NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Month Periods Ended June 30, 2021
(Unaudited)
Unless the context otherwise requires, “we”, “us”, “our”, “WestRock” and “the Company” refer to the business of WestRock Company, its wholly-owned subsidiaries and its partially-owned consolidated subsidiaries.
We are a multinational provider of sustainable fiber-based paper and packaging solutions. We partner with our customers to provide differentiated, sustainable paper and packaging solutions that help them win in the marketplace. Our team members support customers around the world from our operating and business locations in North America, South America, Europe, Asia and Australia.
Note 1.
|
Basis of Presentation and Significant Accounting Policies
|
Basis of Presentation
Our independent registered public accounting firm has not audited the accompanying interim financial statements. We derived the condensed consolidated balance sheet at September 30, 2020 from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (the “Fiscal 2020 Form 10-K”). In the opinion of management, all normal recurring adjustments necessary for the fair presentation of the condensed consolidated financial statements have been included for the interim periods reported.
We have condensed or omitted certain notes and other information from the interim financial statements presented in this report. Therefore, these interim financial statements should be read in conjunction with the Fiscal 2020 Form 10-K. The results for the three and nine months ended June 30, 2021 are not necessarily indicative of results that may be expected for the full year.
Reclassifications and Adjustments
Certain amounts in prior periods have been reclassified to conform with the current year presentation.
COVID-19 Pandemic
The global impact of the COVID-19 pandemic (“COVID-19”) continues to evolve. The pandemic has affected our operational and financial performance and the extent of its effect on our operational and financial performance will continue to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic (including due to new variants such as Delta), the actions taken to contain or mitigate its impact (including the distribution and effectiveness of vaccines), and the direct and indirect economic effects of the pandemic and related containment measures and government responses, among others.
At June 30, 2021, we evaluated the then current economic environment, including our assessment of the impact of COVID-19, as well as the ransomware incident discussed below, and there were no indicators of impairment of our long-lived assets, including goodwill, that required a quantitative test to be performed. Our estimates involve numerous assumptions about the future growth and potential volatility in revenues and costs, capital expenditures, industry and global economic factors, interest rate environment and future business strategy. Accordingly, our accounting estimates may materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances and the potential impact thereof, including performing our annual goodwill impairment assessment in the fourth quarter of fiscal 2021. If actual results are not consistent with our assumptions and estimates, we may be exposed to impairment losses that could be material. See “Note 1. Description of Business and Summary of Significant Accounting Policies — Goodwill and Long-Lived Assets” in the Fiscal 2020 Form 10-K for additional information regarding the results of, and our methods and assumptions applied to perform, our goodwill impairment testing in fiscal 2020.
9
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Ransomware Incident
As previously disclosed, on January 23, 2021 we detected a ransomware incident impacting certain of our systems. Promptly upon our detection of this incident, we initiated response and containment protocols and our security teams, supplemented by leading cyber defense firms, worked to remediate this incident. These actions included taking preventative measures, including shutting down certain systems out of an abundance of caution, as well as taking steps to supplement existing security monitoring, scanning and protective measures. We notified law enforcement and contacted our customers to apprise them of the situation.
We undertook extensive efforts to identify, contain and recover from this incident quickly and securely. Our teams worked to maintain our business operations and minimize the impact on our customers and teammates. All systems are back in service. All of our mills and converting locations began producing and shipping paper and packaging at pre-ransomware levels in March 2021 or earlier. Our mill system production was approximately 115,000 tons lower than planned for the quarter ended March 31, 2021 as a result of this incident. While shipments from some of our facilities initially lagged behind production levels, this gap closed as systems were restored during the second quarter of fiscal 2021. In locations where technology issues were identified, we used alternative methods, in many cases manual methods, to process and ship orders. We systematically brought our information systems back online in a controlled, phased approach.
We estimate the segment income impact of the lost sales and operational disruption of this incident on our operations in the second quarter of fiscal 2021 was approximately $50 million, as well as approximately $20 million of ransomware recovery costs, primarily professional fees. In addition, we incurred approximately $9 million of ransomware recovery costs in the third quarter of fiscal 2021. We expect to recover substantially all of the ransomware losses from cyber and business interruption insurance in future periods. Disputes over the extent of insurance coverage for claims are not uncommon, and there will be a time lag between the initial incurrence of costs and the receipt of any insurance proceeds.
In response to the ransomware event, we accelerated information technology investments that we had previously planned to make in future periods in order to further strengthen our information security infrastructure. We engaged a leading cybersecurity defense firm that completed a forensics investigation of the ransomware incident and we are taking appropriate actions in response to the findings. For example, in the short-term, we reset all credentials Company-wide and strengthened security tooling across our servers and workstations. Longer term, in collaboration with our strategic partners, we established a roadmap to advance the maturity and effectiveness of our information security and resiliency capabilities. This roadmap includes initiatives to further strengthen our information security posture across the Company, and to enable us to potentially detect, respond to and recover from security and technical incidents in a faster and more effective manner. More specifically, we are progressing projects to bolster our security monitoring capabilities, strengthen our access controls, reduce risks associated with third-parties, and to enhance the information security of our mills and plants.
Significant Accounting Policies
See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section in the Fiscal 2020 Form 10-K for a summary of our significant accounting policies.
Recent Accounting Developments
New Accounting Standards — Recently Adopted
In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606”, which provides targeted amendments to Accounting Standards Codification (“ASC”) 808, “Collaborative arrangements” and ASC 606, “Revenues from Contracts with Customers” (“ASC 606”). The amendments in this ASU require transactions between participants in a collaborative arrangement to be accounted for under ASC 606 only when the counterparty is a customer. We adopted the provisions of ASU 2018-18 on October 1, 2020. The adoption did not have a material impact on our consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17 “Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities”. This ASU changes how entities evaluate decision-making fees under the
10
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety, as currently required under generally accepted accounting principles in the U.S. (“GAAP”). We adopted the provisions of ASU 2018-17 on October 1, 2020. The adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 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”. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. We adopted the provisions of ASU 2018-15 prospectively on October 1, 2020. The adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14 “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans”. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. We adopted the provisions of ASU 2018-14 retrospectively on October 1, 2020.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326)” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments and replaces the incurred loss model with a model that reflects expected credit losses. In April 2019, the FASB issued ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”), which addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” (“ASU 2019-05”), which provides targeted transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option. In November 2019, the FASB issued ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses” (“ASU 2019-11”), which makes certain narrow-scope amendments to Topic 326, including allowing entities to exclude accrued interest amounts from various required disclosures under Topic 326. In February 2020, the FASB issued ASU 2020-02 “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842)” (“ASU 2020-02”), which adds and amends paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin No. 119 primarily related to the new credit losses standard. The provisions of ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 related to Topic 326 are effective concurrent with the adoption of ASU 2016-13. We adopted ASU 2016-13 and its subsequent revisions using the modified retrospective transition approach on October 1, 2020. The adoption of ASU 2016-13 and its subsequent revisions resulted in us recognizing a cumulative effect adjustment of $3.8 million (net of tax) decrease to opening balance of retained earnings related to our allowance for doubtful accounts primarily for our trade accounts receivable balance.
New Accounting Standards — Recently Issued
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This ASU 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 London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. In January 2021, the FASB issued ASU 2021-01, which adds implementation guidance to clarify certain optional expedients in Topic 848. The ASUs can be adopted after their respective issuance dates through December 31, 2022. We are evaluating the impact of these ASUs.
In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the
11
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
general principles in Topic 740 under GAAP. This ASU also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 (fiscal 2022 for us) and interim periods within those fiscal years. Early adoption is permitted. While we are still finalizing our evaluation of the impact of this ASU, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
Note 2.
|
Revenue Recognition
|
Disaggregated Revenue
ASC 606 requires that we disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The tables below disaggregate our revenue by geographical market and product type (segment). Net sales are attributed to geographical markets based on our selling location. In fiscal 2020, we completed our real estate monetization; therefore, we will not have any Land and Development sales in fiscal 2021.
|
|
Three Months Ended June 30, 2021
|
|
(In millions)
|
|
Corrugated Packaging
|
|
|
Consumer Packaging
|
|
|
Intersegment Sales
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,020.9
|
|
|
$
|
1,353.9
|
|
|
$
|
(85.1
|
)
|
|
$
|
4,289.7
|
|
South America
|
|
|
127.2
|
|
|
|
17.7
|
|
|
|
—
|
|
|
|
144.9
|
|
Europe
|
|
|
1.5
|
|
|
|
285.6
|
|
|
|
(0.1
|
)
|
|
|
287.0
|
|
Asia Pacific
|
|
|
17.5
|
|
|
|
77.5
|
|
|
|
(0.3
|
)
|
|
|
94.7
|
|
Total
|
|
$
|
3,167.1
|
|
|
$
|
1,734.7
|
|
|
$
|
(85.5
|
)
|
|
$
|
4,816.3
|
|
|
|
Nine Months Ended June 30, 2021
|
|
(In millions)
|
|
Corrugated Packaging
|
|
|
Consumer Packaging
|
|
|
Intersegment Sales
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
8,588.2
|
|
|
$
|
3,839.6
|
|
|
$
|
(208.3
|
)
|
|
$
|
12,219.5
|
|
South America
|
|
|
304.7
|
|
|
|
63.0
|
|
|
|
—
|
|
|
|
367.7
|
|
Europe
|
|
|
3.5
|
|
|
|
800.8
|
|
|
|
(0.2
|
)
|
|
|
804.1
|
|
Asia Pacific
|
|
|
48.6
|
|
|
|
216.3
|
|
|
|
(0.6
|
)
|
|
|
264.3
|
|
Total
|
|
$
|
8,945.0
|
|
|
$
|
4,919.7
|
|
|
$
|
(209.1
|
)
|
|
$
|
13,655.6
|
|
|
|
Three Months Ended June 30, 2020
|
|
(In millions)
|
|
Corrugated Packaging
|
|
|
Consumer Packaging
|
|
|
Land and Development
|
|
|
Intersegment Sales
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,632.4
|
|
|
$
|
1,238.4
|
|
|
$
|
—
|
|
|
$
|
(44.8
|
)
|
|
$
|
3,826.0
|
|
South America
|
|
|
87.8
|
|
|
|
14.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
101.9
|
|
Europe
|
|
|
0.6
|
|
|
|
233.8
|
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
234.2
|
|
Asia Pacific
|
|
|
8.0
|
|
|
|
66.3
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
74.2
|
|
Total
|
|
$
|
2,728.8
|
|
|
$
|
1,552.6
|
|
|
$
|
—
|
|
|
$
|
(45.1
|
)
|
|
$
|
4,236.3
|
|
12
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
|
Nine Months Ended June 30, 2020
|
|
(In millions)
|
|
Corrugated Packaging
|
|
|
Consumer Packaging
|
|
|
Land and Development
|
|
|
Intersegment Sales
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
8,187.0
|
|
|
$
|
3,718.8
|
|
|
$
|
18.9
|
|
|
$
|
(137.7
|
)
|
|
$
|
11,787.0
|
|
South America
|
|
|
296.1
|
|
|
|
52.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
349.0
|
|
Europe
|
|
|
4.9
|
|
|
|
731.8
|
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
736.5
|
|
Asia Pacific
|
|
|
32.8
|
|
|
|
202.3
|
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
234.8
|
|
Total
|
|
$
|
8,520.8
|
|
|
$
|
4,705.8
|
|
|
$
|
18.9
|
|
|
$
|
(138.2
|
)
|
|
$
|
13,107.3
|
|
Revenue Contract Balances
Contract assets are rights to consideration in exchange for goods that we have transferred to a customer when that right is conditional on something other than the passage of time. Contract assets are reduced when the control of the goods passes to the customer. Contract liabilities represent obligations to transfer goods or services to a customer for which we have received consideration. Contract liabilities are reduced once control of the goods is transferred to the customer.
The opening and closing balances of our contract assets and contract liabilities are as follows. Contract assets and contract liabilities are reported within Other current assets and Other current liabilities, respectively, on the condensed consolidated balance sheet.
(In millions)
|
|
Contract Assets
(Short-Term)
|
|
|
Contract Liabilities
(Short-Term)
|
|
|
|
|
|
|
|
|
|
|
Beginning balance - October 1, 2020
|
|
$
|
185.8
|
|
|
$
|
12.0
|
|
Ending balance - June 30, 2021
|
|
|
193.9
|
|
|
|
22.7
|
|
Increase
|
|
$
|
8.1
|
|
|
$
|
10.7
|
|
Note 3.
|
Restructuring and Other Costs
|
Summary of Restructuring and Other Initiatives
We recorded pre-tax restructuring and other costs of $6.9 and $19.8 million for the three and nine months ended June 30, 2021 and $9.7 and $56.2 million for the three and nine months ended June 30, 2020. These amounts are not comparable since the timing and scope of the individual actions associated with each restructuring, acquisition, integration or divestiture can vary. We present our restructuring and other costs in more detail below.
The following table summarizes our Restructuring and other costs (in millions):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Restructuring
|
|
$
|
7.0
|
|
|
$
|
7.4
|
|
|
$
|
17.7
|
|
|
$
|
40.1
|
|
Other
|
|
|
(0.1
|
)
|
|
|
2.3
|
|
|
|
2.1
|
|
|
|
16.1
|
|
Restructuring and other costs
|
|
$
|
6.9
|
|
|
$
|
9.7
|
|
|
$
|
19.8
|
|
|
$
|
56.2
|
|
Restructuring
Our restructuring charges are primarily associated with restructuring portions of our operations (i.e. partial or complete plant closures), employee costs due to merger and acquisition-related workforce reductions and voluntary retirement programs in fiscal 2019 and 2020. A partial plant closure may consist of shutting down a machine and/or a workforce reduction.
13
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
When we close a facility, if necessary, we recognize a write-down to reduce the carrying value of related property, plant and equipment and lease right-of-use assets (“ROU”) to their fair value and record charges for severance and other employee-related costs. We reduce the carrying value of the assets classified as held for sale to their estimated fair value less cost to sell. Any subsequent change in fair value less cost to sell prior to disposition is recognized as it is identified; however, no gain is recognized in excess of the cumulative loss previously recorded unless the actual selling price exceeds the original carrying value. For plant closures, we also generally expect to record costs for equipment relocation, facility carrying costs and costs to terminate a lease or contract before the end of its term.
Although specific circumstances vary, our strategy has generally been to consolidate our sales and operations into large well-equipped plants that operate at high utilization rates and take advantage of available capacity created by operational excellence initiatives and/or further optimize our system following mergers and acquisitions or a changing business environment. Therefore, we generally transfer a substantial portion of each closed plant’s assets and production to our other plants. We believe these actions have allowed us to more effectively manage our business. In our former Land and Development segment, the restructuring charges primarily consisted of severance and other employee costs associated with the wind-down of operations and lease costs.
14
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
While restructuring costs are not charged to our segments and, therefore, do not reduce segment income, we highlight the segment to which the charges relate. The following table presents a summary of restructuring charges related to active restructuring initiatives that we incurred during the three and nine months ended June 30, 2021 and 2020, the cumulative recorded amount since we started the initiatives and our estimate of the total we expect to incur (in millions):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Cumulative
|
|
|
Total
Expected
|
|
Corrugated Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
|
$
|
2.2
|
|
|
$
|
94.4
|
|
|
$
|
94.4
|
|
Severance and other employee costs
|
|
|
0.3
|
|
|
|
3.2
|
|
|
|
(0.8
|
)
|
|
|
6.8
|
|
|
|
51.6
|
|
|
|
51.6
|
|
Equipment and inventory relocation
costs
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
1.5
|
|
|
|
9.4
|
|
|
|
9.4
|
|
Facility carrying costs
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
1.3
|
|
|
|
1.4
|
|
|
|
22.2
|
|
|
|
23.8
|
|
Other costs
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
3.9
|
|
|
|
3.9
|
|
Restructuring total
|
|
$
|
1.2
|
|
|
$
|
3.6
|
|
|
$
|
1.6
|
|
|
$
|
12.4
|
|
|
$
|
181.5
|
|
|
$
|
183.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
0.5
|
|
|
$
|
35.4
|
|
|
$
|
35.4
|
|
Severance and other employee costs
|
|
|
4.2
|
|
|
|
1.9
|
|
|
|
10.1
|
|
|
|
15.0
|
|
|
|
47.5
|
|
|
|
47.5
|
|
Equipment and inventory relocation
costs
|
|
|
0.4
|
|
|
|
—
|
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
4.2
|
|
|
|
4.2
|
|
Facility carrying costs
|
|
|
0.5
|
|
|
|
—
|
|
|
|
0.5
|
|
|
|
—
|
|
|
|
1.6
|
|
|
|
1.6
|
|
Other costs
|
|
|
0.3
|
|
|
|
1.2
|
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
20.6
|
|
|
|
20.6
|
|
Restructuring total
|
|
$
|
5.4
|
|
|
$
|
3.1
|
|
|
$
|
13.3
|
|
|
$
|
17.4
|
|
|
$
|
109.3
|
|
|
$
|
109.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
1.8
|
|
Severance and other employee costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13.8
|
|
|
|
13.8
|
|
Other costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Restructuring total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20.6
|
|
|
$
|
20.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and other employee costs
|
|
$
|
—
|
|
|
|
0.1
|
|
|
|
0.9
|
|
|
|
9.0
|
|
|
$
|
60.3
|
|
|
$
|
60.3
|
|
Other costs
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
1.9
|
|
|
|
1.3
|
|
|
|
10.6
|
|
|
|
10.6
|
|
Restructuring total
|
|
$
|
0.4
|
|
|
$
|
0.7
|
|
|
$
|
2.8
|
|
|
$
|
10.3
|
|
|
$
|
70.9
|
|
|
$
|
70.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
0.2
|
|
|
$
|
2.7
|
|
|
$
|
131.6
|
|
|
$
|
131.6
|
|
Severance and other employee costs
|
|
|
4.5
|
|
|
|
5.2
|
|
|
|
10.2
|
|
|
|
30.8
|
|
|
|
173.2
|
|
|
|
173.2
|
|
Equipment and inventory relocation
costs
|
|
|
1.1
|
|
|
|
0.2
|
|
|
|
1.3
|
|
|
|
1.6
|
|
|
|
13.6
|
|
|
|
13.6
|
|
Facility carrying costs
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
1.8
|
|
|
|
1.4
|
|
|
|
23.8
|
|
|
|
25.4
|
|
Other costs
|
|
|
0.6
|
|
|
|
1.9
|
|
|
|
4.2
|
|
|
|
3.6
|
|
|
|
40.1
|
|
|
|
40.1
|
|
Restructuring total
|
|
$
|
7.0
|
|
|
$
|
7.4
|
|
|
$
|
17.7
|
|
|
$
|
40.1
|
|
|
$
|
382.3
|
|
|
$
|
383.9
|
|
15
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
We have defined “Net property, plant and equipment costs” as used in this Note 3 as property, plant and equipment write-downs, subsequent adjustments to fair value for assets classified as held for sale, subsequent (gains) or losses on sales of property, plant and equipment and related parts and supplies on such assets, if any.
Other Costs
Our other costs consist of acquisition, integration and divestiture costs. We incur costs when we acquire or divest businesses. Acquisition costs include costs associated with transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees, as well as potential litigation costs associated with those activities. We incur integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as work associated with information systems and other projects, including spending to support future acquisitions, and primarily consist of professional services and labor. Divestiture costs consist primarily of similar professional fees. We consider acquisition, integration and divestiture costs to be corporate costs regardless of the segment or segments involved in the transaction.
The following table presents our acquisition, integration and divestiture costs (in millions):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Acquisition costs
|
|
$
|
(0.3
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
Integration costs
|
|
|
(0.2
|
)
|
|
|
2.5
|
|
|
|
1.1
|
|
|
|
15.9
|
|
Divestiture costs
|
|
|
0.4
|
|
|
|
—
|
|
|
|
0.6
|
|
|
|
—
|
|
Other total
|
|
$
|
(0.1
|
)
|
|
$
|
2.3
|
|
|
$
|
2.1
|
|
|
$
|
16.1
|
|
The following table summarizes the changes in the restructuring accrual, which is primarily composed of accrued severance and other employee costs, and a reconciliation of the restructuring accrual charges to the line item “Restructuring and other costs” on our condensed consolidated statements of income (in millions):
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Accrual at beginning of fiscal year
|
|
$
|
17.2
|
|
|
$
|
32.3
|
|
Additional accruals
|
|
|
12.1
|
|
|
|
31.7
|
|
Payments
|
|
|
(14.7
|
)
|
|
|
(35.3
|
)
|
Adjustment to accruals
|
|
|
(2.1
|
)
|
|
|
(1.1
|
)
|
Foreign currency rate changes and other
|
|
|
(1.8
|
)
|
|
|
—
|
|
Accrual at June 30
|
|
$
|
10.7
|
|
|
$
|
27.6
|
|
16
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Reconciliation of accruals and charges to restructuring and other costs (in millions):
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Additional accruals and adjustments to accruals
(see table above)
|
|
$
|
10.0
|
|
|
$
|
30.6
|
|
Acquisition costs
|
|
|
0.4
|
|
|
|
0.2
|
|
Integration costs
|
|
|
1.1
|
|
|
|
15.9
|
|
Divestiture costs
|
|
|
0.6
|
|
|
|
—
|
|
Net property, plant and equipment costs
|
|
|
0.2
|
|
|
|
2.7
|
|
Severance and other employee costs
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
Equipment and inventory relocation costs
|
|
|
1.3
|
|
|
|
1.6
|
|
Facility carrying costs
|
|
|
1.8
|
|
|
|
1.4
|
|
Other costs
|
|
|
4.0
|
|
|
|
3.9
|
|
Total restructuring and other costs
|
|
$
|
19.8
|
|
|
$
|
56.2
|
|
We have defined benefit pension plans and other postretirement benefit plans for certain U.S. and non-U.S. employees. Certain plans were frozen for salaried and non-union hourly employees at various times in the past, and nearly all of our remaining salaried and non-union hourly employees accruing benefits ceased accruing benefits as of December 31, 2020. In addition, we participate in several multiemployer pension plans (“MEPP” or “MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements. We also have supplemental executive retirement plans and other non-qualified defined benefit pension plans that provide unfunded supplemental retirement benefits to certain of our current and former executives. See “Note 5. Retirement Plans” and “Note 5. Retirement Plans — Multiemployer Plans” of the Notes to Consolidated Financial Statements section in the Fiscal 2020 Form 10-K for more information regarding our involvement with retirement plans and involvement with MEPPs.
MEPPs
In the normal course of business, we evaluate our potential exposure to MEPPs, including with respect to potential withdrawal liabilities. During fiscal 2018, we submitted formal notification to withdraw from the Pace Industry Union-Management Pension Fund (“PIUMPF”) and the Central States, Southeast and Southwest Areas Pension Plan (“Central States”), and recorded estimated withdrawal liabilities for each. Subsequently, in fiscal 2019 and 2020, we received demand letters from PIUMPF, including a demand for withdrawal liabilities and for our proportionate share of PIUMPF’s accumulated funding deficiency, and we refined our liability, the impact of which was not significant. We began making monthly payments (approximately $0.7 million per month for 20 years) for the PIUMPF withdrawal liabilities in fiscal 2020, excluding the accumulated funding deficiency demands. We dispute the PIUMPF accumulated funding deficiency demands. In February 2020, we received a demand letter from PIUMPF asserting that we owe $51.2 million for our pro-rata share of PIUMPF’s accumulated funding deficiency, including interest. Similarly, in April 2020, we received an updated demand letter related to a subsidiary of ours asserting that we owe $1.3 million of additional accumulated funding deficiency.
In July 2021, PIUMPF filed suit against us in the U.S. District Court for the Northern District of Georgia claiming the right to recover our pro rata share of the pension fund’s accumulated funding deficiency. We believe we are adequately reserved for this matter.
At June 30, 2021 and September 30, 2020, we had recorded withdrawal liabilities of $250.7 million and $252.0 million, respectively, including liabilities associated with PIUMPF accumulated funding deficiency demands.
With respect to certain other MEPPs, in the event we withdraw from one or more of the MEPPs in the future, it is reasonably possible that we may incur withdrawal liabilities in connection with such withdrawals. Our estimate
17
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
of any such withdrawal liabilities, both individually and in the aggregate, are not material for the remaining plans in which we participate.
Pension and Postretirement Income / Expense
The following table presents a summary of the components of net pension income (in millions):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Service cost
|
|
$
|
11.2
|
|
|
$
|
11.9
|
|
|
$
|
38.3
|
|
|
$
|
39.2
|
|
Interest cost
|
|
|
47.3
|
|
|
|
49.7
|
|
|
|
140.4
|
|
|
|
149.1
|
|
Expected return on plan assets
|
|
|
(92.0
|
)
|
|
|
(90.1
|
)
|
|
|
(276.0
|
)
|
|
|
(271.7
|
)
|
Amortization of net actuarial loss
|
|
|
9.8
|
|
|
|
11.4
|
|
|
|
25.7
|
|
|
|
35.1
|
|
Amortization of prior service cost
|
|
|
2.3
|
|
|
|
1.9
|
|
|
|
6.3
|
|
|
|
5.4
|
|
Curtailment loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.4
|
|
Company defined benefit plan income
|
|
|
(21.4
|
)
|
|
|
(15.2
|
)
|
|
|
(65.3
|
)
|
|
|
(42.5
|
)
|
Multiemployer pension withdrawal income
|
|
|
—
|
|
|
|
(2.0
|
)
|
|
|
—
|
|
|
|
(1.1
|
)
|
Multiemployer and other plans
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
1.2
|
|
|
|
1.0
|
|
Net pension income
|
|
$
|
(21.0
|
)
|
|
$
|
(16.9
|
)
|
|
$
|
(64.1
|
)
|
|
$
|
(42.6
|
)
|
The non-service elements of our pension and postretirement costs set forth in this Note 4. Retirement Plans are reflected in the condensed consolidated statements of income line item “Pension and other postretirement non-service income”. The service cost components are reflected in “Cost of goods sold” and “Selling, general and administrative, excluding intangible amortization” line items.
We maintain other postretirement benefit plans that provide certain health care and life insurance benefits for certain salaried and hourly employees who meet specified age and service requirements as defined by the plans. The following table presents a summary of the components of the net postretirement cost (in millions):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Service cost
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
0.8
|
|
|
$
|
1.0
|
|
Interest cost
|
|
|
1.5
|
|
|
|
1.7
|
|
|
|
4.4
|
|
|
|
5.3
|
|
Amortization of net actuarial loss (gain)
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
(0.4
|
)
|
|
|
0.1
|
|
Amortization of prior service credit
|
|
|
(0.6
|
)
|
|
|
(0.7
|
)
|
|
|
(1.8
|
)
|
|
|
(2.1
|
)
|
Net postretirement cost
|
|
$
|
1.3
|
|
|
$
|
1.8
|
|
|
$
|
3.0
|
|
|
$
|
4.3
|
|
Employer Contributions
During the three and nine months ended June 30, 2021, we made contributions to our qualified and supplemental defined benefit pension plans of $4.8 million and $15.6 million, respectively, and for the three and nine months ended June 30, 2020, we made contributions of $4.6 million and $17.2 million, respectively.
During the three and nine months ended June 30, 2021, we funded an aggregate of $1.6 million and $4.7 million, respectively, and for the three and nine months ended June 30, 2020, we funded an aggregate of $1.6 million and $5.3 million, respectively, to our other postretirement benefit plans.
The effective tax rate for the three and nine months ended June 30, 2021 was 23.6% and 23.4%, respectively. The effective tax rate for both periods was impacted by (i) the inclusion of state taxes, (ii) tax expense related to stock-based compensation, (iii) the exclusion of tax benefits related to losses recorded by certain foreign operations, (iv) tax expense related to remeasurement of deferred taxes as a result of a tax law
18
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
change in the United Kingdom, partially offset by (v) tax benefit related to the annual domestic federal return-to-provision true-up and (vi) research and development tax credits. In addition, the nine months ended June 30, 2021 was also impacted by tax benefit related to remeasurement of deferred taxes as a result of a state law change.
The effective tax rate for the three and nine months ended June 30, 2020 was 9.6% and 20.9%, respectively. The effective tax rate for both periods was lower than the statutory federal rate primarily due to (i) the annual domestic federal return-to-provision adjustments, (ii) adjustments to certain uncertain tax positions and (iii) research and development tax credits, partially offset by the (iv) inclusion of state taxes, (v) income derived from certain foreign jurisdictions subject to higher tax rates, (vi) the exclusion of tax benefits related to losses recorded by certain foreign operations, and (vii) tax expense related to stock based compensation.
Note 6.
|
Segment Information
|
We report our financial results of operations in the following two reportable segments: Corrugated Packaging, which consists of our containerboard mills, corrugated packaging and distribution operations, as well as our merchandising displays and recycling procurement operations; and Consumer Packaging, which consists of our consumer mills and food and beverage and partition operations. Prior to the completion of our monetization program in fiscal 2020, we had a third reportable segment, Land and Development, which previously sold real estate, primarily in the Charleston, SC region. Certain income and expenses are not allocated to our segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect such amounts. Items not allocated are reported as non-allocated expenses or in other line items in the table below after segment income.
19
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following tables show selected operating data for our segments (in millions):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net sales (aggregate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
$
|
3,167.1
|
|
|
$
|
2,728.8
|
|
|
$
|
8,945.0
|
|
|
$
|
8,520.8
|
|
Consumer Packaging
|
|
|
1,734.7
|
|
|
|
1,552.6
|
|
|
|
4,919.7
|
|
|
|
4,705.8
|
|
Land and Development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.9
|
|
Total
|
|
$
|
4,901.8
|
|
|
$
|
4,281.4
|
|
|
$
|
13,864.7
|
|
|
$
|
13,245.5
|
|
Less net sales (intersegment):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
$
|
22.6
|
|
|
$
|
15.3
|
|
|
$
|
63.2
|
|
|
$
|
54.3
|
|
Consumer Packaging
|
|
|
62.9
|
|
|
|
29.8
|
|
|
|
145.9
|
|
|
|
83.9
|
|
Total
|
|
$
|
85.5
|
|
|
$
|
45.1
|
|
|
$
|
209.1
|
|
|
$
|
138.2
|
|
Net sales (unaffiliated customers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
$
|
3,144.5
|
|
|
$
|
2,713.5
|
|
|
$
|
8,881.8
|
|
|
$
|
8,466.5
|
|
Consumer Packaging
|
|
|
1,671.8
|
|
|
|
1,522.8
|
|
|
|
4,773.8
|
|
|
|
4,621.9
|
|
Land and Development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.9
|
|
Total
|
|
$
|
4,816.3
|
|
|
$
|
4,236.3
|
|
|
$
|
13,655.6
|
|
|
$
|
13,107.3
|
|
Segment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
$
|
321.7
|
|
|
$
|
227.9
|
|
|
$
|
742.0
|
|
|
$
|
755.8
|
|
Consumer Packaging
|
|
|
132.0
|
|
|
|
95.3
|
|
|
|
305.7
|
|
|
|
232.3
|
|
Land and Development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.4
|
|
Segment income
|
|
|
453.7
|
|
|
|
323.2
|
|
|
|
1,047.7
|
|
|
|
989.5
|
|
Gain on sale of certain closed facilities
|
|
|
—
|
|
|
|
—
|
|
|
|
0.9
|
|
|
|
5.5
|
|
Multiemployer pension withdrawal income
|
|
|
—
|
|
|
|
2.0
|
|
|
|
—
|
|
|
|
1.1
|
|
Restructuring and other costs
|
|
|
(6.9
|
)
|
|
|
(9.7
|
)
|
|
|
(19.8
|
)
|
|
|
(56.2
|
)
|
Non-allocated expenses
|
|
|
(22.3
|
)
|
|
|
(18.3
|
)
|
|
|
(85.6
|
)
|
|
|
(54.1
|
)
|
Interest expense, net
|
|
|
(102.5
|
)
|
|
|
(92.4
|
)
|
|
|
(279.8
|
)
|
|
|
(283.2
|
)
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
(0.6
|
)
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
Other income (expense), net
|
|
|
6.4
|
|
|
|
(5.0
|
)
|
|
|
13.8
|
|
|
|
(9.6
|
)
|
Income before income taxes
|
|
$
|
328.4
|
|
|
$
|
199.2
|
|
|
$
|
676.1
|
|
|
$
|
591.9
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
$
|
232.8
|
|
|
$
|
233.1
|
|
|
$
|
695.0
|
|
|
$
|
717.0
|
|
Consumer Packaging
|
|
|
134.9
|
|
|
|
131.2
|
|
|
|
396.0
|
|
|
|
399.7
|
|
Corporate
|
|
|
1.3
|
|
|
|
1.4
|
|
|
|
3.9
|
|
|
|
4.7
|
|
Total
|
|
$
|
369.0
|
|
|
$
|
365.7
|
|
|
$
|
1,094.9
|
|
|
$
|
1,121.4
|
|
20
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
In October 2018, our containerboard and pulp mill located in Panama City, FL sustained extensive damage from Hurricane Michael. In fiscal 2019, we received the majority of our Hurricane Michael-related insurance proceeds. In the three months ended December 31, 2019, we received the remaining Hurricane Michael-related insurance proceeds of $32.3 million, of which $29.5 million was recorded as a reduction of cost of goods sold in our Corrugated Packaging segment. The remaining $2.8 million was deferred and recorded as a reduction of cost of goods sold in the three months ended March 31, 2020. The insurance proceeds consisted of $11.7 million of business interruption recoveries and $20.6 million for direct costs and property damage. Our condensed consolidated statement of cash flows for the nine months ended June 30, 2020 included $30.9 million in net cash provided by operating activities and $1.4 million of cash proceeds included in net cash used for investing activities related to Hurricane Michael and a $1.0 million receipt of proceeds recorded as a reduction of cost of goods sold in the third quarter of fiscal 2020 for an unrelated matter in the Consumer Packaging segment.
Note 7.
|
Interest Expense, Net
|
The components of interest expense, net are as follows (in millions):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Interest expense
|
|
$
|
(114.0
|
)
|
|
$
|
(109.9
|
)
|
|
$
|
(314.4
|
)
|
|
$
|
(341.2
|
)
|
Interest income
|
|
|
11.5
|
|
|
|
17.5
|
|
|
|
34.6
|
|
|
|
58.0
|
|
Interest expense, net
|
|
$
|
(102.5
|
)
|
|
$
|
(92.4
|
)
|
|
$
|
(279.8
|
)
|
|
$
|
(283.2
|
)
|
We value substantially all of our U.S. inventories at the lower of cost or market, with cost determined on a last-in first-out (“LIFO”) basis. We value all other inventories at the lower of cost and net realizable value, with cost determined using methods that approximate cost computed on a first-in first-out (“FIFO”) basis. These other inventories represent primarily foreign inventories, distribution business inventories, spare parts inventories and certain inventoried supplies.
The components of inventories were as follows (in millions):
|
|
June 30,
2021
|
|
|
September 30,
2020
|
|
Finished goods and work in process
|
|
$
|
944.6
|
|
|
$
|
844.2
|
|
Raw materials
|
|
|
835.6
|
|
|
|
772.7
|
|
Spare parts and supplies
|
|
|
535.5
|
|
|
|
500.3
|
|
Inventories at FIFO cost
|
|
|
2,315.7
|
|
|
|
2,117.2
|
|
LIFO reserve
|
|
|
(170.1
|
)
|
|
|
(93.8
|
)
|
Net inventories
|
|
$
|
2,145.6
|
|
|
$
|
2,023.4
|
|
Note 9.
|
Property, Plant and Equipment
|
The components of property, plant and equipment were as follows (in millions):
|
|
June 30,
2021
|
|
|
September 30,
2020
|
|
Property, plant and equipment at cost:
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
$
|
2,600.2
|
|
|
$
|
2,524.7
|
|
Machinery and equipment
|
|
|
15,718.5
|
|
|
|
15,147.3
|
|
Forestlands and mineral rights
|
|
|
127.8
|
|
|
|
110.8
|
|
Transportation equipment
|
|
|
28.4
|
|
|
|
29.1
|
|
Leasehold improvements
|
|
|
106.2
|
|
|
|
103.6
|
|
|
|
|
18,581.1
|
|
|
|
17,915.5
|
|
Less: accumulated depreciation, depletion and
amortization
|
|
|
(7,949.8
|
)
|
|
|
(7,136.6
|
)
|
Property, plant and equipment, net
|
|
$
|
10,631.3
|
|
|
$
|
10,778.9
|
|
21
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Assets and Liabilities Measured or Disclosed at Fair Value
We estimate fair values in accordance with ASC 820, “Fair Value Measurement”. See “Note 12. Fair Value” of the Notes to Consolidated Financial Statements section of the Fiscal 2020 Form 10-K for more information. We disclose the fair value of our long-term debt in “Note 11. Debt”. We disclose the fair value of our pension and postretirement assets and liabilities in “Note 5. Retirement Plans” of the Notes to Consolidated Financial Statements section of the Fiscal 2020 Form 10-K.
The nine months ended June 30, 2021, reflect a charge of $22.5 million associated with not exercising an option to purchase an additional equity interest in Grupo Gondi that was recorded in other income (expense), net in the second quarter of fiscal 2021.
Financial Instruments Not Recognized at Fair Value
Financial instruments not recognized at fair value on a recurring or nonrecurring basis include cash and cash equivalents, accounts receivable, certain other current assets, short-term debt, accounts payable, certain other current liabilities and long-term debt. With the exception of long-term debt, the carrying amounts of these financial instruments approximate their fair values due to their short maturities.
Fair Value of Nonfinancial Assets and Nonfinancial Liabilities
We measure certain nonfinancial assets and nonfinancial liabilities at fair value on a nonrecurring basis. These assets and liabilities include equity method investments when they are deemed to be other-than-temporarily impaired, investments for which the fair value measurement alternative is elected, assets acquired and liabilities assumed when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in a merger or an acquisition or in a nonmonetary exchange, property, plant and equipment, ROU assets related to operating leases, goodwill and other and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. See “Note 3. Restructuring and Other Costs” for impairments associated with restructuring activities presented as “net property, plant and equipment costs”. During the three and nine months ended June 30, 2021 and 2020, we did not have any significant non-restructuring nonfinancial assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
Accounts Receivable Sales Agreements
We are a party to an accounts receivable sales agreement to sell to a third party financial institution all of the short-term receivables generated from certain customer trade accounts. On September 17, 2020, we amended the then existing agreement and increased the purchase limit to $700.0 million. The terms of the amended agreement limit the balance of receivables sold to the amount available to fund such receivables sold, thereby eliminating the receivable for proceeds from the financial institution at any transfer date. Effective with the amended agreement, the facility is committed and has a term of 364 days. Transfers under the agreement meet the requirements to be accounted for as sales in accordance with guidance in ASC 860, “Transfers and Servicing”. We also have a similar facility that we entered into on December 4, 2020 that has a $88.5 million purchase limit, is uncommitted and has a term of one year. The customers from these facilities are not included in the Receivables Securitization Facility that is discussed in “Note 11. Debt”.
22
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table presents a summary of these accounts receivable sales agreements for the nine months ended June 30, 2021 and June 30, 2020 (in millions):
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Receivable from financial institution at beginning of
fiscal year
|
|
$
|
—
|
|
|
$
|
—
|
|
Receivables sold to the financial institution and
derecognized
|
|
|
(2,011.9
|
)
|
|
|
(1,847.8
|
)
|
Receivables collected by financial institution
|
|
|
1,939.6
|
|
|
|
1,844.7
|
|
Cash proceeds from financial institution
|
|
|
72.3
|
|
|
|
3.1
|
|
Receivable from financial institution at June 30
|
|
$
|
—
|
|
|
$
|
—
|
|
Receivables sold under these accounts receivable sales agreements as of the respective balance sheet dates were approximately $661.7 million and $589.4 million as of June 30, 2021 and September 30, 2020, respectively.
Cash proceeds related to the receivables sold are included in cash from operating activities in the condensed consolidated statement of cash flows in the accounts receivable line item. While the expense recorded in connection with the sale of receivables may vary based on current rates and levels of receivables sold, the expense recorded in connection with the sale of receivables was $2.8 million and $8.5 million for the three and nine months ended June 30, 2021, respectively, and $2.2 million and $10.6 million for the three and nine months ended June 30, 2020, respectively, and is recorded in “other income (expense), net” in the condensed consolidated statements of income. Although the sales are made without recourse, we maintain continuing involvement with the sold receivables as we provide collections services related to the transferred assets. The associated servicing liability is not material given the high quality of the customers underlying the receivables and the anticipated short collection period.
See “Note 13. Debt” of the Notes to Consolidated Financial Statements section in the Fiscal 2020 Form 10-K for additional information on our debt and interest rates on that debt.
The following table shows the carrying value of the individual components of our debt (in millions):
|
|
June 30, 2021
|
|
|
September 30, 2020
|
|
Public bonds due fiscal 2022
|
|
$
|
399.7
|
|
|
$
|
399.3
|
|
Public bonds due fiscal 2023 to 2028
|
|
|
3,777.1
|
|
|
|
3,773.6
|
|
Public bonds due fiscal 2029 to 2033
|
|
|
2,769.6
|
|
|
|
2,778.9
|
|
Public bonds due fiscal 2037 to 2047
|
|
|
178.3
|
|
|
|
178.6
|
|
Term loan facilities
|
|
|
598.9
|
|
|
|
1,547.6
|
|
Revolving credit and swing facilities
|
|
|
330.0
|
|
|
|
250.0
|
|
Finance lease obligations
|
|
|
266.7
|
|
|
|
274.8
|
|
Vendor financing and commercial card
programs
|
|
|
106.6
|
|
|
|
89.8
|
|
International and other debt
|
|
|
245.7
|
|
|
|
138.0
|
|
Total debt
|
|
|
8,672.6
|
|
|
|
9,430.6
|
|
Less: current portion of debt
|
|
|
565.7
|
|
|
|
222.9
|
|
Long-term debt due after one year
|
|
$
|
8,106.9
|
|
|
$
|
9,207.7
|
|
A portion of the debt classified as long-term may be paid down earlier than scheduled at our discretion without penalty. Certain customary restrictive covenants govern our maximum availability under our credit facilities. We test and report our compliance with these covenants as required and were in compliance with all of our covenants at June 30, 2021.
23
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The estimated fair value of our debt was approximately $9.6 billion as of June 30, 2021 and $10.4 billion at September 30, 2020. The fair value of our long-term debt is categorized as level 2 within the fair value hierarchy and is primarily either based on quoted prices for those or similar instruments, or approximate their carrying amount as the variable interest rates reprice frequently at observable current market rates.
On August 2, 2021, we issued a notice of redemption pursuant to the indenture governing $400 million of 4.9% bonds due March 2022 with a redemption date of September 10, 2021.
Revolving Credit Facility
On November 21, 2019, we amended our $2.0 billion unsecured revolving credit facility entered into on July 1, 2015 (the “Revolving Credit Facility”) to, among other things, increase the committed principal to $2.3 billion, increase the maximum permitted Debt to Capitalization Ratio (as defined in the credit agreement) to 0.65:1.00 and extend its maturity date to November 21, 2024. A portion of the Revolving Credit Facility may be used to fund borrowings in certain non-U.S. dollar currencies. At June 30, 2021 and September 30, 2020, there were no amounts outstanding under the facility.
Term Loans
At September 30, 2020, there was $648.9 million outstanding on the five-year unsecured term loan we entered into with Wells Fargo, as administrative agent, on March 7, 2018. During the first quarter of fiscal 2021, we paid off the term loan primarily using cash on hand.
On June 7, 2019, we entered into a $300.0 million credit agreement providing for a five-year unsecured term loan with Bank of America, N.A., as administrative agent. The facility was scheduled to mature on June 7, 2024. At September 30, 2020, the outstanding balance of this facility was $300.0 million. In December 2020 and May 2021, we repaid $50.0 million and $250.0 million, respectively, using cash and cash equivalents which resulted in the facility being terminated.
On September 27, 2019, one of our wholly-owned subsidiaries, WestRock Southeast, LLC, entered into a credit agreement (the “Farm Loan Credit Agreement”) with CoBank ACB, as administrative agent, that replaced our then-existing facility. The Farm Loan Credit Agreement provides for a seven-year senior unsecured term loan in an aggregate principal amount of $600.0 million (the “Farm Loan Credit Facility”). At any time, we may increase the principal amount by up to $300.0 million by written notice. The Farm Loan Credit Facility is guaranteed by the Company, WRKCo Inc. and WestRock RKT, LLC (“RKT”) and WestRock MWV, LLC (“MWV”, and together with RKT, the “Guarantor Subsidiaries”). The carrying value of this facility at June 30, 2021 and September 30, 2020 was $598.9 million and $598.7 million, respectively.
Receivables Securitization Facility
On March 12, 2021, we amended our existing $700.0 million receivables securitization agreement (the “Receivables Securitization Facility”), including extending its maturity to March 11, 2024, establishing the transition to the Secure Overnight Funding Rate at a future date from a blend of the market rate for asset-backed commercial paper and the one-month LIBOR rate plus a credit spread, and revising certain fees. At June 30, 2021 and September 30, 2020, maximum available borrowings, excluding amounts outstanding under the Receivables Securitization Facility, were $700.0 million and $700.0 million, respectively. The carrying amount of accounts receivable collateralizing the maximum available borrowings at June 30, 2021 and September 30, 2020 were approximately $1,275.3 million and $1,128.3 million, respectively. We have continuing involvement with the underlying receivables as we provide credit and collections services pursuant to the Receivables Securitization Facility. At June 30, 2021 and September 30, 2020, there were no amounts outstanding under this facility.
European Revolving Credit Facility
On February 26, 2021, we replaced our existing revolving credit facility with Coöperatieve Rabobank U.A., New York Branch, as administrative agent. The amendments included, among other things, increasing the facility to €600.0 million while maintaining the incremental €100.0 million accordion feature. This facility provides for a three-year unsecured U.S. dollar, Euro and British Pound denominated borrowing of not more than €600.0 million
24
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
maturing on February 26, 2024. At June 30, 2021, we had borrowed $330.0 million under this facility and entered into foreign currency exchange contracts of $330.3 million as an economic hedge for the U.S. dollar denominated borrowing plus interest by a non-U.S. dollar functional currency entity. The net of gains or losses from these foreign currency exchange contracts and the changes in the remeasurement of the U.S. dollar denominated borrowing in our foreign subsidiaries have been immaterial to our condensed consolidated statements of income. At September 30, 2020, we had borrowed $250.0 million under the then-existing facility.
Commercial Paper Program
On December 7, 2018, we established an unsecured commercial paper program with WRKCo Inc. as the issuer. Under the program, we may issue short-term unsecured commercial paper notes in an aggregate principal amount at any time not to exceed $1.0 billion with up to 397-day maturities. The program has no expiration date and can be terminated by either the agent or us with not less than 30 days’ notice. Our Revolving Credit Facility is intended to backstop the commercial paper program. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. At June 30, 2021 and September 30, 2020, there were no amounts outstanding.
Brazil Export Credit Note
On January 18, 2021, we entered into a credit agreement to provide for R$500.0 million of a senior unsecured term loan of WestRock Celulose, Papel E Embalagens Ltda. (a subsidiary of the Company), as borrower, and the Company, as guarantor. The outstanding amount of the principal will be repaid in equal, semiannual installments beginning on January 19, 2023 until the facility matures on January 19, 2026. The proceeds of the facility are to be used to support the production of goods or acquisition of inputs that are essential or ancillary to export activities. Loans issued under the facility will bear interest at a floating rate based on Brazil’s Certificate of Interbank Deposit rate plus a spread of 2.50%. At June 30, 2021, there was R$500.0 million ($101.1 million) outstanding.
We lease various real estate, including certain operating facilities, warehouses, office space and land. We also lease material handling equipment, vehicles and certain other equipment. Our total lease cost, net was $81.3 million and $241.4 million during the three and nine months ended June 30, 2021, respectively. Our total lease cost, net was $78.5 million and $238.6 million during the three and nine months ended June 30, 2020, respectively. We obtained $137.6 million and $88.4 million of ROU assets in exchange for lease liabilities during the nine months ended June 30, 2021 and 2020, respectively.
25
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Supplemental Balance Sheet Information Related to Leases
The table below presents supplemental balance sheet information related to leases (in millions):
|
|
Condensed Consolidated Balance Sheet Caption
|
|
June 30,
2021
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset
|
|
Other assets
|
|
$
|
695.7
|
|
|
$
|
658.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
Other current liabilities
|
|
$
|
185.0
|
|
|
$
|
172.7
|
|
Operating lease liabilities
|
|
Other long-term liabilities
|
|
|
568.9
|
|
|
|
545.8
|
|
Total operating lease liabilities
|
|
|
|
$
|
753.9
|
|
|
$
|
718.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
$
|
143.0
|
|
|
$
|
143.2
|
|
Accumulated depreciation
|
|
|
|
|
(26.0
|
)
|
|
|
(19.1
|
)
|
Property, plant and equipment, net
|
|
|
|
$
|
117.0
|
|
|
$
|
124.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Current finance lease liabilities
|
|
Current portion of debt
|
|
$
|
8.8
|
|
|
$
|
9.0
|
|
Noncurrent finance lease liabilities
|
|
Long-term debt due after
one year
|
|
|
257.9
|
|
|
|
265.8
|
|
Total finance lease liabilities
|
|
|
|
$
|
266.7
|
|
|
$
|
274.8
|
|
Our finance lease portfolio includes certain assets that are either fully depreciated or transferred for which the lease arrangement requires a one-time principal repayment on the maturity date of the lease obligation.
Note 13.
|
Commitments and Contingencies
|
Health and Safety
Our business involves the use of heavy equipment, machinery and chemicals and requires the performance of activities that create safety exposures. The health and safety of our teammates is our first priority, and we have established safety policies, programs, procedures and training for our manufacturing operations. We are subject to a broad range of foreign, federal, state and local laws and regulations relating to occupational health and safety, and our safety program includes measures required for compliance. In addition, our program includes the ongoing identification and elimination of workplace exposures that can lead to injuries and sharing of health and safety best practices. Failure to comply with applicable health and safety laws and regulations could subject us to fines, corrective actions or other sanctions.
Certain governmental authorities in locations where we do business have established asbestos standards for the workplace. Although we do not use asbestos in manufacturing our products, asbestos containing material (“ACM”) is present in some of the facilities we lease or own. For those facilities where ACM is present and ACM is subject to regulation, we have established procedures for properly managing it.
We do not believe that future compliance with occupational health and safety laws and regulations will have a material adverse effect on our results of operations, financial condition or cash flows.
Environmental
We are subject to numerous international, federal, state, local and other environmental 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 requirements relating to the use of chemicals in packaging. We are also subject to the requirements of environmental permits and similar authorizations issued by various governmental authorities. Complex and lengthy processes may be required to obtain and renew approvals, permits, and licenses for new, existing or modified facilities. Additionally, the use and handling of various
26
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
chemicals or hazardous materials require release prevention plans and emergency response procedures. Our compliance initiatives related to these laws and regulations could result in significant costs, which could negatively impact our results of operations, financial condition and cash flows. Failure to comply with environmental laws and regulations, or any permits and authorizations required thereunder, could subject us to fines or other sanctions, corrective action requirements and litigation.
We have been named as a potentially responsible party (“PRP”) in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). Many of these proceedings involve the cleanup of hazardous substances at sites that received waste from many different sources. While joint and several liability is authorized under CERCLA and analogous state laws, liability for CERCLA cleanups is typically shared with other PRPs, and costs are commonly allocated according to relative amounts of waste deposited and other factors. We believe we have insurance and contractual indemnification rights that may allow us to recover certain defense and other costs at some CERCLA sites. There are other remediation costs typically associated with the cleanup of hazardous substances at our current, closed or formerly-owned facilities, and recorded as liabilities in our balance sheet. Remediation costs are recorded in our financial statements when they become probable and reasonably estimable.
See “Note 18. Commitments and Contingencies” of the Notes to Consolidated Financial Statements section in the Fiscal 2020 Form 10-K for information related to environmental matters.
As of June 30, 2021, we had $4.6 million reserved for environmental liabilities on an undiscounted basis, of which $1.7 million is included in other long-term liabilities and $2.9 million is included in other current liabilities, including amounts accrued in connection with environmental obligations relating to manufacturing facilities that we have closed. We believe the liability for these matters was adequately reserved at June 30, 2021.
Litigation
In July 2021, the PIUMPF filed suit against us in the U.S. District Court for the Northern District of Georgia claiming the right to recover our pro rata share of the pension fund’s accumulated funding deficiency. During fiscal 2018, we submitted formal notification to withdraw from the PIUMPF and recorded a liability associated with the withdrawal. Subsequently, in fiscal 2019 and 2020, we received demand letters from PIUMPF, including a demand for withdrawal liabilities and for our proportionate share of PIUMPF’s accumulated funding deficiency, and we refined our liability, the impact of which was not significant. We began making monthly payments for the PIUMPF withdrawal liabilities in fiscal 2020, excluding the accumulated funding deficiency demands. We dispute the PIUMPF accumulated funding deficiency demands. In February 2020, we received a demand letter from PIUMPF asserting that we owe $51.2 million for our pro-rata share of PIUMPF’s accumulated funding deficiency, including interest. Similarly, in April 2020, we received an updated demand letter related to a subsidiary of ours asserting that we owe $1.3 million of additional accumulated funding deficiency, including interest. See “Note 4. Retirement Plans — MEPPs” of the Notes to Condensed Consolidated Financial Statements for more information regarding our withdrawal liabilities.
We have been named a defendant in asbestos-related personal injury litigation. To date, the costs resulting from the litigation, including settlement costs, have not been significant. As of June 30, 2021, there were approximately 1,500 such lawsuits. We believe that we have substantial insurance coverage, subject to applicable deductibles and policy limits, with respect to asbestos claims. We also have valid defenses to these asbestos-related personal injury claims and intend to continue to defend them vigorously. Should the volume of litigation grow substantially beyond our expectations, it is possible that we could incur significant costs resolving these cases. We do not expect the resolution of pending asbestos litigation and proceedings to have a material adverse effect on our results of operations, financial condition or cash flows. In any given period or periods, however, it is possible such proceedings or matters could have an adverse effect on our results of operations, financial condition or cash flows. At June 30, 2021, we had a $15.2 million estimated liability for these matters.
We are a defendant in a number of other lawsuits and claims arising out of the conduct of our business. While the ultimate results of such suits or other proceedings against us cannot be predicted with certainty, we believe the resolution of these other matters will not have a material adverse effect on our results of operations, financial condition or cash flows.
27
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Brazil Tax Liability
We are challenging claims by the Brazil Federal Revenue Department that we are liable for underpayment of tax, penalties and interest in relation to a claim that a subsidiary of MeadWestvaco Corporation (the predecessor of WestRock MWV, LLC) had reduced its tax liability related to the goodwill generated by the 2002 merger of two of its Brazil subsidiaries. The matter has proceeded through the Brazil Administrative Council of Tax Appeals (“CARF”) principally in two proceedings, covering tax years 2003 to 2008 and 2009 to 2012. The tax and interest claim relating to tax years 2009 to 2012 was finalized and is now the subject of an annulment action we filed in the Brazil federal court. CARF notified us of its final decision regarding the tax, penalties and interest claims relating to tax years 2003 to 2008 on June 3, 2020. We have filed an annulment action in Brazil federal court with respect to that decision as well. The dispute related to penalties for tax years 2009 to 2012 remains before CARF.
We assert that we have no liability in these matters. The total amount in dispute before CARF and in the annulment actions relating to the claimed tax deficiency was R$698 million ($141 million) as of June 30, 2021, including various penalties and interest. The U.S. dollar equivalent has fluctuated significantly due to changes in exchange rates. The amount of our uncertain tax position reserve for this matter, that excludes certain penalties, is included in the unrecognized tax benefits table. See “Note 6. Income Taxes” of the Notes to Consolidated Financial Statements section in the Fiscal 2020 Form 10-K. Resolution of the uncertain tax positions could have a material adverse effect on our cash flows and results of operations or materially benefit our results of operations in future periods depending upon their ultimate resolution.
Guarantees
We make certain guarantees in the normal course of conducting our operations, for compliance with certain laws and regulations, or in connection with certain business dispositions. The guarantees include items such as funding of net losses in proportion to our ownership share of certain joint ventures, debt guarantees related to certain unconsolidated entities acquired in acquisitions, indemnifications of lessors in certain facilities and equipment operating leases for items such as additional taxes being assessed due to a change in tax law and certain other agreements. We estimate our exposure to these matters to be less than $50 million. As of June 30, 2021, we had recorded $5.6 million for the estimated fair value of these guarantees. We are unable to estimate our maximum exposure under operating leases because it is dependent on potential changes in the tax laws; however, we believe our exposure related to guarantees would not have a material impact on our results of operations, financial condition or cash flows.
Indirect Tax Claim
In March 2017, the Supreme Court of Brazil issued a decision concluding that certain state value added tax should not be included in the calculation of federal gross receipts taxes. Subsequently, in fiscal 2019 and 2020, the Supreme Court of Brazil rendered favorable decisions on eight of our cases granting us the right to recover certain state value added tax. The tax authorities in Brazil have filed a Motion of Clarification with the Supreme Court of Brazil. Based on our evaluation and the opinion of our tax and legal advisors, we believe the decision reduced our gross receipts tax in Brazil prospectively and retrospectively, and will allow us to recover tax amounts collected by the government. Due to the volume of invoices being reviewed (January 2002 to September 2019), we have recorded the estimated recoveries across several periods beginning in the fourth quarter of fiscal 2019 as we have reviewed the documents and the amount has become estimable. In May 2021, the Supreme Court of Brazil judged the Motion of Clarification and concluded on the gross methodology, which was consistent with our evaluation and that of our tax and legal advisors.
In the three months ended June 30, 2020, we recorded a receivable for our expected recovery and interest that consisted primarily of a $4.2 million reduction of cost of goods sold and a $6.0 million reduction of interest expense, net. In the nine months ended June 30, 2021 and 2020, we recorded a receivable for our expected recovery and interest that consisted primarily of a $0.6 million and $27.7 million reduction of cost of goods sold and a $0.3 million and $17.6 million reduction of interest expense, net, respectively. We are monitoring the status of our remaining cases, and subject to the resolution in the courts, we may record additional amounts in future periods.
28
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Note 14.
|
Equity and Other Comprehensive Income (Loss)
|
Equity
Stock Repurchase Program
In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of our Common Stock, representing approximately 15% of our outstanding common stock, par value $0.01 per share (“Common Stock”) as of July 1, 2015. The shares of Common Stock may be repurchased over an indefinite period of time at the discretion of management. Pursuant to the program, in the nine months ended June 30, 2021 and June 30, 2020, we repurchased no shares of Common Stock. As of June 30, 2021, we had approximately 19.1 million shares of Common Stock available for repurchase under the program.
Accumulated Other Comprehensive Loss
The tables below summarize the changes in accumulated other comprehensive loss, net of tax, by component for the nine months ended June 30, 2021 and June 30, 2020 (in millions):
|
|
Cash
Flow Hedges
|
|
|
Defined Benefit
Pension and
Postretirement
Plans
|
|
|
Foreign
Currency
Items
|
|
|
Total (1)
|
|
Balance at September 30, 2020
|
|
$
|
(5.6
|
)
|
|
$
|
(727.7
|
)
|
|
$
|
(586.6
|
)
|
|
$
|
(1,319.9
|
)
|
Other comprehensive (loss) income before
reclassifications
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
253.0
|
|
|
|
252.9
|
|
Amounts reclassified from accumulated other
comprehensive loss
|
|
|
4.4
|
|
|
|
21.8
|
|
|
|
—
|
|
|
|
26.2
|
|
Net current period other comprehensive income
|
|
|
4.3
|
|
|
|
21.8
|
|
|
|
253.0
|
|
|
|
279.1
|
|
Balance at June 30, 2021
|
|
$
|
(1.3
|
)
|
|
$
|
(705.9
|
)
|
|
$
|
(333.6
|
)
|
|
$
|
(1,040.8
|
)
|
(1) All amounts are net of tax and noncontrolling interests.
|
|
Cash
Flow Hedges
|
|
|
Defined Benefit
Pension and
Postretirement
Plans
|
|
|
Foreign
Currency
Items
|
|
|
Total (1)
|
|
Balance at September 30, 2019
|
|
$
|
0.7
|
|
|
$
|
(698.0
|
)
|
|
$
|
(371.9
|
)
|
|
$
|
(1,069.2
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(10.1
|
)
|
|
|
—
|
|
|
|
(265.2
|
)
|
|
|
(275.3
|
)
|
Amounts reclassified from accumulated other
comprehensive loss
|
|
|
2.2
|
|
|
|
28.3
|
|
|
|
—
|
|
|
|
30.5
|
|
Net current period other comprehensive (loss) income
|
|
|
(7.9
|
)
|
|
|
28.3
|
|
|
|
(265.2
|
)
|
|
|
(244.8
|
)
|
Reclassification of stranded tax effects
|
|
|
—
|
|
|
|
(73.4
|
)
|
|
|
—
|
|
|
|
(73.4
|
)
|
Balance at June 30, 2020
|
|
$
|
(7.2
|
)
|
|
$
|
(743.1
|
)
|
|
$
|
(637.1
|
)
|
|
$
|
(1,387.4
|
)
|
(1) All amounts are net of tax and noncontrolling interests.
The net of tax amounts were determined using the jurisdictional statutory rates, and reflect effective tax rates averaging 23% to 24% for the nine months ended June 30, 2021 and 25% to 26% for the nine months ended June 30, 2020. Although we are impacted by the exchange rates of a number of currencies, foreign currency translation adjustments recorded in accumulated other comprehensive loss for the nine months ended June 30, 2021 were primarily due to gains in the Brazilian Real, Canadian dollar, Mexican Peso and British Pound, each against the U.S. dollar. Foreign currency translation adjustments recorded in accumulated other comprehensive loss for the nine months ended June 30, 2020 were primarily due to losses in the Brazilian Real, Mexican Peso, Canadian dollar and Euro, each against the U.S. dollar.
29
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table summarizes the reclassifications out of accumulated other comprehensive loss by component (in millions):
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net of Tax
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net of Tax
|
|
Amortization of defined benefit pension and
postretirement items: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (2)
|
|
$
|
(9.3
|
)
|
|
$
|
2.1
|
|
|
$
|
(7.2
|
)
|
|
$
|
(11.4
|
)
|
|
$
|
2.6
|
|
|
$
|
(8.8
|
)
|
Prior service costs (2)
|
|
|
(1.6
|
)
|
|
|
0.3
|
|
|
|
(1.3
|
)
|
|
|
(1.3
|
)
|
|
|
0.3
|
|
|
|
(1.0
|
)
|
Subtotal defined benefit plans
|
|
|
(10.9
|
)
|
|
|
2.4
|
|
|
|
(8.5
|
)
|
|
|
(12.7
|
)
|
|
|
2.9
|
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap hedge loss (3)
|
|
|
(2.1
|
)
|
|
|
0.6
|
|
|
|
(1.5
|
)
|
|
|
(1.4
|
)
|
|
|
0.3
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(13.0
|
)
|
|
$
|
3.0
|
|
|
$
|
(10.0
|
)
|
|
$
|
(14.1
|
)
|
|
$
|
3.2
|
|
|
$
|
(10.9
|
)
|
(1) Amounts in parentheses indicate charges to earnings. Amounts pertaining to noncontrolling interests are excluded.
(2) Included in the computation of net periodic pension cost. See “Note 4. Retirement Plans” for additional details.
(3) These accumulated other comprehensive income components are included in Interest expense, net.
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net of Tax
|
|
|
Pretax
|
|
|
Tax
|
|
|
Net of Tax
|
|
Amortization of defined benefit pension and
postretirement items: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (2)
|
|
$
|
(24.1
|
)
|
|
$
|
5.7
|
|
|
$
|
(18.4
|
)
|
|
$
|
(34.5
|
)
|
|
$
|
8.7
|
|
|
$
|
(25.8
|
)
|
Prior service costs (2)
|
|
|
(4.4
|
)
|
|
|
1.0
|
|
|
|
(3.4
|
)
|
|
|
(3.3
|
)
|
|
|
0.8
|
|
|
|
(2.5
|
)
|
Reclassification of stranded tax effects (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73.4
|
|
|
|
73.4
|
|
Subtotal defined benefit plans
|
|
|
(28.5
|
)
|
|
|
6.7
|
|
|
|
(21.8
|
)
|
|
|
(37.8
|
)
|
|
|
82.9
|
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap hedge loss (4)
|
|
|
(6.0
|
)
|
|
|
1.6
|
|
|
|
(4.4
|
)
|
|
|
(0.4
|
)
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
Natural gas commodity hedge gain (5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.6
|
)
|
|
|
0.7
|
|
|
|
(1.9
|
)
|
Subtotal cash flow hedges
|
|
|
(6.0
|
)
|
|
|
1.6
|
|
|
|
(4.4
|
)
|
|
|
(3.0
|
)
|
|
|
0.8
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(34.5
|
)
|
|
$
|
8.3
|
|
|
$
|
(26.2
|
)
|
|
$
|
(40.8
|
)
|
|
$
|
83.7
|
|
|
$
|
42.9
|
|
(1) Amounts in parentheses indicate charges to earnings. Amounts pertaining to noncontrolling interests are excluded.
(2) Included in the computation of net periodic pension cost. See “Note 4. Retirement Plans” for additional details.
(3) Amount reclassified to retained earnings as a result of the adoption of ASU 2018-02.
(4) These accumulated other comprehensive income components are included in Interest expense, net.
(5) These accumulated other comprehensive income components are included in Cost of goods sold.
30
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Note 15.
|
Earnings Per Share
|
The restricted stock awards that we grant to non-employee directors are considered participating securities as they receive non-forfeitable rights to dividends at the same rate as our Common Stock. As participating securities, we include these instruments in the earnings allocation in computing earnings per share under the two-class method described in ASC 260, “Earnings per Share”. The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in millions, except per share data):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
250.1
|
|
|
$
|
178.5
|
|
|
$
|
514.6
|
|
|
$
|
465.1
|
|
Less: Distributed and undistributed income
available to participating securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Distributed and undistributed income available to
common stockholders
|
|
$
|
250.1
|
|
|
$
|
178.5
|
|
|
$
|
514.5
|
|
|
$
|
465.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
266.5
|
|
|
|
259.4
|
|
|
|
264.7
|
|
|
|
258.9
|
|
Effect of dilutive stock options and non-
participating securities
|
|
|
2.5
|
|
|
|
1.0
|
|
|
|
2.3
|
|
|
|
1.3
|
|
Diluted weighted average shares outstanding
|
|
|
269.0
|
|
|
|
260.4
|
|
|
|
267.0
|
|
|
|
260.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to common
stockholders
|
|
$
|
0.94
|
|
|
$
|
0.69
|
|
|
$
|
1.94
|
|
|
$
|
1.80
|
|
Diluted earnings per share attributable to common
stockholders
|
|
$
|
0.93
|
|
|
$
|
0.69
|
|
|
$
|
1.93
|
|
|
$
|
1.79
|
|
Approximately 0.5 million and 4.0 million awards in the three months ended June 30, 2021 and June 30, 2020, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive. Approximately 0.6 million and 2.2 million awards in the nine months ended June 30, 2021 and June 30, 2020, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive.
31