gpk-20220331

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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 March 31, 2022


☐			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 25, 2022, there were 308,306,907 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 availability of U.S. federal income tax attributes 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 continuing 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 U.S. federal income tax attributes to offset taxable income or U.S. federal income taxes 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 2021 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			4
ITEM 1. FINANCIAL STATEMENTS			4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			32
ITEM 4. CONTROLS AND PROCEDURES			32
PART II — OTHER INFORMATION			33
ITEM 1. LEGAL PROCEEDINGS			33
ITEM 1A. RISK FACTORS			33
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			33
ITEM 4. MINE SAFETY DISCLOSURES			33
ITEM 6. EXHIBITS			34
SIGNATURES			35
EX-10.1
EX-21.1
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
	March 31,
In millions, except per share amounts	2022		2021
Net Sales	$	2,245	$	1,649
Cost of Sales	1,858		1,400
Selling, General and Administrative	181		126
Other (Income) Expense, Net	(2)		3
Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net	15		12
Income from Operations	193		108
Nonoperating Pension and Postretirement Benefit Income	2		2
Interest Expense, Net	(42)		(30)

Income before Income Taxes	153		80
Income Tax Expense	(46)		(18)


Net Income	107		62
Net Income Attributable to Noncontrolling Interest	—		(8)
Net Income Attributable to Graphic Packaging Holding Company	$	107	$	54

Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic	$	0.35	$	0.20
Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted	$	0.35	$	0.19

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

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GRAPHIC P1ACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



Three Months Ended March 31,
2022
In millions
Net Income	$	107
Other Comprehensive Income (Loss), Net of Tax:

Derivative Instruments	13
Pension and Postretirement Benefit Plans	(9)
Currency Translation Adjustment	(22)
Total Other Comprehensive Loss, Net of Tax	(18)
Total Comprehensive Income	$	89


2021
In millions	Graphic Packaging Holding Company		Noncontrolling Interest		Total
Net Income	$	54	$	8	$	62
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	3		1		4
Pension and Postretirement Benefit Plans	10		—		10
Currency Translation Adjustment	(4)		(1)		(5)

Total Other Comprehensive Income, Net of Tax	9		—		9
Total Comprehensive Income	$	63	$	8	$	71

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	March 31, 2022		December 31, 2021
ASSETS

Current Assets:
Cash and Cash Equivalents	$	111	$	172
Receivables, Net	945		859
Inventories, Net	1,504		1,387
Other Current Assets	97		84

Total Current Assets	2,657		2,502
Property, Plant and Equipment, Net	4,675		4,677
Goodwill	2,006		2,015
Intangible Assets, Net	831		868
Other Assets	374		395
Total Assets	$	10,543	$	10,457

LIABILITIES

Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt	$	286	$	279
Accounts Payable	1,028		1,125
Compensation and Employee Benefits	201		211
Interest Payable	37		35
Other Accrued Liabilities	394		399
Total Current Liabilities	1,946		2,049
Long-Term Debt	5,645		5,515
Deferred Income Tax Liabilities	598		579
Accrued Pension and Postretirement Benefits	132		139
Other Noncurrent Liabilities	271		282



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; 308,288,288 and 307,103,551 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	3		3
Capital in Excess of Par Value	2,038		2,046
Retained Earnings	150		66
Accumulated Other Comprehensive Loss	(242)		(224)
Total Graphic Packaging Holding Company Shareholders' Equity	1,949		1,891
Noncontrolling Interest	2		2
Total Equity	1,951		1,893
Total Liabilities and Shareholders' Equity	$	10,543	$	10,457

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 AND NONCONTROLLING INTEREST

(Unaudited)



	Common Stock			Capital in Excess of Par Value		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interests		Total Equity
In millions, except share amounts	Shares	Amount
Balances at December 31, 2021	307,103,551	$	3	$	2,046	$	66	$	(224)	$	2	$	1,893
Net Income	—	—		—		107		—		—		107
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	—	—		—		—		13		—		13
Pension and Postretirement Benefit Plans	—	—		—		—		(9)		—		(9)
Currency Translation Adjustment	—	—		—		—		(22)		—		(22)



Dividends Declared	—	—		—		(23)		—		—		(23)
Recognition of Stock-Based Compensation, Net	—	—		(8)		—		—		—		(8)
Issuance of Shares for Stock-Based Awards	1,184,737	—		—		—		—		—		—
Balances at March 31, 2022	308,288,288	$	3	$	2,038	$	150	$	(242)	$	2	$	1,951



	Common Stock			Capital in Excess of Par Value		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interests		Total Equity
In millions, except share amounts	Shares	Amount
Balances at December 31, 2020	267,726,373	$	3	$	1,715	$	(48)	$	(246)	$	416	$	1,840
Net Income	—	—		—		54		—		8		62
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	—	—		—		—		3		1		4
Pension and Postretirement Benefit Plans	—	—		—		—		10		—		10
Currency Translation Adjustment	—	—		—		—		(4)		(1)		(5)

Reduction of IP's Ownership Interest	15,307,000	—		70		—		—		(216)		(146)
Dividends Declared	—	—		—		(21)		—		—		(21)
Distribution of Membership Interest	—	—		—		—		—		(4)		(4)


Recognition of Stock-Based Compensation, Net	—	—		(3)		—		—		—		(3)
Issuance of Shares for Stock-Based Awards	1,168,394	—		—		—		—		—		—
Balances at March 31, 2021	284,201,767	$	3	$	1,782	$	(15)	$	(237)	$	204	$	1,737

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)


	Three Months Ended
	March 31,
In millions	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	107	$	62

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	139		117

Deferred Income Taxes	17		7
Amount of Postretirement Expense Less Than Funding	(5)		(11)

Other, Net	—		23
Changes in Operating Assets and Liabilities	(240)		(145)
Net Cash Provided by Operating Activities	18		53

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending	(221)		(137)
Packaging Machinery Spending	(2)		(9)




Beneficial Interest on Sold Receivables	31		33
Beneficial Interest Obtained in Exchange for Proceeds	(2)		(5)
Other, Net	(1)		(2)
Net Cash Used in Investing Activities	(195)		(120)

CASH FLOWS FROM FINANCING ACTIVITIES:


Proceeds from Issuance of Debt	—		1,225
Retirement of Long-Term Debt	—		(1,221)
Payments on Debt	(3)		(9)
Redemption of Noncontrolling Interest	—		(150)

Borrowings under Revolving Credit Facilities	1,972		885
Payments on Revolving Credit Facilities	(1,812)		(677)


Repurchase of Common Stock related to Share-Based Payments	(17)		(14)
Debt Issuance Costs	—		(5)
Dividends and Distributions Paid to GPIP Partner	(23)		(24)
Other, Net	2		(5)
Net Cash Provided by Financing Activities	119		5

Effect of Exchange Rate Changes on Cash	(3)		(1)

Net Decrease in Cash and Cash Equivalents	(61)		(63)
Cash and Cash Equivalents at Beginning of Period	172		179
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	111	$	116

Non-cash Investing Activities:
Beneficial Interest Obtained in Exchange for Trade Receivables	$	28	$	30
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	$	7	$	22
Non-cash Financing Activities:

Non-cash Exchange of Stock Issuance for Redemption of Noncontrolling Interest	$	—	$	(250)

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

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — GENERAL INFORMATION

Nature of Business

Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”) is committed to providing consumer packaging that makes a world of difference. The Company is a leading provider of sustainable, fiber-based consumer 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 Europe, and holds leading market positions in coated-recycled paperboard ("CRB"), coated unbleached kraft paperboard ("CUK") and solid bleached sulfate paperboard ("SBS").

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

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

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 state 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, 2021. 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, manufacturing and converting 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 10 - Segment Information." All reportable segments and the Australia and Pacific Rim operating segments recognize revenue under the same method, allocate transaction price using similar methods, and have similar economic factors impacting the uncertainty of revenue and related cash flows.

Revenue is recognized on the Company's annual and multi-year supply contracts when the Company satisfies the performance obligation by transferring control over the product or service to a customer, which is generally based on shipping terms and passage of title under the point-in-time method of recognition. For the three months ended March 31, 2022 and 2021, the Company recognized $2,238 million and $1,644 million, respectively, of revenue from contracts with customers.

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

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2022 and December 31, 2021, contract assets were $15 million and $17 million, respectively. The Company's contract liabilities consist principally of rebates, and as of March 31, 2022 and December 31, 2021 were $53 million and $61 million, respectively.

Accounts Receivable and Allowances

Accounts receivable are stated at the amount owed by the customer, net of an allowance for estimated uncollectible accounts, returns and allowances, and cash discounts. The allowance for doubtful accounts is estimated based on historical experience, current economic conditions and the creditworthiness of customers. Receivables are charged to the allowance when determined to be no longer collectible.

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 (Income) Expense, Net line item on the Condensed Consolidated Statement of Operations. The following table summarizes the activity under these programs for the three months ended March 31, 2022 and 2021, respectively:


	Three Months Ended
	March 31,
In millions	2022		2021
Receivables Sold and Derecognized	$	737	$	758
Proceeds Collected on Behalf of Financial Institutions	681		685
Net Proceeds Received From Financial Institutions	64		62
Deferred Purchase Price at March 31(a)	3		9
Pledged Receivables at March 31	201		160

(a) Included in Other Current Assets on the Condensed Consolidated Balance Sheet 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, 2022 and 2021, the Company sold receivables of $264 million and $125 million, respectively, related to these factoring arrangements.

Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were $674 million and $613 million as of March 31, 2022 and December 31, 2021, respectively.

Share Repurchases and Dividends

On February 22, 2022, the Company's board of directors declared a regular quarterly dividend of $0.075 per share of common stock payable on April 5, 2022 to shareholders of record as of March 15, 2022.

On January 28, 2019, the Company's board of directors authorized a 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"). During the first three months of 2022 and 2021, the Company did not repurchase any shares of its common stock under the 2019 share repurchase program. As of March 31, 2022, the Company has $147 million available for additional repurchases under the 2019 share repurchase program.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net

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


	Three Months Ended
	March 31,
In millions	2022		2021
Charges Associated with Business Combinations(a)	$	8	$	—
Shutdown and Other Special Charges	—		8
Exit Activities(b)	7		4

Total	$	15	$	12

(a) For more information on these charges, see "Note 3 - Business Combinations."

(b) Relates to the Company's CRB mill and folding carton facility closures (see "Note 13 - Exit Activities").

2022

On March 15, 2022, the Company announced its decision to close the Norwalk, Ohio folding carton facility by the end of May 2022. Severance charges associated with this project are included in Exit Activities in the table above for the three months ended March 31, 2022. For more information, see "Note 13 - Exit Activities."

2021

During 2019, the Company announced its plans to invest in a new CRB paper machine in Kalamazoo, Michigan. At the time of the announcement, the Company expected to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral. During the third quarter of 2021, the Company decided to continue to operate one of the two original smaller CRB mills at least through 2022. Severance, retention, start-up costs, and other charges associated with this project are included in Exit Activities in the table above in the three months ended March 31, 2022 and 2021. For more information, see "Note 13 - Exit Activities."

Adoption of New Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides temporary optional expedients and exceptions for applying GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The ASU can be adopted after its issuance date through December 31, 2022. The Company adopted this standard in the first quarter of fiscal 2022 with no material impact on the Company's financial position and results of operations.

Accounting Standards Not Yet Adopted

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities. Under the new guidance, the acquirer should determine what contract assets and/or contract liabilities it would have recorded under ASC 606 as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquiree. The recognition and measurement of those contract assets and contract liabilities will likely be comparable to what the acquiree has recorded on its books under ASC 606 as of the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in an interim period, for any period for which financial statements have not yet been issued. However, adoption in an interim period other than the first fiscal quarter requires an entity to apply the new guidance to all prior business combinations that have occurred since the beginning of the annual period in which the new guidance is adopted. The Company will continue evaluating the impact of this ASU.

NOTE 2 — INVENTORIES, NET

Inventories, Net by major class:


In millions	March 31, 2022		December 31, 2021
Finished Goods	$	530	$	528
Work in Progress	211		194
Raw Materials	563		473
Supplies	200		192
Total	$	1,504	$	1,387

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 — BUSINESS COMBINATIONS

Americraft

On July 1, 2021, the Company acquired substantially all of the assets of Americraft Carton Inc. ("Americraft"). The Company paid approximately $292 million, using existing cash and borrowings under its revolving credit facility. The acquisition included seven converting plants across the United States.

The purchase price for Americraft has been allocated to assets acquired and liabilities assumed based on the fair values as of the acquisition date and is subject to adjustments in subsequent periods as management finalizes its purchase price allocation, including the third-party valuations. Tangible assets and liabilities were valued as of the acquisition date using the indirect and direct methods of the cost approach and intangible assets were valued using a discounted cash flow analysis, which represents a Level 3 measurement. Management believes that the purchase price attributable to goodwill represents the benefits expected as the acquisition was made to continue to expand its product offering, to integrate paperboard from the Company's mills and to further optimize the Company's supply chain footprint. The assigned goodwill, which is deductible for tax purposes, is reported within the Americas Paperboard Packaging reportable segment.

The preliminary purchase price allocation as of March 31, 2022 is as follows:


In millions	Amounts Recognized as of Acquisition Date
Purchase Price	$	292

Receivables, Net	22
Inventories, Net	37
Property, Plant and Equipment, Net	122
Intangible Assets, Net(a)	54
Other Assets	1
Total Assets Acquired	236
Current Liabilities	12
Total Liabilities Assumed	12
Net Assets Acquired	224
Goodwill	68
Total Estimated Fair Value of Net Assets Acquired	$	292

(a) Intangible Assets, Net, consists of Customer Relationships with a weighted average life of approximately 15 years.

AR Packaging

On November 1, 2021, the Company completed the acquisition of AR Packaging Group AB ("AR Packaging"), Europe's second largest producer of fiber-based consumer packaging, by acquiring all the AR Packaging Group AB shares that were issued and outstanding as of the date of acquisition. The acquisition included 30 converting plants in 13 countries and enhances the Company’s global scale, innovation capabilities, and value proposition for customers throughout Europe and bordering regions.

The total cash consideration for the AR Packaging acquisition was $1,412 million net of cash acquired of $75 million, paid in Euros through the use of deal contingent, foreign exchange forward contracts, purchased through the use of available borrowing capacity on the Company’s Senior Secured Revolving Credit Facilities and the $400 million Incremental Facility Amendment to the Fourth Amended and Restated Credit Agreement. For more information, see "Note 4 - Debt."

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, none of which is expected to be deductible for tax purposes, and will be reported within the Europe reportable segment. During the first quarter of 2022, the Company recorded acquisition accounting adjustments of $3 million to goodwill comprised of $3 million to Other Accrued Liabilities. The allocation of purchase price shown below remains preliminary and is subject to further adjustment, pending additional refinement and final completion of valuations, including but not limited to valuations of property and equipment, customer relationships and other intangible assets, and deferred tax liabilities. Goodwill is primarily attributed to synergies from future expected economic benefits, including enhanced revenue growth from expanded capabilities and geographic presence as well as substantial cost savings from duplicative overhead, streamlined operations and enhanced operational efficiency.


In millions	Amounts Recognized as of Acquisition Date(a)
Total Purchase Consideration	$	1,487

Cash Acquired	75
Receivables, Net	212
Inventories	166
Other Current Assets	12
Property, Plant and Equipment(b)	529
Intangible Assets(c)	447
Other Assets	76
Total Assets Acquired	1,517
Accounts Payable	109
Compensation and Employee Benefits	12
Other Accrued Liabilities	104
Short-Term Debt and Current Portion of Long-Term Debt	9
Long-Term Debt	17
Deferred Income Tax Liabilities	164
Accrued Pension and Postretirement Benefits	50
Other Noncurrent Liabilities	41
Noncontrolling Interests	2
Total Liabilities Assumed	508
Net Assets Acquired	1,009
Goodwill	478
Total Estimated Fair Value of Net Assets Acquired	$	1,487

(a) The amounts were translated from Euro to USD using the rate at the acquisition date of 1.1539.

(b) Property, Plant and Equipment primarily consists of Machinery and Equipment of $371 million with a weighted average life of approximately 12 years.

(c) Intangible Assets primarily consists of Customer Relationships of $439 million with a weighted average life of approximately 15 years.

The above fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date. The fair values of the tangible assets acquired and liabilities assumed were preliminarily determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount rates, future expected cash flows and other future events that are judgmental and subject to change. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement of the fair value hierarchy as defined in ASC 820, Fair Value Measurements (“ASC 820”). Intangible assets consisting of customer relationships, technology, and trade names were valued using the discounted cash flow analysis. The significant assumptions used to estimate the value of the customer relationships intangible assets included the discount rate, annual revenue growth rates, customer attrition rates, projected operating expenses, projected EBITDA margins, tax rate, depreciation, and contributory asset charge.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company believes that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities, but the potential for measurement period adjustments exists based on the Company’s continuing review of matters related to the acquisition. The Company expects to complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

Since the acquisition date, the results of operations for AR Packaging of $281 million of revenue and $11 million of operating income have been included within the consolidated statements of income for the three months ended March 31, 2022.

The following unaudited pro forma consolidated financial information for the three months ended March 31, 2021 combines the results of the Company for fiscal 2021 and the unaudited results of AR Packaging for the corresponding period. The unaudited pro forma consolidated financial information assumes that the Acquisition, which closed on November 1, 2021, was completed on January 1, 2021 (the first day of fiscal 2021).

The pro forma consolidated financial information has been calculated after applying the Company’s accounting policies and includes adjustments for amortization expense of acquired intangible assets, fair value adjustments for acquired inventory, property, plant and equipment and long-term debt.

These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results of the Company that would have been achieved had the Acquisition actually taken place on January 1, 2021. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after the Acquisition, including but not limited to revenue enhancements, cost savings or operating synergies that the combined Company may achieve as a result of the Acquisition.


	Pro Forma Three Months Ended (unaudited)
	March 31,
In millions	2022		2021
Revenue	$	2,245	$	1,923
Net Income (Loss)	$	107	$	(12)

NOTE 4 — DEBT

Short-Term Debt and Current Portion of Long-Term Debt is comprised of the following:


In millions	March 31, 2022		December 31, 2021
Short Term Borrowings	$	14	$	9
Current Portion of Finance Lease Obligations	9		7
Current Portion of Long-Term Debt	263		263
Total	$	286	$	279

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, 2022		December 31, 2021
Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.88%, payable in 2022(a)	$	250	$	250
Senior Notes with interest payable semi-annually at 0.821%, effective rate of 0.82%, payable in 2024(b)	400		400
Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.15%, payable in 2024(a)	300		300
Senior Notes with interest payable semi-annually at 1.512%, effective rate of 1.52%, payable in 2026(b)	400		400
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.80%, payable in 2027(b)	300		300
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.54%, payable in 2028(b)	450		450
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.54%, payable in 2029(b)	350		350
Senior Notes (€290 million) with interest payable semi-annually at 2.625% , effective rate of 2.66%, payable in 2029(b)	321		330
Senior Notes with interest payable semi-annually at 3.75% , effective rate of 3.80%, payable in 2030(b)	400		400
Green Bond net of unamortized premium with interest payable at 4.00%, effective rate of 1.72%, payable in 2026(b)	110		110
Senior Secured Term Loan A-2 Facility with interest payable quarterly at 2.67%, effective rate of 2.68% payable in 2028(b)	425		425
Senior Secured Term Loan A-3 Facility with interest payable monthly payable at floating rates (2.48% at March 31, 2022), effective rate of 2.50%, payable in 2028(b)	250		250
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (2.23% at March 31, 2022) payable through 2026(b)	540		543
Senior Secured Term Loan Facility (€210 million) with interest payable at various dates at floating rates (1.75% at March 31, 2022) payable through 2026(b)	233		239
Senior Secured Revolving Facilities with interest payable quarterly at floating rates (2.47% at March 31, 2022) payable in 2026(b)(c)	1,062		920
Finance Leases and Financing Obligations	143		146
Other	18		9
Total Long-Term Debt	5,952		5,822
Less: Current Portion	272		270
Total Long-Term Debt Excluding Current Portion	5,680		5,552
Less: Unamortized Deferred Debt Issuance Costs	35		37
Total	$	5,645	$	5,515

(a) Guaranteed by GPHC and certain domestic subsidiaries.

(b) Guaranteed by GPIP and certain domestic subsidiaries.

(c) The effective interest rates for the Company’s Senior Secured Revolving Credit Facilities were 2.06% and 1.63% as of March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022, 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)	$	1,850	$	1,016	$	812
Senior Secured International Revolving Credit Facility	202		46		156
Other International Facilities	81		32		49
Total	$	2,133	$	1,094	$	1,017

(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 $22 million as of March 31, 2022. 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 2022 unless extended.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Covenant Agreements

The Current Credit Agreement and the indentures governing the 4.875% Senior Notes due 2022, 0.821% Senior Notes due 2024, 4.125% Senior Notes due 2024, 1.512% Senior Notes due 2026, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028, 3.50% Senior Notes due 2029, 2.625% Senior Notes due 2029 and 3.75% Senior Notes due 2030 (the “Indentures”), limit the Company's ability to incur additional indebtedness. Additional covenants contained in the Current Credit Agreement and the Indentures may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase stock, pay dividends and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indentures, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions could limit the Company’s ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.

As of March 31, 2022, the Company was in compliance with the covenants in the Current Credit Agreement and the Indentures.

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”). The 2014 Plan allows for granting shares of stock, options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), and other types of stock-based and cash awards. Awards under the 2014 Plan vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the 2014 Plan are from GPHC’s authorized but unissued shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award and are adjusted for actual performance for performance-based awards. As of March 31, 2022, there were 10.4 million shares remaining available to be granted under the 2014 Plan.

Stock Awards, Restricted Stock and Restricted Stock Units

Under the 2014 Plan, all RSUs granted to employees 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. RSUs granted as deferred compensation for non-employee directors are fully vested but not payable until the distribution date elected by the director. RSAs issued to non-employee directors as part of their compensation for service on the Board are unrestricted on the grant date.

Data concerning RSUs granted in the first three months of 2022 is as follows:


		Weighted Average Grant Date Fair Value Per Share
RSUs — Employees and Non-Employee Directors	1,747,582	$	20.04

During the three months ended March 31, 2022 and 2021, $9 million and $11 million, respectively, were charged to compensation expense for stock incentive plans and such amounts are included in Selling, General and Administrative expenses in the Condensed Consolidated Statements of Operations.

During each of the three months ended March 31, 2022 and 2021, 1.2 million shares were issued. The shares issued were primarily related to RSUs granted to employees during 2019 and 2018, 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.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pension Expense

The pension expenses related to the Company’s plans consisted of the following:


	Three Months Ended
	March 31,
In millions	2022		2021
Components of Net Periodic Cost:
Service Cost	$	4	$	5
Interest Cost	3		2

Expected Return on Plan Assets	(6)		(5)


Amortization:

Actuarial Loss	1		1


Net Periodic Cost	$	2	$	3

Employer Contributions

During the first quarter of 2022 and 2021, the Company made $7 million and $14 million of contributions to its pension plans, respectively. In the first quarter of 2022 and 2021, the Company made a $6 million and $14 million contribution to its remaining U.S. defined benefit plan by effectively utilizing the excess balance related to the U.S. defined benefit plan terminated in 2020, respectively. Excluding this $6 million contribution, the Company expects to make contributions in the range of $10 million to $20 million for the full year of 2022.

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 natural gas swap contracts and used interest rate swaps and forward exchange contracts. These derivative instruments are designated as cash flow hedges and, to the extent they are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in Accumulated Other Comprehensive Loss. These changes in fair value will subsequently be reclassified to earnings, contemporaneously with and offsetting changes in the related hedged exposure and presented in the same line of the income statement expected for the hedged item.

For more information regarding the Company’s financial instruments and fair value measurement, see “Note 10 - Financial Instruments, Derivatives and Hedging Activities” and “Note 11 - Fair Value Measurement” of the Notes to the Consolidated Financial Statements of the Company’s 2021 Form 10-K.

Interest Rate Risk

The Company used interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. 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.

As of December 31, 2021, the Company had interest rate swap positions with a notional value of $200 million which matured in January 2022. As of March 31, 2022, the Company had no outstanding interest rate swaps. As discussed in "Note 8 - Income Taxes", a $10 million expense was recorded to release the lingering tax expense remaining in Other Comprehensive Income after the settlement of these swaps.

During the first three months of 2021, there were no 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 purchases of natural gas, the Company enters into natural gas swap contracts to hedge prices for a designated percentage of its expected natural gas usage. Such contracts are designated as cash flow hedges. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss and resulting gain or loss reclassified into Cost of Sales concurrently with the recognition of the commodity consumed. The Company has hedged approximately 9% of its expected natural gas usage for the remainder of 2022.

During the first three months of 2022 and 2021, there were no amounts of ineffectiveness related to changes in the fair value of natural gas swap contracts. Additionally, there were no amounts excluded from the measure of effectiveness.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Foreign Currency Risk

The Company entered 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 (Income) Expense, Net or Net Sales, when appropriate.

As of March 31, 2022 and December 31, 2021, the Company had no outstanding forward exchange contracts.

No amounts were reclassified to earnings during 2021 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 receivables resulting from sales transactions and intercompany loans denominated in foreign currencies in order to manage risks associated with variability in cash flows that may be adversely affected by changes in exchange rates. At March 31, 2022 and December 31, 2021, multiple foreign currency forward exchange contracts existed, with maturities ranging up to nine months. Those foreign currency exchange contracts outstanding at March 31, 2022 and December 31, 2021, when aggregated and measured in U.S. dollars at contractual rates at March 31, 2022 and December 31, 2021, had net notional amounts totaling $108 million and $103 million, respectively. Unrealized gains and losses resulting from these contracts are recognized in Other (Income) Expense, Net and approximately offset corresponding recognized but unrealized gains and losses on the remeasurement of 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 March 31, 2022, 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. As of March 31, 2022 and December 31, 2021, the Company had commodity contract derivative assets, which were included in Other Current Assets, of $5 million and $2 million, respectively.

The fair values of the Company’s other financial assets and liabilities at March 31, 2022 and December 31, 2021 approximately equal the carrying values reported on the Condensed Consolidated Balance Sheets except for Long-Term Debt. The fair value of the Company’s Long-Term Debt (excluding finance leases and deferred financing fees) was $5,658 million and $5,715 million as compared to the carrying amounts of $5,809 million and $5,676 million as of March 31, 2022 and December 31, 2021, respectively. The fair value of the Company’s Total Debt, including the Senior Notes, is based on quoted market prices (Level 2 inputs). Level 2 valuation techniques for Long-Term Debt are based on quotations obtained from independent pricing service providers.

Effect of Derivative Instruments

The pre-tax effect of derivative instruments in cash flow hedging relationships on the Company’s Condensed Consolidated Statements of Operations is as follows:


	Amount of (Gain) Loss Recognized in Accumulated Other Comprehensive Loss				Location in Statement of Operations	Amount of (Gain) Loss Recognized in Statement of Operations
	Three Months Ended March 31,						Three Months Ended March 31,
In millions	2022		2021					2022		2021
Commodity Contracts	$	(6)	$	(1)			Cost of Sales	$	(3)	$	—
Foreign Currency Contracts	—		(2)				Other (Income) Expense, Net	—		1
Interest Rate Swap Agreements	—		—				Interest Expense, Net	—		1
Total	$	(6)	$	(3)			Total	$	(3)	$	2

At March 31, 2022, the Company expects to reclassify $5 million of pre-tax gain 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.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The pre-tax effect of derivative instruments not designated as hedging instruments on the Company’s Condensed Consolidated Statements of Operations is as follows:


		Three Months Ended March 31,
In millions		2022		2021
Foreign Currency Contracts	Other (Income) Expense , Net	$	(2)	$	(3)

NOTE 8 — INCOME TAXES

Substantially all the Company’s operations are held through its investment in GPIP, a subsidiary that is classified as a partnership for U.S. income tax purposes and is generally not subject to domestic income tax expense. As a result, the consolidated financial statements exclude the domestic tax effect of the earnings attributable to the noncontrolling partner’s interest in GPIP for the portion of the year in which the noncontrolling partner held an interest.

During the three months ended March 31, 2022, the Company recognized Income Tax Expense of $46 million on Income before Income Taxes of $153 million. The effective tax rate for the three months ended March 31, 2022 was different than the statutory rate primarily due to discrete tax adjustments, including tax expense of $10 million, recorded to release the lingering tax expense remaining in Other Comprehensive Income after the settlement of certain swaps and a tax benefit of $2 million related to excess tax benefits on restricted stock that vested during the period.

During the three months ended March 31, 2021, the Company recognized Income Tax Expense of $18 million on Income before Income Taxes of $80 million. The effective tax rate for the three months ended March 31, 2021 was different than the statutory rate primarily due to the tax effect of income attributable to noncontrolling interests as well as the mix and levels of earnings between foreign and domestic tax jurisdictions. In addition, during the three months ended March 31, 2021, the Company recorded discrete benefits of approximately $1 million related to excess tax benefits on restricted stock that vested during the period.

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, the recycling of packaging and the health and safety of employees. Compliance initiatives could result in significant costs, which could negatively impact the Company’s consolidated financial position, results of operations or cash flows. Any failure to comply with environmental or health and safety laws and regulations or any permits and authorizations required thereunder could subject the Company to fines, corrective action or other sanctions.

Some of the Company’s current and former facilities are the subject of environmental investigations and remediations resulting from historic operations and the release of hazardous substances or other constituents. Some current and former facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future or for which indemnification claims may be asserted against the Company. Also, closures or sales of facilities may necessitate investigation and may result in remediation activities at those facilities.

The Company has established reserves for those facilities or issues where a liability is probable and the costs are reasonably estimable. The Company believes that the amounts accrued for its loss contingencies, and the reasonably possible loss beyond the amounts accrued, are not material to the Company’s consolidated financial position, results of operations or cash flows. The Company cannot estimate with certainty other future compliance, investigation or remediation costs. Some costs relating to historic usage that the Company considers to be reasonably possible of resulting in liability are not quantifiable at this time. The Company will continue to monitor environmental issues at each of its facilities, as well as regulatory developments, and will revise its accruals, estimates and disclosures relating to past, present and future operations, as additional information is obtained.

Legal Matters

The Company is a party to a number of lawsuits arising in the ordinary conduct of its business. Although the timing and outcome of these lawsuits cannot be predicted with certainty, the Company does not believe that disposition of these lawsuits will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Table of Contents

GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 — SEGMENT INFORMATION

The Company has three reportable segments as follows:

Paperboard Mills includes the eight North American paperboard mills that produce primarily CRB, CUK, and SBS, which is consumed internally to produce paperboard packaging for the Americas and Europe Packaging segments. The remaining paperboard is sold externally to a wide variety of paperboard packaging converters and brokers. The Paperboard Mills segment Net Sales represent the sale of paperboard only to external customers. The effect of intercompany transfers to the paperboard packaging segments has been eliminated from the Paperboard Mills segment to reflect the economics of the integration of these segments.

Americas Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to Consumer Packaged Goods ("CPG") companies, and cups, lids and food containers sold primarily to foodservice companies and Quick-Service Restaurants ("QSR"), serving the food, beverage, and consumer product markets in the Americas.

Europe Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to CPG companies serving the food, beverage and consumer product markets including healthcare and beauty primarily in Europe.

The Company allocates certain mill and corporate costs to the reportable segments to appropriately represent the economics of these segments. The Corporate and Other caption includes the Pacific Rim and Australia operating segments and unallocated corporate and one-time costs.

These segments are evaluated by the chief operating decision maker based primarily on Income from Operations, as adjusted for depreciation and amortization. The accounting policies of the reportable segments are the same as those described above in "Note 1 - General Information."

Segment information is as follows:


	Three Months Ended
	March 31,
In millions	2022		2021
NET SALES:
Paperboard Mills	$	296	$	237
Americas Paperboard Packaging	1,422		1,169
Europe Paperboard Packaging	486		206
Corporate/Other/Eliminations(a)	41		37
Total	$	2,245	$	1,649

INCOME (LOSS) FROM OPERATIONS:
Paperboard Mills(b)	$	11	$	(27)
Americas Paperboard Packaging	153		121
Europe Paperboard Packaging	37		20
Corporate and Other(c)	(8)		(6)
Total	$	193	$	108

DEPRECIATION AND AMORTIZATION:
Paperboard Mills	$	61	$	58
Americas Paperboard Packaging	43		42
Europe Paperboard Packaging	29		11
Corporate and Other	6		6
Total	$	139	$	117

(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.

(b) Includes accelerated depreciation related to exit activities in 2022 and 2021.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 — EARNINGS PER SHARE


	Three Months Ended
	March 31,
In millions, except per share data	2022		2021
Net Income Attributable to Graphic Packaging Holding Company	$	107	$	54
Weighted Average Shares:
Basic	308.8		275.8
Dilutive Effect of RSUs	0.9		1.4
Diluted	309.7		277.2
Earnings Per Share — Basic	$	0.35	$	0.20
Earnings Per Share — Diluted	$	0.35	$	0.19

NOTE 12 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

The following represents changes in Accumulated Other Comprehensive Loss attributable to Graphic Packaging Holding Company by component for the three months ended March 31, 2022:


In millions, net of tax	Derivatives Instruments		Pension and Postretirement Benefit Plans		Currency Translation Adjustments		Total
Balance at December 31, 2021	$	(8)	$	(94)	$	(122)	$	(224)
Other Comprehensive Income (Loss) before Reclassifications	5		(10)		(22)		(27)
Amounts Reclassified from Accumulated Other Comprehensive Income (a)	8		1		—		9
Net Current-period Other Comprehensive Income (Loss)	13		(9)		(22)		(18)


Balance at March 31, 2022	$	5	$	(103)	$	(144)	$	(242)

(a) See following table for details about these reclassifications.

The following represents reclassifications out of Accumulated Other Comprehensive Loss for the three months ended March 31, 2022:


In millions
Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Income is Presented
Derivatives Instruments:
Commodity Contracts	$	(3)		Cost of Sales

Interest Rate Swap Agreements	—			Interest Expense, Net
	(3)			Total before Tax
	11		(a)	Tax Expense
	$	8		Total, Net of Tax

Amortization of Defined Benefit Pension Plans:

Actuarial Losses	1		(b)
	$	1		Total, Net of Tax