UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
or
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER: 001-33988
Graphic Packaging Holding Company
(Exact name of registrant as specified in its charter)
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Delaware | 26-0405422 |
(State or other jurisdiction of | (I.R.S. employer |
incorporation or organization) | identification no.) |
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1500 Riveredge Parkway, Suite 100 | |
Atlanta, Georgia | 30328 |
(Address of principal executive offices) | (Zip Code) |
(770) 240-7200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer R | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R
As of November 5, 2015, there were 327,654,649 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.
Information Concerning Forward-Looking Statements
Certain statements regarding the expectations of Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”), including, but not limited to, the availability of net operating losses to offset U.S. federal income taxes, capital investment, costs to comply with certain environmental regulations, available cash and liquidity, depreciation and amortization, interest expense, pension expense and pension plan contributions and postretirement health care benefit payments, in this report constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations. These risks and uncertainties include, but are not limited to, inflation of and volatility in raw material and energy costs, changes in consumer buying habits and product preferences, competition with other paperboard manufacturers and product substitution, the Company’s ability to implement its business strategies, including strategic acquisitions, productivity initiatives and cost reduction plans, the Company’s debt level, currency movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters, including those that could impact the Company’s ability to utilize its net operating losses to offset taxable income and those that impact the Company's ability to protect and use its intellectual property. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements. Additional information regarding these and other risks is contained in Part I, “Item 1A., Risk Factors” of the Company’s 2014 Annual Report on Form 10-K, and in other filings with the Securities and Exchange Commission.
TABLE OF CONTENTS
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EX-31.1 | |
EX-31.2 | |
EX-32.1 | |
EX-32.2 | |
XBRL Content | |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| Three Months Ended | Nine Months Ended |
| September 30, | September 30, |
In millions, except per share amounts | 2015 | | 2014 | 2015 | | 2014 |
Net Sales | $ | 1,070.0 |
| | $ | 1,050.0 |
| $ | 3,135.3 |
| | $ | 3,239.4 |
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Cost of Sales | 868.1 |
| | 847.6 |
| 2,545.8 |
| | 2,636.9 |
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Selling, General and Administrative | 83.7 |
| | 83.6 |
| 257.8 |
| | 279.0 |
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Other Expense (Income), Net | 0.2 |
| | (0.3 | ) | (7.9 | ) | | (1.3 | ) |
Restructuring and Other Special Charges | 8.0 |
| | 6.8 |
| 14.1 |
| | 185.7 |
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Income from Operations | 110.0 |
| | 112.3 |
| 325.5 |
| | 139.1 |
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Interest Expense, Net | (16.5 | ) | | (20.4 | ) | (51.2 | ) | | (62.0 | ) |
Income before Income Taxes and Equity Income of Unconsolidated Entity | 93.5 |
| | 91.9 |
| 274.3 |
| | 77.1 |
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Income Tax Expense | (33.6 | ) | | (39.3 | ) | (102.3 | ) | | (30.9 | ) |
Income before Equity Income of Unconsolidated Entity | 59.9 |
| | 52.6 |
| 172.0 |
| | 46.2 |
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Equity Income of Unconsolidated Entities | 0.3 |
| | 0.4 |
| 0.9 |
| | 1.3 |
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Net Income | 60.2 |
| | 53.0 |
| 172.9 |
| | 47.5 |
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Net Loss Attributable to Noncontrolling Interests | — |
| | — |
| — |
| | 0.7 |
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Net Income Attributable to Graphic Packaging Holding Company | $ | 60.2 |
| | $ | 53.0 |
| $ | 172.9 |
| | $ | 48.2 |
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Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic | $ | 0.18 |
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| $ | 0.16 |
| $ | 0.52 |
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| $ | 0.15 |
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Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted | $ | 0.18 |
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| $ | 0.16 |
| $ | 0.52 |
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| $ | 0.15 |
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Cash Dividends Declared | $ | 0.05 |
| | $ | — |
| $ | 0.15 |
| | $ | — |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
In millions | 2015 | 2014 | | 2015 | 2014 |
Net Income | 60.2 |
| $ | 53.0 |
| | $ | 172.9 |
| $ | 47.5 |
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Other Comprehensive Income (Loss), Net of Tax: | | | | | |
Derivative Instruments | (3.8 | ) | 0.3 |
| | (1.4 | ) | (0.9 | ) |
Currency Translation Adjustment | (16.2 | ) | (22.9 | ) | | (25.9 | ) | (14.2 | ) |
Pension Benefit Plans | 2.7 |
| 2.4 |
| | 25.3 |
| 4.0 |
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Postretirement Benefit Plans | (0.3 | ) | (0.8 | ) | | (0.9 | ) | (3.4 | ) |
Total Other Comprehensive Loss, Net of Tax | (17.6 | ) | (21.0 | ) | | (2.9 | ) | (14.5 | ) |
Total Comprehensive Income | 42.6 |
| 32.0 |
| | 170.0 |
| 33.0 |
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Comprehensive Loss Attributable to Noncontrolling Interests | — |
| — |
| | — |
| 0.4 |
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Comprehensive Income Attributable to Graphic Packaging Holding Company | $ | 42.6 |
| $ | 32.0 |
| | $ | 170.0 |
| $ | 33.4 |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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In millions, except share and per share amounts | September 30,
2015 |
| December 31, 2014 |
ASSETS | | | |
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Current Assets: | | | |
Cash and Cash Equivalents | $ | 81.5 |
| | $ | 81.6 |
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Receivables, Net | 483.2 |
| | 408.3 |
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Inventories, Net | 569.3 |
| | 521.8 |
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Deferred Income Tax Assets | 180.3 |
| | 177.2 |
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Other Current Assets | 35.3 |
| | 32.0 |
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Total Current Assets | 1,349.6 |
| | 1,220.9 |
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Property, Plant and Equipment, Net | 1,553.3 |
| | 1,546.8 |
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Goodwill | 1,158.5 |
| | 1,118.1 |
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Intangible Assets, Net | 379.7 |
| | 385.6 |
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Other Assets | 66.7 |
| | 59.9 |
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Total Assets | $ | 4,507.8 |
| | $ | 4,331.3 |
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LIABILITIES | | | |
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Current Liabilities: | | | |
Short-Term Debt and Current Portion of Long-Term Debt | $ | 33.8 |
| | $ | 32.2 |
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Accounts Payable | 411.6 |
| | 424.9 |
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Compensation and Employee Benefits | 117.4 |
| | 118.6 |
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Interest Payable | 16.6 |
| | 9.4 |
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Other Accrued Liabilities | 113.4 |
| | 91.6 |
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Total Current Liabilities | 692.8 |
| | 676.7 |
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Long-Term Debt | 1,960.4 |
| | 1,942.1 |
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Deferred Income Tax Liabilities | 429.5 |
| | 309.3 |
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Accrued Pension and Postretirement Benefits | 246.8 |
| | 312.8 |
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Other Noncurrent Liabilities | 74.0 |
| | 78.1 |
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SHAREHOLDERS’ EQUITY | | | |
Preferred Stock, par value $.01 per share; 100,000,000 shares authorized; no shares issued or outstanding | — |
| | — |
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Common Stock, par value $.01 per share; 1,000,000,000 shares authorized; 327,652,728 and 327,044,500 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively | 3.3 |
| | 3.3 |
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Capital in Excess of Par Value | 1,782.3 |
| | 1,796.5 |
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Accumulated Deficit | (343.8 | ) | | (452.9 | ) |
Accumulated Other Comprehensive Loss | (337.5 | ) | | (334.6 | ) |
Total Shareholders' Equity | 1,104.3 |
| | 1,012.3 |
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Total Liabilities and Shareholders' Equity | $ | 4,507.8 |
| | $ | 4,331.3 |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| Nine Months Ended |
| September 30, |
In millions | 2015 | | 2014 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net Income | $ | 172.9 |
| | $ | 47.5 |
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Non-cash Items Included in Net Income: | | | |
Depreciation and Amortization | 212.8 |
| | 202.2 |
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Deferred Income Taxes | 90.1 |
| | 28.8 |
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Amount of Postretirement Expense Less Than Funding | (28.8 | ) | | (13.9 | ) |
Loss on the Sale of Assets | 2.6 |
| | 170.4 |
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Other, Net | 18.5 |
| | 29.3 |
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Changes in Operating Assets and Liabilities | (117.1 | ) | | (133.1 | ) |
Net Cash Provided by Operating Activities | 351.0 |
| | 331.2 |
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CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Capital Spending | (181.7 | ) | | (151.4 | ) |
Proceeds from Government Grant | — |
| | 26.9 |
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Acquisition of Businesses, Net of Cash Acquired | (113.6 | ) | | (173.8 | ) |
Proceeds Received from the Sale of Assets, Net of Selling Costs | — |
| | 167.4 |
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Other, Net | 1.2 |
| | (4.4 | ) |
Net Cash Used in Investing Activities | (294.1 | ) | | (135.3 | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Repurchase of Common Stock | (23.0 | ) | | — |
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Payments on Debt | (18.7 | ) | | (46.1 | ) |
Borrowings under Revolving Credit Facilities | 748.9 |
| | 949.3 |
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Payments on Revolving Credit Facilities | (704.5 | ) | | (1,068.6 | ) |
Repurchase of Common Stock related to Share-Based Payments | (21.3 | ) | | (14.7 | ) |
Dividends Paid | (32.9 | ) | | — |
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Other, Net | (1.1 | ) | | (10.2 | ) |
Net Cash Used in Financing Activities | (52.6 | ) | | (190.3 | ) |
Effect of Exchange Rate Changes on Cash | (4.4 | ) | | (2.6 | ) |
Net (Decrease) Increase in Cash and Cash Equivalents | (0.1 | ) | | 3.0 |
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Cash and Cash Equivalents at Beginning of Period | 81.6 |
| | 52.2 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 81.5 |
| | $ | 55.2 |
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Supplemental non-cash investing activities:
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Total Consideration Received from the Sale of Assets, Net of Selling Costs | $ | — |
| $ | 180.7 |
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Cash Proceeds Received from the Sale of Assets, Net of Selling Costs | — |
| 167.4 |
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Non-cash Consideration Received from the Sale of Assets, Net of Selling Costs | $ | — |
| $ | 13.3 |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — GENERAL INFORMATION
Nature of Business and Basis of Presentation
Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”) is committed to providing consumer packaging that makes a world of difference. The Company is a leading provider of paper-based packaging solutions for a wide variety of products to food, beverage and other consumer products companies. The Company operates on a global basis and is one of the largest producers of folding cartons in the United States ("U.S.") and holds leading market positions in coated unbleached kraft paperboard and coated-recycled paperboard.
The Company’s customers include many of the world’s most widely recognized companies and brands with prominent market positions in beverage, food and other consumer products. The Company strives to provide its customers with packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its low-cost paperboard mills and converting plants, its proprietary carton and packaging designs, and its commitment to quality and service.
GPHC and Graphic Packaging Corporation (“GPC”) conduct no significant business and have no independent assets or operations other than GPHC’s ownership of all of GPC’s outstanding common stock and GPC’s ownership of all of the outstanding common stock of Graphic Packaging International, Inc. (“GPII”).
The Company’s Condensed 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.
In the Company’s opinion, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods. The Company’s year end Condensed Consolidated Balance Sheet data was derived from audited financial statements. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all the information required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with GPHC’s Form 10-K for the year ended December 31, 2014. In addition, the preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates and changes in these estimates are recorded when known.
For a summary of the Company’s significant accounting policies, please refer to GPHC’s Form 10-K for the year ended December 31, 2014.
Accounts Receivable and Allowances
The Company has entered into an agreement for the purchasing and servicing of receivables (the "AR Sales Agreement"), to sell, on a revolving basis, certain trade accounts receivable balances to a third party financial institution. Transfers under this agreement 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"). During the first nine months of 2015, the Company sold and derecognized approximately $799 million of receivables, collected approximately $614 million on behalf of the financial institution, and was funded approximately $178 million by the financial institution, resulting in an approximate $40 million receivable from the financial institution as of September 30, 2015. Cash proceeds related to the sales are included in cash from operating activities in the Condensed Consolidated Statements of Cash Flows in the Changes in Operating Assets and Liabilities line item. The loss on sale is not material and is included in Other Expense (Income), Net line item on the Condensed Consolidated Statement of Operations.
The Company has also entered into various factoring and supply chain financing arrangements, principally at the request of customers, which also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the nine months ended September 30, 2015 and 2014, the Company sold receivables of approximately $114 million and $330 million, respectively, related to these factoring arrangements.
Amounts transferred subject to continuing involvement, which consist principally of collection services, at September 30, 2015 and December 31, 2014, were approximately $294 million and $127 million, respectively.
Capital Allocation Plan
On February 4, 2015, the Company's board of directors authorized a share repurchase program to allow management to purchase up to $250 million of the Company's issued and outstanding shares of common stock through open market purchases, privately negotiated transactions and Rule 10b5-1 plans. The Company repurchased 279,328, 285,698, and 1,063,401 shares at an average price of $14.30 $13.98 and $14.11 during the quarters ending March 31, 2015, June 30, 2015, and September 30, 2015, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Also, on February 4, 2015, May 20, 2015, and July 30, 2015, the Company's board of directors declared a regular quarterly dividend of $0.05 per share of common stock payable on April 5, 2015 to shareholders of record as of March 15, 2015, payable on July 5, 2015 to shareholders of record as of June 15, 2015, and payable on October 5, 2015 to shareholders of record as of September 15, 2015, respectively.
Restructuring and Other Special Charges
The following table summarizes the transactions recorded in Restructuring and Other Special Charges in the Consolidated Statements of Operations:
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
In millions | 2015 | | 2014 | | 2015 | | 2014 |
Loss on Sale of Assets | $ | 1.7 |
| | $ | 0.3 |
| | $ | 1.7 |
| | $ | 170.7 |
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Charges Associated with Business Combinations | 5.7 |
| | 2.4 |
| | 10.1 |
| | 8.3 |
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Other Special Charges | 0.6 |
| | 4.1 |
| | 2.3 |
| | 6.7 |
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Total | $ | 8.0 |
| | $ | 6.8 |
| | $ | 14.1 |
| | $ | 185.7 |
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On February 4, 2015, the Company completed its acquisition of certain assets of Cascades Norampac Division ("Cascades"). On January 2, 2015, the Company completed its acquisition of Rose City Printing and Packaging, Inc. ("Rose City"). Charges associated with these acquisitions are reflected in Charges Associated with Business Combinations in the above table. For more information regarding these acquisitions see Note 3 - Acquisitions.
On June 30, 2014, the Company completed the sale of its multi-wall bag business. The financial impact of this transaction is reflected in Loss on Sale of Assets in the above table.
On May 23, 2014, the Company completed its acquisition of U.K.- based Benson Group ("Benson"). Charges associated with the acquisition are reflected in Charges Associated with Business Combinations in the above table.
On February 3, 2014, the Company completed the sale of its label business. The financial impact of this transaction is reflected in Loss on Sale of Assets in the above table.
Accounting Standards Not Yet Adopted
On September 28, 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this ASU eliminate the requirement to retrospectively account for provisional amounts recognized in a business combination. The amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company is currently evaluating the impact of adoption on the Company's disclosures for business combinations and financial position.
On July 23, 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This amendment replaces the current method of measuring inventories at lower of cost or market with a lower of cost and net realizable value method. The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of adoption on the Company's financial position, results of operations and cash flows.
On April 7, 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this ASU are effective for the financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within the fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the impact of adoption on the Company's financial position.
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Adoption of ASU No. 2014-09 requires that an entity recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
standard but not before the original effective date of December 15, 2016. The Company is currently evaluating the impact of adoption on the Company's financial position, results of operations and cash flows.
On June 19, 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in the ASU clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. ASU 2014-12 is effective for all entities for annual periods beginning after December 15, 2015 and interim period within those annual periods and early adoption is permitted. The Company is currently evaluating the impact of adoption on the Company's financial position, results of operations and cash flows.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 — INVENTORIES, NET
Inventories, Net by major class:
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In millions | September 30, 2015 | | December 31, 2014 |
Finished Goods | $ | 254.1 |
| | $ | 254.9 |
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Work in Progress | 64.8 |
| | 52.9 |
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Raw Materials | 173.8 |
| | 144.3 |
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Supplies | 76.6 |
| | 69.7 |
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Total | $ | 569.3 |
| | $ | 521.8 |
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GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 — ACQUISITIONS
On February 4, 2015, the Company completed the acquisition of certain assets of Cascades in Canada. Cascades operated three folding carton converting facilities located in Cobourg, Ontario, Mississauga, Ontario and Winnipeg, Manitoba along with a thermo mechanical pulp mill located in Jonquiere, Quebec and a coated recycled board mill located in East Angus, Quebec.
On January 2, 2015, the Company acquired Rose City through the purchase of all of the issued and outstanding stock of its parent company, Rose City Holding Company. Rose City services food and beverage end markets and operates two folding carton converting facilities located in Gresham, OR and Vancouver, WA. The Cascades and Rose City transactions are referred to collectively as the "North American Acquisitions."
The Company paid approximately $115 million for the North American Acquisitions using existing cash and borrowings under its revolving line of credit. The purchase price for the North American Acquisitions has been preliminarily allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the purchase dates, and is subject to adjustments in subsequent periods once the third-party valuations are completed. Management believes that the purchase price attributable to goodwill represents the benefits expected, as the acquisitions were made to continue to grow the North American food and beverage business, integrate paperboard from the Company's mills and to further optimize the Company's supply chain footprint.
The preliminary acquisition accounting allocation is as follows:
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In millions | Amounts Recognized as of Acquisition Dates | | Measurement Period Adjustments | | Amounts Recognized as of Acquisition Dates (as adjusted) |
Purchase Price | $ | 117.6 |
| | $ | (3.0 | ) | | $ | 114.6 |
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Cash and Cash Equivalents | $ | 1.0 |
| | $ | — |
| | $ | 1.0 |
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Receivables, Net | 24.6 |
| | — |
| | 24.6 |
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Inventories, Net | 35.5 |
| | (7.1 | ) | | 28.4 |
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Other Current Assets | 1.3 |
| | — |
| | 1.3 |
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Property, Plant and Equipment, Net | 50.2 |
| | (26.2 | ) | | 24.0 |
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Pension Asset | 2.5 |
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| 0.9 |
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| 3.4 |
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Other Assets | 7.7 |
| | 27.9 |
| | 35.6 |
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Total Assets Acquired | 122.8 |
| | (4.5 | ) | | 118.3 |
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Current Liabilities | 25.3 |
| | — |
| | 25.3 |
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Pension and Postretirement Benefits | 5.7 |
| | (0.4 | ) | | 5.3 |
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Deferred Tax Liabilities | 5.1 |
| | 10.5 |
| | 15.6 |
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Other Noncurrent Liabilities | 2.1 |
| | — |
| | 2.1 |
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Total Liabilities Assumed | 38.2 |
| | 10.1 |
| | 48.3 |
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Net Assets Acquired | 84.6 |
| | (14.6 | ) | | 70.0 |
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Goodwill | 33.0 |
| | 11.6 |
| | 44.6 |
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Total Estimated Fair Value of Net Assets Acquired | $ | 117.6 |
| | $ | (3.0 | ) | | $ | 114.6 |
|
On May 23, 2014, the Company acquired the Benson Group, a leading food, retail and health care packaging company in the United Kingdom. Under the terms of the transaction, the Company paid $190.7 million ($173.8 million net of cash acquired) in an all cash transaction funded with existing cash and borrowings under the Company's revolving line of credit. Benson operated four folding carton facilities that converted approximately 80,000 tons of paperboard annually into folding cartons for the food, beverage and healthcare products industries.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 — DEBT
For more information regarding the Company’s debt, see “Note 5 — Debt” of the Notes to Consolidated Financial Statements of the Company’s 2014 Form 10-K.
Long-Term Debt is composed of the following:
|
| | | | | | | |
In millions | September 30, 2015 | | December 31, 2014 |
Senior Notes with interest payable semi-annually at 4.875%, payable in 2022 | $ | 250.0 |
| | $ | 250.0 |
|
Senior Notes with interest payable semi-annually at 4.75%, payable in 2021 | 425.0 |
| | 425.0 |
|
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (1.7% at September 30, 2015) payable through 2019 | 981.3 |
| | 1,000.0 |
|
Senior Secured Revolving Facilities with interest payable at floating rates (1.7% at September 30, 2015) payable in 2019 | 326.4 |
| | 288.4 |
|
Capital Lease Obligations | 2.2 |
| | 3.1 |
|
Other | 9.3 |
| | 7.8 |
|
Total Debt | 1,994.2 |
| | 1,974.3 |
|
Less: Short-Term Debt and Current Portion of Long-Term Debt | 33.8 |
| | 32.2 |
|
Total Long-Term Debt | $ | 1,960.4 |
| | $ | 1,942.1 |
|
At September 30, 2015, 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) | $ | 1,250.0 |
| | $ | 239.0 |
| | $ | 986.2 |
|
Senior Secured International Revolving Credit Facility | 175.2 |
| | 87.4 |
|
| 87.8 |
|
Other International Facilities | 25.1 |
| | 9.1 |
| | 16.0 |
|
Total | $ | 1,450.3 |
| | $ | 335.5 |
| | $ | 1,090.0 |
|
| |
(a) | In accordance with its debt agreements, the Company’s availability under its revolving credit facilities has been reduced by the amount of standby letters of credit issued of $24.8 million as of September 30, 2015. These letters of credit are used primarily as security against its self-insurance obligations and workers’ compensation obligations. These letters of credit expire at various dates through mid-2016 unless extended. |
The Credit Agreement and the indentures governing the 4.75% Senior Notes due 2021 and 4.875% Senior Notes due 2022 (the “Indentures”) limit the Company’s ability to incur additional indebtedness. Additional covenants contained in the Credit Agreement and the Indentures, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, make dividend and other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indenture, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions could limit the Company’s ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.
Under the terms of the Credit Agreement, the Company must comply with a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. The Company's obligations under the Credit Agreement are secured by substantially all of the Company's domestic assets.
As of September 30, 2015, the Company was in compliance with the covenants in the Credit Agreement and the Indentures.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 — STOCK INCENTIVE PLANS
The Company has one active equity compensation plan from which new grants may be made, the Graphic Packaging Holding Company 2014 Omnibus Stock and Incentive Compensation Plan (the “2014 Plan”). Awards granted under the 2014 Plan generally vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the 2014 Plan are from the Company’s authorized but unissued shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award.
Stock Awards, Restricted Stock and Restricted Stock Units
The Company’s 2014 Plan permits the grant of stock awards, restricted stock and restricted stock units (“RSUs”). Generally, all RSUs vest and become payable in three years from date of grant. RSUs granted to employees generally contain performance conditions based on various financial targets and service requirements that must be met for the shares to vest. Upon vesting, RSUs are payable in shares of common stock. 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 first nine months of 2015 is as follows:
|
| | | | | | |
| Shares | | Weighted Average Grant Date Fair Value Per Share |
RSUs — Employees | 1,676,569 |
| | $ | 13.29 |
|
Stock Awards - Board of Directors | 54,120 |
| | $ | 14.78 |
|
During the nine months ended September 30, 2015 and 2014, $15.7 million and $13.0 million, respectively, were charged to compensation expense for stock incentive plans.
During the nine months ended September 30, 2015 and 2014, approximately 2.2 million and 2.3 million shares were issued, respectively. The shares issued were primarily related to RSUs granted during 2012 and 2011, respectively.
NOTE 6 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS
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 employee's compensation.
Pension and Postretirement Expense
The pension and postretirement expenses related to the Company’s plans consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Health Care Benefits |
| Three Months Ended | | Nine Months Ended | | Three Months Ended | Nine Months Ended |
| September 30, | | September 30, | | September 30, | September 30, |
In millions | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 |
Components of Net Periodic Cost: | | | | | | | | | | | | | | | |
Service Cost | $ | 3.7 |
| | $ | 3.4 |
| | $ | 11.4 |
| | $ | 10.7 |
| | $ | 0.2 |
| | $ | 0.3 |
| | $ | 0.7 |
| | $ | 0.9 |
|
Interest Cost | 13.3 |
| | 14.5 |
| | 40.3 |
| | 43.5 |
| | 0.4 |
| | 0.6 |
| | 1.3 |
| | 1.7 |
|
Administrative Expenses | 0.3 |
| | 0.2 |
| | 0.7 |
| | 0.5 |
| | — |
| | — |
| | — |
| | — |
|
Expected Return on Plan Assets | (18.4 | ) | | (20.8 | ) | | (55.6 | ) | | (60.8 | ) | | — |
| | — |
| | — |
| | — |
|
Net Curtailment/Settlement Gain | — |
| | (0.8 | ) | | — |
| | (0.8 | ) | | — |
| | — |
| | — |
| | — |
|
Amortization: | | | | | | | | | | | | | | | |
Prior Service Cost (Credit) | 0.2 |
| | 0.2 |
| | 0.5 |
| | 0.5 |
| | (0.1 | ) | | (0.1 | ) | | (0.2 | ) | | (0.2 | ) |
Actuarial Loss (Gain) | 5.4 |
| | 4.0 |
| | 16.5 |
| | 10.0 |
| | (0.4 | ) | | (0.3 | ) | | (1.1 | ) | | (0.8 | ) |
Net Periodic Cost | $ | 4.5 |
| | $ | 0.7 |
| | $ | 13.8 |
| | $ | 3.6 |
| | $ | 0.1 |
| | $ | 0.5 |
| | $ | 0.7 |
| | $ | 1.6 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Employer Contributions
The Company made contributions of $42.0 million and $17.5 million to its pension plans during the first nine months of 2015 and 2014, respectively. The Company expects to make contributions of $45 million to $60 million for the full year 2015. During 2014, the Company made $52.2 million of contributions to its pension plans.
The Company made postretirement health care benefit payments of $1.3 million and $1.6 million during the first nine months of 2015 and 2014, respectively. The Company estimates its postretirement health care benefit payments for the full year 2015 to be approximately $3 million. During 2014, the Company made postretirement health care benefit payments of $2.2 million.
NOTE 7 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT
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 Income. These changes in fair value will subsequently be reclassified to earnings.
For more information regarding the Company’s financial instruments and fair value measurement, see “Note 9 — Financial Instruments, Derivatives and Hedging Activities” and “Note 10 — Fair Value Measurement” of the Notes to Consolidated Financial Statements of the Company’s 2014 Form 10-K.
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 facilities. The differential to be paid or received under these agreements is recognized as an adjustment to Interest Expense related to debt. At September 30, 2015, the Company had interest rate swap agreements outstanding with a notional amount of $560.0 million, in addition to $450.0 million in forward starting interest rate swaps. At December 31, 2014, the Company had interest rate swap agreements outstanding with a notional amount of $560 million. These swap agreements, under which the Company will pay fixed rates of 0.45% to 0.82% and receive one-month LIBOR rates, expire in April 2016. The $450 million forward starting swap agreements, which the Company will pay fixed rates of 0.73% to 1.40% and receive one month LIBOR rates, start in April 2016 and expire either February 2017 or October 2018.
Changes in fair value will subsequently be reclassified into earnings as a component of Interest Expense, Net as interest is incurred on amounts outstanding under the term loan facility. Ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs.
During the first nine months of 2015 and 2014, there were minimal amounts of ineffectiveness related to changes in the fair value of interest rate swap agreements. Additionally, there were no amounts excluded from the measure of effectiveness.
Commodity Risk
To manage risks associated with future variability in cash flows and price risk attributable to certain commodity purchases, the Company enters into natural gas 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 the resulting gain or loss is reclassified into Cost of Sales concurrently with the recognition of the commodity consumed and the ineffective portion of the swap contracts’ change in fair value would be recognized immediately in earnings. The Company has hedged approximately 75%, 65% and 15% of its expected natural gas usage for the remainder of 2015, 2016 and 2017, respectively.
During the first nine months of 2015 and 2014, there were minimal amounts of ineffectiveness related to changes in the fair value of natural gas swap contracts. Additionally, there were no amounts excluded from the measure of effectiveness.
Foreign Currency Risk
The Company enters into forward 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 (Income), Net or Net Sales, when appropriate.
At September 30, 2015, multiple forward exchange contracts existed that expire on various dates through the remainder of 2015. Those purchased forward exchange contracts outstanding at September 30, 2015 and December 31, 2014, when aggregated and measured in U.S. dollars at contractual rates at September 30, 2015 and December 31, 2014, had notional amounts totaling $17.2 million and $65.2 million, respectively.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
No amounts were reclassified to earnings during the first nine months of 2015 or during 2014 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.
Derivatives not Designated as Hedges
The Company enters into forward exchange contracts to effectively hedge substantially all of its accounts receivable resulting from sales transactions 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 September 30, 2015 and December 31, 2014, multiple foreign currency forward exchange contracts existed, with maturities ranging up to three months. Those foreign currency exchange contracts outstanding at September 30, 2015 and December 31, 2014, when aggregated and measured in U.S. dollars at exchange rates at September 30, 2015 and December 31, 2014, had net notional amounts totaling $61.8 million and $34.5 million, respectively. Unrealized gains and losses resulting from these contracts are recognized in Other Expense (Income), Net and approximately offset corresponding recognized but unrealized gains and losses on these accounts receivable.
Fair Value of Financial Instruments
The Company’s derivative instruments are carried at fair value. The Company has determined that the inputs to the valuation of these derivative instruments are Level 2 in the fair value hierarchy. Level 2 inputs are defined as 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. The Company uses valuation techniques based on discounted cash flow analyses, which reflect the terms of the derivatives and use observable market-based inputs, including forward rates, and uses market price quotations obtained from independent derivatives brokers, corroborated with information obtained from independent pricing service providers.
As of September 30, 2015, the Company had a gross derivative liability of $16.2 million and a gross derivative asset of $1.1 million, primarily related to interest rate, foreign currency and commodity contracts. As of September 30, 2015, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to its own credit risk. Similarly, there has not been any significant adverse impact to the Company’s derivative assets based on evaluation of the Company’s counterparties’ credit risks.
The fair values of the Company’s other financial assets and liabilities at September 30, 2015 and December 31, 2014 approximately equal the carrying values reported on the Condensed Consolidated Balance Sheets except for Total Debt. The fair value of the Company’s Total Debt (excluding capital leases) was $1,993.7 million and $1,975.6 million as compared to the carrying amounts of $1,991.9 million and $1,971.2 million as of September 30, 2015 and December 31, 2014, respectively. The fair value of the Company’s Total Debt, including the Senior Notes, are based on quoted market prices (Level 2 inputs).
The following is a rollforward of pre-tax Accumulated Other Comprehensive Loss pertaining to derivative instruments:
|
| | | |
In millions | |
Balance at December 31, 2014 | $ | (12.5 | ) |
Reclassification to Earnings | 7.3 |
|
Current Period Change in Fair Value | (9.6 | ) |
Balance at September 30, 2015 | $ | (14.8 | ) |
At September 30, 2015, the Company expects to reclassify approximately $13.1 million of loss 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.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 — INCOME TAXES
During the nine months ended September 30, 2015, the Company recognized Income Tax Expense of $102.3 million on Income before Income Taxes and Equity Income of Unconsolidated Entities of $274.3 million. The effective tax rate for the nine months ended September 30, 2015 was different than the statutory rate, primarily due to the mix and levels of earnings between foreign and domestic tax jurisdictions, including losses in jurisdictions with full valuation allowances. During the nine months ended September 30, 2014, the Company recognized Income Tax Expense of $30.9 million on Income before Income Taxes and Equity Income of Unconsolidated Entities of $77.1 million, respectively. The effective tax rate for the nine months ended September 30, 2014 was different than the statutory rate primarily due to the mix and levels between foreign and domestic earnings, including losses in jurisdictions with full valuation allowances, as well as the impact of the write-off of nondeductible goodwill in connection with the sale of the label and multi-wall bag businesses and other discrete items. The Company has approximately $455 million of Net Operating Losses for U.S. federal income tax purposes, for which the balance is already reduced by amounts that are currently being used and may be used to offset future taxable income.
NOTE 9 — ENVIRONMENTAL AND LEGAL MATTERS
Environmental Matters
The Company is subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those governing discharges to air, soil and water, the management, treatment and disposal of hazardous substances, solid waste and hazardous wastes, the investigation and remediation of contamination resulting from historical site operations and releases of hazardous substances, and the health and safety of employees. Compliance initiatives could result in significant costs, which could negatively impact the Company’s consolidated financial position, results of operations or cash flows. Any failure to comply with environmental or health and safety laws and regulations or any permits and authorizations required thereunder could subject the Company to fines, corrective action or other sanctions.
Some of the Company’s current and former facilities are the subject of environmental investigations and remediations resulting from historical operations and the release of hazardous substances or other constituents. Some current and former facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future or for which indemnification claims may be asserted against the Company. Also, potential future closures or sales of facilities may necessitate further investigation and may result in future remediation 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 all of 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. Currently, the Company expects to spend less than $3 million in 2015 to achieve compliance with the National Emission Standards for Hazardous Air Pollutants for units at major sources (known as "Boiler MACT"). The Company cannot estimate with certainty other future corrective compliance, investigation or remediation costs. Some costs relating to historical usage that the Company considers to be reasonably possible of resulting in a 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.
NOTE 10 — SEGMENT INFORMATION
Prior to the sale of the multi-wall business on June 30, 2014, the Company reported its results in two reportable segments: paperboard packaging and flexible packaging. As a result of the sale, the Company reevaluated its reportable segments and effective July 1, 2014 began to report its results in one reportable segment, paperboard packaging which aggregated the Company's five operating segments.
Effective September 30, 2015, the Company’s reportable segments have been revised and are now based on the Company’s disaggregated operating segments as follows:
Paperboard Mills includes the coated unbleached kraft and coated recycled board mills. The majority of the paperboard sales are to the other operating segments at a Company determined transfer price. These inter-company sales are shown as eliminations in the table below.
Americas Beverage Packaging primarily includes beverage products managed in North America, Brazil and Australia.
North America Consumer Packaging includes food, beverage and consumer products.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Europe Packaging includes food, beverage and consumer products.
In addition, the Company includes the Pacific Rim operating segment, along with costs that support all of the reportable segments, as Other.
Segment information is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
In millions | 2015 | | 2014 | | 2015 | | 2014 |
NET SALES: | | | | | | | |
Paperboard Mills | $ | 467.0 |
|
| $ | 440.1 |
|
| $ | 1,378.2 |
|
| $ | 1,290.4 |
|
North America Consumer Packaging | 579.4 |
|
| 565.6 |
|
| 1,711.3 |
|
| 1,691.4 |
|
Americas Beverage Packaging | 201.1 |
|
| 203.0 |
|
| 592.3 |
|
| 603.9 |
|
Europe Packaging | 154.1 |
|
| 170.5 |
|
| 453.1 |
|
| 436.7 |
|
Flexible Packaging | — |
|
| — |
|
| — |
|
| 215.7 |
|
Other | 22.2 |
|
| 23.4 |
|
| 60.9 |
|
| 66.2 |
|
Eliminations | (353.8 | ) |
| (352.6 | ) |
| (1,060.5 | ) |
| (1,064.9 | ) |
Total | $ | 1,070.0 |
| | $ | 1,050.0 |
| | $ | 3,135.3 |
| | $ | 3,239.4 |
|
| | | | | | | |
INCOME (LOSS) FROM OPERATIONS: | | | | | | | |
Paperboard Mills | $ | 110.1 |
|
| $ | 109.3 |
|
| $ | 322.3 |
|
| $ | 324.1 |
|
North America Consumer Packaging | 18.0 |
|
| 16.1 |
|
| 53.2 |
|
| 45.4 |
|
Americas Beverage Packaging | 10.6 |
|
| 13.2 |
|
| 36.9 |
|
| 37.8 |
|
Europe Packaging | 4.5 |
|
| 0.5 |
|
| 19.5 |
|
| 8.0 |
|
Flexible Packaging (a) | — |
|
| — |
|
| — |
|
| (179.5 | ) |
Other | (33.2 | ) |
| (26.8 | ) |
| (106.4 | ) |
| (96.7 | ) |
Total | $ | 110.0 |
|
| $ | 112.3 |
|
| $ | 325.5 |
|
| $ | 139.1 |
|
| | | | | | | |
DEPRECIATION AND AMORTIZATION: | | | | | | | |
Paperboard Mills | $ | 31.8 |
|
| $ | 28.8 |
|
| $ | 92.0 |
|
| $ | 85.6 |
|
North America Consumer Packaging | 21.4 |
|
| 19.1 |
|
| 63.8 |
|
| 59.9 |
|
Americas Beverage Packaging | 6.7 |
|
| 5.5 |
|
| 17.1 |
|
| 16.6 |
|
Europe Packaging | 12.2 |
|
| 10.3 |
|
| 35.0 |
|
| 22.5 |
|
Flexible Packaging | — |
|
| — |
|
| — |
|
| 11.0 |
|
Other | 1.4 |
|
| 2.1 |
|
| 4.9 |
|
| 6.6 |
|
Total | $ | 73.5 |
|
| $ | 65.8 |
|
| $ | 212.8 |
|
| $ | 202.2 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | |
| | | |
| Nine Months Ended | | Twelve Months Ended |
In millions | September 30, 2015 | | December 31, 2014 |
CAPITAL SPENDING: | | | |
Paperboard Mills | $ | 111.0 |
| | $ | 106.0 |
|
North America Consumer Packaging | 18.4 |
| | 32.3 |
|
Americas Beverage Packaging | 14.2 |
| | 14.3 |
|
Europe Packaging | 33.0 |
| | 36.3 |
|
Flexible Packaging | — |
| | 5.8 |
|
Other | 5.1 |
| | 6.7 |
|
Total | $ | 181.7 |
| | $ | 201.4 |
|
| | | |
| |
In millions | September 30, 2015 | | December 31, 2014 |
ASSETS: | | | |
Paperboard Mills | $ | 3,190.7 |
| | $ | 2,743.6 |
|
North America Consumer Packaging | 1,606.2 |
| | 1,509.6 |
|
Americas Beverage Packaging | 542.7 |
| | 567.0 |
|
Europe Packaging | 608.8 |
| | 608.4 |
|
Other | 303.5 |
| | 273.4 |
|
Elimination | (1,744.1 | ) | | (1,370.7 | ) |
Total | $ | 4,507.8 |
| | $ | 4,331.3 |
|
(a) Includes Loss on Sale of Assets of multi-wall bag business and labels business of $164.5 million for the nine month period ended September 30, 2014.
For more information regarding the Company’s business segments, see “Note 16 — Business Segment and Geographic Area Information” of the Notes to Consolidated Financial Statements of the Company’s 2014 Form 10-K.
NOTE 11 — EARNINGS PER SHARE
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
In millions, except per share data | 2015 | | 2014 | | 2015 | | 2014 |
Net Income Attributable to Graphic Packaging Holding Company | $ | 60.2 |
| | $ | 53.0 |
| | $ | 172.9 |
| | $ | 48.2 |
|
Weighted Average Shares: | | | | | | | |
Basic | 329.7 |
|
| 328.9 |
|
| 329.9 |
|
| 328.4 |
|
Dilutive Effect of RSUs and Stock Awards | 0.7 |
| | 1.7 |
| | 0.8 |
| | 2.0 |
|
Diluted | 330.4 |
|
| 330.6 |
|
| 330.7 |
|
| 330.4 |
|
Income Per Share — Basic | $ | 0.18 |
| | $ | 0.16 |
| | $ | 0.52 |
| | $ | 0.15 |
|
Income Per Share — Diluted | $ | 0.18 |
| | $ | 0.16 |
| | $ | 0.52 |
| | $ | 0.15 |
|
NOTE 12 — EQUITY
The following is a summary of the changes in total equity for the nine months ended September 30, 2015:
|
| | | |
In millions | Total Shareholders' Equity |
Balance at December 31, 2014 | $ | 1,012.3 |
|
Net Income | 172.9 |
|
Other Comprehensive Loss, Net of Tax | (2.9 | ) |
Dividends declared | (49.4 | ) |
Repurchase of Common Stock | (23.0 | ) |
Compensation Expense Under Share-Based Plans | 15.7 |
|
Issuance of Common Stock in payout of RSUs, Net of Stock Withheld for Taxes | (21.3 | ) |
Balance at September 30, 2015 | $ | 1,104.3 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 — OTHER COMPREHENSIVE (LOSS) INCOME
The following represents changes in Accumulated Other Comprehensive (Loss) Income by each component of other comprehensive income for the nine months ended September 30, 2015 (a):
|
| | | | | | | | | | | | | | | |
In millions | Derivative Instruments | Currency Translation Adjustment | Pension Benefit Plans | Postretirement Benefit Plans | Total |
Balance at December 31, 2014 | $ | (17.7 | ) | $ | (50.6 | ) | $ | (278.0 | ) | $ | 11.7 |
| $ | (334.6 | ) |
Other Comprehensive (Loss) Income before Reclassifications | (5.9 | ) | (25.9 | ) | 14.6 |
| — |
| (17.2 | ) |
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)(b) | 4.5 |
| — |
| 10.7 |
| (0.9 | ) | 14.3 |
|
Net Current-period Other Comprehensive (Loss) Income | (1.4 | ) | (25.9 | ) | 25.3 |
| (0.9 | ) | (2.9 | ) |
Balance at September 30, 2015 | $ | (19.1 | ) | $ | (76.5 | ) | $ | (252.7 | ) | $ | 10.8 |
| $ | (337.5 | ) |
| |
(a) | All amounts are net of income taxes. |
(b) See following table for details about these reclassifications.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following represents reclassifications out of Accumulated Other Comprehensive Income (Loss) for the nine months ended September 30, 2015:
|
| | | | | | |
In millions | | | | |
Details about Accumulated Other Comprehensive Income Components | | Amount Reclassified from Accumulated Other Comprehensive Income | | Affected Line Item in the Statement Where Net Income is Presented |
Derivatives Instruments: | | | | |
Commodity Contracts | | $ | 8.9 |
| | Cost of Sales |
Foreign Currency Contracts | | (4.0 | ) | | Other Income, Net |
Interest Rate Swap Agreements | | 2.4 |
| | Interest Expense, Net |
| | 7.3 |
| | Total before Tax |
| | (2.8 | ) | | Tax Benefit |
| | $ | 4.5 |
| | Net of Tax |
| | | | |
Amortization of Defined Benefit Pension Plans: | | | | |
Prior Service Costs | | $ | 0.5 |
| (c) | |
Actuarial Losses | | 16.5 |
| (c) | |
| | 17.0 |
| | Total before Tax |
| | (6.3 | ) | | Tax Benefit |
| | $ | 10.7 |
| | Net of Tax |
| | | | |
Amortization of Postretirement Benefit Plans: | | | | |
Prior Service Credits | | $ | (0.2 | ) | (c) | |
Actuarial Gains | | (1.1 | ) | (c) | |
| | (1.3 | ) | | Total before Tax |
| | 0.4 |
| | Tax Expense |
| | $ | (0.9 | ) | | Net of Tax |
| | | | |
Total Reclassifications for the Period | | $ | 14.3 |
| | |
| |
(c) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see “Note 6 — Pensions and Other Postretirement Benefits"). |
NOTE 14 — GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
This disclosure is required because certain subsidiaries are guarantors of GPII's debt securities. These consolidating financial statements reflect GPHC and GPC (collectively the "Parent”); GPII, the Subsidiary Issuer; and the Subsidiary Guarantors, which consist of all material 100% owned subsidiaries of GPII other than its foreign subsidiaries and their domestic holding companies; and the nonguarantor subsidiaries (herein referred to as “Nonguarantor Subsidiaries”). The Nonguarantor Subsidiaries include all of GPII's foreign subsidiaries and their domestic holding companies and for 2014, the subsidiaries of GFP. Separate complete financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly and severally, fully and unconditionally liable under the guarantees.
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2015 |
In millions | Parent | | Subsidiary Issuer | | Combined Guarantor Subsidiaries | | Combined Nonguarantor Subsidiaries | | Consolidating Eliminations | | Consolidated |
Net Sales | $ | — |
|
| $ | 833.3 |
|
| $ | 10.0 |
|
| $ | 282.3 |
|
| $ | (55.6 | ) |
| $ | 1,070.0 |
|
Cost of Sales | — |
|
| 672.8 |
|
| 8.3 |
|
| 242.6 |
|
| (55.6 | ) |
| 868.1 |
|
Selling, General and Administrative | — |
|
| 65.0 |
|
| 0.4 |
|
| 18.3 |
|
| — |
|
| 83.7 |
|
Other Income, Net | — |
|
| (2.4 | ) |
| (0.2 | ) |
| 2.8 |
|
| — |
|
| 0.2 |
|
Restructuring and Other Special Charges | — |
|
| 0.6 |
|
| — |
|
| 7.4 |
|
| — |
|
| 8.0 |
|
Income from Operations | — |
|
| 97.3 |
|
| 1.5 |
|
| 11.2 |
|
| — |
|
| 110.0 |
|
Interest Expense, Net | — |
|
| (15.7 | ) |
| — |
|
| (0.8 | ) |
| — |
|
| (16.5 | ) |
Income before Income Taxes and Equity Income of Unconsolidated Entities | — |
|
| 81.6 |
|
| 1.5 |
|
| 10.4 |
|
| — |
|
| 93.5 |
|
Income Tax Expense | — |
|
| (29.6 | ) |
| (0.2 | ) |
| (3.8 | ) |
| — |
|
| (33.6 | ) |
Income before Equity Income of Unconsolidated Entities | — |
|
| 52.0 |
|
| 1.3 |
|
| 6.6 |
|
| — |
|
| 59.9 |
|
Equity Income of Unconsolidated Entities | — |
|
| — |
|
| — |
|
| 0.3 |
|
| — |
|
| 0.3 |
|
Equity in Net Earnings of Subsidiaries | 60.2 |
|
| 8.2 |
|
| (1.3 | ) |
| — |
|
| (67.1 | ) |
| — |
|
Net Income (Loss) | $ | 60.2 |
|
| $ | 60.2 |
|
| $ | — |
|
| $ | 6.9 |
|
| $ | (67.1 | ) |
| $ | 60.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) Attributable to Graphic Packaging Holding Company | $ | 42.6 |
|
| $ | 42.6 |
|
| $ | (4.4 | ) |
| $ | (22.2 | ) |
| $ | (16.0 | ) |
| $ | 42.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2014 |
In millions | Parent | | Subsidiary Issuer | | Combined Guarantor Subsidiaries | | Combined Nonguarantor Subsidiaries | | Consolidating Eliminations | | Consolidated |
Net Sales | $ | — |
|
| $ | 897.7 |
|
| $ | 9.5 |
|
| $ | 242.5 |
|
| $ | (99.7 | ) |
| $ | 1,050.0 |
|
Cost of Sales | — |
|
| 721.0 |
|
| 9.2 |
|
| 217.1 |
|
| (99.7 | ) |
| 847.6 |
|
Selling, General and Administrative | — |
|
| 67.7 |
|
| 0.5 |
|
| 15.4 |
|
| — |
|
| 83.6 |
|
Other Expense (Income), Net | — |
|
| 1.3 |
|
| (0.2 | ) |
| (1.4 | ) |
| — |
|
| (0.3 | ) |
Restructuring and Other Special Charges | — |
|
| 4.0 |
|
| — |
|
| 2.8 |
|
| — |
|
| 6.8 |
|
Income from Operations | — |
|
| 103.7 |
|
| — |
|
| 8.6 |
|
| — |
|
| 112.3 |
|
Interest Expense, Net | — |
|
| (19.1 | ) |
| — |
|
| (1.3 | ) |
| — |
|
| (20.4 | ) |
Income (Loss) before Income Taxes and Equity Income of Unconsolidated Entities | — |
|
| 84.6 |
|
| — |
|
| 7.3 |
|
| — |
|
| 91.9 |
|
Income Tax (Expense) Benefit
| — |
|
| (36.2 | ) |
| 0.6 |
|
| (3.7 | ) |
| — |
|
| (39.3 | ) |
Income before Equity Income of Unconsolidated Entities | — |
|
| 48.4 |
|
| 0.6 |
|
| 3.6 |
|
| — |
|
| 52.6 |
|
Equity (Loss) Income of Unconsolidated Entities | — |
|
| — |
|
| (1.4 | ) |
| 1.8 |
|
| — |
|
| 0.4 |
|
Equity in Net Earnings of Subsidiaries | 53.0 |
|
| 4.6 |
|
| 1.5 |
|
| — |
|
| (59.1 | ) |
| — |
|
Net Income (Loss) | $ | 53.0 |
|
| $ | 53.0 |
|
| $ | 0.7 |
|
| $ | 5.4 |
|
| $ | (59.1 | ) |
| $ | 53.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) | $ | 32.0 |
|
| $ | 32.0 |
|
| $ | (3.6 | ) |
| $ | (24.3 | ) |
| $ | (4.1 | ) |
| $ | 32.0 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2015 |
In millions | Parent | | Subsidiary Issuer | | Combined Guarantor Subsidiaries | | Combined Nonguarantor Subsidiaries | | Consolidating Eliminations | | Consolidated |
Net Sales | $ | — |
| | $ | 2,478.0 |
| | $ | 29.8 |
| | $ | 810.6 |
| | $ | (183.1 | ) | | $ | 3,135.3 |
|
Cost of Sales | — |
| | 2,010.0 |
| | 26.0 |
| | 692.9 |
| | (183.1 | ) | | 2,545.8 |
|
Selling, General and Administrative | — |
| | 196.8 |
| | 3.6 |
| | 57.4 |
| | — |
| | 257.8 |
|
Other Income, Net | — |
| | (9.8 | ) | | (0.4 | ) | | 2.3 |
| | — |
| | (7.9 | ) |
Restructuring and Other Special Charges | — |
| | 2.3 |
| | — |
| | 11.8 |
| | — |
| | 14.1 |
|
Income from Operations | — |
| | 278.7 |
| | 0.6 |
| | 46.2 |
| | — |
| | 325.5 |
|
Interest Expense, Net | — |
| | (48.6 | ) | | — |
| | (2.6 | ) | | — |
| | (51.2 | ) |
Income before Income Taxes and Equity Income of Unconsolidated Entities | — |
| | 230.1 |
| | 0.6 |
| | 43.6 |
| | — |
| | 274.3 |
|
Income Tax (Expense) Benefit | — |
| | (85.2 | ) | | 0.1 |
| | (17.2 | ) | | — |
| | (102.3 | ) |
Income before Equity Income of Unconsolidated Entities | — |
| | 144.9 |
| | 0.7 |
| | 26.4 |
| | — |
| | 172.0 |
|
Equity Income of Unconsolidated Entities | — |
| | — |
| | — |
| | 0.9 |
| | — |
| | 0.9 |
|
Equity in Net Earnings of Subsidiaries | 172.9 |
| | 28.0 |
| | (0.3 | ) | | — |
| | (200.6 | ) | | — |
|
Net Income (Loss) | $ | 172.9 |
| | $ | 172.9 |
| | $ | 0.4 |
| | $ | 27.3 |
| | $ | (200.6 | ) | | $ | 172.9 |
|
| | | | | | | | | | | |
Comprehensive Income (Loss) | $ | 170.0 |
| | $ | 170.0 |
| | $ | (7.8 | ) | | $ | (2.5 | ) | | $ | (159.7 | ) | | $ | 170.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2014 |
In millions | Parent | | Subsidiary Issuer | | Combined Guarantor Subsidiaries | | Combined Nonguarantor Subsidiaries | | Consolidating Eliminations | | Consolidated |
Net Sales | $ | — |
| | $ | 2,570.0 |
| | $ | 28.6 |
| | $ | 852.4 |
| | $ | (211.6 | ) | | $ | 3,239.4 |
|
Cost of Sales | — |
| | 2,053.7 |
| | 27.4 |
| | 767.4 |
| | (211.6 | ) | | 2,636.9 |
|
Selling, General and Administrative | — |
| | 222.7 |
| | 1.6 |
| | 54.7 |
| | — |
| | 279.0 |
|
Other Expense (Income), Net | — |
| | 0.5 |
| | (0.4 | ) | | (1.4 | ) | | — |
| | (1.3 | ) |
Restructuring and Other Special Charges | — |
| | 4.6 |
| | 5.9 |
| | 175.2 |
| | — |
| | 185.7 |
|
Income (Loss) from Operations | — |
| | 288.5 |
|
| (5.9 | ) |
| (143.5 | ) |
| — |
|
| 139.1 |
|
Interest Expense, Net | — |
| | (56.5 | ) | | — |
| | (5.5 | ) | | — |
| | (62.0 | ) |
Income (Loss) before Income Taxes and Equity Income of Unconsolidated Entities | — |
| | 232.0 |
| | (5.9 | ) | | (149.0 | ) | | — |
| | 77.1 |
|
Income Tax (Expense) Benefit
| — |
| | (93.0 | ) | | 2.5 |
| | 59.6 |
| | — |
| | (30.9 | ) |
Income (Loss) before Equity Income of Unconsolidated Entities | — |
| | 139.0 |
| | (3.4 | ) | | (89.4 | ) | | — |
| | 46.2 |
|
Equity Income of Unconsolidated Entities | — |
| | — |
| | — |
| | 1.3 |
| | — |
| | 1.3 |
|
Equity in Net Earnings of Subsidiaries | 47.5 |
| | (91.5 | ) | | 0.3 |
| | — |
| | 43.7 |
| | — |
|
Net Income (Loss) Income | 47.5 |
| | 47.5 |
| | (3.1 | ) | | (88.1 | ) | | 43.7 |
| | 47.5 |
|
Net Loss Attributable to Noncontrolling Interests | 0.7 |
| | 0.7 |
| | — |
| | — |
| | (0.7 | ) | | 0.7 |
|
Net Income (Loss) Attributable to Graphic Packaging Holding Company | $ | 48.2 |
| | $ | 48.2 |
| | $ | (3.1 | ) | | $ | (88.1 | ) | | $ | 43.0 |
| | $ | 48.2 |
|
| | | | | | | | | | | |
Comprehensive Income (Loss) Attributable to Graphic Packaging Holding Company | $ | 33.4 |
| | $ | 33.4 |
| | $ | (7.1 | ) | | $ | (106.8 | ) | | $ | 80.5 |
| | $ | 33.4 |
|
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2015 |
In millions | Parent | | Subsidiary Issuer | | Combined Guarantor Subsidiaries | | Combined Nonguarantor Subsidiaries | | Consolidating Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | |
| | | | | | | | | | | |
Current Assets: | | | | | | | | | | | |
Cash and Cash Equivalents | $ | — |
| | $ | 46.5 |
| | $ | 2.1 |
| | $ | 32.9 |
| | $ | — |
| | $ | 81.5 |
|
Receivables, Net | — |
| | 229.8 |
| | 9.4 |
| | 244.0 |
| | — |
| | 483.2 |
|
Inventories, Net | — |
| | 401.9 |
| | 4.1 |
| | 163.3 |
| | — |
| | 569.3 |
|
Intercompany | — |
| | 618.5 |
| | — |
| | — |
| | (618.5 | ) | | — |
|
Deferred Income Tax Assets |