gpk-20200331

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020


☐			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)

Delaware

26-0405422

(State or other jurisdiction of

(I.R.S. employer

incorporation or organization)

identification no.)

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)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share	GPK	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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 ☑ No ☐

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 ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☑

Accelerated filer

☐

Smaller reporting company

☐

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of April 20, 2020, there were 279,316,995 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

Table of Contents

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 timing of the closure of the White Pigeon, MI mill and the shutdown of the PM1 containerboard machine in West Monroe, LA, the exit activity charges expected in connection with the closure of two CRB mills, the availability of net operating losses to offset U.S. federal income taxes and the timing related to the Company's future U.S. federal income tax payments, capital investment, depreciation and amortization and pension plan contributions in this report constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations. These risks and uncertainties include, but are not limited to, the effects of the COVID-19 pandemic on the Company's operations and business, inflation of and volatility in raw material and energy costs, changes in consumer buying habits and product preferences, competition with other paperboard manufacturers and converters, product substitution, the Company’s ability to implement its business strategies, including strategic acquisitions, the Company's ability to successfully integrate acquisitions, 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, except as may be required by law. Additional information regarding these and other risks is contained in Part I, "Item 1A., Risk Factors" of the Company's 2019 Annual Report on Form 10-K, and in other filings with the Securities and Exchange Commission.

Table of Contents

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			31
ITEM 4. CONTROLS AND PROCEDURES			31
PART II — OTHER INFORMATION			32
ITEM 1. LEGAL PROCEEDINGS			32
ITEM 1A. RISK FACTORS			32
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			32
ITEM 4. MINE SAFETY DISCLOSURES			32
ITEM 6. EXHIBITS			33
SIGNATURES			34
EX-31.1
EX-31.2
EX-32.1
EX-32.2
XBRL Content

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended
	March 31,
In millions, except per share amounts	2020		2019
Net Sales	$	1,599.1	$	1,505.9
Cost of Sales	1,278.3		1,239.8
Selling, General and Administrative	135.6		124.7
Other Expense, Net	6.5		1.2
Business Combinations and Shutdown and Other Special Charges, Net	18.7		6.2
Income from Operations	160.0		134.0
Nonoperating Pension and Postretirement Benefit Expense	(151.6)		(0.1)
Interest Expense, Net	(33.7)		(35.0)

(Loss) Income before Income Taxes and Equity Income of Unconsolidated Entity	(25.3)		98.9
Income Tax Benefit (Expense)	5.4		(21.0)
(Loss) Income before Equity Income of Unconsolidated Entity	(19.9)		77.9
Equity Income of Unconsolidated Entity	0.1		0.2
Net (Loss) Income	(19.8)		78.1
Net Loss (Income) Attributable to Noncontrolling Interest	7.1		(20.2)
Net (Loss) Income Attributable to Graphic Packaging Holding Company	$	(12.7)	$	57.9

Net (Loss) Income Per Share Attributable to Graphic Packaging Holding Company — Basic	$	(0.04)	$	0.19
Net (Loss) Income Per Share Attributable to Graphic Packaging Holding Company — Diluted	$	(0.04)	$	0.19
Cash Dividends Declared Per Share	$	0.075	$	0.075

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



Three Months Ended March 31,
2020
In millions	Graphic Packaging Holding Company		Noncontrolling Interest		Redeemable Noncontrolling Interest		Total
Net (Loss) Income	$	(12.7)	$	(1.8)	$	(5.3)	$	(19.8)
Other Comprehensive Loss (Income), Net of Tax:
Derivative Instruments	(1.0)		(0.3)		(0.1)		(1.4)
Pension and Postretirement Benefit Plans	113.3		32.4		9.4		155.1
Currency Translation Adjustment	(46.0)		(10.0)		(0.9)		(56.9)

Total Other Comprehensive Income, Net of Tax	66.3		22.1		8.4		96.8
Total Comprehensive Income (Loss)	$	53.6	$	20.3	$	3.1	$	77.0
2019
Net (Loss) Income	$	57.9	$	15.6	$	4.6	$	78.1
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments	(0.4)		(0.1)		—		(0.5)
Pension and Postretirement Benefit Plans	1.2		0.2		0.1		1.5
Currency Translation Adjustment	3.9		0.9		0.2		5.0

Total Other Comprehensive Income, Net of Tax	4.7		1.0		0.3		6.0
Total Comprehensive Income	$	62.6	$	16.6	$	4.9	$	84.1

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except share and per share amounts	March 31, 2020		December 31, 2019
ASSETS

Current Assets:
Cash and Cash Equivalents	$	110.2	$	152.9
Receivables, Net	624.8		504.5
Inventories, Net	1,143.0		1,095.9
Other Current Assets	60.3		52.3

Total Current Assets	1,938.3		1,805.6
Property, Plant and Equipment, Net	3,288.1		3,253.8
Goodwill	1,464.1		1,477.9
Intangible Assets, Net	460.5		477.3
Other Assets	295.2		275.3
Total Assets	$	7,446.2	$	7,289.9

LIABILITIES

Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt	$	49.1	$	50.4
Accounts Payable	625.7		716.1
Compensation and Employee Benefits	111.3		168.4

Other Accrued Liabilities	257.9		263.8
Total Current Liabilities	1,044.0		1,198.7
Long-Term Debt	3,434.5		2,809.9
Deferred Income Tax Liabilities	522.1		511.8
Accrued Pension and Postretirement Benefits	117.9		140.4
Other Noncurrent Liabilities	279.2		266.8

Redeemable Noncontrolling Interest (Note 13)	38.2		304.3

SHAREHOLDERS’ EQUITY
Preferred Stock, par value $0.01 per share; 100,000,000 shares authorized; no shares issued or outstanding	—		—
Common Stock, par value $0.01 per share; 1,000,000,000 shares authorized; 281,778,834 and 290,246,907 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	2.8		2.9
Capital in Excess of Par Value	1,852.6		1,876.7
(Accumulated Deficit) Retained Earnings	(49.1)		56.4
Accumulated Other Comprehensive Loss	(299.5)		(365.8)
Total Graphic Packaging Holding Company Shareholders' Equity	1,506.8		1,570.2
Noncontrolling Interest	503.5		487.8
Total Equity	2,010.3		2,058.0
Total Liabilities and Shareholders' Equity	$	7,446.2	$	7,289.9

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)



	Common Stock					Capital in Excess of Par Value		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income
In millions, except share amounts	Shares	Amount												Noncontrolling Interests	Total Equity
Balances at December 31, 2019	290,246,907	$	2.9	$	1,876.7	$	56.4	$	(365.8)	$	487.8	$	2,058.0
Net Loss	—	—		—		(12.7)		—		(1.8)		(14.5)
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments	—	—		—		—		(1.0)		(0.3)		(1.3)
Pension and Postretirement Benefit Plans	—	—		—		—		113.3		32.4		145.7

Currency Translation Adjustment	—	—		—		—		(46.0)		(10.0)		(56.0)

Repurchase of Common Stock^(a)	(9,667,034)	(0.1)		(52.6)		(71.7)		—		—		(124.4)
Dividends Declared	—	—		—		(21.1)		—		—		(21.1)

Redeemable Noncontrolling Interest Redemption Value Mark-up	—	—		18.1		—		—		—		18.1

Tax Effect of IP Redemption	—	—		6.8		—		—		—		6.8
Distribution of Membership Interest	—	—		—		—		—		(4.6)		(4.6)
Recognition of Stock-Based Compensation, Net	—	—		3.6		—		—		—		3.6
Issuance of Shares for Stock-Based Awards	788,561	—		—		—		—		—		—
Balances at March 31, 2020	281,368,434	$	2.8	$	1,852.6	$	(49.1)	$	(299.5)	$	503.5	$	2,010.3

^(a) Includes 410,400 shares repurchased but not yet settled as of March 31, 2020.



	Common Stock					Capital in Excess of Par Value		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income
In millions, except share amounts	Shares	Amount												Noncontrolling Interests	Total Equity
Balances at December 31, 2018	299,807,779	$	3.0	$	1,944.4	$	10.0	$	(377.9)	$	439.0	$	2,018.5

Net Income	—	—		—		57.9		—		15.6		73.5
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments	—	—		—		—		(0.4)		(0.1)		(0.5)
Pension and Postretirement Benefit Plans	—	—		—		—		1.2		0.2		1.4

Currency Translation Adjustment	—	—		—		—		3.9		0.9		4.8

Repurchase of Common Stock^(a)	(5,033,426)	(0.1)		(27.2)		(32.2)		—		—		(59.5)

Dividends Declared	—	—		—		(22.1)		—		—		(22.1)
Reclassification of Redeemable Noncontrolling Interest for Share Repurchases	—	—		—		—		—		(6.7)		(6.7)
Distribution of Membership Interest	—	—		—		—		—		(5.0)		(5.0)
Recognition of Stock-Based Compensation, Net	—	—		0.9		—		—		—		0.9
Issuance of Shares for Stock-Based Awards	530,196	—		—		—		—		—		—
Balances at March 31, 2019	295,304,549	$	2.9	$	1,918.1	$	13.6	$	(373.2)	$	443.9	$	2,005.3

^(a) Includes 33,263 shares repurchased but not yet settled as of March 31, 2019.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	March 31,
In millions	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income	$	(19.8)	$	78.1

Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:
Depreciation and Amortization	113.6		117.1

Deferred Income Taxes	(18.9)		12.4
Amount of Postretirement Expense Greater Than Funding	154.3		2.4

Other, Net	29.2		3.3
Changes in Operating Assets and Liabilities	(337.7)		(385.4)
Net Cash Used in Operating Activities	(79.3)		(172.1)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending	(146.6)		(73.0)
Packaging Machinery Spending	(6.5)		(7.0)
Acquisition of Businesses, Net of Cash Acquired	(42.1)		(2.0)



Beneficial Interest on Sold Receivables	23.7		279.5
Beneficial Interest Obtained in Exchange for Proceeds	(3.3)		(153.3)
Other, Net	(1.0)		(1.0)
Net Cash (Used in) Provided by Investing Activities	(175.8)		43.2

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of Common Stock	(119.4)		(60.0)


Payments on Debt	(9.1)		(9.1)
Redemption of Noncontrolling Interest	(250.0)		—
Proceeds from Issuance of Debt	450.0		—
Borrowings under Revolving Credit Facilities	1,178.5		775.2
Payments on Revolving Credit Facilities	(986.9)		(548.9)

Repurchase of Common Stock related to Share-Based Payments	(8.8)		(4.0)
Debt Issuance Costs	(6.4)		—
Dividends and Distributions Paid to GPIP Partner	(26.7)		(30.1)
Other, Net	(2.7)		(2.6)
Net Cash Provided by Financing Activities	218.5		120.5

Effect of Exchange Rate Changes on Cash	(6.1)		0.2

Net Decrease in Cash and Cash Equivalents	(42.7)		(8.2)
Cash and Cash Equivalents at Beginning of Period	152.9		70.5
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	110.2	$	62.3

Non-cash Investing and Financing Activities:
Beneficial Interest Obtained (Sold) in Exchange for Trade Receivables	$	29.8	$	(142.9)
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	$	14.0	$	16.0
Right-of-Use Assets Obtained in Exchange for New Finance Lease Liabilities	$	—	$	5.6

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

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, foodservice and other consumer products companies. The Company operates on a global basis, is one of the largest producers of folding cartons in the United States ("U.S.") and holds leading market positions in coated-recycled paperboard ("CRB"), coated unbleached kraft paperboard ("CUK") and solid bleached sulfate paperboard ("SBS").

The Company’s customers include many of the world’s most widely recognized companies and brands with prominent market positions in beverage, food, foodservice, and other consumer products. The Company strives to provide its customers with packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its low-cost paperboard mills and converting facilities, its proprietary carton and packaging designs, and its commitment to quality and service.

On January 1, 2018, GPHC, a Delaware corporation, International Paper Company, a New York corporation (“IP”), Graphic Packaging International Partners, LLC, a Delaware limited liability company formerly known as Gazelle Newco LLC and a wholly owned subsidiary of the Company (“GPIP”), and Graphic Packaging International, LLC, a Delaware limited liability company formerly known as Graphic Packaging International, Inc. and a subsidiary of GPIP (“GPIL”), completed a series of transactions pursuant to an agreement dated October 23, 2017, among the foregoing parties (the “Transaction Agreement”). Pursuant to the Transaction Agreement (i) a wholly owned subsidiary of the Company transferred its ownership interest in GPIL to GPIP; (ii) IP transferred its North America Consumer Packaging (“NACP”) business to GPIP, which was then subsequently transferred to GPIL; (iii) GPIP issued membership interests to IP, and IP was admitted as a member of GPIP; and (iv) GPIL assumed certain indebtedness of IP (the "NACP Combination").

During 2019 and 2018, GPIP repurchased 20.8 million partnership units from GPI Holding, which increased IP's ownership interest in GPIP from 20.5% at January 1, 2018 to 21.6% at December 31, 2019. GPI Holding distributed proceeds of such transaction up to the Company which used the proceeds to repurchase 20.8 million shares of its common stock pursuant to its share repurchase program.

On January 28, 2020, the Company announced that IP notified the Company of its intent to begin the process of reducing its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million partnership units from IP for $250 million in cash. As a result, IP's ownership interest in GPIP decreased from 21.6% to 18.3% as of January 29, 2020.

Unless otherwise negotiated by the parties, IP's next opportunity to exchange their partnership units is 180 days from the purchase date and is limited to the lesser of $250 million or 25% of the units owned immediately following the transaction, subject to the cap on the number of units that may be exchanged for shares. IP will have further opportunities to exchange their partnership units 180 days after each exchange date. The Company may choose to satisfy these exchanges using shares of its common stock, cash, or a combination thereof.

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, 2019. 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.

Revenue Recognition

The Company has two primary activities, the manufacturing and converting of paperboard, from which it generates revenue from contracts with customers. Revenue is disaggregated primarily by geography and type of activity as further explained in "Note 11-Segments." All reportable segments and the Australia and Pacific Rim operating segments recognize revenue under the same method, allocate transaction price using similar methods, and have similar economic factors impacting the uncertainty of revenue and related cash flows.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revenue is recognized on the Company's annual and multi-year supply contracts when the Company satisfies the performance obligation by transferring control over the product or service to a customer, which is generally based on shipping terms and passage of title under the point-in-time method of recognition. For the three months ended March 31, 2020 and 2019, the Company recognized $1,594.6 million and $1,501.6 million, respectively, of revenue from contracts with customers.

The transaction price allocated to each performance obligation consists of the stand alone selling price, estimates of rebates and other sales or contract renewal incentives, and cash discounts and sales returns ("Variable Consideration") and excludes sales tax. Estimates are made for Variable Consideration based on contract terms and historical experience of actual results and are applied to the performance obligations as they are satisfied. Purchases by the Company’s principal customers are manufactured and shipped with minimal lead time, therefore performance obligations are generally satisfied shortly after manufacturing and shipment. The Company uses payment terms that are consistent with industry practice.

The Company's contract assets consist primarily of contract renewal incentive payments to customers which are amortized over the period in which performance obligations related to the contract renewal are satisfied. As of March 31, 2020 and December 31, 2019, contract assets were $21.0 million and $24.3 million, respectively. The Company's contract liabilities consist principally of rebates, and as of March 31, 2020 and December 31, 2019 were $43.7 million and $49.6 million, respectively.

The Company did not have a material amount relating to backlog orders at March 31, 2020 or December 31, 2019.

Accounts Receivable and Allowances

The Company has entered into agreements to sell, on a revolving basis, certain trade accounts receivable to third party financial institutions. Transfers under these agreements meet the requirements to be accounted for as sales in accordance with the Transfers and Servicing topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification"). The loss on sale is not material and is included in Other Expense, Net on the Condensed Consolidated Statement of Operations. The following table summarizes the activity under these programs for the three months ended March 31, 2020 and 2019, respectively:


	Three Months Ended
	March 31,
In millions	2020		2019
Receivables Sold and Derecognized	$	610.2	$	811.2
Proceeds Collected on Behalf of Financial Institutions	608.8		504.1
Net Proceeds Paid to Financial Institutions	(4.7)		(28.8)
Deferred Purchase Price at March 31^(a)	6.7		4.3
Pledged Receivables at March 31	263.5		144.2

^(a)Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.

The Company participates in supply chain financing arrangements offered by certain customers and has entered into various factoring arrangements that also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the three months ended March 31, 2020 and 2019, the Company sold receivables of approximately $72 million and $37 million, respectively, related to these factoring arrangements.

Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, at March 31, 2020 and December 31, 2019, were approximately $563 million and $562 million, respectively.

Capital Allocation Plan

On February 20, 2020, the Company's board of directors declared a regular quarterly dividend of $0.075 per share of common stock payable on April 5, 2020 to shareholders of record as of March 15, 2020.

On January 28, 2019, the Company's board of directors authorized an additional share repurchase program to allow the Company to purchase up to $500 million of the Company's issued and outstanding shares of common stock through open market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2019 share repurchase program"). The previous $250 million share repurchase program was authorized on January 10, 2017 (the "2017 share repurchase program"). During the first three months of 2020, the Company repurchased 9,667,034 shares of its common stock at an average price of $12.87, under the 2019 share repurchase program. During the three months ended March 31, 2019, the Company repurchased 5,033,426 shares of its common stock at an average price of $11.82, under the 2017 share repurchase program. During the third quarter of 2019, the 2017 share repurchase program was completed. As of March 31, 2020, the Company has approximately $338 million available for additional repurchases under the 2019 share repurchase program.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Business Combinations and Shutdown and Other Special Charges, Net

The following table summarizes the transactions recorded in Business Combinations and Shutdown and Other Special Charges, Net in the Condensed Consolidated Statements of Operations:


	Three Months Ended
	March 31,
In millions	2020		2019
Charges Associated with Business Combinations	$	1.5	$	2.1
Shutdown and Other Special Charges	4.2		4.1
Exit Activities^(a)	13.0		—

Total	$	18.7	$	6.2

^(a)Relates to the Company's CRB mills and the PM1 containerboard machine exit activities (see "Note 15 — Exit Activities").

2020

On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment.

In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. Both will be effective June 30, 2020. Charges associated with these projects are included in Exit Activities in the table above. For more information, see "Note 15 — Exit Activities."

2019

On September 24, 2019, the Company announced its plan to invest approximately $600 million in a new CRB paper machine in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral. Charges associated with this project are included in Exit Activities in the table above. For more information, see "Note 15 — Exit Activities."

On August 1, 2019, the Company acquired substantially all the assets of Artistic Carton Company ("Artistic"), a diversified producer of folding cartons and CRB. The acquisition included two converting facilities located in Auburn, Indiana and Elgin, Illinois (included in the Americas Paperboard Packaging reportable segment) and one CRB paperboard mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment).

Charges associated with all acquisitions are included in Charges Associated with Business Combinations in the table above. For more information regarding these acquisitions see "Note 3 — Business Combinations."

During 2019, the Company began a three-year program to dismantle and dispose of idle and abandoned assets primarily at the paperboard mills. Expected charges for this program are approximately $40 million. Charges associated with this program are included in Shutdown and Other Special Charges in the table above.

Adoption of New Accounting Standards

Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model (known as the "current expected credit loss model") that is based on expected losses rather than incurred losses. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.

Effective January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This amendment modifies the disclosure requirements on fair value measurements. The adoption of this standard did not have a material impact on the Company's financial disclosures.

Effective January 1, 2020, the Company adopted ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU broadens the scope of Accounting Standards Codification ("ASC") 350-40 with an updated definition of a hosting arrangement and clarifies certain aspects of accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20); Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This amendment removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The guidance is effective for fiscal years ending after December 15, 2020 and would be applied on a retrospective basis. The Company is currently evaluating the impact this guidance will have on its related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This amendment modifies ASC 740 to simplify the accounting for income taxes. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact of this new guidance.

NOTE 2 — INVENTORIES, NET

Inventories, Net by major class:


In millions	March 31, 2020		December 31, 2019
Finished Goods	$	464.7	$	434.8
Work in Progress	132.7		123.4
Raw Materials	378.0		370.0
Supplies	167.6		167.7
Total	$	1,143.0	$	1,095.9

NOTE 3 — BUSINESS COMBINATIONS

On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc., a commercial printing company. The converting facility is located in Omaha, Nebraska, close to many of the Company's existing food, beverage and industrial customers. The Company paid approximately $42 million using existing cash and borrowings under its revolving credit facility.

The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date and is subject to adjustments in subsequent periods once the third-party valuations are finalized. The Company recorded $4.0 million related to identifiable intangible assets (customer relationships) and $38.1 million related to net tangible assets (primarily working capital, land/buildings and equipment).

As disclosed in "Note 1 — General Information," the Company completed the Artistic acquisition in 2019. The Company paid approximately $53 million for the Artistic acquisition using existing cash and borrowings under its revolving credit facility. During the three months ended March 31, 2020, the acquisition accounting for Artistic was finalized.

NOTE 4 — DEBT

On March 6, 2020, GPIL completed a private offering of $450.0 million aggregate principal amount of its senior unsecured notes due 2028. The Senior Notes will bear interest at an annual rate of 3.50%. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured credit facility.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Long-Term Debt is comprised of the following:


In millions	March 31, 2020		December 31, 2019
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2028	$	450.0	$	—
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.82%, payable in 2027	300.0		300.0
Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.17%, payable in 2024	300.0		300.0
Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.91%, payable in 2022	250.0		250.0
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.76%, payable in 2021	425.0		425.0
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (2.45% at March 31, 2020) payable through 2023	1,387.0		1,396.1
Senior Secured Revolving Facilities with interest payable at floating rates (1.93% at March 31, 2020) payable in 2023	243.0		52.8
Finance Leases	133.3		134.2
Other	5.7		5.4
Total Long-Term Debt	3,494.0		2,863.5
Less: Current Portion	41.2		41.1
	3,452.8		2,822.4
Less: Unamortized Deferred Debt Issuance Costs	18.3		12.5
Total	$	3,434.5	$	2,809.9

At March 31, 2020, the Company and its U.S. and international subsidiaries had the following commitments, amounts outstanding and amounts available under revolving credit facilities:


In millions	Total Commitments		Total Outstanding		Total Available
Senior Secured Domestic Revolving Credit Facility^(a)	$	1,450.0	$	170.0	$	1,262.1
Senior Secured International Revolving Credit Facility	174.6		73.0		101.6
Other International Facilities	55.7		13.6		42.1
Total	$	1,680.3	$	256.6	$	1,405.8

^(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 $17.9 million as of March 31, 2020. These letters of credit are primarily used as security against the Company's self-insurance obligations and workers’ compensation obligations. These letters of credit expire at various dates through 2020 and 2021 unless extended.

The Credit Agreement, the 4.75% Senior Notes due 2027 and the 3.50% Senior Notes due 2028 are guaranteed by GPIP and certain domestic subsidiaries, and the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022 and 4.125% Senior Notes due 2024 are guaranteed by GPHC and certain domestic subsidiaries. For additional information on the financial statements of GPIP, see "Note 13 - Guarantor Condensed Consolidating Financial Statements” of the Notes to the Condensed Consolidated Financial Statements of GPIL in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange Commission.

The Credit Agreement and the indentures governing the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022, 4.125% Senior Notes due 2024, 4.75% Senior Notes due 2027 and 3.50% Senior Notes due 2028 (the "Indentures") limit the Company's ability to incur additional indebtedness. Additional covenants contained in the Credit Agreement and the Indentures may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase stock, pay dividends and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indentures, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions could limit the Company’s ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.

As of March 31, 2020, the Company was in compliance with the covenants in the Credit Agreement and the Indentures.

Table of Contents

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”). Under the 2014 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and other types of stock-based and cash awards. Awards under the 2014 Plan generally vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the 2014 Plan are from the Company’s authorized but unissued shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award and are adjusted for actual performance for performance-based awards.

Stock Awards, Restricted Stock and Restricted Stock Units

Under the 2014 Plan, all RSUs generally vest and become payable in three years from date of grant. RSUs granted to employees generally contain some combination of service and performance objectives based on various financial targets and relative total shareholder return that must be met for the RSUs to vest.

Data concerning RSUs granted in the first three months of 2020 is as follows:


	RSUs	Weighted Average Grant Date Fair Value Per Share
RSUs — Employees	1,610,179	$	15.45

During the three months ended March 31, 2020 and 2019, $12.4 million and $4.9 million, respectively, were charged to compensation expense for stock incentive plans.

During the three months ended March 31, 2020 and 2019, 0.8 million and 0.5 million shares were issued, respectively. The shares issued were primarily related to RSUs granted during 2017 and 2016, 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.

During 2018, the Company began the process of terminating its largest U.S. pension plan (the “US Plan”). This included freezing the plan as of December 31, 2018 and spinning off the active participants to the plan established as part of the NACP Combination (the “NACP Plan”). The NACP plan is open for union and non-union hourly employees of locations that were part of the NACP Combination. During the third quarter of 2019, the Company offered a lump-sum benefit option to certain participants of the US Plan. Lump sum payments of $150.2 million were paid in the fourth quarter of 2019 and the Company recognized a non-cash settlement charge of $39.2 million associated with the payouts.

In the first quarter of 2020, the Company purchased a group annuity contract using the assets held within the pension trust that transferred the remaining pension obligation under the US Plan of approximately $713 million to an insurance company and incurred an additional non-cash settlement charge of $152.5 million related to this transfer. These non-cash settlement charges relate to Net Actuarial Loss previously recognized in Accumulated Other Comprehensive Loss.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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						Three Months Ended
	March 31,						March 31,
In millions	2020		2019		2020		2019
Components of Net Periodic Cost:
Service Cost	$	3.9	$	3.3	$	0.1	$	0.1
Interest Cost	4.6		11.5		0.2		0.4
Administrative Expenses	0.1		0.1		—		—
Expected Return on Plan Assets	(6.9)		(13.8)		—		—
Net Settlement/Curtailment Loss	152.5		—		—		—

Amortization:
Prior Service Credit	—		—		(0.1)		(0.1)
Actuarial Loss (Gain)	1.6		2.5		(0.4)		(0.5)


Net Periodic Cost (Benefit)	$	155.8	$	3.6	$	(0.2)	$	(0.1)

Employer Contributions