2019
Annual Report
Inspired packaging.
A world of difference.
372224(1)_9_Graphic Packaging_AR_PR_R2_CVR.indd 1-3
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Graphic Packaging Holding Company, headquartered in Atlanta, Georgia, is committed to providing
consumer packaging that makes a world of difference. The Company is a leading provider of paper-
based packaging solutions for a wide variety of products to food, beverage, foodservice, and other
consumer products companies. The Company operates on a global basis, is one of the largest
producers of folding cartons and paper-based foodservice products in the United States, and holds
leading market positions in solid bleached sulfate paperboard, coated unbleached kraft paperboard
and coated recycled paperboard. The Company’s customers include many of the world’s most
widely-recognized companies and brands.
Financial Highlights
Year Ended December 31 (in millions except for per share data)
2019
2018
2017
Income Statement Data
Net Sales
Cost of Sales
Selling, General, Administrative
Income from Operations
Interest Expense, Net
Net Income Attributable to Graphic Packaging Holding Company
Weighted Average Number of Basic Shares Outstanding
Weighted Average Number of Diluted Shares Outstanding
Net Income Per Share Attributable to GPHC - Diluted
Balance Sheet Data
Cash and Cash Equivalents
Total Assets
Total Debt
Total Equity
$ 6,160.1
$ 6,029.4
$ 4,405.6
5,067.5
5,077.0
3,696.1
511.8
534.1
140.6
206.8
294.1
294.8
0.70
472.1
458.2
123.7
221.1
309.5
310.1
0.71
347.5
327.9
89.7
300.2
311.1
311.9
0.96
$
152.9
$
70.5
$
67.4
7,289.9
2,860.3
2,058.0
7,059.2
2,957.1
2,018.5
4,863.0
2,274.5
1,291.9
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Message from the President and
Chief Executive Officer
Dear Fellow Stockholders,
I am pleased to share Graphic Packaging’s 2019 financial results and progress made on our Vision 2025 goals. It was an
outstanding year for our company, our employees and our stockholders. We successfully exceeded the financial targets
established at the beginning of the year. We generated significant cash flow, invested in our integrated packaging platform and
our people, all while providing notable returns to stockholders through dividend distributions, share repurchases and share
price appreciation.
2019 CONSOLIDATED RESULTS
• Net Sales of $6.2 billion improved 2% from 2018
• Adjusted EBITDA(1) of $1.03 billion increased 6% from 2018
• Adjusted EPS(1) of $0.87 improved 7% from 2018
• Adjusted Cash Flow(1) of $528 million increased 13% from 2018
NET SALES
(in millions)
INCOME FROM
OPERATIONS
(in millions)
ADJUSTED CASH
FLOW(1)
(in millions)
NET DEBT(1)
(in millions)
$6,160
$534
9
2
0
6
$
,
6
0
4
4
$
,
8
5
4
$
8
2
3
$
$528
9
6
4
$
9
8
2
$
$2,720
7
9
8
2
$
,
0
2
2
2
$
,
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
(1) The calculation of Adjusted EBITDA, Adjusted Cash Flow, Adjusted EPS and Net Debt and a reconciliation to GAAP measures can be found in
the Company’s Fourth Quarter and Full Year 2019 Earnings Release which is available on www.graphicpkg.com.
Graphic Packaging Holding Company Annual Report 2019
1
“Given the significant
sustainability characteristics
of paperboard, we are
uniquely positioned to
capture new opportunities
with our global fiber-based
packaging platform.”
Graphic Packaging converting facility in Monroe, Louisiana
2019 results were driven by $131 million of higher pricing and $74 million in
productivity improvements, which more than offset commodity input cost and labor
and benefits inflation. Importantly, we began to see real net organic volume growth
materialize in the business in the second half of the year. This pivot to net organic
volume growth is driven by our customers’ focus on packaging solutions that are
sustainable, coupled with our outstanding new product development capabilities.
Sustainability is one of the strongest trends in the packaging industry today.
Given the significant sustainability characteristics of paperboard, we are uniquely
positioned to capture new opportunities with our global fiber-based packaging
platform. We have a long history of environmental and social responsibility
practices at the Company and we continue to improve our manufacturing processes.
INNOVATION IN PACKAGING SOLUTIONS
The KeelClipTM food and beverage packaging solution that we announced during
2019 is gaining traction. This innovative solution offers sustainability advantages
and merchandising benefits compared to other packaging alternatives. We began
shipping our proprietary KeelClip machinery systems in the first quarter of 2020 and
will be rolling out solutions globally for the next several years. This new, paper-based
packaging solution, engineered and designed in-house, reflects our commitment to
develop practical packaging solutions that are environmentally friendly.
Our global team of engineers, designers and marketers work closely with our
customers to support their critical business objectives. Customers benefit from
Graphic Packaging’s scale, integrated operations and our ongoing investments in
innovation, automation and quality improvement.
2
Graphic Packaging Holding Company Annual Report 2019
“The strategic investments
we make each year in our
integrated manufacturing
platform position us well as
a leader in the paperboard
packaging industry.”
CONTINUED INVESTMENT BACK INTO THE BUSINESS
During 2019, we announced a transformational $600 million investment in
Kalamazoo, Michigan that will result in cost and quality advantages for years to
come. The new world-class Coated Recycled Board (CRB) machine will have a
positive environmental impact by reducing greenhouse gases, water usage and
purchased energy. The last major investment in the CRB industry occurred in
1991 and was Graphic Packaging’s K1 machine in Kalamazoo, Michigan. Our new
investment strengthens our leadership across the industry and will yield quality and
efficiency enhancements. We expect to generate $100 million in incremental EBITDA
once the new paper machine is fully ramped in 2022.
Two additional strategic investments we made in 2019 include our state-of-the-
art Monroe, Louisiana converting facility and the Sneek, Netherlands converting
facility in Europe. These facilities provide a global platform to serve our beverage
customers worldwide. We believe these strategically located, highly flexible
folding carton facilities translate into distinct benefits for our customers, including
accelerated speed to market and service consistency. In addition, the Monroe
facility sits within seven miles of our West Monroe paperboard mill, our largest mill
in North America, offering meaningful logistics cost benefits. We win business and
enjoy long-term partnerships with our customers as they recognize our commitment
to product quality and innovation in new product development. The strategic
investments we make each year in our integrated manufacturing platform position
us well as a leader in the paperboard packaging industry.
Graphic Packaging Holding Company Annual Report 2019
3
STRENGTHENING CORE BUSINESS AND INCREASING INTEGRATION WITH
STRATEGIC ACQUISITIONS
Our strong financial model provides the flexibility to deploy a balanced approach
to capital allocation that includes the significant capital we invest back into our
business and we deploy in the execution of strategic, tuck-under acquisitions. We
target tuck-under acquisitions that strengthen our core business, offer expansion
into growing markets and increase paperboard integration rates.
We completed the acquisition of Artistic Carton Company in August 2019. The
acquisition added two converting facilities and approximately 70,000 tons of CRB
capacity in the Midwest. The transaction provided compelling optimization and
growth opportunities for our paperboard mill and converting platform in North
America, including expansion and diversification into new markets.
In 2020, we continue our successful track record of strategic acquisitions. So far
this year we have completed the acquisition of a folding carton facility in Omaha,
Nebraska from Quad/Graphics, Inc., and we have announced our intent to acquire
seven converting facilities (known as the Consumer Packaging Group) across the
U.S. from Greif, Inc. Our new facility in Omaha is strategically located close to many
existing food, beverage and industrial customers and allows us to further optimize
our business mix. Adding the Consumer Packaging Group facilities to the platform will
enhance service capabilities to growing mid-sized consumer goods and food service
customers and provide opportunity for increased optimization across our network.
The paperboard consumption of these newly acquired facilities will meaningfully
increase our paperboard integration rate over time from 68% to the low-70% range.
Graphic Packaging converting facility in Sneek, The Netherlands
4
Graphic Packaging Holding Company Annual Report 2019
“With the introduction of our
Vision 2025, we committed to
significant EBITDA, cash flow
and return growth over the
next 6 years.”
CAPITAL RETURN
In addition to the share price appreciation stockholders realized in 2019, we
also returned $242 million to stakeholders through dividends, distributions and
share repurchases. We will continue to execute our balanced approach to capital
allocation in 2020 and beyond.
VISION 2025
With 9 mills and 68 converting facilities worldwide, Graphic Packaging is the largest,
integrated paperboard packaging solutions provider in the world. We are growing
with the best customers in the best markets, and lead in the paperboard substrates
we participate with #1 market share in CRB and Coated Unbleached Kraft (CUK)
paperboard, and #2 market share in Solid Bleached Sulfate (SBS) paperboard in the
U.S. We are extending our leadership position through action, as we are investing
in our platform and people, increasing paperboard integration rates and driving
innovation in packaging solutions.
With the introduction of our Vision 2025, we committed to significant EBITDA,
cash flow and return growth over the next 6 years. Keys to achievement include
continued productivity-driven margin improvement, net organic volume growth
and successful integration of targeted acquisitions. We are off to a solid start in
2020 as we work toward our Vision 2025 goals. We have completed one acquisition
and announced a second that combined are expected to generate $27 million in
post-synergy annualized EBITDA, and importantly, we see 100 to 200 basis points of
net organic volume growth for the year driven by known customer conversions to
our paperboard solutions. In addition, we expect $65 to $75 million in net operating
performance improvement during the year. Finally, we continue to execute on our
transformational CRB project in Kalamazoo, Michigan and are on track to be fully
ramped in 2022.
At Graphic Packaging, our packaging solutions are made primarily from renewable
wood fiber, and most of our paperboard packaging and food service products can be
recycled today. We intend to leverage our industry-leading sustainability profile and
continue to reduce our impact on the environment through our own operations and
Graphic Packaging Holding Company Annual Report 2019
5
“With 9 mills and 68 converting
facilities worldwide, Graphic
Packaging is the largest,
integrated paperboard
packaging solutions provider
in the world.”
through innovative paperboard solutions. As part of our Vision 2025, we challenged
our team to achieve significant improvements. In the next few years, we intend to
reduce greenhouse gas emissions, non-renewable energy usage, and mill water
effluents by 15%, and reduce the use of low-density polyethylene (LDPE) by 40%.
In addition, we have established a 100% recyclability goal for all Graphic Packaging
products long-term. We are committed to continuous improvement to benefit the
communities in which we live and work, and we will provide updates on milestones
achieved in our annual sustainability reports.
Our employees are an important asset and play a significant role in achieving our
vision. Accordingly, we are focused on ensuring we have the right talent in the
right roles at the right time. Our talent acquisition, succession, development, and
diversity and inclusion strategies are critical components of the multi-year plan we
have for our people. We will continue to invest in capability development in areas
that serve as a competitive advantage and enable us to successfully achieve our
growth and profitability goals.
2019 was a pivotal year. We drove significant profitability improvement and
outperformed in our core markets. We saw net organic volume growth materialize
in the second half of the year and we made strategic investments to position the
Company for continued growth and success. Our focus is on the four pillars that
comprise our Vision 2025: partners, profit, planet and our people. We believe we
will deliver substantial stockholder value as we grow profitably and further invest to
expand our leadership position.
I want to thank our customers for their business, our more than 18,000 Graphic
Packaging employees for their continued hard work and dedication, and our
stockholders for their trust. I look forward to updating you again on progress made
as we realize our Vision.
Thank you for your attention,
Michael P. Doss
President and Chief Executive Officer
February 27, 2020
6
Graphic Packaging Holding Company Annual Report 2019
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☑
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
or
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 incorporation or organization)
(I.R.S. employer identification no.)
1500 Riveredge Parkway, Suite 100
Atlanta , Georgia
(Address of principal executive offices)
30328
(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
Common Stock, $0.01 par value per share
Trading Symbol(s)
GPK
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
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 Act). Yes ☐ No ☑
The aggregate market value of voting and non-voting common equity held by non-affiliates at June 30, 2019 was approximately $4.1 billion.
As of February 7, 2020 there were approximately 290,324,561 shares of the registrant’s Common Stock, $0.01 par value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on
Form 10-K.
2
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
PART I
TABLE OF CONTENTS OF FORM 10-K
ITEM 1.
BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ITEM 6.
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
PART IV
4
5
14
17
17
19
19
20
22
24
25
41
43
98
98
99
99
99
99
99
99
100
105
3
3
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 deductibility of goodwill for tax purposes, the availability of
net operating losses to offset U.S. federal income taxes and the timing related to the Company's future U.S. federal income
tax payments, the anticipated reduction of International Paper Company's investment in Graphic Packaging International
Partners, LLC, reclassification of loss on derivative instruments, termination of the U.S. pension plan and charges related
thereto, charges associated with CRB mill exit activities, capital investment, depreciation and amortization, interest expense,
pension plan contributions and post-retirement health care benefit payments in this report constitute “forward-looking
statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently
available operating, financial and competitive information and are subject to various risks and uncertainties that could cause
actual results to differ materially from the Company’s historical experience and its present expectations. These risks and
uncertainties include, but are not limited to, inflation of and volatility in raw material and energy costs, changes in consumer
buying habits and product preferences, competition with other paperboard manufacturers and converters, product substitution,
the Company’s ability to implement its business strategies, including strategic acquisitions, the Company's ability to
successfully integrate acquisitions, productivity initiatives and cost reduction plans, the Company’s debt level, currency
movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters,
including those that could impact the Company’s ability to utilize its net operating losses to offset taxable income and those
that impact the Company's ability to protect and use its intellectual property. Additional information regarding these and other
risks is contained in Part I, Item 1A., Risk Factors. Undue reliance should not be placed on 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.
4
4
ITEM 1.
BUSINESS
Overview
PART I
Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”) is committed to
providing consumer packaging that makes a world of difference. The Company is a leading provider of paper-based
packaging solutions for a wide variety of products to food, beverage, foodservice and other consumer products companies.
The Company operates on a global basis, is one of the largest producers of folding cartons in the United States ("U.S.") and
holds leading market positions in coated-recycled paperboard ("CRB"), coated unbleached kraft paperboard (“CUK”) and
solid bleached sulfate paperboard ("SBS").
The Company’s customers include many of the world’s most widely recognized companies and brands with prominent
market positions in beverage, food, foodservice and other consumer products. The Company strives to provide its customers
with packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its
low-cost paperboard mills and converting facilities, its proprietary carton and packaging designs, and its commitment to
quality and service.
On January 1, 2018, GPHC, a Delaware corporation, International Paper Company, a New York corporation (“IP”),
Graphic Packaging International Partners, LLC, a Delaware limited liability company formerly known as Gazelle Newco
LLC and a wholly owned subsidiary of the Company (“GPIP”), and Graphic Packaging International, LLC, a Delaware
limited liability company formerly known as Graphic Packaging International, Inc. and a 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").
GPI Holding III, LLC, an indirect wholly-owned subsidiary of the Company (“GPI Holding”), is the managing member of
GPIP.
At the closing of the NACP Combination, GPIP issued 309,715,624 common units or 79.5% of the membership interests in
GPIP to GPI Holding and 79,911,591 common units or 20.5% of the membership interests in GPIP to IP. Subject to certain
restrictions, the common units held by IP are exchangeable into shares of common stock of GPHC or cash.
5
5
The following diagram illustrates the organization of the Company immediately subsequent to the transactions described
above (not including subsidiaries of GPIL):
During 2019 and 2018, GPIP repurchased 20.8 million partnership units from GPI Holding, which increased IP's
ownership interest in GPIP to 21.6% at December 31, 2019. The Company used the proceeds from these repurchases to
repurchase 20.8 million shares of its common stock.
On January 28, 2020, the Company announced that IP notified the Company of its intent to begin the process of reducing
its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million
partnership units from IP for $250 million. As a result, IP’s ownership interest in GPIP decreased from 21.6% to 18.3%.
Unless otherwise negotiated by the parties, IP’s next opportunity to exchange their partnership units is 180 days from the
purchase date and is limited to the lesser of $250 million or 25% of the units owned. IP will have further opportunities to
exchange their partnership units 180 days after each exchange date. The Company may choose to satisfy these exchanges
using shares of its common stock, cash, or a combination thereof.
Acquisitions and Dispositions
Over the past five years, the Company has successfully completed over ten acquisitions and expects to pursue strategic
acquisition opportunities in the future as part of its overall growth strategy.
6
6
2019
On August 1, 2019, the Company acquired substantially all the assets of Artistic Carton Company ("Artistic"), a diversified
producer of folding cartons and CRB. The acquisition included two converting facilities located in Auburn, Indiana and
Elgin, Illinois (included in the Americas Paperboard Packaging reportable segment) and one CRB mill located in White
Pigeon, Michigan (included in the Paperboard Mills reportable segment).
2018
On September 30, 2018,
the Company acquired substantially all the assets of the foodservice business of Letica
Corporation, a subsidiary of RPC Group PLC ("Letica Foodservice"), a producer of paperboard-based cold and hot cups and
cartons. The acquisition included two facilities located in Clarksville, Tennessee and Pittston, Pennsylvania. Letica
Foodservice assets are included in the Americas Paperboard Packaging reportable segment.
On August 31, 2018, the Company sold its previously closed CRB mill site in Santa Clara, California.
On June 12, 2018, the Company acquired substantially all the assets of PFP, LLC and its related entity, PFP Dallas
Converting, LLC (collectively, "PFP"), a converter focused on the production of paperboard based air filter frames. The
acquisition included two facilities located in Lebanon, Tennessee and Lancaster, Texas. PFP assets are included in the
Americas Paperboard Packaging reportable segment.
As mentioned above, on January 1, 2018, the Company completed the NACP Combination. The NACP business produces
SBS paperboard and paper-based foodservice products. The NACP business included two SBS mills located in Augusta,
Georgia and Texarkana, Texas (included in Paperboard Mills reportable segment), three converting facilities in the U.S.
(included in the Americas Paperboard Packaging reportable segment) and one in the United Kingdom ("U.K.") (included in
the Europe Paperboard Packaging reportable segment).
PFP and Letica Foodservice are referred to collectively as the "2018 Acquisitions."
2017
On December 1, 2017, the Company acquired the assets of Seydaco Packaging Corp. and its affiliates, National Carton and
Coating Co., and Groupe Ecco Boites Pliantes Ltée (collectively, "Seydaco"), a folding carton producer focused on the
foodservice, food, personal care, and household goods markets. The acquisition included three folding carton facilities
located in Mississauga, Ontario, St.-Hyacinthe, Québec, and Xenia, Ohio.
On December 1, 2017, the Company closed its coated recycled paperboard mill in Santa Clara, California. This decision
was made as a result of a thorough assessment of the facility's manufacturing capabilities and associated costs in the context
of the Company's overall mill operating capabilities and cost structure.
On October 4, 2017, the Company acquired Norgraft Packaging, S.A. ("Norgraft"), a leading folding carton producer in
Spain focused on the food and household goods markets. The acquisition included two folding carton facilities located in
Miliaño and Requejada, Spain.
On July 10, 2017, the Company acquired substantially all the assets of Carton Craft Corporation and its affiliate, Lithocraft,
Inc. (collectively, "Carton Craft"). The acquisition included two folding carton facilities located in New Albany, Indiana,
focused on the production of paperboard-based air filter frames and folding cartons.
The Seydaco, Norgraft, and Carton Craft transactions are referred to collectively as the "2017 Acquisitions." Seydaco and
Carton Craft are included in the Americas Paperboard Packaging Segment. Norgraft is included in the Europe Paperboard
Packaging Segment.
7
7
Capital Allocation Plan
On January 28, 2019, the Company's board of directors authorized an additional share repurchase program to allow the
Company to purchase up to $500 million of the Company's issued and outstanding shares of common stock through open
market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2019 share repurchase program"). Two
previous $250 million share repurchase programs were authorized on January 10, 2017 and February 4, 2015 (the "2017
share repurchase program" and the "2015 share repurchase program," respectively).
The following presents the Company's share repurchases for the years ended December 31, 2019, 2018, and 2017:
Amount repurchased in millions
2019
2018
2017
Amount
Repurchased
127.9
$
120.0
$
58.4
$
Number of Shares
Repurchased
Average
Price
10,191,257 (a) $
10,566,144
$
4,462,263 (b) $
12.55
11.35
13.08
(a) Includes 7,400,171 shares under the 2017 share repurchase program thereby completing that program.
(b) Includes 1,440,697 shares under the 2015 share repurchase program thereby completing that program.
At December 31, 2019, the Company had approximately $462 million of share repurchase authority remaining under the
2019 share repurchase program.
During 2019 and 2018, the Company paid cash dividends of $88.7 million and $93.1 million, respectively.
Products
The Company reports its results in three reportable segments as follows:
Paperboard Mills includes the nine North American paperboard mills which produce primarily CRB, CUK, and SBS,
which is primarily consumed internally to produce paperboard packaging for the Americas and Europe Paperboard Packaging
segments. The remaining paperboard is sold externally to a wide variety of paperboard packaging converters and brokers.
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"), all 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 in Europe.
The Company operates in three geographic areas: the Americas, Europe and Asia Pacific.
For reportable segment and geographic area information for each of the last three fiscal years, see Note 16 in the Notes to
Consolidated Financial Statements included herein under “Item 8. Financial Statements and Supplementary Data."
Paperboard Packaging
The Company’s paperboard packaging products deliver brand, marketing and performance benefits at a competitive cost.
The Company supplies paperboard cartons, carriers and containers designed to protect and hold products while providing:
• convenience through ease of carrying, storage, delivery, dispensing of product and food preparation for consumers;
• a smooth surface printed with high-resolution, multi-color graphic images that help improve brand awareness and
visibility of products on store shelves; and
• durability, stiffness and wet and dry tear strength; leak, abrasion and heat resistance; barrier protection from moisture,
oxygen, oils and greases, as well as enhanced microwave heating performance.
8
8
The Company provides a wide range of paperboard packaging solutions for the following end-use markets:
• beverage, including beer, soft drinks, energy drinks, teas, water and juices;
• food, including cereal, desserts, frozen, refrigerated and microwavable foods and pet foods;
• prepared food and drinks, including snacks, quick-serve food and drinks for restaurants and food service providers;
• household products, including dishwasher and laundry detergent, health care and beauty aids, and tissues and papers; and
• air filter frames.
The Company’s packaging applications meet the needs of its customers for:
Strength Packaging. The Company's products provide sturdiness to meet a variety of packaging needs, including tear and
wet strength, puncture resistance, durability and compression strength (providing stacking strength to meet store display
packaging requirements).
Promotional Packaging. The Company offers a broad range of promotional packaging options that help differentiate its
customers’ products in the marketplace. These promotional enhancements improve brand awareness and visibility on store
shelves.
Convenience Packaging. These packaging solutions improve package usage and food preparation
• beverage multiple-packaging — multi-packs for beer, soft drinks, energy drinks, teas, water and juices;
• active microwave technologies — substrates that improve the heating and browning of foods in the microwave; and
• easy opening and closing features — dispensing features, pour spouts and sealable liners.
Barrier Packaging. The Company provides packages that protect against moisture, temperature (hot and cold), grease, oil,
oxygen, sunlight, insects and other potential product-damaging factors.
Paperboard Mills and Folding Carton Facilities
The Company produces paperboard at its mills; prints, cuts, folds, and glues (“converts”) the paperboard into folding
cartons and containers at its converting plants; and designs and manufactures specialized, proprietary packaging machines
that package bottles and cans and, to a lesser extent, non-beverage consumer products. The Company also installs its
packaging machines at customer plants and provides support, service and advanced performance monitoring of the machines.
The Company offers a variety of laminated, coated and printed packaging structures that are produced from its CRB, CUK
and SBS mills, as well as other grades of paperboard that are purchased from third-party suppliers.
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Below is the production at each of the Company’s paperboard mills during 2019:
Location
Product
# of Machines
2019 Net Tons
Produced
West Monroe, LA
Macon, GA
Kalamazoo, MI
Battle Creek, MI
Middletown, OH
East Angus, Québec
White Pigeon, MI (a)
Texarkana, TX
Augusta, GA
West Monroe, LA
CUK
CUK
CRB
CRB
CRB
CRB
CRB
SBS
SBS
Corrugated Medium
2
2
2
2
1
1
1
2
2
1
910,759
708,496
493,130
210,673
169,475
97,921
28,025
607,330
583,147
121,929
(a) Indicates net tons produced from August to December.
The Company consumes most of its coated board output in its converting operations, which is an integral part of the
customer value proposition. In 2019, approximately 68% of combined mill sales of CRB, CUK and SBS was consumed
internally.
CRB Production. The Company is the largest North American producer of CRB. CRB is manufactured entirely from
recycled fibers, primarily old corrugated containers (“OCC”), doubled-lined kraft cuttings from corrugated box plants
(“DLK”), old newspapers (“ONP”), and box cuttings. The recycled fibers are re-pulped, formed on paper machines, and clay-
coated to provide an excellent printing surface for superior quality graphics and appearance characteristics.
CUK Production. The Company is the largest of four worldwide producers of CUK. CUK is manufactured from pine-
based wood fiber and is a specialized high-quality grade of coated paperboard with excellent wet and dry tear strength
characteristics and printability for high resolution graphics that make it particularly well-suited for a variety of packaging
applications. Both wood and recycled fibers are pulped, formed on paper machines, and clay-coated to provide an excellent
printing surface for superior quality graphics and appearance characteristics.
SBS Production. The Company is one of the largest North American producers of SBS. SBS is manufactured from
bleached pine and hardwood-based wood fiber and is the highest quality paperboard substrate with excellent wet and dry
strength characteristics and superior printability for high-end packaging. Both wood and recycled fibers are pulped, formed
on paper machines, and clay-coated to provide an excellent printing surface for superior quality graphics and appearance
characteristics. SBS is also coated with polyethylene resin for wet strength liquid and food packaging end uses.
Corrugated Medium. The Company manufactures corrugated medium for internal use and sale in the open market.
Corrugated medium is combined with linerboard to make corrugated containers.
The Company converts CRB, CUK and SBS, as well as other grades of paperboard, into cartons and containers at
converting plants the Company operates in various locations globally, including a converting plant associated with the
Company's joint venture in Japan, contract converters and at licensees outside the U.S. The converting plants print, cut, fold
and glue paperboard into cartons and containers designed to meet customer specifications.
Joint Venture
The Company, through its GPIL subsidiary, is a party to a Japanese joint venture, Rengo Riverwood Packaging, Ltd. in
which it holds a 50% ownership interest. The joint venture agreement covers CUK supply, use of proprietary carton designs
and marketing and distribution of packaging systems.
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Marketing and Distribution
The Company markets its products principally to multinational beverage, food, QSR, and other well-recognized consumer
product companies. The beverage companies include Anheuser-Busch, Inc., MillerCoors LLC, PepsiCo, Inc. and The Coca-
Cola Company, among others. Consumer product customers include Kraft Heinz Company, General Mills, Inc., Nestlé USA,
Inc., Kellogg Company, HAVI Global Solutions, LLC and Kimberly-Clark Corporation, among others. QSR customers
include McDonald's, Wendy's, Panda Express, Dairy Queen, Chipotle, Panera and Kentucky Fried Chicken, among others.
The Company also sells paperboard in the open market to independent and integrated paperboard converters.
Distribution of the Company’s principal products is primarily accomplished through sales offices in the U.S., Australia,
Brazil, China, France, Germany, Italy, Japan, Mexico, Spain, the Netherlands and the United Kingdom, and, to a lesser
degree, through broker arrangements with third parties.
During 2019 and 2018, the Company did not have any one customer that represented 10% or more of its net sales.
Competition
Although a relatively small number of large competitors hold a significant portion of the paperboard packaging market, the
Company’s business is subject to strong competition. The Company and WestRock Company ("WestRock") are the two
major CUK producers in the U.S. Internationally, The Klabin Company in Brazil and Stora Enso in Sweden produce similar
grades of paperboard.
In non-beverage consumer packaging and foodservice, the Company’s paperboard competes with WestRock CUK, as well
as CRB and SBS from numerous competitors, and, internationally, folding boxboard and white-lined chip. There are a large
number of producers in the paperboard markets. Suppliers of paperboard compete primarily on the basis of price, strength and
printability of their paperboard, quality and service.
In beverage packaging, cartons made from CUK compete with substitutes such as plastics and corrugated packaging for
packaging glass or plastic bottles, cans and other primary containers. Although plastics and corrugated packaging may be
priced lower than CUK, the Company believes that cartons made from CUK offer advantages over these materials in areas
such as distribution, brand awareness, carton designs, package performance, package line speed, environmental friendliness
and design flexibility.
Raw Materials
The paperboard packaging produced by the Company comes from pine and hardwood trees and recycled fibers. Pine
pulpwood, hardwood pulp, paper and recycled fibers (including DLK, OCC and ONP) and energy used in the manufacture of
paperboard, as well as poly sheeting, plastic resins and various chemicals used in the coating of paperboard, represent the
largest components of the Company’s variable costs of paperboard production.
For the West Monroe, LA, Macon, GA, Texarkana, TX, and Augusta, GA mills, the Company relies on private
landowners and the open market for all of its pine and hardwood pulp and recycled fiber requirements, supplemented by
clippings that are obtained from its converting operations. The Company believes that adequate supplies from both private
landowners and open market fiber sellers currently are available in close proximity to meet its fiber needs at these mills.
The paperboard grades produced at the Kalamazoo, MI, Battle Creek, MI, Middletown, OH, East Angus, Quebec and
White Pigeon, MI mills are made from 100% recycled fiber. The Company procures its recycled fiber from external suppliers
and internal converting operations. The market price of each of the various recycled fiber grades fluctuates with supply and
demand. The Company’s internal recycled fiber procurement function enables the Company to pay lower prices for its
recycled fiber needs given the Company’s highly fragmented supplier base. The Company believes there are adequate
supplies of recycled fiber to serve its mills.
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In North America, the Company also converts a variety of other paperboard grades, in addition to paperboard that is
supplied to its converting operations from its own mills. The Company purchases such paperboard requirements, including
additional CRB and SBS, from outside vendors. The majority of external paperboard purchases are acquired through long-
term arrangements with other major industry suppliers. The Company's European converting plants consume CUK supplied
from the Company's mills and also convert other paperboard grades such as white-lined chip and folding box board
purchased from external suppliers.
Energy
Energy, including natural gas, fuel oil and electricity, represents a significant portion of the Company’s manufacturing
costs. The Company has entered into contracts designed to manage risks associated with future variability in cash flows and
price risk related to future energy cost increases for a portion of its natural gas requirements at its U.S. mills. The Company’s
hedging program for natural gas is discussed in Note 10 in the Notes to Consolidated Financial Statements included herein
under “Item 8., Financial Statements and Supplementary Data.”
Backlog
Orders from the Company’s principal customers are manufactured and shipped with minimal lead time. The Company did
not have a material amount relating to backlog orders at December 31, 2019 or 2018.
Seasonality
The Company’s net sales, income from operations and cash flows from operations are subject to moderate seasonality,
with demand usually increasing in the late spring through early fall due to increases in demand for beverage and food
products.
Research and Development
The Company’s research and development team works directly with its sales, marketing and consumer insights personnel
to understand long-term consumer and retailer trends and create relevant new packaging. These innovative solutions provide
customers with differentiated packaging to meet customer needs. The Company’s development efforts include, but are not
limited to, extending the shelf life of customers’ products; reducing production and waste costs; enhancing the heat-managing
characteristics of food packaging; improving the sturdiness and compression strength of packaging to meet store display
needs; and refining packaging appearance through new printing techniques and materials.
Sustainability represents one of the strongest trends in the packaging industry and the Company focuses on developing
more sustainable and eco-friendly manufacturing processes and products. The Company’s strategy is to combine
sustainability with innovation to create new packaging solutions for its customers.
For more information on research and development expenses see Note 1 in the Notes to Consolidated Financial
Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
Patents and Trademarks
As of December 31, 2019, the Company had a large patent portfolio, presently owning, controlling or holding rights to
more than 2,400 U.S. and foreign patents, with more than 450 U.S. and foreign patent applications currently pending. The
Company’s patent portfolio consists primarily of patents relating to packaging machinery, manufacturing methods, structural
carton designs, active microwave packaging technology and barrier protection packaging. These patents and processes are
significant to the Company’s operations and are supported by trademarks such as Fridge Vendor™, IntegraPak™, Keel
Clip™, MicroFlex-Q™, MicroRite™, Quilt Wave™, Qwik Crisp™, Tite-Pak™, and Z-Flute™. The Company takes
significant steps to protect its intellectual property and proprietary rights.
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Culture and Employees
The Company’s corporate vision — Inspired packaging. A world of difference. — and values of integrity, respect,
accountability, relationships and teamwork guide employee behavior, expectations and relations. The Company’s ongoing
efforts to build a high-performance culture and improve the manner in which work is done across the Company includes a
significant focus on continuous improvement utilizing processes like Lean Sigma and Six Sigma.
As of December 31, 2019, the Company had approximately 18,000 employees worldwide, of which approximately 41%
were represented by labor unions and covered by collective bargaining agreements or covered by works councils in Europe.
As of December 31, 2019, 422 of the Company’s employees were working under expired contracts, which are currently being
negotiated, and 1,813 were covered under collective bargaining agreements that expire within one year. The Company
considers its employee relations to be satisfactory.
Environmental Matters
The Company is subject to a broad range of foreign, federal, state and local environmental regulations and employs a team
of professionals in order to maintain compliance at each of its facilities. In 2019, the Company spent approximately $7
million of capital on projects to maintain compliance with environmental laws, regulations and the Company’s permits
granted thereunder. In 2020, 2021, and 2022, the Company estimates it will spend approximately $10 million, $25 million
and $35 million, respectively, for such projects, primarily the waste water treatment system upgrades at the Augusta, Georgia
and Texarkana, Texas mills. For additional information on such regulation and compliance, see “Environmental Matters” in
“Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 14 in the Notes
to Consolidated Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
Available Information
The Company’s website is located at http://www.graphicpkg.com. The Company makes available, free of charge through
its website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
soon as reasonably practicable after such materials are electronically filed or furnished to the Securities and Exchange
Commission (the “SEC”). The Company also makes certain investor presentations and access to analyst conference calls
available through its website. The information contained or incorporated into the Company’s website is not a part of this
Annual Report on Form 10-K.
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information
regarding issuers like the Company that file electronically with the SEC at http://www.SEC.gov.
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ITEM 1A.
RISK FACTORS
The following risks could affect (and in some cases have affected) the Company's actual results and could cause such
results to differ materially from estimates or expectations reflected in certain forward-looking statements:
The Company's financial results could be adversely impacted if there are significant increases in prices for raw
materials, energy, transportation and other necessary supplies, and the Company is unable to raise prices, or improve
productivity to reduce costs.
Limitations on the availability of, and increases in, the costs of raw materials, including secondary fiber, petroleum-based
materials, energy, wood, transportation and other necessary goods and services, could have an adverse effect on the
Company's financial results. Because negotiated sales contracts and the market largely determine the pricing for its products,
the Company is at times limited in its ability to raise prices and pass through to its customers any inflationary or other cost
increases that the Company may incur.
The Company uses productivity improvements to reduce costs and offset inflation. These include global continuous
improvement initiatives that use statistical process control to help design and manage many types of activities, including
production and maintenance. The Company's ability to realize anticipated savings from these improvements is subject to
significant operational, economic and competitive uncertainties and contingencies, many of which are beyond the Company's
control. If the Company cannot successfully implement cost savings plans, it may not be able to continue to compete
successfully against other manufacturers. In addition, any failure to generate the anticipated efficiencies and savings could
adversely affect the Company's financial results.
Changes in consumer buying habits and preferences for products could have an effect on our sales volumes.
Changing consumer dietary habits and preferences have slowed sales growth for many of the food and beverage products
the Company packages. If these trends continue, the Company’s financial results could be adversely affected.
Competition and product substitution could have an adverse effect on the Company's financial results.
The Company competes with other paperboard manufacturers and carton converters, both domestically and internationally.
The Company's products compete with those made from other manufacturers' CUK, as well as SBS and CRB, and other
board substrates. Substitute products include plastic, shrink film and corrugated containers. In addition, while the Company
has long-term relationships with many of its customers, the underlying contracts may be re-bid or renegotiated from time to
time, and the Company may not be successful in renewing such contracts on favorable terms or at all. The Company works to
maintain market share through efficiency, product innovations and strategic sourcing to its customers; however, pricing and
other competitive pressures may occasionally result in the loss of a customer relationship.
The Company's future growth and financial results could be adversely impacted if the Company is unable to identify
strategic acquisitions and to successfully integrate the acquired businesses.
The Company has made a significant number of acquisitions in recent years, including the NACP Combination, and
expects to make additional strategic acquisitions in the future as part of its overall growth strategy. The Company's ability to
continue to make strategic acquisitions from time to time and to integrate the acquired businesses successfully, including
obtaining anticipated cost savings or synergies and expected operating results within a reasonable period of time, is an
important factor in the Company's future growth. If the Company is unable to properly estimate, account for and realize the
expected revenue and cash flow growth and other benefits from its acquisitions, the Company may be required to spend
additional time or money on integration efforts that would otherwise have been spent on the development and expansion of
its business.
The Company may not be able to develop and introduce new products and adequately protect its intellectual property
and proprietary rights, which could harm its future success and competitive position.
The Company works to increase market share and profitability through product innovation and the introduction of new
products. The inability to develop new or better products that satisfy customer and consumer preferences in a timely manner
may impact the Company's competitive position.
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14
The Company's future success and competitive position also depends, in part, upon its ability to obtain and maintain
protection for certain proprietary carton and packaging machine technologies used in its value-added products, particularly
those incorporating the Fridge Vendor, IntegraPak, Keel Clip, MicroFlex-Q, MicroRite, Quilt Wave, Qwik Crisp, Tite-Pak,
and Z-Flute technologies. Failure to protect the Company's existing intellectual property rights may result in the loss of
valuable technologies or may require it to license other companies' intellectual property rights. It is possible that any of the
patents owned by the Company may be invalidated, rendered unenforceable, circumvented, challenged or licensed to others
or any of its pending or future patent applications may not be issued within the scope of the claims sought by the Company, if
at all. Further, others may develop technologies that are similar or superior to the Company's technologies, duplicate its
technologies or design around its patents, and steps taken by the Company to protect its technologies may not prevent
misappropriation of such technologies.
The Company's capital spending may not achieve the desired benefits, which could adversely impact future financial
results.
The Company invests significant amounts of cash on capital projects each year which have expected returns to the
Company. The Company's ability to execute on these projects in order to achieve planned outcomes, including obtaining
expected returns and strategic long-term goals within a reasonable period of time, is an important factor in the Company's
financial results and commitments to the market. As these investments start up, the Company may experience unanticipated
business disruptions and not achieve the desired benefits or timelines. In addition, the Company's acquisitions may require
more capital than expected to achieve synergies or expected operating results. Additional spending and unachieved benefits
may adversely affect the Company's cash flow and results of operations.
The Company may face a shortage of a skilled workforce at its facilities.
The Company's ability to maintain or expand its business depends on attracting, training and retaining a skilled workforce.
Changing demographics and workforce trends may result in a loss of knowledge and skills as experienced workers retire.
Failure to attract and retain a skilled workforce may result in operational inefficiencies or require additional capital
investments to reduce reliance on labor, which may adversely impact the Company's results.
The Company could experience material disruptions at our facilities.
Although the Company takes appropriate measures to minimize the risk and effect of material disruptions to the business
conducted at our facilities, natural disasters such as hurricanes, tornadoes, floods and fires, as well as other unexpected
disruptions such as the unavailability of critical raw materials, power outages and equipment failures can reduce production
and increase manufacturing costs. These types of disruptions could materially adversely affect our earnings, depending upon
the duration of the disruption and our ability to shift business to other facilities or find other sources of materials or energy.
Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.
In addition, given the Company's integrated supply chain, managing board supply and properly planning for mill outages and
downtime must be integrated with the converting plants forecast. Any inability to do so could adversely affect the Company's
financial results.
The Company is subject to the risks of doing business in foreign countries.
The Company has converting plants and one paper mill in 11 countries outside of the U.S. and sells its products
worldwide. For 2019, before intercompany eliminations, net sales from operations outside of the U.S. represented
approximately 20% of the Company’s net sales. The Company’s revenues from foreign sales fluctuate with changes in
foreign currency exchange rates. The Company pursues a currency hedging program in order to reduce the impact of foreign
currency exchange fluctuations on financial results. In addition, at December 31, 2019, approximately 17% of the Company's
total assets were denominated in currencies other than the U.S. dollar.
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15
The Company is also subject to the following significant risks associated with operating in foreign countries:
•
•
•
•
Compliance with and enforcement of environmental, health and safety and labor laws and other regulations
of the foreign countries in which the Company operates;
Export compliance;
Imposition or increase of withholding and other taxes on remittances and other payments by foreign
subsidiaries; and
Imposition of new or increases in capital investment requirements and other financing requirements by
foreign governments.
In addition to these general risks, uncertainties surrounding the United Kingdom’s pending withdrawal from the European
Union (commonly referred to as “Brexit”) could adversely affect our U.K. business, including potentially the Company's
relationships with customers, suppliers and employees. The effects of Brexit will depend on the agreements, if any, the U.K.
makes to retain access to European markets either during a transition period or more permanently.
The Company’s information technology systems could suffer interruptions, failures or breaches and our business
operations could be disrupted adversely affecting results of operations and the Company’s reputation.
The Company’s information technology systems, some of which are dependent on services provided by third parties, serve
an important role in the operation of the business. These systems could be damaged or cease to function properly due to any
number of causes, such as catastrophic events, power outages, security breaches, computer viruses or cyber-based attacks.
The Company has contingency plans in place to prevent or mitigate the impact of these events, however, if they are not
effective on a timely basis, business interruptions could occur which may adversely impact results of operations.
The Company has been, and likely will continue to be, subject to computer hacking, acts of vandalism or theft, malware,
computer viruses or other malicious codes, phishing, employee error or malfeasance, catastrophes, unforeseen events or other
cyber-attacks. To date, the Company has seen no material impact on our business or operations from these attacks or events.
Any future significant compromise or breach of data security, whether external or internal, or misuse of customer, associate,
supplier or Company data, could result in significant costs, lost sales, fines, lawsuits, and damage to the Company's
reputation. However, the ever-evolving threats mean the Company and its third-party service providers and vendors must
continually evaluate and adapt their respective systems and processes and overall security environment, as well as those of
any companies acquired. There is no guarantee that these measures will be adequate to safeguard against all data security
breaches, system compromises or misuses of data. In addition, as the regulatory environment related to information security,
data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements
applicable to the Company's business. Compliance with such requirements could also result in additional costs.
The Company is subject to environmental, health and safety laws and regulations, and costs to comply with such laws
and regulations, or any liability or obligation imposed under new laws or regulations, could negatively impact its
financial condition and results of operations.
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, the investigation and remediation of contamination resulting from releases of hazardous substances, and the
health and safety of employees. The Company cannot currently assess the impact that future emission standards, climate
control initiatives and enforcement practices will have on the Company's operations and capital expenditure requirements.
Environmental liabilities and obligations may result in significant costs, which could negatively impact the Company's
financial position, results of operations or cash flows. See Note 14 in the Notes to Consolidated Financial Statements
included herein under “Item 8., Financial Statements and Supplementary Data.”
The Company's indebtedness may adversely affect its financial condition and its ability to react to changes in its
business.
As of December 31, 2019, the Company had an aggregate principal amount of $2,872.8 million of outstanding debt.
Because of the Company's debt level, a portion of its cash flows from operations is dedicated to payments on indebtedness
and the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions or general
corporate purposes may be restricted in the future.
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16
Additionally, the Company’s Amended and Restated Credit Agreement, Term Loan Credit Agreement and the indentures
governing the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022, 4.125% Senior Notes due 2024 and 4.75%
Senior Notes due 2027 (the “Indentures”) may prohibit or restrict, among other things, the disposal of assets, the incurrence
of additional indebtedness (including guarantees), the incurrence of liens, payment of dividends, share repurchases, the
making of acquisitions and other investments and certain other types of transactions. These restrictions could limit the
Company’s flexibility to respond to changing market conditions and competitive pressures. The debt obligations and
restrictions may also leave the Company more vulnerable to a downturn in general economic conditions or its business, or
unable to carry out capital expenditures that are necessary or important to its growth strategy and productivity improvement
programs.
As of December 31, 2019, approximately 34% of the Company’s debt is subject to variable rates of interest and exposes
the Company to increased debt service obligations in the event of increased market interest rates.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Headquarters
The Company leases its principal executive offices in Atlanta, GA.
Operating Facilities
A listing of the principal properties owned or leased and operated by the Company is set forth below. The Company’s
buildings are adequate and suitable for the business of the Company and have sufficient capacity to meet current
requirements. The Company also leases certain smaller facilities, warehouses and office space throughout the U.S. and in
foreign countries from time to time.
Location
Mills:
Augusta, GA
Battle Creek, MI
East Angus, Québec
Kalamazoo, MI
Macon, GA
Middletown, OH
Texarkana, TX
West Monroe, LA
White Pigeon, MI
Other:
Atlanta, GA(a)
Concord, NH(a)
Crosby, MN
Louisville, CO(a)
Menomonee Falls, WI
Related Products or Use of Facility
SBS
CRB
CRB
CRB
CUK
CRB
SBS
CUK; Corrugated Medium; Research and Development
CRB
Headquarters, Research and Development, Packaging Machinery and Design
Research and Development, Design Center
Packaging Machinery Engineering, Design and Manufacturing
Research and Development
Foodservice Rebuild Center
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International Converting Plants:
Auckland, New Zealand(a)
Bremen, Germany(a)
Bristol, United Kingdom
Coalville, United Kingdom(a)
Gateshead, United Kingdom(a)
Hoogerheide, Netherlands
Newcastle Upon Tyne, United Kingdom(a)
Igualada, Spain
Jundiai, Sao Paulo, Brazil
Leeds, United Kingdom
Masnieres, France(a)
Melbourne, Australia(a)
Miliaño, Spain
Portlaoise, Ireland(a)
Requejada, Spain
Sneek, Netherlands
Sydney, Australia(a)
Winsford, United Kingdom (a)
North American
Converting Plants:
Atlanta, GA(a)
Auburn, IN
Carol Stream, IL
Centralia, IL
Charlotte, NC
Clarksville, TN
Cobourg, Ontario(a)
Elgin, IL
Elk Grove, IL(a)(b)
Fort Smith, AR(b)
Gordonsville, TN(a)
Gresham, OR(a)
Hamel, MN
Irvine, CA
Kalamazoo, MI
Kendallville, IN
Kenton, OH
Lancaster, TX
Lawrenceburg, TN
Lebanon, TN (a)
Lumberton, NC
Marion, OH
Mississauga, Ontario(a)(b)
Mitchell, SD
Monroe, LA (a)
Monterrey, Mexico(a)
New Albany, IN(b)
Newton, IA
North Portland, OR
Oroville, CA(a)
Pacific, MO
Perry, GA
Pittston, PA
Prosperity, SC
Queretaro, Mexico(a)
Shelbyville, IL
Solon, OH
Staunton, VA
St.-Hyacinthe, Québec(a)
Tijuana, Mexico(a)
Tuscaloosa, AL
Vancouver, WA(a)
Valley Forge, PA
Visalia, CA
Wayne, NJ
Wausau, WI
West Monroe, LA(b)
Xenia, OH(a)
Winnipeg, Manitoba
Note:
(a) Leased facility.
(b) Multiple facilities in this location.
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ITEM 3.
LEGAL PROCEEDINGS
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. See
Note 14 in the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and
Supplementary Data.”
ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G.(3) of Form 10-K, the following list is included as an unnumbered item in Part I of this
Report in lieu of being included in the definitive proxy statement that will be filed within 120 days after December 31, 2019.
Michael P. Doss, 53, is the President and Chief Executive Officer of Graphic Packaging Holding Company. Prior to
January 1, 2016, Mr. Doss held the position of President and Chief Operating Officer from May 20, 2015 through December
31, 2015 and Chief Operating Officer from January 1, 2014 until May 19, 2015. Prior to these positions he served as the
Executive Vice President, Commercial Operations of Graphic Packaging Holding Company. Prior to this Mr. Doss held the
position of Senior Vice President, Consumer Packaging Division. Prior to March 2008, he had served as Senior Vice
President, Consumer Products Packaging of Graphic Packaging Corporation since September 2006. From July 2000 until
September 2006, he was the Vice President of Operations, Universal Packaging Division. Mr. Doss was Director of Web
Systems for the Universal Packaging Division prior to his promotion to Vice President of Operations. Since joining Graphic
Packaging International Corporation in 1990, Mr. Doss has held positions of increasing management responsibility, including
Plant Manager at the Gordonsville, TN and Wausau, WI plants.
Stephen R. Scherger, 55, is the Executive Vice President and Chief Financial Officer of Graphic Packaging Holding
Company. From October 1, 2014 through December 31, 2014, Mr. Scherger was the Senior Vice President – Finance. From
April 2012 through September 2014, Mr. Scherger served as Senior Vice President, Consumer Packaging Division. Mr.
Scherger joined Graphic Packaging Holding Company in April of 2012 from MeadWestvaco Corporation, where he served as
President, Beverage and Consumer Electronics. Mr. Scherger was with MeadWestvaco Corporation from 1986 to 2012 and
held positions including Vice President, Corporate Strategy; Vice President and General Manager, Beverage Packaging; Vice
President and Chief Financial Officer, Papers Group, Vice President Asia Pacific and Latin America, Beverage Packaging,
Chief Financial Officer Beverage Packaging and other executive-level positions.
Michael Farrell, 53, became the Executive Vice President, Mills Division of Graphic Packaging Holding Company in
September 2018. Prior to that, he served as the Senior Vice President, Supply Chain from January to September 2018. Prior
to January 2018, Mr. Farrell served as Vice President, Recycled Board Mills of Graphic Packaging International, LLC and its
predecessor companies (“GPI”) from January 1, 2013; and Senior Manufacturing Manager of GPI from October 28, 2009
until December 31, 2012. From December 11, 2008 until October 27, 2009, Mr. Farrell was the Manufacturing Manager of
the West Monroe, Louisiana mill and from September 1, 2006 until December 10, 2008 he was the General Manager of the
Middletown, Ohio mill of GPI.
Lauren S. Tashma, 53, is the Executive Vice President, General Counsel and Secretary of Graphic Packaging Holding
Company. She joined the Company in February 2014. Previously, Ms. Tashma served as Senior Vice President, General
Counsel and Secretary of Fortune Brands Home & Security, Inc., where she led the legal, compliance and EHS functions.
Prior to that, Ms. Tashma had various roles with Fortune Brands, Inc., including Vice President and Associate General
Counsel.
Stacey Valy Panayiotou, 47, is the Executive Vice President, Human Resources of Graphic Packaging Holding Company.
She joined the Company on April 22, 2019 from The Coca-Cola Company, where she held a variety of senior HR leadership
roles, including Global Vice President of Talent and Development and Vice President, HR, Europe, Middle East & Africa,
which consisted of over 120 countries. Prior to her global talent position, Ms. Panayiotou served as Vice President of Talent
and Development, Organizational Effectiveness and Diversity and Inclusion and Learning for the Coca-Cola North America
Group. Prior to that, she was Vice President of HR for the West business unit of Coca-Cola Enterprises, Inc. (CCE) and
worked in corporate HR with The Coca-Cola Company. She also led the organization development function for Pactiv
Corporation. Ms. Panayiotou was with The Coca-Cola Company from February 2006 through April 2019.
20
20
Hilde Van Moeseke, 49, is the Senior Vice President, Finance Americas, effective January 1, 2020, of Graphic Packaging
Holding Company. From July 2017 to December 2019, Ms. Van Moeseke served as an executive officer as Senior Vice
President and President, Europe, Middle East and Africa of Graphic Packaging Holding Company. From January 2017 to
July 1, 2017, Ms. Van Moeseke served as Vice President, Finance Europe and Interim EMEA Leader of Graphic Packaging
International, Inc. From July 2015 until January 2017, Ms. Van Moeseke was the Vice President, Finance Europe of Graphic
Packaging International, Inc. Ms. Van Moeseke joined the Company in January 2014 as Director Controlling and was
promoted to Director, Finance Europe in July 2014. Prior to January 2014, Ms. Van Moeseke held the position of Group
Controller, Project Management, Shared Service Center and Accounting at Azelis Corporate Services S.A. for two years. She
has also worked for the Walt Disney Company in Europe for six years in the positions of Director Finance and
Controllership, Director Regional Studio Controllership, Regional Studio Controllership and Senior Manager. Ms. Van
Moeseke has also served as a member of the Board of Directors for the European Carton Makers Association since
September 2018.
Joseph P. Yost, 52, is the Executive Vice President, and President, Americas of Graphic Packaging Holding Company.
Prior to January 5, 2017, Mr. Yost served as Senior Vice President, Global Beverage and Europe from September 1, 2015 to
January 4, 2017, Senior Vice President, Europe from March 1, 2014 to August 31, 2015 and Senior Vice President, European
Chief Integration Officer/Chief Financial Officer from February 2013 until February 2014. From 2009 until February 2013,
Mr. Yost was the Senior Vice President, Supply Chain of Graphic Packaging Holding Company. From 2006 to 2009, he
served as Vice President, Operations Support – Consumer Packaging for Graphic Packaging International, Inc. Mr. Yost has
also served in the following positions: Director, Finance and Centralized Services from 2003 to 2006 with Graphic Packaging
International, Inc. and from 2000 to 2003 with Graphic Packaging Corporation; Manager, Operations Planning and Analysis
– Consumer Products Division from 1999 to 2000 with Graphic Packaging Corporation; and other management positions
from 1997 to 1999 with Fort James Corporation.
21
21
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
GPHC’s common stock is traded on the New York Stock Exchange under the symbol “GPK.” The historical range of the
high and low sales price per share and dividend per share declared in each quarter of 2019 and 2018 are as follows:
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Common Stock Market
Price
High
Low
Dividends
Declared
$
13.19
$
10.54
$
14.34
15.43
16.95
16.74
16.61
15.22
14.15
$
12.41
12.62
14.06
14.33
13.61
13.71
10.04
$
$
0.075
0.075
0.075
0.075
0.075
0.075
0.075
0.075
During 2019 and 2018, GPHC paid cash dividends of $88.7 million and $93.1 million, respectively.
The following presents the Company's share repurchases for the years ended December 31, 2019, 2018, and 2017:
Amount repurchased in millions
2019
2018
2017
Amount
Repurchased
Number of Shares
Repurchased
Average
Price
$
$
$
127.9
120.0
58.4
10,191,257 (a) $
10,566,144
$
4,462,263 (b) $
12.55
11.35
13.08
(a) Includes 7,400,171 shares repurchased under the 2017 share repurchase program, thereby completing that program.
(b) Includes 1,440,697 shares repurchased under the 2015 share repurchase program, thereby completing that program.
During the fourth quarter of 2019, the Company did not repurchase any shares of its common stock. At December 31,
2019, the Company had approximately $462 million of share repurchase authority remaining under the 2019 share repurchase
program.
On June 25, 2019, GPIL completed a private offering of $300 million aggregate principal amount of its 4.75% senior
unsecured notes due 2027 (the "Senior Notes"). The Senior Notes were sold in a private placement in reliance on Rule 144A
and Regulation S under the Securities Exchange Act, as amended. The offering was completed pursuant to a purchase
agreement between the Company, GPIL and Field Container Queretaro (USA), L.L.C. and BofA Securities, Inc. as
representative of the initial purchasers. The Company received net proceeds of the offering of approximately $295 million,
after deducting the initial purchasers' discount and other transaction costs. The net proceeds of the offering were used to repay
a portion of the outstanding borrowings under GPIL's revolving credit facility under its senior secured credit facility.
On February 4, 2020, there were 1,133 stockholders of record and approximately 36,849 beneficial holders of GPHC's
common stock.
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22
Total Return to Stockholders
The following graph compares the total returns (assuming reinvestment of dividends) of the common stock of Graphic
Packaging Holding Company, the Standard & Poor’s (“S&P”) 500 Stock Index and the Dow Jones (“DJ”) U.S. Container &
Packaging Index. The graph assumes $100 invested on December 31, 2014 in GPHC’s common stock and each of the
indices. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/14
12/15
12/16
12/17
12/18
12/19
Period Ending
Graphic Packaging Holding Company
S&P 500 Stock Index
Dow Jones U.S. Container & Packaging Index
Graphic Packaging Holding Company
S&P 500 Stock Index
Dow Jones U.S. Container & Packaging Index
$ 100.00
100.00
100.00
$
95.57
101.38
95.69
$
94.58
113.51
113.93
$ 119.71
138.29
135.60
$
84.28
132.23
110.58
$ 134.71
173.86
142.19
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
23
23
ITEM 6.
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in conjunction with “Item 7., Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements of the
Company and the Notes to Consolidated Financial Statements included herein under “Item 8., Financial Statements and
Supplementary Data.”
In millions, except per share amounts
Statement of Operations Data:
Net Sales
Income from Operations
Net Income
Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Graphic Packaging Holding
Company
Net Income Attributable to Graphic Packaging Holding
Company Per Share Basis:
Basic
Diluted
Balance Sheet Data:
(as of period end)
Cash and Cash Equivalents
Total Assets
Total Debt
Total Equity
2019
2018
2017
2016
2015
Year Ended December 31,
$ 6,160.1 $ 6,029.4 $ 4,405.6 $ 4,301.0 $ 4,163.4
534.1
278.1
(71.3)
458.2
294.0
(72.9)
327.9
300.2
—
407.4
228.0
—
430.1
230.1
—
206.8
221.1
300.2
228.0
230.1
$
$
0.70 $
0.70 $
0.71 $
0.71 $
0.97 $
0.96 $
0.71 $
0.71 $
0.70
0.70
$
152.9 $
70.5 $
67.4 $
59.1 $
54.9
7,289.9
2,860.3
2,058.0
7,059.2
2,957.1
2,018.5
4,863.0
2,274.5
1,291.9
4,603.4
2,151.9
1,056.5
4,256.1
1,875.5
1,101.7
Additional Data:
Depreciation and Amortization
Capital Spending, including Packaging Machinery
Dividends Declared per Share
$
447.2 $
430.6 $
330.3 $
299.3 $
352.9
0.30
395.2
0.30
260.1
0.30
294.6
0.225
280.5
244.1
0.20
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24
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This management’s discussion and analysis of financial conditions and results of operations is intended to provide
investors with an understanding of the Company’s past performance, financial condition and prospects. The following will be
discussed and analyzed:
Overview of Business
Overview of 2019 Results
Results of Operations
Financial Condition, Liquidity and Capital Resources
Critical Accounting Policies
New Accounting Standards
Business Outlook
OVERVIEW OF BUSINESS
The Company’s objective is to strengthen its position as a leading provider of paper-based packaging solutions. To achieve
this objective, the Company offers customers its paperboard, cartons, cups, lids, foodservice containers and packaging
machines, either as an integrated solution or separately. Cartons, carriers and containers are designed to protect and hold
products. Product offerings include a variety of laminated, coated and printed packaging structures that are produced from the
Company’s CRB, CUK, and SBS. Innovative designs and combinations of paperboard, films, foils, metallization,
holographics and embossing are customized to the individual needs of the customers.
The Company is implementing strategies (i) to expand market share in its current markets and to identify and penetrate
new markets; (ii) to capitalize on the Company’s customer relationships, business competencies, and mills and folding carton
assets; (iii) to develop and market innovative, sustainable products and applications that benefit from the consumer-led
sustainability trends; and (iv) to continue to reduce costs by focusing on operational improvements. The Company’s ability to
fully implement its strategies and achieve its objectives may be influenced by a variety of factors, many of which are beyond
its control, such as inflation of raw material and other costs, which the Company cannot always pass through to its customers,
and the effect of overcapacity in the worldwide paperboard packaging industry.
Significant Factors That Impact the Company’s Business and Results of Operations
Impact of Inflation/Deflation. The Company’s cost of sales consists primarily of energy (including natural gas, fuel oil and
electricity), pine and hardwood fiber, chemicals, secondary fibers, purchased paperboard, aluminum foil, ink, plastic films
and resins, depreciation expense and labor. Costs increased year over year by $79.1 million in 2019 and increased year over
year by $73.6 million in 2018. The higher costs in 2019 were due to labor and benefit costs ($40.4 million), wood ($39.6
million), external board ($12.1 million), partially offset by lower secondary fiber cost ($10.5 million), and other costs, net
($2.5 million).
Because the price of natural gas experiences significant volatility, the Company has entered into contracts designed to
manage risks associated with future variability in cash flows caused by changes in the price of natural gas. The Company has
entered into natural gas swap contracts to hedge prices for a portion of its expected usage for 2020 and 2021. Since negotiated
sales contracts and the market largely determine the pricing for its products, the Company is at times limited in its ability to
raise prices and pass through to its customers any inflationary or other cost increases that the Company may incur.
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25
Commitment to Cost Reduction. In light of continuing margin pressure throughout the packaging industry, the Company
has programs in place that are designed to reduce costs, improve productivity and increase profitability. The Company
utilizes a global continuous improvement initiative that uses statistical process control to help design and manage many types
of activities, including production and maintenance. This includes a Six Sigma process focused on reducing variable and
fixed manufacturing and administrative costs. The Company has expanded the continuous improvement initiative to include
the deployment of Lean Sigma principles into manufacturing and supply chain services.
The Company’s ability to continue to successfully implement its business strategies and to realize anticipated savings and
operating efficiencies is subject to significant business, economic and competitive uncertainties and contingencies, many of
which are beyond the Company’s control. If the Company cannot successfully implement the strategic cost reductions or
other cost savings plans it may not be able to continue to compete successfully against other manufacturers. In addition, any
failure to generate the anticipated efficiencies and savings could adversely affect the Company’s financial results.
Competition and Market Factors. As some products can be packaged in different types of materials, the Company’s sales
are affected by competition from other manufacturers’ CRB, CUK, SBS, folding box board, and recycled clay-coated news.
Additional substitute products also include plastic, shrink film and corrugated containers. In addition, while the Company has
long-term relationships with many of its customers, the underlying contracts may be re-bid or renegotiated from time to time,
and the Company may not be successful in renewing on favorable terms or at all. The Company works to maintain market
share through efficiency, product innovation and strategic sourcing to its customers; however, pricing and other competitive
pressures may occasionally result in the loss of a customer relationship.
In addition, the Company’s sales historically are driven by consumer buying habits in the markets its customers serve.
Changes in consumer dietary habits and preferences, increases in the costs of living, unemployment rates, access to credit
markets, as well as other macroeconomic factors, may negatively affect consumer spending behavior. New product
introductions and promotional activity by the Company’s customers and the Company’s introduction of new packaging
products also impact its sales.
Debt Obligations. The Company had an aggregate principal amount of $2,872.8 million of outstanding debt obligations as
of December 31, 2019. This debt has consequences for the Company, as it requires a portion of cash flow from operations to
be used for the payment of principal and interest, exposes the Company to the risk of increased interest rates and may restrict
the Company’s ability to obtain additional financing. Covenants in the Company’s Amended and Restated Credit Agreement,
the Term Loan Credit Agreement and 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, make other restricted
payments and make acquisitions or other investments. The Amended and Restated Credit Agreement and the Term Loan
Credit Agreement also require compliance with a maximum consolidated leverage ratio and a minimum consolidated interest
coverage ratio. The Company’s ability to comply in future periods with the financial covenants will depend on its ongoing
financial and operating performance, which in turn will be subject to many other factors, many of which are beyond the
Company’s control. See “Covenant Restrictions” in “Financial Condition, Liquidity and Capital Resources” for additional
information regarding the Company’s debt obligations.
The debt and the restrictions under the Amended and Restated Credit Agreement, the Term Loan Credit Agreement and
the Indentures could limit the Company’s flexibility to respond to changing market conditions and competitive pressures. The
outstanding debt obligations and the restrictions may also leave the Company more vulnerable to a downturn in general
economic conditions or its business, or unable to carry out capital expenditures that are necessary or important to its growth
strategy and productivity improvement programs.
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26
OVERVIEW OF RESULTS
This management’s discussion and analysis contains an analysis of Net Sales, Income from Operations and other
information relevant to an understanding of the Company's results of operations. On a consolidated basis:
• Net Sales in 2019 increased by $130.7 million or 2.2%, to $6,160.1 million from $6,029.4 million in 2018 due to higher
selling prices and the Artistic and 2018 Acquisitions discussed below, partially offset by unfavorable foreign currency
exchange rates.
• Income from Operations in 2019 increased by $75.9 million or 16.6%, to $534.1 million from $458.2 million in 2018
due to the higher selling prices, cost savings through continuous improvement programs, benefits from completed
capital projects, and the Augusta, Georgia mill outage in 2018. These increases were partially offset by higher inflation,
start-up costs associated with the Monroe, Louisiana folding carton facility, the gain on the sale of Santa Clara in 2018,
increased incentive costs and unfavorable foreign currency exchange rates.
Acquisitions and Dispositions
• On August 1, 2019, the Company acquired substantially all the assets of Artistic, a diversified producer of folding
cartons and CRB. The acquisition included two converting facilities located in Auburn, Indiana and Elgin, Illinois
(included in the Americas Paperboard Packaging reportable segment) and one CRB mill located in White Pigeon,
Michigan (included in the Paperboard Mills reportable segment).
• During 2018, the Company completed the NACP Combination and the 2018 Acquisitions which included PFP and
Letica Foodservice, and sold its previously closed CRB mill site in Santa Clara, California.
• During 2017, the Company completed the 2017 Acquisitions which included Seydaco, Norgraft and Carton Craft.
Capital Allocations
• During 2019, the Company repurchased 10.2 million shares of its outstanding common stock, or approximately $127.9
million, at an average price of $12.55 per share. At December 31, 2019, the Company had approximately $462 million
available for additional repurchases under the 2019 share repurchase program.
• During 2019, GPHC declared cash dividends of $87.7 million and paid cash dividends of $88.7 million.
RESULTS OF OPERATIONS
In millions
Net Sales
Income from Operations
Nonoperating Pension and Postretirement Benefit (Expense) Income
Interest Expense, Net
Loss on Modification or Extinguishment of Debt
Income before Income Taxes and Equity Income of Unconsolidated Entity
Income Tax (Expense) Benefit
Income before Equity Income of Unconsolidated Entity
Equity Income of Unconsolidated Entity
Net Income
Year Ended December 31,
2019
2018
2017
6,160.1 $
534.1 $
(39.5)
(140.6)
—
354.0 $
(76.3)
277.7 $
0.4
278.1 $
6,029.4 $
458.2 $
14.9
(123.7)
(1.9)
347.5 $
(54.7)
292.8 $
1.2
294.0 $
4,405.6
327.9
14.8
(89.7)
—
253.0
45.5
298.5
1.7
300.2
$
$
$
$
$
27
27
2019 COMPARED WITH 2018
Net Sales
The components of the change in Net Sales are as follows:
Year Ended December 31,
Variances
In millions
Consolidated
2018
Price
Volume/Mix
Foreign
Exchange
2019
Increase
Percent
Change
$
6,029.4 $ 131.2 $
50.2 $
(50.7) $ 6,160.1 $
130.7
2.2 %
The Company's Net Sales in 2019 increased by $130.7 million or 2.2%, to $6,160.1 million from $6,029.4 million for the
same period in 2018, due to higher selling prices and Net Sales of approximately $115 million from the Artistic and 2018
Acquisitions. These increases were partially offset by modestly lower converting volumes in the first half of the year and
unfavorable foreign currency exchange rates, primarily the Euro, British Pound and Australian dollar. The higher selling
prices are the results of announced price increases which benefit from inflationary pass throughs in the converting business as
well as open market sales. Core converting volumes were down, in dry and frozen foods and dairy products, partially offset
by higher global beverage volumes and new product introductions.
Income from Operations
The components of the change in Income from Operations are as follows:
Year Ended December 31,
Variances
In millions
2018
Price
Volume/
Mix
Inflation
2019
Increase
Percent
Change
16.6 %
Consolidated
(a) Includes the Company's cost reduction initiatives, expenses related to acquisitions and integration activities, exit activities,
$458.2 $ 131.2 $ (31.2) $ (79.1) $
61.2 $534.1 $
75.9
gain on sale of assets and shutdown and other special charges.
The Company's Income from Operations for 2019 increased $75.9 million or 16.6%, to $534.1 million from $458.2
million for the same period in 2018 due to the higher selling prices, cost savings through continuous improvement programs,
the Augusta, Georgia mill outage in 2018 (approximately $52 million), and benefits from completed capital projects and
synergies. These increases were partially offset by higher inflation, product mix, the gain on the sale of the Santa Clara mill
site in 2018, costs to dispose of idle and abandoned assets, costs associated with exit activities, start-up costs associated with
the Monroe, Louisiana folding carton facility, increased incentive costs and unfavorable foreign currency exchange rates.
Inflation for 2019 increased due to labor and benefit costs ($40.4 million), wood ($39.6 million), external board ($12.1
million), partially offset by lower secondary fiber cost ($10.5 million), and other costs, net ($2.5 million).
Nonoperating Pension and Postretirement Benefit
Nonoperating Pension and Postretirement Benefit was an expense of $39.5 million in 2019 versus income of $14.9 million
in 2018. The increase in expense was due to a settlement charge of $39.2 million associated with lump sum payments, as well
as lower expected return on assets and higher interest costs.
Interest Expense, Net
Interest Expense, Net increased by $16.9 million to $140.6 million in 2019 from $123.7 million in 2018. Interest Expense,
Net increased due primarily to higher average debt balances slightly offset by lower average interest rates as compared to the
prior year. As of December 31, 2019, approximately 34% of the Company’s total debt was subject to floating interest rates.
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28
Foreign
Exchange Other (a)
(6.2) $
Income Tax Expense
During 2019, the Company recognized Income Tax Expense of $76.3 million on Income before Income Taxes and Equity
Income of Unconsolidated Entity of $354.0 million. During 2018, the Company recognized Income Tax Expense of $54.7
million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $347.5 million. The effective tax
rate for 2019 is 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 2019,
the Company recorded discrete expense of $4.8 million for a valuation allowance against the net deferred tax assets of the
Company’s subsidiary in Australia. The effective tax rate in 2019 is higher than the effective tax rate in 2018 primarily due to
the valuation allowance as compared to 2018. During 2018, the Company released its valuation allowance against the net
deferred tax assets of its French subsidiary and recorded discrete benefits related to the true up of the effects of the Tax Cuts
and Jobs Act enacted in 2017.
The Company has available net operating losses ("NOLs") of approximately $32 million for U.S. federal income tax
purposes which may be used to offset future taxable income. Based on these NOLs, other tax attributes, tax benefits
associated with planned capital projects, and the anticipated reduction in International Paper's investment in GPIP, the
Company does not expect to be a meaningful U.S. federal cash taxpayer until 2024.
Equity Income of Unconsolidated Entity
Equity Income of Unconsolidated Entity was $0.4 million in 2019 and $1.2 million in 2018 and is related to the
Company’s equity investment through its GPIL subsidiary, in the joint venture, Rengo Riverwood Packaging, Ltd.
2018 COMPARED WITH 2017
Net Sales
The components of the change in Net Sales are as follows:
Year Ended December 31,
Variances
In millions
Consolidated
2017
Price
Volume/Mix
Foreign
Exchange
2018
Increase
Percent
Change
$ 4,405.6 $
52.9 $ 1,551.8 $
19.1 $ 6,029.4 $ 1,623.8
36.9 %
The Company’s Net Sales in 2018 increased by $1,623.8 million, or 36.9% to $6,029.4 million from $4,405.6 million in
2017 due to Net Sales of $1,547.9 million from the NACP Combination and the 2017 Acquisitions and the 2018
Acquisitions, higher selling prices and favorable currency exchange rates, primarily the Euro and the British Pound. These
increases were offset by lower open market volumes as the Company internalized more paperboard due to the shutdown of
the Santa Clara mill site in the fourth quarter of 2017. Core volumes were stable due to new product introductions offset by
lower beverage volumes. The higher selling prices are the result of announced price increases which benefit open market
sales as well as inflationary pass throughs in the converting businesses.
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29
Income from Operations
The components of the change in Income from Operations are as follows:
Year Ended December 31,
Variances
In millions
2017
Price
Volume/
Mix(a)
Inflation
Foreign
Exchange Other(b)
2018
Increase
Percent
Change
Consolidated
39.7 %
(a) Includes expenses related to the Augusta, Georgia mill outage and inflation for the NACP Combination of approximately
1.5 $ 111.3 $ 458.2 $
38.2 $ (73.6) $
$ 327.9 $
52.9 $
130.3
$26 million.
(b) Includes the Company's cost reduction initiatives and expenses related to business combinations, gain on sale of assets,
and shutdown and other special charges.
The Company's Income from Operations for 2018 increased $130.3 million or 39.7%, to $458.2 million from $327.9
million for the same period in 2017 due to the NACP Combination, the 2017 Acquisitions and the 2018 Acquisitions, the
higher selling prices, a gain of $37.1 million from the sale of the Santa Clara mill, cost savings through continuous
improvement and other programs and the impact related to planned downtime taken in 2017 to upgrade a paper machine in
West Monroe, Louisiana. These increases were partially offset by inflation, the Augusta, Georgia mill outage (approximately
$52 million), expenses related to the NACP Combination and integration activities and higher incentive compensation costs.
Inflation for 2018 increased due to freight ($25.9 million), labor and benefit costs ($20.9 million), chemicals ($19.4 million),
external board ($17.7 million), and other costs, net ($4.2 million), partially offset by lower secondary fiber cost ($14.5
million).
Interest Expense, Net
Interest Expense, Net increased by $34.0 million to $123.7 million in 2018 from $89.7 million in 2017. Interest Expense,
Net increased due primarily to higher average debt balances and interest rates as compared to the prior year. As of December
31, 2018, approximately 41% of the Company's total debt was subject to floating interest rates.
Income Tax Expense
During 2018, the Company recognized Income Tax Expense of $54.7 million on Income before Income Taxes and Equity
Income of Unconsolidated Entity of $347.5 million. During 2017, the Company recognized Income Tax Benefit of $45.5
million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $253.0 million. The effective tax
rate for 2018 is lower than the statutory rate primarily due to the tax effect of domestic income attributable to noncontrolling
interests as well as the mix and levels of earnings between foreign and domestic tax jurisdictions. In addition, during 2018,
the Company recorded discrete benefits of approximately $4 million, $11 million and $2 million associated with the indirect
impacts of the NACP Combination, an adjustment due to the estimated tax effects of the Tax Cuts and Jobs Act (the “Act”)
and the release of a valuation allowance against the net deferred tax assets of the Company’s wholly-owned subsidiary in
France, respectively.
Equity Income of Unconsolidated Entity
Equity Income of Unconsolidated Entity was $1.2 million in 2018 and $1.7 million in 2017 and is related to the
Company’s equity investment through its GPIL subsidiary in the joint venture, Rengo Riverwood Packaging, Ltd.
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30
Segment Reporting
The Company has three reportable segments as follows:
Paperboard Mills includes the nine North American paperboard mills which produce primarily CRB, CUK, and SBS,
which is primarily consumed internally to produce paperboard packaging for the Americas and Europe Paperboard 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 folding cartons and cups, lids, and food containers sold
primarily to consumer packaged goods, quick-service restaurants and foodservice companies serving the food, beverage, and
consumer product markets in the Americas.
Europe Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to consumer
packaged goods companies serving the food, beverage and consumer product markets 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 in Note 1 in the Notes to Consolidated Financial Statements included herein under “Item 8. Financial Statements
and Supplementary Data."
In millions
NET SALES:
Paperboard Mills
Americas Paperboard Packaging
Europe Paperboard Packaging
Corporate/Other/Eliminations(a)
Total
INCOME (LOSS) FROM OPERATIONS:
Paperboard Mills(b)
Americas Paperboard Packaging
Europe Paperboard Packaging
Corporate and Other(c)
Total
Year Ended December 31,
2019
2018
2017
1,094.8 $
4,233.7
689.3
142.3
6,160.1 $
1,078.1 $
4,098.3
695.9
157.1
6,029.4 $
399.7
3,245.1
593.5
167.3
4,405.6
33.1 $
477.7
60.3
(37.0)
534.1 $
30.6 $
420.1
46.1
(38.6)
458.2 $
(35.0)
358.2
37.3
(32.6)
327.9
$
$
$
$
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes accelerated depreciation related to exit activities in 2019, excludes $29.6 million related to the Augusta, Georgia
mill outage in 2018 and includes accelerated depreciation related to shutdown of the Santa Clara mill in 2017.
(c) Includes expenses related to business combinations, exit activities, idle and abandoned assets, gain on sale of assets and
shutdown and other special charges.
2019 COMPARED WITH 2018
Paperboard Mills - Net Sales increased from prior year due to higher selling prices and higher open market volume of
SBS and CRB, due to the White Pigeon Mill acquired as part of the Artistic acquisition, partially offset by lower open market
volume for CUK. The Company also internalized more CUK and SBS paperboard.
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31
Income from Operations increased due to the higher selling prices and productivity improvements, including benefits from
capital projects. These increases were partially offset by product mix, inflation, accelerated depreciation related to exit
activities and modest market downtime taken for SBS. The higher inflation was primarily due to wood and labor and benefits,
partially offset by lower prices for secondary fiber and energy.
Americas Paperboard Packaging - Net Sales increased due to higher selling prices and the Artistic and 2018 Acquisitions,
partially offset by modestly lower converting volumes in the first half of the year. Certain consumer products, primarily dry
and frozen foods and dairy products, experienced decreased volume, which was partially offset by increased volume from
new product introductions. Beverage volumes rose across all categories except big beer.
Income from Operations increased due to the higher selling prices and productivity improvements partially offset by
higher inflation and start-up costs associated with the Monroe, Louisiana folding carton facility. The higher inflation was
primarily for labor and benefits and external board.
Europe Paperboard Packaging - Net Sales decreased slightly as unfavorable foreign currency exchange rates were
partially offset by increased beverage, consumer product and convenience volumes and higher selling prices. The higher
volumes reflect the increase in multi-pack beverage and a shift from plastics into paperboard solutions.
Income from Operations increased due to the higher selling prices, the improved volumes and cost savings through
continuous improvement programs, partially offset by inflation, primarily labor and benefits and external board, unfavorable
foreign currency exchange rates and higher outsourcing costs.
2018 COMPARED WITH 2017
Paperboard Mills - Net sales increased due to the NACP Combination and increased selling prices, partially offset by
lower open market volume of CRB and CUK as the Company internalized more paperboard due to the closure of the Santa
Clara Mill in the fourth quarter of 2017. During 2018, the Company announced a series of price increases related to its CRB,
CUK and SBS open market paperboard.
Income from Operations increased due to the NACP Combination, the impact of the 2017 maintenance cold outage in
West Monroe, Louisiana, productivity improvements and the higher selling prices, partially offset by the Augusta, Georgia
mill outage, and higher inflation. Inflation increased primarily for chemicals, freight and labor and benefits, partially offset by
lower secondary fiber and energy costs.
Americas Paperboard Packaging - Net sales increased due to the NACP Combination, the 2017 Acquisitions and the 2018
Acquisitions, higher selling prices and new product introductions, partially offset by lower volume for beverage and certain
consumer products. The higher selling prices are inflationary pass throughs related to announced paperboard price increases.
Income from Operations increased due to the NACP Combination, the 2017 Acquisitions and the 2018 Acquisitions, the
higher selling prices and cost savings through continuous improvement programs, partially offset by higher inflation,
primarily for freight, labor and benefits and external board.
Europe Paperboard Packaging - Net Sales increased due to the Norgraft acquisition and NACP Combination, favorable
foreign currency exchange rates, increased volumes for beverage, consumer and convenience products and higher selling
prices. The higher selling prices are related to board inflationary pass throughs.
Income from Operations increased due to the same factors increasing Net Sales as well as, continuous improvement and
other cost savings programs, partially offset by higher inflation, primarily external paperboard.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as its ability to generate sufficient funds from both internal and external sources to
meet its obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives.
Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available
funds for use in achieving long-range business objectives and meeting debt service commitments.
Cash Flows
In millions
Net Cash Provided by (Used in) Operating Activities
Net Cash (Used in) Provided by Investing Activities
Net Cash Used In Financing Activities
Years Ended December 31,
2019
2018
$
$
$
665.8 $
(224.3) $
(360.8) $
(373.8)
689.1
(310.7)
Effective January 1, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230); Classification
of Certain Cash Receipts and Cash Payments, which required the Company to classify consideration received for beneficial
interest obtained for transferring trade receivables as investing activities instead of operating activities.
Net cash provided by operating activities in 2019 totaled $665.8 million, compared to $373.8 million used in operating
activities in 2018. The increase was due primarily to the restructuring of certain of the Company's accounts receivable sale
and securitization programs. Pension contributions in 2019 and 2018 were $11.3 million and $5.8 million, respectively.
Net cash used in investing activities in 2019 totaled $224.3 million, compared to $689.1 million provided by investing
activities in 2018. Capital spending was $352.9 million and $395.2 million in 2019 and 2018, respectively. In 2019, the
Company paid the remaining $2.0 million for the Letica acquisition and paid $52.5 million for the Artistic acquisition,
including the working capital true-up. Net beneficial interest decreased as a result of the restructuring of certain of the
Company's accounts receivable sale and securitization programs. In the prior year, the Company paid $89.4 million, net of
cash acquired, for the 2018 Acquisitions. The Company also received cash from the sale of assets of $49.4 million in 2018.
Net cash receipts related to the accounts receivable securitization and sale programs were $187.7 million and $1,131.2
million in 2019 and 2018, respectively.
Net cash used in financing activities in 2019 totaled $360.8 million, compared to $310.7 million in 2018. Current year
activities include a debt offering of $300 million aggregate principal amount of 4.75% senior notes due 2027. The Company
used the net proceeds to repay a portion of its outstanding borrowings under its senior secured revolving credit facility.
Additionally, the Company made borrowings under revolving credit facilities primarily for capital spending, repurchase of
common stock of $128.8 million and payments on debt of $36.5 million. The Company also paid dividends and distributions
of $112.7 million and withheld $4.1 million of restricted stock units to satisfy tax withholding obligations related to the
payout of restricted stock units. In the prior year, the Company had net borrowings under revolving credit facilities of $89.4
million, primarily for the 2018 Acquisitions, pension contributions of $5.8 million, and payments on debt of $152.4 million.
The Company also paid dividends of $93.1 million and distributions to the GPIL Partner of $17.9 million, repurchased
$119.1 million of its common stock, and withheld $4.3 million of restricted stock units to satisfy tax withholding payments
related to the payout of restricted stock units.
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Liquidity and Capital Resources
The Company's liquidity needs arise primarily from the funding of its capital expenditures, debt service on its
indebtedness, ongoing operating costs, working capital, share repurchases and dividend payments. Principal and interest
payments under the term loan facilities and the revolving credit facilities, together with principal and interest payments on the
Company's 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022, 4.125% Senior Notes due 2024 and 4.75% Senior
Notes due 2027 (the “Notes”), represent liquidity requirements for the Company. Based upon current levels of operations,
anticipated cost savings and expectations as to future growth, the Company believes that cash generated from operations,
together with amounts available under its revolving credit facilities and other available financing sources, will be adequate to
permit the Company to meet its debt service obligations, necessary capital expenditure program requirements and ongoing
operating costs and working capital needs, although no assurance can be given in this regard. The Company's future financial
and operating performance, ability to service or refinance its debt and ability to comply with the covenants and restrictions
contained in its debt agreements (see “Covenant Restrictions” below) will be subject to future economic conditions, including
conditions in the credit markets, and to financial, business and other factors, many of which are beyond the Company's
control, and will be substantially dependent on the selling prices and demand for the Company's products, raw material and
energy costs, and the Company's ability to successfully implement its overall business and profitability strategies.
As of December 31, 2019, the Company had approximately $32 million of NOLs for U.S. federal income tax purposes.
These NOLs generally may be used by the Company to offset taxable income earned in subsequent taxable years.
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, Net line item on the Consolidated
Statement of Operations. The following table summarizes the activity under these programs for the year ended December 31,
2019 and 2018, respectively:
In millions
Receivables Sold and Derecognized
Proceeds Collected on Behalf of Financial Institutions
Year Ended December 31,
2019
2018
$
2,654.2 $
2,254.9
3,314.8
3,153.4
Net Proceeds Received From (Paid to) Financial Institutions
13.4
Deferred Purchase Price at December 31(a)
66.9
Pledged Receivables at December 31
43.0
(a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions,
66.5
0.7
177.5
which is a Level 3 fair value measure.
The Company has also entered into various factoring and supply chain financing arrangements which also qualify for sale
accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the years ended
December 31, 2019 and 2018, the Company sold receivables of approximately $238 million and $119 million, respectively,
related to these factoring arrangements.
Receivables sold under all programs subject to continuing involvement, which consist principally of collection services,
were approximately $562 million and $559 million as of December 31, 2019 and 2018, respectively.
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34
Covenant Restrictions
Covenants contained in the Amended and Restated Credit Agreement, the Term Loan Credit Agreement (collectively, the
"Credit Agreement") and the Indentures may, among other things, limit the ability to incur additional indebtedness, restrict
the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase shares,
pay dividends and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify
terms of the indentures under which the Notes are issued, engage in mergers or consolidations, change the business conducted
by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions, together with
disruptions in the credit markets, could limit the Company's ability to respond to changing market conditions, fund its capital
spending program, provide for unexpected capital investments or take advantage of business opportunities.
Under the terms of the Credit Agreement, the Company must comply with a maximum Consolidated Total Leverage Ratio
covenant and a minimum Consolidated Interest Expense Ratio covenant. The Third Amended and Restated Credit
Agreement, which contains the definitions of these covenants, was filed as an exhibit to the Company's Form 8-K filed on
January 2, 2018.
The Credit Agreement requires that the Company maintain a maximum Consolidated Total Leverage Ratio of less than
4.25 to 1.00. At December 31, 2019, the Company was in compliance with such covenant and the ratio was 2.50 to 1.00.
The Company must also comply with a minimum Consolidated Interest Expense Ratio of 3.00 to 1.00. At December 31,
2019, the Company was in compliance with such covenant and the ratio was 7.78 to 1.00.
As of December 31, 2019, the Company's credit was rated BB+ by Standard & Poor's and Ba1 by Moody's Investor
Services. Standard & Poor's and Moody's Investor Services' ratings on the Company included a stable outlook.
Capital Investment
The Company’s capital investments in 2019 were $359.1 million ($352.9 million was paid), compared to $409.2 million
($395.2 million was paid) in 2018. During 2019, the Company had capital spending of $307.8 million for improving process
capabilities, $29.3 million for capital spares and $22.0 million for manufacturing packaging machinery.
Environmental Matters
Some of the Company’s current and former facilities are the subject of environmental investigations and remediations
resulting from historical operations and the release of hazardous substances or other constituents. Some current and former
facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future
or for which indemnification claims may be asserted against the Company. Also, closures or sales of facilities may
necessitate further investigation and may result in remediation at those facilities. The Company has established reserves for
those facilities or issues where liability is probable and the costs are reasonably estimable.
For further discussion of the Company’s environmental matters, see Note 14 in the Notes to Consolidated Financial
Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
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Contractual Obligations and Commitments
A summary of our contractual obligations and commitments as of December 31, 2019 is as follows:
Payments Due by Period
Less than
1 Year
More than
5 Years
$
3-5 Years
1-3 Years
In millions
Debt Obligations
Operating Leases
Finance Leases
Interest Payable
Purchase Obligations(a)
Total Contractual Obligations(b)
(a) Purchase obligations primarily consist of commitments for the purchase of fiber and chip processing.
(b) Certain amounts included in this table are based on management’s estimates and assumptions about these obligations.
Because these estimates and assumptions are necessarily subjective, the obligations the Company will actually pay in the
future periods may vary from those reflected in the table.
617.6 $ 1,771.6 $
87.0
24.8
221.4
49.5
313.9 $ 1,000.3 $ 1,943.7 $
Total
2,738.6 $
225.6
220.3
513.1
221.2
3,918.8 $
45.8 $
60.8
12.5
137.0
57.8
303.6
30.7
158.2
91.3
77.1
660.9
47.1
24.8
63.4
36.8
$
International Operations
For 2019, before intercompany eliminations, net sales from operations outside of the U.S. represented approximately 20%
of the Company’s net sales. The Company’s revenues from export sales fluctuate with changes in foreign currency exchange
rates. At December 31, 2019, approximately 17% of the Company’s total assets were denominated in currencies other than
the U.S. dollar. The Company has significant operations in countries that use the euro, British pound sterling, the Australian
dollar, the Canadian dollar, the Mexico peso or the Japanese yen as their functional currencies. The effect of changes in the
U.S. dollar exchange rate against these currencies produced a net currency translation adjustment gain of $12.4 million,
which was recorded in Other Comprehensive (Loss) Income for the year ended December 31, 2019. The magnitude and
direction of this adjustment in the future depends on the relationship of the U.S. dollar to other currencies. The Company
pursues a currency hedging program in order to reduce the impact of foreign currency exchange fluctuations on financial
results. See “Financial Instruments” below.
Financial Instruments
The Company pursues a currency hedging program which utilizes derivatives to reduce the impact of foreign currency
exchange fluctuations on its consolidated financial results. Under this program, the Company has entered into forward
exchange contracts in the normal course of business to hedge certain foreign currency denominated transactions. Realized
and unrealized gains and losses on these forward contracts are included in the measurement of the basis of the related foreign
currency transaction when recorded. The Company also pursues a hedging program that utilizes derivatives designed to
manage risks associated with future variability in cash flows and price risk related to future energy cost increases. Under this
program, the Company has entered into natural gas swap contracts to hedge a portion of its forecasted natural gas usage for
2020 and 2021. Realized gains and losses on these contracts are included in the financial results concurrently with the
recognition of the commodity consumed. In addition, the Company uses interest rate swaps to manage interest rate risks on
future interest payments caused by interest rate changes on its variable rate term loan facility. The Company does not hold or
issue financial instruments for trading purposes. See “Item 7A., Quantitative and Qualitative Disclosure About Market Risk.”
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates, and changes
in these estimates are recorded when known. The critical accounting policies used by management in the preparation of the
Company’s consolidated financial statements are those that are important both to the presentation of the Company’s financial
condition and results of operations and require significant judgments by management with regard to estimates used. The
critical judgments by management relate to pension benefits, retained insurable risks, future cash flows associated with
impairment testing for goodwill and long-lived assets, and deferred income taxes.
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• Pension Benefits
The Company sponsors defined benefit pension plans (the “Plans”) for eligible employees in North America and certain
international locations. The funding policy for the U.S. qualified defined benefit plans is to, at a minimum, contribute assets
as required by the Internal Revenue Code Section 412. Nonqualified defined benefit U.S. plans providing benefits in excess
of limitations imposed by the U.S. income tax code are not funded.
The Company’s pension expense for defined benefit pension plans was $54.9 million in 2019 compared to $3.3 million in
2018. The 2019 expense includes a $39.2 million charge associated with lump-sum settlements with certain participants.
Pension expense is calculated based upon a number of actuarial assumptions applied to each of the defined benefit plans. The
weighted average expected long-term rate of return on pension fund assets used to calculate pension expense was 4.74% and
4.86% in 2019 and 2018, respectively. The expected long-term rate of return on pension assets was determined based on
several factors, including historical rates of return, input from our pension investment consultants and projected long-term
returns of broad equity and bond indices. The Company evaluates its long-term rate of return assumptions annually and
adjusts them as necessary.
The Company determined pension expense using both the fair value of assets and a calculated value that averages gains
and losses over a period of years. Investment gains or losses represent the difference between the expected and actual return
on assets. As of December 31, 2019, the net actuarial loss was $279.9 million. These net losses may increase future pension
expense if not offset by (i) actual investment returns that exceed the assumed investment returns, or (ii) other factors,
including reduced pension liabilities arising from higher discount rates used to calculate pension obligations, or (iii) other
actuarial gains, including whether such accumulated actuarial losses at each measurement date exceed the “corridor”
determined under the Compensation — Retirement Benefits topic of the FASB Codification. The actuarial loss is amortized
over the average remaining life expectancy period of employees expected to receive benefits. In January 2020, following the
purchase of a group annuity to transfer the benefit obligation to an insurance company, the Company expects the remaining
actuarial loss to be approximately $90 million.
The discount rate used to determine the present value of future pension obligations at December 31, 2019 was based on a
yield curve constructed from a portfolio of high-quality corporate debt securities with maturities ranging from 1 year to
30 years. Each year’s expected future benefit payments were discounted to their present value at the spot yield curve rate
thereby generating the overall discount rate for the Company’s pension obligations. The weighted average discount rate used
to determine the pension obligations was 2.69% and 4.14% in 2019 and 2018, respectively.
The Company’s pension expense is estimated to be approximately $164 million (includes approximately $150 million in
settlement charges) in 2020. The estimate is based on a weighted average expected long-term rate of return of 4.12%, a
weighted average discount rate of 2.69% and other assumptions. Pension expense beyond 2020 will depend on future
investment performance, the Company’s contribution to the plans, changes in discount rates and other factors related to
covered employees in the plans.
If the discount rate assumptions for the Company’s U.S. plans were reduced by 0.25%, pension expense would increase by
approximately $1 million and the December 31, 2019 projected benefit obligation would increase approximately $28 million.
The fair value of assets in the Company’s plans was $1,172.4 million at December 31, 2019 and $1,186.5 million at
December 31, 2018. The projected benefit obligations exceed the fair value of plan assets by $83.0 million and $58.7 million
as of December 31, 2019 and 2018, respectively. The accumulated benefit obligation (“ABO”) exceeded plan assets by $77.4
million at the end of 2019. At the end of 2018, the ABO exceeded the fair value of plan assets by $53.7 million.
• Retained Insurable Risks
The Company is self-insured for certain losses relating to workers’ compensation claims and employee medical and dental
benefits. Provisions for expected losses are recorded based on the Company’s estimates, on an undiscounted basis, of the
aggregate liabilities for known claims and estimated claims incurred but not reported. The Company has purchased stop-loss
coverage or insurance with deductibles in order to limit its exposure to significant claims. The Company also has an extensive
safety program in place to minimize its exposure to workers’ compensation claims. Self-insured losses are accrued based
upon estimates of the aggregate uninsured claims incurred using certain actuarial assumptions, loss development factors
followed in the insurance industry and historical experience.
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• Goodwill
The Company evaluates goodwill for potential impairment annually as of October 1, as well as whenever events or
changes in circumstances suggest that the fair value of a reporting unit may no longer exceed its carrying amount. Potential
impairment of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including
goodwill, to the estimated fair value of the reporting unit. As of October 1, 2019, the Company had seven reporting units, five
of which had goodwill.
Periodically, the Company may perform a qualitative impairment analysis of goodwill associated with each of its reporting
units to determine if it is more likely than not that the carrying value of a reporting unit exceeded its fair value. If the results
of the qualitative analysis of any of the reporting units is inconclusive, or if significant changes in the business have occurred
since the last quantitative impairment assessment, the Company will perform a quantitative analysis for those reporting units.
As of October 1, 2019, the Company performed a quantitative impairment test. The quantitative analysis involves
calculating the fair value of each reporting unit by utilizing a discounted cash flow analysis based on the Company’s business
plans, discounted using a weighted average cost of capital and market indicators of terminal year cash flows based upon a
multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA").
Estimating the fair value of the reporting unit involves uncertainties as it requires management to consider a number of
factors, including but not limited to, future operating results, business plans, economic projections of revenues and operating
margins, estimated future cash flows, and market data and analysis, including market capitalization. Fair value determinations
are sensitive to changes in the factors described above. There are inherent uncertainties related to these factors and judgments
used to estimate reporting unit fair value and the related analysis of potential goodwill impairment.
The variability of the assumptions that management uses to perform the goodwill impairment test depends on a number of
conditions, including uncertainty about future events and cash flows. Accordingly, the Company’s accounting estimates may
materially change from period to period due to changing market factors. If the Company had used other assumptions and
estimates or if different conditions occur in future periods, future operating results and cash flows could be materially
impacted, and judgments and conclusions about the recoverability of goodwill could change. The assumptions used in the
goodwill impairment testing process could also be adversely impacted by certain of the risks discussed in “Item 1A., Risk
Factors” and thus could result in future goodwill impairment charges.
The Company performed its annual goodwill impairment tests as of October 1, 2019. The Company concluded that all
reporting units with goodwill have a fair value that exceeds their carrying value, and thus goodwill was not impaired. The
discount rate used for each reporting unit ranged from 7.5% to 8.0%, and we utilized an EBITDA multiple of 8.5 times to
calculate terminal period cash flows. The Foodservice and Australia reporting units had fair values that exceed their
respective carrying values by 32% and 17%, respectively, whereas all other reporting units exceeded by more than 50%. If
we had concluded that it was appropriate to increase the discount rate we used by 100 basis points to estimate the fair value
of our respective reporting units, the fair value of each reporting unit would have continued to exceed its carrying amount.
The Foodservice and Australia reporting units had goodwill totaling $43.0 million and $14.4 million, respectively. The
Company does not believe it is likely that there will be material changes in the assumptions or estimates used to calculate the
reporting unit fair values.
• Recovery of Long-Lived Assets
The Company evaluates the recovery of its long-lived assets by analyzing operating results and considering significant
events or changes in the business environment that may have triggered impairment. The Company reviews long-lived assets
(including property, plant and equipment and intangible assets) for impairment whenever events or changes in circumstances
indicate that the carrying amount of such long-lived assets may not be fully recoverable by undiscounted cash flows.
Measurement of the impairment loss, if any, is based on the fair value of the asset, which is determined by an income, cost or
market approach.
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• Deferred Income Taxes and Potential Assessments
According to the Income Taxes topic of the FASB Codification, a valuation allowance is required to be established or
maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of
a deferred tax asset will not be realized. The FASB Codification provides important factors in determining whether a deferred
tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient
income can reasonably be expected in future years in order to utilize the deferred tax asset. The Company has evaluated the
need to maintain a valuation allowance for deferred tax assets based on its assessment of whether it is more likely than not
that deferred tax benefits would be realized through the generation of future taxable income. Appropriate consideration was
given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. In determining
whether a valuation allowance is required, many factors are considered, including the specific taxing jurisdiction, the
carryforward period, reversals of existing taxable temporary differences, cumulative pretax book earnings, income tax
strategies and forecasted earnings for the entities in each jurisdiction.
As of December 31, 2019, the Company has recorded a valuation allowance of $41.1 million against its net deferred tax
assets in certain foreign jurisdictions and against domestic deferred tax assets related to certain federal
tax credit
carryforwards, certain state net operating loss carryforwards and certain state tax credit carryforwards. As of December 31,
2018, a total valuation allowance of $36.3 million was recorded.
As of December 31, 2019, the Company has only provided for deferred U.S. income taxes attributable to future
withholding tax expense related to the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd.
During 2019, the Company changed its assertion related to certain earnings of its Canadian subsidiary, Graphic Packaging
International Canada, ULC. The Company continues to assert that it is permanently reinvested in the cumulative earnings of
its Canadian subsidiary in excess of the amount of cash that is on-hand and available for distribution after consideration of
working capital needs and other debt settlement, however, with respect to the excess cash on hand, the Company asserts that
it is not permanently reinvested. Due to the deemed taxation of all post-1986 earnings and profits required by the Act, as well
as the amount of paid up capital available in Canada from which the Company can distribute earnings without incurring
withholding tax, the Company has determined that no deferred tax liability should be recorded related to the outside basis
difference of approximately $31.6 million.
The Company has not provided for deferred U.S. income taxes on approximately $35 million of its undistributed earnings
in international subsidiaries because of the Company’s intention to indefinitely reinvest these earnings outside the U.S. The
Company’s assertion remains unchanged, despite the deemed taxation of all post-1986 earnings and profits required by the
Act. The determination of the amount of the unrecognized deferred U.S. income tax liability (primarily withholding tax in
certain jurisdictions and some state tax) on the unremitted earnings or any other associated outside basis difference is not
practicable because of the complexities associated with the calculation.
The Company has elected to recognize global intangible low-taxed income (“GILTI”) as period cost as incurred, therefore
there are no deferred taxes recognized for basis differences that are expected to impact the amount of the GILTI inclusion
upon reversal.
NEW ACCOUNTING STANDARDS
For a discussion of recent accounting pronouncements impacting the Company, see Note 1 in the Notes to Consolidated
Financial Statements included herein under “Item 8., Financial Statements and Supplementary Data.”
39
39
BUSINESS OUTLOOK
Total capital investment for 2020 is expected to be in the range of $600 million to $625 million.
The Company also expects the following in 2020, subject to finalization of acquisition accounting for the Artistic
acquisition:
• Depreciation and amortization expense between $455 million and $465 million, excluding approximately $5 million of
pension amortization and $20 million of accelerated depreciation related to exit activities.
• Pension plan contributions between $10 million and $20 million.
40
40
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not trade or use derivative instruments with the objective of earning financial gains on interest or
currency rates, nor does it use leveraged instruments or instruments where there are no underlying exposures identified.
Interest Rates
The Company is exposed to changes in interest rates, primarily as a result of its short-term and long-term debt, which
include both fixed and floating rate debt. The Company uses interest rate swap agreements effectively to fix the LIBOR rate
on certain variable rate borrowings. At December 31, 2019, the Company had active interest rate swap agreements with a
notional amount of $500 million with $150 million expiring on January 1, 2020 and the remaining in October 2020 and 2022.
The table below sets forth interest rate sensitivity information related to the Company’s debt.
Long-Term Debt Principal Amount by Maturity-Average Interest Rate
Expected Maturity Date
In millions
2020
2021
2022
2023
2024
Thereafter
Total
Fair Value
Total Debt
Fixed Rate
Average Interest Rate
Variable Rate
$ — $ 425.5
$
$ 250.4
$ 300.4
$ 303.6
$ 1,280.4 $ 1,340.1
—%
$
36.5
$
4.75%
63.9
$ 127.7
$ 1,220.8
4.87%
4.12%
$ — $
4.71%
— $ 1,448.9 $ 1,448.5
0.5
1.82%
LIBOR +
Spread
LIBOR +
Spread
LIBOR +
Spread
LIBOR +
Spread
—
—
—
—
Total Interest Rate Swaps-Notional Amount by Expiration-Average Swap Rate
Expected Maturity Date
2020
2021
2022
2023
2024
Thereafter
Total
— $
—%
— $
—%
—
— $
500.0
—%
—
—
In millions
Notional
Average Pay Rate
2.31%
—%
2.87 %
$ 300.0
$
— $ 200.0
$
Average Receive Rate
LIBOR
—
LIBOR
—
41
41
Foreign Exchange Rates
The Company enters into forward exchange contracts to effectively hedge substantially all receivables resulting from
transactions denominated in foreign currencies. The purpose of these forward exchange contracts is to protect the Company
from the risk that the eventual functional currency cash flows resulting from the collection of these receivables will be
adversely affected by changes in exchange rates. At December 31, 2019, multiple foreign currency forward exchange
contracts existed, with maturities ranging up to three months. Those forward currency exchange contracts outstanding at
December 31, 2019, when aggregated and measured in U.S. dollars at December 31, 2019 contractual rates, had net notional
amounts totaling $77.4 million. The Company continuously monitors these forward exchange contracts and adjusts
accordingly to minimize the exposure.
The Company also enters into forward exchange contracts to hedge certain other anticipated foreign currency transactions.
The purpose of these contracts is to protect the Company from the risk that the eventual functional currency cash flows
resulting from anticipated foreign currency transactions will be adversely affected by changes in exchange rates.
During the years ended December 31, 2019 and 2018, there were no amounts reclassified to earnings in connection with
forecasted transactions that were no longer considered probable of 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 during the years ended December 31, 2019 and 2018.
Foreign Exchange Rates Contractual Amount by Expected
Maturity-Average Contractual Exchange Rate
In millions
FORWARD EXCHANGE AGREEMENTS:
Receive $US/Pay Yen
Weighted average contractual exchange rate
Receive $US/Pay Euro
Weighted average contractual exchange rate
Receive $US/Pay GBP
Weighted average contractual exchange rate
Natural Gas Contracts
December 31, 2019
Contract
Amount
Fair
Value
$
$
$
17.5 $ —
107.86
42.9 $
(0.8)
1.11
27.2 $
(0.7)
1.30
The Company has hedged a portion of its expected natural gas usage for 2020 and 2021. The carrying amount and fair
value of the natural gas swap contracts is a net liability of $3.4 million as of December 31, 2019. Such contracts are
designated as cash flow hedges and are accounted for by deferring the quarterly change in fair value of the outstanding
contracts in Accumulated Other Comprehensive (Loss) Income in Shareholders’ Equity. The resulting gain or loss is
reclassified into Cost of Sales concurrently with the recognition of the commodity consumed.
42
42
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
GRAPHIC PACKAGING HOLDING COMPANY
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2019
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31,
2019
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2019
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2019
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Page
44
45
46
47
48
49
94
43
43
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
In millions, except per share amounts
Net Sales
Cost of Sales
Selling, General and Administrative
Other Expense, Net
Business Combinations, Shutdown and Other Special Charges and Gain on
Sale of Assets, Net
Income from Operations
Nonoperating Pension and Postretirement Benefit (Expense) Income
Interest Expense, Net
Loss on Modification or Extinguishment of Debt
Income before Income Taxes and Equity Income of Unconsolidated Entity
Income Tax (Expense) Benefit
Income before Equity Income of Unconsolidated Entity
Equity Income of Unconsolidated Entity
Net Income
Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Graphic Packaging Holding Company
Net Income Per Share Attributable to Graphic Packaging Holding Company
— Basic
Net Income Per Share Attributable to Graphic Packaging Holding Company
— Diluted
Year Ended December 31,
2019
6,160.1 $
5,067.5
511.8
8.8
2018
6,029.4 $
5,077.0
472.1
7.2
2017
4,405.6
3,696.1
347.5
3.0
37.9
534.1
(39.5)
(140.6)
—
354.0
(76.3)
277.7
0.4
278.1 $
(71.3)
206.8 $
14.9
458.2
14.9
(123.7)
(1.9)
347.5
(54.7)
292.8
1.2
294.0 $
(72.9)
221.1 $
0.70 $
0.71 $
0.70 $
0.71 $
31.1
327.9
14.8
(89.7)
—
253.0
45.5
298.5
1.7
300.2
—
300.2
0.97
0.96
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
44
44
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In millions
Net Income
Other Comprehensive (Loss) Income, Net of Tax
Derivative Instruments
Pension and Postretirement Benefit Plans
Currency Translation Adjustment
Total Other Comprehensive Income, Net of Tax
Total Comprehensive Income
Net Income
Other Comprehensive Loss, Net of Tax:
Derivative Instruments
Pension and Postretirement Benefit Plans
Currency Translation Adjustment
Total Other Comprehensive Loss, Net of Tax
Total Comprehensive Income
Net Income
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments
Pension and Postretirement Benefit Plans
Currency Translation Adjustment
Total Other Comprehensive Income, Net of Tax
Year Ended December 31,
2019
Graphic
Packaging
Holding
Company
Noncontrolling
Interest
Redeemable
Noncontrolling
Interest
Total
$
206.8 $
55.0 $
16.3 $
278.1
2018
2017
$
$
$
$
(5.3)
7.6
9.8
12.1
218.9 $
(1.5)
2.3
2.1
2.9
57.9 $
(0.4)
0.7
0.5
(7.2)
10.6
12.4
0.8
17.1 $
15.8
293.9
221.1 $
56.3 $
16.6 $
294.0
(1.0)
(19.4)
(18.7)
(39.1)
(0.2)
(4.7)
(4.5)
(9.4)
(0.1)
(1.4)
(1.3)
(2.8)
(1.3)
(25.5)
(24.5)
(51.3)
182.0 $
46.9 $
13.8 $
242.7
300.2 $
— $
— $
300.2
(4.9)
8.8
44.9
48.8
—
—
—
—
—
—
—
—
(4.9)
8.8
44.9
48.8
Total Comprehensive Income
$
349.0 $
— $
— $
349.0
The accompanying notes are an integral part of the consolidated financial statements.
45
45
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
In millions, except share and per share amounts
ASSETS
Current Assets:
Cash and Cash Equivalents
Receivables, Net
Inventories, Net
Other Current Assets
Total Current Assets
Property, Plant and Equipment, Net
Goodwill
Intangible Assets, Net
Other Assets
Total Assets
LIABILITIES
Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt
Accounts Payable
Compensation and Employee Benefits
Interest Payable
Other Accrued Liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Tax Liabilities
Accrued Pension and Postretirement Benefits
Other Noncurrent Liabilities
Commitments (Note 13)
Redeemable Noncontrolling Interest (Note 15)
SHAREHOLDERS' EQUITY
Preferred Stock, par value $.01 per share; 100,000,000 shares authorized; no shares issued
or outstanding
Common Stock, par value $.01 per share; 1,000,000,000 shares authorized; 290,246,907
and 299,891,585 shares issued and outstanding at December 31, 2019 and December 31,
2018, respectively
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Loss
Total Graphic Packaging Holding Company Shareholders' Equity
Noncontrolling Interest
Total Equity
$
$
$
December 31,
2019
2018
152.9 $
504.5
1,095.9
52.3
1,805.6
3,253.8
1,477.9
477.3
275.3
7,289.9 $
50.4 $
716.1
168.4
24.7
239.1
1,198.7
2,809.9
511.8
140.4
266.8
70.5
572.9
1,014.4
106.0
1,763.8
3,239.7
1,460.6
523.8
71.3
7,059.2
52.0
711.6
154.4
13.6
240.7
1,172.3
2,905.1
462.2
107.5
117.8
304.3
275.8
—
—
2.9
1,876.7
56.4
(365.8)
1,570.2
487.8
2,058.0
3.0
1,944.4
10.0
(377.9)
1,579.5
439.0
2,018.5
7,059.2
Total Liabilities and Shareholders' Equity
$
7,289.9 $
The accompanying notes are an integral part of the consolidated financial statements.
46
46
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
In millions, except share amounts
Shares
Amount
Common Stock
Capital in
Excess of Par
Value
(Accumulated
Deficit)
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interests
Total
Equity
Balances at December 31, 2016
313,145,785 $
3.1 $
1,709.0 $
(268.0) $
(387.6) $
— $
1,056.5
Net Income
Other Comprehensive (Loss) Income, Net of
Tax:
Derivative Instruments
Pension and Postretirement Benefit Plans
Currency Translation Adjustment
—
—
—
—
Repurchase of Common Stock
(4,462,263)
Dividends Declared
Pre-2017 Excess Tax Benefit related to Share-
Based Payments
Recognition of Stock-Based Compensation
—
—
—
Issuance of Shares for Stock-Based Awards
1,032,102
—
—
—
—
—
—
—
—
—
—
—
—
—
(24.2)
—
—
(1.2)
—
300.2
—
—
—
—
(34.2)
(93.1)
39.1
—
—
(4.9)
8.8
44.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
300.2
(4.9)
8.8
44.9
(58.4)
(93.1)
39.1
(1.2)
—
Balances at December 31, 2017
309,715,624 $
3.1 $
1,683.6 $
(56.0) $
(338.8) $
— $
1,291.9
NACP Combination
Net Income
Reclassification to Redeemable Noncontrolling
Interest for Share Repurchases
Distribution of Membership Interest
Other Comprehensive Loss, Net of Tax:
Derivative Instruments
Pension and Postretirement Benefit Plans
Currency Translation Adjustment
Repurchase of Common Stock
(a)
Dividends Declared
Recognition of Stock-Based Compensation
—
—
—
—
—
—
—
—
—
—
—
—
—
—
308.4
—
—
—
—
—
—
(10,566,144)
(0.1)
(57.1)
—
—
—
—
—
—
9.5
—
Issuance of Shares for Stock-Based Awards
658,299
Balances at December 31, 2018
299,807,779 $
3.0 $
1,944.4 $
Net Income
Reclassification to Redeemable Noncontrolling
Interest for Share Repurchases
Redeemable Noncontrolling Interest
Redemption Value Mark-up
Distribution of Membership Interest
Other Comprehensive (Loss) Income, Net of
Tax:
Derivative Instruments
Pension and Postretirement Benefit Plans
Currency Translation Adjustment
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Repurchase of Common Stock
(10,191,257)
(0.1)
Dividends Declared
Recognition of Stock-Based Compensation
—
—
Issuance of Shares for Stock-Based Awards
630,385
—
—
—
—
—
(30.2)
—
—
—
—
(55.1)
—
17.6
—
—
221.1
—
—
—
—
—
(62.8)
(92.3)
—
—
10.0 $
206.8
—
—
—
—
—
—
(72.7)
(87.7)
—
—
—
—
—
—
(1.0)
(19.4)
(18.7)
—
—
—
—
424.0
56.3
(12.5)
(19.4)
(0.2)
(4.7)
(4.5)
—
—
—
—
732.4
277.4
(12.5)
(19.4)
(1.2)
(24.1)
(23.2)
(120.0)
(92.3)
9.5
—
(377.9) $
439.0 $
2,018.5
—
—
—
—
55.0
12.5
—
(21.6)
(5.3)
(1.5)
7.6
9.8
—
—
—
—
2.3
2.1
—
—
—
—
261.8
12.5
(30.2)
(21.6)
(6.8)
9.9
11.9
(127.9)
(87.7)
17.6
—
Balances at December 31, 2019
(a) Includes 83,806 shares repurchased but not settled as of December 31, 2018.
290,246,907 $
2.9 $
1,876.7 $
56.4 $
(365.8) $
487.8 $
2,058.0
The accompanying notes are an integral part of the consolidated financial statements.
47
47
GRAPHIC PACKAGING HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in)
Operating Activities:
Depreciation and Amortization
Amortization of Deferred Debt Issuance Costs
Deferred Income Taxes
Amount of Postretirement Expense Greater (Less) Than Funding
Gain on the Sale of Assets, net
Other, Net
Changes in Operating Assets and Liabilities, Net of Acquisitions (See Note 3)
Net Cash Provided by (Used in) Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending
Packaging Machinery Spending
Acquisition of Businesses, Net of Cash Acquired
Proceeds Received from Sale of Assets, Net of Selling Costs
Beneficial Interest on Sold Receivables
Beneficial Interest Obtained in Exchange for Proceeds
Other, Net
Net Cash (Used in) Provided by Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of Common Stock
Payments on Debt
Proceeds from Issuance of Debt
Borrowings under Revolving Credit Facilities
Payments on Revolving Credit Facilities
Debt Issuance Costs
Repurchase of Common Stock related to Share-Based Payments
Dividends and Distributions Paid to GPIP Partner
Other, Net
Net Cash Used In Financing Activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
CASH AND CASH EQUIVALENTS AT END OF YEAR
Non-cash Investing Activities:
Beneficial Interest (Sold) Obtained in Exchange for Trade Receivables
Non-cash Investment in NACP Combination
Non-cash Investing Activities
Non-cash Financing Activities:
Non-cash Financing of NACP Combination
Non-Cash Financing Activities
Year Ended December 31,
2018
2017
2019
$
278.1 $
294.0 $
300.2
447.2
4.7
52.7
41.5
—
15.1
(173.5)
665.8
(330.9)
(22.0)
(54.5)
—
343.6
(155.9)
(4.6)
(224.3)
(128.8)
(36.5)
300.0
2,497.5
430.6
4.4
26.0
(4.7)
(38.6)
35.3
(1,120.8)
(373.8)
(378.8)
(16.4)
(89.4)
49.4
1,476.7
(345.5)
(6.9)
689.1
(119.1)
(152.4)
—
1,876.9
330.3
5.1
(54.0)
(127.1)
(3.7)
2.0
(645.3)
(192.5)
(240.9)
(19.2)
(189.4)
7.9
806.1
(97.4)
1.0
268.1
(62.1)
(25.0)
—
1,202.9
(2,865.1)
(1,787.5)
(1,090.8)
(5.0)
(4.1)
(112.7)
(6.1)
(360.8)
1.7
82.4
70.5
(7.9)
(4.3)
(111.0)
(5.4)
(310.7)
(1.5)
3.1
67.4
152.9 $
70.5 $
(68.8) $
—
(68.8) $
1,025.7 $
1,111.2
2,136.9 $
— $
— $
660.0 $
660.0 $
$
$
$
$
$
—
(10.2)
(93.4)
8.8
(69.8)
2.5
8.3
59.1
67.4
734.7
—
734.7
—
—
The accompanying notes are an integral part of the consolidated financial statements.
48
48
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 paper-based
packaging solutions for a wide variety of products to food, beverage, foodservice and other consumer products companies.
The Company operates on a global basis, is one of the largest producers of folding cartons in the United States ("U.S.") and
holds leading market positions in coated-recycled paperboard ("CRB"), coated unbleached kraft paperboard ("CUK") and
solid bleached sulfate paperboard ("SBS").
The Company’s customers include many of the world’s most widely recognized companies and brands with prominent
market positions in beverage, food, foodservice, and other consumer products. The Company strives to provide its customers
with packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its
low-cost paperboard mills and converting facilities, its proprietary carton and packaging designs, and its commitment to
quality and service.
On January 1, 2018, GPHC, a Delaware corporation, International Paper Company, a New York corporation (“IP”),
Graphic Packaging International Partners, LLC, a Delaware limited liability company formerly known as Gazelle Newco
LLC and a wholly owned subsidiary of the Company (“GPIP”), and Graphic Packaging International, LLC, a Delaware
limited liability company formerly known as Graphic Packaging International, Inc. and a subsidiary of GPIP (“GPIL”),
completed a series of transactions pursuant to an agreement dated October 23, 2017 among the foregoing parties (the
“Transaction Agreement”). Pursuant to the Transaction Agreement (i) a wholly owned subsidiary of the Company transferred
its ownership interest in GPIL to GPIP; (ii) IP transferred its North America Consumer Packaging (“NACP”) business to
GPIP, which was then subsequently transferred to GPIL; (iii) GPIP issued membership interests to IP, and IP was admitted as
a member of GPIP; and (iv) GPIL assumed certain indebtedness of IP (the "NACP Combination").
GPI Holding III, LLC, an indirect wholly-owned subsidiary of the Company (“GPI Holding”), is the managing member of
GPIP.
At closing of the NACP Combination, GPIP issued 309,715,624 common units or 79.5% of the membership interests in
GPIP to GPI Holding and 79,911,591 common units or 20.5% of the membership interests in GPIP to IP. Subject to certain
restrictions, the common units held by IP are exchangeable into shares of common stock of GPHC or cash.
49
49
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following diagram illustrates the organization of the Company immediately subsequent to the transactions described
above (not including subsidiaries of GPIL):
During 2019 and 2018, GPIP repurchased 20.8 million partnership units from GPI Holding, which increased IP's
ownership interest in GPIP to 21.6% at December 31, 2019. The Company used the proceeds from these repurchases to
repurchase 20.8 million shares of its common stock.
On January 28, 2020, the Company announced that IP notified the Company of its intent to begin the process of reducing
its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million
partnership units from IP for $250 million. As a result, IP’s ownership interest in GPIP decreased from 21.6% to 18.3%.
Unless otherwise negotiated by the parties, IP’s next opportunity to exchange their partnership units is 180 days from the
purchase date and is limited to the lesser of $250 million or 25% of the units owned. IP will have further opportunities to
exchange their partnership units 180 days after each exchange date. The Company may choose to satisfy these exchanges
using shares of its common stock, cash, or a combination thereof.
GPHC conducts no significant business and has no independent assets or operations other than its indirect ownership of
GPIL's membership interest.
50
50
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Basis of Presentation and Principles of Consolidation
The Company’s 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. Certain reclassifications have been made to prior year amounts to conform to current year
presentation.
The Company, through its subsidiary, GPIL, holds a 50% ownership interest in a joint venture called Rengo Riverwood
Packaging, Ltd. (in Japan) which is accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
(“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting
periods. Actual results could differ from these estimates, and changes in these estimates are recorded when known. Estimates
are used in accounting for, among other things, pension benefits, retained insurable risks, slow-moving and obsolete
inventory, allowance for doubtful accounts, useful lives for depreciation and amortization, impairment testing of goodwill
and long-lived assets, fair values related to acquisition accounting, fair value of derivative financial instruments, share based
compensation, deferred income tax assets and potential income tax assessments, and loss contingencies.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits and other marketable securities that are highly liquid with maturities of
three months or less.
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 credit worthiness 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, Net line item on the Consolidated
Statement of Operations. The following table summarizes the activity under these programs for the year ended December 31,
2019 and 2018, respectively:
In millions
Receivables Sold and Derecognized
Proceeds Collected on Behalf of Financial Institutions
Net Proceeds Received From (Paid to) Financial Institutions
Deferred Purchase Price at December 31(a)
Pledged Receivables at December 31
$
Year Ended December 31,
2019
2018
2,654.2 $
2,254.9
66.5
0.7
177.5
3,314.8
3,153.4
13.4
66.9
43.0
(a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions,
which is a Level 3 fair value measure.
The Company has also entered into various factoring and supply chain financing arrangements which also qualify for sale
accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the years ended
December 31, 2019 and 2018, the Company sold receivables of approximately $238 million and $119 million respectively,
related to these factoring arrangements.
51
51
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Receivables sold under all programs subject to continuing involvement, which consists principally of collection services,
were approximately $562 million and $559 million as of December 31, 2019 and 2018, respectively.
Concentration of Credit Risk
The Company’s cash, cash equivalents, and accounts receivable are potentially subject to concentration of credit risk. Cash
and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts
receivable are derived from revenue earned from customers located in the U.S. and internationally and generally do not
require collateral. As of and for the years ended December 31, 2019 and 2018, no customer accounted for more than 10% of
net sales.
Inventories
Inventories are stated at the lower of cost and net realizable value with cost determined based on standard (which
approximates actual), average or actual cost. Work in progress and finished goods inventories are valued at the cost of raw
material consumed plus direct manufacturing costs (such as labor, utilities and supplies) as incurred and an applicable portion
of manufacturing overhead. Inventories are stated net of an allowance for slow-moving and obsolete inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Betterments, renewals and extraordinary repairs that extend the life of
the asset are capitalized; other repairs and maintenance charges are expensed as incurred. The Company’s cost and related
accumulated depreciation applicable to assets retired or sold are removed from the accounts and the gain or loss on
disposition is included in income from operations.
Interest is capitalized on assets under construction for one year or longer with an estimated spending of $1.0 million or
more. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated
useful life. Capitalized interest was $2.8 million, $2.8 million and $1.2 million for the years ended December 31, 2019, 2018
and 2017, respectively.
The Company assesses its long-lived assets, including certain identifiable intangibles, for impairment whenever events or
circumstances indicate that the carrying value of an asset may not be recoverable. To analyze recoverability, the Company
projects future cash flows, undiscounted and before interest, over the remaining life of such assets. If these projected cash
flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a
corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amount
and the fair value of the assets. The Company assesses the appropriateness of the useful life of its long-lived assets
periodically.
Depreciation and Amortization
Depreciation is computed using the straight-line method based on the following estimated useful lives of the related assets:
Buildings
Land improvements
Machinery and equipment
Furniture and fixtures
Automobiles, trucks and tractors
40 years
15 years
3 to 40 years
10 years
3 to 5 years
Depreciation expense, including the depreciation expense of assets under capital leases, for 2019, 2018 and 2017 was
$387.9 million, $360.6 million and $268.5 million, respectively.
Intangible assets with a determinable life are amortized on a straight-line or accelerated basis over their useful lives. The
amortization expense for each intangible asset is recorded in the Consolidated Statements of Operations according to the
nature of that asset.
52
52
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Goodwill is the Company’s only intangible asset not subject to amortization. The following table displays the intangible
assets that continue to be subject to amortization and accumulated amortization expense as of December 31, 2019 and 2018:
In millions
Amortizable Intangible Assets:
Customer Relationships
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
946.5 $
(497.6) $
448.9
$
937.3 $
(442.7) $
494.6
Patents, Trademarks, Licenses, and Leases
138.8
(110.4)
28.4
133.7
(104.5)
29.2
Total
$ 1,085.3 $
(608.0) $
477.3
$ 1,071.0 $
(547.2) $
523.8
The Company recorded amortization expense for the years ended December 31, 2019, 2018 and 2017 of $59.3 million,
$70.0 million and $61.8 million, respectively. The Company expects amortization expense for the next five consecutive years
to be as follows: $62 million, $59 million, $57 million, $55 million, and $53 million.
Goodwill
The Company tests goodwill for impairment annually as of October 1, as well as whenever events or changes in
circumstances suggest that the estimated fair value of a reporting unit may no longer exceed its carrying amount.
The Company tests goodwill for impairment at the reporting unit level, which is an operating segment or a level below an
operating segment, which is referred to as a component. A component of an operating segment is a reporting unit if the
component constitutes a business for which discrete financial information is available and management regularly reviews the
operating results of that component. However, two or more components of an operating segment are aggregated and deemed
a single reporting unit if the components have similar economic characteristics.
Potential goodwill impairment is measured at the reporting unit level by comparing the reporting unit’s carrying amount
(including goodwill), to the fair value of the reporting unit. When performing the quantitative analysis, the estimated fair
value of each reporting unit is determined by utilizing a discounted cash flow analysis based on the Company’s forecasts,
discounted using a weighted average cost of capital and market indicators of terminal year cash flows based upon a multiple
of EBITDA. If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is considered impaired. In
determining fair value, management relies on and considers a number of factors, including but not limited to, operating
results, business plans, economic projections, forecasts including future cash flows, and market data and analysis, including
market capitalization. The assumptions used are based on what a hypothetical market participant would use in estimating fair
value. Fair value determinations are sensitive to changes in the factors described above. There are inherent uncertainties
related to these factors and judgments in applying them to the analysis of goodwill impairment.
Periodically, the Company may perform a qualitative impairment analysis of goodwill associated with each of its reporting
units to determine if it is more likely than not that the carrying value of a reporting unit exceeded its fair value. However, the
Company performed a quantitative impairment test as of October 1, 2019, and concluded goodwill was not impaired for any
of its reporting units.
53
53
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is a rollforward of goodwill by reportable segment:
In millions
Balance at December 31, 2017
Acquisition of Businesses
Foreign Currency Effects
Balance at December 31, 2018
Acquisition of Businesses
Foreign Currency Effects
Balance at December 31, 2019
(a) Includes Australia operating segment.
Retained Insurable Risks
Paperboard
Mills
Americas
Paperboard
Packaging
Europe
Paperboard
Packaging
Corporate/
Other(a)
Total
$
$
$
408.5 $
98.3
—
506.8 $
—
—
506.8 $
839.0 $
43.1
0.1
882.2 $
12.9
1.8
896.9 $
59.5 $
(0.1)
(2.2)
57.2 $
—
2.6
59.8 $
16.0 $ 1,323.0
141.3
—
(1.6)
(3.7)
14.4 $ 1,460.6
12.9
4.4
14.4 $ 1,477.9
—
—
It is the Company’s policy to self-insure or fund a portion of certain expected losses related to group health benefits and
workers’ compensation claims. Provisions for expected losses are recorded based on the Company’s estimates, on an
undiscounted basis, of the aggregate liabilities for known claims and estimated claims incurred but not reported.
Asset Retirement Obligations
Asset retirement obligations are accounted for in accordance with the provisions of the Asset Retirement and
Environmental Obligations topic of the FASB Codification. A liability and asset are recorded equal to the present value of the
estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists and the
liability can be reasonably estimated. The liability is accreted over time and the asset is depreciated over the remaining life of
the asset. Upon settlement of the liability, the Company will recognize a gain or loss for any difference between the
settlement amount and the liability recorded. Asset retirement obligations with indeterminate settlement dates are not
recorded until such time that a reasonable estimate may be made.
International Currency
The functional currency of the international subsidiaries is the local currency for the country in which the subsidiaries own
their primary assets. The translation of the applicable currencies into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average
exchange rate during the period. Any related translation adjustments are recorded directly to a separate component of
Shareholders’ Equity, unless there is a sale or substantially complete liquidation of the underlying foreign investments. Gains
and losses on foreign currency transactions are included in Other Expense, Net for the period in which the exchange rate
changes.
The Company pursues a currency hedging program which utilizes derivatives to reduce the impact of foreign currency
exchange fluctuations on its consolidated financial results. Under this program, the Company has entered into forward
exchange contracts in the normal course of business to hedge certain foreign currency denominated transactions. Realized
and unrealized gains and losses on these forward contracts are included in the measurement of the basis of the related foreign
currency transaction when recorded.
Revenue Recognition
The Company has two primary activities, manufacturing and converting paperboard, from which it generates revenue from
contracts with customers, and revenue is disaggregated primarily by geography and type of activity as further explained in
"Note 16-Business Segment and Geographic Area 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.
54
54
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 years ended December 31, 2019,
2018 and 2017, the Company recognized $6,140.8 million, $6,011.9 million and $4,384.9 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 December 31, 2019 and
liabilities consist
2018, contract assets were $24.3 million and $19.6 million, respectively. The Company's contract
principally of rebates, and as of December 31, 2019 and 2018 were $49.6 million and $42.5 million, respectively.
The Company did not have a material amount relating to backlog orders at December 31, 2019 or 2018.
Shipping and Handling
The Company includes shipping and handling costs in Cost of Sales.
Research and Development
Research and development costs, which relate primarily to the development and design of new packaging machines and
products and are recorded as a component of Selling, General and Administrative expenses, are expensed as incurred.
Expenses for the years ended December 31, 2019, 2018 and 2017 were $9.2 million, $8.7 million and $14.4 million,
respectively.
Business Combinations, Shutdown and Other Special Charges and (Gain) on Sale of Assets, Net
The following table summarizes the transactions recorded in Business Combinations, Shutdown and Other Special
Charges and Gain on Sale of Assets, Net in the Consolidated Statements of Operations for the year ended December 31:
In millions
Charges Associated with Business Combinations
Shutdown and Other Special Charges
Exit Activities
Gain on Sale of Assets
Total
2019
2019
2018
2017
$
$
4.1
23.6
10.2
—
37.9
$
$
46.8
6.7
—
(38.6)
14.9
$
$
16.2
18.6
—
(3.7)
31.1
On September 24, 2019, the Company announced its plan to invest approximately $600 million in a new CRB mill in
Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close two of its
smaller CRB Mills in 2022 in order to remain capacity neutral. Charges associated with this project are included in Exit
Activities in the table above. For more information, see "Note 20 — Exit Activities."
On August 1, 2019, the Company acquired substantially all the assets of Artistic Carton Company ("Artistic"), a
diversified producer of folding cartons and CRB. The acquisition included two converting facilities located in Auburn,
Indiana and Elgin, Illinois (included in the Americas Paperboard Packaging reportable segment) and one CRB paperboard
mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment).
55
55
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2018
On September 30, 2018, the Company acquired substantially all the assets of the foodservice business of Letica
Corporation, a subsidiary of RPC Group PLC ("Letica Foodservice"), a producer of paperboard-based cold and hot cups and
cartons. The acquisition included two facilities located in Clarksville, Tennessee and Pittston, Pennsylvania. Letica
Foodservice is included in the Americas Paperboard Packaging reportable segment.
On August 31, 2018, the Company sold its previously closed coated recycled paperboard mill site in Santa Clara,
California, resulting in a gain on sale of assets of $37.1 million.
On June 12, 2018, the Company acquired substantially all the assets of PFP, LLC and its related entity, PFP Dallas
Converting, LLC (collectively, "PFP"), a converter focused on the production of paperboard based air filter frames. The
acquisition included two facilities located in Lebanon, Tennessee and Lancaster, Texas. PFP is included in the Americas
Paperboard Packaging reportable segment.
On January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS and paper-based
foodservice products. The NACP business included two SBS mills located in Augusta, Georgia and Texarkana, Texas
(included in Paperboard Mills reportable segment), three converting facilities in the U.S. (included in Americas Paperboard
Packaging reportable segment) and one in the United Kingdom ("U.K.") (included in the Europe Paperboard Packaging
reportable segment).
PFP and Letica Foodservice are referred to collectively as the "2018 Acquisitions."
2017
On December 1, 2017, the Company acquired the assets of Seydaco Packaging Corp. and its affiliates, National Carton
and Coating Co., and Groupe Ecco Boites Pliantes Ltée (collectively, "Seydaco"), a folding carton producer focused on the
foodservice, food, personal care, and household goods markets. The acquisition included three folding carton facilities
located in Mississauga, Ontario, St.-Hyacinthe, Québec, and Xenia, Ohio.
On December 1, 2017, the Company closed its coated recycled paperboard mill in Santa Clara, California. This decision
was made as a result of a thorough assessment of the facility's manufacturing capabilities and associated costs in the context
of the Company's overall mill operating capabilities and cost structure. The financial impact is reflected in Shutdown and
Other Special Charges in the table above.
On October 4, 2017, the Company acquired Norgraft Packaging, S.A., ("Norgraft"), a leading folding carton producer in
Spain focused on the food and household goods markets. The acquisition included two folding carton facilities located in
Miliaño and Requejada, Spain.
On July 10, 2017, the Company acquired substantially all the assets of Carton Craft Corporation and its affiliate,
Lithocraft, Inc (collectively, "Carton Craft"). The acquisition included two folding carton facilities located in New Albany,
Indiana, focused on the production of paperboard based air filter frames and folding cartons.
The Seydaco, Norgraft, and Carton Craft transactions are referred to collectively as the "2017 Acquisitions." Seydaco and
Carton Craft are included in the Americas Paperboard Packaging Segment. Norgraft is included in the Europe Paperboard
Packaging Segment.
In October 2017, the Company completed the sale of its Renton, WA facility which was classified as Asset Held for Sale
on December 31, 2016. The financial impact is reflected in Gain on Sale of Assets, Net in the table above.
Charges associated with all acquisitions are included in Charges Associated with Business Combinations in the table
above. For more information regarding these acquisitions see Note 4 - Business Combinations.
During 2019, the Company began a three-year program to dismantle and dispose of idle and abandoned assets primarily at
the paperboard mills. Expected charges for this program are approximately $40 million. Charges associated with this program
are included in Shutdown and Other Special Charges in the table above.
56
56
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Capital Allocation Plan
On January 28, 2019, the Company's board of directors authorized an additional share repurchase program to allow the
Company to purchase up to $500 million of the Company's issued and outstanding shares of common stock through open
market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2019 share repurchase program"). Two
previous $250 million share repurchase programs were authorized on January 10, 2017 and February 4, 2015 (the "2017
share repurchase program") and (the "2015 share repurchase program"), respectively.
Share repurchases are reflected as a reduction of common stock for the par value of the shares, with any excess of share
repurchase price over par value allocated between capital in excess of par value and retained earnings.
The following presents the Company's share repurchases for the years ended December 31, 2019, 2018, and 2017:
Amount repurchased in millions
2019
2018
2017
Amount
Repurchased
127.9
$
120.0
$
58.4
$
Number of Shares
Repurchased
Average
Price
10,191,257 (a) $
10,566,144
$
4,462,263 (b) $
12.55
11.35
13.08
(a) Includes 7,400,171 shares under the 2017 share repurchase program thereby completing that program.
(b) Includes 1,440,697 shares under the 2015 share repurchase program, thereby completing that program.
At December 31, 2019, the Company had approximately $462 million remaining under the 2019 share repurchase
program.
During 2019 and 2018, GPHC paid cash dividends of $88.7 million and $93.1 million, respectively.
Adoption of New Accounting Standards
Effective January 1, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2017-12, Derivatives and
Hedging (Topic 815); Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU better
align the risk management activities and financial reporting for these hedging relationships through changes to both the
designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The adoption
of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
Effective January 1, 2019, the Company adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendment allows
a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from
the 2017 Tax Cuts and Job Act (“The Act”). The Company adopted the amendment effective January 1, 2019 and elected not
to reclassify the income tax effects of The Act from other comprehensive income to retained earnings. The Company’s policy
with respect to stranded income tax effects in accumulated other comprehensive loss is to release these effects using the
aggregate portfolio approach.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASC 842"). The amendments in this ASU
require an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months.
Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The
amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The Company adopted
ASC 842 effective January 1, 2019, prospectively. The adoption of this standard had a material impact on the Company’s
financial position, with no material impact on the results of operations and cash flows (see "Note 6 - Leases").
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350); Simplifying the Test
for Goodwill Impairment which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 of
the goodwill impairment model. Step 2 measures a goodwill impairment loss by comparing the implied value of a reporting
unit’s goodwill with the carrying amount of that goodwill. An entity would recognize an impairment charge for the amount
by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized is limited to the amount
of goodwill allocated to that reporting unit. The Company adopted the amendment effective October 1, 2019. The adoption of
this standard did not have an impact on the Company’s financial position, results of operations and cash flows.
57
57
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments which amends the FASB's guidance on the impairment of financial instruments. The
ASU adds to U.S. GAAP an impairment model (known as the "current expected credit loss model") that is based on expected
losses rather than incurred losses. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019,
including interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance
will have on its financial position, results of operations, cash flows and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement. This amendment modifies the disclosure requirements
on fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that this new
guidance will have on its related disclosures.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans -
General (Subtopic 715-20); Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.
This amendment removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and
adds additional disclosures. The guidance is effective for fiscal years ending after December 15, 2020 and would be applied
on a retrospective basis. The Company is currently evaluating the impact this guidance will have on its related disclosures.
NOTE 2.
SUPPLEMENTAL BALANCE SHEET DATA
The following tables provide disclosure related to the components of certain line items included in our consolidated
balance sheets.
Receivables, Net:
In millions
Trade
Less: Allowance
Other
Total
Inventories, Net by major class:
In millions
Finished Goods
Work in Progress
Raw Materials
Supplies
Total
2019
2018
462.7 $
(11.5)
451.2
53.3
504.5 $
475.9
(10.4)
465.5
107.4
572.9
2019
2018
434.8 $
123.4
370.0
167.7
1,095.9 $
426.9
102.2
319.9
165.4
1,014.4
$
$
$
$
58
58
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Current Assets:
In millions
Deferred Purchase Price
Prepaid Assets
Contract Assets, current portion
Fair Value of Derivatives, current portion
Total
Property, Plant and Equipment, Net:
In millions
Property, Plant and Equipment, at Cost:
Land and Improvements
Buildings(a)
Machinery and Equipment(b)
Construction-in-Progress
Less: Accumulated Depreciation(a) (b)
Total
2019
2018
0.7 $
41.2
10.4
—
52.3 $
66.9
28.6
9.8
0.7
106.0
2019
2018
130.4 $
655.5
5,832.6
202.6
6,821.1
(3,567.3)
3,253.8 $
134.1
608.5
5,716.2
201.2
6,660.0
(3,420.3)
3,239.7
$
$
$
$
(a) Includes gross assets under finance lease of $105.5 million and related accumulated depreciation of $5.4 million as of
December 31, 2019, and gross assets under finance lease of $95.5 million and related accumulated depreciation of $0.4
million as of December 31, 2018.
(b) Includes gross assets under finance lease of $36.6 million and related accumulated depreciation of $6.8 million as of
December 31, 2019, and gross assets under finance lease of $39.6 million and related accumulated depreciation of $10.0
million as of December 31, 2018.
Other Assets:
In millions
Deferred Debt Issuance Costs, Net of Amortization of $14.1 million and $12.5 million for
2019
2018
2019 and 2018, respectively
Deferred Income Tax Assets
Pension Assets
Contract Assets, noncurrent portion
Fair Value of Derivatives, noncurrent portion
Operating Lease Right-of-Use Asset
Other
Total
$
$
4.8 $
3.0
25.6
13.9
—
202.8
25.2
275.3 $
6.4
8.2
19.0
9.8
0.1
—
27.8
71.3
59
59
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Accrued Liabilities:
In millions
Dividends Payable
Deferred Revenue
Accrued Customer Rebates
Fair Value of Derivatives, current portion
Other Accrued Taxes
Accrued Payables
Liabilities Payable to a Financial Institution
Operating Lease Liabilities, current portion
Other
Total
Other Noncurrent Liabilities:
In millions
Deferred Revenue
Multi-employer Plans
Workers Compensation Reserve
Fair Value of Derivatives, noncurrent portion
Unfavorable Supply Agreement
Operating Lease Liabilities, noncurrent portion
Other
Total
2019
2018
21.8 $
15.2
36.5
8.5
38.4
31.4
—
54.8
32.5
239.1 $
22.5
14.0
30.2
1.3
44.4
30.3
62.6
—
35.4
240.7
2019
2018
5.3 $
30.8
9.5
3.0
28.9
151.5
37.8
266.8 $
5.2
32.4
9.9
2.1
31.2
—
37.0
117.8
$
$
$
$
NOTE 3.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Flow Used In Operations Due to Changes in Operating Assets and Liabilities, net of acquisitions:
In millions
Receivables, Net
Inventories, Net
Other Current Assets
Other Assets
Accounts Payable
Compensation and Employee Benefits
Income Taxes
Interest Payable
Other Accrued Liabilities
Other Noncurrent Liabilities
Total
2019
(107.6)
(72.8)
(9.5)
(7.9)
(8.6)
12.9
(4.2)
8.4
5.2
10.6
(173.5)
$
$
2018
$ (1,158.1)
(82.0)
0.3
(1.0)
76.2
26.9
0.6
(4.1)
11.8
8.6
$ (1,120.8)
2017
(658.8)
(6.5)
0.8
(32.8)
27.0
3.5
2.3
(1.7)
6.7
14.2
(645.3)
$
$
Cash paid for interest and cash paid, net of refunds, for income taxes was as follows:
In millions
Interest
Income Taxes
2019
2018
2017
$
$
126.8 $
25.8 $
125.0 $
25.8 $
81.8
15.9
60
60
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4.
BUSINESS COMBINATIONS
2019
On August 1, 2019, the Company completed the acquisition of Artistic, a diversified producer of folding cartons and CRB.
The acquisition included two converting facilities located in Auburn, Indiana and Elgin, Illinois and one CRB paperboard
mill located in White Pigeon, Michigan. The Company paid $52.5 million using existing cash and borrowings under its
revolving credit facility. The acquisition accounting for the Artistic acquisition is preliminary as the Company is still
reviewing the measurement of tangible and intangible assets and taxes. Management believes that the purchase price
attributable to goodwill represents the benefits expected as the acquisition was made to continue to integrate paperboard from
the Company’s mills, to expand its product offering and to further optimize the Company’s supply chain footprint.
Tangible assets and liabilities were valued as of the acquisition date using a market analysis and intangible assets were
valued using a discounted cash flow analysis, which represents a Level 3 measurement. The Company recorded $6.5 million
related to identifiable intangible assets (customer relationships), $38.5 million related to tangible assets (primarily working
capital, land/buildings and equipment) and $7.5 million related to goodwill. Goodwill was recorded in the Americas
Paperboard Packaging segment. The Company expects the goodwill to be deductible for tax purposes.
During 2019, Net Sales and Income from Operations from the Artistic acquisition were $31.2 million and $2.0 million,
respectively.
2018
On January 1, 2018, the Company completed the NACP Combination. The NACP business produces SBS and paper-based
foodservice products. The NACP business included two SBS mills located in Augusta, Georgia and Texarkana, Texas, three
converting facilities in the U.S. and one in the U.K.
Total consideration for the NACP Combination, including debt assumed of $660 million, was $1.8 billion. Management
believes that the purchase price attributable to goodwill represents the benefits expected, as the acquisition was made to
continue to expand the Company's product offering, integrate paperboard from the Company's mills and to further optimize
the Company's supply chain footprint.
In conjunction with the NACP Combination, the Company executed a Tax Receivable Agreement ("TRA") with IP.
Pursuant to elections under Section 754 of the Internal Revenue Code, the Company expects to obtain an increase with
respect to the tax basis in the assets of GPIP and certain of its subsidiaries when IP exchanges or redeems any of its
membership interests. The Company generally expects to treat redemptions or exchanges of membership interests by IP as
direct purchases of membership interests for U.S. federal income tax purposes. Increases in tax basis may reduce the amounts
that we would otherwise pay in the future to various tax authorities. The TRA provides for the payment by the Company to IP
of 50% of the amount of any tax benefits projected to be realized by the Company upon IP's exchange of the membership
interests into GPHC common stock.
On September 30, 2018, the Company completed the Letica Foodservice acquisition. The acquisition included two
facilities in Clarksville, Tennessee and Pittston, Pennsylvania, focused on the production of paperboard-based cold and hot
cups and cartons. The Company paid approximately $95 million using existing cash and borrowings under its revolving credit
facility.
On June 12, 2018, the Company completed the PFP acquisition. The Company paid approximately $34 million using
existing cash and borrowings under its revolving credit facility. The acquisition included two manufacturing facilities in
Lebanon, Tennessee and Lancaster, Texas, focused on the production of paperboard-based air filter frames.
The Company expects that goodwill related to the NACP Combination will not be deductible for tax purposes. The
Company expects that goodwill related to the Letica Foodservice and the PFP acquisitions will be deductible for tax
purposes.
61
61
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The acquisition accounting for the NACP Combination, PFP and the Letica Foodservice acquisitions as of December 31,
2018 was as follows:
In millions
Purchase Price(a)
Assumed Debt(b)
Total Purchase Consideration
Receivables, Net
Inventories, Net
Other Current Assets
Property, Plant and Equipment, Net
Intangible Assets, Net(c)
Other Assets
Total Assets Acquired
Accounts Payable
Compensation and Employee Benefits
Current Liabilities
Other Noncurrent Liabilities
Total Liabilities Assumed
Net Assets Acquired
Goodwill
Amounts
Recognized as of
Acquisition Date
Measurement
Period Adjustments
Amounts
Recognized as of
Acquisition Dates
(as adjusted)
$
$
1,241.7 $
660.0
1,901.7 $
(40.9) $
—
(40.9) $
145.3
314.2
20.9
1,242.6
136.6
6.0
1,865.6
112.6
21.0
16.3
41.3
191.2
1,674.4
227.3
—
0.8
(9.2)
32.0
13.5
(6.0)
31.1
—
(5.7)
(0.1)
(1.7)
(7.5)
38.6
(79.5)
1,200.8
660.0
1,860.8
145.3
315.0
11.7
1,274.6
150.1
—
1,896.7
112.6
15.3
16.2
39.6
183.7
1,713.0
147.8
Total Estimated Fair Value of Net Assets Acquired
1,860.8
(a) Includes a $123.5 million adjustment for discounting the purchase price for lack of marketability of the membership
interests issued for the NACP Combination and measurement period adjustments of $40.5 million, related to working
capital true-ups, offset by pension settlements.
1,901.7 $
(40.9) $
$
(b) Assumed Debt was valued at fair market value based on quoted market prices (Level 2 inputs) obtained from independent
pricing services.
(c) Intangible Assets, Net consists of customer relationships which are generally amortized using either a straight-lined
method, when the amortization pattern is not reliably determinable, or an accelerated method, generally over
approximately 20 years. The value of customer relationships was determined using a discounted cash flow model, which
includes an approximate 5% attrition rate. Beyond the twenty-year life, the present value of cash flows were not
meaningful.
As of December 31, 2018, the acquisition accounting for the NACP Combination and PFP Acquisition was complete and
the acquisition accounting for Letica Foodservice was preliminary based on the estimated fair values of all assets and
liabilities as of the acquisition date.
During the quarter ended March 31, 2019, the acquisition accounting for Letica Foodservice was finalized, resulting in an
approximately $5 million reduction in the value of property, plant and equipment.
62
62
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following unaudited pro forma consolidated results of operations data assumes that the NACP Combination occurred
as of the beginning of the period presented. This pro forma data is based on historical information and does not necessarily
reflect the actual results that would have occurred, nor is it indicative of future results of operations.
In millions, except per share data
Net Sales
Net Income Attributable to Graphic Packaging Holding Company
Income Per Share — Basic
Income Per Share — Diluted
Year Ended
December 31,
2017
$
5,912.5
367.7
1.18
1.18
Net Sales and Income from Operations from the NACP Combination was $1,407.1 million and $134.7 million,
respectively, for the year ended December 31, 2018. Total Assets increased as a result of the NACP Combination for the
Paperboard Mills and Americas Paperboard Packaging reportable segments by approximately $1.5 billion and $0.6 billion,
respectively, as compared to December 31, 2017.
During 2018, Net Sales and Loss from Operations from the Letica Foodservice and PFP acquisitions were $42.4 million
and $1.4 million, respectively.
In connection with the NACP Combination, the Company entered into agreements with IP for transition services, fiber
procurement fees, and corrugated products and ink supply. Payments to IP for the year ended December 31, 2019 under these
agreements were $0.1 million, $12.4 million (related to pass through wood purchases of approximately $229.1 million) and
$26.6 million, respectively. Payments to IP for the year ended December 31, 2018 under these agreements were
$22.0 million, $15.9 million (related to pass through wood purchases of approximately $194 million) and $28.5 million,
respectively. In addition, approximately $4 million and $6 million of payments were made for purchases unrelated to these
agreements for the year ended December 31, 2019 and 2018, respectively.
2017
As disclosed in "Note 1 - General Information," in 2017, the Company acquired Seydaco, Norgraft, and Carton Craft,
which are referred to collectively as the "2017 Acquisitions," for a total purchase price of approximately $189 million.
NOTE 5.
DEBT
Short-Term Debt is comprised of the following:
In millions
Short Term Borrowings
Current Portion of Finance Lease Obligations
Current Portion of Long-Term Debt
Total
2019
2018
$
$
9.3 $
4.6
36.5
50.4 $
11.7
3.8
36.5
52.0
Short-term borrowings are principally at the Company’s international subsidiaries. The weighted average interest rate on
short-term borrowings as of December 31, 2019 and 2018 was 2.1% and 8.4%, respectively.
On June 25, 2019, GPIL completed a private offering of $300.0 million aggregate principal amount of its senior unsecured
notes due 2027. The Senior Notes will bear interest at an annual rate of 4.75%. The net proceeds were used by the Company
to repay a portion of the outstanding borrowings under GPIL's revolving credit facility, which is under its senior secured
credit facility.
63
63
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt is comprised of the following:
In millions
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.82%, payable
in 2027
Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.17%,
payable in 2024
Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.91%,
payable in 2022
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.76%, payable
in 2021
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates
(3.28% at December 31, 2019) payable through 2023
Senior Secured Revolving Credit Facilities with interest payable at floating rates (1.50% at
December 31, 2019) payable in 2023
Finance Leases
Other
Total Long-Term Debt
Less: Current Portion
Less: Unamortized Deferred Debt Issuance Costs
Total
Long-Term Debt maturities (excluding finance leases) are as follows:
In millions
2020
2021
2022
2023
2024
After 2024
Total
2019
2018
$
300.0 $
—
300.0
250.0
425.0
300.0
250.0
425.0
1,396.1
1,432.6
52.8
134.2
5.4
2,863.5
41.1
2,822.4
12.5
$
2,809.9 $
$
$
399.0
122.9
26.5
2,956.0
40.3
2,915.7
10.6
2,905.1
36.5
489.4
128.2
1,471.2
300.4
303.6
2,729.3
64
64
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Credit Facilities
The following describes the Senior Secured Term Loan and Revolving Credit Facilities:
Date
Document(a)
Provision
Expiration(b)
March 2012
Amended and Restated Credit
Agreement
•$1.0 billion revolving credit
facility
•$1.0 billion amortizing term loan
facility
•LIBOR plus variable spread
(between 175 basis points and
275 basis points) depending on
consolidated total leverage ratio
December 2012
Amendment No. 1 to Credit
Agreement
•$300 million incremental term
loan
September 2013
Amendment No. 2 to Credit
Agreement
June 2014
Amendment No. 3 to Credit
Agreement
October 2014
Second Amended and Restated
Credit Agreement
January 2018
Third Amended and Restated
Credit Agreement
•Added €75 million
(approximately $100 million)
revolving credit facility for
borrowings in Euro and Pound
Sterling and a ¥2.5 billion
(approximately $25 million)
revolving credit facility for
borrowings in Yen. LIBOR plus
variable spread (between 150
basis points and 250 basis points)
depending on consolidated total
leverage ratio
•Increased revolving credit facility
under which borrowings can be
made in Euros or Sterling by
€63 million (approximately
$86 million)
•Increased the domestic revolving
credit facility by $250 million and
reduced the term loan by
approximately $169 million.
LIBOR plus variable spread
(between 125 basis points and
225 basis points) depending on
consolidated total leverage ratio
•Increased the domestic revolving
credit facility by $200 million to
$1,450 million and reduced the
term loan by approximately
$125 million to $800 million.
LIBOR plus variable spread
(between 125 basis points and
200 basis points) depending on
consolidated total leverage ratio
•Assumed the term loan
indebtedness as part of the NACP
Combination in an aggregate
amount of $660.0 million
January 2023
(a) The Company's obligations under the Credit Agreement are secured by substantially all of the Company's domestic assets.
(b) Expiration date is amended to most recent expiration of January 2023.
65
65
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition to the Amended and Restated Credit Agreement, on January 1, 2018 the Company assumed the term loan
indebtedness previously incurred by IP (the “Term Loan Credit Agreement”) in an aggregate amount of $660 million,
repayable pursuant to the same amortization schedule (expressed as a percentage of the principal amount thereof) as the Term
Loan A under the Amended and Restated Credit Agreement and has the same maturity date of January 1, 2023. The
applicable margin interest rate pricing grid, covenants and other terms are substantially equivalent to those contained in the
Amended and Restated Credit Agreement. The Term Loan Credit Agreement is secured by a lien and security interest in
substantially all of the assets of GPIL on a pari passu basis with the liens and security interests securing the Amended and
Restated Credit Agreement pursuant to the terms of a customary intercreditor agreement among the parties. The Amended
and Restated Credit Agreement and Term Loan Credit Agreement are collectively referred to as the "Credit Agreement."
At December 31, 2019, the Company and its U.S. and international subsidiaries had the following commitments, amounts
outstanding and amounts available under revolving credit facilities:
In millions
Senior Secured Domestic Revolving Credit Facility (a)
Senior Secured International Revolving Credit Facilities
Other International Facilities
Total
Total
Commitments
Total
Outstanding
Total Available
$
$
1,450.0 $
— $
1,432.1
178.0
59.7
52.8
14.6
125.2
45.1
1,687.7 $
67.4 $
1,602.4
(a) In accordance with its debt agreements, the Company's availability under its Revolving Credit Facility has been reduced by
the amount of standby letters of credit issued of $17.9 million as of December 31, 2019. These letters of credit are
primarily used as security against its self-insurance obligations and workers' compensation obligations. These letters of
credit expire at various dates through 2020 unless extended.
The Credit Agreement and the 4.75% Senior Notes due 2027 are guaranteed by GPIP and certain domestic subsidiaries,
and the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022 and 4.125% Senior Notes due 2024 are guaranteed by
GPHC and certain domestic subsidiaries. For additional information on the financial statements of GPIP, see "Note 19 -
Guarantor Consolidating Financial Statements” of the Notes to the Consolidated Financial Statements of GPIL in its Annual
Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission.
The Credit Agreement and the indentures governing the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022,
4.125% Senior Notes due 2024 and 4.75% Senior Notes due 2027 (the “Indentures”) limit the Company's ability to incur
additional indebtedness. Additional covenants contained in the Credit Agreement and the Indentures may, among other
things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness,
repurchase stock, pay dividends and make other restricted payments, create liens, make equity or debt investments, make
acquisitions, modify terms of the Indentures, engage in mergers or consolidations, change the business conducted by the
Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions could limit the Company’s
ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital
investments or take advantage of business opportunities.
As of December 31, 2019, the Company was in compliance with the covenants in the Amended and Restated Credit
Agreement, the Term Loan Credit Agreement and the Indentures.
NOTE 6.
LEASES
Effective January 1, 2019, the Company adopted ASC 842, which requires recognition of a right-of-use asset and lease
liability for all leases at the commencement date based on the present value of lease payments over the lease term. Additional
qualitative and quantitative disclosures regarding the Company's leasing arrangements are also required. The Company
adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment
of: (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In
addition, the Company has elected other available practical expedients to not separate lease and nonlease components, which
consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an
initial term of 12 months or less.
66
66
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases
for warehouses, corporate and regional offices, and machinery and equipment. The Company enters into lease contracts
ranging from one to 25 years with the majority of leases having terms of three to seven years, many of which include options
to extend in various increments. Variable lease costs consist primarily of variable warehousing costs, common area
maintenance, taxes, and insurance. The Company’s leases do not have any significant residual value guarantees or restrictive
covenants.
As the implicit rate is not readily determinable for most of the Company’s leases agreements, the Company uses an
estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases
are calculated using the Company's credit spread adjusted for current market factors, including fixed rate swaps, LIBOR, and
foreign currency rates.
The components of lease costs are as follows:
In millions
Finance lease costs:
Amortization of right-of-use asset
Interest on lease liabilities
Operating lease costs
Short-term lease costs
Variable lease costs
Total lease costs, net
Supplemental cash flow information related to leases was as follows:
In millions
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Twelve Months Ended
December 31, 2019
$
$
7.6
7.8
64.8
12.9
4.4
97.5
Twelve Months Ended
December 31, 2019
$
64.7
7.8
4.2
73.1
15.5
67
67
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Supplemental balance sheet information related to leases was as follows:
In millions, except lease term and discount rate
Balance Sheet Classification
Operating Leases:
Operating lease right-of-use asset
Current operating lease liabilities
Noncurrent operating lease liabilities
Total operating lease liabilities
Finance Leases:
Property, Plant and Equipment
Accumulated depreciation
Property, Plant and Equipment, net
Other Assets
Other Current Liabilities
Other Noncurrent Liabilities
Current finance lease liabilities
Short-Term Debt and Current Portion of Long-Term Debt
Noncurrent finance lease liabilities
Total finance lease liabilities
Long-Term Debt
Weighted Average Remaining Lease Term (Years)
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
Maturities of lease liabilities are as follows:
In millions
Year ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Total
68
68
December 31,
2019
$
$
$
$
$
$
$
202.8
54.8
151.5
206.3
142.1
(12.2)
129.9
4.6
129.6
134.2
5
17
3.57 %
5.60 %
Operating
Leases
Finance
Leases
$
$
60.8 $
48.4
38.6
29.0
18.1
30.7
225.6
(19.3)
206.3 $
12.5
12.6
12.2
12.4
12.4
158.2
220.3
(86.1)
134.2
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7.
STOCK INCENTIVE PLANS
The Company has one active equity compensation plan from which new grants may be made, the Graphic Packaging
Holding Company 2014 Omnibus Stock and Incentive Compensation Plan (the “2014 Plan”). Under the 2014 Plan, the
Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and other types
of stock-based and cash awards. Awards under the 2014 Plan generally vest and expire in accordance with terms established
at the time of grant. Shares issued pursuant to awards under the 2014 Plan are from the Company’s authorized but unissued
shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award and are
adjusted for actual performance for performance-based awards.
Stock Awards, Restricted Stock and Restricted Stock Units
Under the 2014 Plan, all RSUs generally vest and become payable in three years from date of grant. RSUs granted to
employees generally contain some combination of service and performance objectives based on various financial targets and
relative total shareholder return that must be met for the RSUs to vest. Stock awards granted to non-employee directors as
part of their compensation for service on the Board are unrestricted on the grant date.
Data concerning RSUs and stock awards granted in the years ended December 31:
RSUs — Employees
Weighted-average grant date fair value
Stock Awards — Board of Directors
Weighted-average grant date fair value
2019
2,187,603
2018
1,951,738
$
$
12.37 $
14.86 $
74,760
51,226
12.84 $
15.03 $
2017
1,472,995
13.52
65,520
13.43
A summary of the changes in the number of unvested RSUs from December 31, 2016 to December 31, 2019 is presented
below:
Outstanding — December 31, 2016
Granted(a)
Released
Forfeited
Performance adjustment(b)
Outstanding — December 31, 2017
Granted(a)
Released
Forfeited
Performance adjustment(b)
Outstanding — December 31, 2018
Granted(a)
Released
Shares
Weighted Average
Grant Date Fair Value
4,667,675 $
1,472,995
(1,720,327)
(622,463)
74,054
3,871,934 $
1,951,738
(744,757)
(210,553)
(408,328)
4,460,034 $
2,187,603
(900,516)
12.21
13.52
10.05
13.13
9.93
13.10
14.86
14.90
13.49
15.10
13.27
12.37
12.00
Forfeited
Performance adjustment(b)
Outstanding — December 31, 2019
(a) Grant activity for all performance-based RSUs is disclosed at target.
(b) Reflects the number of RSUs above and below target levels based on actual performance measured at the end of the
5,059,690 $
(187,729)
(499,702)
13.66
13.27
11.57
performance period.
69
69
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The initial value of the service-based RSUs is based on the market value of the Company’s common stock on the date of
grant. The 2019 performance-based RSU grants were valued using a Monte Carlo simulation as the total shareholder return
contains a market condition. RSUs are recorded in Stockholders' Equity. The unrecognized expense at December 31, 2019 is
approximately $31 million and is expected to be recognized over a weighted average period of 2 years.
The value of stock awards granted to the Company's directors are based on the market value of the Company’s common
stock on the date of grant. These awards are unrestricted on the date of grant.
During 2019, 2018, and 2017, $21.7 million, $13.8 million and $8.9 million, respectively, were charged to compensation
expense for stock incentive plans.
During 2019, 2018, and 2017, RSUs with an aggregate fair value of $11.1 million, $13.7 million and $23.2 million,
respectively, vested and were paid out. The RSUs vested and paid out in 2019 were granted primarily during 2016.
NOTE 8.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
DEFINED BENEFIT PLANS
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 employees’ compensation.
Currently, the North American plans are closed to newly-hired employees except as noted below. Effective July 1, 2011,
the North American plans were frozen for most salaried and non-union hourly employees and replaced with a defined
contribution plan.
During the fourth quarter of 2017, the Company made an additional $75 million contribution to its U.S. defined benefit
plan and also made an additional contribution of $6.8 million to its U.K. defined benefit plan.
During 2018, the Company began the process of terminating its largest U.S. pension plan (the "US Plan"). This included
freezing the plan as of December 31, 2018 and spinning off the active participants to the plan established as part of the NACP
Combination (the "NACP Plan"). The NACP Plan is open for union and non-union hourly employees of locations that were
part of the NACP Combination. During the third quarter of 2019, the Company offered a lump-sum benefit option to certain
participants in the US Plan. Lump sum payments of $150.2 million were paid in the fourth quarter of 2019 and the Company
recognized a non-cash settlement charge of $39.2 million associated with the payouts. In the first quarter of 2020, the
Company agreed to purchase a group annuity contract that will transfer the remaining pension benefit obligation under the
US Plan of approximately $750 million to an insurance company and expects to incur an additional non-cash settlement
charge of approximately $150 million related to this transfer. These non-cash settlement charges relate to Net Actuarial Loss
recognized in Accumulated Other Comprehensive Loss.
70
70
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension and Postretirement Expense
The pension and postretirement expenses related to the Company’s plans consisted of the following:
In millions
Components of Net Periodic Cost:
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization:
Prior Service Cost (Credit)
Actuarial Loss (Gain)
Net Curtailment/Settlement Loss
Other
Net Periodic Cost (Benefit)
Pension Benefits
Postretirement Benefits
Year Ended December 31,
2019
2018
2017
2019
2018
2017
$
$
14.0 $
46.1
(54.9)
17.3 $
41.8
(63.6)
8.2 $
42.6
(64.1)
0.2
10.0
39.2
0.3
54.9 $
0.4
5.9
1.0
0.5
3.3 $
0.5
6.5
—
0.8
(5.5) $
0.5 $
1.2
—
(0.3)
(2.3)
—
—
(0.9) $
0.6 $
1.2
—
(0.3)
(1.8)
—
—
(0.3) $
0.8
1.3
—
(0.3)
(2.1)
—
—
(0.3)
Certain assumptions used in determining the pension and postretirement expenses were as follows:
Weighted Average Assumptions:
Discount Rate
Rate of Increase in Future Compensation Levels
Expected Long-Term Rate of Return on Plan
Assets
Initial Health Care Cost Trend Rate
Ultimate Health Care Cost Trend Rate
Ultimate Year
Pension Benefits
Postretirement Benefits
Year Ended December 31,
2019
2018
2017
2019
2018
2017
4.14%
2.37%
4.74%
—
—
—
3.49%
2.09%
4.86%
—
—
—
4.01%
1.45%
5.79%
—
—
—
4.29%
—
—
9.00%
4.50%
2028
3.64%
—
—
9.00%
4.50%
2027
4.10%
—
—
7.45%
4.50%
2024
71
71
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Funded Status
The following table sets forth the funded status of the Company’s pension and postretirement plans as of December 31:
Pension Benefits
Postretirement Benefits
2019
2018
2019
2018
$
$
$
1,245.2
14.0
46.1
157.8
9.2
(150.2)
(67.2)
0.5
1,255.4
1,186.5
181.7
11.3
10.3
(67.2)
(150.2)
1,172.4
$
$
$
1,367.1
17.3
41.8
(101.9)
(14.8)
—
(65.4)
1.1
1,245.2
1,340.7
(79.6)
5.8
(15.0)
(65.4)
—
1,186.5
$
(83.0) $
$
(58.7) $
34.1
0.5
1.2
1.1
0.1
—
(1.2)
0.1
35.9
$
$
— $
—
1.2
—
(1.2)
—
— $
(35.9) $
37.3
0.6
1.2
(3.0)
(0.2)
—
(1.9)
0.1
34.1
—
—
1.9
—
(1.9)
—
—
(34.1)
25.6
$
19.0
$
— $
—
(1.7) $
(1.8) $
(2.4) $
(2.5)
(106.9) $
(75.9) $
(33.5) $
(31.6)
279.9
3.6
$
$
297.3
3.6
$
$
(0.8) $
(17.3) $
(1.6)
(20.2)
2.69%
2.36%
—
—
—
4.14%
2.37%
—
—
—
3.22%
—
6.65%
4.50%
2028
4.29%
—
9.00%
4.50%
2027
In millions
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year
Service Cost
Interest Cost
Actuarial Loss (Gain)
Foreign Currency Exchange
Settlements
Benefits Paid
Other
Benefit Obligation at End of Year
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year
Actual Return on Plan Assets
Employer Contributions
Foreign Currency Exchange
Benefits Paid
Settlements
Fair Value of Plan Assets at End of Year
Plan Assets Less than Projected Benefit Obligation
Amounts Recognized in the Consolidated Balance
Sheets Consist of:
Pension Assets
Accrued Pension and Postretirement Benefits
Liability — Current
Accrued Pension and Postretirement Benefits
Liability — Noncurrent
Accumulated Other Comprehensive Income:
Net Actuarial Loss (Gain)
Prior Service Cost (Credit)
Weighted Average Calculations:
Discount Rate
Rates of Increase in Future Compensation Levels
Initial Health Care Cost Trend Rate
Ultimate Health Care Cost Trend Rate
Ultimate Year
$
$
$
$
$
$
$
$
$
$
72
72
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company determined pension expense using both the fair value of assets and a calculated value that averages gains
and losses over a period of years. Investment gains or losses represent the difference between the expected and actual return
on assets. As of December 31, 2019, the net actuarial loss was $279.9 million. These net losses may increase future pension
expense if not offset by (i) actual investment returns that exceed the assumed investment returns, or (ii) other factors,
including reduced pension liabilities arising from higher discount rates used to calculate pension obligations, or (iii) other
actuarial gains, including whether such accumulated actuarial losses at each measurement date exceed the “corridor”
determined under the Compensation — Retirement Benefits topic of the FASB Codification. For the largest plan, the actuarial
loss is amortized over the average remaining life expectancy period of employees expected to receive benefits.
The discount rate used to determine the present value of future pension obligations at December 31, 2019 was based on a
yield curve constructed from a portfolio of high-quality corporate debt securities with maturities ranging from 1 year to
30 years. Each year’s expected future benefit payments were discounted to their present value at the spot yield curve rate
thereby generating the overall discount rate for the Company’s pension obligations. The weighted average discount rate used
to determine the pension obligations was 2.69% and 4.14% in 2019 and 2018, respectively.
Accumulated Benefit Obligation
The accumulated benefit obligation, (“ABO”), for all defined benefit pension plans was $1,249.8 million and $1,240.2
million at December 31, 2019 and 2018, respectively. There are three plans where the ABO and projected benefit obligation
("PBO") exceed plan assets. The aggregate ABO, PBO and fair value of plan assets for these plans are $1,043.0 million,
$1,048.6 million and $942.9 million, respectively.
Employer Contributions
The Company made contributions of $11.3 million and $5.8 million to its pension plans during 2019 and 2018,
respectively. The Company also made postretirement health care benefit payments of $1.2 million and $1.9 million during
2019 and 2018, respectively. For 2020, the Company expects to make contributions in the range of $10 million to $20 million
to its pension plans and approximately $3 million to its postretirement health care plans.
Pension Assets
The Company’s overall investment strategy is to achieve a mix of investments for long-term growth and near-term benefit
payments through diversification of asset types, fund strategies and fund managers. Investment risk is measured on an on-
going basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.
The plans invest in the following major asset categories: cash, equity securities, fixed income securities, real estate and
diversified growth funds. At December 31, 2019 and 2018, pension investments did not include any direct investments in the
Company’s stock or the Company’s debt.
The Company implemented a de-risking or liability driven investment strategy for its U.S. and U.K. pension plans. This
strategy moved assets from return seeking (equities) to investments that mirror the underlying benefit obligations (fixed
income).
The weighted average allocation of plan assets and the target allocation by asset category is as follows:
Cash
Equity Securities
Fixed Income Securities
Other Investments
Total
Target
2019
2018
0.2 %
8.4
85.2
6.2
100.0 %
13.6 %
7.7
68.6
10.1
100.0 %
5.0%
8.1
79.5
7.4
100.0%
The plans’ investment in equity securities primarily includes investments in U.S. and international companies of varying
sizes and industries. The strategy of these investments is to 1) exceed the return of an appropriate benchmark for such equity
classes and 2) through diversification, reduce volatility while enhancing long term real growth.
73
73
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The plans’ investment in fixed income securities includes government bonds, investment grade bonds and non-investment
grade bonds across a broad and diverse issuer base. The strategy of these investments is to provide income and stability and
to diversify the fixed income exposure of the plan assets, thereby reducing volatility.
The Company’s approach to developing the expected long-term rate of return on pension plan assets is based on fair values
and combines an analysis of historical investment performance by asset class, the Company’s investment guidelines and
current and expected economic fundamentals.
The following tables set forth, by category and within the fair value hierarchy, the fair value of the Company’s pension
assets at December 31, 2019 and 2018:
In millions
Asset Category:
Cash (a)
Equity Securities:
Domestic (a)
Foreign (a)
Fixed Income Securities (a)
Other Investments:
Real estate
Diversified growth fund (b)
Total
In millions
Asset Category:
Cash (a)
Equity Securities:
Domestic (a)
Foreign (a)
Fixed Income Securities (a)
Other Investments:
Real estate
Diversified growth fund (b)
Total
Fair Value Measurements at December 31, 2019
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Total
Significant
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
159.6 $
0.3 $
159.3 $
82.9
7.0
852.5
4.7
7.0
17.0
78.2
—
835.3
21.9
48.5
1,172.4 $
$
—
—
29.0 $
8.9
48.5
1,130.2 $
—
—
—
0.2
13.0
—
13.2
Fair Value Measurements at December 31, 2018
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Total
$
58.8 $
0.3 $
58.5 $
86.4
9.2
980.1
3.6
5.3
15.0
82.8
3.8
962.3
9.2
42.8
1,186.5 $
$
—
—
24.2 $
7.6
41.5
1,156.5 $
—
—
—
2.8
1.6
1.4
5.8
(a) The Level 2 investments are held in pooled funds and fair value is determined by net asset value, based on the underlying
investments, as reported on the valuation date.
(b) The fund invests in a combination of traditional investments (equities, bonds, and foreign exchange), seeking to achieve
returns through active asset allocation over a three to five-year horizon.
74
74
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of fair value measurements of plan assets using significant unobservable inputs (Level 3) is as follows:
In millions
Balance at January 1,
Transfers In
Return on Assets Held at December 31
Balance at December 31,
Postretirement Health Care Trend Rate Sensitivity
2019
2018
$
$
5.8 $
7.4
—
13.2 $
0.8
5.0
—
5.8
Assumed health care cost trend rates affect the amounts reported for postretirement health care benefit plans. A one-
percentage-point change in assumed health care cost trend rates would have the following effects on 2019 data:
In millions
Health Care Cost Trend Rate Sensitivity:
Effect on Total Interest and Service Cost Components
Effect on Year-End Postretirement Benefit Obligation
Estimated Future Benefit Payments
One Percentage Point
Increase
Decrease
$
$
0.1 $
2.1 $
(0.1)
(1.8)
The following represents the Company’s estimated future pension and postretirement health care benefit payments through
the year 2029:
In millions
2020
2021
2022
2023
2024
2025— 2029
Pension Plans
Postretirement
Health Care
Benefits
$
71.4 $
73.0
74.5
75.9
76.9
384.5
2.4
2.5
2.6
2.6
2.8
11.4
Amounts in Accumulated Other Comprehensive Loss Expected to Be Recognized in Net Periodic Benefit Costs in 2020
During 2020, amounts recorded in Accumulated Other Comprehensive Loss expected to be recognized in Net Periodic
Benefit Costs are as follows:
In millions
Recognition of Prior Service Cost
Recognition of Actuarial Loss (Gain)(a)
Pension Benefits
$
0.2 $
4.9
Postretirement
Health Care
Benefits
(0.3)
(2.1)
(a) Estimate excludes approximately $150 million of expense that we expect to recognize in 2020 related to the settlement of
$750 million of pension obligations through the purchase of a group annuity contract.
Multi-Employer Plans
Certain of the Company’s employees participate in multi-employer plans that provide both pension and other
postretirement health care benefits to employees under union-employer organization agreements. Expense related to ongoing
participation in these plans for the years ended December 31, 2019 and 2018 was $0.6 million and $3.4 million, respectively.
75
75
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Estimated liabilities have been established related to the partial or complete withdrawal from certain multi-employment
benefit plans for facilities which have been closed. At December 31, 2019, and December 31, 2018, the Company has $30.8
million and $32.4 million, respectively, recorded in Other Noncurrent Liabilities for these withdrawal liabilities which
represents the Company's best estimate of the expected withdrawal liability.
In 2019, the Company made a complete withdrawal from the Graphic Communication Conference of the International
Brotherhood of Teamster Pension Fund ("GCC/IBT") and the PACE Industry Union-Management Pension Fund
("PIUMPF"). Liabilities of $4.4 million were recorded associated with these withdrawals.
The Company's remaining participation in a multi-employer pension plan consists of contributions to one plan under the
terms contained in collective bargaining agreements. The risks of participating in these multi-employer plans are different
from single-employer plans in the following ways:
a.
b.
c.
Assets contributed to the multi-employers plan by one employer may be used to provide benefits to employees of
other participating employers.
If a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the
remaining participating employers.
If a company chooses to stop participating in a multi-employer plan, a company may be required to pay that plan
an amount based on the underfunded status of the plan, referred to as the withdrawal liability.
The Company's participation in these plans for the year ended December 31, 2019, 2018 and 2017 is shown in the table
below:
Multi-employer
Pension Fund
EIN/Pension Plan
Number
2019
2018
FIP/RP Status
Implemented
2019
2018
2017
Surcharge
Imposed
Expiration Date
of Bargaining
Agreement
Pension Protection
Act Zone Status
Company Contributions
(in millions)
Central States
Southeast and
Southwest Areas
Pension Fund
PIUMPF(a)
GCC/IBT(a)
Total
36-6044243/001 Red
11-6166763/001 Red
52-6118568/001
Red
Red
Red
Red
Yes
Yes
Yes
(a) As noted above, the Company withdrew from these plans in 2019.
$ 0.1 $ 0.1 $ 0.1
— 0.1
0.1
0.1
0.3
$ 0.2 $ 0.5 $ 0.5
0.3
Yes
Yes
Yes
7/31/2023
6/15/2022
4/30/2022
The EIN Number column provides the Employer Identification Number (EIN). Unless otherwise noted, the most recent
Pension Protection Act (PPA) zone status available in 2019 and 2018 is for the plan's year-end at December 31, 2018 and
December 31, 2017, respectively. The zone status is based on information that the Company receives from the plan and is
certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in
the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The "FIP/RP
Status Implemented" column indicates plans for which a Financial Improvement Plan (FIP) or Rehabilitation Plan (RP) has
been implemented. The Company's share of the contributions to these plans did not exceed 5% of total plan contributions for
the most recent plan year.
DEFINED CONTRIBUTION PLANS
The Company provides defined contribution plans for certain eligible employees. The Company’s contributions to the
plans are based upon employee contributions, a percentage of eligible compensation, and the Company’s annual operating
results. Contributions to these plans for the years ended December 31, 2019, 2018 and 2017 were $57.6 million, $54.6
million and $37.7 million, respectively. The increase of $16.9 million from 2017 to 2018 is due primarily to the NACP
Combination.
76
76
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9.
INCOME TAXES
The U.S. and international components of Income before Income Taxes and Equity Income of Unconsolidated Entity
consisted of the following:
In millions
U.S.
International
Income before Income Taxes and Equity Income of Unconsolidated
Entity
$
$
Year Ended December 31,
2019
2018
2017
305.4 $
48.6
298.9 $
48.6
227.5
25.5
354.0 $
347.5 $
253.0
The provisions for Income Tax (Expense) Benefit on Income before Income Taxes and Equity Income of Unconsolidated
Entity consisted of the following:
In millions
Current (Expense) Benefit:
U.S.
International
Total Current
Deferred (Expense) Benefit:
U.S.
International
Total Deferred
Income Tax (Expense) Benefit
Year Ended December 31,
2019
2018
2017
$
$
$
$
(10.1) $
(13.5)
(23.6) $
(47.7)
(5.0)
(52.7) $
(76.3) $
(13.0) $
(15.7)
(28.7) $
(31.6)
5.6
(26.0) $
(54.7) $
0.7
(9.2)
(8.5)
51.0
3.0
54.0
45.5
A reconciliation of Income Tax (Expense) Benefit on Income before Income Taxes and Equity Income of Unconsolidated
Entity at the federal statutory rate of 21% compared with the Company’s actual Income Tax (Expense) Benefit is as follows:
In millions
2019
Percent
2018
Percent
2017
Percent
Income Tax Expense at U.S. Statutory Rate
$ (74.3)
21.0 % $
(73.0)
21.0 % $
(88.5)
35.0 %
Year Ended December 31,
U.S. State and Local Tax Expense
Permanent Items
U.S. Tax Reform
Change in Valuation Allowance due to Tax Reform
Change in Valuation Allowance
International Tax Rate Differences
Foreign Withholding Tax
Change in Tax Rates
U.S. Federal & State Tax Credits
Uncertain Tax Positions
Capital Loss Expiration
Domestic Minority Interest
Other
Income Tax (Expense) Benefit
(12.3)
(2.8)
—
—
(4.6)
(1.6)
(0.7)
(1.0)
9.5
(1.9)
—
13.7
(0.3)
$ (76.3)
3.5
0.8
—
—
1.3
0.5
0.2
0.3
(2.7)
0.5
—
(3.9)
0.1
21.6 % $
(11.7)
(3.8)
10.9
—
13.0
(1.9)
(0.5)
1.9
0.3
(0.7)
(2.7)
13.7
(0.2)
(54.7)
3.4
1.1
(3.1)
—
(3.7)
0.5
0.1
(0.5)
(0.1)
0.2
0.7
(3.9)
—
15.7 % $
(8.7)
(2.7)
138.0
(2.0)
(3.5)
3.2
(0.4)
(3.0)
10.2
(0.3)
—
—
3.2
45.5
3.4
1.0
(54.5)
0.8
1.4
(1.3)
0.2
1.2
(4.0)
0.1
—
—
(1.3)
(18.0)%
During 2019, the Company recognized tax expense of approximately $4.8 million associated with the valuation allowance
against the net deferred tax assets of its Australian subsidiary.
77
77
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As a result of the NACP Combination, federal and state income taxes are not recorded with respect to consolidated
domestic earnings attributable to the Company’s minority interest partner, resulting in a difference between the effective tax
rate and the statutory tax rate. In addition, during 2018, the Company finalized its accounting for the income tax impact of the
Tax Cuts and Jobs Act (the “Act”) resulting in a tax benefit of $10.9 million primarily attributable to the one-time transition
tax incurred on its 2017 U.S. federal income tax return. Finally, in 2018, the Company reduced its valuation allowance
against certain deferred tax assets. Of the total reduction of $13 million, approximately $10 million was related to deferred
tax assets for domestic and state income tax attributes that expired during the year and therefore did not have a meaningful
impact on the overall effective tax rate. Of the remaining $3 million reduction, approximately $2 million was attributable to
the release of the valuation allowance against the net deferred tax assets of the Company’s wholly-owned subsidiary in
France.
During 2017, the Company recognized a provisional net income tax benefit of $136.0 million as a result of the effect of the
enactment of the Act on December 22, 2017. The Act significantly reduced the U.S. federal corporate income tax rate which
resulted in an income tax benefit of $156.3 million as a result of the remeasurement of the Company’s domestic net Deferred
Tax Liabilities. In addition, the Act required companies to record a one-time transition tax impact based on foreign earnings
& profits, which resulted in additional tax expense in 2017 of $20.5 million.
The tax effects of differences that give rise to significant portions of the deferred income tax assets and deferred income
tax liabilities as of December 31 were as follows:
In millions
Deferred Income Tax Assets:
Compensation Based Accruals
Net Operating Loss Carryforwards
Postretirement Benefits
Tax Credits
Other
Valuation Allowance
Total Deferred Income Tax Assets
Deferred Income Tax Liabilities:
Property, Plant and Equipment
Goodwill
Other Intangibles
Investment in Partnership
Net Noncurrent Deferred Income Tax Liabilities
Net Deferred Income Tax Liability
2019
2018
$
$
$
$
3.8 $
45.5
0.9
37.2
10.9
(41.1)
57.2 $
(18.8)
(2.7)
(12.3)
(532.2)
(566.0) $
(508.8) $
2.9
73.4
1.0
30.8
7.6
(36.3)
79.4
(16.7)
(2.3)
(12.3)
(502.1)
(533.4)
(454.0)
As a result of NACP combination, the Company currently owns a controlling interest in GPIP, which is treated as a
partnership for U.S. federal and state income tax purposes, with IP holding a minority interest. As such, the Company records
income tax on its share of income allocated to it by the partnership. Accordingly, domestic deferred tax assets and liabilities
are not tracked based on the inside basis difference of assets and liabilities held within GPIP. Instead, the Company’s outside
basis difference in its partnership investment is recorded as a deferred tax liability and disclosed above. The deferred tax
liability primarily relates to differences between book and tax basis in property, plant and equipment and intangibles inside
the partnership. Additionally, in 2018, as a result of the NACP combination the Company’s book basis in its investment in
GPIP increased resulting in an increase in its deferred tax liability of $123.3 million that was recorded through additional
paid-in capital.
According to the Income Taxes topic of the FASB Codification, a valuation allowance is required to be established or
maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of
a deferred tax asset will not be realized. The FASB Codification provides important factors in determining whether a deferred
tax asset will be realized, including whether there has been sufficient pretax income in recent years and whether sufficient
income can reasonably be expected in future years in order to utilize the deferred tax asset. The Company has evaluated the
need to maintain a valuation allowance for deferred tax assets based on its assessment of whether it is more likely than not
that deferred tax assets will be realized through the generation of future taxable income. Appropriate consideration was given
to all available evidence, both positive and negative, in assessing the need for a valuation allowance.
78
78
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company reviewed its deferred income tax assets as of December 31, 2019 and 2018, respectively, and determined
that it is more likely than not that a portion will not be realized. A valuation allowance of $41.1 million and $36.3 million at
December 31, 2019 and 2018, respectively, is maintained on the deferred income tax assets for which the Company has
determined that realization is not more likely than not. Of the total valuation allowance at December 31, 2019, $31.8
million relates to net deferred tax assets in certain foreign jurisdictions, $0.7 million relates to U.S. federal income tax credit
carryforwards, $4.1 million relates to tax credit carryforwards in certain states, and the remaining $4.5 million relates to net
operating losses in certain U.S. states. The need for a valuation allowance is made on a jurisdiction-by-jurisdiction basis. As
of December 31, 2019, the Company concluded that due to cumulative pretax losses and the lack of sufficient future taxable
income of the appropriate character, realization is less than more likely than not on the net deferred income tax assets related
primarily to the Company’s Australia, Brazil, China and Germany operations as well as the Company's previously
discontinued Canadian operations.
The following table represents a summary of the valuation allowances against deferred tax assets as of and for the three
years ended December 31, 2019, 2018, and 2017, respectively:
In millions
Balance Beginning of Period
Adjustments for Expenses and (Income)
Additions (Deductions)
Balance at End of Period
The U.S. federal net operating loss carryforwards expire as follows:
December 31,
2019
2018
2017
$
$
36.3 $
4.6
0.2
41.1 $
51.5 $
(13.0)
(2.2)
36.3 $
In millions
2024
2025
2026
2027
2028
2029
Total
$
$
45.5
5.5
0.5
51.5
—
—
—
—
31.8
—
31.8
U.S. state net operating loss carryforward amounts total $220.9 million and expire in various years through 2038.
International net operating loss carryforward amounts total $110.0 million, of which substantially all have no expiration
date.
Tax Credit carryforwards total $37.2 million which expire in various years from 2020 through 2038.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
In millions
Balance at January 1,
Additions for Tax Positions of Current Year
Additions for Tax Positions of Prior Years
Reductions for Tax Positions of Prior Years
Balance at December 31,
2019
2018
2017
$
$
15.5 $
3.2
2.4
(0.4)
20.7 $
10.5 $
0.8
5.2
(1.0)
15.5 $
10.1
0.6
0.7
(0.9)
10.5
79
79
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 2019, $17.3 million of the total gross unrecognized tax benefits, if recognized, would affect the annual
effective income tax rate. During 2019, $3.4 million of the total gross unrecognized tax benefits recorded are related to
In addition, $0.1 million of the total
indefinite lived deferred tax assets and did not have an impact on total tax expense.
change in unrecognized tax benefits relates to currency translation adjustments.
The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within its global
operations in Income Tax Expense. The Company had an accrual for the payment of interest and penalties of $0.1 million and
$0.1 million at December 31, 2019 and 2018, respectively.
The Company anticipates that $1.7 million of the total unrecognized tax benefits at December 31, 2019 could change
within the next 12 months.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations for years before 2016.
As of December 31, 2019, the Company has only provided for deferred U.S. income taxes attributable to future
withholding tax expense related to the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd.
During 2019, the Company changed its assertion related to certain earnings of its Canadian subsidiary, Graphic Packaging
International Canada, ULC. The Company continues to assert that it is permanently reinvested in the cumulative earnings of
its Canadian subsidiary in excess of the amount of cash that is on-hand and available for distribution after consideration of
working capital needs and other debt settlement, however, with respect to the excess cash on hand, the Company asserts that
it is not permanently reinvested. Due to the deemed taxation of all post-1986 earnings and profits required by the Act, as well
as the amount of paid up capital available in Canada from which the Company can distribute earnings without incurring
withholding tax, the Company has determined that no deferred tax liability should be recorded related to the outside basis
difference of approximately $31.6 million.
The Company has not provided for deferred U.S. income taxes on approximately $35 million of its undistributed earnings
in international subsidiaries because of the Company’s intention to indefinitely reinvest these earnings outside the U.S. The
Company’s assertion remains unchanged, despite the deemed taxation of all post-1986 earnings and profits required by the
Act. The determination of the amount of the unrecognized deferred U.S. income tax liability (primarily withholding tax in
certain jurisdictions and some state tax) on the unremitted earnings or any other associated outside basis difference is not
practicable because of the complexities associated with the calculation.
The Company has elected to recognize global intangible low-taxed income (“GILTI”) as period cost as incurred, therefore
there are no deferred taxes recognized for basis differences that are expected to impact the amount of the GILTI inclusion
upon reversal.
NOTE 10.
FINANCIAL INSTRUMENTS, DERIVATIVES AND HEDGING ACTIVITIES
The Company enters into derivative instruments for risk management purposes only, including derivatives designated as
hedging instruments under the Derivatives and Hedging topic of the FASB Codification and those not designated as hedging
instruments under this guidance. The Company uses interest rate swaps, natural gas swap contracts, and forward exchange
contracts. These derivative instruments are designated as cash flow hedges and, to the extent they are effective in offsetting
the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are
included in Accumulated Other Comprehensive 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.
80
80
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Interest Rate Risk
The Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate
changes on its variable rate term loan facility. The following table summarizes the Company's current interest rate swap
positions for each period presented as of December 31, 2019:
Start
04/03/2018
04/03/2018
12/03/2018
12/03/2018
End
01/01/2020
10/01/2020
01/01/2022
01/04/2022
(In Millions)
Notional Amount
Weighted Average
Interest Rate
$150.0
$150.0
$120.0
$80.0
2.25%
2.36%
2.92%
2.79%
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. Ineffectiveness measured in the hedging relationship is recorded in
earnings in the period it occurs. During 2019 and 2018, there were no amounts of ineffectiveness. During 2019 and 2018,
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 51% and 14% of its expected
natural gas usage for 2020 and 2021, respectively.
During 2019 and 2018, there were no and minimal amounts of ineffectiveness related to changes in the fair value of
natural gas swap contracts, respectively. Additionally, there were no amounts excluded from the measure of effectiveness.
Foreign Currency Risk
The Company enters into forward exchange contracts to manage risks associated with foreign currency transactions and
future variability of cash flows arising from those transactions that may be adversely affected by changes in exchange rates.
The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss and
gains/losses related to these contracts are recognized in Other Expense, Net or Net Sales, when appropriate.
At December 31, 2019 and 2018, multiple forward exchange contracts existed that expire on various dates throughout the
following year. Those purchased forward exchange contracts outstanding at December 31, 2019 and 2018, when aggregated
and measured in U.S. dollars at contractual rates at December 31, 2019 and 2018, had notional amounts totaling $87.6 million
and $51.6 million, respectively.
No amounts were reclassified to earnings during 2019 and 2018 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 during
2019 and 2018.
81
81
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 December 31, 2019
and 2018, multiple foreign currency forward exchange contracts existed, with maturities ranging up to three months. Those
foreign currency contracts outstanding at December 31, 2019 and 2018, when aggregated and measured in U.S. dollars at
contractual rates at December 31, 2019 and 2018, respectively, had net notional amounts totaling $77.4 million and $62.2
million. Unrealized gains and losses resulting from these contracts are recognized in Other Expense, Net and approximately
offset corresponding recognized but unrealized gains and losses on the remeasurement of these accounts receivable.
Foreign Currency Movement Effect
For the year ended December 31, 2019, net currency exchange gains included in determining Income from Operations
were $2.3 million. For the year ended December 31, 2018 and 2017, net currency exchange losses included in determining
Income from Operations were $1.6 million and $3.1 million, respectively.
NOTE 11.
FAIR VALUE MEASUREMENT
The Company follows the fair value guidance integrated into the Fair Value Measurements and Disclosures topic of the
FASB Codification in regards to financial and nonfinancial assets and liabilities. Nonfinancial assets and nonfinancial
liabilities include those measured at fair value in goodwill impairment testing, asset retirement obligations initially measured
at fair value, and those assets and liabilities initially measured at fair value in a business combination.
The FASB’s guidance defines fair value, establishes a framework for measuring fair value and expands the fair value
disclosure requirements. The accounting guidance applies to accounting pronouncements that require or permit fair value
measurements. It indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or
transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most
advantageous market for the asset or liability. The guidance defines fair value based upon an exit price model, whereby fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The guidance clarifies that fair value should be based on assumptions that market
participants would use, including a consideration of non-performance risk.
Valuation Hierarchy
The Fair Value Measurements and Disclosures topic establishes a valuation hierarchy for disclosure of the inputs used to
measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 inputs — quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs — 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.
Level 3 inputs — unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at
fair value.
An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to
the fair value measurement.
The Company has determined that its financial assets and financial liabilities include derivative instruments which are
carried at fair value and are valued using Level 2 inputs in the fair value hierarchy. The Company uses valuation techniques
based on discounted cash flow analyses, which reflects the terms of the derivatives and uses 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.
82
82
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fair Value of Financial Instruments
As of December 31, 2019 and 2018, there has not been any significant impact to the fair value of the Company's derivative
liabilities due to its own credit risk. Similarly, there has not been any significant adverse impact to the Company's derivative
assets based on evaluation of the Company's counterparties' credit risks. The following table summarizes the fair value of the
Company's derivative instruments:
Derivative Assets(a)
Derivative Liabilities(b)
December 31,
December 31,
In millions
2019
2018
2019
2018
Derivatives designated as hedging instruments:
Interest rate contracts
Foreign currency contracts
Commodity contracts
$
— $
0.8 $
6.6 $
—
—
—
—
1.5
3.4
2.7
0.5
0.2
Total Derivatives
3.4
$
(a) Derivative assets of $0.7 million are included in Other Current Assets as of December 31, 2018. Derivative assets of
11.5 $
0.8 $
— $
$0.1 million are included in Other Assets as of December 31, 2018.
(b) Derivative liabilities of $8.5 million and $1.3 million are included in Other Accrued Liabilities as of December 31, 2019
and December 31, 2018, respectively. Derivative liabilities of $3.0 million and $2.1 million are included in Other
Noncurrent Liabilities as of December 31, 2019 and December 31, 2018, respectively.
The fair values of the Company’s other financial assets and liabilities at December 31, 2019 and 2018 approximately equal
the carrying values reported on the 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 $2,788.6 million and $2,762.5
million, as compared to the carrying amounts of $2,729.3 million and $2,833.1 million as of December 31, 2019 and 2018,
respectively. The fair value of the Company's Total Debt, including the Senior Notes, are 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 Consolidated Statements
of Operations for the year ended December 31, 2019 and 2018 is as follows:
In millions
Commodity Contracts
Foreign Currency Contracts
Interest Rate Swap Agreements
Total
Amount of Loss (Gain)
Recognized in Accumulated
Other Comprehensive Loss
Year Ended December 31,
2019
2018
Location in Statement of
Operations
$
$
1.4 $
0.1
5.8
7.3 $
(0.7) Cost of Sales
(0.3) Other Expense, Net
2.0
1.0
Interest Expense, Net
Amount of (Gain) Loss
Recognized in Statement of
Operations
Year Ended December 31,
2019
2018
$
$
(1.8) $
(1.3)
1.4
(1.7) $
(0.4)
0.7
(0.9)
(0.6)
The effect of derivative instruments not designated as hedging instruments on the Company’s Consolidated Statements of
Operations for the years ended December 31, 2019 and 2018 is as follows:
In millions
Foreign Currency Contracts
Other Expense (Income), Net
$
(0.9) $
(5.6)
2019
2018
83
83
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accumulated Derivative Instruments (Loss) Income
The following is a rollforward of pre-tax Accumulated Derivative Instruments (Loss) Income which is included in the
Company’s Consolidated Balance Sheets and Consolidated Statements of Shareholders’ Equity as of December 31:
In millions
Balance at January 1
Reclassification to Earnings
Current Period Change in Fair Value
Balance at December 31
2019
2018
2017
$
$
(1.9) $
(1.7)
(7.3)
(10.9) $
(0.3) $
(0.6)
(1.0)
(1.9) $
7.5
(2.1)
(5.7)
(0.3)
At December 31, 2019, the Company expects to reclassify $7.8 million of pre-tax losses 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.
NOTE 12.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of Other Comprehensive Income (Loss) attributable to Graphic Packaging Holding Company are as
follows:
Year Ended December 31,
Pretax
Amount
2019
Tax
Effect
Net
Amount(a)
Pretax
Amount
2018
Tax
Effect
Net
Amount(a)
Pretax
Amount
2017
Tax
Effect
Net
Amount
$
(6.7) $
1.4 $
(5.3) $ (1.1) $
0.1 $
(1.0) $
(7.8) $
2.9 $
(4.9)
10.1
(2.5)
9.8
—
7.6
9.8
(24.8)
5.4
(19.4)
12.3
(3.5)
8.8
(18.7)
— (18.7)
44.9
—
44.9
In millions
Derivative Instruments (Loss)
Gain
Pension and Postretirement
Benefit Plans
Currency Translation
Adjustment
Other Comprehensive Income
(Loss)
48.8
12.1
(a) Amounts exclude impact of noncontrolling interest. See "Note 19 - Changes in Accumulated Other Comprehensive Loss."
5.5 $ (39.1) $
49.4 $ (0.6) $
$ (44.6) $
13.2 $
(1.1) $
$
The balances of Accumulated Other Comprehensive Loss Attributable to Graphic Packaging Holding Company, net of
applicable taxes are as follows:
In millions
Accumulated Derivative Instruments Loss
Pension and Postretirement Benefit Plans
Currency Translation Adjustment
Accumulated Other Comprehensive Loss
December 31,
2019
2018
$
$
(16.6) $
(238.5)
(110.7)
(365.8) $
(11.3)
(246.1)
(120.5)
(377.9)
84
84
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13.
COMMITMENTS
The Company has entered into other long-term contracts principally for the purchase of fiber and chip processing. The
minimum purchase commitments extend beyond 2024. At December 31, 2019, total commitments under these contracts were
as follows:
In millions
2020
2021
2022
2023
2024
Thereafter
Total
$
$
57.8
30.0
19.5
18.3
18.5
77.1
221.2
NOTE 14.
ENVIRONMENTAL AND LEGAL MATTERS
Environmental Matters
The Company is subject to a broad range of foreign, federal, state and local environmental, health and safety laws and
regulations, including those governing discharges to air, soil and water, the management, treatment and disposal of hazardous
substances, solid waste and hazardous wastes, the investigation and remediation of contamination resulting from historical
site operations and releases of hazardous substances, and the health and safety of employees. Compliance initiatives could
result in significant costs, which could negatively impact the Company’s consolidated financial position, results of operations
or cash flows. Any failure to comply with environmental or health and safety laws and regulations or any permits and
authorizations required thereunder could subject the Company to fines, corrective action or other sanctions.
Some of the Company’s current and former facilities are the subject of environmental investigations and remediations
resulting from 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.
85
85
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15.
REDEEMABLE NONCONTROLLING INTEREST
As disclosed in "Note 1 - Nature of Business and Summary of Significant Accounting Policies," on January 1, 2018, the
Company combined its business with IP's NACP business. Under the terms of the Transaction Agreement, GPIP issued
79,911,591 common units to IP. In connection with the closing, the Company, GPIP, GPI Holding and IP entered into an
Exchange Agreement (“Exchange Agreement”), under which subject to certain restrictions, the common units held by IP are
exchangeable into common stock of the Company or cash, upon the second anniversary of the NACP combination unless
certain other events occur before that time. GPHC also has the ability to call such common units exercisable starting on the
same date. Upon an election of an exchange, GPHC may chose to satisfy the exchange using shares of its common stock,
cash, or a combination thereof. Also, under the Exchange Agreement, the Company may not issue shares of common stock in
exchange for more than 61,633,409 common units without first obtaining GPHC shareholder approval.
At December 31, 2019, the redeemable noncontrolling interest was determined as follows:
In millions
Balance at December 31, 2017
Issuance of Redeemable Noncontrolling Interest at January 1, 2018
Net Income Attributable to Redeemable Noncontrolling Interest
Other Comprehensive Loss, Net of Tax
Reclassification to Noncontrolling Interest for Share Repurchases(a)
Distributions of Membership Interest
Balance at December 31, 2018
Net Income Attributable to Redeemable Noncontrolling Interest
Other Comprehensive Loss, Net of Tax
Redeemable Noncontrolling Interest Redemption Value Mark-up
Reclassification to Noncontrolling Interest for Share Repurchases(a)
Distributions of Membership Interest
Balance at December 31, 2019
$
$
$
—
255.2
16.6
(2.8)
12.5
(5.7)
275.8
16.3
0.8
30.2
(12.5)
(6.3)
304.3
(a) In the second quarter of 2019, the Company recorded a reversal for the 2018 reclassification to redeemable noncontrolling
interest back to noncontrolling interest related to share repurchases. The Company determined that this reclassification
due to the share repurchases was not required.
Redeemable noncontrolling interest is recorded at the greater of carrying amount or redemption value at the end of each
period. The redemption value is determined by the closing price of the Company's common stock.
NOTE 16.
BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company has three reportable segments as follows:
Paperboard Mills includes the nine North American paperboard mills which 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"), all 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 in Europe.
86
86
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 - Nature of Business and Summary of Significant Accounting Policies."
The Company did not have any one customer who accounted for 10% or more of the Company’s net sales during 2019,
2018 or 2017.
87
87
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business segment information is as follows:
In millions
NET SALES:
Paperboard Mills
Americas Paperboard Packaging
Europe Paperboard Packaging
Corporate/Other/Eliminations(a)
Total
INCOME (LOSS) FROM OPERATIONS:
Paperboard Mills(b)
Americas Paperboard Packaging
Europe Paperboard Packaging
Corporate and Other(c)
Total
CAPITAL EXPENDITURES:
Paperboard Mills
Americas Paperboard Packaging
Europe Paperboard Packaging
Corporate and Other
Total
DEPRECIATION AND AMORTIZATION:
Paperboard Mills
Americas Paperboard Packaging
Europe Paperboard Packaging
Corporate and Other
Total
Year Ended December 31,
2019
2018
2017
1,094.8 $
4,233.7
689.3
142.3
6,160.1 $
1,078.1 $
4,098.3
695.9
157.1
6,029.4 $
399.7
3,245.1
593.5
167.3
4,405.6
33.1 $
477.7
60.3
(37.0)
534.1 $
208.0 $
94.7
34.5
15.7
352.9 $
224.4 $
165.1
36.7
21.0
447.2 $
30.6 $
420.1
46.1
(38.6)
458.2 $
240.1 $
104.3
19.5
31.3
395.2 $
197.5 $
165.4
48.9
18.8
430.6 $
(35.0)
358.2
37.3
(32.6)
327.9
111.4
98.8
17.3
32.6
260.1
143.7
125.3
42.1
19.2
330.3
$
$
$
$
$
$
$
$
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes Augusta, Georgia mill outage in 2018 and accelerated depreciation related to shutdown of the Santa Clara mill in
2017.
(c) Includes expenses related to business combinations, exit activities, idle and abandoned assets, gain on sale of assets and
shutdown and other special charges.
In millions
ASSETS AT DECEMBER 31:
Paperboard Mills
Americas Paperboard Packaging
Europe Paperboard Packaging
Corporate and Other
Total
December 31,
2019
2018
2017
$
$
2,912.2 $
3,392.3
686.3
299.1
7,289.9 $
3,005.6 $
3,143.6
603.4
306.6
7,059.2 $
1,487.0
2,478.7
607.1
290.2
4,863.0
88
88
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Business geographic area information is as follows:
In millions
NET SALES:
Americas(a)
Europe
Asia Pacific
Corporate and Other
Total
In millions
ASSETS AT DECEMBER 31:
Americas(a)
Europe
Asia Pacific
Total
(a) Includes North America and Brazil.
Year Ended December 31,
2019
2018
2017
$
$
$
$
5,328.5 $
689.3
219.3
(77.0)
6,160.1 $
5,176.4 $
695.9
217.8
(60.7)
6,029.4 $
3,644.8
593.5
215.7
(48.4)
4,405.6
2019
2018
2017
6,396.3 $
686.3
207.3
7,289.9 $
6,260.1 $
603.4
195.7
7,059.2 $
4,046.4
607.1
209.5
4,863.0
89
89
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 17.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Results of operations for the four quarters of 2019 and 2018 are shown below.
0.70
(a) During the fourth quarter of 2019, the Company recorded an approximate $7 million immaterial prior period adjustment to
0.11 $
0.19 $
0.22 $
0.18 $
$
In millions, except per share amounts
Statement of Operations Data:
Net Sales
Gross Profit
Business Combinations, Shutdown and Other Special
Charges and Gain on Sale of Assets, Net
Income from Operations
Net Income
Net Income Attributable to Graphic Packaging Holding
Company
Net Income Per Share Attributable to Graphic Packaging
Holding Company — Basic
Net Income Per Share Attributable to Graphic Packaging
Holding Company — Diluted
reduce amortization expense related to intangible assets.
In millions, except per share amounts
Statement of Operations Data:
Net Sales
Gross Profit
Business Combinations, (Gain) on Sale of Assets and
Shutdown and Other Special Charges, Net
Income from Operations
Net Income
Net Income Attributable to Graphic Packaging Holding
Company
Net Income Per Share Attributable to Graphic Packaging
Holding Company — Basic(a)
Net Income Per Share Attributable to Graphic Packaging
Holding Company — Diluted
$
$
(a) Does not cross foot due to rounding
NOTE 18.
EARNINGS PER SHARE
In millions, except per share data
Net Income Attributable to Graphic Packaging Holding Company
Weighted Average Shares:
Basic
Dilutive effect of RSUs
Diluted
Earnings Per Share — Basic
Earnings Per Share — Diluted
90
90
First
Second
2019
Third
Fourth(a)
Total
$ 1,505.9 $ 1,552.8 $ 1,581.6 $ 1,519.8 $ 6,160.1
266.1
287.8
266.4
272.3
1,092.6
6.2
134.0
78.1
9.9
144.4
86.1
8.2
122.7
70.0
13.6
133.0
43.9
37.9
534.1
278.1
57.9
63.8
52.1
33.0
206.8
$
0.19 $
0.22 $
0.18 $
0.11 $
0.70
First
Second
2018
Third
Fourth
Total
$ 1,477.4 $ 1,510.9 $ 1,531.8 $ 1,509.3 $ 6,029.4
223.9
237.5
258.3
232.7
952.4
26.3
74.0
42.7
29.9
8.6
110.3
66.0
(27.4)
166.4
122.0
7.4
107.5
63.3
14.9
458.2
294.0
49.4
94.3
47.5
221.1
0.10 $
0.16 $
0.30 $
0.16 $
0.71
0.10 $
0.16 $
0.30 $
0.15 $
0.71
Year Ended December 31,
2019
2018
2017
206.8 $
221.1 $
300.2
294.1
0.7
294.8
0.70 $
0.70 $
309.5
0.6
310.1
0.71 $
0.71 $
311.1
0.8
311.9
0.97
0.96
$
$
$
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 19.
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 year ended December 31, 2019 (a):
In millions
Balance at December 31, 2018
Other Comprehensive (Loss) Income before Reclassifications
Amounts Reclassified from Accumulated Other Comprehensive
(Loss) Income(b)
Net Current-period Other Comprehensive (Loss) Income
Less:
Derivatives
Instruments
Pension and
Postretirement
Benefit Plans
Currency
Translation
Adjustments
Total
$
(11.3) $
(246.1) $
(120.5) $
(377.9)
(5.8)
(1.4)
(7.2)
(26.9)
37.5
10.6
12.4
—
12.4
(20.3)
36.1
15.8
Net Current-period Other Comprehensive Loss (Income)
Attributable to Noncontrolling Interest(c)
1.9
(3.0)
(2.6)
(3.7)
Balance at December 31, 2019
(a) All amounts are net-of-tax.
(b) See following table for details about these reclassifications.
(c) Includes amounts related to redeemable noncontrolling interest which are separately classified outside of permanent equity
(238.5) $
(110.7) $
(16.6) $
(365.8)
$
in the mezzanine section of the Consolidated Balance Sheets.
91
91
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following represents reclassifications out of Accumulated Other Comprehensive Loss for
the year ended
December 31, 2019:
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
Foreign Currency Contracts
Interest Rate Swap Agreements
Amortization of Defined Benefit Pension Plans:
Prior Service Costs
Actuarial Losses
Amortization of Postretirement Benefit Plans:
Prior Service Credits
Actuarial Gains
$
$
$
$
$
$
(1.8)
(1.3)
1.4
(1.7)
0.3
(1.4)
Cost of Sales
Other Expense, Net
Interest Expense, Net
Total before Tax
Tax Expense
Net of Tax
0.2 (a)
49.2 (a)
49.4
(9.8)
Total before Tax
Tax Benefit
39.6
Net of Tax
(0.3) (a)
(2.3) (a)
(2.6)
0.5
(2.1)
Total before Tax
Tax Expense
Net of Tax
Total Reclassifications for the Period
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see
36.1
$
"Note 8 — Pensions and Other Postretirement Benefits").
NOTE 20.
EXIT ACTIVITIES
As previously mentioned, the Company announced its plans to invest approximately $600 million in a new CRB Mill in
Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close two of its
smaller CRB Mills in 2022 in order to remain capacity neutral.
The Company accounts for the costs associated with these closures in accordance with ASC 360, Impairment or Disposal
of Long-Lived Assets ("ASC 360"), ASC 420, Exit or Disposal Costs Obligations ("ASC 420") and ASC 712 Compensation-
Nonretirement Post Employment Benefits ("ASC 712"). The Company recorded $14.9 million of exit costs during 2019. Other
costs associated with the start up of the new CRB mill will be recorded in the period in which they are incurred.
92
92
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the costs incurred during 2019 related to restructuring:
In millions
Location in Statement of Operations
December 31, 2019
Severance costs and other (a)
Accelerated depreciation
Inventory and asset write-offs
Business Combinations, Shutdown and Other Special
Charges and Gain on Sale of Assets, Net
$
Cost of Sales
Business Combinations, Shutdown and Other Special
Charges and Gain on Sale of Assets, Net
7.7
4.7
2.5
Total
(a) Costs incurred include activities for post-employment benefits, retention bonuses, incentives and professional services.
$
14.9
The following table summarizes the balance of accrued expenses related to restructuring:
In millions
Balance at December 31, 2018
Costs incurred
Payments
Balance at December 31, 2019
Total
—
7.7
(0.6)
7.1
$
$
The Company currently expects to incur charges associated with these exit activities for post-employment benefits,
retention bonuses and incentives in the range of $15 million to $20 million and for accelerated depreciation and inventory and
asset write-offs in the range of $50 million to $60 million.
NOTE 21.
SUBSEQUENT EVENTS
On January 28, 2020, the Company announced that IP notified the Company of its intent to begin the process of reducing
its ownership interest in GPIP. Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million
partnership units from IP for $250 million. As a result, IP’s ownership interest in GPIP decreased from 21.6% to 18.3%.
On January 28, 2020, the Company also announced that it reached an agreement to acquire a folding carton facility from
Quad/Graphics, Inc. for $40 million, subject to standard closing conditions. This facility is located in Omaha, Nebraska and
consumes roughly 40,000 tons of paperboard. The Company closed this transaction on January 31, 2020.
On January 28, 2020, the Company also announced that it agreed to purchase a group annuity contract that will transfer the
remaining pension benefit obligation under the US Plan of approximately $750 million to an insurance company and expects
to incur an additional non-cash settlement charge of approximately $150 million related to this transfer. These non-cash
settlement charges relate to Net Actuarial Loss recognized in Accumulated Other Comprehensive Loss. The Company
completed this transaction on January 30, 2020.
93
93
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Graphic Packaging Holding Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Graphic Packaging Holding Company (the Company) as
of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders'
equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 10, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
94
94
Description of
the Matter
Goodwill Impairment
On December 31, 2019, the Company’s aggregate goodwill balance was $1.5 billion. As
explained in Note 1 to the consolidated financial statements, the Company tests goodwill for
impairment annually as of October 1, and whenever events or changes in circumstances indicate
that the estimated fair value of a reporting unit may no longer exceed the carrying amount. The
evaluation of goodwill impairment involves the comparison of the fair value of each reporting
unit to its carrying value. The Company uses the discounted cash flow model to estimate fair
value, which requires management to make significant estimates and assumptions.
Auditing the goodwill impairment analysis was complex and highly judgmental due to the
In particular,
significant estimation required to determine the fair value of the reporting units.
the fair value estimates were sensitive to significant assumptions, such as revenue growth rates,
weighted average cost of capital (“WACC”) rates, reporting unit operating margins, and
terminal year multiples of EBITDA, which are affected by expectations about future market or
economic conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s goodwill impairment review process, including controls over
management’s review of the significant assumptions described above. For example, we tested
controls over management’s review of the estimation of the reporting units’ respective fair
value, including management’s review of the significant inputs to the fair value model, the data
utilized within the fair value model, the mathematical accuracy of the valuation models, as well
as the reconciliation of the aggregate estimated fair value of the reporting units to the market
capitalization of the Company.
To test the estimated fair value of the Company’s reporting units, our audit procedures included,
among others, testing the methodologies and significant assumptions discussed above and the
underlying historical sales and cost data, business plans, as well as the appropriateness of
comparable companies used by the Company in its analyses. We involved our valuation
specialists to assist in our evaluation of the Company’s WACC rates applied to the fair value
calculations and to independently recalculate WACC rates for the respective reporting units. As
part of this assessment, we compared the WACC rates to rates for hypothetical market
participants based on the capital structure of the reporting units and Company and its related
peer group. We evaluated whether management’s methodology for determining the WACC
rates reflected the risk associated with the forecasted cash flows of the reporting units. To test
the assumed EBITDA multiple applied in the Company’s calculations, we involved our
valuation specialists to assist in analyzing recent transactions in the market and current peer
group trading multiples that would be indicative of the respective EBITDA multiple utilized in
the calculation of fair value for the identified reporting units. We compared forecasts to
business plans and previous forecasts to actual results to assess the reasonableness of the
projected cash flows of each reporting unit. We also evaluated sensitivity analyses of the
significant assumptions described above to assess the changes in the fair value of the reporting
units that would result
In addition, we tested
from changes in the key assumptions.
management’s reconciliation of the estimated fair value of the reporting units to the market
capitalization of the Company.
We have served as the Company’s auditor since 2008.
Atlanta, Georgia
February 10, 2020
/s/ Ernst & Young LLP
95
95
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Graphic Packaging Holding Company
Opinion on Internal Control Over Financial Reporting
We have audited Graphic Packaging Holding Company’s internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Graphic Packaging
Holding Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Artistic Carton Company, which is included in the 2019 consolidated financial statements of the Company and
constituted 0.8% and 2.6% of total and net assets, respectively, as of December 31, 2019 and 0.5% and 0.7% of net sales and
net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also
did not include an evaluation of the internal control over financial reporting of Artistic Carton Company.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated
statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2019, and the related notes and our report dated February 10, 2020 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
96
96
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Atlanta, Georgia
February 10, 2020
/s/ Ernst & Young LLP
97
97
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management has established disclosure controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the
Securities and Exchange Commission rules and forms. Such disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the Company’s management to allow timely
decisions regarding required disclosure.
Based on management’s evaluation as of the end of the period covered by this Annual Report on Form 10-K, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) were effective as of the end
of the period covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The
Company's management did not include in its assessment the internal controls of the Artistic acquisition, which are included
in the Company's results for the year ended December 31, 2019. As of December 31, 2019, the Artistic acquisition total
assets represent 0.8% of the Company’s consolidated total assets. Net Sales attributable to the Artistic acquisition represented
0.5% of the Company’s consolidated Net Sales for the twelve months ended December 31, 2019.
The Company’s management, under the supervision of and with the participation of the President and Chief Executive
Officer and the Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2019 based on criteria for effective control over financial reporting described in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework). Based on this assessment the Company’s management concluded that its internal control over financial reporting
was effective as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
None.
98
98
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Pursuant to Instruction G(3) to Form 10-K, the information relating to Directors of the Registrant, compliance with
Section 16(a) of the Exchange Act, compliance with the Company’s Code of Ethics, and certain other information required
by Item 10 is incorporated by reference to the Registrant’s definitive Proxy Statement for the 2020 Annual Meeting of
Stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year
ended December 31, 2019.
ITEM 11.
EXECUTIVE COMPENSATION
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 11 is incorporated by reference to the
Registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2019.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 12 is incorporated by reference to the
Registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2019.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 13 is incorporated by reference to the
Registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2019.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to Instruction G(3) to Form 10-K, the information required by Item 14 is incorporated by reference to the
Registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the Registrant’s fiscal year ended December 31, 2019.
99
99
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a.
Financial statements, financial statement schedule and exhibits filed as part of this report:
PART IV
1. Consolidated Statements of Operations for each of the three years in the period ended December 31, 2019
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31,
2019
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31,
2019
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2019
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
2. All schedules are omitted as the information required is either included elsewhere in the consolidated financial
statements herein or is not applicable.
3. Exhibits to Annual Report on Form 10-K for Year Ended December 31, 2019.
Exhibit
Number
2.1
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
Description
Transaction Agreement dated October 23, 2017, by and among International Paper Company, Graphic
Packaging Holding Company, Gazelle Newco LLC and Graphic Packaging International, Inc. Filed as Exhibit
2.1 to the Registrant’s Current Report on Form 8-K filed on October 24, 2017 and incorporated herein by
reference.
Restated Certificate of Incorporation of New Giant Corporation. Filed as Exhibit 3.1 to Graphic Packaging
Holding Company’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference.
Bylaws of Graphic Packaging Holding Company, as amended on May 20, 2015. Filed as Exhibit 3.1 to Graphic
Packaging Holding Company’s Current Report on Form 8-K filed on May 27, 2015 and incorporated herein by
reference.
Certificate of Formation of Graphic Packaging International, LLC. Filed as Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed on January 1, 2018 and incorporated herein by reference.
Amended and Restated Limited Liability Company Operating Agreement of Graphic Packaging International,
LLC. Filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on January 1, 2018 and
incorporated herein by reference.
Amended and Restated Limited Liability Company Agreement dated as of January 1, 2018 by and among
Graphic Packaging Holding Company, Graphic Packaging International Partners, LLC (formerly known as
Gazelle Newco LLC), GPI Holding III, LLC, and International Paper Company. Filed as Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on January 1, 2018 and incorporated herein by reference.
Indenture, dated as of September 29, 2010, among Graphic Packaging International, Inc. and Graphic Packaging
Holding Company, Graphic Packaging Corporation and the other Note Guarantors party thereto, as Note
Guarantors, and U.S. Bank National Association, as Trustee. Filed as Exhibit 4.1 to Graphic Packaging Holding
Company’s Current Report on Form 8-K filed on September 29, 2010 and incorporated herein by reference.
Supplemental Indenture, dated as of April 2, 2013, among Graphic Packaging International, Inc., the guarantors
named therein and U.S. Bank National Association, as Trustee, relating to the 4.75% Senior Notes due 2021 of
Graphic Packaging International, Inc. Filed as Exhibit 4.1 to Graphic Packaging Holding Company’s Current
Report on Form 8-K filed on April 2, 2013 and incorporated herein by reference.
Indenture dated as of November 6, 2014, by and among Graphic Packaging International, Inc., the guarantors
named therein and U.S. Bank National Association, as trustee. Filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K filed on November 6, 2014 and incorporated herein by reference.
100
100
4.4
4.5
4.6
4.7
4.8
4.9
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10
10.11*
10.12*
First Supplemental Indenture dated as of November 6, 2014 by and among Graphic Packaging International, Inc.
the guarantors named therein and U.S. Bank National Association, as trustee. Filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K filed on November 6, 2014 and incorporated herein by reference.
Second Supplemental Indenture dated as of August 11, 2016 by and among Graphic Packaging International
Inc., Graphic Packaging Holding Company, the other guarantors named therein and U.S. Bank National
Association as trustee. Filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on August 11,
2016 and incorporated herein by reference.
Supplemental Indenture among Graphic Packaging International, Inc., Graphic Packaging Holding Company,
the other guarantors party thereto and U.S. Bank National Association, as Trustee, with respect to the 4.75%
Senior Notes due 2021. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October
24, 2017 and incorporated herein by reference.
Supplemental Indenture among Graphic Packaging International, Inc., Graphic Packaging Holding Company,
the other guarantors party thereto and U.S. Bank National Association, as Trustee, with respect to the 4.875%
Senior Notes due 2022. Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October
24, 2017 and incorporated herein by reference.
Supplemental Indenture among Graphic Packaging International, Inc., Graphic Packaging Holding Company,
the other guarantors party thereto and U.S. Bank National Association, as Trustee, with respect to the 4.125%
Senior Notes due 2024. Filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on October
24, 2017 and incorporated herein by reference.
Third Supplemental Indenture dated as of June 25, 2019, by and among Graphic Packaging International, LLC,
the guarantors listed therein and U.S. Bank, National Association. Filed as Exhibit 4.2 to Graphic Packaging
Holding Company and Graphic Packaging International, LLC's current report on Form 8-K filed on June 25,
2019 and incorporated herein by reference.
GPI U.S. Consolidated Pension Plan Master Document as amended and restated, effective January 1, 2017. Filed
as exhibit 10.1 to the Registrant's Annual Report on Form 10-K filed on February 8, 2017 and incorporated
herein by reference.
Second Amendment to the GPI Savings Plan as amended and restated, effective January 1, 2015. Filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on April 28, 2016 and incorporated herein
by reference.
Third Amendment to the GPI Savings Plan as amended and restated, effective January 1, 2015. Filed as Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q filed on April 28, 2016 and incorporated herein by
reference.
Fourth Amendment to the GPI Savings Plan as amended and restated, effective January 1, 2015. Filed as Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q filed on April 28, 2016 and incorporated herein by
reference.
Amended and Restated Employment Agreement dated as of November 19, 2015 by and among Graphic
Packaging International, Inc., the Registrant and Michael P. Doss. Filed as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed on November 19, 2015 and incorporated herein by reference.
Graphic Packaging Excess Benefit Plan, as amended and restated, effective as of January 1, 2009. Filed as
Exhibit 10.22 to Registrant’s Annual Report on Form 10-K filed on February 23, 2010 and incorporated herein
by reference.
Graphic Packaging Supplemental Retirement Plan, as amended and restated, effective as of January 1, 2009.
Filed as Exhibit 10.23 to Registrant’s Annual Report on Form 10-K filed on February 23, 2010 and incorporated
herein by reference.
Graphic Packaging Holding Company 2014 Omnibus Stock and Incentive Compensation Plan effective as of
May 21, 2014. Filed as Appendix A to the Registrant's Definitive Proxy Statement on Schedule 14A filed on
April 10, 2014 and incorporated herein by reference.
Graphic Packaging International, Inc. Management Incentive Plan, as amended and restated as of December 5,
2016. Filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K filed on February 13, 2019 and
incorporated herein by reference.
Master Services Agreement dated November 29, 2007 by and between Graphic Packaging International, Inc. and
Perot Systems Corporation. Filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on
December 5, 2007 and incorporate herein by reference.
Graphic Packaging International, Inc. Supplemental Plan for Participants in the Riverwood International
Employees Retirement Plan, as amended and restated, effective as of January 1, 2009. Filed as Exhibit 10.36 to
the Registrant’s Annual Report on Form 10-K filed on February 23, 2010 and incorporated herein by reference.
Riverwood International Change in Control Supplemental Retirement Plan, as amended and restated, effective as
of January 1, 2008. Filed as Exhibit 10.37 to Graphic Packaging Holding Company’s Annual Report on
Form 10-K filed on February 23, 2010 and incorporated herein by reference.
101
101
10.13
10.14*
10.15*
10.16
10.17
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24
10.25
10.26
10.27*
10.28*
10.29*
10.30
Amended and Restated Form of Indemnification Agreement for Directors. Filed as Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed on November 4, 2010 and incorporated herein by reference.
First Amendment to the Graphic Packaging International, Inc. Supplemental Plan for Participants in the
Riverwood International Employees Retirement Plan. Filed as Exhibit 10.1 to the Registrant's Current Report on
Form 8-K filed on May 24, 2012 and incorporated herein by reference.
Employment Agreement dated as of April 1, 2012 by and among Graphic Packaging International, Inc., Graphic
Packaging Holding Company and Stephen Scherger. Filed as Exhibit 10.1 to the Registrant's Current Report on
Form 8-K filed on April 5, 2012 and incorporated herein by reference.
First Amendment to Master Services Agreement dated as of September 22, 2008 by and between Graphic
Packaging International, Inc. and Perot Systems Corporation. Filed as Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K filed on February 7, 2018 and incorporated herein by reference.
Second Amendment to Master Services Agreement effective as of August 1, 2012 by and between Graphic
Packaging International, Inc. and Dell Marketing L.P. (as assignee of Perot Systems Corporation). Filed as
Exhibit 10.30 to the Registrant's Annual Report on Form 10-K filed on February 12, 2016 and incorporated
herein by reference.
Fifth Amendment to the GPI Savings Plan as amended and restated, effective January 1, 2015. Filed as exhibit
10.24 to the Registrant's Annual Report on Form 10-K filed on February 8, 2017 and incorporated herein by
reference.
GPI Savings Plan, as amended and restated effective January 1, 2015. Filed as Exhibit 10.32 to the Registrant’s
Annual Report on Form 10-K filed on February 12, 2016 and incorporated herein by reference.
First Amendment to the GPI Savings Plan, effective January 1, 2015. Filed as Exhibit 10.33 to the Registrant’s
Annual Report on Form 10-K filed on February 12, 2016 and incorporated herein by reference.
Amended and Restated Employment Agreement among the Registrant, Graphic Packaging International, Inc.
and Joseph P. Yost effective September 1, 2015. Filed as Exhibit 10.38 to the Registrant’s Annual Report on
Form 10-K filed on February 12, 2016 and incorporated herein by reference.
Graphic Packaging International, Inc. Executive Severance Plan dated as of February 25, 2014. Filed as Exhibit
10.39 to the Registrant’s Annual Report on Form 10-K filed on February 12, 2016 and incorporated herein by
reference.
First Amendment to the Graphic Packaging Holding Company 2014 Omnibus Stock and Incentive
Compensation Plan effective January 1, 2017. Filed as exhibit 10.33 to the Registrant's Annual Report on Form
10-K filed on February 8, 2017 and incorporated herein by reference.
Local Country Agreement - European Union Addendum effective as of November 1, 2016 to the Master
Services Agreement between Graphic Packaging International, Inc. and Dell Marketing, L.P., as amended. Filed
as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on April 26, 2017 and incorporated
herein by reference.
Third Amendment to Master Services Agreement dated as of November 1, 2016 between Graphic Packaging
International, Inc. and Dell Marketing, L.P. Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form
10-Q filed on April 26, 2017 and incorporated herein by reference.
Fourth Amendment to Master Services Agreement dated as of March 1, 2017 between Graphic Packaging
International, Inc. and NTT DATA Services, LLC, as successor-in-interest to Dell Marketing, L.P. Filed as
Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on April 26, 2017 and incorporated herein
by reference.
First Amendment to the GPI US Consolidated Pension Plan, dated as of May 19, 2017 and effective as of
January 1, 2017. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on July 26, 2017
and incorporated herein by reference.
Sixth Amendment to the GPI Savings Plan, dated as of June 27, 2017 and effective as of January 1, 2015. Filed
as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on July 26, 2017 and incorporated
herein by reference.
Graphic Packaging International, Inc. Non-Qualified Deferred Compensation Plan, as amended and restated
effective November 1, 2017. Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on
October 25, 2017 and incorporated herein by reference.
Exchange Agreement dated as of January 1, 2018 by and among Graphic Packaging Holding Company, Graphic
Packaging International Partners, LLC (formerly known as Gazelle Newco LLC), GPI Holding III, LLC and
International Paper Company. Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on
January 1, 2018 and incorporated herein by reference.
102
102
10.31
10.32
10.33
10.34
10.35
10.36
10.37*
10.38*
10.39*
10.40*
10.41*
10.42*
10.43*
10.44*
10.45
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Governance Agreement dated as of January 1, 2018 by and among Graphic Packaging Holding Company,
Graphic Packaging International Partners, LLC (formerly known as Gazelle Newco LLC), and International
Paper Company. Filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 1, 2018
and incorporated herein by reference.
Tax Receivable Agreement dated as of January 1, 2018 by and among Graphic Packaging Holding Company,
Graphic Packaging International Partners, LLC (formerly known as Gazelle Newco LLC), GPI Holding III, LLC
and International Paper Company. Filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on
January 1, 2018 and incorporated herein by reference.
Registration Rights Agreement dated as of January 1, 2018 by and between Graphic Packaging Holding
Company and International Paper Company. Filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-
K filed on January 1, 2018 and incorporated herein by reference.
Restrictive Covenants Agreement dated as of January 1, 2018 by and between Graphic Packaging International
Partners, LLC (formerly known as Gazelle Newco LLC) and International Paper Company. Filed as Exhibit
10.6 to the Registrant’s Current Report on Form 8-K filed on January 1, 2018 and incorporated herein by
reference.
Third Amended and Restated Credit Agreement dated as of January 1, 2018 by and among Graphic Packaging
International, LLC and certain subsidiaries thereof as Borrowers, the lenders and agents named therein, and
Bank of America, N.A., as Administrative Agent. Filed as Exhibit 10.7 to the Registrant’s Current Report on
Form 8-K filed on January 1, 2018 and incorporated herein by reference.
Amended and Restated Credit Agreement dated as of January 1, 2018 and effective as of January 8, 2018 by and
among Graphic Packaging International, LLC, the lenders and agents named therein and Bank of America, N.A.,
as Administrative Agent. Filed as Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on January
1, 2018 and incorporated herein by reference.
First Amendment to the Amended and Restated Graphic Packaging International, Inc. Non-Qualified Deferred
Compensation Plan effective January 1, 2018. Filed as Exhibit 10.51 to the Registrant's Annual Report on Form
10-K filed on February 7, 2018 and incorporated herein by reference.
Second Amendment to the GPI US Consolidated Pension Plan dated as of November 8, 2017. Filed as Exhibit
10.52 to the Registrant's Annual Report on Form 10-K filed on February 7, 2018 and incorporated herein by
reference.
Third Amendment to the GPI US Consolidated Pension Plan effective as of January 1, 2018. Filed as Exhibit
10.53 to the Registrant's Annual Report on Form 10-K filed on February 7, 2018 and incorporated herein by
reference.
Seventh Amendment to the GPI Savings Plan effective as of January 1 2018. Filed as Exhibit 10.54 to the
Registrant's Annual Report on Form 10-K filed on February 7, 2018 and incorporated herein by reference.
Eighth Amendment to the GPI Savings Plan effective as of January 1, 2018. Filed as Exhibit 10.55 to the
Registrant's Annual Report on Form 10-K filed on February 7, 2018 and incorporated herein by reference.
Tenth Amendment to the GPI Savings Plan dated as of November 12, 2018. Filed as Exhibit 10.49 to the
Registrant's Annual Report on Form 10-K filed on February 13, 2019 and incorporated herein by reference.
Fourth Amendment to the GPI US Consolidated Pension Plan dated as of December 20, 2018. Filed as Exhibit
10.50 to the Registrant's Annual Report on Form 10-K filed on February 13, 2019 and incorporated herein by
reference.
Fifth Amendment to the GPI US Consolidated Pension Plan.
Ninth Amendment to the GPI Savings Plan. Filed as Exhibit 10.1 to the Registrant's Form 10-Q filed on July 24,
2018 and incorporated herein by reference.
Code of Business Conduct and Ethics. Filed as Exhibit 14.1 to the Company's Annual Report on Form 10-K
filed on March 8, 2011 and incorporated herein by reference.
List of Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney. Incorporated by reference to the signature page of this Annual Report on Form 10-K.
Certification required by Rule 13a-14(a).
Certification required by Rule 13a-14(a).
Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.
Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.
103
103
101.INS
Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data
File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).
____________
* Executive compensation plan or agreement
104
104
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
GRAPHIC PACKAGING HOLDING COMPANY
(Registrant)
/s/ Stephen R. Scherger
Stephen R. Scherger
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)
February 10, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Michael P. Doss
Michael P. Doss
/s/ Stephen R. Scherger
Stephen R. Scherger
/s/ Charles D. Lischer
Charles D. Lischer
President and Chief Executive Officer
(Principal Executive Officer)
February 10, 2020
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)
February 10, 2020
Senior Vice President and Chief Accounting
Officer
(Principal Accounting Officer)
February 10, 2020
105
105
POWER OF ATTORNEY
Each of the directors of the Registrant whose signature appears below hereby appoints Stephen R. Scherger and Lauren S.
Tashma, and each of them severally, as his or her attorney-in-fact to sign in his or her name and behalf, in any and all
capacities stated below, and to file with the Securities and Exchange Commission any and all amendments to this report on
Form 10-K, making such changes in this report on Form 10-K as appropriate, and generally to do all such things on their
behalf in their capacities as directors and/or officers to enable the Registrant to comply with the provisions of the Securities
Exchange Act of 1934, and all requirements of the Securities and Exchange Commission.
Signatures
/s/ Laurie Brlas
Laurie Brlas
/s/ David D. Campbell
David D. Campbell
/s/ Paul D. Carrico
Paul D. Carrico
/s/ Michael P. Doss
Michael P. Doss
/s/ Robert A. Hagemann
Robert A. Hagemann
/s/ Philip R. Martens
Philip R. Martens
/s/ Dean A. Scarborough
Dean A. Scarborough
/s/ Larry M. Venturelli
Larry M. Venturelli
/s/ Lynn A. Wentworth
Lynn A. Wentworth
Title
Director
Date
February 10, 2020
Director
February 10, 2020
Director
February 10, 2020
Director, President and Chief Executive
Officer
February 10, 2020
Director
February 10, 2020
Chairman of the Board
February 10, 2020
Director
February 10, 2020
Director
February 10, 2020
Director
February 10, 2020
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106
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Corporate Information
Graphic Packaging Holding Company Board of Directors
Standing left to right: Philip R. Martens, Chairman of the Board; Michael P. Doss, President and CEO; David D. Campbell; Lynn A. Wentworth;
Larry M. Venturelli; Laurie Brlas, Paul D. Carrico; Robert A. Hagemann; and Dean A. Scarborough
Board of Directors
Laurie Brlas2,3
Former EVP and CFO Newmont Mining
Corporation, a mining industry leader
Michael P. Doss
President and CEO Graphic Packaging
Holding Company
Dean A. Scarborough1,2
Former CEO Avery Dennison Corporation, a
packaging and labeling solutions leader
David D. Campbell 2,3
Former Chairman and CEO ACCO Brands
Corporation, an office and computer
accessories manufacturer
Robert A. Hagemann1,2
Former SVP and CFO Quest Diagnostics
Incorporated, a diagnostic testing information
services leader
Larry M. Venturelli1,2
Former EVP and CFO Whirlpool Corporation,
the world’s leading manufacturer of
home appliances
Paul D. Carrico1,3
Former President and CEO Axiall Corporation,
a chemical and vinyl-based building
products company
Philip R. Martens3
Former President and CEO Novelis Inc., a
rolled aluminum manufacturing company
Lynn A. Wentworth1,3
Former SVP, CFO and Treasurer BlueLinx
Holdings Inc., a building products company
Financial Reports
Graphic Packaging Holding Company’s
2019 Annual Report on Form 10-K is filed
with the SEC and is available online at:
investors.graphicpkg.com.
Annual Meeting
The 2020 Annual Meeting of Stockholders will
be held at 10:00 a.m. ET, on Wednesday,
May 20, 2020, at Graphic Packaging Holding
Company’s headquarters located at 1500 Riveredge Parkway,
Suite 100, Atlanta, GA 30328.
Stockholder Information
Transfer Agent and Registrar
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
Toll Free: 877-830-4931
www.shareholder.broadridge.com
Stock Listing
Graphic Packaging Holding Company’s common
stock is listed on the New York Stock Exchange
(NYSE) under the ticker symbol “GPK.”
Investor Information and Contact
Web: investors.graphicpkg.com
Email: investor.relations@graphicpkg.com
Audit Committee
Compensation & Management Development Committee
1
2
3 Nominating & Corporate Governance Committee
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Corporate Offices
1500 Riveredge Parkway NW
Suite 100
Atlanta, GA 30328
(770) 240-7200
www.graphicpkg.com
SFI-00779
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