gpk-20220930

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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, 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 October 24, 2022, there were 307,118,078 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, pension and postretirement healthcare benefit plan contributions, the re-classification of gain from Accumulated Other Comprehensive Loss to earnings, the timing of the sale of its operations in Russia, the deductibility of goodwill from the acquisitions of AR Packaging Group AB for tax purposes, capital investment, and depreciation and amortization 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			27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			39
ITEM 4. CONTROLS AND PROCEDURES			39
PART II — OTHER INFORMATION			40
ITEM 1. LEGAL PROCEEDINGS			40
ITEM 1A. RISK FACTORS			40
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			40
ITEM 4. MINE SAFETY DISCLOSURES			40
ITEM 6. EXHIBITS			41
SIGNATURES			42


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	2022		2021		2022		2021
Net Sales	$	2,451	$	1,782	$	7,054	$	5,168
Cost of Sales	1,940		1,502		5,715		4,384
Selling, General and Administrative	203		128		569		379
Other Expense (Income), Net	6		(2)		6		2
Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net	9		33		126		79
Income from Operations	293		121		638		324
Nonoperating Pension and Postretirement Benefit Income	2		1		5		4
Interest Expense, Net	(53)		(29)		(143)		(88)

Income before Income Taxes and Equity Income of Unconsolidated Entity	242		93		500		240
Income Tax Expense	(49)		(20)		(134)		(64)
Income before Equity Income of Unconsolidated Entity	193		73		366		176
Equity Income of Unconsolidated Entity	—		—		—		1
Net Income	193		73		366		177
Net Income Attributable to Noncontrolling Interest	—		—		—		(12)
Net Income Attributable to Graphic Packaging Holding Company	$	193	$	73	$	366	$	165

Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic	$	0.63	$	0.24	$	1.18	$	0.56
Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted	$	0.62	$	0.24	$	1.18	$	0.56

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,
2022
In millions	Graphic Packaging Holding Company
Net Income	$	193
Other Comprehensive (Loss) Income, Net of Tax:

Derivative Instruments	5
Pension and Postretirement Benefit Plans	—
Currency Translation Adjustment	(99)
Total Other Comprehensive Loss, Net of Tax	(94)
Total Comprehensive Income	$	99


2021
In millions	Graphic Packaging Holding Company
Net Income	$	73
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	4
Pension and Postretirement Benefit Plans	1
Currency Translation Adjustment	(17)

Total Other Comprehensive Loss, Net of Tax	(12)
Total Comprehensive Income	$	61


Nine Months Ended September 30,
2022
In millions	Graphic Packaging Holding Company
Net Income	$	366
Other Comprehensive Income (Loss), Net of Tax:

Derivative Instruments	15
Pension and Postretirement Benefit Plans	(8)
Currency Translation Adjustment	(222)
Total Other Comprehensive Loss, Net of Tax	(215)
Total Comprehensive Income	$	151


2021
In millions	Graphic Packaging Holding Company		Noncontrolling Interest		Total
Net Income	$	165	$	12	$	177
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	9		1		10
Pension and Postretirement Benefit Plans	21		—		21
Currency Translation Adjustment	(16)		—		(16)

Total Other Comprehensive Income, Net of Tax	14		1		15
Total Comprehensive Income	$	179	$	13	$	192

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, 2022		December 31, 2021
ASSETS

Current Assets:
Cash and Cash Equivalents	$	82	$	172
Receivables, Net	888		859
Inventories, Net	1,564		1,387
Other Current Assets	108		84

Total Current Assets	2,642		2,502
Property, Plant and Equipment, Net	4,509		4,677
Goodwill	1,942		2,015
Intangible Assets, Net	738		868
Other Assets	351		395
Total Assets	$	10,182	$	10,457

LIABILITIES

Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt	$	300	$	279
Accounts Payable	999		1,125
Compensation and Employee Benefits	265		211
Interest Payable	39		35
Other Accrued Liabilities	429		399
Total Current Liabilities	2,032		2,049
Long-Term Debt	5,195		5,515
Deferred Income Tax Liabilities	635		579
Accrued Pension and Postretirement Benefits	112		139
Other Noncurrent Liabilities	250		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; 307,380,403 and 307,103,551 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	3		3
Capital in Excess of Par Value	2,046		2,046
Retained Earnings	346		66
Accumulated Other Comprehensive Loss	(439)		(224)
Total Graphic Packaging Holding Company Shareholders' Equity	1,956		1,891
Noncontrolling Interest	2		2
Total Equity	1,958		1,893
Total Liabilities and Shareholders' Equity	$	10,182	$	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	—	—		—		—		19		—		19
Pension and Postretirement Benefit Plans	—	—		—		—		(9)		—		(9)
Currency Translation Adjustment	—	—		—		—		(28)		—		(28)



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
Net Income	—	—		—		66		—		—		66
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments	—	—		—		—		(9)		—		(9)
Pension and Postretirement Benefit Plans	—	—		—		—		1		—		1
Currency Translation Adjustment	—	—		—		—		(95)				(95)

Repurchase of Common Stock (a)	(379,000)	—		(2)		(5)		—		—		(7)
Dividends Declared	—	—		—		(23)		—		—		(23)

Recognition of Stock-Based Compensation, Net	—	—		8		—		—		—		8
Issuance of Shares for Stock-Based Awards	123,102	—		—		—		—		—		—
Balances at June 30, 2022	308,032,390	$	3	$	2,044	$	188	$	(345)	$	2	$	1,892
Net Income	—	—		—		193		—		—		193
Other Comprehensive (Loss), Net of Tax:
Derivative Instruments	—	—		—		—		5		—		5
Pension and Postretirement Benefit Plans	—	—		—		—		—		—		—
Currency Translation Adjustment	—	—		—		—		(99)		—		(99)
Repurchase of Common Stock (b)	(711,765)	—		(4)		(12)		—		—		(16)
Dividends Declared	—	—		—		(23)		—		—		(23)
Recognition of Stock-Based Compensation, Net	—	—		6		—		—		—		6
Issuance of Shares for Stock-Based Awards	4,778	—		—		—		—		—		—
Balances at September 30, 2022	307,325,403	$	3	$	2,046	$	346	$	(439)	$	2	$	1,958

(a)Includes 32,000 shares repurchased but not yet settled as of June 30, 2022.

(b)Includes 55,000 shares repurchased but not yet settled as of September 30, 2022.

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	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
Net Income	—	—		—		38		—		4		42
Other Comprehensive Income, Net of Tax:
Derivative Instruments	—	—		—		—		2		—		2
Pension and Postretirement Benefit Plans	—	—		—		—		10		—		10
Currency Translation Adjustment	—	—		—		—		5		1		6

Reduction of IP's Ownership Interest	22,773,072	—		241		—		—		(207)		34
Dividends Declared	—	—		—		(22)		—		—		(22)
Distribution of Membership Interest	—	—		—		—		—		(2)		(2)
Recognition of Stock-Based Compensation, Net	—	—		7		—		—		—		7
Issuance of Shares for Stock-Based Awards	70,868	—		—		—		—		—		—
Balances at June 30, 2021	307,045,707	$	3	$	2,030	$	1	$	(220)	$	—	$	1,814

Net Income	—	—		—		73		—		—		73
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	—	—		—		—		4		—		4
Pension and Postretirement Benefit Plans	—	—		—		—		1		—		1
Currency Translation Adjustment	—	—		—		—		(17)		—		(17)




Dividends Declared	—	—		—		(23)		—		—		(23)

Recognition of Stock-Based Compensation, Net	—	—		2		—		—		—		2
Issuance of Shares for Stock-Based Awards	25,913	—		—		—		—		—		—
Balances at September 30, 2021	307,071,620	$	3	$	2,032	$	51	$	(232)	$	—	$	1,854

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	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	366	$	177

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	415		356

Deferred Income Taxes	67		45
Amount of Postretirement Expense Less Than Funding	(17)		(23)
Impairment Charges related to Divestiture	93		—
Other, Net	43		79
Changes in Operating Assets and Liabilities	(347)		(175)
Net Cash Provided by Operating Activities	620		459

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending	(429)		(566)
Packaging Machinery Spending	(16)		(22)
Acquisition of Businesses, Net of Cash Acquired	—		(292)



Beneficial Interest on Sold Receivables	83		97
Beneficial Interest Obtained in Exchange for Proceeds	(2)		(6)
Other, Net	(3)		(3)
Net Cash Used in Investing Activities	(367)		(792)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of Common Stock	(22)		—
Proceeds from Issuance of Debt	—		1,586
Retirement of Long-Term Debt	—		(1,226)
Payments on Debt	(10)		(13)
Redemption of Noncontrolling Interest	—		(150)

Borrowings under Revolving Credit Facilities	3,166		2,876
Payments on Revolving Credit Facilities	(3,387)		(2,700)

IP Tax Receivable Agreement Payment	—		(43)
Repurchase of Common Stock related to Share-Based Payments	(18)		(15)
Debt Issuance Costs	—		(16)
Dividends and Distributions Paid to GPIP Partner	(69)		(71)
Other, Net	9		(5)
Net Cash (Used In) Provided by Financing Activities	(331)		223

Effect of Exchange Rate Changes on Cash	(11)		(2)

Net Decrease in Cash and Cash Equivalents	(89)		(112)
Cash and Cash Equivalents at Beginning of Period	172		179
CASH AND CASH EQUIVALENTS AT END OF PERIOD (includes $1 million classified as held for sale as of September 30, 2022)	$	83	$	67

Non-cash Investing Activities:
Beneficial Interest Obtained in Exchange for Trade Receivables	$	86	$	94
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	$	36	$	58
Non-cash Financing Activities:

Non-cash Exchange of Stock Issuance for Redemption of Noncontrolling Interest	$	—	$	(652)

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 the largest producer 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").

During 2020, GPIP purchased 32.5 million partnership units from IP for $500 million in cash, fully redeeming the 18.2 million partnership units that were required to be redeemed in cash. On February 16, 2021, the Company announced that IP had notified the Company of its intent to exchange additional partnership units. Per an agreement between the parties, on February 19, 2021, GPIP purchased 9.3 million partnership units from IP for $150 million in cash, and IP exchanged 15.3 million partnership units for an equivalent number of shares of GPHC common stock. On May 21, 2021, IP exchanged its remaining 22.8 million partnership units for an equivalent number of shares of GPHC common stock. As required by the parties' agreement, these shares were immediately sold by IP. As a result, IP had no ownership interest remaining in GPIP as of May 21, 2021.

Prior to September 1, 2022, substantially all the Company’s operations were held through its investment in GPIP. Effective September 1, 2022, as a result of internal restructuring, GPIP is no longer classified as a partnership for U.S. income tax purposes and GPIP’s activities are directly subject to U.S. income tax. The Company no longer holds an interest in an entity classified as a partnership for U.S. income tax purposes.

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 the Company's 2021 Annual Report on 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.

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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 September 30, 2022 and 2021, the Company recognized $2,445 million and $1,775 million, respectively, of revenue from contracts with customers. For the nine months ended September 30, 2022 and 2021, the Company recognized $7,035 million and $5,151 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.

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 September 30, 2022 and December 31, 2021, contract assets were $11 million and $17 million, respectively. The Company's contract liabilities consist principally of rebates, and as of September 30, 2022 and December 31, 2021 were $61 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 Expense (Income), Net line item on the Condensed Consolidated Statements of Operations. The following table summarizes the activity under these programs for the nine months ended September 30, 2022 and 2021, respectively:


	Nine Months Ended
	September 30,
In millions	2022		2021
Receivables Sold and Derecognized	$	2,422	$	2,230
Proceeds Collected on Behalf of Financial Institutions	2,230		2,202
Net Proceeds Received From Financial Institutions	212		39
Deferred Purchase Price at September 30(a)	7		8
Pledged Receivables at September 30	161		154

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

Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were $821 million and $613 million as of September 30, 2022 and December 31, 2021, respectively.

The Company also participates in supply chain financing arrangements offered by certain customers that qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the nine months ended September 30, 2022 and 2021, the Company sold receivables of $824 million and $493 million, respectively, related to these arrangements.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Share Repurchases and Dividends

During the first nine months of 2022, the Company's board of directors declared three regular quarterly dividends of $0.075 per share of common stock to shareholders of record as follows:



Date Declared	Record Date	Payment Date
February 22, 2022	March 15, 2022	April 5, 2022
May 24, 2022	June 15, 2022	July 5, 2022
August 2, 2022	September 15, 2022	October 5, 2022

On September 22, 2022, the Company's board of directors voted to increase the quarterly dividend to $0.10 per share of common stock, a 33% increase from the prior quarterly dividend of $0.075. The dividend is payable on January 5, 2023, to common stockholders of record at the close of business on December 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 nine months of 2022, the Company repurchased 1,090,765 shares of its common stock at an average price of $20.99 under the 2019 share repurchase program. During the nine months ended September 30, 2021, the Company did not repurchase any shares of its common stock under the 2019 share repurchase program. As of September 30, 2022, the Company has $124 million available for additional repurchases under the 2019 share repurchase program.

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				Nine Months Ended
	September 30,				September 30,
In millions	2022		2021		2022		2021
Charges Associated with Business Combinations(a)	$	7	$	25	$	20	$	48
Shutdown and Other Special Charges	(1)		5		1		20
Exit Activities(b)	2		3		12		11
Charges Associated with a Divestiture(c)	1		—		93		—

Total	$	9	$	33	$	126	$	79

(a) These costs relate to the Americraft Carton, Inc. and AR Packaging Group AB acquisitions (see "Note 3 - Business Combinations").

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

(c) Relates to the Company's planned divestiture of its Russian business (see "Note 14 - Impairment and Divestiture of Russian Business").

2022

In the second quarter of 2022, the Company began the process of divesting its interests in its two folding carton plants in Russia. Impairment charges associated with this divestiture are included in Charges Associated with a Divestiture in the table above for the three and nine months ended September 30, 2022. For more information, see "Note 14 - Impairment and Divestiture of Russian Business."

In March 2022, the Company announced its decision to close the Norwalk, Ohio folding carton facility and closed the facility in September 2022. Severance charges associated with this project are included in Exit Activities in the table above for the three and nine months ended September 30, 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. In the second quarter of 2022, the Company closed the Battle Creek, MI CRB mill. Severance, retention, shutdown costs, and other charges associated with this project are included in Exit Activities in the table above for the three and nine months ended September 30, 2022 and 2021. For more information, see "Note 13 - Exit Activities."

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On May 14, 2021, in connection with the AR Packaging Group AB ("AR Packaging") acquisition, the Company entered into deal contingent foreign exchange forward contracts, with no upfront cash cost, to hedge €700 million of the acquisition price. These forward contracts settled October 29, 2021, roughly concurrent with the acquisition of AR Packaging, and are accounted for as derivatives under ASC 815, Derivatives and Hedging. Unrealized gains and losses resulting from these contracts are recognized in earnings. Unrealized losses of $21 million and $38 million resulting from these contracts are recognized in Charges Associated with Business Combinations in the table above for the three and nine months ended September 30, 2021, respectively. For more information, see "Note 1 - General Information" of the Company's 2021 Annual Report on Form 10-K for the year ended December 31, 2021 and "Note 7 — Financial Instruments and Fair Value Measurement.”

On July 1, 2021, the Company acquired substantially all the assets of Americraft Carton, Inc. (“Americraft”), the largest remaining independent folding carton converter in North America for $292 million. The acquisition included seven converting facilities across the United States and is reported within the Americas Paperboard Packaging reportable segment. Charges associated with this acquisition are included in Charges Associated with Business Combinations in the table above. For more information, see "Note 3 — Business Combinations."

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 September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which is intended to enhance the transparency surrounding the use of supplier finance programs. Supplier finance programs may also be referred to as reverse factoring, payables finance, or structured payables arrangements. The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods with those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company will continue evaluating the impact of this ASU.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This ASU clarifies that contractual sale restrictions should not be considered in measuring the fair value of equity securities. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods therein, with early adoption permitted. The Company will continue evaluating the impact of this ASU.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. This ASU expands and clarifies the portfolio layer method for fair value hedges of interest rate risk. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods therein, with early adoption permitted. The Company will continue evaluating the impact of this ASU.

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.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 — INVENTORIES, NET

Inventories, Net by major class:


In millions	September 30, 2022		December 31, 2021
Finished Goods	$	509	$	528
Work in Progress	205		194
Raw Materials	630		473
Supplies	220		192
Total	$	1,564	$	1,387

NOTE 3 — BUSINESS COMBINATIONS

Americraft

As disclosed in "Note 1 - General Information," the Company completed the Americraft acquisition in 2021. The Company paid approximately $292 million, using existing cash and borrowings under its revolving credit facility. During the second quarter of 2022, the Company finalized the acquisition accounting for Americraft.

AR Packaging

On November 1, 2021, the Company completed the acquisition of 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."

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 Paperboard Packaging reportable segment. During the third quarter of 2022, the Company recorded acquisition accounting adjustments of less than $1 million to goodwill comprised of adjustments 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 future expected economic benefits, including enhanced revenue growth from expanded capabilities and geographic presence as well as substantial cost savings from reduction of duplicative overhead, streamlined operations and enhanced operational efficiency.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


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	105
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	509
Net Assets Acquired	1,008
Goodwill	479
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.

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 in Q4 2022.

The Condensed Consolidated Statements of Operations include $291 million of Net Sales and $19 million of Income from Operations for AR Packaging for the three months ended September 30, 2022 and $842 million of Net Sales and $33 million of Loss from Operations for the nine months ended September 30, 2022. The nine months ended September 30, 2022 include $93 million of impairment charges related to the divestiture of its two folding carton plants in Russia. See "Note 14 - Impairment and divestiture of Russian business" for further information.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following unaudited pro forma consolidated financial information for the three and nine months ended September 30, 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)				Pro Forma Nine Months Ended (unaudited)
	September 30,				September 30,
In millions	2022		2021		2022		2021
Net Sales	$	2,451	$	2,069	$	7,054	$	6,015
Net Income	$	193	$	85	$	366	$	114

NOTE 4 — DEBT

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


In millions	September 30, 2022		December 31, 2021
Short-Term Borrowings	$	19	$	9
Current Portion of Finance Lease Obligations	10		7
Current Portion of Long-Term Debt	271		263
Total	$	300	$	279

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Long-Term Debt is comprised of the following:


In millions	September 30, 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 4.14%, 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)	284		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)