and corporate costs to the reportable segments to appropriately represent the economics of these segments. The Corporate and Other caption includes the Pacific Rim and Australia operating segments and unallocated corporate and one-time costs.
These segments are evaluated by the chief operating decision maker based primarily on Income from Operations as adjusted for depreciation and amortization. The accounting policies of the reportable segments are the same as those described above in "Note 1 - Nature of Business and Summary of Significant Accounting Policies."
The Company did not have any one customer who accounted for 10% or more of the Company's net sales during 2020, 2019 or 2018.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
2018
|
NET SALES:
|
|
|
|
Paperboard Mills
|
$
|
988.1
|
|
$
|
1,094.8
|
|
$
|
1,078.1
|
|
Americas Paperboard Packaging
|
4,650.1
|
|
4,233.7
|
|
4,098.3
|
|
Europe Paperboard Packaging
|
764.6
|
|
689.3
|
|
695.9
|
|
|
|
|
|
Corporate/Other/Eliminations(a)
|
157.1
|
|
142.3
|
|
157.1
|
|
Total
|
$
|
6,559.9
|
|
$
|
6,160.1
|
|
$
|
6,029.4
|
|
|
|
|
|
(LOSS) INCOME FROM OPERATIONS:
|
|
|
|
Paperboard Mills(b)
|
$
|
(109.9)
|
|
$
|
33.1
|
|
$
|
30.6
|
|
Americas Paperboard Packaging
|
638.5
|
|
477.7
|
|
420.1
|
|
Europe Paperboard Packaging
|
65.9
|
|
60.3
|
|
46.1
|
|
|
|
|
|
Corporate and Other(c)
|
(70.2)
|
|
(37.0)
|
|
(38.6)
|
|
Total
|
$
|
524.3
|
|
$
|
534.1
|
|
$
|
458.2
|
|
|
|
|
|
CAPITAL EXPENDITURES:
|
|
|
|
Paperboard Mills
|
$
|
444.2
|
|
$
|
208.0
|
|
$
|
240.1
|
|
Americas Paperboard Packaging
|
119.7
|
|
94.7
|
|
104.3
|
|
Europe Paperboard Packaging
|
39.7
|
|
34.5
|
|
19.5
|
|
|
|
|
|
Corporate and Other
|
42.7
|
|
15.7
|
|
31.3
|
|
Total
|
$
|
646.3
|
|
$
|
352.9
|
|
$
|
395.2
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION:
|
|
|
|
Paperboard Mills
|
$
|
248.7
|
|
$
|
224.4
|
|
$
|
197.5
|
|
Americas Paperboard Packaging
|
163.0
|
|
165.1
|
|
165.4
|
|
Europe Paperboard Packaging
|
41.1
|
|
36.7
|
|
48.9
|
|
|
|
|
|
Corporate and Other
|
23.0
|
|
21.0
|
|
18.8
|
|
Total
|
$
|
475.8
|
|
$
|
447.2
|
|
$
|
430.6
|
|
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes Augusta, Georgia mill outage in 2018.
(c) Includes expenses related to business combinations, exit activities, idle and abandoned assets, gain on sale of assets and shutdown and other special charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
In millions
|
2020
|
2019
|
2018
|
ASSETS AT DECEMBER 31:
|
|
|
|
Paperboard Mills
|
$
|
3,096.5
|
|
$
|
2,912.2
|
|
$
|
3,005.6
|
|
Americas Paperboard Packaging
|
3,326.7
|
|
3,392.3
|
|
3,143.6
|
|
|
|
|
|
Europe Paperboard Packaging
|
745.9
|
|
686.3
|
|
603.4
|
|
|
|
|
|
Corporate and Other
|
635.5
|
|
299.1
|
|
306.6
|
|
Total
|
$
|
7,804.6
|
|
$
|
7,289.9
|
|
$
|
7,059.2
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business geographic area information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
2020
|
2019
|
2018
|
NET SALES:
|
|
|
|
United States
|
$
|
5,199.9
|
|
$
|
4,913.2
|
|
$
|
4,780.9
|
|
|
|
|
|
International(a)
|
1,360.0
|
|
1,246.9
|
|
1,248.5
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
6,559.9
|
|
$
|
6,160.1
|
|
$
|
6,029.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
2019
|
2018
|
LONG-LIVED ASSETS AT DECEMBER 31:
|
|
|
|
United States
|
$
|
3,252.7
|
|
$
|
2,975.9
|
|
$
|
2,954.3
|
|
|
|
|
|
International(a)
|
307.3
|
|
277.9
|
|
285.4
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,560.0
|
|
$
|
3,253.8
|
|
$
|
3,239.7
|
|
(a) Net Sales and long-lived assets of individual countries outside of the United States are not material.
NOTE 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Results of operations for the four quarters of 2020 and 2019 are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
In millions, except per share amounts
|
First
|
Second
|
Third
|
Fourth
|
Total
|
Statement of Operations Data:
|
|
|
|
|
|
Net Sales
|
$
|
1,599.1
|
|
$
|
1,611.0
|
|
$
|
1,697.7
|
|
$
|
1,652.1
|
|
$
|
6,559.9
|
|
Gross Profit
|
320.8
|
|
262.1
|
|
255.5
|
|
261.8
|
|
1,100.2
|
|
Business Combinations, Shutdown and Other Special Charges and Exit Activities, Net
|
18.7
|
|
20.5
|
|
9.0
|
|
13.1
|
|
61.3
|
|
Income from Operations
|
160.0
|
|
114.8
|
|
119.1
|
|
130.4
|
|
524.3
|
|
Net (Loss) Income
|
(19.8)
|
|
66.7
|
|
79.3
|
|
77.1
|
|
203.3
|
|
Net (Loss) Income Attributable to Graphic Packaging Holding Company
|
(12.7)
|
|
52.1
|
|
63.7
|
|
64.2
|
|
167.3
|
|
Net (Loss) Income Per Share Attributable to Graphic Packaging Holding Company — Basic(a)
|
$
|
(0.04)
|
|
$
|
0.19
|
|
$
|
0.23
|
|
$
|
0.24
|
|
$
|
0.60
|
|
Net (Loss) Income Per Share Attributable to Graphic Packaging Holding Company — Diluted(a)
|
$
|
(0.04)
|
|
$
|
0.19
|
|
$
|
0.23
|
|
$
|
0.24
|
|
$
|
0.60
|
|
(a) Does not cross foot due to rounding.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
In millions, except per share amounts
|
First
|
Second
|
Third
|
Fourth(a)
|
Total
|
Statement of Operations Data:
|
|
|
|
|
|
Net Sales
|
$
|
1,505.9
|
|
$
|
1,552.8
|
|
$
|
1,581.6
|
|
$
|
1,519.8
|
|
$
|
6,160.1
|
|
Gross Profit
|
266.1
|
|
287.8
|
|
266.4
|
|
272.3
|
|
1,092.6
|
|
Business Combinations, Shutdown and Other Special Charges and Exit Activities, Net
|
6.2
|
|
9.9
|
|
8.2
|
|
13.6
|
|
37.9
|
|
Income from Operations
|
134.0
|
|
144.4
|
|
122.7
|
|
133.0
|
|
534.1
|
|
Net Income
|
78.1
|
|
86.1
|
|
70.0
|
|
43.9
|
|
278.1
|
|
Net Income Attributable to Graphic Packaging Holding Company
|
57.9
|
|
63.8
|
|
52.1
|
|
33.0
|
|
206.8
|
|
Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic
|
$
|
0.19
|
|
$
|
0.22
|
|
$
|
0.18
|
|
$
|
0.11
|
|
$
|
0.70
|
|
Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted
|
$
|
0.19
|
|
$
|
0.22
|
|
$
|
0.18
|
|
$
|
0.11
|
|
$
|
0.70
|
|
(a) During the fourth quarter of 2019, the Company recorded an approximate $7 million immaterial prior period adjustment to reduce amortization expense related to intangible assets.
NOTE 18. EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions, except per share data
|
2020
|
2019
|
2018
|
Net Income Attributable to Graphic Packaging Holding Company
|
$
|
167.3
|
|
$
|
206.8
|
|
$
|
221.1
|
|
Weighted Average Shares:
|
|
|
|
Basic
|
278.8
|
|
294.1
|
309.5
|
Dilutive effect of RSUs
|
0.8
|
|
0.7
|
|
0.6
|
|
Diluted
|
279.6
|
|
294.8
|
|
310.1
|
|
Earnings Per Share — Basic
|
$
|
0.60
|
|
$
|
0.70
|
|
$
|
0.71
|
|
Earnings Per Share — Diluted
|
$
|
0.60
|
|
$
|
0.70
|
|
$
|
0.71
|
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 19. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS
The following represents changes in Accumulated Other Comprehensive Loss attributable to Graphic Packaging Holding Company by component for the year ended December 31, 2020 (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Derivatives Instruments
|
Pension and Postretirement Benefit Plans
|
|
Currency Translation Adjustments
|
|
Total
|
Balance at December 31, 2019
|
$
|
(16.6)
|
|
$
|
(238.5)
|
|
|
$
|
(110.7)
|
|
|
$
|
(365.8)
|
|
Other Comprehensive (Loss) Income before Reclassifications
|
(5.8)
|
|
12.9
|
|
|
17.7
|
|
|
24.8
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income(a)
|
9.9
|
|
125.9
|
|
|
—
|
|
|
135.8
|
|
Net Current-period Other Comprehensive Income
|
4.1
|
|
138.8
|
|
|
17.7
|
|
|
160.6
|
|
Less:
|
|
|
|
|
|
|
Net Current-period Other Comprehensive Income Attributable to Noncontrolling Interest(b)
|
(0.6)
|
|
(38.9)
|
|
|
(1.2)
|
|
|
(40.7)
|
|
Balance at December 31, 2020
|
$
|
(13.1)
|
|
$
|
(138.6)
|
|
|
$
|
(94.2)
|
|
|
$
|
(245.9)
|
|
(a) See following table for details about these reclassifications.
(b) Includes amounts related to redeemable noncontrolling interest which are separately classified outside of permanent equity in the mezzanine section of the Consolidated Balance Sheets.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following represents reclassifications out of Accumulated Other Comprehensive Loss for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
Derivatives Instruments:
|
|
|
|
|
Commodity Contracts
|
|
$
|
6.3
|
|
|
Cost of Sales
|
Foreign Currency Contracts
|
|
(0.5)
|
|
|
Other Expense, Net
|
Interest Rate Swap Agreements
|
|
6.5
|
|
|
Interest Expense, Net
|
|
|
12.3
|
|
|
Total before Tax
|
|
|
(2.4)
|
|
|
Tax Expense
|
|
|
$
|
9.9
|
|
|
Net of Tax
|
|
|
|
|
|
Amortization of Defined Benefit Pension Plans:
|
|
|
|
|
Prior Service Costs
|
|
$
|
0.1
|
|
(a)
|
|
Actuarial Losses
|
|
159.1
|
|
(a)
|
|
|
|
159.2
|
|
|
Total before Tax
|
|
|
(31.7)
|
|
|
Tax Benefit
|
|
|
$
|
127.5
|
|
|
Net of Tax
|
|
|
|
|
|
Amortization of Postretirement Benefit Plans:
|
|
|
|
|
Prior Service Credits
|
|
$
|
(0.3)
|
|
(a)
|
|
Actuarial Gains
|
|
(1.7)
|
|
(a)
|
|
|
|
(2.0)
|
|
|
Total before Tax
|
|
|
0.4
|
|
|
Tax Expense
|
|
|
$
|
(1.6)
|
|
|
Net of Tax
|
|
|
|
|
|
Total Reclassifications for the Period
|
|
$
|
135.8
|
|
|
|
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see "Note 8 — Pensions and Other Postretirement Benefits").
NOTE 20. EXIT ACTIVITIES
During 2019, the Company announced its plans to invest approximately $600 million in a new CRB paper machine in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral.
In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. During the second quarter of 2020, the Company closed the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine.
In June 2020, the Company made the decision to close certain converting facilities that were acquired from Greif. The Burlington, North Carolina converting facility and the Los Angeles, California converting facility were closed during the third quarter of 2020.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company accounts for the costs associated with these closures in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets ("ASC 360"), ASC 420, Exit or Disposal Costs Obligations ("ASC 420") and ASC 712 Compensation-Nonretirement Post-Employment Benefits ("ASC 712"). The Company recorded $50.6 million and $14.9 million of exit costs during 2020 and 2019, respectively. Other costs associated with the start-up of the new CRB paper machine will be recorded in the period in which they are incurred. These costs are included in the Corporate and Other caption in "Note 16 - Business Segment and Geographic Area Information."
The following table summarizes the costs incurred during 2020 and 2019 related to these restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
In millions
|
Location in Statement of Operations
|
2020
|
2019
|
Severance costs and other (a)
|
Business Combinations, Shutdown and Other Special Charges, Exit Activities and Gain on Sale of Assets, Net
|
$
|
10.4
|
|
$
|
7.7
|
|
Accelerated depreciation
|
Cost of Sales
|
26.0
|
|
4.7
|
|
Inventory and asset write-offs
|
Business Combinations, Shutdown and Other Special Charges, Exit Activities and Gain on Sale of Assets, Net
|
14.2
|
|
2.5
|
|
Total
|
|
$
|
50.6
|
|
$
|
14.9
|
|
(a) Costs incurred include activities for post-employment benefits, retention bonuses, incentives and professional services.
The following table summarizes the balance of accrued expenses related to restructuring:
|
|
|
|
|
|
|
In millions
|
Total
|
|
Balance at December 31, 2018
|
$
|
—
|
|
|
Costs incurred
|
7.7
|
|
|
Payments
|
(0.6)
|
|
|
Balance at December 31, 2019
|
$
|
7.1
|
|
|
Costs incurred
|
11.2
|
|
|
Payments
|
(5.9)
|
|
|
Adjustments (a)
|
(0.8)
|
|
|
Balance at December 31, 2020
|
$
|
11.6
|
|
|
(a) Adjustments related to changes in estimates of severance costs.
In conjunction with the closure of the two smaller CRB Mills in 2022, the Company currently expects to incur charges associated with these exit activities for post-employment benefits, retention bonuses and incentives in the range of $15 million to $20 million and for accelerated depreciation and inventory and asset write-offs in the range of $50 million to $60 million. Additionally, the Company expects to incur start-up charges of approximately $15 million for the new CRB paper machine in 2021. Through December 31, 2020, the Company has incurred cumulative exit activity charges for post-employment benefits, retention bonuses and incentives of $12.1 million and accelerated depreciation and inventory and asset write-offs of $27.3 million.
For the closures of the White Pigeon, Michigan CRB mill and the shutdown of the PM1 containerboard machine in West Monroe, Louisiana, the Company has incurred cumulative exit activity charges for post-employment benefits of $2.3 million and accelerated depreciation and inventory and asset write-offs of $16.6 million through December 31, 2020. The Company does not expect to incur any additional significant costs charges related to these closures.
For the closure of the facilities acquired from Greif, the Company has incurred cumulative exit activity charges for post-employment benefits of $1.4 million and for accelerated amortization of operating lease assets of $3.6 million through December 31, 2020. The Company does not expect to incur any additional significant costs charges related to these closures.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 21. SUBSEQUENT EVENTS
On January 14, 2021, the Company drew the $425 million Incremental Term A-2 Facility and used the proceeds, together with cash on hand, to redeem its 4.75% Senior Notes due in 2021. For more information, see "Note 5 — Debt."