gpk-20200930

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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 September 30, 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 October 19, 2020, there were 270,783,150 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

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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 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.

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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			25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			36
ITEM 4. CONTROLS AND PROCEDURES			36
PART II — OTHER INFORMATION			37
ITEM 1. LEGAL PROCEEDINGS			37
ITEM 1A. RISK FACTORS			37
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			37
ITEM 4. MINE SAFETY DISCLOSURES			37
ITEM 6. EXHIBITS			38
SIGNATURES			39
EX-31.1
EX-31.2
EX-32.1
EX-32.2
XBRL Content

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
In millions, except per share amounts	2020		2019		2020		2019
Net Sales	$	1,697.7	$	1,581.6	$	4,907.8	$	4,640.3
Cost of Sales	1,442.2		1,315.2		4,069.4		3,820.0
Selling, General and Administrative	126.3		131.3		394.1		387.8
Other Expense, Net	1.1		4.2		2.2		7.1
Business Combinations and Shutdown and Other Special Charges, Net	9.0		8.2		48.2		24.3
Income from Operations	119.1		122.7		393.9		401.1
Nonoperating Pension and Postretirement Benefit Income (Expense)	0.2		—		(150.8)		(0.1)
Interest Expense, Net	(32.0)		(35.9)		(96.4)		(106.4)

Income before Income Taxes and Equity Income of Unconsolidated Entity	87.3		86.8		146.7		294.6
Income Tax Expense	(8.3)		(16.9)		(21.2)		(60.9)
Income before Equity Income of Unconsolidated Entity	79.0		69.9		125.5		233.7
Equity Income of Unconsolidated Entity	0.3		0.1		0.7		0.5
Net Income	79.3		70.0		126.2		234.2
Net Income Attributable to Noncontrolling Interest	(15.6)		(17.9)		(23.1)		(60.4)
Net Income Attributable to Graphic Packaging Holding Company	$	63.7	$	52.1	$	103.1	$	173.8

Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic	$	0.23	$	0.18	$	0.37	$	0.59
Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted	$	0.23	$	0.18	$	0.36	$	0.59

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

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



Three Months Ended September 30,
2020
In millions	Graphic Packaging Holding Company		Noncontrolling Interest		Redeemable Noncontrolling Interest		Total
Net Income	$	63.7	$	13.6	$	2.0	$	79.3
Other Comprehensive Income, Net of Tax:

Derivative Instruments	5.5		1.1		—		6.6
Pension and Postretirement Benefit Plans	0.8		0.1		—		0.9
Currency Translation Adjustment	23.8		4.3		0.3		28.4

Total Other Comprehensive Income, Net of Tax	30.1		5.5		0.3		35.9
Total Comprehensive Income	$	93.8	$	19.1	$	2.3	$	115.2
2019
Net Income	$	52.1	$	13.8	$	4.1	$	70.0
Other Comprehensive Income (Loss), Net of Tax:

Pension and Postretirement Benefit Plans	1.1		0.3		0.1		1.5
Currency Translation Adjustment	(14.6)		(3.1)		(0.9)		(18.6)

Total Other Comprehensive Loss, Net of Tax	(13.5)		(2.8)		(0.8)		(17.1)
Total Comprehensive Income	$	38.6	$	11.0	$	3.3	$	52.9


Nine Months Ended September 30,
2020
In millions	Graphic Packaging Holding Company		Noncontrolling Interest		Redeemable Noncontrolling Interest		Total
Net Income (Loss)	$	103.1	$	26.3	$	(3.2)	$	126.2
Other Comprehensive Income (Loss), Net of Tax:

Derivative Instruments	6.8		1.5		(0.1)		8.2
Pension and Postretirement Benefit Plans	114.4		32.5		9.5		156.4
Currency Translation Adjustment	(10.9)		(3.1)		(0.5)		(14.5)

Total Other Comprehensive Income, Net of Tax	110.3		30.9		8.9		150.1
Total Comprehensive Income	$	213.4	$	57.2	$	5.7	$	276.3
2019
Net Income	$	173.8	$	46.6	$	13.8	$	234.2
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments	(4.8)		(1.4)		(0.4)		(6.6)
Pension and Postretirement Benefit Plans	3.2		0.9		0.3		4.4
Currency Translation Adjustment	(13.3)		(2.8)		(0.9)		(17.0)

Total Other Comprehensive Loss, Net of Tax	(14.9)		(3.3)		(1.0)		(19.2)
Total Comprehensive Income	$	158.9	$	43.3	$	12.8	$	215.0

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

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except share and per share amounts	September 30, 2020		December 31, 2019
ASSETS

Current Assets:
Cash and Cash Equivalents	$	55.5	$	152.9
Receivables, Net	743.4		504.5
Inventories, Net	1,153.8		1,095.9
Other Current Assets	65.7		52.3

Total Current Assets	2,018.4		1,805.6
Property, Plant and Equipment, Net	3,437.4		3,253.8
Goodwill	1,469.9		1,477.9
Intangible Assets, Net	447.8		477.3
Other Assets	308.5		275.3
Total Assets	$	7,682.0	$	7,289.9

LIABILITIES

Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt	$	495.8	$	50.4
Accounts Payable	738.5		716.1
Compensation and Employee Benefits	193.4		168.4

Other Accrued Liabilities	292.0		263.8
Total Current Liabilities	1,719.7		1,198.7
Long-Term Debt	3,196.9		2,809.9
Deferred Income Tax Liabilities	529.0		511.8
Accrued Pension and Postretirement Benefits	106.7		140.4
Other Noncurrent Liabilities	295.8		266.8

Redeemable Noncontrolling Interest (Note 13)	—		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; 272,545,029 and 290,246,907 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	2.7		2.9
Capital in Excess of Par Value	1,732.4		1,876.7
(Accumulated Deficit) Retained Earnings	(52.0)		56.4
Accumulated Other Comprehensive Loss	(255.5)		(365.8)
Total Graphic Packaging Holding Company Shareholders' Equity	1,427.6		1,570.2
Noncontrolling Interest	406.3		487.8
Total Equity	1,833.9		2,058.0
Total Liabilities and Shareholders' Equity	$	7,682.0	$	7,289.9

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

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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 Adjustment	—	—		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
Net Income	—	—		—		52.1		—		14.5		66.6
Other Comprehensive Income, Net of Tax:
Derivative Instruments	—	—		—		—		2.3		0.7		3.0
Pension and Postretirement Benefit Plans	—	—		—		—		0.3		—		0.3

Currency Translation Adjustment	—	—		—		—		11.3		2.6		13.9

Repurchase of Common Stock^(b)	(2,622,283)	—		(14.3)		(18.8)		—		—		(33.1)
Redeemable Noncontrolling Interest Redemption Value Adjustment	—	—		(5.4)		—		—		—		(5.4)
Dividends Declared	—	—		—		(21.3)		—		—		(21.3)



Distribution of Membership Interest	—	—		—		—		—		(5.6)		(5.6)
Recognition of Stock-Based Compensation, Net	—	—		7.9		—		—		—		7.9
Issuance of Shares for Stock-Based Awards	93,381	—		—		—		—		—		—
Balances at June 30, 2020	278,839,532	$	2.8	$	1,840.8	$	(37.1)	$	(285.6)	$	515.7	$	2,036.6
Net Income	—	—		—		63.7		—		13.6		77.3
Other Comprehensive Income, Net of Tax:
Derivative Instruments	—	—		—		—		5.5		1.1		6.6
Pension and Postretirement Benefit Plans	—	—		—		—		0.8		0.1		0.9

Currency Translation Adjustment	—	—		—		—		23.8		4.3		28.1

Repurchase of Common Stock^(c)	(6,607,221)	(0.1)		(36.0)		(58.0)		—		—		(94.1)
Redeemable Noncontrolling Interest Redemption Value Adjustment	—	—		(0.5)		—		—		—		(0.5)
Redemption of IP's Ownership Interest	—	—		(87.4)		—		—		(123.5)		(210.9)
Tax Effect of IP Redemption	—	—		9.2		—		—		—		9.2
Dividends Declared	—	—		—		(20.6)		—		—		(20.6)



Distribution of Membership Interest	—	—		—		—		—		(5.0)		(5.0)
Recognition of Stock-Based Compensation, Net	—	—		6.3		—		—		—		6.3
Issuance of Shares for Stock-Based Awards	4,533	—		—		—		—		—		—
Balances at September 30, 2020	272,236,844	$	2.7	$	1,732.4	$	(52.0)	$	(255.5)	$	406.3	$	1,833.9

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

^(b) Includes 14,436 shares repurchased but not yet settled as of June 30, 2020.

^(c) Includes 308,185 shares repurchased but not yet settled as of September 30, 2020.

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

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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, 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

Net Income	—	—		—		63.8		—		17.2		81.0
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments	—	—		—		—		(4.4)		(1.3)		(5.7)
Pension and Postretirement Benefit Plans	—	—		—		—		0.9		0.4		1.3

Currency Translation Adjustment	—	—		—		—		(2.6)		(0.6)		(3.2)

Repurchase of Common Stock	(1,428,470)	—		(7.7)		(10.6)		—		—		(18.3)

Dividends Declared	—	—		—		(22.1)		—		—		(22.1)
Reclassification of Redeemable Noncontrolling Interest for Share Repurchases	—	—		—		—		—		19.1		19.1
Distribution of Membership Interest	—	—		—		—		—		(6.4)		(6.4)
Recognition of Stock-Based Compensation, Net	—	—		5.9		—		—		—		5.9
Issuance of Shares for Stock-Based Awards	94,327	—		—		—		—		—		—
Balances at June 30, 2019	293,970,406	$	2.9	$	1,916.3	$	44.7	$	(379.3)	$	472.3	$	2,056.9

Net Income	—	—		—		52.1		—		13.8		65.9
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	—	—		—		—		—		—		—
Pension and Postretirement Benefit Plans	—	—		—		—		1.1		0.3		1.4

Currency Translation Adjustment	—	—		—		—		(14.6)		(3.1)		(17.7)

Repurchase of Common Stock	(3,729,361)	—		(20.2)		(29.9)		—		—		(50.1)

Dividends Declared	—	—		—		(21.8)		—		—		(21.8)
Distribution of Membership Interest	—	—		—		—		—		(5.3)		(5.3)
Recognition of Stock-Based Compensation, Net	—	—		5.3		—		—		—		5.3
Issuance of Shares for Stock-Based Awards	3,754	—		—		—		—		—		—
Balances at September 30, 2019	290,244,799	$	2.9	$	1,901.4	$	45.1	$	(392.8)	$	478.0	$	2,034.6

^(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.

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 30,
In millions	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	126.2	$	234.2

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	356.5		337.8

Deferred Income Taxes	(6.4)		34.0
Amount of Postretirement Expense Greater Than Funding	145.2		0.6

Other, Net	30.9		18.4
Changes in Operating Assets and Liabilities	(263.2)		(324.3)
Net Cash Provided by Operating Activities	389.2		300.7

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending	(402.6)		(213.1)
Packaging Machinery Spending	(23.1)		(16.8)
Acquisition of Businesses, Net of Cash Acquired	(120.6)		(52.9)



Beneficial Interest on Sold Receivables	85.6		320.3
Beneficial Interest Obtained in Exchange for Proceeds	(7.4)		(155.4)
Other, Net	(8.8)		(3.5)
Net Cash Used in Investing Activities	(476.9)		(121.4)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of Common Stock	(247.3)		(128.8)


Payments on Debt	(27.4)		(27.4)
Redemption of Noncontrolling Interest	(500.0)		—
Proceeds from Issuance of Debt	800.0		300.0
Borrowings under Revolving Credit Facilities	2,180.5		1,970.7
Payments on Revolving Credit Facilities	(2,122.3)		(2,216.0)

Repurchase of Common Stock related to Share-Based Payments	(9.0)		(4.1)
Debt Issuance Costs	(11.6)