AnnualReport
2016
BOARD OF DIRECTORS
TIMOTHY J. BERNLOHR
Managing Member
TJB Management Consulting, LLC
Audit Committee, Compensation Committee
J. POWELL BROWN
President and Chief Executive Officer
Brown & Brown, Inc.
Audit Committee, Finance Committee
MICHAEL E. CAMPBELL
Former Chairman, President
and Chief Executive Officer
Arch Chemicals, Inc.
Nominating and Corporate Governance
Committee, Finance Committee
TERRELL K. CREWS
Former Executive Vice President
and Chief Financial Officer
Monsanto Corporation
Audit Committee, Finance Committee
RUSSELL M. CURREY
President
Boxwood Capital, LLC
Audit Committee, Finance Committee
G. STEPHEN FELKER
Former Chairman and Chief Executive Officer
Avondale Mills, Inc.
Nominating and Corporate Governance
Committee, Finance Committee
LAWRENCE L. GELLERSTEDT III
Chief Executive Officer and President
Cousins Properties, Inc.
Executive Committee, Compensation Committee,
Nominating and Corporate Governance Committee
JOHN A. LUKE JR.
(Non-Executive Chairman)
Former Chairman and Chief Executive Officer
MeadWestvaco Corporation
Executive Committee
GRACIA C. MARTORE
President and Chief Executive Officer
TEGNA, Inc.
Executive Committee, Audit Committee,
Compensation Committee
JAMES E. NEVELS
(Lead Independent Director)
Chairman
The Swarthmore Group
Audit Committee, Finance Committee
TIMOTHY H. POWERS
Former Chairman
Hubbell, Inc.
Audit Committee, Compensation Committee
STEVEN C. VOORHEES
Chief Executive Officer
WestRock Company
Executive Committee
BETTINA M. WHYTE
President and Owner
Bettina Whyte Consultants, LLC
Executive Committee, Compensation Committee,
Nominating and Corporate Governance Committee
ALAN D. WILSON
Chairman and Former Chief Executive Officer
McCormick & Company, Inc.
Nominating and Corporate Governance Committee,
Finance Committee
LEADERSHIP
STEVEN C. VOORHEES
Chief Executive Officer
JAMES B. PORTER III
President
Business Development
and Latin America
ROBERT B. MCINTOSH
Executive Vice President
General Counsel and
Secretary
DONNA O. COX
Chief Communications
Officer
PETER C. DURETTE
Chief Strategy and Corporate
Development Officer
JENNIFER GRAHAM-
JOHNSON
Chief Human Resources
Officer
ROBIN L. STENZEL
Vice President
Talent Management
ROBERT A. FEESER
President
Consumer Packaging
JEFFREY W. CHALOVICH
President
Corrugated Packaging
WARD H. DICKSON
Executive Vice President
and Chief Financial Officer
ANTHONY P. MOLLICA
Executive Vice President
Consumer Mills
THOMAS M. STIGERS
Executive Vice President
Containerboard Mills
JOHN L. O’NEAL
Executive Vice President
Folding Carton
JAIRO A. LORENZATTO
President
Brazil
KEVIN G. CLARK
Executive Vice President
Home, Health & Beauty
RICHARD C. VANDEUSEN JR.
Senior Vice President
Recycling
M. KEVIN HUDSON
Senior Vice President
Forest Resources
L. NICOLE PARKER
Vice President
Commercial Excellence
CRAIG A. GUNCKEL
President
Enterprise Solutions and
Merchandising Displays
ERIK J. DEADWYLER
Senior Vice President
Enterprise Solutions
A. STEPHEN MEADOWS
Chief Accounting Officer
TIMOTHY W. MURPHY
Senior Vice President
Finance
JOHN D. STAKEL
Senior Vice President
and Treasurer
BRIAN K. CHAMBON
Senior Vice President
Finance
Corrugated Packaging
CAROLINE G. LIMEHOUSE
Vice President
Finance
Consumer Packaging
JAMES W. BALTZEGAR III
Vice President
Performance Excellence
SHANTELLA E. COOPER
Chief Transformation Officer
NINA E. BUTLER
Chief Sustainability Officer
DANIEL P. MCNALLY
Chief Procurement Officer
WILLIAM A. MERRIGAN
Senior Vice President
Enterprise Logistics
PAUL W. STECHER
Chief Information Officer
MICHAEL J. HAGENBARTH
Vice President
Safety and Health
Dear Fellow Stockholders,
September marked the end of our first fiscal year at WestRock, and our company
has had an exciting and productive year. Over the past year, we made considerable
progress in building a paper and packaging leader that provides winning solutions
for our customers. Today, we hold leading positions – number one or number two – in
the markets where we choose to compete. Our comprehensive portfolio of paper and
packaging solutions provides WestRock the ability and resources to grow with our
customers and help them succeed in the marketplace.
Our fiscal 2016 results added to our track record of solid execution. Our sales were
$14 billion and Credit Agreement EBITDA was $2.3 billion, for a margin of 16.4%*.
We’re already halfway toward our $1 billion, three-year synergy and performance
improvement target on a run rate basis, and have delivered $444 million in
productivity improvements since our inception. Our consistent productivity
improvements contributed to our delivery of more than $1 billion in adjusted free
cash flow during the fiscal year*.
Steve Voorhees
Chief Executive Officer
We deployed our cash flow using our balanced capital allocation strategy – investing in our current businesses and
making acquisitions to improve our business, and returning significant capital to stockholders in the form of dividends
and stock repurchases. We invested $1.4 billion in our business through $800 million in capital expenditures and $600
million in two acquisitions and one investment. We returned more than $1.8 billion to stockholders, including $700 million
through stock buybacks and cash dividends, and more than $1.1 billion through the successful separation of our specialty
chemicals business.
A Year of Purposeful Portfolio Moves and Strategic Positioning
In fiscal 2016, we made numerous strategic moves to enhance our portfolio and position us for the future:
•
•
•
In October, we completed the acquisition of SP Fiber Technologies, a producer of recycled containerboard,
and kraft and bag paper. This acquisition enables us to continue to balance the fiber mix of our mill system and
diversifies our product offering.
In January, we completed the acquisition of Cenveo Inc.’s folding carton and packaging business which expands
our presence in the consumer packaging segment through its complementary customers, markets and facilities,
enabling us to better serve our customers.
In April, we formed our joint venture with Grupo Gondi, the premier packaging company in Mexico. We hold a
25% ownership interest in the partnership and their outstanding team and exceptional assets provide us with a
platform for further investment and growth.
•
•
•
In May, we completed the separation of our specialty chemicals business, known as Ingevity, which has resulted in
more than $1.1 billion in value creation for stockholders. Ingevity stock has performed well since the separation,
further rewarding our stockholders who have held on to their Ingevity stock.
In September, we realigned our organization across the Consumer Packaging and Corrugated Packaging business
segments led by Bob Feeser and Jeff Chalovich, respectively. We established an enterprise level organization to
maximize the value of our full portfolio of products with key customers. This realignment is enhancing our strategic
focus, accelerating decision making and improving operating results.
In September, we transferred $2.5 billion of pension assets and liabilities to a third party, significantly de-risking
our U.S. qualified pension plans.
Looking Ahead to Fiscal 2017 and Beyond
As we look ahead to fiscal 2017, we are making great strides in streamlining our portfolio to focus on our core paper and
packaging markets. In November, we announced that we are evaluating strategic alternatives for our Home, Health &
Beauty business. We expect to complete the accelerated monetization of our land and development portfolio within the
next 18 to 24 months and realize net after-tax proceeds of approximately $275 to $300 million. More than half of the cash
flow from the land sales should be realized by the end of fiscal 2017. All told, we expect to generate $1.2 billion in adjusted
free cash flow during fiscal 2017*.
We will continue to deploy our balanced capital allocation strategy. In November, we increased our annual dividend to
$1.60 per share – demonstrating our commitment to returning value to stockholders and our confidence in our ability to
generate free cash flow. At the end of September, we had 26.5 million shares available under the current stock repurchase
authorization.
Most importantly, with the bulk of our transformation and portfolio moves behind us, we are increasing our focus on
improving margins in our Corrugated Packaging and Consumer Packaging business segments and growing our business
through the disciplined allocation of our free cash flow to capital investments and acquisitions that expand our market
presence, extend our product offerings to better serve our customers and support our production facilities to increase
output and efficiencies. Our execution in these areas will position WestRock to deliver exceptional stockholder returns in
the coming years.
Just as significant as our operating and financial results over the past year is the remarkable transformation that our 39,000
co-workers have achieved by integrating two companies into WestRock. We are building on the values that we consider
the foundation of our success: integrity, respect, accountability and excellence. The enthusiastic commitment we have
across the company places us on strong footing to execute our strategy and move forward to achieve our vision to be the
premier partner and unrivaled provider of winning solutions for our customers.
On behalf of the board of directors and all of us working together at WestRock, thank you for your continued support.
I look forward to another successful year ahead.
Sincerely,
Steve Voorhees
Chief Executive Officer
* See reconciliation of non-GAAP financial measures in Appendix A. Also, see a discussion of our use of
forward-looking statements under “Forward-Looking Information” in our annual report on Form 10-K.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________
FORM 10-K
_______________________________________________
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-37484
____________________________________________________________
WESTROCK COMPANY
(Exact Name of Registrant as Specified in Its Charter)
____________________________________________________________
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
501 South 5th Street, Richmond, Virginia
(Address of Principal Executive Offices)
47-3335141
(I.R.S. Employer
Identification No.)
23219-0501
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (804) 444-1000
_______________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Name of 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 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, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common equity held by non-affiliates of the registrant as of March 31, 2016, the last day of the registrant’s most
recently completed second fiscal quarter (based on the last reported closing price of $39.03 per share of WestRock Common Stock, as reported on the New
York Stock Exchange on such date), was approximately $9,711 million. WestRock completed the Separation (as defined), which closed after March 31, 2016.
As of November 4, 2016, the registrant had 251,101,688 shares of Common Stock, par value $0.01 per share, outstanding.
_______________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 27, 2017, are incorporated by reference in Parts
II and III.
WESTROCK COMPANY
INDEX TO FORM 10-K
Page
Reference
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
PART I
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Exhibits and Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
15
22
22
24
24
24
25
27
49
51
127
127
127
128
129
129
129
129
130
130
2
Glossary of Terms
The following terms or acronyms used in this Form 10-K are defined below:
Term or Acronym
Definition
2016 Incentive Stock Plan . . . . . . . . . . . . . . . . . . . WestRock Company Incentive Stock Plan
2004 Incentive Stock Plan . . . . . . . . . . . . . . . . . . . Amended and Restated 2004 Incentive Stock Plan
Adjusted Earnings from Continuing Operations
Per Diluted Share. . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 44
Adjusted Income from Continuing Operations . . . As defined on p. 44
A/R Sales Agreement . . . . . . . . . . . . . . . . . . . . . . As defined on p. 90
AFMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alternative fuel mixture credits
AGI In-Store . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.G. Industries, Inc.
Antitrust Litigation . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 115
APBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated postretirement benefit obligation
ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FASB’s Accounting Standards Codification
ASU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounting Standards Update
BSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Billion square feet
Boiler MACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 10 and 113
Business Combination Agreement . . . . . . . . . . . . The Second Amended and Restated Business Combination Agreement,
dated as of April 17, 2015 and amended as of May 5, 2015 by and
among WestRock, RockTenn, MWV, Rome Merger Sub, Inc., and
Milan Merger Sub, LLC.
CBA or CBAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collective bargaining agreements
CBPC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cellulosic biofuel producers credits
CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980
Clean Power Plan . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p.11 and 114
CFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Internal Revenue Code of 1986, as amended
Combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pursuant to the Business Combination Agreement, (i) Rome Merger Sub,
Inc. was merged with and into RockTenn, with RockTenn surviving the
merger as a wholly-owned subsidiary of WestRock, and (ii) Milan
Merger Sub, LLC was merged with and into MWV, with MWV
surviving the merger as a wholly owned subsidiary of WestRock, which
occurred on July 1, 2015
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . Our common stock, par value $0.01 per share
containerboard . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linerboard and corrugating medium
CPM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canadian Pensioners’ Mortality
Credit Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 88
Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 88
EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings before interest, taxes, depreciation and amortization
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Environmental Protection Agency
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee Retirement Income Security Act of 1974, as amended, and the
rules and regulations thereunder
ESPP Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WestRock Company Employee Stock Purchase Plan
Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities Exchange Act of 1934, as amended
FASB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Accounting Standards Board
FCPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign Corrupt Practices Act
Farm Credit Facility . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 87
Farm Loan Credit Agreement . . . . . . . . . . . . . . . . As defined on p. 87
3
Term or Acronym
Definition
FIFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . First-in first-out inventory valuation method
FIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funding improvement plan
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Generally accepted accounting principles in the U.S.
GHG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Greenhouse gases
GPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Green Power Solutions of Georgia, LLC
Grupo Gondi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gondi, S.A. de C.V.
IDBs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ingevity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Development Bonds
Ingevity Corporation, formerly the Specialty Chemicals business of
WestRock Company
Internal Revenue Service
Installment Note . . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 116
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The London Interbank Offered Rate
LIFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Last-in first-out inventory valuation method
MACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum Achievable Control Technology
MEPP or MEPPs . . . . . . . . . . . . . . . . . . . . . . . . . . Multiemployer pension plan(s)
MMBtu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . One million British Thermal Units
MMSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of square feet
MWV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WestRock MWV, LLC, formerly known as MeadWestvaco Corporation
MWV TN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 116
MWV TN II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 116
MWV Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . Milan Merger Sub, LLC
NPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NPG Holding, Inc.
NYSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York Stock Exchange
OSHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Occupational Safety and Health Act
Packaging Acquisition. . . . . . . . . . . . . . . . . . . . . . The January 19, 2016 acquisition of certain legal entities formerly owned
by Cenveo Inc., in a stock purchase
Paris Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . An agreement signed in April 2016 among the U.S. and over 170 other
countries which arose out of negotiations at the United Nation’s
Conference of Parties (COP21) climate summit in December 2015
Pension Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension Protection Act of 2006
PRP or PRPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potentially responsible parties
Prudential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Prudential Insurance Company of America, a subsidiary of Prudential
Financial, Inc.
Receivables Facility. . . . . . . . . . . . . . . . . . . . . . . . Our receivables-backed financing facility
RockTenn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WestRock RKT Company, formerly known as Rock-Tenn Company
RockTenn Common Stock. . . . . . . . . . . . . . . . . . . RockTenn Class A common stock, par value $0.01 per share
RockTenn Merger Sub. . . . . . . . . . . . . . . . . . . . . . Rome Merger Sub, Inc.
RP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rehabilitation plan
SAR or SARs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock appreciation rights
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities and Exchange Commission
Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The May 15, 2016 distribution of the outstanding common stock, par
value $0.01 per share, of Ingevity to WestRock’s stockholders
Seven Hills. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seven Hills Paperboard LLC
SG&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses
Smurfit-Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . Smurfit-Stone Container Corporation
Smurfit-Stone Acquisition. . . . . . . . . . . . . . . . . . . Our May 27, 2011 acquisition of Smurfit-Stone
SP Fiber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SP Fiber Holdings, Inc.
SP Fiber Acquisition . . . . . . . . . . . . . . . . . . . . . . . Our October 1, 2015 acquisition of SP Fiber
4
Term or Acronym
Definition
Supplemental Plans . . . . . . . . . . . . . . . . . . . . . . . . Supplemental retirement savings plans
Tacoma Mill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Tacoma Kraft Paper Mill formerly owned by Simpson Lumber
Company LLC
Timber Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As defined on p. 116
TNH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Timber Note Holdings LLC
USW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Steelworkers Union
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States
WestRock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WestRock Company
WestRock MWV, LLC . . . . . . . . . . . . . . . . . . . . . Formerly named MWV
WestRock RKT Company. . . . . . . . . . . . . . . . . . . Formerly named RockTenn
5
Item 1.
BUSINESS
PART I
Unless the context otherwise requires, “we”, “us”, “our”, “WestRock” and “the Company” refer to the business of WestRock
Company, its wholly-owned subsidiaries and its partially-owned consolidated subsidiaries.
General
We are a multinational provider of paper and packaging solutions for consumer and corrugated packaging markets. We partner
with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. Our team
members support customers around the world from operating and business locations spanning North America, South America,
Europe and Asia. We also develop real estate in the Charleston, SC region.
WestRock was formed on March 6, 2015 for the purpose of effecting the Combination and, prior to the Combination, did not
conduct any activities other than those incidental to its formation and the matters contemplated by the Business Combination
Agreement. On July 1, 2015, pursuant to the Business Combination Agreement, RockTenn and MWV completed a strategic
combination of their respective businesses. RockTenn and MWV each became wholly-owned subsidiaries of WestRock. RockTenn
was the accounting acquirer in the Combination. We believe the Combination has combined two industry leaders to create a premier
global provider of consumer and corrugated packaging solutions. The Combination is described in “Note 6. Merger, Acquisitions
and Investment” of the Notes to Consolidated Financial Statements.
On May 15, 2016, WestRock completed the Separation. Ingevity is now an independent public company trading under the
symbol “NGVT” on the New York Stock Exchange. With the completion of the Separation, we disposed of our former Specialty
Chemicals segment in its entirety and ceased to consolidate its assets, liabilities and results of operations in our consolidated
financial statements. Accordingly, we have presented the financial position and results of operations of our former Specialty
Chemicals segment as discontinued operations in the accompanying consolidated financial statements for all periods presented.
See “Note 7. Discontinued Operations” of the Notes to Consolidated Financial Statements for more information.
Following the Combination, we aligned our financial results of operations in four reportable segments: Corrugated Packaging,
Consumer Packaging, Specialty Chemicals and Land and Development. Subsequent to the Separation, we have aligned our financial
results of operations in three reportable segments: Corrugated Packaging, which consists of our containerboard mill and corrugated
packaging operations, as well as our recycling operations; Consumer Packaging, which consists of consumer mills, folding carton,
beverage, merchandising displays, home, health and beauty dispensing, and partition operations; and Land and Development,
which develops and sells real estate primarily in the Charleston, SC region. We have reclassified prior period segment results to
align to these segments for all periods presented herein.
Our principal executive offices are located at 501 South 5th Street, Richmond, VA and our principal operating offices are
located at 504 Thrasher Street, Norcross, GA.
Products
Corrugated Packaging Segment
We are one of the largest integrated producers of containerboard measured by tons produced, and one of the largest producers
of high-graphics preprinted linerboard measured by net sales in North America. We have integrated corrugated operations in North
America, Brazil and India. We believe we are one of the largest paper recyclers in North America and our recycling operations
provide substantially all of the recycled fiber to our mills as well as to third parties. Our Brazil operation also owns forestlands
which provide virgin fiber to our Brazilian mill. We operate an integrated corrugated packaging system that manufactures primarily
containerboard, corrugated sheets, corrugated packaging and preprinted linerboard for sale to consumer and industrial products
manufacturers and corrugated box manufacturers. We produce a full range of high-quality corrugated containers designed to
protect, ship, store and display products made to our customers' merchandising and distribution specifications. We also convert
corrugated sheets into corrugated products ranging from one-color protective cartons to graphically brilliant point-of-purchase
packaging. Our corrugated container plants serve local customers and regional and large national accounts. Corrugated packaging
is used to provide protective packaging for shipment and distribution of food, paper, health and beauty and other household,
consumer, commercial and industrial products. Corrugated packaging may also be graphically enhanced for retail sale, particularly
in club store locations. We provide customers with innovative packaging solutions to promote and sell their products. We also
provide structural and graphic design, engineering services and custom, proprietary and standard automated packaging machines,
offering customers turn-key installation, automation, line integration and packaging solutions. To make corrugated sheet stock,
6
we feed linerboard and corrugating medium into a corrugator that flutes the medium to specified sizes, glues the linerboard and
fluted medium together, and slits and cuts the resulting corrugated paperboard into sheets to customer specifications. Our
containerboard mills and corrugated container operations are integrated with the majority of our containerboard production used
internally by our corrugated container operations. The balance is either used in trade swaps with other manufacturers or sold
domestically and internationally.
Our recycling operations procure recovered paper (also known as recycled fiber) from our converting facilities and from third
parties, such as factories, warehouses, commercial printers, office complexes, grocery and retail stores, document storage facilities,
paper converters and other wastepaper collectors. We handle a wide variety of grades of recovered paper, including old corrugated
containers, office paper, box clippings, newspaper and print shop scraps. We operate recycling facilities that collect, sort, grade,
and bale recovered paper and, after sorting and baling, we transfer it to our mills for processing, or sell it principally to U.S.
manufacturers of paperboard or containerboard as well as manufacturers of tissue, newsprint, roofing products and insulation, and
to export markets. We also collect aluminum and plastics for resale to manufacturers of these products. Our waste services business
arranges recycling and waste disposal services for its customers. We operate a nationwide fiber marketing and brokerage system
that serves large regional and national accounts, as well as our recycled paperboard and containerboard mills, and sells scrap
materials from our converting businesses and mills. Brokerage contracts provide bulk purchasing, often resulting in lower prices
and cleaner recovered paper. Many of our recycling facilities are located close to our recycled paperboard and containerboard
mills, ensuring availability of supply with reduced shipping costs.
Sales of corrugated packaging products to external customers accounted for 54.6%, 66.4% and 71.8% of our net sales in fiscal
2016, 2015 and 2014, respectively.
Consumer Packaging Segment
We operate integrated virgin and recycled fiber paperboard mills and consumer packaging converting operations, which
convert items such as folding and beverage cartons, displays, dispensing and interior partitions. Our integrated system of virgin
and recycled mills produces paperboard for our converting operations and third parties. We internally consume or sell coated
natural kraft, bleached paperboard and coated recycled paperboard to manufacturers of folding cartons and other paperboard
products, and internally consume or sell our specialty recycled paperboard to manufacturers of solid fiber interior packaging, tubes
and cores, book covers and other paperboard products. The mill owned by our Seven Hills joint venture in Lynchburg, VA
manufactures gypsum paperboard liner for sale to our joint venture partner.
We are one of the largest manufacturers of folding and beverage cartons in North America. We believe we are the largest
manufacturer of temporary promotional point-of-purchase displays in North America measured by net sales and the largest
manufacturer of solid fiber partitions in North America measured by net sales. Our folding and beverage cartons are used to
package food, paper, beverages, dairy products, tobacco, health and beauty and other household consumer, commercial and
industrial products primarily for retail sale. We also manufacture express mail envelopes for the overnight courier industry, and
for the global healthcare market, secondary packages designed to enhance patient adherence for prescription drugs, as well as
paperboard packaging and closures for over-the-counter and prescription drugs. Folding cartons typically protect customers’
products during shipment and distribution, and employ graphics to promote them at retail. We manufacture folding and beverage
cartons from recycled and virgin paperboard, laminated paperboard and various substrates with specialty characteristics, such as
grease masking and microwaveability. We print, coat, die-cut and glue the cartons to customer specifications and ship finished
cartons to customers for assembling, filling and sealing. We employ a broad range of offset, flexographic, gravure, backside
printing, coating and finishing technologies and support our customers with new package development, innovation and design
services and package testing services. We manufacture and sell our solid fiber and corrugated partitions and die-cut paperboard
components principally to glass container manufacturers and producers of beer, food, wine, spirits, cosmetics and pharmaceuticals
and to the automotive industry.
We design, manufacture and, in many cases, pack temporary displays for sale to consumer products companies and retailers.
These displays are used as marketing tools to support new product introductions and specific product promotions in mass
merchandising stores, supermarkets, convenience stores, home improvement stores and other retail locations. We also design,
manufacture and, in some cases, pre-assemble permanent displays for the same categories of customers. We make temporary
displays primarily from corrugated paperboard. Unlike temporary displays, permanent displays are restocked; therefore, they are
constructed primarily from metal, plastic, wood and other durable materials. We provide contract packing services, such as multi-
product promotional packing and product manipulation, such as multipacks and onpacks. We manufacture and distribute point of
sale material utilizing litho, screen, and digital printing technologies. We manufacture lithographic laminated packaging for sale
to our customers that require packaging with high quality graphics and strength characteristics.
7
We produce dispensing systems, such as pumps for fragrances, lotions, creams and soaps, flip-top and applicator closures for
bath and body products and lotions, and plastic packaging for hair and skin care products. For the global home and garden market,
we produce trigger sprayers for surface cleaners and fabric care, aerosol actuators for air fresheners, hose-end sprayers for lawn
and garden maintenance and spouted and applicator closures for a variety of other home and garden products. For the global
healthcare market, we produce sprayers used for nasal and throat applications.
Sales of consumer packaging products to external customers accounted for 44.6%, 33.2% and 28.2% of our net sales in fiscal
2016, 2015 and 2014, respectively.
Land and Development Segment
We are responsible for maximizing the value of the various real estate holdings we own that are concentrated in the Charleston,
SC region, some of which are held through partnerships. We are in the process of accelerating the monetization of these holdings.
Sales in our Land and Development segment to external customers accounted for 0.8% and 0.4% of our net sales in fiscal 2016
and 2015, respectively. The Land and Development segment was formed as a result of the Combination; therefore, there is not
comparative information for fiscal 2014.
For more information on our segments, see “Note 20. Segment Information” of the Notes to Consolidated Financial Statements.
Raw Materials
The primary raw materials that our mill operations use are recycled fiber at our recycled paperboard and containerboard mills
and virgin fibers from hardwoods and softwoods at our virgin containerboard and paperboard mills. Certain of our virgin
containerboard is manufactured with some recycled fiber content. Recycled fiber prices and virgin fiber prices can fluctuate
significantly. While virgin fiber prices have generally been more stable than recycled fiber prices, they also fluctuate, particularly
driven by changes in weather, such as during prolonged periods of heavy rain or drought, or during housing construction slowdowns
or accelerations.
Recycled and virgin paperboard and containerboard are the primary raw materials used by our converting operations. Our
converting operations use many different grades of paperboard and containerboard. We supply substantially all of our converting
operations' needs for recycled and virgin paperboard and containerboard from our own mills and through the use of trade swaps
with other manufacturers, which allow us to optimize our mill system and reduce freight costs. Because there are other suppliers
that produce the necessary grades of recycled and bleached paperboard and containerboard used in our converting operations, we
believe we would be able to source significant replacement quantities from other suppliers in the event we incur production
disruptions for recycled or virgin paperboard or containerboard. See Item 1A. “Risk Factors — We May Face Increased Costs
or Inadequate Availability of Raw Materials, Energy and Transportation”.
Energy
Energy is one of the most significant costs of our mill operations. The cost of natural gas, coal, oil, electricity and wood by-
products (biomass) can fluctuate significantly. In our recycled paperboard mills, we use primarily natural gas and electricity,
supplemented with fuel oil and coal to generate steam used in the paper making process and to operate our recycled paperboard
machines. In our virgin fiber mills, we use biomass, natural gas, coal and fuel oil to generate steam used in the paper making
process, to generate some or all of the electricity used on site and to operate our paperboard machines. We primarily use electricity
and natural gas to operate our converting facilities. We generally purchase these products from suppliers at market or tariff rates.
See Item 1. “Business — Governmental Regulation — Environmental and Other Matters” for additional information regarding
our energy related spending. See Item 1A. “Risk Factors — We May Face Increased Costs or Inadequate Availability of Raw
Materials, Energy and Transportation”.
Transportation
Inbound and outbound freight is a significant expenditure for us. Factors that influence our freight expense are distance
between our shipping and delivery locations, distance from customers and suppliers, mode of transportation (rail, truck, intermodal
and ocean) and freight rates, which are influenced by supply and demand and fuel costs. The principal markets for our products
are in North America, South America, Europe and Asia. See Item 1A. “Risk Factors — We May Face Increased Costs or
Inadequate Availability of Raw Materials, Energy and Transportation”.
8
Sales and Marketing
Our top 10 external customers represented approximately 12% of consolidated net sales in fiscal 2016, none of which
individually accounted for more than 10% of our consolidated net sales. We generally manufacture our products pursuant to
customers’ orders. We believe that we have good relationships with our customers. In fiscal 2016, products sold to our top 10
customers by segment represented 15% and 19% of our external sales in our Corrugated Packaging segment and Consumer
Packaging segment, respectively. See Item 1A. “Risk Factors — We Depend on Certain Large Customers”.
As a result of our vertical integration, our mills’ sales volumes may be directly impacted by changes in demand for our
packaging products. During fiscal 2016, we sold approximately two-thirds of our coated natural kraft mill’s production and
approximately one-fifth of our bleached paperboard production to our converting operations, primarily to manufacture folding
and beverage cartons, and we sold approximately two-thirds of our containerboard production, including trade swaps and buy/
sell transactions, to our converting operations, to manufacture corrugated products. Under the terms of our Seven Hills joint venture
arrangement, our joint venture partner is required to purchase all of the qualifying gypsum paperboard liner produced by Seven
Hills. Excluding the Seven Hills production and our Aurora, IL production converted into book covers and other products, we
supplied approximately two-fifths of our specialty mills’ production in fiscal 2016 to our converting operations, primarily to
manufacture interior partitions. We have the ability to move our internal sourcing among certain of our mills to optimize the
efficiency of our operations.
We market our products primarily through our own sales force. We also market a number of our products through independent
sales representatives, independent distributors or both. We generally pay our sales personnel a base salary plus commissions. We
pay our independent sales representatives on a commission basis. We discuss foreign net sales to unaffiliated customers and other
non-U.S. operations financial and other segment information in “Note 20. Segment Information” of the Notes to Consolidated
Financial Statements.
Competition
We operate in a challenging global marketplace and compete with many large, well established and highly competitive
manufacturers and service providers. Our business is affected by a range of macroeconomic conditions, including industry capacity
changes, global competition, economic conditions in the U.S. and abroad, as well as fluctuations in currency exchange rates.
The industries we operate in are highly competitive, and no single company dominates any of those industries. Our paperboard
and containerboard operations compete with integrated and non-integrated national and regional companies operating primarily
in North America, and to a limited extent, manufacturers outside of North America. Our competitors include large and small,
vertically integrated companies and numerous smaller non-integrated companies. In the corrugated packaging and folding and
beverage carton markets, we compete with a significant number of national, regional and local packaging suppliers in North
America and abroad. Our dispensing operations compete globally with manufacturers for global end markets. In the solid fiber
interior packaging, promotional point-of-purchase display and converted paperboard products markets, we primarily compete with
a smaller number of national, regional and local companies offering highly specialized products. Our recycled fiber brokerage
and collection operations compete with various other companies for the procurement and supply of recovered paper, including
brokers and companies that export recovered paper to international markets. The Land and Development segment competes in
the real estate sales and development market in the Charleston, SC region.
Because all of our businesses operate in highly competitive industry segments, we regularly bid for sales opportunities to
customers for new business or for renewal of existing business. Our packaging products compete with packaging made from other
materials. The primary competitive factors we face include price, design, product innovation, quality and service, with varying
emphasis on these factors depending on the product line and customer preferences. We believe that we compete effectively with
respect to each of these factors and we evaluate our performance with annual customer surveys, among other means.
The businesses we operate in have undergone consolidation. Within the packaging products industry, larger customers, with
an expanded geographic presence, have tended to seek suppliers who can, because of their broad geographic presence, efficiently
and economically supply all or a range of their packaging needs. In addition, our customers continue to demand higher quality
products meeting stricter quality control requirements.
See Item 1A. “Risk Factors — We Face Intense Competition” and “Risk Factors — We May Be Adversely Affected by
Economic and Financial Markets Conditions, and Social and Political Change”.
9
Governmental Regulation
Health and Safety Regulations
Our operations are subject to federal, state, local and foreign laws and regulations relating to workplace safety and worker
health including OSHA and related regulations. OSHA, among other things, establishes asbestos and noise standards and regulates
the use of hazardous chemicals in the workplace. Although we do not use asbestos in manufacturing our products, some of our
facilities contain asbestos. For those facilities where asbestos is present, we believe we have properly contained the asbestos and/
or we have conducted training of our employees in an effort to ensure that no federal, state or local rules or regulations are violated
in the maintenance of our facilities. We do not believe that future compliance with health and safety laws and regulations will
have a material adverse effect on our results of operations, financial condition or cash flows.
Environmental and Other Matters
Environmental compliance requirements are a significant factor affecting our business. We employ manufacturing processes
which result in various discharges, emissions and wastes. These processes are subject to numerous federal, state, local and
international environmental laws and regulations, as well as the requirements of environmental permits and similar authorizations
issued by various governmental authorities.
On January 31, 2013, the EPA published a set of four interrelated final rules establishing national air emissions standards for
hazardous air pollutants from industrial, commercial and institutional boilers and process heaters, commonly known as “Boiler
MACT.” For our boilers, Boiler MACT required compliance by January 31, 2016, unless a facility requested and received an
extension. All of our mills that are subject to regulation under Boiler MACT met the January 31, 2016 compliance deadline, with
the exception of those mills for which we obtained a compliance extension. We expect our mills that obtained an extension to be
in compliance by their respective extension dates, none of which extend beyond January 31, 2017. On July 29, 2016, the U.S.
Court of Appeals for the District of Columbia Circuit issued a ruling on the consolidated cases challenging Boiler MACT. The
court vacated key portions of the rule, including emission limits for certain subcategories of solid fuel boilers, and remanded other
issues to the EPA for further rulemaking. At this time, we cannot predict with certainty how the recent decision will impact our
existing Boiler MACT strategies or whether we will incur additional costs to comply with any revised Boiler MACT standards.
In addition to Boiler MACT, we are subject to a number of other federal, state, local and international environmental rules
that may impact our business, including the National Ambient Air Quality Standards for nitrogen oxide, sulfur dioxide, fine
particulate matter and ozone for facilities in the U.S.
We are involved in various administrative proceedings relating to environmental matters that arise in the normal course of
business, and may be involved in future matters. Although the ultimate outcome of such matters cannot be predicted with certainty
and we cannot at this time estimate any reasonably possible losses based on available information, management does not believe
that the currently expected outcome of any environmental proceedings and claims that are pending or threatened against us will
have a material adverse effect on our results of operations, financial condition or cash flows.
See Item 1A. “Risk Factors — We are Subject to Extensive and Costly Environmental and Other Governmental
Regulation”.
CERCLA and Other Remediation Costs
We face potential liability under federal, state, local and international laws as a result of releases, or threatened releases, of
hazardous substances into the environment from various sites owned and operated by third parties at which Company-generated
wastes have allegedly been deposited. Generators of hazardous substances sent to off-site disposal locations at which environmental
problems exist, as well as the owners of those sites and certain other classes of persons, are liable for response costs for the
investigation and remediation of such sites under CERCLA and analogous laws. While joint and several liability is authorized
under CERCLA, liability is typically shared with other PRPs and costs are commonly allocated according to relative amounts of
waste deposited and other factors.
In addition, certain of our current or former locations are being investigated or remediated under various environmental laws
and regulations. Based on information known to us and assumptions, we do not believe that the costs of these projects will have
a material adverse effect on our results of operations, financial condition or cash flows. However, the discovery of contamination
or the imposition of additional obligations at these or other sites in the future could result in additional costs.
10
On January 26, 2009, Smurfit-Stone and certain of its subsidiaries filed a voluntary petition for relief under Chapter 11 of the
U.S. Bankruptcy Code. Smurfit-Stone’s Canadian subsidiaries also filed to reorganize in Canada. We believe that matters relating
to previously identified third party PRP sites and certain facilities formerly owned or operated by Smurfit-Stone have been or will
be satisfied claims in the Smurfit-Stone bankruptcy proceedings. However, we may face additional liability for cleanup activity
at sites that existed prior to bankruptcy discharge, but are not currently identified. Some of these liabilities may be satisfied from
existing bankruptcy reserves.
We believe that we can assert claims for indemnification pursuant to existing rights we have under settlement and purchase
agreements in connection with certain of our existing remediation sites. In addition, we believe that we have insurance coverage,
subject to applicable deductibles/retentions, policy limits and other conditions, for certain environmental matters. However, there
can be no assurance that we will be successful with respect to any claim regarding these insurance or indemnification rights or
that, if we are successful, any amounts paid pursuant to the insurance or indemnification rights will be sufficient to cover all our
costs and expenses. We also cannot predict with certainty whether we will be required to perform remediation projects at other
locations, and it is possible that our remediation requirements and costs could increase materially in the future and exceed current
reserves. In addition, we cannot currently assess with certainty the impact that future changes in cleanup standards or federal, state
or other environmental laws, regulations or enforcement practices will have on our results of operations, financial condition or
cash flows.
We estimate that we will invest approximately $47 million for capital expenditures during fiscal 2017 in connection with
matters relating to environmental compliance. It is possible that our capital expenditure assumptions may change, project
completion dates may change, and our projections are subject to change due to items such as the finalization of ongoing engineering
and implementation work, the EPA determinations on Boiler MACT implementation issues and the outcomes of pending legal
challenges to the rules.
Climate Change
Certain jurisdictions in which we have manufacturing facilities or other investments have taken actions to address climate
change. In the U.S., the EPA has issued the Clean Air Act permitting regulations applicable to certain facilities that emit GHG.
The EPA also has promulgated a rule requiring certain industrial facilities that emit 25,000 metric tons or more of carbon dioxide
equivalent per year to file an annual report of their emissions. While we have facilities subject to existing GHG permitting and
reporting requirements, the impact of these requirements has not been material to date.
Additionally, the EPA has been working on a set of interrelated rulemakings aimed at cutting carbon emissions from power
plants. On August 3, 2015, the EPA issued a final rule establishing GHG emission guidelines for existing electric utility generating
units (known as the “Clean Power Plan”). On the same day, the EPA issued a second rule setting standards of performance for
new, modified and reconstructed electric utility generating units. While these rules do not apply directly to the power generation
facilities at our mills, they have the potential to increase the cost of purchased electricity for our manufacturing operations and
change the treatment of certain types of biomass that are currently considered carbon neutral. On February 9, 2016, the U.S.
Supreme Court issued a stay halting implementation of the Clean Power Plan until the pending legal challenges to the rule are
resolved. A number of states subject to the Clean Power Plan have stopped working on their implementation strategies in light of
this decision; however, certain states where we operate manufacturing facilities are continuing their efforts. We are carefully
monitoring the state-level developments relating to this rule. Due to ongoing litigation and other uncertainties regarding these
GHG regulations, including the potential impact of a new U.S. executive administration in 2017, their impact on us cannot be
quantified with certainty at this time.
In addition to national efforts to regulate climate change, some U.S. states in which we have manufacturing operations are
also taking measures to reduce GHG emissions, such as requiring GHG emissions reporting or the development of regional cap-
and trade programs. California has enacted a cap-and-trade program that took effect in 2012, and includes enforceable compliance
obligations that began on January 1, 2013. We do not have any manufacturing facilities that are subject to the cap-and-trade
requirements in California; however, we are continuing to monitor the implementation of this program as well as proposed
mandatory GHG reduction efforts in other states. Also, the Washington Department of Ecology has issued a final rule, known as
the Clean Air Rule, which limits GHGs from facilities that have average annual carbon dioxide equivalent emissions equal to or
exceeding 100,000 metric tons/year and proposes to begin GHG emissions reduction requirements for some regulated entities in
2017. Energy intensive and trade exposed facilities and transportation fuel importers, including our Tacoma, WA mill, are subject
to regulation under this program. In September 2016, various groups filed lawsuits against the Washington Department of Ecology
challenging the Clean Air Rule. We are carefully monitoring this litigation to assess its potential impact on our Tacoma operations.
In April 2016, the U.S. and over 170 other countries signed the Paris Agreement, which arose out of negotiations at the United
Nation’s Conference of Parties (COP21) climate summit in December 2015. The Paris Agreement establishes a framework for
11
reducing global GHG emissions. By signing the Paris Agreement, the U.S. made a non-binding commitment to reduce economy-
wide GHG emissions by 26% to 28% below 2005 levels by 2025. Other countries in which we conduct business, including China,
European Union member states and India, have set similar GHG reduction targets. The Paris Agreement came into force on October
3, 2016. Although, the Paris Agreement does not contain legally binding emissions reduction requirements and it is unclear if the
new U.S. executive administration will seek to implement it, implementing legislation by ratifying governments to achieve their
respective commitments may require industrial facilities, including our operations, to make process changes, incur capital
expenditures and/or increase operating costs.
Several of our international facilities are located in countries that have already adopted GHG emissions trading schemes. For
example, Quebec has become a member of the Western Climate Initiative, which is a collaboration among California and certain
Canadian provinces that have joined together to create a cap-and-trade program to reduce GHG emissions. In 2009, Quebec adopted
a target of reducing GHG emissions by 20% below 1990 levels by 2020. In 2011, Quebec issued a final regulation establishing a
regional cap-and-trade program that required reductions in GHG emissions from covered emitters as of January 1, 2013. Our mill
in Quebec is subject to these cap-and-trade requirements, although the direct impact of this regulation has not been material to
date. Compliance with this program and other similar programs may require future expenditures to meet required GHG emission
reduction requirements in future years.
The regulation of climate change continues to develop in the areas of the world where we conduct business. We have systems
in place for tracking the GHG emissions from our energy-intensive facilities, and we carefully monitor developments in climate
change laws, regulations and policies to assess the potential impact of such developments on our results of operations, financial
condition, cash flows and disclosure obligations.
Patents and Other Intellectual Property
We hold a substantial number of foreign and domestic trademarks, trademark applications, trade names, patents, patent
applications, and licenses relating to our business, our products and our production processes. Our patent portfolio consists primarily
of utility and design patents relating to our products and manufacturing operations. It also includes exclusive rights to substantial
proprietary packaging system technology in the U.S. or other licenses obtained from a third party. Our brand name and logo, and
certain of our products and services, are protected by domestic and foreign trademark rights. Our patents, trademarks and other
intellectual property rights, particularly those relating to our converting operations, are important to our operations as a whole.
Our intellectual property has various expiration dates. See Item 1A. “Risk Factors — We Depend On Our Ability to Develop and
Successfully Introduce New Products and to Acquire and Retain Intellectual Property Rights”.
Employees
At September 30, 2016, we had approximately 39,000 employees. Of these employees, approximately 27,700 were hourly
and approximately 11,300 were salaried. Approximately 13,900 of our hourly employees in the U.S. and Canada are covered by
CBAs, which most frequently have four or six year terms. Approximately 500 of our employees are working under expired contracts
and approximately 3,850 of our employees are covered under CBAs that expire within one year.
While we have experienced isolated work stoppages in the past, we have been able to resolve them and we believe that working
relationships with our employees are generally good. While the terms of our CBAs may vary, we believe the material terms of the
agreements are customary for the industry, the type of facility, the classification of the employees and the geographic location
covered.
In October 2014, we entered into a master agreement with the USW that applied to substantially all of our legacy RockTenn
facilities represented by the USW at that time. The agreement has a six year term and covers a number of specific items, including
wages, medical coverage and certain other benefit programs, substance abuse testing and successorship. Individual facilities will
continue to have local agreements for subjects not covered by the master agreement and those agreements will continue to have
staggered terms. Wage increases specified in the master agreement will not begin until the local facility agreements have been
negotiated and ratified. The agreement permits us to apply its terms to USW employees who work at facilities we acquire during
the term of the agreement. The master agreement covers 59 of our U.S. facilities and approximately 8,400 of our employees.
See Item 1A. “Risk Factors — Work Stoppages and Other Labor Relations Matters May Have an Adverse Effect on Our
Financial Results”.
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International Operations
Our operations outside the U.S. are conducted through subsidiaries located in Canada, Mexico, South America, Europe and
Asia. Sales attributable to non-U.S. operations were 17.1%, 13.5% and 12.0% of our total net sales in fiscal 2016, 2015 and 2014,
respectively, some of which were transacted in U.S. dollars. For more information about our non-U.S. operations, see “Note 20.
Segment Information” of the Notes to Consolidated Financial Statements. See Item 1A. “Risk Factors — We are Exposed to
Risks Related to International Sales and Operations”.
Available Information
Our Internet address is www.westrock.com. Our Internet address is included herein as an inactive textual reference only. The
information contained on our website is not incorporated by reference herein and should not be considered part of this report. We
file annual, quarterly and current reports, proxy statements and other information with the SEC and we make available free of
charge most of our SEC filings through our Internet website as soon as reasonably practicable after filing with the SEC. You may
access these SEC filings via the hyperlink that we provide on our website to a third-party SEC filings website. We also make
available on our website the charters of our audit committee, our compensation committee, our nominating and corporate
governance committee, and our finance committee, as well as the corporate governance guidelines adopted by our board of directors,
our Code of Business Conduct for employees, our Code of Conduct and Ethics for directors and our Code of Ethical Conduct for
CEO and Senior Financial Officers. Any amendments to, or waiver from, any provision of the codes will be posted on the our
website at the address above. We will also provide copies of these documents, without charge, at the written request of any
shareholder of record. Requests for copies should be mailed to: WestRock Company, 504 Thrasher Street, Norcross, Georgia
30071, Attention: Corporate Secretary.
Forward-Looking Information
Statements in this report that do not relate strictly to historical facts are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations, beliefs,
plans or forecasts and use words such as “may”, “will”, “could”, “would”, “anticipate”, “intend”, “estimate”, “project”, “plan”,
“believe”, “expect”, “target” and “potential”, or refer to future time periods, and include statements made in this report regarding,
among other things: our expectation that we will benefit from operational synergies resulting from the consolidation of capabilities
and the elimination of redundancies related to the Combination, as well as greater efficiencies from increased scale and market
integration and to realize revenue synergies through an expanded and complementary product offering and increased geographic
reach; our expectation of achieving a $1.0 billion annualized run rate synergy and performance improvement target, before inflation,
to be realized by September 30, 2018; our belief that should we incur production disruptions for recycled or virgin paperboard or
containerboard we would be able to source replacement quantities internally or from other suppliers; our estimate for our capital
expenditures in fiscal 2017 and that we expect our annual capital investment to continue in a similar range for the next three years,
our belief that our strong balance sheet and cash flow provide us the flexibility to continue to invest to sustain and improve our
operating performance; we expect to invest in projects in fiscal 2017 (i) to maintain and operate our mills and plants safely, reliably
and in compliance with regulations, (ii) that support our strategy to improve the competitiveness of our mill and converting assets,
(iii) to support our $1.0 billion annualized run rate synergy and performance improvement target, before inflation, to be realized
by September 30, 2018, and (iv) to generate attractive returns; we expect to complete our monetization program by the end of
calendar 2018; our belief that the Combination has combined two industry leaders to create a premier global provider of consumer
and corrugated packaging solutions; our belief that the mills acquired in the SP Fiber Acquisition help balance the fiber mix of
our mill system; our belief that the addition of kraft and bag paper from the SP Fiber Acquisition will diversify our product offering
including our ability to serve the increasing demand for lighter weight containerboard and kraft paper; our belief that the partnership
with Grupo Gondi will help grow our presence in the attractive Mexican market; our belief that the Quebec cap-and-trade program
and other similar programs may require future expenditures to meet required GHG emission reduction requirements in future
years; our belief that the acquisition of AGI In-Store supports our strategy to provide a more holistic portfolio of innovative in-
store marketing solutions, including “store-within-a-store” displays, and has enhanced cross-selling opportunities and bolster our
growing retail presence; our belief that the Tacoma Mill is a strategic fit and the mill has improved our ability to satisfy West Coast
customers and generate operating efficiencies across our containerboard system; our belief that NPG is a strong strategic fit that
has strengthened our displays business; we expect to contribute $30 million to our U.S. and non-U.S. pension plans in fiscal 2017,
primarily related to our Canadian plans; we estimate that minimum pension contributions to our U.S. and non-U.S. pension plans
will be in the range of $22 million to $36 million annually in fiscal 2018 through 2021; our expectation that we will continue to
make contributions in the coming years to our pension plans in order to ensure that our funding levels remain adequate in light of
projected liabilities and to meet the requirements of the Pension Act and other regulations; our belief that certain MEPPs in which
we participate have material unfunded vested benefits; although the plan data for fiscal 2016 is not yet available, we would expect
to continue to exceed 5% of total plan contributions to certain MEPPs; a current annualized dividend of $1.60 per share on our
Common Stock; our anticipation that we will be able to fund our capital expenditures, interest payments, dividends and stock
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repurchases, pension payments, working capital needs, note repurchases, restructuring activities, repayments of current portion
of long-term debt and other corporate actions for the foreseeable future from cash generated from operations, borrowings under
our credit facilities, proceeds from the issuance of debt or equity securities or other additional long-term debt financing, including
new or amended facilities; the effect of a hypothetical 10% increase on the prices of various commodities, freight and energy; our
belief that there is not a reasonable likelihood that there will be a material change in the future estimates or assumptions we use
to estimate allowances; that based on our current projections, we expect to utilize our remaining U.S. federal net operating losses,
Alternative Minimum Tax and other U.S. federal credits primarily over the next three years; we expect to receive tax benefits in
fiscal 2017 and future years from the U.S. manufacturer’s deduction; we expect our cash tax payments to be in the high twenties
in fiscal 2017 and for it to continue to move closer to our income tax expense in fiscal 2018 and 2019; our belief that integration
activities will continue during fiscal 2017; our results of operations, financial condition, cash flows, liquidity or capital resources,
including expectations regarding sales growth, income tax rates, our production capacities and our ability to achieve operating
efficiencies; the consummation of acquisitions and financial transactions, the effect of these transactions on our business and the
valuation of assets acquired in these transactions; our competitive position and competitive conditions; our ability to obtain adequate
replacement supplies of raw materials or energy; our relationships with our customers and employees; our plans and objectives
for future operations and expansion; our belief that the currently expected outcome of any environmental proceeding or claim that
is pending or threatened against us will not have a material adverse effect on our results of operations, financial condition or cash
flows; the possibility that we may engage in additional restructuring opportunities in the future; our belief that we have properly
contained asbestos and/or have trained our employees in an effort to ensure that no rules or regulations are violated in the maintenance
of our facilities where asbestos is present; the impact of any gain or loss of a customer’s business; our expectations surrounding
credit loss rates; the impact of announced price changes; the scope, costs, timing and impact of any restructuring of our operations
and corporate and tax structure including our expectation that the integration of closed facility’s assets and production with other
facilities will enable the receiving facilities to better leverage their fixed costs; factors considered in connection with any impairment
analysis, the outcome of any such analysis and the anticipated impact of any such analysis on our results of operations, financial
condition or cash flows; pension and retirement plan obligations, contributions, the factors used to evaluate and estimate such
obligations and expenses, the impact of amendments to our pension and retirement plans, the impact of governmental regulations
on our results of operations, financial condition or cash flows; pension and retirement plan asset investment strategies; potential
liability for outstanding guarantees and indemnities and the potential impact of such liabilities; the impact of any market risks,
such as interest rate risk, pension plan risk, foreign currency risk, commodity price risks, energy price risk, rates of return, the risk
of investments in derivative instruments, and the risk of counterparty nonperformance, and factors affecting those risks including
our increased exposure to foreign currency as a result of the Combination; the amount of contractual obligations based on variable
price provisions and variable timing and the effect of contractual obligations on liquidity and cash flow in future periods; the
implementation of accounting standards and the impact of these standards once implemented; factors used to calculate the fair
value of financial instruments and other assets and liabilities; factors used to calculate the fair value of options, including expected
term and stock price volatility; our assumptions and expectations regarding critical accounting policies and estimates; our recording
of net deferred tax assets to the extent we believe such assets are more likely than not to be realized; the Antitrust Litigation and
other lawsuits and claims arising out of the conduct of our business; our expectation that the adoption of the provisions of ASU
2016-13, ASU 2016-09, ASU 2016-07, ASU 2016-05 and ASU 2015-11 will not have a material effect on our consolidated financial
statements; our expectation that based on our current stock compensation awards, ASU 2014-12 will not have a material effect
on our consolidated financial statements.
With respect to these statements, we have made assumptions regarding, among other things, the results and impacts of the
Combination and the Separation; our ability to effectively integrate the operations of RockTenn and MWV; economic, competitive
and market conditions; volumes and price levels of purchases by customers; competitive conditions in our businesses; possible
adverse actions of our customers, our competitors and suppliers; labor costs; the amount and timing of capital expenditures,
including installation costs, project development and implementation costs, severance and other shutdown costs; restructuring
costs; utilization of real property that is subject to the restructurings due to realizable values from the sale of such property; credit
availability; volumes and price levels of purchases by customers; raw material and energy costs; and competitive conditions in
our businesses.
You should not place undue reliance on any forward-looking statements as such statements involve risks, uncertainties,
assumptions and other factors that could cause actual results to differ materially, including the following: the level of demand for
our products; our ability to successfully identify and make performance improvements; anticipated returns on our capital
investments; our ability to achieve benefits from acquisitions and the timing thereof; our belief that matters relating to previously
identified third party PRP sites and certain formerly owned facilities of Smurfit-Stone have been or will be satisfied claims in the
Smurfit-Stone bankruptcy proceedings; the level of demand for our products; our belief that we can assert claims for indemnification
pursuant to existing rights we have under settlement and purchase agreements in connection with certain of our existing
environmental remediation sites; our belief that we have insurance coverage, subject to applicable deductibles and policy limits
for certain environmental matters; our ability to successfully identify and make performance improvements; anticipated returns
on our capital investments; uncertainties related to planned mill outages or production disruptions, including associated costs and
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the length of those outages; the possibility of unplanned mill outages; investment performance, discount rates, return on pension
plan assets and expected compensation levels; market risk from changes in, including but not limited to, interest rates and commodity
prices; possible increases in energy, raw materials, shipping and capital equipment costs; any reduction in the supply of raw
materials; fluctuations in selling prices and volumes; intense competition; the potential loss of certain customers; the timing and
impact of AFMC and CBPC; the impact of operational restructuring activities, including the cost and timing of such activities,
the size and cost of employment terminations, operational consolidation, capacity utilization, cost reductions and production
efficiencies; estimated fair values of assets, and returns from planned asset transactions, and the impact of such factors on earnings;
potential liability for outstanding guarantees and indemnities and the potential impact of such liabilities; the impact of economic
conditions, including the nature of the current market environment, raw material and energy costs and market trends or factors
that affect such trends, such as expected price changes, competitive pricing pressures and cost increases, as well as the impact and
continuation of such factors; our results of operations, including operational inefficiencies, costs, sales growth or declines; our
desire or ability to continue to repurchase company stock; the timing and impact of customer transitioning, the impact of announced
price increases or decreases and the impact of the gain and loss of customers; pension plan contributions and expense, funding
requirements and earnings; environmental law liability as well as the impact of related compliance efforts, including the cost of
required improvements and the availability of certain indemnification claims; capital expenditures; the cost and other effects of
complying with governmental laws and regulations and the timing of such costs; the scope, and timing and outcome of any
litigation, including the Antitrust Litigation or other dispute resolutions and the impact of any such litigation or other dispute
resolutions on our results of operations, financial condition or cash flows; income tax rates, future deferred tax expense and future
cash tax payments; future debt repayment; our ability to fund capital expenditures, interest payments, dividends and stock
repurchases, pension payments, working capital needs, note repurchases, repayments of current portion of long term debt and
other corporate actions for the foreseeable future from cash generated from operations, borrowings under our credit facilities,
proceeds from the issuance of debt or equity securities or other additional long-term debt financing, including new or amended
facilities; our estimates and assumptions regarding our contractual obligations and the impact of our contractual obligations on
our liquidity and cash flow; the impact of changes in assumptions and estimates underlying accounting policies; the expected
impact of implementing new accounting standards; the impact of changes in assumptions and estimates on which we based the
design of our system of disclosure controls and procedures; the expected cash tax payments that may change due to changes in
taxable income, tax laws or tax rates, capital expenditures or other factors; the occurrence of severe weather or a natural disaster,
such as a hurricane, tropical storm, earthquake, tornado, flood, fire, or other unanticipated problems such as labor difficulties,
equipment failure or unscheduled maintenance and repair, which could result in operational disruptions of varied duration; adverse
changes in general market and industry conditions and other risks, uncertainties and factors discussed in Item 1A. “Risk Factors”
and by similar disclosures in any of our subsequent SEC filings. The information contained herein speaks as of the date hereof
and we do not have or undertake any obligation to update such information as future events unfold.
Item 1A.
RISK FACTORS
We are subject to certain risks and events that, if one or more of them occur, could adversely affect our results of operations,
cash flows and financial condition, and the trading price of our Common Stock. In evaluating us, our business and a potential
investment in our securities, you should consider the following risk factors and the other information presented in this report, as
well as the other reports and registration statements we file from time to time with the SEC. The risks addressed below are not the
only ones we face. Additional risks not currently known to us or that we currently deem immaterial could also adversely impact
our business in the future.
We May Fail to Realize the Anticipated Benefits of the Combination
The success of the Combination will depend on, among other things, our ability to combine the RockTenn and MWV businesses
in a manner that facilitates growth opportunities and realizes anticipated synergies, and achieves the identified projected cost
savings and revenue growth trends. In connection with the Combination, we set a $1.0 billion annualized run rate synergy and
performance improvement target, before inflation, to be realized by September 30, 2018. At September 30, 2016, we had achieved
an annualized run rate of $500 million. We expected, and continue to expect, to (a) benefit from operational synergies resulting
from the consolidation of capabilities and the elimination of redundancies, as well as greater efficiencies from increased scale and
market integration and (b) realize revenue synergies through an expanded and complementary product offering and increased
geographic reach. However, we must successfully combine the RockTenn and MWV businesses in a manner that permits these
cost savings and synergies to be realized. In addition, we must achieve the anticipated cost savings and synergies without adversely
affecting current revenues and investments in future growth.
Achieving the anticipated benefits of the Combination is subject to a number of uncertainties, including market conditions,
risks related to our businesses and whether we consolidate certain businesses and functions of RockTenn and MWV in an efficient,
effective and timely manner. In particular, we may face significant challenges integrating the companies’ technologies,
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organizations, procedures, policies and operations, addressing differences in their business cultures and retaining key personnel.
The integration may also be more difficult, complex, costly and time consuming than we expect, and the integration process and
other disruptions resulting from the Combination may disrupt ongoing businesses or cause inconsistencies in standards, controls,
procedures and policies that adversely affect our relationships with employees, suppliers, customers and others with whom
RockTenn and MWV had business or other dealings or limit our ability to achieve the anticipated benefits of the Combination.
If we are not able to successfully combine the RockTenn and MWV businesses within the anticipated time frame, or at all,
the expected cost savings and synergies and other benefits of the Combination may not be realized fully or at all or may take
longer to realize than expected, the combined businesses may not perform as expected, management’s time and energy may be
diverted, and our results of operations, cash flows and financial condition, and the trading price of our Common Stock, could be
adversely affected.
We May Experience Pricing Variability
Our businesses have experienced, and are likely to continue experiencing, cycles relating to industry capacity and general
economic conditions. The length and magnitude of these cycles have varied over time and by product. Prices for our products are
driven by many factors, including general economic conditions, demand for our products and competitive conditions in our industry,
and we have little influence over the timing and extent of price changes, which may be unpredictable and volatile. If supply exceeds
demand, prices for our products could decline, and our results of operations, cash flows and financial condition, and the trading
price of our Common Stock could be adversely affected. Further, certain published indices contribute to the setting of selling prices
for some of our products. Future changes in how these indices are established or maintained could adversely impact selling prices.
Our Earnings Are Highly Dependent on Volumes
Because our operations generally have high fixed operating cost components, our earnings are highly dependent on volumes,
which tend to fluctuate. These fluctuations make it difficult to predict our financial results with any degree of certainty. Any failure
to maintain volumes may adversely affect our results of operations, cash flows and financial condition, and the trading price of
our Common Stock.
We May Face Increased Costs or Inadequate Availability of Raw Materials, Energy and Transportation
We rely heavily on the use of certain raw materials, energy sources and third-party companies to transport our goods. The
cost of recovered paper and virgin fiber, the principal externally sourced raw materials for our mills, are subject to pricing variability
due to market and industry conditions. Increasing demand for products packaged in 100% recycled paper, greater demand for U.S.
sourced recovered paper by Asian-based paper manufacturers, and the shift by manufacturers of virgin paperboard, tissue, newsprint
and corrugated packaging to the production of products with some recycled paper content have and may continue to increase
demand for recovered paper, which may result in cost increases. Certain published indices contribute to price setting for some of
our raw materials. Future changes in how these indices are established or maintained could adversely impact pricing.
At times, the cost of natural gas, which we use in many of our manufacturing operations, including many of our mills, and
other energy costs (including energy generated by burning natural gas, fuel oil, biomass and coal) have fluctuated significantly.
High energy costs could increase our operating costs and make our products less competitive compared to similar or alternative
products offered by competitors.
We distribute our products primarily by truck and rail, although we also distribute some of our products by cargo ship. Reduced
availability of trucks, rail cars or cargo ships could negatively impact our ability to ship our products in a timely manner, and high
transportation costs could make our products less competitive compared to similar or alternative products offered by competitors.
Because all of our businesses operate in highly competitive industry segments, we may not be able to recoup past or future
increases in the cost of raw materials, energy or transportation through price increases for our products. The failure to obtain raw
materials, energy or transportation services at reasonable market prices (or the failure to pass on price increases to our customers)
or a reduction in the availability of raw materials, energy or transportation services due to increased demand or other factors could
adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock.
We Face Intense Competition
We compete in industries that are highly competitive, and no single company dominates an industry. Our competitors include
large and small, vertically integrated companies and numerous smaller non-integrated companies. We generally compete with
companies operating in North America, although we have operations spanning North America, South America, Europe and Asia.
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Competition from domestic or non-U.S. lower cost or more innovative manufacturers in the future could adversely impact our
sales volumes and pricing, as could other actions taken by our competitors, including reducing the prices of their products, improving
the quality of their products or enhancing their marketing or sales activities. To the extent one or more competitors are more
successful than we are with respect to any key competitive factor, our results of operations, cash flows and financial condition,
and the trading price of our Common Stock, could be adversely affected.
Our products also compete, to some extent, with various other packaging materials, including products made of paper, plastics,
wood and various types of metal. Customer shifts away from paperboard and containerboard packaging to packaging from other
materials could adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common
Stock.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating and Maintaining Mergers, Acquisitions and
Investments
We have completed several mergers, acquisitions and investments in recent years, and we may acquire or invest in or enter
into joint ventures with additional companies. We may not be able to identify suitable targets or successfully complete suitable
transactions in the future and completed transactions may not be successful. These transactions create risks, including, but not
limited to:
• disruption of our ongoing business, including loss of management focus on existing businesses;
• difficulties in integrating acquired businesses and personnel into our business;
• inability to achieve expected synergies;
• working with partners or other ownership structures with shared decision-making authority;
• difficulties in obtaining and verifying relevant information regarding a business prior to the consummation of the transaction,
including the identification and assessment of liabilities, claims or other circumstances that could result in litigation or
regulatory exposure;
• inability to obtain required regulatory approvals and/or required financing on favorable terms;
• potential impairment of tangible and intangible assets and goodwill;
• problems retaining key employees, contractual relationships or customers;
• additional operating losses and expenses of the businesses we acquire or in which we invest;
• the difficulty of implementing at companies we acquire the controls, procedures and policies appropriate for a larger public
company;
• dilution of interests of holders of our Common Stock through the issuance of equity securities;
• for non-U.S. transactions, additional risks related to the integration of operations across different cultures and languages,
and the economic, political and regulatory risks associated with specific countries; and
• acquisitions or investments may ultimately harm our business or financial condition, as they may not be successful.
The Separation Could Result in Substantial Tax Liability to Us and to Those of Our Stockholders Who Received Ingevity
Stock at the Time of the Separation
We have received an opinion from outside tax counsel to the effect that the Separation qualifies as a transaction that is described
in Sections 355 and 368(a)(1)(D) of the Internal Revenue Code. The opinion relies on certain facts, assumptions, representations
and undertakings from Ingevity and us regarding the past and future conduct of each of the two companies’ respective businesses
and other matters. If any of these facts, assumptions, representations or undertakings prove to be incorrect or not satisfied, or if
the IRS otherwise determines on audit that the Separation is taxable, our stockholders who received Ingevity stock at the time of
the Separation and/or we may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities.
If the Separation is determined to be taxable, those of our stockholders who received Ingevity stock at the time of the Separation
and/or we could be subject to a substantial tax liability. If the Separation is determined to be taxable to those of our stockholders
who received Ingevity stock at the time of the Separation, each of those stockholders would generally be treated as having received
a taxable distribution of property in an amount equal to the fair market value of the Ingevity shares received.
Even if the Separation otherwise qualifies as a tax-free transaction to those of our stockholders who received Ingevity stock
at the time of the Separation, the distribution could be taxable to us in certain circumstances if future significant acquisitions of
our stock or the stock of Ingevity are determined to be part of a plan or series of related transactions that included the Separation.
In this event, the resulting tax liability would be substantial. In connection with the Separation, we entered into a tax matters
agreement with Ingevity, pursuant to which Ingevity agreed (i) to not engage in certain transactions that could cause the Separation
to be taxable to us and (ii) to indemnify us for any tax liabilities resulting from such a transaction. The indemnity from Ingevity
may not be sufficient to protect us against the full amount of such liabilities. Any tax liabilities resulting from the Separation or
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related transactions could adversely affect our results of operations, cash flows and financial condition, and the trading price of
our Common Stock.
We May Be Exposed to Claims and Liabilities as a Result of the Separation
We entered into a separation and distribution agreement and various other agreements with Ingevity to govern the Separation
and the relationship of the two companies going forward. These agreements provide for specific indemnity and liability obligations
and could lead to disputes between us and Ingevity. The indemnity rights we have against Ingevity under the agreements may not
be sufficient to protect us. In addition, our indemnity obligations to Ingevity may be significant and these risks could adversely
affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock.
We May Be Adversely Affected by Economic and Financial Market Conditions, and Social and Political Change
Our businesses may be affected by a number of factors that are beyond our control, such as general economic and business
conditions, changes in tax laws or tax rates and conditions in the financial services markets, including counterparty risk, insurance
carrier risk, rising interest rates, inflation, deflation, fluctuations in the value of local currency versus the U.S. dollar, the impact
of a stronger U.S. dollar or changes in U.S social and political change impacting matters such as environmental regulations, non-
U.S. trade policies, or other factors, each of which may adversely impact our ability to compete. Macro-economic challenges,
including conditions in financial and capital markets and levels of unemployment, and the ability of the U.S. and other countries
to address their rising debt levels may continue to put pressure on the economy or lead to changes in tax laws or tax rates. Changes
in tax laws or tax rates may have a material impact on our future cash taxes, effective tax rate or deferred tax assets and liabilities.
Adverse developments in the U.S. and global economy, including locations such as Europe, Brazil, India and China, could adversely
affect the demand for our products, our revenues and manufacturing costs. We are not able to predict with certainty economic and
financial market conditions, and our results of operations, cash flows and financial condition, and the trading price of our Common
Stock, could be adversely affected by adverse market conditions.
Our Joint Ventures May Limit Our Flexibility with Respect to These Jointly Owned Investments
We have invested in a number of joint ventures with other entities when circumstances warranted the use of these structures,
and we may form additional joint ventures in the future. Our participation in joint ventures is subject to risks, including, but not
limited to:
• experiencing an impasse on certain decisions because we do not have sole decision-making authority, which could require
us to expend additional resources to resolve impasses or potential disputes;
• inability to maintain good relationships with our partners, which could limit our future growth potential;
• conflict of interest issues if our partners have competing interests in our markets;
• conflicting investment or operational goals with our partners, including the timing, terms and strategies for investments or
future growth opportunities;
• failure by our partners to fund their share of required capital contributions or to otherwise fulfill their obligations as partners,
which may require us to infuse our own capital into these ventures on behalf of the related partner despite other competing
uses for capital; and
• obtaining consents from our partners for any sale or other disposition of our interest in a joint venture or underlying assets
of the joint venture.
Our Investment in Grupo Gondi May Require Us to Utilize Our Cash Flow or Incur Additional Indebtedness to Satisfy
Certain Payment Obligations
In connection with our investment in the joint venture with Grupo Gondi, we entered into an option agreement pursuant to
which we and certain shareholders of Grupo Gondi agreed to future put and call options with respect to the equity interests in the
joint venture held by each party. These put and call arrangements may require us to dedicate a substantial portion of our cash flow
to satisfy our payment obligations in respect of these arrangements, which may reduce the amount of funds available for our
operations, capital expenditures and corporate development activities. Similarly, we may be required to incur additional
indebtedness to satisfy our payment obligations in respect of these arrangements.
We are Exposed to Risks Related to International Sales and Operations
We predominately operate in U.S. markets, but derive a portion of our total sales from outside the U.S. through international
operations or exports to foreign customers. We are exposed to risks of operating in many countries, including, but not limited to:
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• difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations;
• unexpected changes in political or regulatory environments; earnings and cash flows that may be subject to tax withholding
requirements or the imposition of tariffs, exchange controls or other restrictions;
• restrictions on, or difficulties and costs associated with, the repatriation of cash from foreign countries to the U.S.;
• political and economic instability;
• import and export restrictions and other trade barriers;
• difficulties in maintaining overseas subsidiaries and international operations;
• difficulties in obtaining approval for significant transactions;
• government limitations on foreign ownership;
• government takeover or nationalization of business;
• government mandated price controls; and
• fluctuations in foreign currency exchange rates.
Any one or more of these risks could adversely affect our international operations and our results of operations, cash flows
and financial condition, and the trading price of our Common Stock.
The Future Success of our International Operations Could be Adversely Affected by Violations or Alleged Violations of the
Anti-Bribery Laws
The FCPA, and similar world-wide anti-bribery laws, including those in Brazil, Mexico and India (where we maintain
operations directly or through a joint venture), prohibits companies and their intermediaries from making improper payments to
foreign officials for the purpose of obtaining or retaining business. Our policies mandate compliance with anti-bribery laws,
including the FCPA. Our internal control policies and procedures, or those of our vendors, may not adequately protect us from
reckless or criminal acts committed or alleged to be committed by our employees, agents or vendors. Any such allegations could
lead to civil or criminal monetary and non-monetary penalties and/or could damage our reputation. Violations of these laws, or
allegations of such violations, could adversely affect our results of operations, cash flows and financial condition, and the trading
price of our Common Stock.
We Depend on Certain Large Customers
Each of our corrugated packaging and consumer packaging segments has large customers, the loss of which could adversely
affect the segment’s sales and, depending on the significance of the loss, our results of operations, cash flows and financial condition,
and the trading price of our Common Stock. In particular, because all of our businesses operate in highly competitive industry
segments, we regularly bid for new business or for the renewal of existing business. The loss of business from our larger customers,
or the renewal of business on less favorable terms, may adversely impact our financial results.
We May Incur Business Disruptions
The operations at our manufacturing facilities may be interrupted or impaired by various operating risks, including, but not
limited to:
• catastrophic events, such as fires, floods, explosions, natural disasters, severe weather or other similar occurrences;
• interruptions in the delivery of raw materials or other manufacturing inputs;
• adverse government regulations;
• equipment breakdowns or failures;
• unscheduled maintenance;
• information system failures;
• violations of our permit requirements or revocation of permits;
• releases of pollutants and hazardous substances to air, soil, surface water or ground water;
• shortages of equipment or spare parts; and
• labor disputes.
The occurrence of any of these events may impair our production capabilities and adversely affect our results of operations,
cash flows and financial condition, and the trading price of our Common Stock.
Our Net Income Could Be Negatively Affected If Interest Rates Increase
We maintain levels of fixed and floating rate debt that we consider prudent based on our cash flows (and other financial
metrics) and business outlook, and these levels may vary over time. Our floating rate debt exposes us to changes in interest rates.
19
We utilize fixed rate debt and, from time to time, derivative financial instruments to manage our exposure to interest rate risks.
However, our financial risk management may not be successful in reducing the risks inherent in exposures to interest rate
fluctuations, which could adversely affect our financial condition and the trading price of our Common Stock.
A Downgrade in our Credit Ratings Could Adversely Affect our Business
Some of our outstanding indebtedness has received credit ratings from rating agencies. These ratings are limited in scope and
do not purport to address all risks relating to an investment in those debt securities. Our credit ratings could change based on,
among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit
rating agencies, and they may be lowered, suspended or withdrawn entirely by a rating agency or placed on a so-called “watch
list” for a possible downgrade or assigned a negative ratings outlook if, in any rating agency’s judgment, circumstances so warrant.
Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review
for a downgrade or have been assigned a negative outlook, would likely increase our borrowing costs, which could in turn adversely
affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock. If a downgrade
or negative outlook were to occur, it could impact our ability to access the capital markets to raise debt and/or increase the cost
thereof. In addition, while our credit ratings are important to us, we may take actions and otherwise operate our business in a
manner that adversely affects our credit ratings.
We are Subject to Extensive and Costly Environmental and Other Governmental Regulation
We are subject to various federal, state, local and foreign environmental laws and regulations, including those regulating the
discharge, storage, handling and disposal of a variety of substances, the regulation of chemicals used in our operations, as well as
other financial and non-financial regulations, including items such as air and water quality, the cleanup of contaminated soil and
groundwater, standards applicable to our finished products and matters related to the health and safety of employees.
We regularly make capital expenditures to maintain compliance with applicable environmental laws and regulations. However,
environmental laws and regulations are becoming increasingly stringent. Consequently, our compliance and remediation costs
could increase materially. In addition, we cannot currently assess the impact of future changes in governmental regulations,
including future emissions standards (such as regulations on emissions from certain industrial boilers), climate change initiatives
and government’s enforcement practices will have on our operations or capital expenditure requirements. Further, we are responsible
for conducting environmental investigation and cleanup activities at current and formerly owned sites. We also have been identified
as a PRP at various third-party disposal sites pursuant to U.S. federal or state statutes. Any liability we may incur in connection
with these or other sites at which we may be identified in the future as a responsible party or in connection with other governmental
requirements, including capital investments or business disruptions associated with regulatory compliance, may adversely affect
our results of operations, cash flows and financial condition, and the trading price of our Common Stock. In addition, our operations
also consume significant amounts of energy, and we may incur additional indirect costs as a result of changes in costs of energy
due to increased climate-related and other environmental regulations.
Our Capital Expenditures May Not Achieve the Desired Outcome or May Be Achieved at a Higher Cost than Anticipated
We regularly make capital expenditures with respect to our manufacturing facilities. Many of our projects are complex, costly
and are implemented over an extended period of time. Consequently, our capital expenditures could be higher than we anticipated,
we may experience unanticipated business disruptions and/or we may not achieve the desired benefits from these projects. Should
these types of conditions and risks occur, they could adversely affect our results of operations, cash flows and financial condition,
and the trading price of our Common Stock.
We May Incur Additional Restructuring Costs and May Not Realize Expected Benefits from Restructuring
We have restructured portions of our operations from time to time, including in connection with the Combination, and we
may engage in additional restructuring initiatives. Because we are not able to predict with certainty market conditions, including
changes in the supply and demand for our products, the loss of large customers or the selling prices for our products, we also may
not be able to predict with certainty when it will be appropriate to undertake restructurings. The costs associated with these activities
will vary depending upon the type of facility impacted, with the non-cash cost of a mill closure generally being more significant
than that of a converting facility due to the higher level of fixed costs. It is also possible, in connection with these restructuring
efforts, that our costs could be higher than we anticipate and that we may not realize the expected benefits.
20
Work Stoppages and Other Labor Relations Matters May Have an Adverse Effect on Our Financial Results
A significant number of our union employees are governed by CBAs. Expired contracts are in the process of renegotiation,
and others expire within one year. We may not be able to successfully negotiate new union contracts without work stoppages or
labor difficulties or renegotiate them on favorable terms. We have experienced work stoppages in the past and we may experience
work stoppages in the future. If we are unable to successfully renegotiate the terms of any of these agreements or an industry
association is unable to successfully negotiate a national agreement when it expires, or if we experience any extended interruption
of operations at any of our facilities as a result of strikes or other work stoppages, our results of operations and financial condition,
and the trading price of our Common Stock, could be adversely affected.
We May Incur Increased Employee Benefit Costs and Certain of Our Pension Plans Will Likely Require Additional Cash
Contributions
Employee healthcare costs continue to rise. Our pension contribution and health care benefits costs depend on multiple factors
resulting from actual plan experience and assumptions of future experience. Following the Combination, WestRock merged MWV’s
U.S. qualified defined benefit pension plans into the Rock-Tenn Company Consolidated Pension Plan, and renamed the merged
plan the WestRock Company Consolidated Pension Plan. The WestRock Company Consolidated Pension Plan is over funded. We
expect to make future contributions primarily to our non-U.S. pension plans in the coming years in order to ensure that our funding
levels remain adequate and meet regulatory requirements. The actual required amounts and timing of future cash contributions
will be highly sensitive to changes in the applicable discount rates and returns on plan assets, and could also be impacted by future
changes in the laws and regulations applicable to plan funding. Our pension plan assets are primarily made up of fixed income,
equity and alternative investments. Fluctuations in market performance of these assets and changes in interest rates may result in
increased or decreased pension costs in future periods. Changes in assumptions regarding expected long-term rate of return on
plan assets, our discount rate, expected compensation levels or mortality could also increase or decrease pension costs. These
changes, along with turmoil in financial and capital markets, may adversely affect our results of operations, cash flows and financial
condition, and the trading price of our Common Stock.
We May Incur Increased Funding Requirements in the Multiemployer Pension Plans in Which We Participate
We participate in several MEPPs administered by labor unions that provide retirement benefits to certain union employees in
accordance with various CBAs. As one of many participating employers in these plans, we are generally responsible with the other
participating employers for any plan underfunding. Our contributions to a particular MEPP are established by the applicable CBAs;
however, our required contributions may increase based on the funded status of a MEPP and legal requirements such as those of
the Pension Act, which requires substantially underfunded MEPPs to implement a funding improvement plan or a rehabilitation
plan to improve their funded status.
We believe certain of the MEPPs in which we participate have material unfunded vested benefits. Due to uncertainty regarding
future factors that could trigger a withdrawal liability, including partial withdrawal liabilities triggered by facility closures, as well
as the absence of specific information regarding matters such as the MEPPs’ current financial situation due in part to delays in
reporting, the potential withdrawal or bankruptcy of other contributing employers, the impact of future plan performance or the
success of current and future funding improvement or rehabilitation plans to restore solvency to the plans, we are unable to
determine with certainty the amount and timing of any future withdrawal liability, changes in future funding obligations or the
impact of increased contributions including those that could be triggered by a mass withdrawal of other employers from a MEPP.
MEPPs may also be significantly impacted by changes in legislation and actions taken by particular MEPP trustees. The impact
of increased contributions, future funding obligations or future withdrawal liabilities may adversely affect our results of operations,
cash flows and financial condition, and the trading price of our Common Stock.
We are Subject to Cyber-Security Risks Related to Customer, Employee, Vendor or Other Company Data
We use information technologies to securely manage operations and various business functions. We rely on various technologies
to process, store and report on our business and interact with customers, vendors and employees. Our systems are subject to
repeated attempts by third parties to access information or to disrupt our systems. Despite our security design and controls, and
those of our third-party providers, we may become subject to cyber-attacks that could result in operational disruptions or the
misappropriation of sensitive data. Such disruptions or misappropriations and the resulting repercussions may adversely affect
our results of operations, cash flows and financial condition, and the trading price of our Common Stock.
21
We Depend On Our Ability to Develop and Successfully Introduce New Products and to Acquire and Retain Intellectual Property
Rights
Our ability to develop and successfully market new products and to develop, acquire and retain necessary intellectual property
rights is important to our continued success and competitive position. If we were unable to protect our existing intellectual property
rights, develop new rights, or if others developed similar or improved technologies our results of operations, cash flows and
financial condition, and the trading price of our Common Stock, could be adversely affected.
Our Real Estate Development Activities are Subject to Challenges
We engage in value-added real estate development activities in the Charleston, SC region, including obtaining entitlements
and establishing joint ventures and other development-related arrangements. Our ability to execute our plans to realize the greater
value associated with our development land holdings may be affected by the following factors, among others:
• general economic conditions, including credit markets and interest rates;
• local real estate market conditions, including competition from sellers of land and real estate developers; and
• impact of federal, state and local laws and regulations affecting land use, land use entitlements, land protection and zoning.
Any failure to execute our plans could adversely affect our results of operations, cash flows and financial condition, and the
trading price of our Common Stock.
Item 1B.
UNRESOLVED STAFF COMMENTS
Not applicable – there are no unresolved SEC staff comments.
Item 2.
PROPERTIES
We operate locations in North America, including the majority of U.S. states, South America, Europe and Asia. We lease our
principal executive offices in Richmond, VA and we own our principal operating offices in Norcross, GA. We believe that our
existing production capacity is adequate to serve existing demand for our products and consider our plants and equipment to be
in good condition.
Our corporate and operating facilities as of September 30, 2016 are summarized below:
Segment
Corrugated Packaging . . . . . . . . . . . . . .
Consumer Packaging . . . . . . . . . . . . . . .
Land and Development . . . . . . . . . . . . .
Corporate and significant regional
offices . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Facilities
Owned
Leased
Total
100
67
2
1
170
38
37
1
9
85
138
104
3
10
255
22
The tables that follow show our annual production capacity by mill at September 30, 2016 in thousands of tons. Although
our mill system operating rates may vary from year to year due to changes in market and other factors, our simple average mill
system operating rates for the last three years averaged 95%. We own all of our mills. Our fiber sourcing for our mills is approximately
65% virgin and 35% recycled.
Corrugated Packaging Mills
Location of Mill
Fernandina Beach, FL . . . . . .
West Point, VA. . . . . . . . . . . .
Stevenson, AL . . . . . . . . . . . .
Solvay, NY. . . . . . . . . . . . . . .
Hodge, LA . . . . . . . . . . . . . . .
Florence, SC . . . . . . . . . . . . .
Panama City, FL . . . . . . . . . .
Seminole, FL . . . . . . . . . . . . .
Dublin, GA . . . . . . . . . . . . . .
Hopewell, VA. . . . . . . . . . . . .
Rigesa, Brazil . . . . . . . . . . . .
Tacoma, WA. . . . . . . . . . . . . .
La Tuque, QC . . . . . . . . . . . .
St. Paul, MN . . . . . . . . . . . . .
Morai, India . . . . . . . . . . . . . .
Total Corrugated
Packaging Mill Capacity .
Linerboard Medium
White Top
Linerboard
Kraft
Paper/
Bag
Market
Pulp
Bleached
Paperboard
930
548
800
683
353
402
130
527
330
90
155
185
885
272
198
130
170
200
25
735
292
325
275
345
60
60
131
Total
Capacity
930
920
885
820
800
683
645
600
585
527
500
485
476
200
180
4,948
2,065
1,355
385
352
131
9,236
Consumer Packaging Mills
Location of Mill
Mahrt, AL . . . . . . . . . . . . . . . . . .
Covington, VA. . . . . . . . . . . . . . .
Evadale, TX. . . . . . . . . . . . . . . . .
Demopolis, AL . . . . . . . . . . . . . .
St. Paul, MN . . . . . . . . . . . . . . . .
Battle Creek, MI . . . . . . . . . . . . .
Chattanooga, TN . . . . . . . . . . . . .
Dallas, TX . . . . . . . . . . . . . . . . . .
Sheldon Springs, VT
(Missisquoi Mill) . . . . . . . . . . .
Lynchburg, VA . . . . . . . . . . . . . .
Stroudsburg, PA. . . . . . . . . . . . . .
Eaton, IN . . . . . . . . . . . . . . . . . . .
Aurora, IL . . . . . . . . . . . . . . . . . .
Total Consumer Packaging
Mill Capacity . . . . . . . . . . . . .
Bleached
Paperboard
Coated
Natural
Kraft
1,066
Coated
Recycled
Paperboard
Specialty
Recycled
Paperboard
Market
Pulp
942
585
350
125
100
168
160
127
111
80
1,877
1,066
646
140
103
64
32
339
Total
Capacity
1,066
942
710
450
168
160
140
127
111
103
80
64
32
225
4,153
The production at our Lynchburg, VA mill is gypsum paperboard liner and the paper machine is owned by our Seven Hills
joint venture. At September 30, 2016, we owned approximately 61,000 acres of development landholdings primarily in the
Charleston, SC region and approximately 135,000 acres of forestlands in Brazil.
23
Item 3.
LEGAL PROCEEDINGS
We are a defendant in a number of lawsuits and claims arising out of the conduct of our business. While the ultimate results
of such suits or other proceedings against us cannot be predicted with certainty, management believes the resolution of these
matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Additional information is included in “Note 18. Commitments and Contingencies” of the Notes to Consolidated Financial
Statements.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II: FINANCIAL INFORMATION
Item 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our Common Stock trades on the New York Stock Exchange under the symbol “WRK”. From October 1, 2014 through July
1, 2015 in the table below, the stock that traded was RockTenn Common Stock under the symbol “RKT”. RockTenn was the
accounting acquirer in the Combination. On July 2, 2015, shares of our Common Stock began regular-way trading on the NYSE
under the ticker symbol “WRK”.
As of October 28, 2016, there were approximately 6,965 stockholders of record of our Common Stock. The number of
stockholders of record includes one single stockholder, Cede & Co., for all of the shares of our Common Stock held by our
stockholders in individual brokerage accounts maintained at banks, brokers and institutions.
The table below reflects the market price of our Common Stock beginning on July 2, 2015. For periods prior to July 2, 2015,
the table below reflects the market price of RockTenn Common Stock.
Price Range of Common Stock and Dividends
Fiscal 2016
Market Price
High
Low
First Quarter . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . $
Third Quarter. . . . . . . . . . . . . $
Fourth Quarter. . . . . . . . . . . . $
57.85
45.71
44.49
49.18
$
$
$
$
42.75
29.73
35.52
36.33
Fiscal 2015
Market Price
High
Low
62.50
71.47
66.88
66.40
$
$
$
$
43.32
59.35
59.25
48.80
Dividend
0.1875
$
$
$
$
0.3205
0.3205
0.3750
Dividend
0.3750
$
$
$
$
0.3750
0.3750
0.3750
$
$
$
$
The range of prices in the table above are impacted by the Separation subsequent to May 15, 2016. Ingevity became an
independent public company trading under the symbol “NGVT” on the New York Stock Exchange. Under the terms of the
Separation, WestRock stockholders received one share of Ingevity common stock for every six common shares of WestRock
common stock held as of the close of business on May 4, 2016.
In November 2016, our board of directors declared a quarterly dividend of $0.40 per share which represented a 6.7% increase
from the prior $0.375 per share dividend and an annual dividend of $1.60 per share. During fiscal 2016, we paid quarterly dividends
of $0.375 per share for an annual dividend of $1.50 per share. In the first quarter of fiscal 2015, RockTenn increased its dividend
from $0.175 to $0.1875 per share. Subsequently, as a result of the Business Combination Agreement, RockTenn increased the per
share amount of the dividends it distributed in the second and third fiscal quarters of 2015 to $0.3205 per share to equalize RockTenn
and MWV dividend payments. In July and October 2015, our board of directors approved our August and November 2015 quarterly
dividends of $0.375 per share, indicating an annualized dividend of $1.50 per share. During fiscal 2015, we paid aggregate dividends
(including those paid by RockTenn prior to the closing of the Combination) on our Common Stock of approximately $1.20 per
share. For additional dividend information, please see Item 6. “Selected Financial Data”.
24
Securities Authorized for Issuance Under Equity Compensation Plans
The section under the heading “Executive Compensation Tables” entitled “Equity Compensation Plan Information” in the
Proxy Statement for the annual meeting of stockholders to be held on January 27, 2017, which will be filed with the SEC on or
before December 31, 2016, is incorporated herein by reference. For additional information concerning our capitalization, see “Note
15. Stockholders’ Equity” of the Notes to Consolidated Financial Statements.
Stock Repurchase Plan
In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of our Common Stock,
representing approximately 15% of our outstanding Common Stock as of July 1, 2015. The shares of our Common Stock may be
repurchased over an indefinite period of time at the discretion of management. In fiscal 2016, we repurchased approximately 8.1
million shares of our Common Stock for an aggregate cost of $335.3 million. Subsequent to the authorization in the fourth quarter
of fiscal 2015, we repurchased approximately 5.4 million shares of our Common Stock for an aggregate cost of $328.0 million.
Separately, as part of the Combination, RockTenn repurchased 10.5 million shares of RockTenn Common Stock for an aggregate
cost of $667.8 million. Prior to the closing of the Combination and pursuant to the then existing RockTenn repurchase plan, in the
first quarter of fiscal 2015, RockTenn repurchased 0.2 million shares of RockTenn Common Stock for an aggregate cost of $8.7
million and in fiscal 2014, it repurchased approximately 4.7 million shares for an aggregate cost of $236.3 million. As of
September 30, 2016, we had remaining authorization under our July 2015 repurchase program to purchase approximately 26.5
million shares of our Common Stock.
The following table presents information with respect to purchases of our Common Stock that we made during the three
months ended September 30, 2016:
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
132,779
268,711
694,827
1,096,317
Maximum
Number
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
27,460,277
27,191,566
26,496,739
Total
Number
of Shares
Purchased
132,779
268,711
694,827
1,096,317
Average
Price Paid
Per Share
37.64
$
44.86
47.47
July 1, 2016 through July 31, 2016 . . . . . . . . . . . . . .
August 1, 2016 through August 31, 2016 . . . . . . . . .
September 1, 2016 through September 30, 2016 . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with our consolidated financial statements
and notes thereto and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
RockTenn was the accounting acquirer in the Combination; therefore, the historical consolidated financial statements of RockTenn
for periods prior to the Combination are considered to be the historical financial statements of WestRock and thus WestRock’s
consolidated financial statements for fiscal 2015 reflect RockTenn’s consolidated financial statements for periods from October
1, 2014 through June 30, 2015, and WestRock’s thereafter. We derived the consolidated statements of operations and consolidated
statements of cash flows data for the years ended September 30, 2016, 2015 and 2014, and the consolidated balance sheet data as
of September 30, 2016 and 2015 from the WestRock Company consolidated financial statements. We derived the consolidated
statements of operations and consolidated statements of cash flows data for the years ended September 30, 2013 and 2012, and
the consolidated balance sheet data as of September 30, 2014, 2013 and 2012, from audited Rock-Tenn Company consolidated
financial statements not included in this report. The table that follows is consistent with those presentations with the exception of
diluted earnings per share attributable to common stockholders, diluted weighted average shares outstanding, dividends per common
share and book value per common share that have been adjusted retroactively due to RockTenn’s August 2014 two-for-one stock
split.
The Combination was the primary reason for the changes in the selected financial data in fiscal 2016 and 2015 as compared
to prior years due to the size and timing of the transaction. The selected financial data has been updated to reflect the Separation.
Our results of operations shown below may not be indicative of future results.
25
2016
Year Ended September 30,
2014
(In millions, except per share amounts)
2013
2015
2012
$ 11,124.8
$
9,895.1
$
9,545.4
$
9,207.6
$
— $
— $
— $
$
$
$
$
$
$
$
$
$
$
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,171.8
Pension risk transfer expense (a) . . . . . . . . . . . . . . . . $
370.7
Pension lump sum settlement and retiree medical
curtailment, net (b) . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring and other costs, net . . . . . . . . . . . . . . . $
Income from continuing operations (c). . . . . . . . . . . . $
(Loss) income from discontinued operations (net of
tax) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net (loss) income attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per share from continuing
— $
$
366.4
154.8
$
11.5
140.8
501.2
(544.7) $
10.6
(396.3) $
507.1
operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.59
$
2.87
(2.13) $
0.06
(1.54) $
257.9
$
$
2.93
173.3
1.20
45.34
Diluted (loss) earnings per share from discontinued
operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted (loss) earnings per share attributable to
common stockholders . . . . . . . . . . . . . . . . . . . . . . $
1.50
Diluted weighted average shares outstanding . . . . . .
Dividends paid per common share . . . . . . . . . . . . . . $
Book value per common share . . . . . . . . . . . . . . . . . $
38.75
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,038.2
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . $
292.9
Long-term debt due after one year . . . . . . . . . . . . . . $
Total debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . $
Net cash provided by operating activities . . . . . . . . . $
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid (received) for purchase of businesses, net
5,496.3
5,789.2
1,688.4
9,728.8
796.7
$
$
$
63.7
5,558.2
5,621.9
$ 11,651.8
$
$
1,203.6
585.5
$
$
$
$
$
$
of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash received in merger . . . . . . . . . . . . . . . . . . . . . . $
Purchases of common stock . . . . . . . . . . . . . . . . . . . $
Purchases of commons stock - merger related . . . . . $
376.4
335.3
$
— $
$
— $
(3.7) $
$
265.7
336.7
667.8
$
$
47.9
55.6
483.8
$
$
$
— $
78.0
732.5
$
$
—
—
75.2
252.2
— $
— $
—
479.7
3.29
$
$
727.3
4.98
$
$
249.1
1.72
— $
— $
—
3.29
146.0
0.70
30.76
$
$
$
4.98
146.1
0.525
29.94
$
$
$
1.72
144.1
0.40
24.02
132.6
2,852.1
2,984.7
4,306.8
1,151.8
534.2
474.4
$
$
$
$
$
$
$
— $
236.3
$
— $
2.9
2,841.9
2,844.8
4,312.3
1,032.5
440.4
6.3
$
$
$
$
$
$
$
— $
— $
— $
261.3
3,151.2
3,412.5
3,405.7
656.7
452.4
125.6
—
—
—
$ 25,372.4
$ 11,039.7
$ 10,733.4
$ 10,687.1
(a)
(b)
(c)
In fiscal 2016, using plan assets we settled $2.5 billion of pension obligations of the WestRock Company Consolidated Pension
Plan by purchasing group annuity contracts from Prudential. This transaction transferred payment responsibility to Prudential
for retirement benefits owed to approximately 35,000 U.S. retirees and their beneficiaries. As a result of the transaction, we
recorded a non-cash charge of $370.7 million pre-tax. For additional information see “Note 14. Retirement Plans” of the
Notes to Consolidated Financial Statements.
In fiscal 2015, payments were made to former employees to partially settle obligations of one of our defined benefit pension
plans and we recorded a non-cash pre-tax charge of $20.0 million. In addition, changes in retiree medical coverage for certain
employees covered by the USW master agreement resulted in the recognition of an $8.5 million pre-tax curtailment gain.
These two items netted to an $11.5 million pre-tax charge. In fiscal 2014, we completed the first phase of our previously
announced lump sum pension settlement to certain eligible former employees and recorded a pre-tax charge of $47.9 million.
For additional information see “Note 14. Retirement Plans” of the Notes to Consolidated Financial Statements.
Income from continuing operations in fiscal 2015 was reduced by $64.7 million pre-tax expense for inventory stepped-up in
purchase accounting, primarily related to the Combination. Net income attributable to common stockholders in fiscal 2015,
2014 and 2013 was increased as a result of a reduction of cost of goods sold of $6.7 million, $32.3 million and $12.2 million
pre-tax, respectively, due to the recording of additional value of spare parts at our containerboard mills acquired in the Smurfit-
Stone Acquisition. For additional information see “Note 4. Inventories” of the Notes to Consolidated Financial Statements.
26
Net income attributable to common stockholders in fiscal 2013 was increased by the reversal of $254.1 million of tax reserves
related to AFMC acquired in the Smurfit-Stone Acquisition that were partially offset by a resulting increase in a state tax
valuation allowance of $1.2 million. Net income attributable to common stockholders in fiscal 2012 was reduced by $25.9
million pre-tax for a loss on extinguishment of debt in connection with the redemption of the then outstanding 9.25% senior
notes due March 2016.
(d) Loss from discontinued operations, net of tax in fiscal 2016 includes a $478.3 million pre-tax goodwill impairment charge
and $101.1 million pre-tax customer list impairment charge associated with our former Specialty Chemicals operations. For
additional information on these non-cash charges see “Note 7. Discontinued Operations” of the Notes to Consolidated
Financial Statements. Income from discontinued operations, net of tax in the fourth quarter of fiscal 2015 was reduced by
$8.2 million pre-tax of acquisition inventory step-up expense, net of related LIFO impact.
Item 7.
Overview
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We are a multinational provider of paper and packaging solutions for consumer and corrugated packaging markets.We partner
with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. Our team
members support customers around the world from operating and business locations spanning North America, South America,
Europe and Asia. We also develop real estate in Charleston, SC region.
On July 1, 2015, pursuant to the Business Combination Agreement, RockTenn and MWV completed a strategic combination
of their respective businesses. RockTenn and MWV each became wholly-owned subsidiaries of WestRock. The Combination is
described in “Note 6. Merger, Acquisitions and Investment” of the Notes to Consolidated Financial Statements. RockTenn was
the accounting acquirer in the Combination; therefore, the historical consolidated financial statements of RockTenn for periods
prior to the Combination are considered to be the historical financial statements of WestRock and thus WestRock’s consolidated
financial statements for fiscal 2015 reflect RockTenn’s consolidated financial statements for periods from October 1, 2014 through
June 30, 2015, and WestRock’s thereafter.
On May 15, 2016, we completed the Separation. Accordingly, we have presented the financial position and results of operations
of our former Specialty Chemicals segment as discontinued operations in the accompanying consolidated financial statements for
all periods presented, as well as in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
See “Note 7. Discontinued Operations” for more information.
Following the Combination, we aligned our financial results of operations in four reportable segments: Corrugated Packaging,
Consumer Packaging, Specialty Chemicals and Land and Development. Subsequent to the Separation, we report our financial
results of our continuing operations in three reportable segments: Corrugated Packaging, Consumer Packaging and Land and
Development. We reclassified prior period segment results to align to these segments for all periods presented.
Year Ended September 30,
2016
2015
2014
(In millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Segment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,171.8
1,226.2
154.8
$
$
$
11,124.8
1,070.3
501.2
$
$
$
9,895.1
1,039.4
483.8
Net sales of $14,171.8 million in fiscal 2016 increased $3,047.0 million, or 27.4%, compared to fiscal 2015. The increase
was primarily a result of the full year impact of the Combination in fiscal 2016 results, compared to three months in fiscal 2015,
and the full year impact of the SP Fiber Acquisition and the partial year impact of the Packaging Acquisition in fiscal 2016. The
increase in net sales due to the facilities received in the Combination and the acquisitions completed in fiscal 2016 accounted for
$3,365.7 million. Excluding these transactions, net sales in fiscal 2016 decreased as compared to fiscal 2015 due to an estimated
$169.6 million of lower selling price/mix and lower volume of $149.1 million.
Segment income increased $155.9 million in fiscal 2016, primarily the result of the Combination and the fiscal 2016 acquisitions
noted above. Segment income was reduced by $8.1 million of expense for inventory stepped-up in purchase accounting, net of
related LIFO impact in fiscal 2016 and $64.7 million in fiscal 2015. Income from continuing operations in fiscal 2016 was $154.8
27
million compared to $501.2 million in fiscal 2015. The reduction in income from continuing operations in fiscal 2016 was primarily
attributable to the $370.7 million of non-cash pre-tax pension risk transfer expense and $366.4 million of restructuring and other
costs, net compared to $140.8 million of restructuring and other costs, net in fiscal 2015. Diluted earnings per share from continuing
operations were $0.59 in fiscal 2016 compared to $2.87 in fiscal 2015. Adjusted Income from Continuing Operations and Adjusted
Earnings from Continuing Operations Per Diluted Share (each as hereinafter defined) in fiscal 2016 were $653.0 million and
$2.53, respectively, compared to $650.6 million and $3.75 in fiscal 2015. Adjusted Income from Continuing Operations and
Adjusted Earnings from Continuing Operations Per Diluted Share are non-GAAP financial measures. For more information on
non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, see Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Measures” and
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations
(Consolidated)” below.
We continued our balanced capital allocation approach by investing $796.7 million in capital expenditures while returning
$335.3 million to our stockholders in share repurchases and $380.7 million to our stockholders in dividends in fiscal 2016. We
believe our strong balance sheet and cash flow provide us the flexibility to continue to invest to sustain and improve our operating
performance.
Results of Operations (Consolidated)
The following table summarizes our consolidated results for the three years ended September 30, 2016:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative, excluding intangible amortization . .
Selling, general and administrative intangible amortization. . . . . . . . . . .
Pension risk transfer expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension lump sum settlement and retiree medical curtailment, net . . . . .
Restructuring and other costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income and other income (expense), net . . . . . . . . . . . . . . . . . . .
Equity in income of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations (net of income tax benefit
(expense) of $32.3, $(17.5) and $0) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interests . . . . . . . . . . . .
Net (loss) income attributable to common stockholders. . . . . . . . . . . . . . $
Year Ended September 30,
2016
2015
2014
(In millions, except per share data)
14,171.8
$
11,124.8
$
11,413.2
2,758.6
1,379.4
211.8
370.7
—
366.4
430.3
(256.7)
2.7
58.6
9.7
244.6
(89.8)
154.8
8,986.5
2,138.3
1,014.6
118.9
—
11.5
140.8
852.5
(132.5)
(2.6)
9.7
7.1
734.2
(233.0)
501.2
(544.7)
(389.9)
(6.4)
(396.3) $
10.6
511.8
(4.7)
507.1
$
9,895.1
7,961.5
1,933.6
889.7
86.0
—
47.9
55.6
854.4
(95.3)
—
2.4
8.8
770.3
(286.5)
483.8
—
483.8
(4.1)
479.7
Set forth below is a reconciliation of the non-GAAP financial measure Adjusted Earnings from Continuing Operations Per
Diluted Share to Earnings from continuing operations per diluted share, the most directly comparable GAAP measure (in dollars
per share) for the periods indicated. The reconciliation is followed by a discussion of the adjustments. See “Non-GAAP Financial
Measures” for more information on why our management believes that presentation of this non-GAAP financial measure provides
useful information to investors regarding our financial condition and results of operations, as well as the additional purposes for
which our management uses this non-GAAP financial measure.
28
Years Ended September 30,
2015
2014
2016
Earnings from continuing operations per diluted share . . . . . . . . . . . $
Non-cash pension risk transfer expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory stepped-up in purchase accounting, net of LIFO . . . . . . . . . . .
Pension lump sum settlement and retiree medical curtailment, net . . . . .
Gain on investment in Grupo Gondi . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.59
0.89
1.05
0.02
—
(0.01)
(0.01)
$
2.87
—
0.58
0.25
0.04
—
0.01
Adjusted Earnings from Continuing Operations Per Diluted Share . $
2.53
$
3.75
$
3.29
—
0.26
0.01
0.20
—
—
3.76
In fiscal 2016, using plan assets we settled $2.5 billion of pension obligations of the WestRock Company Consolidated Pension
Plan and recorded a non-cash charge of $370.7 million pre-tax. For additional information see “Note 14. Retirement Plans” of
the Notes to Consolidated Financial Statements. In fiscal 2016, our restructuring and other items included $241.7 million of pre-
tax facility closure costs, which primarily related to the permanent closures of the Coshocton, OH and Uncasville, CT medium
mills, the permanent closure of the Newberg, OR mill, the permanent closure of the Vapi, India linerboard mill, certain non-mill
facility closures and costs at other previously closed facilities; $104.7 million of pre-tax integration expenses primarily including
severance and other costs primarily associated with the Combination; $25.1 million of operating losses and transition and other
costs primarily associated with operations in the process of being closed; $9.4 million of acquisition and divestiture expenses; and
$10.6 million of severance and other employee costs in our Land and Development segment. Additionally, we incurred $8.1 million
of pre-tax expense for inventory stepped-up in purchase accounting, net of related LIFO impact, a $1.5 million after-tax gain on
investment in Grupo Gondi and a $2.7 million pre-tax gain on extinguishment of debt.
In fiscal 2015, our restructuring and other costs and operating losses and transition costs due to plant closures consisted
primarily of $84.3 million of pre-tax integration costs, $44.4 million of pre-tax merger and acquisition costs, $14.8 million of pre-
tax facility closure and related operating losses and transition costs primarily related to charges associated with previously closed
facilities. Additionally, fiscal 2015 included a $64.7 million pre-tax charge for inventory step-up expense, primarily related to
inventory acquired in the Combination. Also, in fiscal 2015 we completed our previously announced lump sum pension settlement
to certain eligible former employees and recorded a pre-tax charge of $20.0 million; and changes in retiree medical coverage for
certain employees covered by the United Steelworkers Union master agreement resulted in the recognition of $8.5 million pre-
tax curtailment gain. These two items netted to an $11.5 million pre-tax charge.
In fiscal 2014, our restructuring and other costs and operating losses and transition costs due to plant closures consisted
primarily of $29.0 million of pre-tax facility closure and related operating losses and transition costs primarily related to
consolidating corrugated container plants and recycled collection facilities and $30.5 million of pre-tax integration and acquisition
costs. In fiscal 2014, we completed the first phase of our previously announced lump sum pension settlement to certain eligible
former employees and recorded a pre-tax charge of $47.9 million. Additionally, the period included a $3.2 million pre-tax charge
for inventory step-up expense related to inventory acquired in the Tacoma Mill, AGI In-Store and NPG acquisitions.
For additional information regarding our restructuring and other costs, see “Note 8. Restructuring and Other Costs, Net” of
the Notes to Consolidated Financial Statements.
Net Sales (Unaffiliated Customers)
Net sales for fiscal 2016 increased $3,047.0 million to $14,171.8 million compared to $11,124.8 million in fiscal 2015 primarily
as a result of the full year impact of the Combination in fiscal 2016 results, compared to three months in fiscal 2015, and the impact
of the SP Fiber and the Packaging Acquisitions completed in fiscal 2016. The increase in net sales attributable to the facilities
received in the Combination and the noted acquisitions compared to fiscal 2015 were $3,365.7 million. Excluding these transactions,
net sales decreased due to an estimated $169.6 million of lower selling price/mix and lower volume of $149.1 million. The increase
in net sales by segment is outlined in the “Results of Operations — Segment Data” section that follows.
Net sales for fiscal 2015 increased $1,229.7 million to $11,124.8 million compared to $9,895.1 million in fiscal 2014 primarily
as a result of the one quarter impact of the Combination in fiscal 2015 results and the full year impact of the AGI In-Store, Tacoma
Mill and NPG acquisitions completed in fiscal 2014. Net sales from the facilities received in the Combination and the increase in
net sales in fiscal 2015 compared to fiscal 2014 for the acquisitions completed in fiscal 2014 accounted for $1,299.2 million.
29
Additionally, net sales increased primarily due to higher corrugated volumes, which were partially offset by decreased corrugated
selling price/mix.
Cost of Goods Sold
Cost of goods sold increased to $11,413.2 million in fiscal 2016 compared to $8,986.5 million in fiscal 2015. Cost of goods
sold as a percentage of net sales was 80.5% in fiscal 2016 compared to 80.8% in fiscal 2015 due to increased synergies and
performance improvements, and lower energy costs, which were largely offset by the impact of lower selling prices in the current
year. On a volume adjusted basis, excluding the impact of the Combination, the SP Fiber Acquisition and the Packaging Acquisition,
energy costs decreased $85.6 million, commodity costs decreased $41.3 million, shipping and warehousing costs decreased $41.3
million and aggregate depreciation and amortization increased $5.2 million. Fiscal 2016 and 2015 included $8.1 million and $64.7
million of expense for inventory stepped-up in purchase accounting, net of related LIFO impact, respectively. Fiscal 2016 included
an $8.7 million gain on the sale of certain land at our Panama City, Florida mill to the port authority which was more than offset
by the $10.0 million estimated impact of the major maintenance outage at our Stevenson, Alabama mill. Fiscal 2015 included a
reduction of cost of goods sold of $6.7 million pre-tax related to the recording of additional value of spare parts at our containerboard
mills acquired in the Smurfit-Stone Acquisition.
Cost of goods sold increased to $8,986.5 million in fiscal 2015 compared to $7,961.5 million in fiscal 2014. Cost of goods
sold as a percentage of net sales of 80.8% was essentially unchanged in fiscal 2015 compared to 80.5% in fiscal 2014 as productivity
improvements and lower fiber and energy costs were offset by the impact of lower selling prices and higher non-fiber commodity
and other costs. On a volume adjusted basis excluding the impact of the Combination, commodity costs decreased $97.1 million
due to aggregate fiber and board costs decreasing $139.0 million partially offset by other commodity costs that increased $41.9
million. In addition, on a volume adjusted basis, energy costs decreased $101.4 million including the impact of less severe winter
weather in fiscal 2015 compared to fiscal 2014, direct labor costs decreased $11.7 million, depreciation and amortization expense
increased $26.4 million, other fixed and indirect costs increased $25.9 million, other manufacturing costs increased $21.0 million
primarily for machine maintenance, and aggregate freight, shipping and warehousing costs increased $9.2 million, each as compared
to the prior year. Fiscal 2015 included $64.7 million of expense for inventory stepped-up in purchase accounting, net of related
LIFO impact primarily related to the Combination. Fiscal 2015 included a reduction of cost of goods sold of $6.7 million pre-tax
related to the recording of additional value of spare parts at our containerboard mills acquired in the Smurfit-Stone Acquisition
compared to a reduction of $32.3 million pre-tax in the prior year.
We value the majority of our U.S. inventories at the lower of cost or market with cost determined on a LIFO basis, which we
believe generally results in a better matching of current costs and revenues than under FIFO. In periods of increasing costs, the
LIFO method generally results in higher cost of goods sold than under the FIFO method. In periods of decreasing costs, the results
are generally the opposite.
The following table illustrates the comparative effect of LIFO and FIFO accounting on our results of operations. This
supplemental FIFO earnings information reflects the after-tax effect of eliminating the LIFO adjustment each year.
Fiscal 2016
Fiscal 2015
Fiscal 2014
LIFO
FIFO
LIFO
FIFO
LIFO
FIFO
(In millions)
Cost of goods sold. . . . . . . . . . . . . . . $ 11,413.2
Income from continuing operations . $
154.8
$ 11,452.8
128.4
$
$
$
8,986.5
501.2
$
$
8,996.8
494.5
$
$
7,961.5
483.8
$
$
7,958.4
485.8
Income from continuing operations in fiscal 2016 and 2015 was higher under the LIFO method because we experienced
periods of declining costs, compared to fiscal 2014, which was lower under the LIFO method because we experienced periods of
rising costs.
Selling, General and Administrative Excluding Intangible Amortization
SG&A excluding intangible amortization increased $364.8 million to $1,379.4 million in fiscal 2016 compared to $1,014.6
million in fiscal 2015, primarily due to the full year impact of the Combination in fiscal 2016 results compared to three months
in fiscal 2015, and the impact of the SP Fiber Acquisition and the Packaging Acquisition completed in fiscal 2016. SG&A, excluding
intangible amortization as a percentage of sales increased slightly to 9.7% in fiscal 2016 compared to 9.1% in fiscal 2015.
SG&A excluding intangible amortization increased $124.9 million to $1,014.6 million in fiscal 2015, compared to $889.7
million in fiscal 2014. SG&A, excluding intangible amortization as a percentage of sales increased slightly to 9.1% in fiscal 2015
30
compared to 9.0% in fiscal 2014. Excluding the impact of the Combination and acquisitions, compensation and benefit costs
increased $20.6 million and professional services expense increased $5.8 million and commissions expense decreased $15.5
million.
Selling, General and Administrative Intangible Amortization
SG&A intangible amortization was $211.8 million, $118.9 million and $86.0 million in fiscal 2016, 2015 and 2014, respectively.
The increase in fiscal 2016 was primarily due to the full year inclusion of intangible amortization related to the Combination in
fiscal 2016 results, compared to three months in fiscal 2015, as well as the full year impact of the SP Fiber Acquisition and partial
year impact of the Packaging Acquisition completed in fiscal 2016.
Pension Risk Transfer Expense
In fiscal 2016, using plan assets we settled $2.5 billion of pension obligations of the WestRock Company Consolidated Pension
Plan by purchasing group annuity contracts from Prudential. This transaction transferred payment responsibility to Prudential for
retirement benefits owed to approximately 35,000 U.S. retirees and their beneficiaries. As a result of the transaction, we recorded
a non-cash charge of $370.7 million pre-tax. The settlement reduced WestRock’s overall U.S. pension obligations and assets by
approximately 40%. The monthly retirement benefit payment amounts currently received by retirees and their beneficiaries did
not change as a result of this transaction. Those plan participants not included in the transaction remain in the WestRock Company
Consolidated Pension Plan, and responsibility for payment of retirement benefits remains with WestRock. For additional
information see “Note 14. Retirement Plans” of the Notes to Consolidated Financial Statements.
Pension Lump Sum Settlement Expense and Retiree Medical Curtailment, Net
In fiscal 2015, we partially settled obligations of one of our defined benefit pension plans through lump sum payments to
certain eligible former employees and as a result recorded a pre-tax charge of $20.0 million. In addition, changes in retiree medical
coverage for certain employees covered by the USW master agreement resulted in the recognition of an $8.5 million pre-tax
curtailment gain. These two items netted to an $11.5 million pre-tax charge. During the fourth quarter of fiscal 2014, we completed
the first phase of the lump sum pension settlement to certain eligible former employees and as a result recorded a pre-tax charge
of $47.9 million. For additional information, see “Note 14. Retirement Plans” of the Notes to Consolidated Financial Statements.
In September 2016, we committed to an offer to partially settle obligations of our U.S. defined benefit pension plans in the
first quarter of fiscal 2017, through lump sum and annuity payments to certain eligible former employees who are not currently
receiving a monthly benefit. Depending upon the percentage of former employees that accept the offer, and whether or not settlement
accounting is required, we might recognize a non-cash charge in the period in which the settlements occur. For additional
information, see “Note 22. Subsequent Events (Unaudited) — Pension Settlement Offer” of the Notes to Consolidated Financial
Statements.
Restructuring and Other Costs, Net
We recorded aggregate pre-tax restructuring and other costs of $366.4 million, $140.8 million and $55.6 million for fiscal
2016, 2015 and 2014, respectively. We generally expect the integration of the closed facility’s assets and production with other
facilities to enable the receiving facilities to better leverage their fixed costs while eliminating fixed costs from the closed facility.
Costs recorded in each period are not comparable since the timing and scope of the individual actions vary. The restructuring and
other costs, net, exclude the Specialty Chemicals costs which are included in discontinued operations. We discuss these charges
in more detail in “Note 8. Restructuring and Other Costs, Net” and “Note 7. Discontinued Operations” of the Notes to
Consolidated Financial Statements. We have restructured portions of our operations from time to time and it is possible that we
may engage in additional restructuring opportunities in the future.
Mergers, Acquisitions and Investment
On April 1, 2016, we completed the formation of a joint venture with Grupo Gondi in Mexico. We contributed $175.0 million
in cash and the stock of an entity that owns three corrugated packaging facilities in Mexico in return for a 25.0% equity participation
in the joint venture valued at approximately $0.3 billion. The joint venture operates paper machines, corrugated packaging and
high graphic folding carton facilities across 13 production sites. As the majority equity holder, Grupo Gondi will manage the joint
venture and we will provide technical and commercial resources. We have included the financial results of the Grupo Gondi
investment since the formation of the joint venture in our Corrugated Packaging segment, and are accounting for the investment
on the equity method.
31
On January 19, 2016, we completed the purchase of certain legal entities formerly owned by Cenveo Inc. The entities acquired
provide value-added folding carton and litho-laminated display packaging solutions. The purchase price was $94.1 million, net
of cash received of $1.7 million, a working capital settlement and an estimated escrow settlement. The transaction is subject to
an election under Section 338(h)(10) of the Code that will increase the U.S. tax basis in the acquired U.S. assets for an as yet to
be determined amount. We believe the transaction has provided us with attractive and complementary customers, markets and
facilities. We have included the financial results of the acquired entities since the date of the acquisition in our Consumer Packaging
segment.
On October 1, 2015, we acquired SP Fiber in a stock purchase. The transaction included the acquisition of mills located
in Dublin, GA and Newberg, OR, which produce lightweight recycled containerboard and kraft and bag paper. The Newberg mill
also produced newsprint. As part of the transaction, we also acquired SP Fiber's 48% interest in GPS. GPS is a joint venture
providing steam to the Dublin mill and electricity to Georgia Power. The purchase price was $278.8 million, net of cash received
of $9.2 million. In addition, we paid $36.5 million for debt owed by GPS and thereby own the majority of the debt issued by GPS.
The Dublin mill has helped balance the fiber mix of our mill system, including our ability to serve the increasing demand for
lighter weight containerboard, and that the addition of kraft and bag paper has diversified our product offering. Subsequent to the
transaction, we announced the permanent closure of the Newberg mill due to the decline in market conditions of the newsprint
business and our need to balance supply and demand in our containerboard system. We determined GPS should be consolidated
as a variable interest entity under ASC 810 “Consolidation”. Our evaluation concluded that WestRock is the primary beneficiary
of GPS as WestRock has both the power and benefits as defined by ASC 810. We have included the financial results of SP Fiber
and GPS since the date of the acquisition in our Corrugated Packaging segment.
On July 1, 2015, pursuant to the Business Combination Agreement, RockTenn and MWV completed a strategic combination
of their respective businesses. Pursuant to the Business Combination Agreement, RockTenn and MWV became wholly-owned
subsidiaries of WestRock. RockTenn was the accounting acquirer in the Combination. The consideration for the Combination was
$8,286.7 million. In connection with the Combination, RockTenn shareholders received in the aggregate approximately 130.4
million shares of Common Stock and approximately $667.8 million in cash. At the effective time of the Combination, each share
of common stock, par value $0.01 per share, of MWV issued and outstanding immediately prior to the effective time of the
Combination was converted into the right to receive 0.78 shares of Common Stock. In the aggregate, MWV stockholders
received approximately 131.2 million shares of Common Stock (which includes shares issued under certain MWV equity awards
that vested as a result of the Combination). Included in the consideration for the Combination is approximately $210.9
million related to outstanding MWV equity awards that were replaced with WestRock equity awards with identical terms for pre-
Combination service. The amount related to post-Combination service is being expensed over the remaining service period of the
awards. We believe the Combination has combined two industry leaders that will create a premier global provider of consumer
and corrugated packaging solutions.
On August 29, 2014, we acquired the stock of AGI In-Store, a manufacturer of permanent point-of-purchase displays and
fixtures to the consumer products and retail industries. The purchase price was $69.9 million, net of cash and a working capital
settlement. We made an election under section 338(h)(10) of the Code that increased our tax basis in the acquired assets. We
acquired the AGI In-Store business to support our strategy to provide a more holistic portfolio of innovative in-store marketing
solutions, including “store-within-a-store” displays, and we believe the acquisition has enhanced cross-selling opportunities and
bolstered our growing retail presence. We have included the results of AGI In-Store’s operations since the date of the acquisition
in our consolidated financial statements in our Consumer Packaging segment.
On May 16, 2014, we acquired certain assets and liabilities of the Tacoma Mill. The purchase price was $343.2 million
including a working capital settlement. The purchase price was increased $2.6 million during the third quarter of fiscal 2015, the
offset to which was primarily goodwill. We recorded a measurement period adjustment in fiscal 2015 and have not retrospectively
adjusted the comparative fiscal 2014 financial information presented herein. We believe the Tacoma Mill, located in Tacoma, WA,
is a strategic fit and the mill has improved our ability to satisfy West Coast customers and generate operating efficiencies across
our containerboard system. We have included the results of the Tacoma Mill since the date of the acquisition in our consolidated
financial statements in our Corrugated Packaging segment.
On December 20, 2013, we acquired the stock of NPG, a specialty display company. The purchase price was $59.6 million,
net of cash acquired of $1.7 million and a working capital settlement. It provided a broad range of display products and services
to many of the most recognized retailers and its innovative retail solutions and large-format printing capability has expanded our
customer base and significantly improved our ability to provide retail insights, innovation and connectivity to all of our customers.
We have included the results of NPG’s operations since the date of the acquisition in our consolidated financial statements in our
Consumer Packaging segment.
32
We discuss the Combination and other acquisitions in more detail in “Note 6. Merger, Acquisitions and Investment” of the
Notes to Consolidated Financial Statements. See Item 1A. “Risk Factors — Our Business Could Suffer if We Are Unsuccessful
in Making, Integrating and Maintaining Mergers, Acquisitions and Investments”.
Interest Expense
Interest expense was $256.7 million, $132.5 million and $95.3 million for fiscal 2016, 2015 and 2014, respectively. The
increase in fiscal 2016 was primarily due to the full year impact of debt assumed in the Combination in fiscal 2016 results. Interest
expense in fiscal 2016 was reduced by $44.5 million related to the amortization of the fair value of debt stepped-up in purchase
accounting. The increase in fiscal 2015 was primarily due to three months of interest on debt assumed in the Combination. Interest
expense in fiscal 2016 was reduced by $10.3 million related to the amortization of the fair value of debt stepped-up in purchase
accounting. During fiscal 2016, 2015 and 2014 amortization of debt issuance costs charged to interest expense were $4.6 million,
$9.3 million and $10.3 million, respectively. See Item 1A. “Risk Factors — Our Net Income Could Be Negatively Affected If
Interest Rates Increase”.
Provision for Income Taxes
We recorded income tax expense from continuing operations of $89.8 million, at an effective tax rate of 36.7% in fiscal 2016,
as compared to income tax expense from continuing operations of $233.0 million, at an effective tax rate of 31.7% in fiscal 2015,
and compared to an income tax expense from continuing operations of $286.5 million, at an effective tax rate expense of 37.2%
in fiscal 2014.
The effective tax rate from continuing operations for fiscal 2016 was different than the statutory rate primarily due to the
impact of state taxes, the ability to claim the domestic manufacturer’s deduction against U.S. taxable earnings, the deconsolidation
of a subsidiary related to the Grupo Gondi joint venture, including non-deductible goodwill disposed of in connection with the
transaction, an increase in valuation allowances and a tax rate differential with respect to foreign earnings primarily in Canada.
The effective tax rate from continuing operations for fiscal 2015 was different than the statutory rate primarily due to the
impact of state taxes, the ability to claim the domestic manufacturer’s deduction against U.S. taxable earnings and a tax rate
differential with respect to foreign earnings. The effective tax rate from continuing operations for fiscal 2014 was different than
the statutory rate primarily due to the impact of state taxes, a tax rate differential with respect to foreign earnings, and a $9.6
million charge to income tax expense to reflect an increase in the valuation allowance related to the State of New York’s March
31, 2014 income tax law change, which reduced the tax rate for qualified New York State manufacturers to 0% effective for tax
years beginning on or after January 1, 2014 and thereby rendered a previously recorded deferred tax asset, net of certain deferred
tax liabilities, to no longer have any value. For additional information on income taxes see “Note 13. Income Taxes” of the Notes
to Consolidated Financial Statements.
Interest Income and Other Income (Expense), net
Interest income and other income (expense), net increased to income of $58.6 million in fiscal 2016 from income of $9.7
million in fiscal 2015 and $2.4 million in fiscal 2014. The increase in fiscal 2016 primarily included a $12.1 million gain on
investment in Grupo Gondi related to the three corrugated box plants WestRock contributed to the joint venture and an increase
in interest income of $30.3 million. The increase in interest income in fiscal 2016 compared to fiscal 2015 was primarily the result
of the full year impact of a long-term note receivable acquired in the Combination. For additional information on the long-term
note receivable see “Note 19. Special Purpose Entities” of the Notes to Consolidated Financial Statements.
(Loss) Income from Discontinued Operations
On May 15, 2016, WestRock distributed 100% of the outstanding common stock, par value $0.01 per share, of Ingevity to
WestRock’s shareholders and completed the separation of our Specialty Chemicals business from WestRock. Subsequent to the
Separation, the operating results of our former Specialty Chemicals segment are reported as discontinued operations. Loss from
discontinued operations, net of tax, was $544.7 million for fiscal 2016 and income from discontinued operations was $10.6 million
in fiscal 2015. The loss in fiscal 2016 was the result of goodwill and intangible impairments, and restructuring and other costs
being partially offset by income from operations.
In the third quarter of fiscal 2016, in conjunction with the Separation, we performed an impairment assessment under the held
for sale model and recorded a pre-tax non-cash impairment charge of $101.1 million for a customer relationships intangible. In
the first quarter of fiscal 2016, in light of changing market conditions, expected revenue and earnings of the reporting unit, lower
comparative market valuations for companies in Specialty Chemicals’ peer group and the results of our preliminary “Step 2” test,
33
we concluded that an impairment of the Specialty Chemicals reporting unit was probable and could be reasonably estimated. As
a result, we recorded a pre-tax and after-tax non-cash goodwill impairment charge of $478.3 million. For additional information
on the Specialty Chemicals impairments and restructuring charges or the financial results of the discontinued operations, see “Note
7. Discontinued Operations” of the Notes to Consolidated Financial Statements.
Results of Operations — Segment Data
RockTenn was the accounting acquirer in the Combination, therefore, the historical consolidated financial statements of
RockTenn for periods prior to the Combination are considered to be the historical financial statements of WestRock and thus
WestRock’s consolidated financial statements for fiscal 2015 reflect RockTenn’s consolidated financial statements for periods
from October 1, 2014 through June 30, 2015, and WestRock’s thereafter. Following the Separation, our financial results of operations
are aligned in three reportable segments: Corrugated Packaging, Consumer Packaging and Land and Development.
Corrugated Packaging Segment (Aggregate Before Intersegment Eliminations)
Net Sales
(Aggregate)
Segment
Income
Return
on Sales
(In millions, except percentages)
Fiscal 2014
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2015
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2016
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,751.2
$
1,738.5
1,855.1
1,912.6
7,257.4
$
1,842.8
$
1,799.5
1,887.3
1,987.3
7,516.9
$
1,964.3
$
1,932.8
1,967.7
2,003.7
7,868.5
$
157.8
135.9
181.9
252.4
728.0
184.9
169.4
217.0
235.4
806.7
180.1
175.0
192.4
192.4
739.9
9.0 %
7.8
9.8
13.2
10.0 %
10.0 %
9.4
11.5
11.8
10.7 %
9.2%
9.1
9.8
9.6
9.4%
34
Corrugated Packaging Shipments are expressed as a tons equivalent which includes external and intersegment tons shipped
from our Corrugated Packaging mills plus Corrugated Packaging container shipments converted from BSF to tons. We have
presented the Corrugated Packaging Shipments in two groups following the Combination, North America and Brazil / India. We
have included the impact of the Combination beginning in the fourth quarter of fiscal 2015. We have recast the North American
Corrugated Container Shipments in the table below to remove the historical impact of the three box plants contributed to the Grupo
Gondi joint venture to provide comparability to the third and fourth quarter of fiscal 2016 and future results. Our recycled fiber
tons reclaimed and brokered are separately presented below.
North American Corrugated Packaging Shipments
Fiscal 2014
North American Corrugated Packaging Shipments -
thousands of tons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Corrugated Containers Shipments -
BSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Corrugated Containers Per Shipping
Day - MMSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015
North American Corrugated Packaging Shipments -
thousands of tons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Corrugated Containers Shipments -
BSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Corrugated Containers Per Shipping
Day - MMSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016
North American Corrugated Packaging Shipments -
thousands of tons . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Corrugated Containers Shipments -
BSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North American Corrugated Containers Per
Shipping Day - MMSF . . . . . . . . . . . . . . . . . . . . . . . .
Brazil / India Corrugated Packaging Shipments
Fiscal 2015
Brazil / India Corrugated Packaging Shipments -
thousands of tons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil / India Corrugated Containers Shipments - BSF . .
Brazil / India Corrugated Containers Per Shipping Day -
MMSF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
1,803.8
1,809.5
1,961.8
2,074.6
7,649.7
17.7
17.5
18.2
18.2
71.6
290.9
277.8
287.5
284.7
285.2
1,995.8
1,936.7
2,032.6
2,018.0
7,983.1
18.2
18.1
18.8
18.7
73.8
297.7
292.6
298.7
292.6
295.4
2,046.7
2,040.3
2,114.1
2,153.2
8,354.3
18.7
18.2
18.6
18.9
74.4
306.3
288.6
291.4
294.5
295.1
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
—
—
—
—
—
—
—
—
—
171.4
1.4
18.1
171.4
1.4
18.1
Brazil / India Corrugated Packaging Shipments -
thousands of tons . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil / India Corrugated Containers Shipments -
BSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil / India Corrugated Containers Per Shipping
Day - MMSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
180.2
173.5
166.8
164.8
685.3
1.5
19.2
1.3
19.8
1.4
19.1
1.6
19.6
5.8
19.4
35
Fiber Reclaimed and Brokered
(Shipments in thousands of tons)
Fiscal 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
1,562.5
1,628.0
1,975.2
1,564.0
1,576.6
1,911.2
1,573.6
1,781.8
1,885.8
1,609.0
1,834.9
1,905.5
Fiscal
Year
6,309.1
6,821.3
7,677.7
Net Sales (Aggregate) — Corrugated Packaging Segment
Net sales before intersegment eliminations for the Corrugated Packaging segment increased $351.6 million in fiscal 2016
compared to fiscal 2015 primarily due to $565.4 million of incremental net sales from the full year impact of facilities acquired
in the Combination in fiscal 2016 results, compared to three months last year, the impact of the SP Fiber Acquisition in fiscal 2016
and $57.8 million of lower recycled fiber sales due to lower selling price/mix. These increases were partially offset by the impact
of an estimated $178.2 million of lower corrugated selling price/mix and $93.4 million of lower volumes excluding these
transactions. The lower corrugated selling price/mix is primarily the result previously published index reductions. Corrugated
Packaging shipments in North America increased 4.6% in fiscal 2016 compared to the prior year, inclusive of the SP Fiber
Acquisition.
Net sales before intersegment eliminations for the Corrugated Packaging segment increased $259.5 million in fiscal 2015
compared to fiscal 2014 primarily due to increased sales post-Combination, and a full year of sales from the Tacoma Mill in fiscal
2015 compared to four and a half months in fiscal 2014. Increased North American corrugated shipments were partially offset by
the impact of decreased corrugated selling price/mix and $12.6 million of lower recycled fiber sales. Net sales from the
aforementioned transactions increased sales by $264.4 million compared to the prior year. Lower corrugated selling price/mix
reduced net sales by approximately $123.6 million compared to the prior year quarter. Corrugated Packaging shipments in North
America increased 4.4% in fiscal 2015 compared to the prior year.
Segment Income — Corrugated Packaging Segment
Segment income attributable to the Corrugated Packaging segment in fiscal 2016 decreased $66.8 million to $739.9 million
compared to segment income of $806.7 million in fiscal 2015. The decrease in segment income was primarily a result of lower
selling price/mix and volume that were partially offset by synergies and productivity improvements, lower energy and commodity
costs, and lower aggregate freight, shipping and warehousing costs. The estimated impact of lower selling price/mix was $178.2
million and the estimated impact of lower volume was $37.1 million compared to the prior year. Excluding the Combination and
the SP Fiber Acquisition, on a volume adjusted basis compared to the prior year, energy costs decreased $73.2 million, commodity
costs decreased $35.0 million, aggregate freight, shipping and warehousing costs decreased $46.7 million, and depreciation and
amortization expense increased $7.3 million. Segment income was also reduced by $3.4 million and $2.2 million of expense for
inventory stepped-up in purchase accounting, net of related LIFO impact in fiscal 2016 and 2015, respectively. Segment income
in fiscal 2016 included an $8.7 million gain on the sale of certain land at our Panama City, Florida mill to the port authority which
was more than offset by the $10.0 million estimated impact of the major maintenance outage at our Stevenson, Alabama mill.
Segment income in fiscal 2015 included a reduction of cost of goods sold of $6.7 million related to the recording of additional
value of spare parts at our containerboard mills acquired in the Smurfit-Stone Acquisition.
Segment income attributable to the Corrugated Packaging segment in fiscal 2015 increased $78.7 million to $806.7 million
compared to segment income of $728.0 million in fiscal 2014. The increase in segment income was primarily a result of lower
fiber and energy costs, increased volume, productivity improvements and income from the operations received in the Combination
and Tacoma Mill acquisition, which were partially offset by the impact of decreased selling price/mix, higher non-fiber commodity
costs, freight and other costs. The estimated impact of higher volume was $75.4 million and the estimated impact of lower selling
price/mix was $155.4 million in fiscal 2015 compared to the prior fiscal year. On a volume adjusted basis, commodity costs
decreased $103.5 million, primarily due to aggregate fiber and board costs, energy costs decreased $90.4 million including the
impact of less severe weather in the second quarter of fiscal 2015 compared to the second quarter of fiscal 2014, direct labor costs
decreased $15.5 million and aggregate freight, shipping and warehousing costs increased $8.8 million, and depreciation and
amortization expense increased $23.4 million, each as compared to the prior fiscal year. Segment income included a reduction of
cost of goods sold of $6.7 million in fiscal 2015 related to the recording of additional value of spare parts at our containerboard
mills acquired in the Smurfit-Stone Acquisition compared to the recognition of $32.3 million in the prior fiscal year. Segment
income in fiscal 2015 was reduced by $2.2 million of expense for inventory stepped-up in purchase accounting, net of related
LIFO impact.
36
Consumer Packaging Segment (Aggregate Before Intersegment Eliminations)
Fiscal 2014
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2015
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2016
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Sales
(Aggregate)
Segment
Income
Return
on Sales
(In millions, except percentages)
654.4
$
699.9
719.2
745.0
76.9
66.3
81.0
87.2
11.8 %
9.5
11.3
11.7
2,818.5
$
311.4
11.0 %
713.0
$
694.9
690.2
1,642.0
3,740.1
$
1,542.2
$
1,588.4
1,635.8
1,621.7
6,388.1
$
59.0
52.4
77.9
77.7
267.0
91.2
99.7
151.7
139.1
481.7
8.3 %
7.5
11.3
4.7
7.1 %
5.9%
6.3
9.3
8.6
7.5%
37
Consumer Packaging Shipments are expressed as a tons equivalent which includes external and intersegment tons shipped
from our Consumer Packaging mills plus Consumer Packaging converting shipments converted from BSF to tons. We have included
the impact of the Combination beginning in the fourth quarter of fiscal 2015. The table excludes merchandising displays and
dispensing sales since there is not a common unit of measure, as well as gypsum paperboard liner tons produced by Seven Hills
since it is not consolidated.
Consumer Packaging Shipments - tons in thousands
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
Fiscal 2014
Consumer Packaging Shipments - thousands of tons . . . .
Consumer Packaging Converting Shipments - BSF. . . . .
Consumer Packaging Converting Per Shipping Day -
MMSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
378.1
5.0
386.0
5.3
394.3
5.2
408.7
5.4
82.0
83.6
82.9
84.4
1,567.1
20.9
83.2
Fiscal 2015
Consumer Packaging Shipments - thousands of tons . . . .
Consumer Packaging Converting Shipments - BSF. . . . .
Consumer Packaging Converting Per Shipping Day -
MMSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016
Consumer Packaging Shipments - thousands of tons .
Consumer Packaging Converting Shipments - BSF . .
Consumer Packaging Converting Per Shipping Day -
MMSF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales (Aggregate) — Consumer Packaging Segment
371.2
5.2
378.5
5.3
388.6
5.5
1,043.9
2,182.2
9.2
25.2
84.8
86.7
86.3
144.5
100.9
949.3
8.8
974.4
9.0
986.3
9.5
998.7
9.4
3,908.7
36.7
144.2
143.7
148.5
146.3
145.7
Net sales before intersegment eliminations increased $2,648.0 million for the Consumer Packaging segment in fiscal 2016
compared to fiscal 2015 primarily due to $2,748.7 million of incremental net sales from the full year impact of facilities acquired
in the Combination in fiscal 2016 results, compared to three months last year, and the partial year impact of the Packaging
Acquisition. Those increased net sales were partially offset by $81.0 million of lower display sales due to softness in customer
promotional spending, an estimated $8.6 million of higher consumer packaging, excluding display, selling price/mix and $28.3
million of lower volumes excluding these transactions.
Net sales before intersegment eliminations increased $921.6 million for the Consumer Packaging segment in fiscal 2015
compared to fiscal 2014 primarily due to the one quarter impact of the Combination in fiscal 2015, the full year of sales from the
display acquisitions in fiscal 2014, and the impact of higher selling price/mix which was partially offset by lower segment shipments
and display sales excluding the acquisitions. Net sales from the Combination and display acquisitions increased sales by $1,004.7
million compared to the prior year. The impact of selling price/mix increased net sales by approximately $27.2 million compared
to the prior year.
Segment Income — Consumer Packaging Segment
Segment income attributable to the Consumer Packaging segment in fiscal 2016 increased $214.7 million compared to fiscal
2015, primarily reflecting $235.0 million from facilities acquired in the Combination and the Packaging Acquisition, the impact
of synergy and productivity improvements, and lower energy related costs compared to the prior year partially offset by the impact
of lower volume and lower selling price/mix. Segment income was reduced by $4.7 million and $62.5 million of expense for
inventory stepped-up in purchase accounting, net of related LIFO impact in fiscal 2016 and 2015, respectively. The estimated
impact of lower volume was $30.9 million and higher selling price/mix was $8.6 million. Excluding the Combination and the
Packaging Acquisition, on a volume adjusted basis compared to the prior year, commodity costs decreased $6.3 million and energy
costs decreased $12.3 million.
38
Segment income attributable to the Consumer Packaging segment in fiscal 2015 decreased $44.4 million compared to fiscal
2014, and increased $18.1 million excluding $62.5 million of of expense for inventory stepped-up in purchase accounting, net of
related LIFO impact primarily related to the Combination. The increase was primarily due to income from the operations received
in the Combination, the favorable impact of selling price/mix, productivity improvements and the reduced impact of adverse
weather in fiscal 2015 compared to fiscal 2014 which were partially offset by lower display income as a result of higher costs
associated with supporting and onboarding new business and a more competitive commercial environment, and higher commodity
and other costs. The estimated impact of higher selling price/mix and lower volume was $27.2 million and $21.3 million,
respectively, in fiscal 2015 compared to fiscal 2014. On a volume adjusted basis, energy costs decreased $11.1 million primarily
due to less severe weather in fiscal 2015 compared to fiscal 2014.
Land and Development Segment (Aggregate Before Intersegment Eliminations)
Fiscal 2015
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2016
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net Sales (Aggregate) — Land and Development Segment
Net Sales
(Aggregate)
Segment
Income (Loss)
Return
on Sales
(In millions, except percentages)
45.0
45.0
15.4
18.7
42.0
43.7
119.8
$
$
$
$
(3.4)
(3.4)
0.7
(4.0)
9.5
(1.6)
4.6
(7.6 )%
(7.6 )%
4.5 %
(21.4)%
22.6 %
(3.7)%
3.8 %
The Land and Development segment was formed as a result of the Combination; therefore, there are no prior year comparisons
as we only reported results for the fourth quarter of 2015. Land and Development net sales in fiscal 2015 included the sale of a
tract of land for a new automobile manufacturing facility. We are making great progress on accelerating the monetization of our
land and development portfolio. We expect to realize one-half of the estimated $275 million to $300 million in net after-tax free
cash flow during fiscal 2017, and expect to complete our monetization program by the end of calendar 2018.
Segment Income (Loss) — Land and Development Segment
Segment income attributable to the Land and Development segment was $4.6 million in fiscal 2016 compared to a loss of
$3.4 million in fiscal 2015. The segment’s assets were stepped-up to fair value as a result of purchase accounting which resulted
in substantially lower margins on the properties sold compared to pre-Combination levels. The step-up of our land portfolio in
this segment is expected to reduce future profitability on existing projects but should not impact future cash flows.
Liquidity and Capital Resources
We fund our working capital requirements, capital expenditures, mergers, acquisitions and investments, restructuring activities,
dividends and stock repurchases from net cash provided by operating activities, borrowings under our credit facilities, proceeds
from our A/R Sales Agreement, proceeds from the sale of property, plant and equipment removed from service and proceeds
received in connection with the issuance of debt and equity securities. Our primary credit facilities are summarized below. See
“Note 10. Debt” of the Notes to Consolidated Financial Statements. Funding for our domestic operations in the foreseeable future
is expected to come from sources of liquidity within our domestic operations, including cash and cash equivalents, and available
borrowings under our credit facilities. As such, our foreign cash and cash equivalents are not expected to be a key source of
liquidity to our domestic operations.
Cash and cash equivalents were $340.9 million at September 30, 2016 and $207.8 million at September 30, 2015.
Approximately 81% of the cash and cash equivalents at September 30, 2016 were outside of the U.S. At September 30, 2016,
total debt was $5,789.2 million, $292.9 million of which was current. At September 30, 2015, total debt was $5,621.9 million.
The increase in debt from September 30, 2015 was primarily related to the cash paid for the SP Fiber Acquisition, the Packaging
Acquisition, the cash to fund the joint venture with Grupo Gondi, capital investments, dividends and stock repurchases net of cash
39
receipts related to the Separation and cash generated from operations. Prior to the Separation, Ingevity (then a subsidiary of
WestRock) borrowed $500.0 million in contemplation of the Separation. Ingevity used $68.9 million to fund a trust as security
for a long term capital lease obligation and we used the balance to pay down other debt and for general corporate purposes. The
$500.0 million of Ingevity debt and the $68.9 million funded to the trust were assumed by Ingevity and removed from our
consolidated financial statements as part of our discontinued operations reporting.
Certain restrictive covenants govern our maximum borrowing availability under the credit facilities. We test and report our
compliance with these covenants as required and we were in compliance with all of our covenants at September 30, 2016. At
September 30, 2016, we had $107.0 million of outstanding letters of credit not drawn upon, approximately $2.6 billion of availability
under our committed credit facilities and approximately $0.4 billion available under our uncommitted credit facilities. This liquidity
may be used to provide for ongoing working capital needs and for other general corporate purposes, including acquisitions,
dividends and stock repurchases. A portion of the debt classified as long-term may be paid down earlier than scheduled at our
discretion without penalty.
Term Loans and Revolving Credit Facilities
In connection with the Combination, on July 1, 2015, we entered into the Credit Facility which provides for a 5-year senior
unsecured term loan in an aggregate principal amount of $2.3 billion and a 5-year senior unsecured revolving credit facility in an
aggregate committed principal amount of $2.0 billion. We drew $1.2 billion of the $2.3 billion unsecured term loan and $1.1
billion was available to be drawn on a delayed draw basis not later than April 1, 2016 in up to two separate draws. The Credit
Facility is unsecured and is guaranteed by WestRock’s wholly-owned subsidiaries WestRock RKT Company and WestRock MWV,
LLC. The Credit Facility contains usual and customary representations, warranties and covenants.
On March 24, 2016, we drew $600 million of the then available $1.1 billion delayed draw term loan and used the proceeds
for general corporate purposes. The balance of the 5-year senior unsecured term loan facility has been terminated. On June 22,
2016, we pre-paid $200.0 million of amortization payments through the second quarter of fiscal 2018, reducing our outstanding
debt under the term loan facility from $1.8 billion to $1.6 billion. Our next amortization payment is due in June 2018.
On July 1, 2016, we executed an option to extend the term of our senior unsecured revolving credit facility for one year
beyond the original 5-year term. Approximately $1.82 billion of the original $2.0 billion aggregate committed principal amount
has been extended to July 1, 2021, and the remainder of this facility matures on July 1, 2020.
On July 1, 2015, we also entered into the Farm Loan Credit Agreement which provides for a 7-year senior unsecured term
loan in an aggregate principal amount of $600.0 million. The Farm Credit Facility is guaranteed by WestRock and its wholly-
owned subsidiaries WestRock RKT Company and WestRock MWV, LLC.
On December 1, 2015, we entered into a $200.0 million uncommitted and revolving line of credit with Sumitomo Mitsui
Banking Corporation that matures on December 1, 2016. We are currently negotiating a renewal of this facility. On February 11,
2016, we entered into a $100.0 million uncommitted and revolving line of credit with The Bank of Tokyo-Mitsubishi that matures
on February 9, 2017. On March 4, 2016, we entered into a $100.0 million uncommitted and revolving line of credit with Cooperatieve
Rabobank U.A., New York Branch that matures on March 2, 2017.
Receivables-Backed Financing Facility
We have a $700.0 million Receivables Facility and on July 22, 2016, we executed an agreement to extend the maturity of
this facility from October 24, 2017 to July 22, 2019. Borrowing availability under this facility is based on the eligible underlying
accounts receivable and compliance with certain covenants. The Receivables Facility includes certain restrictions on what
constitutes eligible receivables under the facility and allows for the exclusion of eligible receivables of specific obligors each
calendar year subject to certain restrictions as outlined in the Receivables Facility. The borrowing rate, which consists of a blend
of the market rate for asset-backed commercial paper and the one month LIBOR rate plus a utilization fee, was 1.4% as of
September 30, 2016. At September 30, 2016, we had borrowed $0.0 million of our $584.3 million maximum available borrowings
outstanding under the Receivables Facility. The carrying amount of accounts receivable collateralizing the maximum available
borrowings at September 30, 2016 was approximately $873.9 million. We have continuing involvement with the underlying
receivables as we provide credit and collections services pursuant to the securitization agreement.
Public Bonds and Other Indebtedness
In connection with the Combination, the public bonds previously issued by WestRock RKT Company and WestRock MWV,
LLC are guaranteed by WestRock and have cross-guarantees. The IDBs associated with the capital lease obligations of WestRock
40
MWV, LLC are guaranteed by WestRock. We also have certain international and other debt. In connection with the Combination,
we increased the value of debt assumed by $364.5 million to reflect the debt at fair value. At September 30, 2016, the face value
of our public bonds and capital lease obligations outstanding were $3.1 billion with a weighted average interest rate of 6.1%. At
September 30, 2016, the unamortized fair market value step-up was $316.3 million, which will be amortized over a weighted
average remaining life 13.1 years.
Certain proceeds of the credit facilities were used to repay certain indebtedness of the Company’s subsidiaries at the time of
the Combination, including the then existing RockTenn credit facility, and to pay fees and expenses incurred in connection with
the Combination. See “Note 10. Debt” of the Notes to Consolidated Financial Statements for additional information on our
outstanding debt, the fair value of our debt, and the classification within the fair value hierarchy.
Accounts Receivable Sales Agreement
We have an A/R Sales Agreement to sell to a third party financial institution all of the short term receivables generated from
certain customer trade accounts, on a revolving basis, until the agreement is terminated by either party. Transfers under this
agreement meet the requirements to be accounted for as sales in accordance with the “Transfers and Servicing” guidance in ASC
860. On June 27, 2016, the A/R Sales Agreement was amended to increase the maximum outstanding balance of receivables sold
from $300.0 million to $400.0 million. Cash proceeds related to the sales are included in cash from operating activities in the
consolidated statement of cash flows in the accounts receivable line item. The loss on sale is not material as it is currently less
than 1% per annum of the receivables sold, and is included in interest income and other income (expense), net. For additional
information see “Note 11. Fair Value — Accounts Receivable Sales Agreement” of the Notes to Consolidated Financial Statements.
Cash Flow Activity
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . $
Net cash used for investing activities. . . . . . . . . . . . . . . . . . . . . . . . $
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . $
2016
Year Ended September 30,
2015
(In millions)
1,688.4
1,203.6
$
$
(1,351.4) $
(282.7) $
(231.0) $
(718.0) $
2014
1,151.8
(967.4)
(188.1)
Net cash provided by operating activities during fiscal 2016 increased from fiscal 2015 primarily due to the impact of the
Combination and a smaller use for working capital in fiscal 2016 of $25.8 million as compared to $142.9 million in fiscal 2015.
The change in working capital in the current and prior year included a source of cash resulting from the sale of $99.4 million and
$96.2 million, respectively, of accounts receivables in connection with the A/R Sales Agreement. Net cash provided by operating
activities during fiscal 2015 increased from fiscal 2014 primarily due to the impact of decreased pension funding, increased
aggregate net income, depreciation, depletion and amortization, and deferred taxes, which were partially offset by increased
investment in working capital in the current year. The use of working capital included cash proceeds of $96.2 million from a
financial institution for the collection of accounts receivables sold in connection with the A/R Sales Agreement in fiscal 2015
compared to $136.6 million in fiscal 2014.
Net cash used for investing activities in fiscal 2016 consisted primarily of $796.7 million of capital expenditures, $376.4
million for the SP Fiber Acquisition and Packaging Acquisition, $175.0 million for the investment in Grupo Gondi and $36.5
million for the purchase of debt owed by GPS in connection with the SP Fiber Acquisition partially offset by $31.2 million of
proceeds from the sale of property, plant and equipment. Net cash used for investing activities in fiscal 2015 consisted primarily
of $585.5 million of capital expenditures partially offset by $265.7 million for cash received in the Combination and $28.8 million
of proceeds from the sale of property, plant and equipment. Net cash used for investing activities in fiscal 2014 consisted primarily
of $534.2 million of capital expenditures and $474.4 million for the Tacoma Mill, NPG and AGI In-Store acquisitions that were
partially offset by proceeds from the sale of various assets, the return of capital from unconsolidated entities and insurance proceeds.
In fiscal 2016, net cash used for financing activities consisted primarily of cash dividends paid to stockholders of $380.7
million, purchases of Common Stock of $335.3 million and $105.0 million of cash and trust funding as a result of the Separation,
which was partially offset by net additions to debt of $617.3 million. For more information on the Seperation, see “Note 7.
Discontinued Operations” of the Notes to Consolidated Financial Statements. In fiscal 2015, net cash used for financing activities
consisted primarily of $336.7 million used for stock repurchases, excluding the $667.8 million repurchased in connection with
the Combination, and $214.5 million of cash dividends paid to stockholders, partially offset by the net additions to debt aggregating
41
$540.1 million. In fiscal 2014, net cash used for financing activities consisted primarily of $236.3 million used for stock repurchases
and $101.1 million of cash dividends paid to stockholders partially offset by net additions to debt aggregating $150.4 million.
Our capital expenditures aggregated $796.7 million in fiscal 2016. Our fiscal 2016 capital expenditures included approximately
$29 million of payments related to a fiscal 2012 major capital investment project at one of our containerboard mills that was paid
in fiscal 2016. We expect fiscal 2017 capital expenditures to be in the range of $750 million. We estimate that we will invest
approximately $47 million for capital expenditures during fiscal 2017 in connection with matters relating to environmental
compliance. In fiscal 2017, we expect to invest in projects (i) to maintain and operate our mills and plants safely, reliably and in
compliance with regulations, (ii) that support our strategy to improve the competitiveness of our mill and converting assets, (iii)
to support our $1.0 billion annualized run rate synergy and performance improvement target, before inflation, to be realized by
September 30, 2018, and (iv) to generate attractive returns. We believe we have an opportunity to improve our performance through
capital investment in our box plant system, the most prominent investments being our multi-year project of installing new
“evolution” equipment capable of printing, folding and gluing corrugated sheets into corrugated containers. We expect to install
a total of 30 units. We are in the process of installing the 24th unit and expect to install five more units in fiscal 2017.
We expect our annual capital investment to continue in a relatively similar range for the next three years. However, it is
possible that our capital expenditure assumptions may change, project completion dates may change, or we may decide to invest
a different amount depending upon opportunities we identify, changes in market conditions or to comply with environmental or
other regulation changes. We were obligated to purchase approximately $174 million of fixed assets at September 30, 2016 for
various capital projects. See Item 1A. “Risk Factors — Our Capital Expenditures May Not Achieve the Desired Outcome or
May Be Achieved at a Higher Cost than Anticipated”.
At September 30, 2016, the U.S. federal, state and foreign net operating losses, alternative minimum tax credits and other
U.S. federal and state tax credits available to us aggregated approximately $315 million in future potential reductions of U.S.
federal, state and foreign cash taxes. Based on our current projections, we expect to utilize the remaining U.S. federal net operating
losses, alternative minimum tax and other U.S. federal credits primarily over the next three years. We expect to receive tax benefits
in fiscal 2017 and future years from the U.S. manufacturer’s deduction. Foreign and state net operating losses and credits will be
used over a longer period of time. Including the estimated impact of book and tax differences, we expect our cash tax rate to be
in the high twenties in fiscal 2017, and expect it to continue to move closer to our income tax expense in fiscal 2018 and 2019. It
is possible that our utilization of these net operating losses and credits may change due to changes in taxable income, tax laws or
tax rates, capital expenditures or other factors.
During fiscal 2016 and 2015, we made contributions of $47.5 million and $142.7 million, respectively, to our U.S. and non-
U.S. pension plans. The net under funded status of our U.S. and non-U.S. pension plans at September 30, 2016 was approximately
$81.3 million. Based on current facts and assumptions, we expect to contribute approximately $30 million to our U.S. and non-
U.S. pension plans in fiscal 2017, primarily related to our Canadian plans. We have made contributions and expect to continue to
make contributions in the coming years to our pension plans in order to ensure that our funding levels remain adequate in light
of projected liabilities and to meet the requirements of the Pension Act and other regulations. Based on current assumptions,
including future interest rates, we estimate that minimum pension contributions to our U.S. and non-U.S. pension plans will be
in the range of $22 million to $36 million annually in fiscal 2018 through 2021. We do not expect the settlement of certain U.S.
Qualified Plan defined benefits pension plan obligations through lump sum payments to require us to make additional pension
plan contributions. See “Note 14. Retirement Plans” of the Notes to Consolidated Financial Statements. See Item 1A. “Risk
Factors — We May Incur Increased Employee Benefit Costs and Certain of Our Pension Plans Will Likely Require Additional
Cash Contributions”.
In November 2016, our board of directors declared a quarterly dividend of $0.40 per share which represented a 6.7% increase
from the prior $0.375 per share dividend and an annual dividend of $1.60 per share. During fiscal 2016, we paid quarterly dividends
of $0.375 per share for an annual dividend of $1.50 per share. In the first quarter of fiscal 2015, RockTenn increased its dividend
from $0.175 to $0.1875 per share. Subsequently, as a result of the Business Combination Agreement, RockTenn increased the per
share amount of the dividends it distributed in the second and third fiscal quarter of 2015 to $0.3205 per share to equalize RockTenn
and MWV dividend payments. In July and October 2015, our board of directors approved our August and November 2015 quarterly
dividends of $0.375 per share, indicating an annualized dividend of $1.50 per share. During fiscal 2015, we paid aggregate
dividends (including those paid by RockTenn prior to the closing of the Combination) on our Common Stock of $1.20355 per
share and during fiscal 2014 RockTenn paid aggregate dividends of $0.70 per share.
In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of our Common Stock,
representing approximately 15% of our outstanding Common Stock as of July 1, 2015. Shares of our Common Stock may be
purchased from time to time in open market or privately negotiated transactions. The timing, manner, price and amount of
repurchases will be determined by management at its discretion based on factors, including the market price of our Common
42
Stock, general economic and market conditions, and applicable legal requirements. The repurchase program may be commenced,
suspended or discontinued at any time. In fiscal 2016, we repurchased approximately 8.1 million shares of our Common Stock
for an aggregate cost of $335.3 million. In the fourth quarter of fiscal 2015, subsequent to the authorization, we repurchased
approximately 5.4 million shares of our Common Stock for an aggregate cost of $328.0 million. As of September 30, 2016, we
had remaining authorization under our July 2015 repurchase program to purchase approximately 26.5 million shares of our
Common Stock.
Separately, as part of the Combination, RockTenn repurchased 10.5 million shares of RockTenn Common Stock for an
aggregate cost of $667.8 million. Prior to the closing of the Combination and pursuant to the then existing repurchase plan, in the
first quarter of fiscal 2015, RockTenn repurchased 0.2 million shares of RockTenn Common Stock for an aggregate cost of $8.7
million and in fiscal 2014, RockTenn repurchased approximately 4.7 million shares for an aggregate cost of $236.3 million.
We anticipate that we will be able to fund our capital expenditures, interest payments, dividends and stock repurchases,
pension payments, working capital needs, note repurchases, restructuring activities, repayments of current portion of long-term
debt and other corporate actions for the foreseeable future from cash generated from operations, borrowings under our credit
facilities, proceeds from our A/R Sales Agreement, proceeds from the issuance of debt or equity securities or other additional
long-term debt financing, including new or amended facilities. In addition, we continually review our capital structure and
conditions in the private and public debt markets in order to optimize our mix of indebtedness. In connection therewith, we may
seek to refinance existing indebtedness to extend maturities, reduce borrowing costs or otherwise improve the terms and
composition of our indebtedness.
Contractual Obligations
We summarize our enforceable and legally binding contractual obligations at September 30, 2016, and the effect these
obligations are expected to have on our liquidity and cash flow in future periods in the following table. Certain amounts in this
table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of
renewal, anticipated actions by third parties and other factors, including estimated minimum pension contributions and estimated
benefit payments related to postretirement obligations, supplemental retirement plans and deferred compensation plans. Because
these estimates and assumptions are subjective, the enforceable and legally binding obligations we actually pay in future periods
may vary from those we have summarized in the table.
Payments Due by Period
Total
Fiscal 2017
Fiscal 2018
and 2019
(In millions)
Fiscal 2020
and 2021
Thereafter
Long-Term Debt, including current portion,
excluding capital lease obligations (a) . . . . . . $
Operating lease obligations (b) . . . . . . . . . . . . . .
Capital lease obligations (c) . . . . . . . . . . . . . . . .
Purchase obligations and other (d) (e) (f) . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,325.8
$
283.8
$
851.0
$
1,851.8
$
2,339.2
489.2
161.8
2,382.5
104.8
6.6
1,695.0
161.3
9.1
238.6
102.9
5.3
105.2
120.2
140.8
343.7
8,359.3
$
2,090.2
$
1,260.0
$
2,065.2
$
2,943.9
(a) The long-term debt line item above includes only principal payments owed on our debt assuming that all of our long-term
debt will be held to maturity, excluding scheduled payments. We have excluded $279.0 million of fair value of debt step-
up, deferred financing costs and unamortized bond discounts from the table to arrive at actual debt obligations. For information
on the interest rates applicable to our various debt instruments, see “Note 10. Debt” of the Notes to Consolidated Financial
Statements.
(b) For more information, see “Note 12. Operating Leases” of the Notes to Consolidated Financial Statements.
(c) The fair value step-up of $22.6 million is excluded. For more information, see “Note 10. Debt” of the Notes to Consolidated
Financial Statements.
(d) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that
specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price
43
provision; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without
penalty.
(e) We have included in the table future estimated minimum pension contributions and estimated benefit payments related to
postretirement obligations, supplemental retirement plans and deferred compensation plans. Our estimates are based on
current factors, such as discount rates and expected return on plan assets. Future contributions are subject to changes in our
underfunded status based on factors such as investment performance, discount rates, return on plan assets and changes in
legislation. It is possible that our assumptions may change, actual market performance may vary or we may decide to
contribute different amounts.
(f) We have not included in the table the following items:
• An item labeled “other long-term liabilities” reflected on our consolidated balance sheet because these other long-
term liabilities do not have a definite pay-out scheme.
• We have excluded from the line item “Purchase obligations and other” $198.8 million for certain provisions of ASC
740 “Income Taxes” associated with liabilities for uncertain tax positions due to the uncertainty as to the amount
and timing of payment, if any.
In addition to the enforceable and legally binding obligations quantified in the table above, we have other obligations for
goods and services and raw materials entered into in the normal course of business. These contracts, however, are subject to change
based on our business decisions.
Expenditures for Environmental Compliance
For a discussion of our expenditures for environmental compliance, see Item 1. “Business — Governmental Regulation
— Environmental and Other Matters.”
Off-Balance Sheet Arrangement
In connection with the Smurfit-Stone Acquisition, RockTenn acquired an off-balance sheet arrangement for an interest in
various installment notes that originated from Smurfit-Stone's sale of owned and leased timberland for cash and installment notes.
Smurfit-Stone sold timberland in Florida, Georgia and Alabama in October 1999. The final purchase price, after adjustments, was
$710 million. Smurfit-Stone received $225 million in cash, with the balance of $485 million in the form of installment notes.
Smurfit-Stone entered into a program to monetize the installment notes receivable. The notes were sold without recourse to TNH,
a wholly-owned non-consolidated variable interest entity under the provisions of ASC 860 “Transfers and Servicing”, for $430
million cash proceeds and a residual interest in the notes. The transaction was accounted for as a sale under ASC 860. The residual
interest in the notes was repaid during fiscal 2014 and TNH was subsequently dissolved.
Non-GAAP Measures
We report our financial results in accordance with GAAP. However, we have included in the discussion under the caption
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” above financial measures that were
not prepared in accordance with GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative
for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures of other
companies.
We use the non-GAAP financial measures “Adjusted Income from Continuing Operations” and “Adjusted Earnings from
Continuing Operations Per Diluted Share”. Management believes these non-GAAP financial measures provide our board of
directors, investors, potential investors, securities analysts and others with useful information to evaluate our performance because
the measures exclude restructuring and other costs, net, and other specific items that management believes are not indicative of
ongoing operating results. We and our board of directors use this information to evaluate our performance relative to other periods.
We believe that the most directly comparable GAAP measures to Adjusted Income from Continuing Operations and Adjusted
Earnings from Continuing Operations Per Diluted Share are Income from continuing operations and Earnings from continuing
operations per diluted share, respectively. The reconciliation of “Adjusted Earnings from Continuing Operations Per Diluted Share”
is presented under the caption “Management’s Discussion and Analysis of Financial Condition — Results of Operations
(Consolidated)” above.
44
Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Measures
Set forth below is a reconciliation of Adjusted Income from Continuing Operations to the most directly comparable GAAP
measure, Income from continuing operations, for the periods indicated (in millions, net of tax):
Years Ended September 30,
2015
2014
2016
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-cash pension risk transfer expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory stepped-up in purchase accounting, net of LIFO . . . . . . . . . . . . . . . .
Gain on investment in Grupo Gondi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension lump sum settlement and retiree medical curtailment, net. . . . . . . . . . .
(Gain) loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest from continuing operations . . . . . . . . . . . . . . . . . . . . . .
Adjusted Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . $
154.8
229.8
268.3
5.6
(1.5)
—
(1.9)
(2.1)
653.0
$
$
$
501.2
—
100.8
42.7
—
7.6
1.7
(3.4) $
$
650.6
483.8
—
37.6
2.0
—
29.9
—
(4.1)
549.2
Critical Accounting Policies and Estimates
We have prepared our accompanying consolidated financial statements in conformity with GAAP, which requires management
to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. The following are critical accounting
matters that are both important to the portrayal of our financial condition and results and that require some of management’s most
subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts,
circumstances and assumptions that, in management’s judgment, could change in a manner that would materially affect
management’s future estimates with respect to such matters and, accordingly, could cause our future reported financial condition
and results to differ materially from those that we are currently reporting based on management’s current estimates. For additional
information, see “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated
Financial Statements. See also Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”
Accounts Receivable and Allowances
We have an allowance for doubtful accounts, credits, returns and allowances, and cash discounts that serve to reduce the value
of our gross accounts receivable to the amount we estimate we will ultimately collect. The allowances contain uncertainties because
the calculation requires management to make assumptions and apply judgment regarding our customers’ credit worthiness and
the credits, returns and allowances and cash discounts that may be taken by our customers. We perform ongoing evaluations of
our customers’ financial condition and adjust credit limits based upon payment history and the particular customer’s current credit
worthiness, as determined by our review of their current financial information. We continuously monitor collections from our
customers and maintain a provision for estimated credit losses based upon our customers’ financial condition, our collection
experience and any other relevant customer specific information. Our assessment of this and other information forms the basis of
our allowances. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or
assumptions we use to estimate the allowances. However, while these credit losses have historically been within our expectations
and the provisions we established, it is possible that our credit loss rates could be higher or lower in the future depending on
changes in business conditions and changes in our customers’ credit worthiness. At September 30, 2016, our accounts receivable,
net of allowances of $36.5 million, was $1,592.2 million; a 1% additional loss on accounts receivable would change our allowance
by $15.9 million and a 5% change in our allowance assumptions would change our allowance by $1.8 million.
Goodwill and Long-Lived Assets
We review the carrying value of our goodwill annually at the beginning of the fourth quarter of each fiscal year, or more often
if events or changes in circumstances indicate that the carrying amount may exceed fair value as set forth in ASC 350, “Intangibles
— Goodwill and Other.” See “Note 7. Discontinued Operations” of the Notes to Consolidated Financial Statements for information
on the first quarter of fiscal 2016 goodwill impairment test and resulting charge. We test goodwill for impairment at the reporting
unit level, which is an operating segment or one level below an operating segment, 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 segment 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.
The amount of goodwill acquired in a business combination that is assigned to one or more reporting units as of the acquisition
45
date is the excess of the purchase price of the acquired businesses (or portion thereof) included in the reporting unit, over the fair
value assigned to the individual assets acquired or liabilities assumed. Goodwill is assigned to the reporting unit(s) expected to
benefit from the synergies of the combination even though other assets or liabilities of the acquired entity may not be assigned to
that reporting unit.
We determine recoverability by comparing the estimated fair value of the reporting unit to which the goodwill applies to the
carrying value, including goodwill, of that reporting unit using a discounted cash flow model. We also consider the market approach
using implied public and private multiples. Our discounted cash flow analysis is based on the sum of two components, the present
value of our projected cash flows and the present value of a terminal value. The cash flow estimates are derived from our current
forecast and our long-term forecasts prepared for each reporting unit considering historical results and anticipated future
performance and capital expenditures, and require considerable judgment. The discount rates used to determine the present value
of future cash flows were derived from a weighted average cost of capital analysis utilizing a beta that is derived from peer
companies. In addition, we gave consideration in the calculation of the weighted average cost of capital for equity risks including
size risk, industry risk and country specific risk, as appropriate, for each of our reporting units. As a result of the weighted average
cost of capital calculations, our discount rate used for each reporting unit ranged from 8% to 14%. We use perpetual growth rates
in the reporting units ranging from 1% to 5%. Estimating the fair value of the reporting unit involves uncertainties because it
requires management to develop numerous assumptions, including assumptions about the future growth and potential volatility
in revenues and costs, capital expenditures, industry economic factors and future business strategy. The variability of the factors
that management uses to perform the goodwill impairment test depends on a number of conditions, including uncertainty about
future events and cash flows, including anticipated changes in revenues and costs and synergies and productivity improvements
resulting from the acquisitions, capital expenditures and continuous improvement projects. All such factors are interdependent
and, therefore, do not change in isolation. Accordingly, our accounting estimates may materially change from period to period
due to changing market factors. If we had used other assumptions and estimates or if different conditions occur in future periods,
future operating results could be materially impacted. Any significant adverse changes in key assumptions about these businesses
and their prospects, such as changes in our strategy or products, the loss of key customers, regulatory changes or adverse changes
in economic and market conditions may cause a change in the estimated fair values of our reporting units and could result in an
impairment charge that could be material to our financial statements.
As a result of the fiscal 2015 Combination and the corresponding fair value accounting, several of our reporting units’ fair
value exceeds their carrying value by a limited margin. During the fourth quarter of fiscal 2016, of reporting units that have
goodwill, our Consumer Packaging and Brazil Corrugated reporting units had a fair value which exceeded their carrying value
by less than 10%. If we had concluded that it was appropriate to increase the discount rate we used by 100 basis point to estimate
the fair value of each reporting units that has goodwill, the fair value for each of our reporting units would have continued to
exceed its carrying value except for the Consumer Packaging and Brazil Corrugated reporting units. The Consumer Packaging
and Brazil Corrugated reporting units had $2,657.2 million and $172.3 million of goodwill at September 30, 2016, respectively.
No events have occurred since the latest annual goodwill impairment assessment that would necessitate an interim goodwill
impairment assessment.
Included in our long-lived assets are certain intangible assets. These intangible assets are amortized based on the approximate
pattern in which the economic benefits are consumed or straight-line if the pattern was not reliably determinable. Estimated useful
lives range from 1 to 40 years and have a weighted average life of approximately 17.9 years. We identify the weighted average
lives of our intangible assets by category in “Note 9. Other Intangible Assets” of the Notes to Consolidated Financial Statements.
We follow the provisions included in ASC 360, “Property, Plant and Equipment,” in determining whether the carrying value
of any of our long-lived assets is impaired. Our judgments regarding the existence of impairment indicators are based on legal
factors, market conditions and operational performance. Future events could cause us to conclude that impairment indicators exist
and that assets associated with a particular operation are impaired. Evaluating the impairment also requires us to estimate future
operating results and cash flows, which also require judgment by management. Any resulting impairment loss could have a material
adverse impact on our financial condition and results of operations.
We have not made any material changes to our impairment loss assessment methodology during the past three fiscal years.
We do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use
to calculate impairment losses. However, if actual results are not consistent with our assumptions and estimates, we may be exposed
to impairment losses that could be material.
Restructuring
Our restructuring and other costs, net include primarily items such as restructuring portions of our operations, acquisition
costs, integration costs and divestiture costs. We have restructured portions of our operations from time to time, have current
46
restructuring initiatives taking place, and it is possible that we may engage in additional restructuring activities in the future.
Identifying and calculating the cost to exit these operations requires certain assumptions to be made, the most significant of which
are anticipated future liabilities, including leases and other contractual obligations, and the adjustment of property, plant and
equipment to net realizable value. We believe our estimates are reasonable, considering our knowledge of the industries we operate
in, previous experience in exiting activities and valuations we may obtain from independent third parties. Although our estimates
have been reasonably accurate in the past, significant judgment is required, and these estimates and assumptions may change as
additional information becomes available and facts or circumstances change.
Business Combinations
From time to time, we may enter into business combinations. In accordance with ASC 805, “Business Combinations”, we
generally recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their
fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure
at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition
method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a
business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset
valuation allowances, liabilities related to uncertain tax positions, contingent consideration and contingencies. This method also
requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about
facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts
recognized as of that date. If we are required to retroactively adjust provisional amounts that we have recorded for the fair values
of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition
and results of operations.
Significant estimates and assumptions in estimating the fair value of acquired technology, customer relationships, and other
identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual
results and updated projections of the underlying business activity change compared with the assumptions and projections used
to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired
assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change,
depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.
Fair Value of Financial Instruments and Nonfinancial Assets and Liabilities
We define fair value as the price that would be received from the sale of an asset or paid to transfer a liability in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date.
Financial instruments not recognized at fair value on a recurring or nonrecurring basis include cash and cash equivalents,
accounts receivables, certain other current assets, short-term debt, accounts payable, certain other current liabilities and long-term
debt. With the exception of long-term debt, the carrying amounts of these financial instruments approximate their fair values due
to their short maturities. The fair values of our long-term debt are estimated using quoted market prices or are based on the
discounted value of future cash flows.
We have, or from time to time may have, financial instruments recognized at fair value including Supplemental Plans that are
nonqualified deferred compensation plans pursuant to which assets are invested primarily in mutual funds, interest rate derivatives,
commodity derivatives or other similar class of assets or liabilities. Other than the fair value of our long-term debt and our pension
and postretirement assets and liabilities disclosed in “Note 10. Debt” and “Note 14. Retirement Plans” of the Notes to Consolidated
Financial Statements, the fair value of these items is not significant. We measure the fair value of our mutual fund investments
based on quoted prices in active markets, and our derivative contracts, if any, based on discounted cash flows.
We measure certain nonfinancial assets and nonfinancial liabilities at fair value on a nonrecurring basis. These assets and
liabilities include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired
and liabilities assumed in a merger or an acquisition or in a nonmonetary exchange, and property, plant and equipment and goodwill
and other intangible assets that are written down to fair value when they are held for sale or determined to be impaired. Given the
nature of nonfinancial assets and liabilities, evaluating their fair value from the perspective of a market participant is inherently
complex. Assumptions and estimates about future values can be affected by a variety of internal and external factors. Changes in
these factors may require us to revise our estimates and could result in future impairment charges for goodwill and acquired
intangible assets, or retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in
connection with business combinations. These adjustments could have a material impact on our financial condition and results of
operations. We discuss fair values in more detail in “Note 11. Fair Value” of the Notes to Consolidated Financial Statements.
47
Accounting for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits, reflect management’s
best assessment of estimated current and future taxes to be paid. We are subject to income taxes in both the U.S. and foreign
jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amount
in the financial statements, which will result in deductible amounts in the future. In evaluating our ability to recover our deferred
tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent operations. In projecting
future taxable income, we incorporate assumptions about the amount of future state, federal and foreign pretax operating income,
the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions
require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are
using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three
years of cumulative operating income (loss).
We recognize interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements
of operations. A 1% change in our effective tax rate would increase or decrease tax expense by approximately $2.4 million for
fiscal 2016. A 1% change in our effective tax rate used to compute deferred tax liabilities and assets, as recorded on the September 30,
2016 consolidated balance sheet, would increase or decrease tax expense by approximately $89.1 million for fiscal 2016.
Pension and Other Postretirement Benefits
Certain of our employees in the United States, Canada and other countries are currently accruing pension benefits. In addition,
under several labor contracts, we make payments based on hours worked into MEPP trusts established for the benefit of certain
collective bargaining employees in facilities both inside and outside the United States. We also have a supplemental executive
retirement plan and other unfunded defined benefit plans that provide unfunded supplemental retirement benefits to certain of our
current and former executives. The determination of our obligation and expense for these plans is dependent on our selection of
certain assumptions used by actuaries in calculating such amounts. We describe these assumptions in “Note 14. Retirement Plans”
of the Notes to Consolidated Financial Statements, which include, among others, the discount rate, mortality rates, expected long-
term rate of return on plan assets and expected rates of increase in compensation levels. Although there is authoritative guidance
on how to select most of these assumptions, management must exercise judgment when selecting these assumptions. We evaluate
these assumptions with our actuarial advisors on an annual basis, and we believe they are within accepted industry ranges, although
an increase or decrease in the assumptions or economic events outside our control could have a direct impact on recorded obligations
and reported net earnings.
The funded status of our qualified and non-qualified U.S. and non-U.S. pension plans decreased $287.3 million in fiscal 2016.
Our U.S. qualified and non-qualified pension plans are overfunded $69.8 million and our non-U.S. pension plans are underfunded
$151.1 million. The U.S. pension plans’ funded status was negatively impacted by a 66 basis point decrease in the discount rate
compared to the prior measurement date, and our non-U.S. pension plan obligations were negatively impacted by an 81 basis point
decrease in the discount rate compared to the prior measurement date.
A 25 basis point change in the discount rate, compensation level, expected long-term rate of return on plan assets or medical
cost trend, factoring in our corridor as appropriate, would have had the following effect on fiscal 2016 pension and other
postretirement expense (amounts in the table in parentheses reflect additional income, in millions):
Pension Plans
Postretirement Plans
25 Basis Point
Increase
25 Basis Point
Decrease
25 Basis Point
Increase
25 Basis Point
Decrease
Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Compensation level . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on plan assets . . .
Medical cost trend. . . . . . . . . . . . . . . . . . . . . . . . . . .
0.9
$
0.3
(17.3)
N/A
$
13.3
(0.3)
17.3
N/A
(0.2) $
N/A
N/A
0.1
0.1
N/A
N/A
(0.1)
48
New Accounting Standards
See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated
Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption
and expected effects on results of operations and financial condition.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in, including but not limited to, interest rates, foreign currencies and commodity
prices. Our objective is to identify and understand these risks and then implement strategies to manage them. When evaluating
these strategies, we evaluate the fundamentals of each market, our sensitivity to movements in pricing, and underlying accounting
and business implications. To implement these strategies, we may enter into various hedging transactions. The sensitivity analyses
we present below do not consider the effect of possible adverse changes in the general economy, nor do they consider additional
actions we may take to mitigate our exposure to such changes. Our effort to manage or continue to manage any of these risks in
the future may not be successful.
Containerboard and Paperboard Shipments
We are exposed to market risk related to our sales of containerboard and paperboard. We sell a significant portion of our mill
production and converted products pursuant to contracts that provide that prices are either fixed for specified terms or provide for
price adjustments based on negotiated terms, including changes in specified index prices. We have the capacity to annually ship
approximately 9.2 million tons in our Corrugated Packaging segment and approximately 4.2 million tons in our Consumer
Packaging segment. Although our mill system operating rates may vary from year to year due to changes in market and other
factors, our simple average mill system operating rates for the last three years averaged 95%. A hypothetical $10 per ton decrease
in the price of paperboard throughout the year based on our capacity would decrease our sales by approximately $92 million and
$42 million in our Corrugated Packaging and Consumer Packaging segments, respectively. See Item 1A. “Risk Factors — Our
Earnings Are Highly Dependent on Volumes”.
Energy
Energy is one of the most significant costs of our mill operations. The cost of natural gas, coal, oil, electricity and wood by-
products (biomass) at times have fluctuated significantly. In our recycled paperboard mills, we use primarily natural gas and
electricity, supplemented with fuel oil and coal to generate steam used in the paper making process and to operate our recycled
paperboard machines. In our virgin fiber mills, we use biomass, natural gas, coal and fuel oil to generate steam used in the paper
making process, to generate some or all of the electricity used on site and to operate our paper machines. We primarily use electricity
and natural gas to operate our converting facilities. We generally purchase these products from suppliers at market or tariff rates.
We spent approximately $671 million on all energy sources in fiscal 2016 to operate our facilities. Natural gas accounted for
approximately two-fifths (approximately 69 million MMBtu) of our total energy purchases in fiscal 2016. A hypothetical 10%
increase in the price of energy throughout the year would increase our cost of energy by approximately $67 million based on fiscal
2016 pricing and consumption.
Recycled Fiber
The principal raw material we use in the production of recycled paperboard and a portion of our containerboard is recycled
fiber. In fiscal 2016, our purchases of old corrugated containers and double-lined kraft clippings accounted for our largest recycled
fiber costs and approximately 90% of our recycled fiber purchases. The remaining 10% of our recycled fiber purchases consisted
of a number of other grades of recycled paper. The mix of recycled fiber may vary due to factors such as market demand, availability
and pricing.
A hypothetical 10% increase in recycled fiber prices in our mills for a fiscal year would increase our costs by approximately
$68 million.
Virgin Fiber
The principal raw material we use in the production of a portion of our containerboard, bleached paperboard and market pulp
is virgin fiber. A hypothetical 10% increase in virgin fiber prices in our mills for a fiscal year would increase our costs by
approximately $118 million.
49
Freight
Inbound and outbound freight is a significant expenditure for us. Factors that influence our freight expense are items such as
distance between our shipping and delivery locations, distance from customers and suppliers, mode of transportation (rail, truck,
intermodal and ocean) and freight rates, which are influenced by supply and demand and fuel costs, primarily diesel. A hypothetical
10% increase for a fiscal year would increase our costs by approximately $122 million, of which approximately one-fifth would
be the portion related to higher diesel costs based on our estimated 87 million gallons consumed annually. See Item 1A. “Risk
Factors — We May Face Increased Costs or Inadequate Availability of Raw Materials, Energy and Transportation”.
Interest Rates
We are exposed to changes in interest rates, primarily as a result of our short-term and long-term debt. We may from time to
time use interest rate swap agreements to manage the interest rate characteristics of a portion of our outstanding debt. Based on
the amounts and mix of our fixed and floating rate debt at September 30, 2016, if market interest rates increase an average of 100
basis points, our annual interest expense would increase by approximately $22 million. We determined these amounts by considering
the impact of the hypothetical interest rates on our borrowing costs. This analysis does not consider the effects of changes in the
level of overall economic activity that could exist in such an environment. See Item 1A. “Risk Factors — Our Net Income Could
Be Negatively Affected If Interest Rates Increase”.
Pension Plans
Our pension plans are influenced by trends in the financial markets and the regulatory environment. Adverse general stock
market trends and falling interest rates increase plan costs and liabilities. During fiscal 2016, the effect of a 0.25% decrease in the
discount rate would have reduced pre-tax income by approximately $13.3 million and a 0.25% increase in the discount rate would
have reduced pre-tax income by $0.9 million. During fiscal 2015, the effect of a 0.25% decrease in the discount rate would have
reduced pre-tax income by approximately $12.8 million and a 0.25% increase in the discount rate would have reduced pre-tax
income by $0.8 million. Similarly, MEPPs in which we participate could experience similar circumstances which could impact
our funding requirements and therefore expenses. We discuss our MEPPs in “Note 14. Retirement Plans — Multiemployer Plans”
of the Notes to Consolidated Financial Statements. See Item 1A. “Risk Factors — We May Incur Increased Employee Benefit
Costs and Certain of Our Pension Plans Will Likely Require Additional Cash Contributions”.
Foreign Currency
We have foreign-based operations, primarily in Canada, South America, Mexico, Europe and Asia, which accounted for
approximately 17% of our net sales in fiscal 2016, some of which is transacted in U.S. dollars. In addition, certain of our domestic
operations have sales to foreign customers. In conducting our foreign operations, we also make inter-company sales and receive
royalties and dividends denominated in many different currencies. All of this exposes us to the effect of changes in foreign currency
exchange rates. Flows of foreign currencies into and out of our operations are generally stable and regularly occurring and are
recorded at fair market value in our financial statements. Our foreign currency management policy permits us to enter into foreign
currency hedges when these flows exceed a threshold, which is a function of these cash flows and forecasted annual operations.
We issue inter-company loans to and receive foreign cash deposits from our foreign subsidiaries in their local currencies,
exposing us to the effect of changes in spot exchange rates between loan issue and loan repayment dates for the inter-company
loans and changes in spot exchange rates from deposit date for foreign cash deposits. From time to time, we may use foreign-
exchange hedge contracts with terms of generally less than one year to hedge these exposures. Although our derivative and other
foreign currency sensitive instruments expose us to market risk, fluctuations in the value of these instruments are mitigated by
expected offsetting fluctuations in the matched exposures.
During fiscal 2016 and 2015, the effect of a hypothetical 10% change in foreign segment income driven by exchange rates
would have impacted our segment results by approximately $23 million and $17 million, respectively. For more information about
our foreign operations, see “Note 20. Segment Information” of the Notes to Consolidated Financial Statements.
During fiscal 2016 and 2015, the effect of a 1% change in exchange rates would have impacted accumulated other
comprehensive income by approximately $28 million and $25 million, respectively. This impact does not consider the effects of
a stronger or weaker dollar on our ability to compete for export business or the overall economic activity that could exist in such
an environment. Changes in foreign exchange rates could impact the price and therefore also the demand for our products. See
Item 1A. “Risk Factors — We May Be Adversely Affected by Economic and Financial Market Conditions, and Social and
Political Change”.
50
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Description
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive (Loss) Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting . . .
Management’s Annual Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
Reference
52
53
54
55
57
60
124
125
126
For supplemental quarterly financial information, please see “Note 21. Financial Results by Quarter (Unaudited)” of the
Notes to Consolidated Financial Statements.
51
WESTROCK COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30,
2016
2015
2014
(In millions, except per share data)
(recast)
14,171.8
$
11,124.8
$
8,986.5
2,138.3
1,014.6
118.9
—
11.5
140.8
852.5
(132.5)
(2.6)
9.7
7.1
734.2
(233.0)
501.2
10.6
511.8
(4.7)
507.1
2.92
0.05
2.97
2.87
0.06
2.93
1.20
$
$
$
$
$
$
9,895.1
7,961.5
1,933.6
889.7
86.0
—
47.9
55.6
854.4
(95.3)
—
2.4
8.8
770.3
(286.5)
483.8
—
483.8
(4.1)
479.7
3.34
—
3.34
3.29
—
3.29
0.70
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative, excluding intangible amortization . . .
Selling, general and administrative intangible amortization . . . . . . . . . . . .
Pension risk transfer expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension lump sum settlement and retiree medical curtailment, net . . . . . .
Restructuring and other costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income and other income (expense), net . . . . . . . . . . . . . . . . . . . .
Equity in income of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations (net of income tax benefit
(expense) of $32.3, $(17.5) and $0). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interests. . . . . . . . . . . . . .
Net (loss) income attributable to common stockholders . . . . . . . . . . . . . . . $
Basic earnings per share from continuing operations . . . . . . . . . . . . . . . . . $
Basic (loss) earnings per share from discontinued operations . . . . . . . . . .
Basic (loss) earnings per share attributable to common stockholders. . . . . $
Diluted earnings per share from continuing operations . . . . . . . . . . . . . . . $
Diluted (loss) earnings per share from discontinued operations . . . . . . . . .
Diluted (loss) earnings per share attributable to common stockholders . . . $
11,413.2
2,758.6
1,379.4
211.8
370.7
—
366.4
430.3
(256.7)
2.7
58.6
9.7
244.6
(89.8)
154.8
(544.7)
(389.9)
(6.4)
(396.3) $
$
0.60
(2.16)
(1.56) $
0.59
$
(2.13) $
(1.54) $
Cash dividends paid per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.50
$
See Accompanying Notes
52
WESTROCK COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Consolidated net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive (loss) income, net of tax:
Foreign currency:
Foreign currency translation gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment of net loss on foreign currency translation
included in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives:
Deferred loss on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment of net loss on cash flow hedges included in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit pension and other postretirement benefit plans:
Net actuarial loss arising during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and settlement recognition of net actuarial loss, included in
pension and postretirement cost(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service credit (cost) arising during period . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and curtailment recognition of prior service cost (credit),
included in pension and postretirement cost . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Comprehensive income attributable to noncontrolling interests. . . . . . . . . . .
Comprehensive (loss) income attributable to common stockholders . . . . . . . . . . . . . $
(1) Fiscal 2016 includes pension risk transfer expense, net of tax.
Year Ended September 30,
2016
2015
2014
(In millions)
511.8
(389.9) $
$
483.8
109.8
(242.0)
(29.9)
20.2
(0.4)
1.2
—
(1.6)
0.4
—
—
—
(224.6)
(52.6)
(212.8)
236.5
1.4
1.1
145.2
(244.7)
(5.7)
(250.4) $
30.3
(15.4)
(4.6)
(285.5)
226.3
(3.9)
222.4
$
39.4
7.6
(0.1)
(195.8)
288.0
(3.1)
284.9
See Accompanying Notes
53
WESTROCK COMPANY
CONSOLIDATED BALANCE SHEETS
September 30,
2016
2015
(In millions, except per share data)
(recast)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable (net of allowances of $36.5 and $29.5) . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted assets held by special purpose entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid pension asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefit liabilities, net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse liabilities held by special purpose entities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Notes 12 and 18)
Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity:
Preferred stock, $0.01 par value; 30.0 million shares authorized; no shares outstanding .
Common stock, $0.01 par value; 600.0 million shares authorized; 251.0 million and
257.0 million shares outstanding at September 30, 2016 and September 30, 2015,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
See Accompanying Notes
54
$
$
$
340.9
25.5
1,592.2
1,638.2
315.8
—
3,912.6
9,294.3
4,778.1
2,599.3
1,293.8
257.8
902.3
—
23,038.2
292.9
1,054.4
405.9
429.8
—
2,183.0
5,496.3
328.1
140.0
1,170.2
3,130.7
746.2
—
13.7
—
2.5
10,458.6
(105.9)
(626.4)
9,728.8
101.2
9,830.0
23,038.2
$
207.8
7.3
1,575.4
1,761.0
261.7
362.8
4,176.0
9,159.8
4,647.1
2,794.9
1,302.1
532.9
503.9
2,255.7
25,372.4
63.7
1,231.4
354.9
410.2
118.6
2,178.8
5,558.2
316.0
143.0
1,179.6
3,189.7
647.2
361.8
14.2
—
2.6
10,767.8
1,661.6
(780.2)
11,651.8
132.1
11,783.9
25,372.4
WESTROCK COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
Number of Shares of Common Stock Outstanding(1):
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued under restricted stock plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock, net of stock received for minimum tax withholdings(2) (3) . . . . . .
Purchases of common stock (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock:
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Issuance of common stock, net of stock received for minimum tax withholdings(2) . . . . . . . .
Purchases of common stock (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two-for-one stock split (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in Excess of Par Value:
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit from share-based plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense under share-based plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock, net of stock received for minimum tax withholdings (2). . . . . . . .
Fair value of share-based awards issued in the Combination . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of common stock (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two-for-one stock split (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separation of Specialty Chemicals business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2016
2015
2014
(In millions, except per share data)
257.0
1.6
0.5
(8.1)
251.0
$
2.6
—
(0.1)
—
2.5
10,767.8
(15.5)
76.0
13.9
—
(319.2)
—
(64.4)
140.0
1.7
131.4
(16.1)
257.0
$
1.4
1.3
(0.1)
—
2.6
144.0
0.5
0.2
(4.7)
140.0
0.7
—
—
0.7
1.4
2,839.8
2,871.4
22.5
50.2
8,084.1
210.9
(439.7)
—
—
15.0
42.6
4.7
—
(93.2)
(0.7)
—
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,458.6
10,767.8
2,839.8
Retained Earnings (Deficit):
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,661.6
1,960.9
1,740.8
Net (loss) income attributable to common stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared (per share - $1.50, $1.20 and $0.70) (5) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock, net of stock received for minimum tax withholdings . . . . . . . . . .
Purchases of common stock (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separation of Specialty Chemicals business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Other Comprehensive Loss:
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separation of Specialty Chemicals business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling Interests:
(6)
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests assumed in merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of subsidiary shares from noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income attributable to noncontrolling interest. . . . . . . . . . . . . . . . . . . .
Separation of Specialty Chemicals business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(396.3)
(384.2)
(0.8)
(16.0)
(970.2)
(105.9)
(780.2)
145.9
7.9
(626.4)
9,728.8
132.1
10.9
3.2
—
(18.7)
(0.2)
—
(26.1)
101.2
507.1
(215.3)
(26.4)
(564.7)
—
479.7
(100.8)
(15.7)
(143.1)
—
1,661.6
1,960.9
(495.3)
(284.9)
—
(780.2)
11,651.8
0.6
159.3
0.7
3.5
(31.9)
—
(0.1)
—
132.1
(300.6)
(194.7)
—
(495.3)
4,306.8
0.5
—
0.5
—
(0.4)
—
—
—
0.6
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9,830.0
$
11,783.9
$
4,307.4
55
(3)
(2)
(1) On August 27, 2014, we effected a two-for-one stock split of RockTenn’s Common Stock in the form of a 100% stock dividend
to shareholders of record as of August 12, 2014. All share and per share information has been retroactively adjusted to reflect
the stock split and we recorded the incremental par value of the newly issued shares with the offset to additional paid in capital.
Included in the Issuance of common stock is the issuance of approximately 131.2 million shares of Common Stock valued
at $8,075.8 million in connection with the Combination.
In connection with the Smurfit-Stone acquisition, there were approximately 1.4 million shares reserved but unissued at the
time of the acquisition for the resolution of Smurfit-Stone bankruptcy claims. At September 30, 2016, 0.3 million shares
remain reserved and unissued.
In fiscal 2016, we repurchased approximately 8.1 million shares of our Common Stock for an aggregate cost of $335.3 million.
Pursuant to the then existing repurchase plan, in the first quarter of fiscal 2015, we repurchased 0.2 million shares for an
aggregate cost of $8.7 million. Subsequent to the Combination, in the fourth quarter of fiscal 2015, we repurchased
approximately 5.4 million shares for an aggregate cost of $328.0 million under the new authorization. Separately as part of
the Combination we repurchased 10.5 million shares for an aggregate cost of $667.8 million.
Includes cash dividends paid, dividend equivalent units on certain restricted stock awards and dividends declared but unpaid
related to the shares reserved but unissued at the time of the acquisition for the resolution of Smurfit-Stone bankruptcy claims.
(6) Excludes amounts related to contingently redeemable noncontrolling interests which are separately classified outside of
(4)
(5)
permanent equity in the Consolidated Balance Sheets.
56
WESTROCK COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Consolidated net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile consolidated net income to net cash provided by
operating activities:
Depreciation, depletion and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of real estate sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax (benefit) expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposal of plant, equipment and other, net . . . . . . . . . . . . . . .
Equity in income of unconsolidated entities. . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and other postretirement funding (more) than expense (income). . . .
Gain on Grupo Gondi investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash surrender value increase in excess of premiums paid . . . . . . . . . . . . . . .
Impairment adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of Specialty Chemicals goodwill and intangibles. . . . . . . . . . . . .
Change in operating assets and liabilities, net of acquisitions and
divestitures:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash (paid) received for purchase of businesses, net of cash acquired. . . . . . . .
Debt purchased in connection with an acquisition . . . . . . . . . . . . . . . . . . . . . . .
Cash received in merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate-owned life insurance premium paid. . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return of capital from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from affiliated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of subsidiary and affiliates. . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant and equipment. . . . . . . . . . . . . . . . . . . . .
Proceeds from property, plant and equipment insurance settlement. . . . . . . . . .
Net cash used for investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Additions (repayments) to revolving credit facilities . . . . . . . . . . . . . . . . . . . . .
Additions to debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing additions (repayments) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty Chemicals spin-off of net cash and trust funding . . . . . . . . . . . . . . . .
Issuances of common stock, net of related minimum tax withholdings . . . . . . .
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of common stock - merger related . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . . . .
Repayments to unconsolidated entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash distributions paid to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
2016
Year Ended September 30,
2015
(In millions)
2014
(389.9) $
511.8
$
483.8
1,146.5
87.7
(160.9)
75.7
(2.7)
(6.5)
(9.7)
275.6
(12.1)
(27.6)
200.8
(42.1)
579.4
36.6
50.6
(83.7)
(197.1)
73.2
94.6
1,688.4
(796.7)
(376.4)
(36.5)
—
(9.0)
(179.9)
5.7
—
10.2
31.2
—
(1,351.4)
125.5
1,511.8
(1,073.3)
53.3
(3.6)
(105.0)
11.8
(335.3)
—
0.3
(2.3)
(380.7)
(33.5)
(231.0)
6.6
112.6
740.8
32.1
161.4
49.2
2.6
1.0
(7.1)
(137.7)
—
—
6.9
(14.5)
—
106.1
(27.2)
(10.0)
(38.4)
(23.6)
(149.8)
1,203.6
(585.5)
3.7
—
265.7
—
—
1.1
3.5
—
28.8
—
(282.7)
(48.1)
2,176.3
(1,587.5)
(0.6)
(7.8)
—
(19.3)
(336.7)
(667.8)
23.0
(0.3)
(214.5)
(34.7)
(718.0)
(7.2)
195.7
584.5
—
252.1
42.6
—
0.3
(8.8)
(175.0)
—
—
9.6
(4.1)
—
67.3
(80.5)
(1.9)
(11.6)
1.9
(8.4)
1,151.8
(534.2)
(474.4)
—
—
—
—
7.0
—
6.8
22.4
5.0
(967.4)
(52.1)
663.8
(465.1)
3.8
(0.7)
—
(11.0)
(236.3)
—
15.1
(2.0)
(101.1)
(2.5)
(188.1)
(0.1)
(3.8)
Cash and cash equivalents from continuing operations, at beginning of period . . .
Cash and cash equivalents from discontinued operations, at beginning of period. .
Balance of cash and cash equivalents at beginning of period . . . . . . . . . . . . . . .
Cash and cash equivalents from continuing operations, at end of period . . . . . . . .
Cash and cash equivalents from discontinued operations, at end of period . . . . . . .
Balance of cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . $
207.8
20.5
228.3
340.9
—
340.9
$
32.6
—
32.6
207.8
20.5
228.3
$
36.4
—
36.4
32.6
—
32.6
2016
Year Ended September 30,
2015
(In millions)
2014
Supplemental disclosure of cash flow information:
Year Ended September 30,
2016
2015
2014
(In millions)
Cash paid (received) during the period for:
Income taxes, net of refunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157.4
$
229.9
89.3
$
140.1
18.8
86.9
Supplemental schedule of non-cash operating and investing activities:
The formation of the Grupo Gondi joint venture consisted of a contribution of $175.0 million in cash and the stock of an entity
that owns three corrugated packaging facilities in Mexico in return for a 25.0% equity participation in the joint venture and options
valued at approximately $0.3 billion. The entity was deconsolidated as of April 1, 2016, which resulted in the derecognition and
recognition of the following non-cash items for the year ended September 30:
Derecognized:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized:
Investment in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
(In millions)
34.7
25.8
86.3
(15.4)
(1.0)
(18.8)
(123.7)
58
Supplemental schedule of non-cash investing and financing activities:
Liabilities assumed in fiscal 2016 relate to the SP Fiber Acquisition and the Packaging Acquisition. Liabilities assumed in
fiscal 2015 relate to the Combination. Liabilities assumed in fiscal 2014 relate to the Tacoma Mill, NPG and AGI In-Store
acquisitions. For additional information regarding these transactions see “Note 6. Merger, Acquisitions and Investment.”
Fair value of assets acquired, including goodwill . . . . . . . . . . . . . . . . . . . . $
Cash consideration for the purchase of businesses, net of cash acquired . .
Unreceived working capital or escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt purchased in connection with an acquisition . . . . . . . . . . . . . . . . . . .
Stock issued in the merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of share-based awards issued in the merger . . . . . . . . . . . . . . . .
Liabilities and noncontrolling interest assumed . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2016
2015
2014
(In millions)
580.7
$
16,001.1
$
376.4
(3.5)
36.5
—
—
171.3
$
—
—
—
8,075.8
210.9
7,714.4
$
525.3
472.2
—
—
—
—
53.1
Included in liabilities assumed is the following item:
Debt assumed in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
15.0
$
2,152.9
$
0.6
See Accompanying Notes
59
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Unless the context otherwise requires, “we”, “us”, “our”, “WestRock” and “the Company” refer to the business of WestRock
Company, its wholly-owned subsidiaries and its partially-owned consolidated subsidiaries.
We are a multinational provider of paper and packaging solutions for consumer and corrugated packaging markets. We partner
with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. Our team
members support customers around the world from operating and business locations spanning North America, South America,
Europe and Asia. We also develop real estate in the Charleston, SC region.
WestRock was formed on March 6, 2015 for the purpose of effecting the Combination and, prior to the Combination, did not
conduct any activities other than those incidental to its formation and the matters contemplated by the Business Combination
Agreement. On July 1, 2015, pursuant to the Business Combination Agreement, RockTenn and MWV completed a strategic
combination of their respective businesses. RockTenn and MWV each became wholly-owned subsidiaries of WestRock. RockTenn
was the accounting acquirer in the Combination. We believe the Combination has combined two industry leaders to create a premier
global provider of consumer and corrugated packaging solutions. The Combination is described in “Note 6. Merger, Acquisitions
and Investment”.
On May 15, 2016, WestRock completed the Separation. Ingevity is now an independent public company trading under the
symbol “NGVT” on the New York Stock Exchange. With the completion of the Separation, we disposed of our former Specialty
Chemicals segment in its entirety and ceased to consolidate its assets, liabilities and results of operations in our consolidated
financial statements. Accordingly, we have presented the financial position and results of operations of our former Specialty
Chemicals segment as discontinued operations in the accompanying consolidated financial statements for all periods presented.
See “Note 7. Discontinued Operations” for more information.
Consolidation
The consolidated financial statements include our accounts and the accounts of our partially-owned consolidated subsidiaries.
Equity investments in which we exercise significant influence but do not control and are not the primary beneficiary are accounted
for using the equity method. Investments in which we are not able to exercise significant influence over the investee are accounted
for under the cost method. Our equity and cost method investments are not significant either individually or in the aggregate. We
have eliminated all significant intercompany accounts and transactions. See “Note 20. Segment Information” for our equity
method investments.
Use of Estimates
Preparing consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ
from those estimates, and the differences could be material.
The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates
to evaluate the recoverability of goodwill, intangibles and property, plant and equipment, to determine the useful lives of assets
that are amortized or depreciated, and to measure income taxes, self-insured obligations, restructuring activities and allocate the
purchase price of an acquired business to the fair value of acquired assets and liabilities. In addition, significant estimates form
the basis for our reserves with respect to collectibility of accounts receivable, inventory valuations, pension benefits, deferred tax
asset valuation allowances and certain benefits provided to current employees. Various assumptions and other factors underlie the
determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account
factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial
techniques. We regularly evaluate these significant factors and make adjustments where facts and circumstances dictate.
60
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Common Stock Split
On August 27, 2014, we effected a two-for-one stock split of RockTenn’s Common Stock in the form of a 100% stock dividend
to shareholders of record as of August 12, 2014. All share and per share information prior to August 12, 2014 has been retroactively
adjusted to reflect the stock split. We recorded the incremental par value of the newly issued shares with the offset to additional
paid in capital.
Revenue Recognition
We recognize revenue when there is persuasive evidence that an arrangement exists, delivery has occurred or services have
been rendered, our price to the buyer is fixed or determinable and collectibility is reasonably assured. Delivery is not considered
to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition
is dependent on the location of title transfer which is normally either on the exit from our plants (i.e., shipping point) or on arrival
at customers’ plants (i.e., destination point). We do not recognize revenue from transactions where we bill customers, but retain
custody and title to these products until the date custody and title transfer. We do not have any significant multiple deliverable
revenue arrangements.
We net, against our gross sales, provisions for discounts, returns, allowances, customer rebates and other adjustments. We
account for such provisions during the same period in which we record the related revenues. We include in net sales any amounts
related to shipping and handling that are billed to a customer.
Shipping and Handling Costs
We classify shipping and handling costs as a component of cost of goods sold.
Cash Equivalents
We consider all highly liquid investments that mature three months or less from the date of purchase to be cash equivalents.
The carrying amounts we report in the consolidated balance sheets for cash and cash equivalents approximate fair market values.
We place our cash and cash equivalents with large credit worthy banks, which limits the amount of our credit exposure.
Accounts Receivable and Allowances
We perform periodic evaluations of our customers’ financial condition and generally do not require collateral. The weighted
average of our receivables collection is within 30 to 60 days. We sell certain receivables under our A/R Sales Agreement. We serve
a diverse customer base primarily in North America, South America, Europe and Asia, and, therefore, have limited exposure from
credit loss to any particular customer or industry segment.
We state accounts receivable at the amount owed by the customer, net of an allowance for estimated uncollectible accounts,
returns and allowances, cash discounts and other adjustments. We do not discount accounts receivable because we generally collect
accounts receivable over a relatively short time. We account for sales and other taxes that are imposed on and concurrent with
individual revenue-producing transactions between a customer and us on a net basis which excludes the taxes from our net sales.
We estimate our allowance for doubtful accounts based on our historical experience, current economic conditions and the credit
worthiness of our customers. We charge off receivables when they are determined to be no longer collectible. In fiscal 2016, we
recorded bad debt expense of $3.5 million. In fiscal 2015 we recorded a credit to bad debt expense of $2.4 million and in fiscal
2014 we recorded bad debt expense of $2.0 million.
The following table represents a summary of the changes in the reserve for allowance for doubtful accounts, returns and
allowances and cash discounts for fiscal 2016, 2015 and 2014 (in millions):
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reduction in sales and charges to costs and expenses . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
29.5
$
25.1
$
200.8
(193.8)
36.5
$
166.6
(162.2)
29.5
$
26.8
135.0
(136.7)
25.1
2016
2015
2014
61
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventories
We value substantially all U.S. inventories at the lower of cost or market, with cost determined on the LIFO basis. We value
all other inventories at the lower of cost or market, with cost determined using methods that approximate cost computed on a FIFO
basis. These other inventories represent primarily foreign inventories, spare parts inventories, dispensing inventories and certain
inventoried supplies and aggregate to approximately 35% and 31% of FIFO cost of all inventory at September 30, 2016 and 2015,
respectively.
Prior to the application of the LIFO method, our U.S. operating divisions use a variety of methods to estimate the FIFO cost
of their finished goods inventories. Such methods include standard costs, or average costs computed by dividing the actual cost
of goods manufactured by the tons produced and multiplying this amount by the tons of inventory on hand. Lastly, certain operations
calculate a ratio, on a plant by plant basis, the numerator of which is the cost of goods sold and the denominator is net sales. This
ratio is applied to the estimated sales value of the finished goods inventory. Variances and other unusual items are analyzed to
determine whether it is appropriate to include those items in the value of inventory. Examples of variances and unusual items that
are considered to be current period charges include, but are not limited to, abnormal production levels, freight, handling costs,
and wasted materials (spoilage). Cost includes raw materials and supplies, direct labor, indirect labor related to the manufacturing
process and depreciation and other factory overheads. Our inventoried spare parts are measured at average cost.
Property, Plant and Equipment
We state property, plant and equipment at cost. Cost includes major expenditures for improvements and replacements that
extend useful lives, increase capacity, increase revenues or reduce costs. During fiscal 2016, 2015 and 2014, we capitalized interest
of approximately $7.6 million, $4.0 million and $2.6 million, respectively. For financial reporting purposes, we provide depreciation
and amortization primarily on a straight-line method generally over the estimated useful lives of the assets as follows:
Buildings and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15-40 years
3-25 years
3-8 years
Generally, our machinery and equipment have estimated useful lives between 3 and 25 years; however, select portions of
machinery and equipment primarily at our mills have estimated useful lives up to 44 years. Greater than 90% of the cost of our
mill assets have lives of 25 years or less. Leasehold improvements are depreciated over the shorter of the asset life or the lease
term, generally between 3 and 10 years.
Goodwill and Long-Lived Assets
We review the carrying value of our goodwill annually at the beginning of the fourth quarter of each fiscal year, or more often
if events or changes in circumstances indicate that the carrying amount may exceed fair value as set forth in ASC 350, “Intangibles
— Goodwill and Other.” See “Note 7. Discontinued Operations” for information on the first quarter of fiscal 2016 goodwill
impairment test and resulting charge. We test goodwill for impairment at the reporting unit level, which is an operating segment
or one level below an operating segment, 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 segment 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. The amount of goodwill acquired in a
business combination that is assigned to one or more reporting units as of the acquisition date is the excess of the purchase price
of the acquired businesses (or portion thereof) included in the reporting unit, over the fair value assigned to the individual assets
acquired or liabilities assumed. Goodwill is assigned to the reporting unit(s) expected to benefit from the synergies of the
combination even though other assets or liabilities of the acquired entity may not be assigned to that reporting unit. We determine
recoverability by comparing the estimated fair value of the reporting unit to which the goodwill applies to the carrying value,
including goodwill, of that reporting unit using a discounted cash flow model.
The goodwill impairment model is a two-step process. An amendment to ASC 350 became effective December 2011 that
allows a qualitative assessment, prior to step one, to determine whether it is more likely than not that the fair value of a reporting
unit exceeds its carrying amount. We did not attempt a qualitative assessment and moved directly to step one. In step one, we
utilize the present value of expected net cash flows to determine the estimated fair value of our reporting units. This present value
62
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
model requires management to estimate future net cash flows, the timing of these cash flows, and a discount rate (based on a
weighted average cost of capital), which represents the time value of money and the inherent risk and uncertainty of the future
cash flows. Factors that management must estimate when performing this step in the process include, among other items, sales
volume, prices, inflation, discount rates, exchange rates, tax rates, anticipated synergies and productivity improvements resulting
from acquisitions, capital expenditures and continuous improvement projects. The assumptions we use to estimate future cash
flows are consistent with the assumptions that the reporting units use for internal planning purposes, updated to reflect current
expectations. If we determine that the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not impaired. If we determine that the carrying amount of the reporting unit exceeds its estimated fair value, we
would complete step two of the impairment analysis. Step two involves determining the implied fair value of the reporting unit’s
goodwill and comparing it to the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds
the implied fair value of that goodwill, we recognize an impairment loss in an amount equal to that excess.
As a result of the fiscal 2015 Combination and the corresponding fair value accounting, several of our reporting units’ fair
value exceeds their carrying value by a limited margin. During the fourth quarter of fiscal 2016, of reporting units that have
goodwill, our Consumer Packaging and Brazil Corrugated reporting units had a fair value which exceeded their carrying value
by less than 10%. If we had concluded that it was appropriate to increase the discount rate we used by 100 basis point to estimate
the fair value of each reporting unit that has goodwill, the fair value for each of our reporting units would have continued to exceed
its carrying value except for the Consumer Packaging and Brazil Corrugated reporting units. No events have occurred since the
latest annual goodwill impairment assessment that would necessitate an interim goodwill impairment assessment.
We follow the provisions included in ASC 360, “Property, Plant and Equipment” in determining whether the carrying value
of any of our long-lived assets, including amortizing intangibles other than goodwill, is impaired. The ASC 360 test is a three-
step test for assets that are “held and used” as that term is defined by ASC 360. We determine whether indicators of impairment
are present. We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount
of the long-lived asset might not be recoverable. If we determine that indicators of impairment are present, we determine whether
the estimated undiscounted cash flows for the potentially impaired assets are less than the carrying value. This requires management
to estimate future net cash flows through operations over the remaining useful life of the asset and its ultimate disposition. The
assumptions we use to estimate future cash flows are consistent with the assumptions we use for internal planning purposes,
updated to reflect current expectations. If our estimated undiscounted cash flows do not exceed the carrying value, we estimate
the fair value of the asset and record an impairment charge if the carrying value is greater than the fair value of the asset. We
estimate fair value using discounted cash flows, observable prices for similar assets, or other valuation techniques. We record
assets classified as “held for sale” at the lower of their carrying value or estimated fair value less anticipated costs to sell.
Included in our long-lived assets are certain identifiable intangible assets. These intangible assets are amortized based on the
approximate pattern in which the economic benefits are consumed or straight-line if the pattern was not reliably determinable.
Estimated useful lives range from 1 to 40 years and have a weighted average life of approximately 17.9 years.
Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational
performance. Future events could cause us to conclude that impairment indicators exist and that assets associated with a particular
operation are impaired. Evaluating impairment also requires us to estimate future operating results and cash flows, which also
require judgment by management. Any resulting impairment loss could have a material adverse impact on our financial condition
and results of operations.
Restructuring
Our restructuring and other costs, net include primarily items such as restructuring portions of our operations, acquisition
costs, integration costs and divestiture costs. We have restructured portions of our operations from time to time, have current
restructuring initiatives taking place, and it is possible that we may engage in future restructuring activities. Identifying and
calculating the cost to exit these operations requires certain assumptions to be made, the most significant of which are anticipated
future liabilities, including leases and other contractual obligations, and the adjustment of property, plant and equipment to net
realizable value. We believe our estimates are reasonable, considering our knowledge of the industries we operate in, previous
experience in exiting activities and valuations we may obtain from independent third parties. Although our estimates have been
reasonably accurate in the past, significant judgment is required, and these estimates and assumptions may change as additional
information becomes available and facts or circumstances change.
63
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Combinations
From time to time, we may enter into business combinations. In accordance with ASC 805, “Business Combinations”, we
generally recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their
fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure
at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition
method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a
business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset
valuation allowances, liabilities related to uncertain tax positions, contingent consideration and contingencies. This method also
requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about
facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts
recognized as of that date. If we are required to retroactively adjust provisional amounts that we have recorded for the fair values
of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition
and results of operations.
Significant estimates and assumptions in estimating the fair value of acquired technology, customer relationships, and other
identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual
results and updated projections of the underlying business activity change compared with the assumptions and projections used
to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired
assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change,
depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.
Fair Value of Financial Instruments and Nonfinancial Assets and Liabilities
We estimate fair values in accordance with ASC 820 “Fair Value Measurement.” We define fair value as the price that would
be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date.
Financial instruments not recognized at fair value on a recurring or nonrecurring basis include cash and cash equivalents,
accounts receivables, certain other current assets, short-term debt, accounts payable, certain other current liabilities and long-term
debt. With the exception of long-term debt, the carrying amounts of these financial instruments approximate their fair values due
to their short maturities. The fair values of our long-term debt are estimated using quoted market prices or are based on the
discounted value of future cash flows. We disclose the fair value of long-term debt and our pension and postretirement assets and
liabilities in “Note 10. Debt” and “Note 14. Retirement Plans”. We have, or from time to time may have, financial instruments
recognized at fair value including Supplemental Plans that are nonqualified deferred compensation plans pursuant to which assets
are invested primarily in mutual funds, interest rate derivatives, commodity derivatives or other similar class of assets or liabilities,
the fair value of which are not significant. We measure the fair value of our mutual fund investments based on quoted prices in
active markets, and our derivative contracts, if any, based on discounted cash flows.
We measure certain nonfinancial assets and nonfinancial liabilities at fair value on a nonrecurring basis. These assets and
liabilities include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired
and liabilities assumed in a merger or an acquisition or in a nonmonetary exchange, and property, plant and equipment and goodwill
and other intangible assets that are written down to fair value when they are held for sale or determined to be impaired. Given the
nature of nonfinancial assets and liabilities, evaluating their fair value from the perspective of a market participant is inherently
complex. Assumptions and estimates about future values can be affected by a variety of internal and external factors. Changes in
these factors may require us to revise our estimates and could result in future impairment charges for goodwill and acquired
intangible assets, or retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in
connection with business combinations. These adjustments could have a material impact on our financial condition and results of
operations. We discuss fair values in more detail in “Note 11. Fair Value”.
Derivatives
We are exposed to interest rate risk, commodity price risk and foreign currency exchange risk. To manage these risks, from
time to time and to varying degrees, we may enter into a variety of financial derivative transactions and certain physical commodity
transactions that are determined to be derivatives. Interest rate swaps may be entered into to manage the interest rate risk associated
with a portion of our outstanding debt. Interest rate swaps are either designated for accounting purposes as cash flow hedges of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
forecasted floating interest payments on variable rate debt or fair value hedges of fixed rate debt, or we may elect not to treat them
as accounting hedges. Swaps or forward contracts on certain commodities may be entered into to manage the price risk associated
with forecasted purchases or sales of those commodities. In addition, certain commodity financial derivative contracts and physical
commodity contracts that are determined to be derivatives may not be designated as accounting hedges because either they do not
meet the criteria for treatment as accounting hedges under ASC 815, “Derivatives and Hedging”, or we elect not to treat them as
accounting hedges under ASC 815. We may also enter into forward contracts to manage our exposure to fluctuations in foreign
currency rates with respect to transactions denominated in currencies such as Canadian dollars, the Euro or Brazilian Real.
Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to
the agreements. Our credit exposure related to these financial instruments is represented by the fair value of contracts reported as
assets. We manage our exposure to counterparty credit risk through minimum credit standards, diversification of counterparties
and procedures to monitor concentrations of credit risk. We may enter into financial derivative contracts that may contain credit-
risk-related contingent features which could result in a counterparty requesting immediate payment or demanding immediate and
ongoing full overnight collateralization on derivative instruments in net liability positions.
For financial derivative instruments that are designated as a cash flow hedge for accounting purposes, the effective portion
of the gain or loss on the financial derivative instrument is reported as a component of other comprehensive income and reclassified
into earnings in the same line item associated with the forecasted transaction, and in the same period or periods during which the
forecasted transaction affects earnings. Gains and losses on the financial derivative representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness are recognized in current earnings.
We have at times entered into interest rate swap agreements that effectively modified our exposure to interest rate risk by
converting a portion of our interest payments on floating rate debt to a fixed rate basis, thus reducing the impact of interest rate
changes on future interest expense. These agreements typically involved the receipt of floating rate amounts in exchange for fixed
interest rate payments over the life of the agreements without an exchange of the underlying principal amount.
At September 30, 2016, there were no foreign currency, interest rate or commodity derivatives outstanding. At September 30,
2015, the notional amount of foreign currency derivative instruments outstanding used to hedge inter-company loans was $90.2
million. These instruments were not designated as hedges.
Health Insurance
We are self-insured for the majority of our group health insurance costs. However, we seek to limit our health insurance costs
by entering into certain stop loss insurance coverage. Due to mergers, acquisitions and other factors, we may have plans that do
not include stop loss insurance. We calculate our group health insurance reserve on an undiscounted basis based on estimated
reserve rates. We utilize claims lag data provided by our claims administrators to compute the required estimated reserve rate. We
calculate our average monthly claims paid using the actual monthly payments during the trailing 12-month period. At that time,
we also calculate our required reserve using the reserve rates discussed above. While we believe that our assumptions are appropriate,
significant differences in our actual experience or significant changes in our assumptions may materially affect our group health
insurance costs.
Workers’ Compensation
We purchase large risk deductible workers’ compensation policies for the majority of our workers’ compensation liabilities
that are subject to various deductibles to limit our exposure. We calculate our workers’ compensation reserves on an undiscounted
basis based on estimated actuarially calculated development factors. While we believe that our assumptions are appropriate,
significant differences in our actual experience or significant changes in our assumptions may materially affect our workers'
compensation costs.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and
tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
date. All deferred tax assets and liabilities are classified as noncurrent in our consolidated balance sheet in accordance with ASU
2015-17. We adopted these provisions prospectively on December 31, 2015, and prior periods were not retrospectively adjusted.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such
determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary
differences, projected future taxable income, tax planning strategies, recent financial operations and their associated valuation
allowances, if any. In the event we were to determine that we would be able to realize or not realize our deferred income tax assets
in the future in their net recorded amount, we would make an adjustment to the valuation allowance, which would reduce or
increase the provision for income taxes, respectively.
Certain provisions of ASC 740, “Income Taxes” provide that a tax benefit from an uncertain tax position may be recognized
when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals
or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition threshold
at the effective date to be recognized upon the adoption of these provisions and in subsequent periods. See “Note 13. Income
Taxes.”
Pension and Other Postretirement Benefits
We account for pension and other postretirement benefits in accordance with ASC 715, “Compensation — Retirement Benefits”.
Accordingly, we recognize the funded status of our pension plans as assets or liabilities in our consolidated balance sheets. The
funded status is the difference between our projected benefit obligations and fair value of plan assets. The determination of our
obligation and expense for pension and other postretirement benefits is dependent on our selection of certain assumptions used
by actuaries in calculating such amounts. We describe these assumptions in “Note 14. Retirement Plans,” which include, among
others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation levels. As provided
under ASC 715, we defer actual results that differ from our assumptions, i.e. actuarial gains and losses, and amortize the difference
over future periods. Therefore, these differences generally affect our recognized expense and funding requirements in future
periods. Actuarial gains and losses occur when actual experience differs from the estimates used to determine the components of
net periodic pension cost and when certain assumptions used to determine the fair value of the plan assets or projected benefit
obligation are updated, such as but not limited to, changes in the discount rate, plan amendments, differences between actual and
expected returns on plan assets, mortality assumptions and plan remeasurement.
The amount of unrecognized actuarial gains and losses recognized in the current year’s operations is based on amortizing the
unrecognized gains or losses for each plan that exceed the larger of 10% of the projected benefit obligation or the fair value of
plan assets, also known as “the corridor”. The amount of unrecognized gain or loss that exceeds the corridor is amortized over the
average future service of the plan participants or the average life expectancy of inactive plan participants for plans where all or
almost all of the plan participants are inactive. While we believe that our assumptions are appropriate, significant differences in
our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement benefit
obligations and our future expense.
Share-Based Compensation
We recognize expense for share-based compensation plans based on the estimated fair value of the related awards in accordance
with ASC 718, “Compensation — Stock Compensation”. Pursuant to our incentive stock plans, we can grant options and restricted
stock, stock appreciation rights and restricted stock units to employees and our non-employee directors. The grants generally vest
over a period of up to three years depending on the nature of the award, except for non-employee director grants, which typically
vest over a period of up to one year. Our restricted stock grants to employees generally contain performance or market conditions
that must be met in conjunction with a service requirement for the shares to vest. We charge compensation under the plan to
earnings over each increment’s individual restriction period. See “Note 16. Share-Based Compensation” for additional
information.
Asset Retirement Obligations
The Company accounts for asset retirement obligations in accordance with ASC 410, “Asset Retirement and Environmental
Obligations”. A liability and an 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 related asset. Upon settlement of the liability, we will
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Our asset retirement
obligations consist primarily of landfill closure and post-closure costs at certain of our mills. At September 30, 2016 and
September 30, 2015, we had recorded liabilities of $78.9 million and $58.4 million, respectively. The increase in fiscal 2016 was
primarily attributable to the refinement of asset retirement obligations during the measurement period associated with the
Combination and liabilities associated with the SP Fiber Acquisition.
Repair and Maintenance Costs
We expense routine repair and maintenance costs as we incur them. We defer expenses we incur during planned major
maintenance activities and recognize the expenses ratably over the shorter of the estimated interval until the next major maintenance
activity or the life of the deferred item. This maintenance is generally performed every twelve to twenty-four months and has a
significant impact on our results of operations in the period performed primarily due to lost production during the maintenance
period.
Foreign Currency
We translate the assets and liabilities of our foreign operations from their functional currency into U.S. dollars at the rate of
exchange in effect as of the balance sheet date. We reflect the resulting translation adjustments in equity. We translate the revenues
and expenses of our foreign operations at a daily average rate prevailing for each month during the fiscal year. We include gains
or losses from foreign currency transactions, such as those resulting from the settlement of foreign receivables or payables, in the
consolidated statements of operations. We recorded a loss on foreign currency transactions of $6.5 million in fiscal 2016, and we
recorded a gain on foreign currency transactions of $2.9 million and $4.2 million in fiscal 2015 and 2014, respectively.
Environmental Remediation Costs
We accrue for losses associated with our environmental remediation obligations when it is probable that we have incurred a
liability and the amount of the loss can be reasonably estimated. We generally recognize accruals for estimated losses from our
environmental remediation obligations no later than completion of the remedial feasibility study and adjust such accruals as further
information develops or circumstances change. We recognize recoveries of our environmental remediation costs from other parties
as assets when we deem their receipt probable. See “Note 18. Commitments and Contingencies.”
New Accounting Standards - Recently Adopted
In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-Period Adjustments”, which
amends certain provisions of ASC 805 “Business Combinations”. The ASU mandates that measurement-period adjustments be
recorded by the acquirer in the period these amounts are determined, and eliminates the requirement to record them retrospectively.
These provisions are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal
years, applied prospectively to open measurement periods. We adopted these provisions on October 1, 2016, and the adoption of
these provisions did not have a material effect on our consolidated financial statements.
In May 2015, the FASB issued ASU 2015-07 “Disclosures for Investments in Certain Entities That Calculate Net Asset Value
per Share”. The ASU amends ASC 820 “Fair Value Measurement” and eliminates the requirement to categorize within the fair
value hierarchy investments for which fair value is measured using the net asset value (or its equivalent) practical expedient.
Investments for which fair value is measured at net asset value per share using the practical expedient should not be categorized
in the fair value hierarchy. However, disclosures on investments for which fair value is measured at net asset value as a practical
expedient should continue to be disclosed to help users understand the nature and risks of the investments and whether the
investments, if sold, are probable of being sold at amounts different from net asset value. The ASU is effective for annual periods,
and for interim periods within those annual periods, beginning after December 15, 2015. We adopted these provisions retrospectively
as required to all prior periods presented on October 1, 2016, and the adoption of these provisions did not have a material effect
on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05 “Customers Accounting for Fees Paid in a Cloud Computing Arrangement”,
which amends ASC 350 “Intangibles-Goodwill and Other Internal-Use Software”. The ASU requires entities to record a software
license intangible asset if a hosting arrangement for internal-use software allows the entity to take possession of the software, and
it is feasible that the entity can run the software on its own hardware, or contract a vendor to host the software. These provisions
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. We adopted
these provisions on October 1, 2016, and the adoption of these provisions did not have a material effect on our consolidated
financial statements.
In April 2015, the FASB issued ASU 2015-04 “Practical Expedient for the Measurement Date of an Employer’s Defined
Benefit Obligation and Plan Assets”. The ASU amends ASC 715 “Retirement Plans” and allows entities to use a practical expedient
to measure defined benefit plan assets and obligations using a month-end that is closest to the entity’s fiscal year end, as well as
the option to use the closest date to a significant event when plan assets and obligations are remeasured. These provisions are
effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2015. Early
application is permitted. We adopted these provisions on October 1, 2016, and the adoption of these provisions did not have a
material effect on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02 “Consolidation-Amendments to the Consolidation Analysis”, which amends
certain provisions of ASC 810 “Consolidation”. The amendment requires the consideration of additional criteria in (i) the analysis
and determination of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities
and (ii) primary beneficiary determinations. The ASU also eliminates certain fees from the consolidation analysis of reporting
entities that are involved with variable interest entities. The ASU is effective for annual periods, and for interim periods within
those annual periods, beginning after December 15, 2015. We adopted these provisions on October 1, 2016, and the adoption of
these provisions did not have a material effect on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17 “Balance Sheet Classification of Deferred Taxes”, which amends certain
provisions of ASC 740 “Income Taxes”. The ASU requires that all deferred tax liabilities and assets be classified as noncurrent in
a classified statement of financial position. In addition, companies will no longer allocate valuation allowances between current
and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. The ASU is effective for annual
periods, and for interim periods within those annual periods, beginning after December 15, 2016. Early adoption was permitted
for all companies in any interim or annual period. The guidance may be adopted on either a prospective or retrospective basis. We
adopted these provisions prospectively on December 31, 2015, and prior periods were not retrospectively adjusted. The adoption
did not have a material effect on our consolidated financial statements.
New Accounting Standards - Recently Issued
In August 2016, the FASB issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments”, which amends
the guidance in ASC 230, “Statement of Cash Flows”. The ASU clarifies how entities should classify certain cash receipts and
cash payments on the statement of cash flows for following transactions: debt prepayment or extinguishment costs, settlement of
zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest
rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of
insurance claims, proceeds from the settlement of corporate-owned life insurance, distributions received from equity method
investees and beneficial interest in securitization transactions. The ASU also clarifies how the predominance principle should be
applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance requires retrospective
adoption and is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
Early adoption is permitted and an entity that elects early adoption must adopt all of the amendments in the period. We expect to
adopt these provisions on October 1, 2018, including interim periods subsequent to the date of adoption. We are evaluating the
impact of these provisions.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit losses: Measurement of Credit Losses on
Financial Instruments”, which amends certain provisions of ASU 326, “Financial Instruments-Credit Loss”. The ASU changes
the impairment model for most financial assets and certain other instruments. For trade and other receivables, held to maturity
debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that
generally will result in the earlier recognition of allowances for losses. For available for sale debt securities with unrealized losses,
entities will be required to measure credit losses in a manner similar to what they do today, except that losses will be recognized
as allowances rather than reductions in the amortized cost of the securities. Additionally, entities will have to disclose significantly
more information, including information used to track credit quality by year or origination for most financing receivables. The
ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual
periods, and will be applied as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period
for which the guidance is effective. We expect to adopt these provisions on October 1, 2020, including interim periods subsequent
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to the date of adoption. We do not expect that the adoption of these provisions will have a material effect on our consolidated
financial statements.
In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customer, Narrow-Scope Improvements and
Practical Expedients”, which amends its new revenue recognition guidance on transitioning to the new revenue recognition
standard, collectibility, non-cash consideration and the presentation of sales and other similar taxes. The ASU clarifies that, for a
contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy
GAAP. The ASU also clarifies how an entity should evaluate the collectibility threshold and when an entity can recognize
nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The ASU is
effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods,
and can be applied using a full retrospective or modified retrospective approach. We expect to adopt these provisions on October
1, 2018, including interim periods subsequent to the date of adoption. We are evaluating the impact of these provisions.
In March 2016, the FASB issued ASU 2016-09 “Compensation - Stock Compensation: Improvements To Employee Share-
Based Payment Accounting”, which amends certain provisions of ASU 718, “Compensation - Stock Compensation”. The ASU
will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also
will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering
liability accounting and to make a policy election to account for forfeitures as they occur. The provisions are effective for fiscal
years beginning after December 15, 2016, including interim periods within those fiscal years. We expect to adopt these provisions
on October 1, 2017, and based on our current stock compensation awards, the adoption is not expected to have a material effect
on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customer, Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)” to clarify the principal versus agent guidance in its new revenue recognition standard. The
amendments clarify how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should
apply the control principle to certain types of arrangements, such as service transactions. These provisions also clarify the indicators
to determine when an entity is acting as a principal or an agent. The ASU is effective for annual reporting periods beginning after
December 15, 2017, including interim periods within those annual periods, and can be applied using a full retrospective or modified
retrospective approach. We expect to adopt these provisions on October 1, 2018, including interim periods subsequent to the date
of adoption. We are evaluating the impact of these provisions.
In March 2016, the FASB issued ASU 2016-07 “Investments - Equity Method and Joint Ventures: Simplifying the Transition
to the Equity Method of Accounting”, which amends certain provisions of ASU 323 “Investments-Equity Method and Joint
Ventures”. The ASU eliminates the requirement that an investor retrospectively apply equity method accounting when an investment
that it had accounted for by another method initially qualifies for the equity method. The guidance will be applied prospectively
and is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We expect
to adopt these provisions on October 1, 2017, including interim periods subsequent to the date of adoption. We do not expect that
the adoption of these provisions will have a material effect on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-05 “Derivatives and Hedging - Effect of Derivative Contract Novations on Existing
Hedge Accounting Relationships”, which amends certain provisions of ASU 815 “Derivatives and Hedging”. The ASU clarifies
that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under ASC 815 does
not, in and of itself, require de-designation of the instrument if all other hedge criteria continue to be met. These provisions are
effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and can be adopted
using a prospective or modified retrospective approach. Early adoption is permitted. We expect to adopt these provisions on
October 1, 2017, including interim periods subsequent to the date of adoption, and do not expect that these provisions will have
a material effect on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases”, which is codified in ASC 842 “Leases” and supersedes current
lease guidance in ASC 840. These provisions require lessees to put a right-of-use asset and lease liability on their balance sheet
for operating and financing leases that have a term of more than one year. Expense will be recognized in the income statement
similar to current accounting guidance. For lessors, the ASU modifies the classification criteria and the accounting for sales-type
and direct financing leases. Entities will need to disclose qualitative and quantitative information about their leases, including
characteristics and amounts recognized in the financial statements. These provisions are effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We expect to adopt these
provisions on October 1, 2019, including interim periods subsequent to the date of adoption. Entities are required to use a modified
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
retrospective approach upon adoption to recognize and measure leases at the beginning of the earliest comparative period presented
in the financial statements. We are evaluating the impact of these provisions.
In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory”, which amends certain provisions
of ASC 330 “Inventory”. The ASU requires inventory to be measured at the lower of cost and net realizable value. These provisions
do not apply to inventory that is measured using LIFO or the retail inventory method. These provisions apply to all other inventory,
which includes inventory that is measured using FIFO or average cost. These provisions are effective for fiscal years beginning
after December 15, 2016, including interim periods within those fiscal years, applied prospectively. Early adoption is permitted
as of the beginning of an interim or annual reporting period. We expect to adopt these provisions on October 1, 2017, including
interim periods subsequent to the date of adoption, prospectively. Given that the majority of our inventory is measured using LIFO,
we do not expect that the adoption of these provisions will have a material effect on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09 which is codified in ASC 606 “Revenue from Contracts with Customers” and
supersedes both the revenue recognition requirement to ASC 605 “Revenue Recognition” and most industry-specific guidance.
The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. To achieve that core principle, an entity should apply the five steps set forth in ASC 606. An entity must also disclose
sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers, including qualitative and quantitative information about contracts with
customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date,” which
deferred the effective date of ASU 2014-09 by one year. Therefore, these provisions are effective for annual reporting periods
beginning after December 15, 2017 (October 1, 2018 for us), including interim periods within that annual period, and can be
applied using a full retrospective or modified retrospective approach. We expect to adopt these provisions on October 1, 2018,
including interim periods subsequent to the date of adoption. We are evaluating the impact of these provisions.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 2. Earnings per Share
Our restricted stock awards granted to non-employee directors are considered participating securities as they receive non-
forfeitable rights to dividends at the same rate as our Common Stock. As participating securities, we include these instruments in
the earnings allocation in computing earnings per share under the two-class method described in ASC 260 “Earnings per Share.”
The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in millions,
except per share data):
September 30,
2016
2015
2014
Basic earnings per share:
Numerator:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net income from continuing operations attributable to noncontrolling
interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income available to common stockholders, before discontinued operations. .
Less: Distributed and undistributed income available to participating
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributed and undistributed income attributable to common stockholders,
before discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations(1) . . . . . . . . . . . . . . . . . . . . . . . .
154.8
$
501.2
$
483.8
(2.1)
152.7
—
152.7
(549.0)
(3.3)
497.9
—
497.9
9.2
(4.1)
479.7
(0.1)
479.6
—
Net (loss) income attributable to common stockholders . . . . . . . . . . . . . . . . . $
(396.3) $
507.1
$
479.6
Denominator:
Basic weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
254.0
170.6
143.6
Basic earnings per share from continuing operations . . . . . . . . . . . . . . . . . . . . . . $
Basic (loss) earnings per share from discontinued operations . . . . . . . . . . . . . . . .
Basic (loss) earnings per share attributable to common stockholders . . . . . . . . . . $
$
0.60
(2.16)
(1.56) $
2.92
0.05
2.97
$
$
3.34
—
3.34
Diluted earnings per share:
Numerator:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net income from continuing operations attributable to noncontrolling
interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income available to common stockholders, before discontinued operations. .
Less: Distributed and undistributed income available to participating
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributed and undistributed income (loss) attributable to common
stockholders, before discontinued operations. . . . . . . . . . . . . . . . . . . . . . . .
(Loss) Income from discontinued operations(1) . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income attributable to common stockholders . . . . . . . . . . . . . . . . . $
Denominator:
Basic weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive stock options and non-participating securities . . . . . . . . . . .
Diluted weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . .
(2.1)
152.7
—
152.7
(549.0)
(396.3) $
254.0
3.9
257.9
Diluted earnings per share from continuing operations . . . . . . . . . . . . . . . . . . . . . $
Diluted (loss) earnings per share from discontinued operations . . . . . . . . . . . . . .
Diluted (loss) earnings per share attributable to common stockholders . . . . . . . . $
$
0.59
(2.13)
(1.54) $
71
154.8
$
501.2
$
483.8
(3.3)
497.9
—
497.9
9.2
507.1
170.6
2.7
173.3
2.87
0.06
2.93
$
$
$
(4.1)
479.7
(0.1)
479.6
—
479.6
143.6
2.4
146.0
3.29
—
3.29
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1) Net of income attributable to noncontrolling interests of discontinued operations of $4.3 million and $1.4 million for the fiscal
years ended September 30, 2016 and 2015.
Weighted average shares includes 0.3 million of reserved, but unissued shares at September 30, 2016 and 2015. These reserved
shares will be distributed as claims are liquidated or resolved in accordance with the resolution of Smurfit-Stone bankruptcy claims.
Options and restricted stock in the amount of 1.6 million, 0.4 million and 0.5 million common shares in fiscal 2016, 2015
and 2014, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive.
The dilutive impact of the remaining awards outstanding in each year were included in the effect of dilutive securities.
Note 3. Accumulated Other Comprehensive Loss and Other Comprehensive (Loss) Income
The following table summarizes the changes in accumulated other comprehensive loss by component for the fiscal years
ended September 30, 2016 and 2015 (in millions):
Balance at September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive loss before reclassifications . . . . . . .
Amounts reclassified from accumulated other
comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive loss. . . . . . . . . . . .
Balance at September 30, 2015 . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive loss(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive income . . . . . . . . .
Separation of Specialty Chemicals business . . . . . . . . . . . .
0.4
(1.2)
(1.4)
(0.4)
1.2
0.8
0.4
Deferred
Loss on
Cash Flow
Hedges
Defined
Benefit
Pension and
Postretirement
Plans
Foreign
Currency
Items
(0.2) $
(1.6)
(498.2) $
(67.6)
$
3.1
(241.2)
Total (1)
(495.3)
(310.4)
25.5
(284.9)
(780.2)
25.1
(42.5)
(540.7)
—
(241.2)
(238.1)
(222.2)
109.9
(112.7)
237.2
15.0
1.9
20.2
130.1
5.6
258.6
145.9
7.9
Balance at September 30, 2016 . . . . . . . . . . . . . . . . . . . . . $
(0.2) $
(523.8) $
(102.4) $
(626.4)
(1) All amounts are net of tax and noncontrolling interest.
(2) Amounts reclasssified from accumulated other comprehensive loss for defined benefit pension and postretirement
plans in fiscal 2016 includes the pension risk transfer expense, net of tax.
72
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the reclassifications out of accumulated other comprehensive loss by component for the
fiscal years ended September 30, 2016 and 2015 (in millions):
Years Ended September 30,
2016
2015
Pretax
Tax
Net of
Tax
Pretax
Tax
Net of
Tax
Amortization of defined benefit pension and
postretirement items: (1)
Actuarial losses(2)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (379.4) $ 143.2
Prior service (costs) credits (2) . . . . . . . . . . . . . . . . . .
0.7
Subtotal defined benefit plans . . . . . . . . . . . . . . . . . . . .
(1.7)
(381.1)
143.9
$ (236.2) $ (47.7) $
(1.0)
(237.2)
7.6
(40.1)
17.9
(2.9)
15.0
$ (29.8)
4.7
(25.1)
Foreign currency translation adjustments: (1)
Sale of foreign subsidiary (3) . . . . . . . . . . . . . . . . . . .
(20.2)
—
(20.2)
—
—
—
Derivative Instruments: (1)
Commodity currency cash flow hedges(4) . . . . . . . . .
Foreign currency cash flow hedges(5) . . . . . . . . . . . .
Subtotal derivative instruments . . . . . . . . . . . . . . . . . . .
(1.5)
(0.4)
(1.9)
0.5
0.2
0.7
(1.0)
(0.2)
(1.2)
—
(0.7)
(0.7)
—
0.3
0.3
—
(0.4)
(0.4)
Total reclassifications for the period . . . . . . . . . . . . . $ (403.2) $ 144.6
$ (258.6) $ (40.8) $
15.3
$ (25.5)
(1) Amounts in parentheses indicate charges to earnings. Amounts pertaining to noncontrolling interests are excluded.
(2) These accumulated other comprehensive income components are included in the computation of net periodic pension
cost. See “Note 14. Retirement Plans” for additional details.
(3) These accumulated other comprehensive income components are included interest income and other income
(expense), net.
(4) These accumulated other comprehensive income components are included in cost of goods sold.
(5) These accumulated other comprehensive income components are included in net sales.
(6) Fiscal 2016 includes pension risk transfer expense.
73
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the components of other comprehensive (loss) income, including the noncontrolling interest, for the years
ended September 30, 2016, 2015 and 2014, is as follows (in millions):
Fiscal 2016
Foreign currency translation gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred loss on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment of net loss on cash flow hedges included in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss arising during period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and settlement recognition of net actuarial loss(1) . . . . . . . . . . . .
Prior service credit arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of foreign subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated other comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Other comprehensive loss attributable to noncontrolling interests . . . . .
Other comprehensive income attributable to common stockholders . . . . . . . . $
Fiscal 2015
Foreign currency translation loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred loss on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment of net loss on cash flow hedges included in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss arising during period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and settlement recognition of net actuarial loss . . . . . . . . . . . . .
Prior service cost arising during period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Other comprehensive loss attributable to noncontrolling interests . . . . .
Other comprehensive loss attributable to common stockholders . . . . . . . . . . . $
Pre-Tax
Amount
Tax
Net of Tax
Amount
$
109.8
(0.7)
— $
0.3
1.9
(354.0)
379.7
2.3
1.8
20.2
161.0
0.7
161.7
$
(0.7)
129.4
(143.2)
(0.9)
(0.7)
—
(15.8)
—
(15.8) $
109.8
(0.4)
1.2
(224.6)
236.5
1.4
1.1
20.2
145.2
0.7
145.9
Pre-Tax
Amount
Tax
Net of Tax
Amount
(242.0) $
(2.6)
0.7
(81.5)
48.1
(25.0)
(7.5)
(309.8)
0.6
(309.2) $
— $
1.0
(0.3)
28.9
(17.8)
9.6
2.9
24.3
—
24.3
$
(242.0)
(1.6)
0.4
(52.6)
30.3
(15.4)
(4.6)
(285.5)
0.6
(284.9)
Fiscal 2014
Foreign currency translation loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net actuarial loss arising during period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and settlement recognition of net actuarial loss . . . . . . . . . . . . .
Prior service credit arising during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Other comprehensive loss attributable to noncontrolling interests . . . . .
Other comprehensive loss attributable to common stockholders . . . . . . . . . . . $
Pre-Tax
Amount
Tax
Net of Tax
Amount
(29.9) $
(333.3)
63.9
12.4
(0.2)
(287.1)
1.1
(286.0) $
— $
120.5
(24.5)
(4.8)
0.1
91.3
—
91.3
$
(29.9)
(212.8)
39.4
7.6
(0.1)
(195.8)
1.1
(194.7)
(1)
Includes pension risk transfer expense.
74
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 4.
Inventories
Inventories are as follows (in millions):
September 30,
2016
2015
Finished goods and work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies and spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories at FIFO cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIFO reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
800.6
535.7
335.7
1,672.0
(33.8)
1,638.2
$
$
859.7
652.3
322.4
1,834.4
(73.4)
1,761.0
It is impracticable to segregate the LIFO reserve between raw materials, finished goods and work in process. In fiscal 2016
and 2015, we reduced inventory quantities in some of our LIFO pools. This reduction results in a liquidation of LIFO inventory
quantities generally carried at lower costs prevailing in prior years as compared with the cost of the purchases in the respective
fiscal years, the effect of which typically decreases cost of goods sold. The impact of the liquidations in fiscal 2016 and 2015 was
not significant. In fiscal 2014 we had no LIFO layer liquidations.
In fiscal 2013, we identified spare parts that were not recorded in inventory in the mills that were acquired in the Smurfit-
Stone Acquisition. We initiated a project to systematically identify, count and value the spare parts from the containerboard mills.
As a result, we recorded reductions of cost of goods sold of $6.7 million and $32.3 million in fiscal 2015 and fiscal 2014, respectively,
for the incremental parts which we believe predominantly existed at the mills at the time of the acquisition since we were beyond
the measurement period. We completed the project in fiscal 2015.
Note 5.
Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
September 30,
2016
2015
Property, plant and equipment at cost:
Land and buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,307.9
$
10,672.9
Forestlands and mineral rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
201.1
27.6
62.4
13,271.9
(3,977.6)
9,294.3
$
2,245.2
9,712.4
161.3
20.2
59.1
12,198.2
(3,038.4)
9,159.8
Depreciation expense, excluding discontinued operations, for fiscal 2016, 2015 and 2014 was $848.9 million, $578.4 million
and $481.7 million, respectively. See “Note 7. Discontinued Operations” for more information.
Note 6. Merger, Acquisitions and Investment
Grupo Gondi Investment
On April 1, 2016, we completed the formation of a joint venture with Grupo Gondi in Mexico. We contributed $175.0 million
in cash and the stock of an entity that owns three corrugated packaging facilities in Mexico in return for a 25.0% equity participation
in the joint venture and options valued at approximately $0.3 billion. The joint venture operates paper machines, corrugated
packaging and high graphic folding carton facilities across 13 production sites. The cash contribution will remain in the joint
75
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
venture and will be available to support its growth. As the majority equity holder, Grupo Gondi will manage the joint venture and
we will provide technical and commercial resources. We believe the joint venture will help grow our presence in the attractive
Mexican market. As a result of the transaction, we recorded a pre-tax non-cash gain of $12.1 million included in “Interest income
and other income (expense), net” on our Consolidated Statements of Operations. The transaction includes future put and call
rights with respect to the respective parties’ ownership interest in the joint venture. We have included the financial results of the
Grupo Gondi investment since the formation of the joint venture in our Corrugated Packaging segment, and are accounting for
the investment on the equity method. We are in the process of analyzing third-party valuation of certain tangible and intangible
assets; thus, the allocation of the purchase price used for equity accounting is preliminary and subject to revision.
Packaging Acquisition
On January 19, 2016, we completed the purchase of certain legal entities formerly owned by Cenveo Inc. The entities acquired
provide value-added folding carton and litho-laminated display packaging solutions. The purchase price was $94.1 million, net of
cash received of $1.7 million, a working capital settlement and an unreceived escrow receivable of $3.5 million expected to be
received in fiscal 2017. The transaction is subject to an election under Section 338(h)(10) of the Code that will increase the U.S.
tax basis in the acquired U.S. assets for an as yet to be determined amount. We believe the transaction has provided us with attractive
and complementary customers, markets and facilities. We have included the financial results of the acquired entities since the date
of the acquisition in our Consumer Packaging segment.
The purchase price allocation for the acquisition included $10.5 million of customer relationship intangible assets, $8.0 million
of goodwill and $25.9 million of liabilities, including $1.3 million of debt. We are amortizing the customer relationship intangibles
over estimated useful lives ranging from 9 to 15 years based on a straight-line basis because the amortization pattern was not
reliably determinable. The fair value assigned to goodwill is primarily attributable to buyer-specific synergies expected to arise
after the acquisition (e.g., enhanced reach of the combined organization and other synergies), and the assembled work force. We
expect the goodwill and intangibles of the U.S. entities to be amortizable for income tax purposes. We are in the process of finalizing
the estimated fair values of all assets acquired and liabilities assumed including, among other things, obtaining final third-party
valuations of certain tangible and intangible assets as well as the fair value of certain contracts and the determination of certain
tax balances; thus, the allocation of the purchase price is preliminary and subject to revision.
SP Fiber
On October 1, 2015, we acquired SP Fiber in a stock purchase. The transaction included the acquisition of mills located
in Dublin, GA and Newberg, OR, which produce lightweight recycled containerboard and kraft and bag paper. The Newberg mill
also produced newsprint. As part of the transaction, we also acquired SP Fiber's 48% interest in GPS. GPS is a joint venture
providing steam to the Dublin mill and electricity to Georgia Power. The purchase price was $278.8 million, net of cash received
of $9.2 million. In addition, we paid $36.5 million for debt owed by GPS and thereby own the majority of the debt issued by GPS.
The Dublin mill has helped balance the fiber mix of our mill system, including our ability to serve the increasing demand for
lighter weight containerboard, and that the addition of kraft and bag paper has diversified our product offering. Subsequent to the
transaction, we announced the permanent closure of the Newberg mill due to the decline in market conditions of the newsprint
business and our need to balance supply and demand in our containerboard system. We determined GPS should be consolidated
as a variable interest entity under ASC 810 “Consolidation”. Our evaluation concluded that WestRock is the primary beneficiary
of GPS as WestRock has both the power and benefits as defined by ASC 810. We have included the financial results of SP Fiber
and GPS since the date of the acquisition in our Corrugated Packaging segment.
The purchase price allocation for the acquisition included $13.5 million of customer relationship intangible assets, $52.4
million of goodwill, and $145.4 million of liabilities, including $13.7 million of debt primarily owed by GPS to third parties. We
are amortizing the customer relationship intangibles over 20 years based on a straight-line basis because the amortization pattern
was not reliably determinable. The fair value assigned to goodwill is primarily attributable to buyer-specific synergies expected
to arise after the acquisition (e.g., enhanced reach of the combined organization and other synergies), the assembled work force
of SP Fiber as well as due to establishing deferred taxes for the assets and liabilities acquired. The goodwill and intangibles will
not be amortizable for income tax purposes.
76
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Combination
On July 1, 2015, pursuant to the Business Combination Agreement, RockTenn and MWV completed a strategic combination
of their respective businesses. Pursuant to the Business Combination Agreement, RockTenn and MWV became wholly-owned
subsidiaries of WestRock. RockTenn was the accounting acquirer. We believe the Combination combined two industry leaders to
create a premier global provider of consumer and corrugated packaging solutions.
The consideration for the Combination was $8,286.7 million. In connection with the Combination, RockTenn shareholders
received in the aggregate approximately 130.4 million shares of Common Stock and approximately $667.8 million in cash. At the
effective time of the Combination, each share of common stock, par value $0.01 per share, of MWV issued and outstanding
immediately prior to the effective time of the Combination was converted into the right to receive 0.78 shares of Common Stock.
In the aggregate, MWV stockholders received approximately 131.2 million shares of our Common Stock (which includes shares
issued under certain MWV equity awards that vested as a result of the Combination). Included in the consideration was
approximately $210.9 million related to outstanding MWV equity awards that were replaced with WestRock equity awards with
identical terms for pre-Combination service. The amount related to post-Combination service is being expensed over the remaining
service period of the awards.
The following table summarizes the fair values of the assets acquired and liabilities assumed by major class of assets and
liabilities as of the acquisition date, as well as adjustments made during fiscal 2016 (referred to as “measurement period
adjustments”) (in millions):
Amounts
Recognized as of
the Acquisition
Date
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current assets, excluding cash and cash equivalents . . . . . . . . . . . . . .
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid pension asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted assets held by special purpose entities . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse liabilities held by special purpose entities . . . . . . . . . . .
Accrued pension and other long-term benefits . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and noncontrolling interest assumed . . . . . . . . . . . . . .
265.7
1,858.8
3,991.5
1,407.8
3,817.3
2,994.2
1,302.0
363.8
16,001.1
62.3
1,099.4
2,090.6
1,181.0
235.1
2,366.7
520.0
159.3
7,714.4
Amounts
Recognized as
of Acquisition
Date (as
Adjusted) (2)
Measurement
Period
Adjustments (1)
$
— $
(0.5)
19.3
(9.9)
44.7
—
—
18.0
71.6
74.8
(45.6)
18.3
—
—
(11.0)
35.1
—
71.6
265.7
1,858.3
4,010.8
1,397.9
3,862.0
2,994.2
1,302.0
381.8
16,072.7
137.1
1,053.8
2,108.9
1,181.0
235.1
2,355.7
555.1
159.3
7,786.0
8,286.7
Net assets acquired (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
8,286.7
$
— $
(1) The measurement period adjustments recorded in fiscal 2016 did not have a significant impact on our consolidated
statements of operations for fiscal 2016 or 2015. In addition, these adjustments did not have a significant impact on
77
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
our consolidated balance sheet as of September 30, 2015. Therefore, we have recorded the cumulative impact in fiscal
2016 and have not retrospectively adjusted the comparative 2015 financial information presented herein.
(2) The measurement period adjustments were due primarily to refinements to third party appraisals and carrying amounts
of certain assets and liabilities as well as adjustments to certain tax accounts based on, among other things, adjustments
to deferred tax liabilities, including any appraisal adjustments, analysis of the tax basis of acquired assets and liabilities,
other tax adjustments and the classification of supplier financing arrangements. The net impact of the measurement
period adjustments resulted in a net increase to goodwill.
(3) The net assets acquired include the Specialty Chemicals business which was separated from WestRock on May 15,
2016. See “Note 7. Discontinued Operations” for more information.
The fair value assigned to goodwill is primarily attributable to buyer-specific synergies expected to arise after the acquisition
(e.g., enhanced geographic reach of the combined organization, increased vertical integration and other synergistic opportunities),
the assembled work force of MWV as well as due to establishing deferred tax liabilities for the assets and liabilities acquired. The
goodwill and intangibles resulting from the acquisition will not be amortizable for tax purposes. See “Note 20. Segment
Information” for the allocation of goodwill.
The following table summarizes the weighted average life and gross carrying amount relating to intangible assets recognized
in the Combination, excluding goodwill (in millions):
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Favorable contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Avg. Life
Gross
Carrying
Amount
19.2
$
2,881.7
9.8
4.5
8.2
57.2
52.9
2.4
18.8
$
2,994.2
None of the intangibles has significant residual value. The intangibles are expected to be amortized over estimated useful
lives ranging from 1 to 20 years based on the approximate pattern in which the economic benefits are consumed or straight-line
if the pattern was not reliably determinable.
The allocation of the consideration for the Combination also includes, among other things, $38.5 million of liabilities for
unfavorable contracts which will be amortized over 1 to 9 years. In connection with purchase accounting, we increased the carrying
value of the debt assumed by $364.5 million, including $18.3 million in the third quarter of fiscal 2016 to increase the carrying
value of the debt assumed to fair value. The fair value adjustment will be amortized over the life of the instruments, ranging from
1 to 32 years.
The following unaudited pro forma information reflects our consolidated results of operations as if the Combination had taken
place on October 1, 2013. The unaudited pro forma information is not necessarily indicative of the results of operations that we
would have reported had the transaction actually occurred at the beginning of these periods nor is it necessarily indicative of future
results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the
Combination, including, but not limited to, anticipated costs savings from synergies or other operational improvements. The net
sales have been adjusted to reflect the discontinued operations of the Specialty Chemicals business.
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . $
14,347.0
666.3
$
$
14,342.7
502.9
Year Ended September 30,
2015
2014
(Unaudited, in millions)
78
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fiscal 2015 revenues associated with the MWV operations received in the Combination since the closing date were $1,067.1
million. Disclosure of earnings associated with these operations since the closing date for fiscal 2015 is not practicable as it is not
being operated as a standalone business.
The unaudited pro forma financial information presented in the table above has been adjusted to give effect to adjustments
that are (1) directly related to the business combination; (2) factually supportable; and (3) expect to have a continuing impact.
These adjustments include, but are not limited to, the application of our accounting policies; elimination of related party transactions;
depreciation and amortization related to fair value adjustments to property, plant and equipment and intangible assets including
contracts assumed; and interest expense on acquisition related debt.
Unaudited pro forma earnings for fiscal 2015 were adjusted to exclude $126.7 million of acquisition related costs which
primarily consist of advisory, legal, accounting, valuation, other professional or consulting fees and change in control related
acceleration of share-based compensation, $71.6 million of inventory step-up expense, net of related LIFO impact and $2.6 million
of loss on extinguishment of debt. The fiscal 2014 earnings have been adjusted to include the impact of the expenses noted above
for fiscal 2015 in order to present the unaudited pro forma financial information as if the transaction had occurred on October 1,
2013, as well as $16.6 million of additional inventory step-up expense, net of expected related LIFO impact for items not sold at
September 30, 2015. Included in earnings for fiscal 2015 are $75.5 million of integration related costs related to the Combination
which primarily consist of severance and other employee costs and professional services.
AGI In-Store
On August 29, 2014, we acquired the stock of AGI In-Store, a manufacturer of permanent point-of-purchase displays and
fixtures to the consumer products and retail industries. The purchase price was $69.9 million, net of cash acquired of $0.5 million
and a working capital settlement. No debt was assumed. We acquired the AGI In-Store business to support our strategy to provide
a more holistic portfolio of innovative in-store marketing solutions, including “store-within-a-store” displays, and we believe the
acquisition has enhanced cross-selling opportunities and bolstered our growing retail presence. We have included the results of
AGI In-Store’s operations since the date of the acquisition in our consolidated financial statements in our Consumer Packaging
segment. The purchase price allocation for the acquisition included $26.0 million of customer relationship intangible assets, $13.2
million of goodwill and $5.9 million of liabilities. We are amortizing the customer relationship intangibles over 5 to 10.5 years on
a straight-line basis because the amortization pattern was not reliably determinable. The fair value assigned to goodwill is primarily
attributable to buyer-specific synergies expected to arise after the acquisition (e.g., enhanced reach of the combined organization
and increased vertical integration) and the assembled work force of AGI In-Store. We made an election under section 338(h)(10)
of the Code that increased the tax basis in the acquired assets. The goodwill and intangibles will be amortizable for income tax
purposes.
Tacoma Mill
On May 16, 2014, we acquired certain assets and liabilities of the Tacoma Mill. The purchase price was $343.2 million
including a working capital settlement. The purchase price was increased $2.6 million during the third quarter of fiscal 2015, which
was primarily allocated to goodwill. We believe the Tacoma Mill, located in Tacoma, WA, is a strategic fit and the mill has improved
our ability to satisfy West Coast customers and generate operating efficiencies across our containerboard system. We have included
the results of the Tacoma Mill since the date of the acquisition in our consolidated financial statements in our Corrugated Packaging
segment. The purchase price allocation for the acquisition included $22.6 million for the fair value of an electrical cogeneration
contract asset, $14.6 million of customer relationship intangible assets, $31.4 million of goodwill and $28.7 million of liabilities.
We are amortizing the electrical cogeneration contract asset over the contract life of 7.2 years and the customer relationship
intangibles over 20 years based on a straight-line basis because the amortization pattern was not reliably determinable. The fair
value assigned to goodwill is primarily attributable to buyer-specific synergies expected to arise after the acquisition (e.g., enhanced
reach of the combined organization and synergies) and the assembled work force of the Tacoma mill. The goodwill and intangibles
will be amortizable for income tax purposes.
NPG
On December 20, 2013, we acquired the stock of NPG, a specialty display company. The purchase price was $59.6 million,
net of cash acquired of $1.7 million and a working capital settlement. We acquired the NPG business as we believe it is a strong
strategic fit that has strengthened our displays business. We have included the results of NPG’s operations since the date of the
acquisition in our consolidated financial statements in our Consumer Packaging segment. The final purchase price allocation for
79
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the acquisition included $14.5 million of customer relationship intangible assets, $27.9 million of goodwill and $19.5 million of
liabilities including approximately $0.6 million in debt. We are amortizing the customer relationship intangibles over 9 years based
on a straight-line basis because the amortization pattern was not reliably determinable. The fair value assigned to goodwill is
primarily attributable to buyer-specific synergies expected to arise after the acquisition (e.g., enhanced reach of the combined
organization and increased vertical integration) and the assembled work force of NPG. The goodwill and intangibles resulting
from the acquisition will not be amortizable for tax purposes.
Note 7. Discontinued Operations
On May 15, 2016, WestRock distributed 100% of the outstanding common stock, par value $0.01 per share, of Ingevity, then
a wholly-owned subsidiary of WestRock, to WestRock’s shareholders of record as of the close of business on May 4, 2016 , with
such shareholders receiving one share of Ingevity common stock for every six shares of Common Stock held as of such record
date, and completed the Separation. Following the Separation, we do not beneficially own any shares of Ingevity common stock
and Ingevity is now an independent public company trading under the symbol “NGVT” on the New York Stock Exchange. Upon
the Separation, we disposed of the former Specialty Chemicals segment in its entirety and ceased to consolidate its assets, liabilities
and results of operations in our consolidated financial statements. Accordingly, we have presented the financial position and results
of operations of our former Specialty Chemicals segment as discontinued operations in the accompanying consolidated financial
statements for all periods presented.
In connection with the Separation, we and Ingevity entered into a separation and distribution agreement as well as various
other agreements that provide a framework for the relationships between the parties going forward, including among others a tax
matters agreement, a lease and ground service agreement with respect to our Covington, Virginia facility, an intellectual property
agreement, a crude tall oil and black liquor soap skimming supply agreement, a trust agreement, an employee matters agreement
and a transition service agreement. These agreements provided for the allocation between us and Ingevity of assets, employees,
liabilities and obligations attributable to periods prior to, at and after the Separation and govern certain relationships between us
and Ingevity after the Separation.
Prior to the Separation, Ingevity, then a wholly-owned subsidiary of WestRock, borrowed $500.0 million in contemplation of
the Separation. In addition, Ingevity assumed a $80.0 million, 7.67% capital lease obligation due January 15, 2027 owed to the
city of Wickliffe, KY. In contemplation of the Separation, Ingevity funded a trust in the amount of $68.9 million to secure the
balloon principal payment of the capital lease upon the lease’s maturity. We remain a co-obligor on the capital lease obligation,
therefore, the capital lease assumed by Ingevity remains recorded in our consolidated financial statements in long-term debt. At
the time of the Separation, we recorded a $108.2 million long-term asset for the estimated fair value of the future principal and
interest payments on the capital lease obligation assumed by Ingevity. The long-term asset will reduce over the life of the lease
with interest using the effective interest method. The $500.0 million of debt and the $68.9 million in the trust were assumed by
Ingevity, and removed from our consolidated financial statements as part of our discontinued operations reporting.
80
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the financial results of Specialty Chemicals’ discontinued operations (in millions):
Fiscal Year Ended September 30,
2016
2015
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative, excluding intangible
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative intangible amortization . . . . . .
Restructuring and other costs, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of Specialty Chemicals goodwill and intangibles . . . .
Operating (loss) profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense) and other income (expense), net . . . . . .
(Loss) income from discontinued operations before income taxes .
Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations. . . . . . . . . . . . . . . . . . $
533.7
$
387.5
146.2
65.6
28.8
49.5
579.4
(577.1)
0.1
(577.0)
32.3
(544.7) $
256.5
184.0
72.5
27.4
11.5
6.6
—
27.0
1.1
28.1
(17.5)
10.6
Fiscal 2016 restructuring and other costs, net are primarily associated with costs incurred to support the Separation and consist
primarily of advisory, legal, accounting and other professional fees. Additionally, restructuring and other costs, net include $10.0
million of costs associated with the closure of Ingevity’s Duque de Caxias facility in Brazil and other severance and share-based
compensation expenses. Fiscal 2015 restructuring and other costs, net are primarily associated with costs incurred to support the
Separation and consist primarily of advisory, legal, accounting and other professional fees.
In the first quarter of fiscal 2016, as part of our evaluation of whether events or changes in circumstances had occurred that
would indicate whether it was more likely than not that the goodwill of our then-owned Specialty Chemicals reporting unit was
impaired, we considered factors such as, but not limited to, macroeconomic conditions, industry and market considerations, and
financial performance, including the planned revenue and earnings of the reporting unit. We concluded that an impairment indicator
had occurred related to the goodwill of the Specialty Chemicals reporting unit and that the indicator was driven by market factors
subsequent to the Combination.
Accordingly, we performed a “Step 1” goodwill impairment test where we updated the discounted cash flow analysis used to
determine the reporting unit’s initial fair value on July, 1 2015. We also compared those results to the valuations performed by our
investment bankers in connection with the planned separation of our Specialty Chemicals business. Based on the results of the
impairment test and analysis, we concluded that the fair value of the Specialty Chemicals reporting unit was less than its carrying
amount and began a “Step 2” goodwill impairment test to determine the amount of impairment loss, if any. As part of the analysis,
we determined that the carrying value of the property, plant and equipment and intangibles, all of which have finite lives, on a
“held and used” basis did not exceed the estimated undiscounted future cash flows.
In light of changing market conditions, expected revenue and earnings of the reporting unit, lower comparative market
valuations for companies in Specialty Chemicals’ peer group and our preliminary “Step 2” test, we concluded that an impairment
of the Specialty Chemicals reporting unit was probable and could be reasonably estimated. As a result, we recorded a pre-tax and
after-tax non-cash goodwill impairment charge of $478.3 million. This amount is included in the line item “Loss from discontinued
operations” in the Consolidated Statements of Operations. No tax benefit was recorded for the goodwill impairment.
Until the completion of the Separation, GAAP required us to assess impairment of the Specialty Chemicals’ long-lived assets
using the “held and used” model which was based on undiscounted future cash flows. Under this model, if the expected cash flows
over the life of the primary asset of the reporting unit were in excess of the carrying amount, then there would be no impairment.
At the date of the Separation, we assessed Specialty Chemical’s assets for potential impairment using the “held for sale” model.
This model compares the fair value of the disposal unit to its carrying value. If the fair value less cost to sell is lower than the
carrying value an impairment loss would be recorded. At the date of the Separation, we evaluated Specialty Chemical’s intangibles,
which consisted predominantly of customer list intangibles, for impairment. Our analysis at May 15, 2016, using the income
81
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
approach (multi-period excess earnings method), indicated that there was a $101.1 million pre-tax non-cash impairment of our
Specialty Chemicals customer relationships intangible. The impairment loss was recorded on the Separation and was included as
a component of discontinued operations.
The following table presents the significant non-cash items and capital expenditures for Specialty Chemicals’ that are included
in the Consolidated Statements of Cash Flows (in millions):
Fiscal Year Ended September 30,
2016
2015
Depreciation, depletion and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment of Specialty Chemicals goodwill and intangibles . . . . . . . . . . . . . . . . $
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
57.2
$
579.4
$
(45.2) $
22.0
—
(28.6)
Depreciation expense in fiscal 2016 and 2015 was $30.4 million and $11.4 million, respectively, and amortization expense in
fiscal 2016 and 2015 was $26.8 million and $10.6 million, respectively.
The carrying value of the assets and liabilities of discontinued operations on the Consolidated Balance Sheet as of September
30, 2015 were as follows (in millions):
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable (net of allowance of $0.1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current assets of discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities of discontinued operations
$
Long-term debt due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current liabilities of discontinued operations
$
September 30,
2015
20.5
114.6
202.4
25.3
362.8
436.9
1,047.4
757.3
14.1
2,255.7
10.4
72.4
3.1
32.7
118.6
0.1
350.9
10.8
361.8
82
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 8. Restructuring and Other Costs, Net
Summary of Restructuring and Other Initiatives
We recorded pre-tax restructuring and other costs, net, of $366.4 million, $140.8 million and $55.6 million for fiscal 2016,
2015 and 2014, respectively. Of these costs, $200.2 million, $13.4 million and $10.2 million were non-cash for fiscal 2016, 2015
and 2014, respectively. These amounts are not comparable since the timing and scope of the individual actions associated with
each restructuring, acquisition or integration can vary. The restructuring and other costs, net, exclude the Specialty Chemicals
costs which are included in discontinued operations. We discuss our restructuring and other costs, net in more detail below and
those charged to discontinued operations in “Note 7. Discontinued Operations”.
When we close a facility, if necessary, we recognize an impairment charge primarily to reduce the carrying value of equipment
or other property to their estimated fair value less cost to sell, and record charges for severance and other employee related costs.
Any subsequent change in fair value less cost to sell prior to disposition is recognized as identified; however, no gain is recognized
in excess of the cumulative loss previously recorded. At the time of each announced closure, we generally expect to record future
charges for equipment relocation, facility carrying costs, costs to terminate a lease or contract before the end of its term and other
employee related costs. Although specific circumstances vary, our strategy has generally been to consolidate our sales and operations
into large well-equipped plants that operate at high utilization rates and take advantage of available capacity created by operational
excellence initiatives. Therefore, we transfer a substantial portion of each plant’s assets and production to our other plants. We
believe these actions have allowed us to more effectively manage our business.
83
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
While restructuring costs are not charged to our segments and, therefore, do not reduce segment income, we highlight the
segment to which the charges relate. The following table presents a summary of restructuring and other charges, net, related to
active restructuring and other initiatives that we incurred during the last three fiscal years, the cumulative recorded amount since
we started the initiative, and our estimate of the total we expect to incur (in millions):
Severance
and Other
Employee
Related
Costs
Equipment
and Inventory
Relocation
Costs
Facility
Carrying
Costs
Other
Costs
$
17.4
$
Net Property,
Plant and
Equipment (a)
184.5
$
1.3
8.9
226.4
226.4
3.8
0.9
1.3
9.3
9.3
—
—
—
—
—
1.2
—
—
1.2
Related Segment
Corrugated
Packaging(b) . . . . . . .
Consumer
Packaging(c) . . . . . . .
Land and
Development(d) . . . .
Period
Fiscal 2016
Fiscal 2015
Fiscal 2014
Cumulative
Expected Total
Fiscal 2016
Fiscal 2015
Fiscal 2014
Cumulative
Expected Total
Fiscal 2016
Fiscal 2015
Fiscal 2014
Cumulative
Expected Total
Other(e). . . . . . . . . . . Fiscal 2016
Fiscal 2015
Fiscal 2014
Cumulative
Expected Total
Total . . . . . . . . . . . . Fiscal 2016
Fiscal 2015
Fiscal 2014
Cumulative
Expected Total
0.4
0.9
46.8
46.8
4.6
1.8
1.1
8.0
8.2
10.6
—
—
10.6
14.8
1.5
—
—
1.5
1.5
34.1
2.2
2.0
66.9
71.3
0.3
1.1
3.3
8.0
8.9
1.1
0.5
—
2.1
2.8
—
—
—
—
—
—
—
—
—
$
18.9
$
3.0
5.2
33.9
38.4
0.5
0.9
0.1
1.7
1.7
—
—
—
—
—
—
—
—
—
9.1
2.2
4.1
22.7
24.2
—
0.3
0.2
0.5
0.5
—
—
—
—
—
112.9
128.4
30.5
387.1
Total
$ 230.2
8.0
22.4
337.8
344.7
10.0
4.4
2.7
21.6
22.5
10.6
—
—
10.6
14.8
115.6
128.4
30.5
389.8
1.2
189.5
2.2
10.2
236.9
236.9
$
$
$
$
$
$
$
$
$
$
—
1.4
1.6
3.3
10.1
11.7
$
$
$
$
$
—
19.4
3.9
5.3
35.6
40.1
387.1
$ 122.0
389.8
$ 366.4
$ 130.9
$ 140.8
$
34.8
$
55.6
$ 410.3
$ 759.8
$ 411.8
$ 771.8
$
$
$
$
$
(a)
(b)
We have defined “Net property, plant and equipment” as used in this Note 8 to represent property, plant and equipment
impairment losses, subsequent adjustments to fair value for assets classified as held for sale, subsequent (gains) or losses
on sales of property, plant and equipment and related parts and supplies, and accelerated depreciation on such assets, if
any.
The Corrugated Packaging segment related charges in fiscal 2016 primarily reflect the charges associated with the
permanent closures of the Coshocton, OH and Uncasville, CT medium mills, the Newberg, OR containerboard and
newsprint mill, the Vapi, India linerboard mill, restructuring activities at a corrugated container facility, restructuring
activities at a recycling facility and on-going closure costs at previously closed facilities. The Corrugated Packaging
segment related charges in fiscal 2015 are primarily associated with the closure of one recycled collection facility and
on-going closure costs at other previously closed facilities. The Corrugated Packaging segment related charges in fiscal
2014 are primarily associated with the closure of one corrugated container plant, one collection facility and on-going
closure costs and fair value adjustments for assets at previously closed facilities which were partially offset by gains on
sale of previously closed facilities. The cumulative charges are primarily associated with the closure of the Coshocton,
84
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(c)
(d)
(e)
Uncasville, Newberg, Vapi and Matane, Quebec mills, cumulative closure of corrugated container plants and recycled
collection facilities and gains and losses associated with the sale of closed facilities. We have transferred a substantial
portion of each closed facility's production to our other facilities.
The Consumer Packaging segment related charges in fiscal 2016 primarily reflect the charges associated with a folding
carton and a merchandising displays facility, on-going closure costs at previously closed facilities that were partially
offset by the gain on sale of the Cincinnati, OH specialty recycled paperboard mill. The Consumer Packaging segment
related charges in fiscal 2015 are primarily associated with the closure of one folding carton facility, one merchandising
displays facility, and on-going closure costs at other previously closed facilities. The Consumer Packaging segment related
charges in fiscal 2014 are primarily associated with our Cincinnati, OH specialty recycled paperboard mill and on-going
closure costs for previously closed converting facilities. The cumulative charges primarily reflect our Cincinnati, OH
specialty recycled paperboard mill, and cumulative closures of folding carton and merchandising display facilities. We
have transferred a substantial portion of each closed facility's production to our other facilities.
The Land and Development segment related charges in fiscal 2016 and cumulative charges reflect severance and other
employee costs related to personnel reductions in the segment.
The expenses in the “Other” segment primarily reflect costs that we consider as related to Corporate that primarily consist
of costs incurred as a result of the Combination, the Smurfit-Stone Acquisition, and other acquisition and divestiture
expenses, excluding the Specialty Chemicals costs which are included in discontinued operations. The charges in the Net
Property, Plant and Equipment column are for the write-off of leasehold improvements associated with the integration
of the Combination. The pre-tax charges in the “Other” segment are summarized below (in millions):
Acquisition
Expense
Integration
Expenses
Other Expense
(Income)
Total
Fiscal 2016 . . . . . . . . $
Fiscal 2015 . . . . . . . .
Fiscal 2014 . . . . . . . .
8.9
$
104.7
$
44.4
7.5
84.3
23.0
$
2.0
(0.3)
—
115.6
128.4
30.5
Acquisition expenses include expenses associated with mergers, acquisitions and other business combinations, whether
consummated or not, as well as litigation expenses associated with mergers, acquisitions and business combinations, net of
recoveries. Acquisition expenses primarily consist of advisory, legal, accounting, valuation and other professional or consulting
fees. Integration expenses reflect primarily severance and other employee costs, professional services including work being
performed to facilitate merger and acquisition integration, such as information systems integration costs, lease expense and
other costs. Due to the complexity and duration of the integration activities associated with the Combination, the precise
amount expected to be incurred has not been quantified in the “Expected Total” in the Summary of Restructuring and Other
Costs, Net table above. We expect integration activities to continue during fiscal 2017.
85
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table represents a summary of and the changes in the restructuring accrual, which is primarily composed of
lease commitments, accrued severance and other employee costs, as well as a reconciliation of the restructuring accrual to the line
item “Restructuring and other costs, net” on our Consolidated Statements of Operations for fiscal 2016, 2015 and 2014 (in
millions):
Accrual at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accruals acquired in merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
2015
2014
21.4
$
10.9
$
—
75.3
(51.9)
—
2.9
37.6
(31.4)
1.4
44.8
$
21.4
$
21.8
—
5.0
(14.1)
(1.8)
10.9
Reconciliation of accruals and charges to restructuring and other costs, net:
Additional accruals and adjustments to accruals (see table above). . . . . . . $
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integration expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and other employee costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and inventory relocation costs . . . . . . . . . . . . . . . . . . . . . . . . .
Facility carrying costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring and other costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
2015
2014
75.3
$
8.9
69.1
189.5
2.2
1.4
19.5
0.5
$
39.0
44.4
49.2
2.2
0.3
1.6
3.9
0.2
3.2
7.5
23.4
10.2
0.6
3.3
5.3
2.1
366.4
$
140.8
$
55.6
Note 9. Other Intangible Assets
The gross carrying amount and accumulated amortization relating to intangible assets, excluding goodwill, is as follows (in
millions, except weighted avg. life):
Customer relationships. . . . . . . . . . . . .
Favorable contracts . . . . . . . . . . . . . . .
Technology and patents . . . . . . . . . . . .
Trademarks and tradenames. . . . . . . . .
Non-compete agreements . . . . . . . . . . .
License costs . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2016
2015
Weighted
Avg. Life
(in years)
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
18.1
9.1
10.0
17.8
1.0
8.2
17.9
$
$
3,094.4
48.9
55.4
65.0
0.2
23.5
3,287.4
$
$
(610.5) $
(27.0)
(14.9)
(24.1)
(0.1)
(11.5)
(688.1) $
3,075.1
48.6
55.5
65.0
—
19.9
3,264.1
$
$
(414.1)
(22.1)
(9.3)
(16.1)
—
(7.6)
(469.2)
Intangible amortization expense, excluding discontinued operations, was $235.8 million, $131.1 million and $92.5 million
during fiscal 2016, 2015 and 2014, respectively. The intangible amortization expense is primarily recorded as SG&A intangible
amortization. See “Note 7. Discontinued Operations” for more information.
86
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated intangible asset amortization expense for the succeeding five fiscal years is as follows (in millions):
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
213.4
212.0
210.5
210.4
162.8
Note 10.
Debt
In connection with the Combination, the public bonds previously issued by WestRock RKT Company and WestRock MWV,
LLC are guaranteed by WestRock and have cross-guarantees between the two companies. The IDBs associated with the capital
lease obligations of WestRock MWV, LLC are guaranteed by WestRock. The public bonds are unsecured unsubordinated obligations
that rank equally in right of payment with all of our existing and future unsecured unsubordinated obligations. The notes are
effectively subordinated to any of our existing and future secured debt to the extent of the value of the assets securing such debt.
At September 30, 2016, our Credit Facility, Farm Credit Facility and public bonds were unsecured.
The following were individual components of debt (in millions):
September 30, 2016
September 30, 2015
Carrying Value
Weighted Avg
Interest Rate
Carrying Value
Weighted Avg
Interest Rate
U.S. Dollar Denominated Fixed Rate Debt:
Notes due fiscal 2017 to 2022 . . . . . . . . . . . . . . . . . . . . $
Notes due fiscal 2023 to 2027 . . . . . . . . . . . . . . . . . . . .
Notes due fiscal 2030 to 2033 . . . . . . . . . . . . . . . . . . . .
Notes due fiscal 2037 to 2047 . . . . . . . . . . . . . . . . . . . .
U.S. Dollar Denominated Floating Rate Debt:
Term loan facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit and swing facilities . . . . . . . . . . . . . . .
Receivables-backed financing facility . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplier financing and commercial card programs. . . . . . .
International and other debt. . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of debt. . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt due after one year . . . . . . . . . . . . . . . . . . . $
1,651.0
411.8
987.5
179.2
2,195.7
—
—
184.4
106.0
73.6
5,789.2
292.9
5,496.3
3.9% $
4.3%
4.7%
6.0%
1.8%
N/A
N/A
4.2%
N/A
7.3%
3.3%
$
1,672.2
436.8
1,002.8
180.1
1,794.7
64.1
198.0
165.8
3.2
104.2
5,621.9
63.7
5,558.2
3.8%
4.4%
4.6%
5.9%
1.4%
2.6%
0.9%
5.7%
N/A
7.4%
3.3%
A portion of the debt classified as long-term, principally our Credit Facility and Receivables Facility, may be paid down earlier
than scheduled at our discretion without penalty. Certain restrictive covenants govern our maximum availability under our credit
facilities. We test and report our compliance with these covenants as required and were in compliance with all of our covenants
at September 30, 2016. The carrying value of the Company’s debt includes the fair value step-up of debt acquired in mergers and
acquisitions. At September 30, 2016, the unamortized fair market value step-up was $316.3 million, which will be amortized over
a weighted average remaining life of 13.1 years. The weighted average interest rate also includes the fair value step up. Excluding
the step-up, the weighted average interest rate on total debt was 4.2%. At September 30, 2016, we had $107.0 million of outstanding
letters of credit not drawn upon. At September 30, 2016, we had approximately $2.6 billion of availability under our committed
credit facilities and approximately $0.4 billion available under our uncommitted credit facilities. This liquidity, may be used to
provide for ongoing working capital needs and for other general corporate purposes including acquisitions, dividends and stock
repurchases. The estimated fair value of our debt was approximately $6.0 billion and $5.7 billion as of September 30, 2016 and
87
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
September 30, 2015, respectively. The fair value of our long-term debt is primarily either based on quoted prices for those or
similar instruments or approximate the carrying amount as the variable interest rates reprice frequently at observable current market
rates and are categorized as level 2 within the fair value hierarchy. During fiscal 2016, 2015 and 2014 amortization of debt issuance
costs charged to interest expense were $4.6 million, $9.3 million and $10.3 million, respectively.
Term Loan Facilities and Revolving Credit Facility
In connection with the Combination, on July 1, 2015, we entered into a credit agreement (the “Credit Agreement”) which
provides for a 5-year senior unsecured term loan in an aggregate principal amount of $2.3 billion and a 5-year senior unsecured
revolving credit facility in an aggregate committed principal amount of $2.0 billion (the “Credit Facility”). We drew $1.2 billion
of the $2.3 billion unsecured term loan and $1.1 billion was available to be drawn on a delayed draw basis not later than April 1,
2016 in up to two separate draws. Certain proceeds of the Credit Facility were used to repay certain indebtedness of the Company’s
subsidiaries at the time of the Combination, including the then existing RockTenn credit facility, and to pay fees and expenses
incurred in connection with the Combination. The Credit Facility is unsecured and is guaranteed by WestRock’s wholly-owned
subsidiaries WestRock RKT Company and WestRock MWV, LLC. On March 24, 2016, we drew $600.0 million of the then
available $1.1 billion delayed draw term loan facility for general corporate purposes and the balance of the delayed draw term
loan facility was terminated. On June 22, 2016, we pre-paid $200.0 million of amortization payments through the second quarter
of fiscal 2018.
On July 1, 2016, we executed an option to extend the term of the 5-year senior unsecured revolving credit facility for one
year beyond the original term. Approximately $1.82 billion of the original $2.0 billion aggregate committed principal amount has
been extended to July 1, 2021, and the remainder will continue to mature on July 1, 2020. Up to $150 million under the revolving
credit facility may be used for the issuance of letters of credit. In addition, up to $400 million of the revolving credit facility may
be used to fund borrowings in non-U.S. dollar currencies including Canadian dollars, Euro and Pound Sterling. Additionally, the
Company may request up to $200 million of the revolving credit facility to be allocated to a Mexican peso revolving credit facility.
At our option, loans issued under the Credit Facility will bear interest at either LIBOR or an alternate base rate, in each case
plus an applicable interest rate margin. Loans will initially bear interest at LIBOR plus 1.125% per annum, in the case of LIBOR
borrowings, or at the alternate base rate plus 0.125% per annum, in the alternative, and thereafter the interest rate will fluctuate
between LIBOR plus 1.00% per annum and LIBOR plus 1.50% per annum (or between the alternate base rate plus 0.00% per
annum and the alternate base rate plus 0.50% per annum), based upon the Company’s corporate credit ratings or the leverage ratio
(as defined in the Credit Agreement) (whichever yields a lower applicable interest rate margin) at such time. In addition, the
Company will be required to pay fees that will fluctuate between 0.125% per annum to 0.25% per annum on the unused amount
of the revolving credit facility, based upon the Company’s corporate credit ratings or the leverage ratio (whichever yields a lower
fee) at such time. Loans under the Credit Facility may be prepaid at any time without premium.
The Credit Agreement contains usual and customary representations and warranties, and usual and customary affirmative and
negative covenants, including: financial covenants (including maintenance of a maximum consolidated debt to capitalization ratio
and a minimum consolidated interest coverage ratio, as defined in the Credit Agreement) and limitations on liens, additional
indebtedness and asset sales and mergers. The Credit Agreement also contains usual and customary events of default, including:
non-payment of principal, interest, fees and other amounts; material breach of a representation or warranty; default on other material
debt; bankruptcy or insolvency; incurrence of certain material ERISA liabilities; material judgments; impairment of loan
documentation; change of control; and material breach of obligations under securitization programs.
On July 1, 2015, three WestRock wholly-owned subsidiaries, RockTenn CP, LLC, a Delaware limited liability company, Rock-
Tenn Converting Company, a Georgia corporation, and MeadWestvaco Virginia Corporation, a Delaware corporation, as borrowers,
entered into a credit agreement (the “Farm Loan Credit Agreement”) with CoBank ACB, as administrative agent. The Farm
Loan Credit Agreement provides for a 7-year senior unsecured term loan in an aggregate principal amount of $600 million (the
“Farm Credit Facility”). The Farm Credit Facility is guaranteed by WestRock, RockTenn and MWV. At September 30, 2016,
there was $600.0 million outstanding under this facility.
On December 1, 2015, we entered into a $200.0 million uncommitted and revolving line of credit with Sumitomo Mitsui
Banking Corporation. The facility matures on December 1, 2016. At September 30, 2016, we had no amounts outstanding under
this facility. On February 11, 2016, we entered into a $100.0 million uncommitted and revolving line of credit with the Bank of
Tokyo-Mitsubishi UFJ, LTD. The facility matures on February 9, 2017. At September 30, 2016, we had no amounts outstanding
under this facility. On March 4, 2016, we entered into a $100.0 million uncommitted and revolving line of credit with Cooperatieve
88
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Rabobank U.A., New York Branch. The facility matures on March 2, 2017. At September 30, 2016, we had no amounts outstanding
under this facility.
Receivables-Backed Financing Facility
We have a $700 million Receivables Facility and on July 22, 2016 we executed an agreement to extend the maturity date from
October 24, 2017 to July 22, 2019, and continued the size of the facility. The credit spread for the used portion of the facility
increased from 0.70% to 0.85%. The Receivables Facility includes certain restrictions on what constitutes eligible receivables
under the facility and allows for the exclusion of eligible receivables of specific obligors each calendar year subject to the following
restrictions: (i) the aggregate of excluded receivables may not exceed 7.5% of eligible receivables under the Receivables Facility,
and (ii) the excluded receivables of each obligor may not exceed 2.5% of the aggregate outstanding balance. The borrowing rate,
which consists of a blend of the market rate for asset-backed commercial paper and the one month LIBOR rate plus a utilization
fee, was 1.4% and 0.9% as of September 30, 2016 and September 30, 2015, respectively. The commitment fee for this facility was
0.25% and 0.25% as of September 30, 2016 and September 30, 2015, respectively. Borrowing availability under this facility is
based on the eligible underlying accounts receivable and compliance with certain covenants. The agreement governing the
Receivables Facility contains restrictions, including, among others, on the creation of certain liens on the underlying collateral.
We test and report our compliance with these covenants monthly; we were in compliance with all of these covenants at September 30,
2016. At September 30, 2016 and September 30, 2015, we had $0.0 million and $198.0 million of our maximum available
borrowings of $584.3 million and $555.4 million, respectively, outstanding under the Receivables Facility. The carrying amount
of accounts receivable collateralizing the maximum available borrowings at September 30, 2016 was approximately $873.9 million.
We have continuing involvement with the underlying receivables as we provide credit and collections services pursuant to the
Receivables Facility agreement.
Public Bonds and Other Indebtedness
On September 30, 2016 the face value of our public bonds and capital lease obligations outstanding were $3.1 billion with a
weighted average interest rate of 6.1%. The range of due dates on our public bonds are set forth in the table above, and our capital
lease obligations are primarily due in fiscal 2026 to 2035. Our international debt is primarily in Brazil and India.
As of September 30, 2016, the aggregate maturities of debt, excluding capital lease obligations, for the succeeding five fiscal
years and thereafter are as follows (in millions):
Fiscal 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of debt step-up, deferred financing costs and unamortized bond discounts. . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
283.8
84.1
766.9
1,851.8
—
2,339.2
279.0
5,604.8
As of September 30, 2016, $2.5 million of the fair value of debt step-up was current.
89
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of September 30, 2016, the aggregate maturities of capital lease obligations for the succeeding five fiscal years and thereafter
are as follows (in millions):
Fiscal 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value step-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6.6
5.3
3.8
3.2
2.1
140.8
22.6
184.4
Note 11.
Fair Value
Assets and Liabilities Measured or Disclosed at Fair Value
We estimate fair values in accordance with ASC 820 “Fair Value Measurement”. ASC 820 provides a framework for measuring
fair value and expands disclosures required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair
value and a hierarchy prioritizing the inputs to valuation techniques. ASC 820 defines fair value as the price that would be received
from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Additionally, ASC 820 defines levels within the hierarchy
based on the availability of quoted prices for identical items in active markets, similar items in active or inactive markets and
valuation techniques using observable and unobservable inputs. We incorporate credit valuation adjustments to reflect both our
own nonperformance risk and the respective counterparty’s nonperformance risk in our fair value measurements.
We disclose the fair value of our pension and postretirement assets and liabilities in “Note 14. Retirement Plans” and the
fair value of our long-term debt in “Note 10. Debt” herein. We have, or from time to time may have, various assets or liabilities
whose fair value are not significant, such as supplemental retirement savings plans that are nonqualified deferred compensation
plans pursuant to which assets are invested primarily in mutual funds, interest rate derivatives, commodity derivatives or other
similar classes of assets or liabilities.
Accounts Receivable Sales Agreement
In fiscal 2014, we entered into an agreement (the “A/R Sales Agreement”) to sell to a third party financial institution all of
the short term receivables generated from certain customer trade accounts, on a revolving basis, until the agreement is terminated
by either party. Transfers under this agreement meet the requirements to be accounted for as sales in accordance with the “Transfers
and Servicing” guidance in ASC 860. These customers are not included in the receivables-backed financing facility. Subsequently,
on February 27, 2015, the A/R Sales Agreement was amended to increase the maximum outstanding balance of receivables sold
to $300.0 million. On June 27, 2016, the A/R Sales Agreement was amended to increase the maximum outstanding balance of
receivables sold to $400.0 million.
The following table represents a summary of the activity under the A/R Sales Agreement for fiscal 2016 and 2015 (in millions):
Receivable from financial institution at beginning of fiscal year . . . . . . . . . . . . . . $
Receivables sold to the financial institution and derecognized . . . . . . . . . . . . . . . .
Receivables collected by financial institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash proceeds from financial institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from financial institution at September 30,. . . . . . . . . . . . . . . . . . . . . . $
2016
2015
5.8
1,474.6
(1,367.2)
(99.4)
13.8
$
$
10.4
1,222.0
(1,130.4)
(96.2)
5.8
Cash proceeds related to the receivables sold are included in cash from operating activities in the consolidated statement of
cash flows in the accounts receivable line item. The loss on sale is not material as it is currently less than 1% per annum of the
receivables sold, and is recorded in interest income and other income (expense), net. Although the sales are made without recourse,
90
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
we maintain continuing involvement with the sold receivables as we provide collections services related to the transferred assets.
The associated servicing liability is not material given the high quality of the customers underlying the receivables and the anticipated
short collection period.
Financial Instruments not Recognized at Fair Value
Financial instruments not recognized at fair value on a recurring or nonrecurring basis include cash and cash equivalents,
accounts receivable, certain other current assets, short-term debt, accounts payable, certain other current liabilities, and long-term
debt. With the exception of long-term debt, the carrying amounts of these financial instruments approximate their fair values due
to their short maturities.
Fair Value of Nonfinancial Assets and Nonfinancial Liabilities
We measure certain nonfinancial assets and nonfinancial liabilities at fair value on a nonrecurring basis. These assets and
liabilities include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired
and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets
that are written down to fair value when they are held for sale or determined to be impaired. During fiscal 2016, we did not have
any significant nonfinancial assets or nonfinancial liabilities that were measured at fair value on a nonrecurring basis in periods
subsequent to initial recognition other than the goodwill impairment of our Specialty Chemicals reporting unit in the first quarter
of fiscal 2016 and the intangible impairment in the Specialty Chemicals segment in the third quarter of fiscal 2016 at the Separation,
each as discussed in “Note 7. Discontinued Operations”. At September 30, 2015, we did not have any significant nonfinancial
assets or nonfinancial liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
Note 12. Operating Leases
We lease certain manufacturing and warehousing facilities and equipment, primarily transportation equipment, under various
operating leases. Some leases contain escalation clauses and provisions for lease renewal. As of September 30, 2016, future
minimum lease payments under all noncancelable operating leases for the succeeding five fiscal years and thereafter are as follows
(in millions):
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
104.8
89.2
72.1
58.9
44.0
120.2
489.2
Rental expense for the years ended September 30, 2016, 2015 and 2014 was approximately $199.3 million, $144.8 million
and $112.3 million, respectively, including lease payments under cancelable leases and maintenance charges on transportation
equipment.
Note 13.
Income Taxes
The components of income from continuing operations before income taxes are as follows (in millions):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . $
(25.1) $
269.7
244.6
$
571.3
162.9
734.2
$
$
665.2
105.1
770.3
Year Ended September 30,
2015
2014
2016
91
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The loss from continuing operations in the U.S. in fiscal 2016 is primarily the result of the pension risk transfer expense
and restructuring charges. We discuss these items in more detail in “Note 14. Retirement Plans” and “Note 8. Restructuring
and Other Costs, Net”, respectively.
Income tax expense (benefit) from continuing operations consists of the following components (in millions):
Year Ended September 30,
2015
2014
2016
Current income taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
98.3
12.8
87.0
198.1
(131.5)
6.9
16.3
(108.3)
89.8
$
31.6
$
7.3
38.6
77.5
157.8
(10.8)
8.5
155.5
$
233.0
$
19.9
15.2
(0.7)
34.4
201.8
19.9
30.4
252.1
286.5
The differences between the statutory federal income tax rate and our effective income tax rate from continuing operations
are as follows:
Year Ended September 30,
2015
2014
2016
Statutory federal tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment and resolution of federal, state and foreign tax
uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development and other tax credits, net of valuation
allowances and reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interest . . . . . . . . . . . . . . . .
Domestic manufacturer’s deduction . . . . . . . . . . . . . . . . . . . . . . . .
State of New York tax law change, net of valuation allowance . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deconsolidation of Grupo Gondi joint venture . . . . . . . . . . . . . . . .
Nontaxable increased cash surrender value. . . . . . . . . . . . . . . . . . .
Withholding taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazilian net worth deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax (benefit) rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0%
(5.5)
0.2
4.9
(6.1)
0.8
(4.4)
—
6.3
0.4
3.4
(4.6)
2.0
(2.0)
6.3
36.7%
35.0%
(1.6)
0.3
1.2
(0.1)
(0.4)
(2.6)
—
(0.8)
1.0
—
(0.1)
—
(0.1)
(0.1)
31.7%
35.0%
(1.3)
0.4
2.0
0.1
(0.1)
(0.4)
1.2
0.7
—
—
(0.1)
—
—
(0.3)
37.2%
92
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tax effects of temporary differences that give rise to deferred income tax assets and liabilities consist of the following (in
millions):
September 30,
2016
2015
Deferred income tax assets:
Accruals and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Employee related accruals and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State net operating loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State credit carryforwards, net of federal benefit. . . . . . . . . . . . . . . . . . . . . . . . .
Federal tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock and options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities:
12.2
$
217.6
15.5
82.3
56.1
185.1
119.3
94.9
44.4
827.4
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,124.0
Deductible intangibles and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basis difference in joint ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
891.3
205.6
432.1
—
96.0
1.0
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,750.0
177.2
3,099.8
$
33.9
224.9
—
92.7
56.3
213.8
65.5
63.1
21.4
771.6
2,215.2
1,182.8
178.4
444.1
141.4
3.0
1.0
4,165.9
100.2
3,494.5
Deferred taxes are recorded as follows in the consolidated balance sheet (in millions):
Current deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current deferred tax liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2016
2015
— $
—
30.9
3,130.7
3,099.8
$
13.2
9.8
42.7
3,540.6
3,494.5
At September 30, 2015, long-term deferred tax liability in the table above included $350.9 million of deferred tax liabilities
related to the Specialty Chemicals segment. The Specialty Chemicals tax liabilities were removed from our consolidated financial
statements as part of the Separation.
At September 30, 2016 and September 30, 2015, we had gross federal net operating losses of approximately $85.3 million
and $1.8 million, respectively. These loss carryforwards generally expire between fiscal 2029 and 2036.
In fiscal 2015, we utilized our remaining federal CBPC carryforwards, which were $138.6 million at September 30, 2014. At
September 30, 2016 and September 30, 2015, we had alternative minimum tax credits of $185.1 million and $197.5 million,
respectively. Under current tax law, the alternative minimum tax credit carryforwards do not expire. At September 30, 2015, we
had various other federal credit carryforwards of $16.3 million.
93
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At September 30, 2016 and September 30, 2015, we had gross state and local net operating losses, of approximately $1,899
million and $2,119 million, respectively. These loss carryforwards generally expire between fiscal 2017 and 2036. The tax effected
values of these net operating losses are $82.3 million and $92.7 million at September 30, 2016 and 2015, respectively, exclusive
of valuation allowances of $14.2 million and $10.4 million at September 30, 2016 and 2015, respectively.
At September 30, 2016 and September 30, 2015, gross net operating losses for foreign reporting purposes of approximately
$448.7 million and $233.1 million, respectively, were available for carryforward. A majority of these loss carryforwards generally
expire between fiscal 2017 and 2035, while a portion have an indefinite carryforward. The tax effected values of these net operating
losses are $119.3 million and $65.5 million at September 30, 2016 and 2015, respectively, exclusive of valuation allowances of
$92.5 million and $41.1 million at September 30, 2016 and 2015, respectively.
At September 30, 2016 and 2015, we had state tax credit carryforwards of $56.1 million and $56.3 million, respectively. These
state tax credit carryforwards generally expire within 5 to 10 years; however, certain state credits can be carried forward indefinitely.
Valuation allowances of $51.2 million and $48.7 million at September 30, 2016 and 2015, respectively, have been provided on
these assets. These valuation allowances have been recorded due to uncertainty regarding our ability to generate sufficient taxable
income in the appropriate taxing jurisdiction. On March 31, 2014, the State of New York enacted an income tax law which reduced
the tax rate for qualified New York State manufacturers to zero percent effective for tax years beginning on or after January 1,
2014 and thereby rendered a previously recorded deferred tax asset related to a credit carryforward to no longer have any value.
Therefore, a full valuation allowance was recorded against our New York state credit carryforwards as it is more likely than not
that they will not be utilized.
The following table represents a summary of the valuation allowances against deferred tax assets for fiscal 2016, 2015 and
2014 (in millions):
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Charges to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowances related to purchase accounting(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
2015
2014
100.2
$
65.1
$
24.8
63.0
(10.8)
177.2
$
2.7
40.0
(7.6)
100.2
$
36.2
31.7
—
(2.8)
65.1
(1) Adjustments in fiscal 2016 relate to the Combination and the SP Fiber Acquisition. Adjustments in fiscal 2015 relate
to the Combination.
Consistent with prior years, we consider a portion of our earnings from certain foreign subsidiaries as subject to repatriation
and we provide for taxes accordingly. However, we consider the unremitted earnings from all other foreign subsidiaries to be
permanently reinvested. Accordingly, we have not provided for any incremental U.S. taxes that would be due upon the repatriation
of these earnings.
As of September 30, 2016, we estimate our outside basis difference in foreign subsidiaries that are considered permanently
reinvested to be approximately $1.9 billion. We have not provided for any incremental U.S. taxes that would be due upon the
repatriation of those earnings. However, in the event of a distribution in the form of dividends or otherwise, we may be subject to
incremental U.S. income taxes, subject to an adjustment for foreign tax credits, and withholding taxes payable to the foreign
jurisdictions. As of September 30, 2016, the determination of the deferred tax liability is not practicable.
As of September 30, 2016 and 2015, the total amount of unrecognized tax benefits were approximately $166.8 million and
$106.6 million, respectively, exclusive of interest and penalties. Of these balances, as of September 30, 2016 and 2015, if we were
to prevail on all unrecognized tax benefits recorded, approximately $138.6 million and $98.6 million, respectively, would benefit
the effective tax rate. We regularly evaluate, assess and adjust the related liabilities in light of changing facts and circumstances,
which could cause the effective tax rate to fluctuate from period to period.
94
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):
2016
2015
2014
Balance at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions related to purchase accounting (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions taken in current year . . . . . . . . . . . . . . . . . . . . . .
Additions (reductions) for tax positions taken in prior fiscal years . . . . . . . .
Reductions due to settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions (reductions) for currency translation adjustments . . . . . . . . . . . . .
Reductions as a result of a lapse of the applicable statute of limitations . . . .
Balance at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
106.6
$
16.5
30.3
10.9
(1.3)
7.0
(3.2)
166.8
$
36.5
82.9
2.4
(3.7)
—
(11.5)
—
$
106.6
$
21.3
—
14.8
1.0
—
—
(0.6)
36.5
(1) Adjustments in fiscal 2016 relate to the Combination and the SP Fiber Acquisition. Adjustments in fiscal 2015 relate
to the Combination.
We recognize estimated interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated
statements of operations. As of September 30, 2016 and September 30, 2015, we had liabilities of $60.2 million and $47.4 million,
respectively, related to estimated interest and penalties for unrecognized tax benefits. Our results of operations for the fiscal years
ended September 30, 2016, 2015 and 2014 include expense of $7.4 million, expense of $2.9 million and income of $0.5 million,
respectively, related to estimated interest and penalties with respect to the liability for unrecognized tax benefits. As of September 30,
2016, it is reasonably possible that our unrecognized tax benefits will decrease by up to $8 million in the next twelve months due
to expiration of various statues of limitations.
We file federal, state and local income tax returns in the U.S. and various foreign jurisdictions. With few exceptions, we are
no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to fiscal
2009. While we believe our tax positions are appropriate, they are subject to audit or other modifications and there can be no
assurance that any modifications will not materially and adversely affect our results of operations, financial condition or cash
flows.
Note 14.
Retirement Plans
We have defined benefit pension plans and other postretirement benefit plans for certain U.S. and non-U.S. employees. Certain
plans were frozen for salaried and non-union hourly employees at various times in the past, although some employees meeting
certain criteria are still accruing benefits. In addition, under several labor contracts, we make payments, based on hours worked,
into MEPP trusts established for the benefit of certain collective bargaining employees in facilities both inside and outside the
U.S. We also have supplemental executive retirement plans and other non-qualified defined benefit pension plans that provide
unfunded supplemental retirement benefits to certain of our current and former executives. The supplemental executive retirement
plans provide for incremental pension benefits in excess of those offered in our principal pension plan. The other postretirement
benefit plans provide certain health care and life insurance benefits for certain salaried and hourly employees who meet specified
age and service requirements as defined by the plans.
In connection with the Combination, the Rock-Tenn Company Consolidated Pension Plan and MWV U.S. qualified defined
benefit pension plans assigned the role of plan sponsor to WestRock. On July 2, 2015, WestRock merged the MWV U.S. qualified
defined benefit pension plans into the Rock-Tenn Company Consolidated Pension Plan, and renamed the merged plan the WestRock
Company Consolidated Pension Plan. Upon the merger, the terms and provisions of the legacy MWV plans were incorporated
into the merged plan.
Additionally, on July 30, 2015, WestRock approved changes to freeze the WestRock Company Consolidated Pension Plan
for the remaining U.S. salaried and non-union hourly employees, subject to certain grandfathering. Affected employees accrued
a benefit through December 31, 2015, except for employees in the legacy MWV U.S. qualified defined benefit pension plans that
met the criteria for grandfathering. Those employees meeting a minimum age of 50 and an aggregate age and service of 75 years
or more as of December 31, 2015, are grandfathered and continue to accrue a benefit until December 31, 2020 or their termination
date, if earlier. The WestRock retirement program for U.S. salaried and non-union hourly employees in place of the WestRock
Company Consolidated Pension Plan is a defined contribution benefit.
95
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The benefits under our defined benefit pension plans are based on either compensation or a combination of years of service
and negotiated benefit levels, depending upon the plan. We allocate our pension assets to several investment management firms
across a variety of investment styles. Our defined benefit Investment Committee meets at least four times a year with our investment
advisors to review each management firm’s performance and monitors its compliance with its stated goals, our investment policy
and applicable regulatory requirements in the U.S. and Canada.
We understand that investment returns are volatile. We believe that, by investing in a variety of asset classes and utilizing
multiple investment management firms, we can create a portfolio that yields adequate returns with reduced volatility. Our qualified
U.S. plans employ a liability matching strategy augmented with Treasury futures to generally fully hedge against interest rate risk.
After we consulted with our actuary and investment advisors, we adopted the target allocations in the table that follows for our
pension plans to produce the desired performance. These target allocations are guidelines, not limitations, and occasionally plan
fiduciaries will approve allocations above or below target ranges or modify the allocations.
Target Allocations
U.S. Plans
Non-U.S. Plans
2016
2015
2016
2015
Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14%
71%
1%
14%
100%
10%
78%
1%
11%
100%
28%
59%
1%
12%
100%
28%
59%
1%
12%
100%
Our asset allocations by asset category at September 30 were as follows:
Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Plans
Non-U.S. Plans
2016
2015
2016
2015
15%
66%
7%
12%
100%
9%
77%
3%
11%
100%
29%
59%
2%
10%
100%
28%
59%
1%
12%
100%
We manage our retirement plans in accordance with the provisions of ERISA as well as applicable legislation in Canada and
other foreign countries. Our investment policy objectives include maximizing long-term returns at acceptable risk levels,
diversifying among asset classes, as applicable, and among investment managers, as well as establishing certain risk parameters
within asset classes. We have allocated our investments within the equity and fixed income asset classes to sub-asset classes
designed to meet these objectives. In addition, our other investments support multi-strategy objectives.
In developing our weighted average expected rate of return on plan assets, we consulted with our investment advisors and
evaluated criteria based on historical returns by asset class and long-term return expectations by asset class. We use a September
30 measurement date. We currently expect to contribute approximately $30 million to our U.S. and non-U.S. pension plans in
fiscal 2017, primarily related to our Canadian plans. However, it is possible that our assumptions or legislation may change, actual
market performance may vary or we may decide to contribute a different amount. Therefore, the amount we contribute may vary
materially. The expense for MEPPs for collective bargaining employees generally equals the contributions for these plans.
96
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted average assumptions used to measure the benefit plan obligations at September 30, were:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Plans
2016
2015
U.S. Plans
4.04%
3.00%
Non-U.S.
Plans
3.08%
3.09%
U.S. Plans
4.70%
2.50%
Non-U.S.
Plans
3.89%
3.10%
We determine the discount rate with the assistance of actuaries. At September 30, 2016, the discount rate for the U.S. pension
plans was determined based on the yield on a theoretical portfolio of high-grade corporate bonds, and the discount rate for the
non-U.S. plans was determined based on a yield curve developed by our actuary. The theoretical portfolio of high-grade corporate
bonds used to select the September 30, 2016 discount rate for the U.S. pension plans includes bonds generally rated Aa- or better
with at least $100 million outstanding par value and bonds that are non-callable (unless the bonds possess a “make whole” feature).
The theoretical portfolio of bonds has cash flows that generally match our expected benefit payments in future years.
Our assumption regarding the future rate of compensation increases is reviewed periodically and is based on both our internal
planning projections and recent history of actual compensation increases.
We typically review our expected long-term rate of return on plan assets periodically through an asset allocation study with
either our actuary or investment advisor. In fiscal 2017, our expected rate of return used to determine net periodic benefit cost is
6.50% for our U.S. plans and 6.03% for our non-U.S. plans. Our 2017 expected rates of return are based on an analysis of our
long-term expected rate of return and our current asset allocation.
On September 21, 2016, using plan assets we settled $2.5 billion in pension obligations of the WestRock Company Consolidated
Pension Plan by purchasing group annuity contracts from Prudential. This transaction transferred payment responsibility to
Prudential for retirement benefits owed to approximately 35,000 U.S. retirees and their beneficiaries. As a result of the transaction,
we recorded a non-cash charge of $370.7 million pre-tax. The settlement reduced WestRock’s overall U.S. pension obligations
and assets by approximately 40%. The monthly retirement benefit payment amounts currently received by retirees and their
beneficiaries did not change as a result of this transaction. Those plan participants not included in the transaction remain in the
WestRock Company Consolidated Pension Plan, and responsibility for payment of the retirement benefits remains with WestRock.
During the first quarter of fiscal 2015, we partially settled obligations of one of our defined benefit pension plans through
lump sum payments to certain eligible former employees who were not currently receiving a monthly benefit. Eligible former
employees whose present value of future pension benefits exceeded a certain minimum threshold had the option to either voluntarily
accept lump sum payments or to not accept the offer and continue to be entitled to their monthly benefit upon retirement. Former
employees with an aggregate pension benefit obligation of $163.7 million accepted the offer. Lump sum payments of $135.1
million were made out of existing plan assets. The settlement resulted in a gain of $28.6 million that was more than offset by the
loss on remeasurement of the pension benefit obligation of approximately $32.5 million due primarily to the impact of a lower
discount rate and mortality table changes. As a result, we recorded a net $3.9 million loss to other comprehensive income. The
settlement also resulted in a $20.0 million pre-tax non-cash charge to earnings, which is included in the line item “Pension lump
sum settlement and retiree medical curtailment, net” on our Consolidated Statements of Operations. The impact of the settlement
is included in the net periodic pension cost table below. As a result of the remeasurement, the pension benefit obligation increased
$22.1 million due to changes in coverage for certain employees covered by the USW master agreement as discussed below, with
an offset recorded to the unrecognized prior service cost component of other comprehensive income.
In the first quarter of fiscal 2015, we entered into a master agreement with the USW that applied to substantially all of our
legacy RockTenn facilities where employees that they represent are employed. The agreement has a six year term and covers a
number of specific items such as wages, medical coverage and certain other benefit programs. Individual facilities will continue
to have local agreements for subjects not covered by the UWW master agreement and those agreements will continue to have
staggered terms.
During the fourth quarter of fiscal 2014, we partially settled obligations of certain of our defined benefit pension plans through
lump sum payments to certain eligible former employees who were not currently receiving a monthly benefit. Eligible former
employees whose present value of future pension benefits exceeded a certain minimum threshold had the option to either voluntarily
accept or not accept the offer and continue to be entitled to their monthly benefit upon retirement. Former employees with an
97
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
aggregate pension benefit obligation of $248.8 million accepted the offer. Lump sum payments of $210.2 million were made out
of existing plan assets. As a result of the settlement and remeasurement, we recorded a $38.6 million gain to other comprehensive
income and a non-cash pre-tax charge to earnings of $47.9 million. The impact of the settlement is included in the change in benefit
obligation, change in plan assets, net periodic pension cost and change in other comprehensive income tables that follow.
The following table shows the changes in benefit obligation and plan assets, and the plan’s funded status for the years ended
September 30 (in millions):
Change in projected benefit obligation
Benefit obligation at beginning of fiscal year . . . . . . . $
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participant contributions. . . . . . . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business combinations . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency rate changes . . . . . . . . . . . . . . . . . . .
Separation of Specialty Chemicals business . . . . . . . .
Benefit obligation at end of fiscal year . . . . . . . . . . . . $
Change in plan assets
Fair value of plan assets at beginning of fiscal year . . $
Actual gain on plan assets . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . .
Plan participant contributions. . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business combinations . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separation of Specialty Chemicals business . . . . . . . .
Foreign currency rate changes . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of fiscal year. . . . . . . . $
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amounts recognized in consolidated balance sheet:
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other current liability . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued pension and other long-term benefits . . . . . .
Over (under) funded status at end of fiscal year . . . . . $
Pension Plans
2016
2015
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
6,122.3
$
865.1
$
3,606.5
$
964.1
45.7
277.8
1.4
664.2
—
18.4
(399.2)
9.9
(2.7)
(2,484.6)
—
(21.5)
4,231.7
6,481.6
707.3
16.1
—
(399.2)
—
(2,484.6)
(19.7)
—
4,301.5
69.8
247.3
(9.9)
(167.6)
69.8
$
$
$
$
$
$
5.7
32.5
—
70.8
1.5
—
(57.5)
(0.6)
(0.5)
(0.1)
8.3
—
925.2
711.8
82.9
31.4
$
$
1.5
(57.5)
—
(0.1)
—
4.1
774.1
$
(151.1) $
$
10.5
(1.1)
(160.5)
(151.1) $
39.4
183.4
26.5
(100.2)
—
9.1
(232.6)
2,758.0
(31.9)
(135.9)
—
—
6,122.3
2,676.2
48.6
110.6
—
(232.6)
4,014.7
(135.9)
—
—
6,481.6
359.3
524.2
(9.8)
(155.1)
359.3
$
$
$
$
$
$
5.3
34.7
—
(1.7)
1.7
—
(59.6)
74.5
—
—
(153.9)
—
865.1
802.5
25.0
32.1
1.7
(59.6)
41.5
—
—
(131.4)
711.8
(153.3)
8.7
(1.0)
(161.0)
(153.3)
The U.S. pension plans were in a net over funded position at September 30, 2016. However, certain U.S. plans have benefit
obligations in excess of plan assets. These plans have aggregate projected benefit obligations of $207.9 million, aggregate
accumulated benefit obligations of $202.8 million, and aggregate fair value of plan assets of $32.1 million at September 30, 2016.
98
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The accumulated benefit obligation of U.S. and non-U.S. pension plans was $5,112.0 million and $6,945.1 million at
September 30, 2016 and 2015, respectively.
The pre-tax amounts in accumulated other comprehensive loss at September 30 not yet recognized as components of net
periodic pension cost, including the noncontrolling interest, consist of (in millions):
Pension Plans
2016
2015
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
Net actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prior service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accumulated other comprehensive loss . . . . . . . . . . $
633.4
28.2
661.6
$
$
195.8
0.4
196.2
$
$
686.5
30.5
717.0
$
$
170.8
0.5
171.3
The pre-tax amounts recognized in other comprehensive loss (income), including the noncontrolling interest, are as follows
at September 30 (in millions):
Net actuarial loss arising during period . . . . . . . . . . . . . . $
Amortization and settlement recognition of net actuarial
loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost arising during period . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . .
Net other comprehensive (income) loss recognized. . . . . $
2016
Pension Plans
2015
2014
355.4
$
85.9
$
(381.6)
1.5
(3.9)
(28.6) $
(49.2)
26.4
(3.0)
60.1
$
335.2
(65.7)
0.9
(1.2)
269.2
The net periodic pension cost recognized in the consolidated statements of operations is comprised of the following for fiscal
years ended (in millions):
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss. . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . .
Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . . . . . . . . . . . . . . .
Company defined benefit plan expense . . . . . . . . . . . . .
Multiemployer and other plans. . . . . . . . . . . . . . . . . . . . .
Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pension Plans
2016
2015
2014
51.4
$
44.7
$
310.3
(412.3)
11.0
3.9
(1.6)
370.7
18.4
351.8
5.8
357.6
$
218.1
(292.9)
29.0
3.0
—
20.2
9.1
31.2
5.6
36.8
$
26.5
216.5
(252.9)
17.8
1.2
—
47.9
—
57.0
6.2
63.2
The fiscal 2016 and 2015 special termination benefits were recorded to restructuring in connection with the Combination,
and should be excluded from the calculation of pension funding more than expense.
99
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Weighted-average assumptions used in the calculation of benefit plan expense for fiscal years ended:
2016
Pension Plans
2015
2014
U.S. Plans
4.70%
2.50%
Non-U.S.
Plans
3.89%
3.10%
U.S. Plans
4.52%
2.54%
Non-U.S.
Plans
4.00%
3.00%
U.S. Plans
5.18%
2.15%
Non-U.S.
Plans
4.56%
3.12%
5.88%
6.34%
7.11%
6.88%
7.50%
6.88%
Discount rate . . . . . . . . . . . . . . .
Rate of compensation increase .
Expected long-term rate of
return on plan assets . . . . . . .
In fiscal 2016 and 2015, for our U.S. pension and postretirement plans, we considered the mortality tables from the Society
of Actuaries and evaluated our mortality experience to establish mortality assumptions. Based on our experience and in consultation
with our actuaries, we utilized the base RP-2014 mortality tables with a gender and job classification specific increase, and applied
an improvement scale with generational improvements that is generally based on Social Security Administration analysis and
assumptions. The increases for fiscal 2016 are 6% for white collar males, 10% for blue collar males, 12% for white collar females,
and 19% for blue collar females. The increases for fiscal 2015 were 6% for all males, 13% for white collar females, and 19% for
blue collar females. In fiscal 2016, 2015 and 2014 our Canadian pension and postretirement plans utilized the 2014 Private Sector
Canadian Pensioners Mortality Table adjusted to reflect industry and our mortality experience and applied CPM Improvement
Scale B with generational improvements.
In fiscal 2014, for our U.S. pension and postretirement plans, we considered the new mortality tables from the Society of
Actuaries and evaluated our mortality experience to establish mortality assumptions. Based on our experience and in consultation
with our actuaries, we utilized the base RP-2000 mortality tables with a 5% increase, and applied Scale BB with generational
improvements.
The estimated losses that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in fiscal
2017 are as follows (in millions):
Pension Plans
U.S. Plans
18.3
4.0
22.3
Non-U.S.
Plans
$
$
9.1
0.1
9.2
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
100
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our projected estimated benefit payments (unaudited), which reflect expected future service, as appropriate, are as follows
(in millions):
Pension Plans
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Plans
195.8
202.0
209.3
222.0
211.3
Non-U.S.
Plans
$
56.7
56.4
56.4
55.0
54.4
Fiscal Years 2022 – 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,171.0
263.7
The following tables summarize our pension plan assets measured at fair value on a recurring basis (at least annually) as of
September 30, 2016 and September 30, 2015 (in millions):
Quoted Prices
in Active
Markets for
Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
September 30,
2016
Equity securities:
U.S. equities(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-U.S. equities(a). . . . . . . . . . . . . . . . . . . . . . .
Hedged equities(a) . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities:
U.S. government securities(b) . . . . . . . . . . . . . . .
Non-U.S. government securities(c) . . . . . . . . . . .
U.S. corporate bonds(c). . . . . . . . . . . . . . . . . . . .
Non-U.S. corporate bonds(c). . . . . . . . . . . . . . . .
Mortgage-backed securities(c) . . . . . . . . . . . . . .
Other fixed income(d) . . . . . . . . . . . . . . . . . . . . .
Short-term investments(e) . . . . . . . . . . . . . . . . . . . . . .
Other investments:
Alternative investments(f) . . . . . . . . . . . . . . . . . .
Global multi-asset investments (g) . . . . . . . . . . . .
193.9
$
192.7
$
1.2
$
585.7
90.2
1,271.1
116.0
1,226.9
366.3
2.4
317.9
302.1
544.0
59.1
73.5
—
—
5.3
9.0
6.4
—
—
302.1
—
—
512.2
90.2
1,271.1
110.7
1,217.9
359.9
2.4
317.9
—
215.2
59.1
$
5,075.6
$
589.0
$
4,157.8
$
—
—
—
—
—
—
—
—
—
—
328.8
—
328.8
101
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Quoted Prices
in Active
Markets for
Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
September 30,
2015
Equity securities:
U.S. equities(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-U.S. equities(a) . . . . . . . . . . . . . . . . . . . . . . .
Hedged equities(a) . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities:
U.S. government securities(b) . . . . . . . . . . . . . . . .
Non-U.S. government securities(c) . . . . . . . . . . . .
U.S. corporate bonds(c) . . . . . . . . . . . . . . . . . . . . .
Non-U.S. corporate bonds(c) . . . . . . . . . . . . . . . . .
Mortgage-backed securities(c). . . . . . . . . . . . . . . .
Other fixed income(d) . . . . . . . . . . . . . . . . . . . . . .
Short-term investments(e) . . . . . . . . . . . . . . . . . . . . .
Other investments:
Alternative investments(f) . . . . . . . . . . . . . . . . . . .
Global multi-asset investments (g) . . . . . . . . . . . .
169.1
$
168.2
$
0.9
$
532.2
82.6
1,791.4
176.1
2,435.2
616.4
90.0
308.3
213.2
720.2
58.7
79.3
—
—
4.5
8.1
8.6
—
—
213.2
—
—
452.9
82.6
1,791.4
171.6
2,427.0
607.8
90.0
308.3
—
327.9
58.7
$
7,193.4
$
481.9
$
6,319.1
$
—
—
—
—
—
0.1
—
—
—
—
392.3
—
392.4
(a) Equity securities are comprised of the following investment types: (i) common stock; (ii) preferred stock; (iii) equity exchange
traded funds; (iv) hedged equity investments and (v) commingled equity funds. Level 1 investments in common and preferred
stocks and exchange traded funds are valued using quoted market prices multiplied by the number of shares owned. The Level
2 hedged equity investment is a commingled fund that consists primarily of equity indexed investments which are hedged by
options and also holds collateral in the form of short term treasury securities. The commingled fund investments are valued
at the net asset value per share multiplied by the number of shares held. The determination of net asset value for the commingled
funds includes market pricing of the underlying assets as well as broker quotes and other valuation techniques.
(b) U.S. government securities include treasury and agency debt. These investments are valued using broker quotes in an active
market.
(c) The level 1 non-U.S. government securities investment is an exchange traded fund valued using quoted market prices. The
level 1 U.S. corporate bonds category is primarily comprised of U.S. dollar denominated investment grade securities and
valued using quoted market prices. Level 2 investments are valued utilizing a market approach that includes various valuation
techniques and sources such as value generation models, broker quotes in active and non-active markets, benchmark yields
and securities, reported trades, issuer spreads, and/or other applicable reference data. Level 2 commingled debt funds are
valued at their net asset value per share multiplied by the number of shares held. The determination of net asset value for the
commingled funds includes market pricing of the underlying assets as well as broker quotes and other valuation techniques.
(d) Other fixed income is comprised of municipal and asset-backed securities. Investments are valued utilizing a market approach
that includes various valuation techniques and sources, such as broker quotes in active and non-active markets, benchmark
yields and securities, reported trades, issuer spreads and/or other applicable reference data.
(e) Short-term investments are valued at $1.00/unit, which approximates fair value. Amounts are generally invested in interest-
bearing accounts.
(f) We maintain holdings in certain private equity partnerships and real estate investments that are considered to be level 3 in the
fair value hierarchy. The private equity partnerships are commingled investments. Valuation techniques such as discounted
cash flow and market based comparable analyses are used to determine fair value of the private equity investments.
Unobservable inputs used for the discounted cash flow technique include projected future cash flows and the discount rate
applied to present value those cash flows. Unobservable inputs used for the market based comparisons technique include
102
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
EBITDA multiples in other comparable third-party transactions, price to earnings ratios, liquidity, current operating results,
as well as input from general partners and other pertinent information. Real estate investments are commingled investments.
Valuation techniques such as discounted cash flow and market based comparable analyses are used to determine fair value of
the private equity investments. Unobservable inputs used for the discounted cash flow technique include projected future cash
flows and the discount rate applied to present value those cash flows. Unobservable inputs used for the market based comparison
technique include a combination of third party appraisals, replacement cost, and comparable market prices.
(g) The global multi-asset investment is a commingled fund with underlying investments that are diversified across multiple asset
classes and include global equity, fixed income securities, commodities and derivative contracts. The commingled fund is
valued at its net asset value per share multiplied by the number of shares held. The determination of net asset value for the
commingled fund includes market pricing of the underlying assets as well as broker quotes and other valuation techniques.
The following table summarizes the changes in our Level 3 pension plan assets for the years ended September 30, 2016
and 2015 (in millions):
Balance as of September 30, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases, sales, issuances, and settlements, net . . . . . . . . . . . .
Actual return on plan assets:
$
Relating to instruments still held at end of year . . . . . . . . . .
Relating to instruments sold during the year . . . . . . . . . . . . .
Balance as of September 30, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases, sales, issuances, and settlements, net . . . . . . . . . . . .
$
Actual return on plan assets:
Relating to instruments still held at end of year . . . . . . . . . .
Relating to instruments sold during the year . . . . . . . . . . . . .
Transfers out of Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of September 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . .
$
U.S.
Corporate
Bonds
Alternative
Investments
40.6
341.8
— $
0.1
Total
40.6
341.9
(3.6)
13.5
392.4
(45.3)
(16.5)
24.7
(26.5)
328.8
$
$
$
—
—
0.1
(0.1)
$
—
—
—
— $
(3.6)
13.5
392.3
(45.2)
(16.5)
24.7
(26.5)
328.8
The Level 3 pension plan assets acquired in connection with the Combination in fiscal 2015 are included in the Purchases,
sales, issuances, and settlements, net line in the table above. They are the primary reason for the increase in the Level 3 assets in
fiscal 2015. Various alternative investments are subject to initial one-year lock-up restrictions with monthly or quarterly redemption
requirements that include a specified notice period in order to liquidate. The transfer out of Level 3 in fiscal 2016 related to a
change in lock-up restrictions applied to one investment.
Postretirement Plans
The postretirement benefit plans provide certain health care and life insurance benefits for certain salaried and hourly employees
who meet specified age and service requirements as defined by the plans. During the first quarter of fiscal 2015, changes in retiree
medical coverage for certain employees covered by the United Steelworkers master agreement resulted in the recognition of an
estimated $8.1 million pre-tax non-cash curtailment gain included in the line item “Pension lump sum settlement and retiree
medical curtailment, net” on our Consolidated Statements of Operations, which was subsequently adjusted in the third quarter of
fiscal 2015 to $8.5 million. The aggregate postretirement benefit obligation decreased $0.6 million as a result of the curtailment.
The weighted average assumptions used to measure the benefit plan obligations at September 30 were:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . .
103
Postretirement plans
2016
2015
U.S. Plans
4.04%
N/A
Non-U.S.
Plans
6.64%
3.14%
U.S. Plans
4.70%
N/A
Non-U.S.
Plans
6.84%
3.10%
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows the changes in benefit obligation and plan assets, and the plan’s funded status for the years ended
September 30 (in millions):
Change in projected benefit obligation
Benefit obligation at beginning of fiscal year . . . . . . . $
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participant contributions. . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business combinations . . . . . . . . . . . . . . . . . . . . . . . . .
Separation of Specialty Chemicals business . . . . . . . .
Foreign currency rate changes . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of fiscal year . . . . . . . . . . . . $
Change in plan assets
Fair value of plan assets at beginning of fiscal year . . $
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . .
Plan participant contributions. . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of fiscal year. . . . . . . . $
Funded Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amounts recognized in the consolidated balance
sheet:
Other current liability . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued postretirement and other long-term benefits .
Under funded status at end of fiscal year . . . . . . . . . . . $
Postretirement Plans
2016
2015
U.S. Plans
109.5
$
Non-U.S.
Plans
51.6
U.S. Plans
66.0
$
$
Non-U.S.
Plans
47.1
1.7
4.5
(4.0)
(6.3)
—
(14.1)
—
(0.6)
—
0.6
3.6
—
5.0
—
(2.5)
—
—
4.3
0.7
3.3
(1.1)
(3.9)
2.3
(12.0)
54.2
—
—
90.7
$
62.6
$
109.5
$
— $
14.1
—
(14.1)
— $
2.5
—
(2.5)
— $
9.7
2.3
(12.0)
— $
90.7
$
— $
— $
62.6
$
109.5
$
(10.4) $
(80.3)
(90.7) $
(2.9) $
(59.7)
(62.6) $
(15.4) $
(94.1)
(109.5) $
0.3
2.1
(0.2)
(0.5)
—
(2.2)
16.0
—
(11.0)
51.6
—
2.2
—
(2.2)
—
51.6
(2.8)
(48.8)
(51.6)
The pre-tax amounts in accumulated other comprehensive loss (income) at September 30 not yet recognized as components
of net periodic pension cost, including the noncontrolling interest, consist of (in millions):
Postretirement Plans
2016
2015
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
Net actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . .
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accumulated other comprehensive (income) loss
$
$
(24.9) $
(14.9)
(39.8) $
4.1
(0.4)
3.7
$
$
(20.5) $
(13.2)
(33.7) $
(0.8)
(0.5)
(1.3)
104
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The pre-tax amounts recognized in other comprehensive loss (income), including the noncontrolling interest, are as follows
at September 30 (in millions):
Net actuarial gain arising during period . . . . . . . . . . . $
Amortization and settlement recognition of net
actuarial gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service credit arising during period . . . . . . . . . .
Amortization or curtailment recognition of prior
service credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net other comprehensive (income) loss recognized . $
Postretirement Plans
2015
2014
2016
(1.4) $
(4.4) $
(1.9)
1.9
(3.8)
2.1
(1.2) $
1.1
(1.4)
10.5
5.8
$
1.8
(13.3)
1.4
(12.0)
The net periodic postretirement cost recognized in the consolidated statements of operations is comprised of the following
for fiscal years ended (in millions):
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial gain . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . .
Curtailment gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net postretirement cost. . . . . . . . . . . . . . . . . . . . . . . . $
Postretirement Plans
2016
2015
2014
2.3
$
1.0
$
8.1
(2.0)
(2.1)
—
6.3
$
5.4
(1.1)
(2.0)
(8.5)
(5.2) $
1.2
5.7
(1.8)
(1.4)
—
3.7
The assumed health care cost trend rates used in measuring the APBO are as follows at September 30:
U.S. Plans
Health care cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) . . . . .
Year the rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. Plans
Health care cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) . . . . .
Year the rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
7.02%
4.50%
2036
7.71%
6.44%
2029
As of September 30, 2016, the effect of a 1% change in the assumed health care cost trend rate would increase the APBO by
approximately $9 million and decrease the APBO by approximately $7 million, and would increase and decrease the annual net
periodic postretirement benefit cost for 2016 by less than $1 million.
Weighted-average assumptions used in the calculation of benefit plan expense for fiscal years ended:
2016
Postretirement Plans
2015
2014
U.S. Plans
4.70%
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
6.84% 4.52%
4.00%
U.S. Plans
5.19%
Non-U.S.
Plans
4.56%
N/A
3.10% N/A
3.00%
N/A
3.00%
Discount rate . . . . . . . . . .
Rate of compensation
increase . . . . . . . . . . . . .
105
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The estimated (gains) losses that will be amortized from accumulated other comprehensive loss into net periodic benefit cost
in fiscal 2017 are as follows (in millions):
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1.6) $
(2.5)
(4.1) $
0.4
(0.1)
0.3
Postretirement Plans
U.S. Plans
Non-U.S.
Plans
Our projected estimated benefit payments (unaudited), which reflect expected future service, as appropriate, are as follows
(in millions):
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Years 2022 – 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement Plans
U.S. Plans
10.3
$
9.1
8.7
8.2
7.8
32.2
Non-U.S.
Plans
2.9
3.0
3.1
3.2
3.3
18.0
Multiemployer Plans
We participate in several MEPPs that provide retirement benefits to certain union employees in accordance with various CBAs.
Approximately 36% of our employees are covered by CBAs, of which approximately 4% are covered by CBAs that have expired
and another 28% are covered by CBAs that expire within one year. Approximately 14% of our CBAs participate in the Pace
Industry Union-Management Pension Fund. As one of many participating employers in these MEPPs, we are generally responsible,
along with other participating employers, for any plan underfunding. Our contributions to a particular MEPP are established by
the applicable CBAs; however, our required contributions may increase based on the funded status of a MEPP and legal
requirements, such as those set forth in the Pension Act, which requires substantially underfunded MEPPs to implement a FIP or
a RP to improve their funded status. Factors that could impact funded status of an MEPP include, without limitation, investment
performance, changes in participant demographics, decline in the number of contributing employers, changes in actuarial
assumptions and the utilization of extended amortization provisions.
A FIP or RP requires a particular MEPP to adopt measures to correct its underfunded status. These measures may include,
but are not limited to, an increase in our contribution rate to the applicable CBA, a reallocation of the contributions already being
made by participating employers for various benefits to individuals participating in the MEPP, and/or a reduction in the benefits
to be paid to future and/or current retirees. In addition, the Pension Act requires that a 5% surcharge be levied on employer
contributions for the first year commencing shortly after the date the employer receives notice that the MEPP is in critical status
(also referred to as red status) and a 10% surcharge on each succeeding year until a CBA is in place with terms and conditions
consistent with the RP. On January 1, 2016, the surcharge we pay for the Pace Industry Union-Management Pension Fund increased
from 10% to 15%.
We could also be obligated to make future payments to MEPPs if we either cease to have an obligation to contribute to the
MEPP or significantly reduce our contributions to the MEPP because we reduce the number of employees who are covered by the
relevant MEPP for various reasons, including, but not limited to, layoffs or closures, assuming the MEPP has unfunded vested
benefits. The amount of such payments (known as a complete or partial withdrawal liability) generally would equal our proportionate
share of the MEPP’s unfunded vested benefits. We believe that certain of the MEPPs in which we participate have material unfunded
vested benefits. Our share of the contributions in the Pace Industry Union-Management Pension Fund exceeded 5% of total plan
contributions for certain plan years. Due to uncertainty regarding future factors that could trigger a withdrawal liability, as well
106
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as the absence of specific information regarding matters such as a MEPP's current financial situation, due in part, to delays in
reporting, the potential withdrawal or bankruptcy of other contributing employers, the impact of future plan performance or the
success of current and potential future funding improvement or rehabilitation plans to restore solvency to the plans, we are unable
to determine with certainty the amount and timing of any future withdrawal liability, changes in future funding obligations, or the
impact of increased contributions, including those that could be triggered by a mass withdrawal of other employers from a MEPP.
The impact of increased contributions, future funding obligations or future withdrawal liabilities may be material to our results of
operations, financial condition or cash flows. At September 30, 2016 and September 30, 2015, we had a withdrawal liability
recorded of $49.0 million and $44.3 million, respectively. Contributions in the table below, for fiscal years 2016, 2015 and 2014
exclude $2.1 million, $0.7 million and $0.7 million, respectively, accrued related to withdrawal liabilities.
The following table lists our participation in our multiemployer and other plans that are individually significant for the years
ended September 30 (in millions):
Pension Fund
EIN /
Pension
Plan
Number
FIP / RP
Status
Pending /
Implemented
Pension
Protection Act
Zone Status
2016
2015
Contributions (a)
Surcharge
imposed?
Expiration
CBA
2016
2015
2014
U.S. Multiemployer plans:
Pace Industry Union-Management
Pension Fund (b) . . . . . . . . . . . . .
11-6166763
/ 001
Other Funds . . . . . . . . . . . . . . . . . .
Total Contributions: . . . . . .
Red
Red
Implemented
$
$
3.3
1.2
4.5
$
$
3.3
1.7
5.0
$
$
3.5
2.0
5.5
Yes
3/22/16 to
5/11/2022
(a) Contributions represent the amounts contributed to the plan during the fiscal year.
(b) Our contributions for fiscal 2015 and 2014 exceeded 5% of total plan contributions. Although the plan data for fiscal 2016 is
not yet available, we would expect to continue to exceed 5% of total plan contributions.
Defined Contribution Plans
We have 401(k) and other defined contribution plans that cover certain of our U.S., Canadian and other international salaried
union and nonunion hourly employees, generally subject to an initial waiting period. The 401(k) plans permit U.S. participants to
make contributions by salary reduction pursuant to Section 401(k) of the Code. Due primarily to acquisitions, we have plans with
varied terms. At September 30, 2016, our contributions may be up to 7.5% for U.S. salaried and non-union hourly employees,
consisting of a match of up to 5% and an automatic employer contribution of 2.5%. Certain other employees who receive accruals
under a defined benefit pension plan, as well as certain employees covered by CBAs, receive generally up to a 3.0% to 4.0%
contribution to their 401(k) plan. During fiscal 2016, 2015 and 2014, we recorded expense of $86.5 million, $36.6 million and
$34.3 million, respectively, related to the 401(k) plans and other defined contribution plans, including the automatic employer
contribution. The increased expense in fiscal 2016 related to plan changes following the Combination.
Supplemental Retirement Plans
We have Supplemental Plans that are nonqualified deferred compensation plans. We intend to provide participants with an
opportunity to supplement their retirement income through deferral of current compensation. Amounts deferred and payable under
the Supplemental Plans are our unsecured obligations and rank equally with our other unsecured and unsubordinated indebtedness
outstanding. Participants’ accounts are credited with investment gains and losses under the Supplemental Plans in accordance with
the participant’s investment election or elections (or default election or elections) as in effect from time to time. At September 30,
2016, the Supplemental Plans had assets totaling $162.3 million that are recorded at market value, and liabilities of $161.1 million.
The investment alternatives available under the Supplemental Plans are generally similar to investment alternatives available under
401(k) plans. The recorded amount for the current fiscal year and the preceding two fiscal years was not significant.
Note 15. Stockholders’ Equity
Capitalization
Our capital stock consists solely of Common Stock. Holders of our Common Stock are entitled to one vote per share. Our
certificate of incorporation also authorizes preferred stock, of which no shares have been issued. The terms and provisions of such
107
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
shares will be determined by our board of directors upon any issuance of such shares in accordance with our certificate of
incorporation.
Stock Repurchase Plan
In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of our Common Stock,
representing approximately 15% of our outstanding Common Stock as of July 1, 2015. The shares of our Common Stock may be
repurchased over an indefinite period of time at the discretion of management. In fiscal 2016, we repurchased approximately 8.1
million shares of our Common Stock for an aggregate cost of $335.3 million. Subsequent to the authorization, in the fourth quarter
of fiscal 2015, we repurchased approximately 5.4 million shares of our Common Stock for an aggregate cost of $328.0 million.
Separately, as part of the Combination, RockTenn repurchased 10.5 million shares of RockTenn Common Stock for an aggregate
cost of $667.8 million. Prior to the closing of the Combination and pursuant to the then existing RockTenn repurchase plan, in the
first quarter of fiscal 2015, RockTenn repurchased 0.2 million shares of RockTenn Common Stock for an aggregate cost of $8.7
million and in fiscal 2014, it repurchased approximately 4.7 million shares of RockTenn Common Stock for an aggregate cost of
$236.3 million. As of September 30, 2016, we had remaining authorization under our July 2015 repurchase program to purchase
approximately 26.5 million shares of our Common Stock.
Note 16. Share-Based Compensation
Share-based Compensation Plans
At our Annual Meeting of Stockholders held on February 2, 2016, our stockholders approved the 2016 Incentive Stock Plan
and the ESPP Plan. The 2016 Incentive Stock Plan allows for the granting of options and restricted stock, SARs and restricted
stock units to certain key employees and directors for the issuance of up to approximately 9.6 million shares of Common Stock.
Adjusted for the Separation as discussed below, at September 30, 2016, approximately 7.9 million shares remained available for
future grants. If all currently outstanding restricted stock awards granted with a performance condition recorded at target achieve
the maximum award, shares available for future grant would be reduced by approximately 1.3 million million additional shares.
The ESPP Plan provides for the purchase of shares by all of our eligible employees at a 15% discount and allows for the purchase
of a total of up to approximately 2.5 million shares of Common Stock.
In connection with the Combination, WestRock assumed all RockTenn and MWV equity incentive plans. We issue nonqualified
stock options and restricted stock to certain key employees and our directors pursuant to our RockTenn 2004 Incentive Stock Plan,
as amended, and our MWV 2005 Performance Incentive Plan, as amended.
Our RockTenn 2004 Incentive Stock Plan allows for the granting of options and restricted stock, SARs and restricted stock
units to certain key employees and directors for the issuance of approximately 15.8 million shares of Common Stock. At the time
of the Combination all outstanding RockTenn awards were converted to WestRock awards with no conversion factor. Adjusted
for the Separation as discussed below, at September 30, 2016, approximately 3.3 million shares remained available for the future
grant of awards. If all currently outstanding restricted stock awards subject to performance criteria recorded at target achieve the
maximum award, shares available for future grant would be reduced by approximately 0.9 million additional shares. However,
we have determined that we will not make any new grants of awards pursuant to the RockTenn 2004 Incentive Stock Plan.
The MWV shares available for issuance, stock options, SARs and unvested restricted stock units outstanding at the time of
the Combination under the MWV 2005 Performance Incentive Plan were converted into WestRock options, SARs and restricted
stock units, as applicable, with respect to shares of our Common Stock using the conversion factor as described in the Business
Combination Agreement. The number of shares available under this plan upon conversion was approximately 12.8 million shares.
Adjusted for the Separation as discussed below, at September 30, 2016, approximately 8.7 million shares remained available for
future grants. If all currently outstanding restricted stock awards granted with a performance condition recorded at target achieve
the maximum award, shares available for future grant would be reduced by approximately 0.5 million additional shares. However,
we have determined that we will not make any new grants of awards pursuant to the MWV 2005 Performance Incentive Plan.
In connection with the Smurfit-Stone Acquisition, we assumed the Smurfit-Stone equity incentive plan, which was renamed
the Rock-Tenn Company (SSCC) Equity Incentive Plan. The shares available for issuance, stock options and unvested restricted
stock units outstanding at the time of the Smurfit-Stone Acquisition, under the Smurfit-Stone plan were converted into shares of
RockTenn Common Stock, options and restricted stock units, as applicable, using the conversion factor as described in the merger
agreement. The number of shares available under this plan upon conversion was approximately 7.9 million shares. Adjusted for
108
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the Separation as discussed below, at September 30, 2016, approximately 5.9 million shares remained available for future grants
exclusively to legacy Smurfit-Stone employees who have continued employment with WestRock; however, we have determined
that we will not make any new grants of awards pursuant to the Rock-Tenn Company (SSCC) Equity Incentive Plan.
As part of the Separation, equity-based incentive awards were generally adjusted to maintain the intrinsic value of awards
immediately prior to the Separation. The number of unvested restricted stock awards and unexercised stock options and SARs at
the time of the Separation were increased by an exchange factor of approximately 1.12. In addition, the exercise price of unexercised
stock options and SARs at the time of the Separation was converted to decrease the exercise price by an exchange factor of
approximately 1.12. The share increases are reflected in the tables below on the line item “Adjustments due to Separation”. The
weighted-average grant date fair value of adjustments is equal to the weighted-average grant date fair value of the awards outstanding
at the date of the Separation, at their respective grant date, divided by a factor of approximately 1.12, and the weighted-average
grant date fair value of the unvested restricted stock as of September 30, 2016 reflects the adjustments.
Our results of operations for the fiscal years ended September 30, 2016, 2015 and 2014 include share-based compensation
expense of $75.7 million, $49.2 million and $42.6 million, respectively. The total income tax benefit in the results of operations
in connection with share-based compensation was $29.2 million, $19.0 million and $16.8 million, for the fiscal years ended
September 30, 2016, 2015 and 2014, respectively.
ASC 718 requires that the benefits of tax deductions in excess of recognized compensation cost are reported as a financing
cash flow. Excess tax benefits of approximately $0.3 million, $23.0 million and $15.1 million were included in cash used for
financing activities in fiscal 2016, 2015 and 2014, respectively. Cash received from share-based payment arrangements for the
fiscal years ended September 30, 2016, 2015 and 2014 was $33.9 million, $27.2 million and $6.9 million, respectively.
Equity Awards Issued in Connection with the Combination
Included in the fiscal 2015 merger consideration was approximately $210.9 million related to outstanding MWV equity awards
that were replaced with WestRock equity awards with identical terms for pre-Combination service utilizing a 0.78 conversion
factor. The amount related to post-Combination service will be expensed over the remaining service period of the awards. The
primary components of the employee awards are discussed below.
Stock Options and Stock Appreciation Rights
Stock options granted under our plans generally have an exercise price equal to the closing market price on the date of the
grant, generally vest in 3 years, in either one tranche or in approximately one-third increments, and have 10-year contractual terms.
However, a portion of our grants are subject to earlier expense recognition due to retirement eligibility rules. Our stock option
grants provide for accelerated vesting if there is a change in control (as defined in the applicable plan). However, the Compensation
Committee of the board of directors has determined that effective with the fiscal 2013 grants, other than circumstances such as
death and disability, grants will include a provision requiring both a change of control and termination of employment to accelerate
vesting.
At the date of grant, we estimate the fair value of stock options granted using a Black-Scholes option pricing model. We use
historical data to estimate option exercises and employee terminations in determining the expected term in years for stock options.
Expected volatility is calculated based on the historical volatility of our stock, or a combination of the historical volatility of both
RockTenn and MWV grants following the Combination. The risk-free interest rate is based on U.S. Treasury securities in effect
at the date of the grant of the stock options. The dividend yield is estimated based on our historic annual dividend payments and
current expectations for the future.
109
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We applied the following weighted average assumptions to estimate the fair value of stock option grants made in the following
periods, including the grants issued in connection with the Combination in fiscal 2015:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
7.0
38.3%
1.6%
4.5%
3.9
21.9%
2.4%
1.3%
6.9
43.9%
2.1%
1.4%
The reduction in the expected term and the expected volatility in fiscal 2015 were primarily the result of the shares issued in
connection with the Combination and our expectations for expected term and expected volatility following the Combination.
The table below summarizes the changes in all stock options during the fiscal year ended September 30, 2016:
Stock
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in millions)
Outstanding at September 30, 2015. . . . . . . . . . . . . . . . . . .
7,189,654
$
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment due to the Separation . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2016 . . . . . . . . . . . . . . . . .
Exercisable at September 30, 2016. . . . . . . . . . . . . . . . . .
Vested and expected to vest at September 30, 2016 . . . .
1,251,560
(1,225,230)
(49,049)
(31,984)
930,865
8,065,816
6,389,188
8,027,460
$
$
$
33.19
33.39
30.75
35.68
37.60
29.73
28.46
29.71
5.1
4.1
5.1
$
$
$
156.6
130.9
156.0
The weighted average grant date fair value for options granted during the fiscal years ended September 30, 2016, 2015 and
2014 was $8.06, $28.78 and $20.74 per share, respectively. The aggregate intrinsic value of options exercised during the years
ended September 30, 2016, 2015 and 2014 was $14.5 million, $25.1 million and $17.8 million, respectively.
As of September 30, 2016, there was $6.8 million of total unrecognized compensation cost related to nonvested stock options;
that cost is expected to be recognized over a weighted average remaining vesting period of 1.9 years. We amortize these costs on
a straight-line basis over the explicit service period.
As part of the Combination, we issued SARs to replace outstanding MWV SARs. The SARs were valued using the Black-
Scholes option pricing model. We measure compensation expense related to the SAR awards at the end of each period. No additional
SARs are presently expected to be issued.
110
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below summarizes the changes in all SARs during the fiscal year ended September 30, 2016:
Weighted
Average
Exercise
Price
SARs
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in millions)
Outstanding at September 30, 2015. . . . . . . . . . . . . . . . . . .
86,419
$
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment due to the Separation . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2016 . . . . . . . . . . . . . . . . .
Exercisable at September 30, 2016. . . . . . . . . . . . . . . . . .
—
(13,889)
(14,742)
8,183
65,971
65,971
$
$
28.98
—
30.74
24.29
26.07
26.07
4.0
4.0
$
$
1.5
1.5
The aggregate intrinsic value of SARs exercised during the year ended September 30, 2016 was $0.2 million.
Restricted Stock
Restricted stock is typically granted annually to non-employee directors and certain of our employees. Our non-employee
director awards generally vest over a period of up to one year and are treated as issued and carry dividend and voting rights until
they vest. The vesting provisions for our employees may vary from grant to grant; however, vesting generally is contingent upon
meeting various service and/or performance or market goals including, but not limited to, achievement of various financial targets
including Cash Flow Per Share and Cash Flow to Equity Ratio (each as defined in the award documents). Subject to the level of
performance attained, the target award of some of the grants may be increased up to 200% of target or decreased to zero depending
upon the terms of the individual grant. The employee grants generally vest over a period of 3 years. Our grants provide for
accelerated vesting if there is a change in control (as defined in the applicable plan). However, the Compensation Committee of
the board of directors has determined that effective with the fiscal 2013 grants, other than circumstances such as death and disability,
the grants will include a provision requiring both a change of control and termination of employment to accelerate vesting. For
certain employee grants, the grantee of the restricted stock is entitled to receive dividend equivalent units, but will forfeit the
restricted award and dividend equivalents if the employee separates from the company during the vesting period or if predetermined
goals are not accomplished.
The table below summarizes the changes in unvested restricted stock during the fiscal year ended September 30, 2016:
Shares/Units
Weighted
Average
Grant Date Fair
Value
Unvested at September 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,327,231
$
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment due to the Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at September 30, 2016(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,750,546
(1,589,761)
(85,222)
302,110
2,704,904
$
56.13
35.80
49.54
50.02
40.89
(1) Target awards with a performance condition, net of subsequent forfeitures, granted may be increased up to 200% of the target
or decreased to zero, subject to the level of performance attained. The awards are reflected in the table at the target award
amount of 100%. Based on current facts and assumptions we are forecasting the performance of the grants to be attained at
levels that would result in the issuance of approximately 1.9 million additional shares. However, it is possible that the
performance attained may vary.
There was approximately $84.5 million of unrecognized compensation cost related to all unvested restricted shares as of
September 30, 2016 that will be recognized over a weighted average remaining vesting period of 1.5 years.
111
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table represents a summary of restricted stock vested in fiscal 2016, 2015 and 2014 (in millions, except shares):
Shares of restricted stock vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate fair value of restricted stock vested . . . . . . . . . . . . . . . . . . . . . . . . $
2016
1,589,761
2015
1,725,435
57.5
$
110.4
$
2014
530,668
28.8
The shares vested in 2016 reflect the vesting of the fiscal 2013 grant, with a cash flow to equity ratio performance condition
that vested at maximum, certain shares assumed upon the combination with a performance and/or service condition, as well as
other awards accelerated in connection with the Combination for certain former employees. The shares vested in fiscal 2015
primarily reflect the vesting of the fiscal 2012 grant, with a cash flow to equity ratio performance condition that vested at maximum,
as well as other awards accelerated in connection with the Combination for certain former employees.
The following table represents a summary of restricted stock shares granted in fiscal 2016, 2015 and 2014 with terms defined
in the applicable grant letters. The shares are not deemed to be issued and carry voting rights until the relevant conditions defined
in the award documents have been met, unless otherwise noted.
Shares of restricted stock granted to non-employee directors(1) . . . . . . . . . . . . .
Shares of restricted stock granted to employees:
Shares granted for attainment of a performance condition at an amount in
excess of target (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares granted with a service condition and a Cash Flow Per Share
performance condition at target (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares granted with a service condition (4) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares granted with a service condition and a performance condition
prorated upon the Combination (5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of restricted stock assumed upon the Combination:
Shares granted with a service condition and a performance condition (6) (7). .
Shares granted with a service condition (7) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restricted stock granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
64,155
15,255
21,500
447,261
801,810
51,218
1,211,760
27,370
—
—
—
429,845
86,265
64,323
650,685
327,005
482,710
12,560
—
—
—
1,750,546
2,375,188
567,988
(1) Non-employee director grants generally vest over a period of up to one year and are deemed issued on the grant date and have
voting and dividend rights.
(2) Shares granted in the table above include shares subsequently issued for the level of performance attained in excess of target.
Shares issued in fiscal 2016 for the fiscal 2013 Cash Flow to Equity Ratio were at 200% of target. Shares issued in fiscal 2015
for the fiscal 2012 Cash Flow to Equity Ratio were at 200% of target. Shares issued in fiscal 2016 and 2015 also include
shares accelerated for terminated employees as a result of the Combination which were achieved at between 146.5% and
200% of target. Shares issued in fiscal 2014 for the fiscal 2011 Cash Flow to Equity Ratio were at between 110.56% and
115.29% of target.
(3) These employee grants vest over approximately three years and have adjustable ranges from 0-200% of target subject to the
level of performance attained in the respective award agreement.
(4) These shares vest over approximately three to four years.
(5) As a result of the Combination, certain target awards granted to employees in fiscal 2015 were prorated with the employee
receiving approximately 16.6% of the target award in accordance with the terms in the award document prior to the application
of the performance adjustment. The performance period applicable to each award ended upon consummation of the
Combination, and the performance goals were determined in accordance with the applicable grant letter to be attained at
146.5% of target.
112
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(6) The performance period applicable to each award ended upon consummation of the Combination, and the performance goals
were determined in accordance with the applicable grant letter to be attained at between 100% and 168% of target.
(7) These shares vest over approximately one to three years.
Expense is recognized on restricted stock grants on a straight-line basis over the explicit service period or for performance
based grants over the explicit service period when we estimate that it is probable the performance conditions will be satisfied.
Expense recognized on grants with a performance condition that affects how many shares are ultimately awarded is based on the
number of shares expected to be awarded.
Employee Stock Purchase Plan
At our Annual Meeting of Stockholders held on February 2, 2016, our stockholders approved the ESPP Plan. Under the ESPP
Plan, shares of Common Stock are reserved for purchase by our qualifying employees. The ESPP Plan allowed for the purchase
of a total of approximately 2.5 million shares of Common Stock. During fiscal 2016, 2015 and 2014, including the then existing
RockTenn Employee Stock Purchase Plan, employees purchased approximately 0.1 million, 0.1 million and 0.1 million shares,
respectively, under the ESPP Plan. We recognized $0.4 million, $0.5 million and $0.8 million of expense for fiscal 2016, 2015
and 2014, respectively, related to the 15% discount on the purchase price allowed to employees. As of September 30, 2016, adjusted
for the Separation, approximately 2.8 million shares of Common Stock remained available for purchase under the ESPP Plan.
Note 17. Related Party Transactions
We sell products to affiliated companies. Net sales to the affiliated companies for the fiscal years ended September 30, 2016,
2015 and 2014 were approximately $346.6 million, $342.8 million and $367.3 million, respectively. Accounts receivable due from
the affiliated companies at September 30, 2016 and 2015 was $59.4 million and $43.4 million, respectively, and was included in
accounts receivable on our consolidated balance sheets.
Note 18. Commitments and Contingencies
Capital Additions
Estimated costs for future purchases of fixed assets that we are obligated to purchase as of September 30, 2016, total
approximately $174 million.
Environmental and Other Matters
Environmental compliance requirements are a significant factor affecting our business. We employ manufacturing processes
which result in various discharges, emissions and wastes. These processes are subject to numerous federal, state, local and
international environmental laws and regulations, as well as the requirements of environmental permits and similar authorizations
issued by various governmental authorities.
On January 31, 2013, the EPA published a set of four interrelated final rules establishing national air emissions standards for
hazardous air pollutants from industrial, commercial and institutional boilers and process heaters, commonly known as “Boiler
MACT.” For our boilers, Boiler MACT required compliance by January 31, 2016, unless a facility requested and received an
extension. All of our mills that are subject to regulation under Boiler MACT met the January 31, 2016 compliance deadline, with
the exception of those mills for which we obtained a compliance extension. We expect our mills that obtained an extension to be
in compliance by their respective extension dates, none of which extend beyond January 31, 2017. On July 29, 2016, the U.S.
Court of Appeals for the District of Columbia Circuit issued a ruling on the consolidated cases challenging Boiler MACT. The
court vacated key portions of the rule, including emission limits for certain subcategories of solid fuel boilers, and remanded other
issues to the EPA for further rulemaking. At this time, we cannot predict with certainty how the recent decision will impact our
existing Boiler MACT strategies or whether we will incur additional costs to comply with any revised Boiler MACT standards.
In addition to Boiler MACT, we are subject to a number of other federal, state, local and international environmental rules
that may impact our business, including the National Ambient Air Quality Standards for nitrogen oxide, sulfur dioxide, fine
particulate matter and ozone for facilities in the U.S.
113
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We are involved in various administrative proceedings relating to environmental matters that arise in the normal course of
business, and may be involved in future matters. Although the ultimate outcome of such matters cannot be predicted with certainty
and we cannot at this time estimate any reasonably possible losses based on available information, management does not believe
that the currently expected outcome of any environmental proceedings and claims that are pending or threatened against us will
have a material adverse effect on our results of operations, financial condition or cash flows.
CERCLA and Other Remediation Costs
We face potential liability under federal, state, local and international laws as a result of releases, or threatened releases, of
hazardous substances into the environment from various sites owned and operated by third parties at which Company-generated
wastes have allegedly been deposited. Generators of hazardous substances sent to off-site disposal locations at which environmental
problems exist, as well as the owners of those sites and certain other classes of persons, are liable for response costs for the
investigation and remediation of such sites under CERCLA and analogous laws. While joint and several liability is authorized
under CERCLA, liability is typically shared with other PRPs and costs are commonly allocated according to relative amounts of
waste deposited and other factors.
In addition, certain of our current or former locations are being investigated or remediated under various environmental laws
and regulations. Based on information known to us and assumptions, we do not believe that the costs of these projects will have
a material adverse effect on our results of operations, financial condition or cash flows. However, the discovery of contamination
or the imposition of additional obligations at these or other sites in the future could result in additional costs.
On January 26, 2009, Smurfit-Stone and certain of its subsidiaries filed a voluntary petition for relief under Chapter 11 of the
U.S. Bankruptcy Code. Smurfit-Stone’s Canadian subsidiaries also filed to reorganize in Canada. We believe that matters relating
to previously identified third party PRP sites and certain facilities formerly owned or operated by Smurfit-Stone have been or will
be satisfied claims in the Smurfit-Stone bankruptcy proceedings. However, we may face additional liability for cleanup activity
at sites that existed prior to bankruptcy discharge, but are not currently identified. Some of these liabilities may be satisfied from
existing bankruptcy reserves.
We believe that we can assert claims for indemnification pursuant to existing rights we have under settlement and purchase
agreements in connection with certain of our existing remediation sites. In addition, we believe that we have insurance coverage,
subject to applicable deductibles/retentions, policy limits and other conditions, for certain environmental matters. However, there
can be no assurance that we will be successful with respect to any claim regarding these insurance or indemnification rights or
that, if we are successful, any amounts paid pursuant to the insurance or indemnification rights will be sufficient to cover all our
costs and expenses. We also cannot predict with certainty whether we will be required to perform remediation projects at other
locations, and it is possible that our remediation requirements and costs could increase materially in the future and exceed current
reserves. In addition, we cannot currently assess with certainty the impact that future changes in cleanup standards or federal, state
or other environmental laws, regulations or enforcement practices will have on our results of operations, financial condition or
cash flows.
As of September 30, 2016, we had approximately $17.4 million reserved for environmental liabilities on an undiscounted
basis, of which $8.6 million is included in other long-term liabilities and $8.8 million in other current liabilities, including amounts
accrued in connection with environmental obligations relating to the manufacturing facilities that we have closed. We believe the
liability for these matters was adequately reserved at September 30, 2016.
Climate Change
Certain jurisdictions in which we have manufacturing facilities or other investments have taken actions to address climate
change. In the U.S., the EPA has issued the Clean Air Act permitting regulations applicable to certain facilities that emit GHG.
The EPA also has promulgated a rule requiring certain industrial facilities that emit 25,000 metric tons or more of carbon dioxide
equivalent per year to file an annual report of their emissions. While we have facilities subject to existing GHG permitting and
reporting requirements, the impact of these requirements has not been material to date.
Additionally, the EPA has been working on a set of interrelated rulemakings aimed at cutting carbon emissions from power
plants. On August 3, 2015, the EPA issued a final rule establishing GHG emission guidelines for existing electric utility generating
units (known as the “Clean Power Plan”). On the same day, the EPA issued a second rule setting standards of performance for
new, modified and reconstructed electric utility generating units. While these rules do not apply directly to the power generation
114
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
facilities at our mills, they have the potential to increase the cost of purchased electricity for our manufacturing operations and
change the treatment of certain types of biomass that are currently considered carbon neutral. On February 9, 2016, the U.S.
Supreme Court issued a stay halting implementation of the Clean Power Plan until the pending legal challenges to the rule are
resolved. A number of states subject to the Clean Power Plan have stopped working on their implementation strategies in light of
this decision; however, certain states where we operate manufacturing facilities are continuing their efforts. We are carefully
monitoring the state-level developments relating to this rule. Due to ongoing litigation and other uncertainties regarding these
GHG regulations, including the potential impact of a new U.S. executive administration in 2017, their impact on us cannot be
quantified with certainty at this time.
In addition to national efforts to regulate climate change, some U.S. states in which we have manufacturing operations are
also taking measures to reduce GHG emissions, such as requiring GHG emissions reporting or the development of regional cap-
and trade programs. California has enacted a cap-and-trade program that took effect in 2012, and includes enforceable compliance
obligations that began on January 1, 2013. We do not have any manufacturing facilities that are subject to the cap-and-trade
requirements in California; however, we are continuing to monitor the implementation of this program as well as proposed
mandatory GHG reduction efforts in other states. Also, the Washington Department of Ecology has issued a final rule, known as
the Clean Air Rule, which limits GHGs from facilities that have average annual carbon dioxide equivalent emissions equal to or
exceeding 100,000 metric tons/year and proposes to begin GHG emissions reduction requirements for some regulated entities in
2017. Energy intensive and trade exposed facilities and transportation fuel importers, including our Tacoma, WA mill, are subject
to regulation under this program. In September 2016, various groups filed lawsuits against the Washington Department of Ecology
challenging the Clean Air Rule. We are carefully monitoring this litigation to assess its potential impact on our Tacoma operations.
In April 2016, the U.S. and over 170 other countries signed the Paris Agreement, which arose out of negotiations at the United
Nation’s Conference of Parties (COP21) climate summit in December 2015. The Paris Agreement establishes a framework for
reducing global GHG emissions. By signing the Paris Agreement, the U.S. made a non-binding commitment to reduce economy-
wide GHG emissions by 26% to 28% below 2005 levels by 2025. Other countries in which we conduct business, including China,
European Union member states and India, have set similar GHG reduction targets. The Paris Agreement came into force on October
3, 2016. Although, the Paris Agreement does not contain legally binding emissions reduction requirements and it is unclear if the
new U.S. executive administration will seek to implement it, implementing legislation by ratifying governments to achieve their
respective commitments may require industrial facilities, including our operations, to make process changes, incur capital
expenditures and/or increase operating costs.
Several of our international facilities are located in countries that have already adopted GHG emissions trading schemes. For
example, Quebec has become a member of the Western Climate Initiative, which is a collaboration among California and certain
Canadian provinces that have joined together to create a cap-and-trade program to reduce GHG emissions. In 2009, Quebec adopted
a target of reducing GHG emissions by 20% below 1990 levels by 2020. In 2011, Quebec issued a final regulation establishing a
regional cap-and-trade program that required reductions in GHG emissions from covered emitters as of January 1, 2013. Our mill
in Quebec is subject to these cap-and-trade requirements, although the direct impact of this regulation has not been material to
date. Compliance with this program and other similar programs may require future expenditures to meet required GHG emission
reduction requirements in future years.
The regulation of climate change continues to develop in the areas of the world where we conduct business. We have systems
in place for tracking the GHG emissions from our energy-intensive facilities, and we carefully monitor developments in climate
change laws, regulations and policies to assess the potential impact of such developments on our results of operations, financial
condition, cash flows and disclosure obligations.
Litigation
In 2010, Smurfit-Stone was one of nine U.S. and Canadian containerboard producers named as defendants in a lawsuit, in
the U.S. District Court of the Northern District of Illinois, alleging that these producers violated the Sherman Act by conspiring
to limit the supply and fix the prices of containerboard from mid-2005 through November 8, 2010 (the “Antitrust Litigation”).
Plaintiffs have since amended their complaint by alleging a class period from February 15, 2004 through November 8, 2010.
RockTenn CP, LLC, as the successor to Smurfit-Stone, is a defendant with respect to the period after Smurfit-Stone’s discharge
from bankruptcy on June 30, 2010 through November 8, 2010. The complaint seeks treble damages and costs, including attorney’s
fees. In March 2015, the court granted the Plaintiffs’ motion for class certification and the class defendants, including us, appealed
that decision. On August 4, 2016, the United States Court of Appeals for the Seventh Circuit affirmed the District Court’s decision
regarding class certification. We believe the allegations are without merit and will defend this lawsuit vigorously. However, at this
115
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
stage of the litigation, we are unable to predict the ultimate outcome or estimate a range of reasonably possible losses.
As with numerous other large industrial companies, we have been named a defendant in asbestos-related personal injury
litigation. Typically, these suits also name many other corporate defendants. To date, the costs resulting from the litigation, including
settlement costs, have not been significant. As of September 30, 2016, there were approximately 693 lawsuits. We believe that we
have substantial insurance coverage, subject to applicable deductibles and policy limits, with respect to asbestos claims. We have
valid defenses to these claims and intend to continue to defend them vigorously. Should the volume of litigation grow substantially,
it is possible that we could incur significant costs resolving these cases. We believe that the resolution of pending litigation and
proceedings is not expected to have a material adverse effect on our consolidated financial condition or liquidity. In any given
period or periods, however, it is possible such proceedings or matters could have a material effect on the results of operations.
We are a defendant in a number of other lawsuits and claims arising out of the conduct of our business. While the ultimate
results of such suits or other proceedings against us cannot be predicted with certainty, management believes the resolution of
these matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Guarantees
We make certain guarantees in the course of conducting our operations, for compliance with certain laws and regulations, or
in connection with certain business dispositions. The guarantees include items such as funding of net losses in proportion to our
ownership share of certain joint ventures, debt guarantees related to certain unconsolidated entities acquired in acquisitions,
indemnifications of lessors in certain facilities and equipment operating leases for items such as additional taxes being assessed
due to a change in tax law, and, certain other agreements. We estimate the exposure for these matters could be up to $50 million.
As of September 30, 2016, we have recorded $5.2 million for the estimated fair value of these guarantees. We are unable to estimate
our maximum exposure under operating leases because it is dependent on potential changes in the tax law, however, we believe
our exposure related to guarantees would not have a material impact on our results of operations, financial condition or cash flows.
Note 19.
Special Purpose Entities
Pursuant to a sale of certain large-tract forestlands in 2007, a special purpose entity MWV Timber Notes Holding, LLC (“MWV
TN”) received, and WestRock assumed upon the Combination, an installment note receivable in the amount of $398.0 million
(the “Timber Note”). The Timber Note does not require any principal payments until its maturity in October 2027 and bears
interest at a rate approximating LIBOR. In addition, the Timber Note is supported by a bank-issued irrevocable letter of credit
obtained by the buyer of the forestlands. The Timber Note is not subject to prepayment in whole or in part prior to maturity. The
bank’s credit rating as of November 2016 was investment grade.
Using the Timber Note as collateral, MWV TN received $338.3 million in proceeds under a secured financing agreement with
a bank. Under the terms of the agreement, the liability from this transaction is non-recourse to the Company and is payable from
the Timber Note proceeds upon its maturity in October 2027. As a result, the Timber Note is not available to satisfy any obligations
of WestRock. MWV TN can elect to prepay at any time the liability in whole or in part, however, given that the Timber Note is
not prepayable, MWV TN expects to only repay the liability at maturity from the Timber Note proceeds.
The Timber Note and the secured financing liability were fair valued on the opening balance sheet in connection with the
Combination. As of September 30, 2016, the Timber Note was $359.8 million and is included within restricted assets held by
special purpose entities on the consolidated balance sheet and the secured financing liability was $320.1 million and is included
within non-recourse liabilities held by special purpose entities on the consolidated balance sheet.
Pursuant to the sale of MWV’s remaining U.S. forestlands, which occurred on December 6, 2013, another special purpose
entity MWV Timber Notes Holding Company II, LLC (“MWV TN II”) received, and WestRock assumed upon the Combination,
an installment note receivable in the amount of $860.0 million (the “Installment Note”). The Installment Note does not require
any principal payments until its maturity in December 2023 and bears interest at a fixed rate of 5.207%. However, at any time
during a 180-day period following receipt by the borrower of notice from us that we intend to withhold our consent to any amendment
or waiver of this Installment Note that was requested by the borrower and approved by any eligible assignees, the borrower may
prepay the Installment Note in whole but not in part for cash at 100% of the principal, plus accrued but unpaid interest, breakage,
or other similar amount if any. As of September 30, 2016, no event has occurred that would allow for the prepayment of the
Installment Note. We monitor the credit quality of the borrower and receive quarterly compliance certificates. The borrower’s
credit rating as of November 2016 was investment grade.
116
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Using the Installment Note as collateral, MWV TN II received $774.0 million in proceeds under a secured financing agreement
with a bank. Under the terms of the agreement, the liability from this transaction is non-recourse to the Company and is payable
from the Installment Note proceeds upon its maturity in December 2023. As a result, the Installment Note is not available to satisfy
any obligations of WestRock. MWV TN II can elect to prepay, at any time, the liability in whole or in part, with sufficient notice,
but would avail itself of this provision only in the event the Installment Note was prepaid in whole or in part. The secured financing
agreement however requires a mandatory repayment, up to the amount of cash received, if the Installment Note is prepaid in whole
or in part.
The Installment Note and the secured financing liability were fair valued on the opening balance sheet in connection with
the Combination. As of September 30, 2016, the Installment Note was $934.0 million and is included within restricted assets
held by special purpose entities on the consolidated balance sheet and the secured financing liability was $850.1 million and is
included within non-recourse liabilities held by special purpose entities on the consolidated balance sheet.
Note 20.
Segment Information
Subsequent to the Separation, we report our financial results of operations in the following three reportable segments:
Corrugated Packaging, which consists of our containerboard mill and corrugated packaging operations, as well as our recycling
operations; Consumer Packaging, which consists of consumer mills, folding carton, beverage, merchandising displays, home,
health and beauty dispensing, and partition operations; and Land and Development, which develops and sells real estate primarily
in the Charleston, SC region. Certain income and expenses are not allocated to our segments and, thus, the information that
management uses to make operating decisions and assess performance does not reflect such amounts. Items not allocated are
reported as non-allocated expenses or in other line items in the table below after segment income.
Some of our operations included in the segments are located in locations such as Canada, Mexico, South America, Europe
and Asia. The table below reflects financial data of our foreign operations for each of the past three fiscal years (in millions, except
percentages):
Foreign net sales to unaffiliated customers . . . . . . . . . . . . . . . . . . . . $
Foreign segment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign long-lived assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Years Ended September 30,
2015
1,506.5
171.6
$
$
$
$
2016
2,426.6
226.1
2014
1,191.8
109.6
1,341.5
$
1,228.0
$
379.6
Foreign operations as a percent of consolidated operations:
Foreign net sales to unaffiliated customers . . . . . . . . . . . . . . . . . . . .
Foreign segment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign long-lived assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.1%
18.4%
14.4%
13.5%
16.0%
13.4%
12.0%
10.5%
6.5%
We evaluate performance and allocate resources based, in part, on profit from operations before income taxes, interest and
other items. The accounting policies of the reportable segments are the same as those described in “Note 1. Description of Business
and Summary of Significant Accounting Policies”. We account for intersegment sales at prices that approximate market prices.
For segment reporting purposes, we include our equity in income of unconsolidated entities in segment income, as well as our
investments in unconsolidated entities in segment identifiable assets, neither of which is material. Certain income and expenses
are not allocated to our segments and, thus, the information that management uses to make operating decisions and assess
performance does not reflect such amounts. Items not allocated are reported as non-allocated expenses or in other line items in
the table below after segment income.
117
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows selected operating data for our segments (in millions):
Years Ended September 30,
2016
2015
2014
7,868.5
$
7,516.9
$
Net sales (aggregate):
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less net sales (intersegment):
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net sales (unaffiliated customers):
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Segment income:
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension risk transfer expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension lump sum settlement and retiree medical curtailment, net . . . . . . . .
Restructuring and other costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-allocated expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
6,388.1
119.8
14,376.4
136.2
68.4
—
204.6
7,732.3
6,319.7
119.8
14,171.8
739.9
481.7
4.6
1,226.2
(370.7)
—
(366.4)
(49.1)
(256.7)
2.7
Interest income and other income (expense), net . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . . . . . . . . $
58.6
244.6
$
3,740.1
45.0
11,302.0
130.6
46.6
—
177.2
7,386.3
3,693.5
45.0
11,124.8
806.7
267.0
(3.4)
1,070.3
—
(11.5)
(140.8)
(58.4)
(132.5)
(2.6)
9.7
734.2
$
$
$
$
$
$
$
7,257.4
2,818.5
—
10,075.9
148.5
32.3
—
180.8
7,108.9
2,786.2
—
9,895.1
728.0
311.4
—
1,039.4
—
(47.9)
(55.6)
(72.7)
(95.3)
—
2.4
770.3
Segment income in fiscal 2016 and 2015 was reduced by $8.1 million and $64.7 million, respectively, of expense for inventory
stepped-up in purchase accounting, net of related LIFO impact. The Corrugated Packaging segment and Consumer Packaging
segment in fiscal 2016 were reduced by $3.4 million and $4.7 million, respectively. The Corrugated Packaging and Consumer
Packaging segment in fiscal 2015 were reduced by $2.2 million and $62.5 million, respectively.
118
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows selected operating data for our segments (in millions):
Years Ended September 30,
2016
2015
2014
Identifiable assets:
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,046.0
$
9,467.3
$
10,122.5
10,175.7
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
460.6
—
52.3
2,356.8
545.5
2,618.5
10.2
2,555.2
8,701.3
1,980.2
—
—
22.6
335.6
23,038.2
$
25,372.4
$
11,039.7
Goodwill:
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,722.5
$
1,667.5
$
3,055.6
—
2,979.6
—
1,525.4
401.0
—
4,778.1
$
4,647.1
$
1,926.4
Depreciation and amortization:
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
576.2
$
496.6
$
498.9
1.4
57.2
12.8
201.8
0.2
22.0
20.2
1,146.5
$
740.8
$
Capital expenditures:
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investment in unconsolidated subsidiaries:
Corrugated Packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Consumer Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
490.1
$
378.4
$
244.9
45.2
16.5
796.7
281.2
22.2
28.6
(3.1)
328.9
$
$
$
166.1
28.6
12.4
585.5
7.9
21.3
31.0
—
$
$
60.2
$
464.0
104.3
—
—
16.2
584.5
410.6
113.3
—
10.3
534.2
6.7
20.6
—
—
27.3
The increase in Corporate identifiable assets in fiscal 2015 is primarily due to the restricted assets held by special purpose
entities, our prepaid pension asset and life insurance assets each associated with the Combination. The increase in the Corrugated
Packaging segment’s investment in unconsolidated subsidiaries in fiscal 2016 is primarily related to the Grupo Gondi investment,
and the Corporate investment in unconsolidated subsidiaries in fiscal 2016 primarily represents an entity that has losses guaranteed
equally by the partners. The investment in Grupo Gondi that is included in the Corrugated Packaging segment’s investment in
119
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unconsolidated subsidiaries in fiscal 2016 exceeds our proportionate share of the underlying net assets by approximately $65.3
million. Approximately $56.2 million remains amortizable to expense in equity in income of unconsolidated entities over the
estimated life of the underlying assets ranging from 10 to 15 years.
The changes in the carrying amount of goodwill for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows
(in millions):
Corrugated
Packaging
Consumer
Packaging
Total
Balance as of October 1, 2013
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . .
Translation adjustment . . . . . . . . . . . . . . . . .
Balance as of September 30, 2014
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . .
Purchase price allocation adjustments . . . . .
Translation adjustment . . . . . . . . . . . . . . . . .
Balance as of September 30, 2015
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . .
Goodwill acquired . . . . . . . . . . . . . . . . . . . .
Goodwill disposed of . . . . . . . . . . . . . . . . . .
Purchase price allocation adjustments . . . . .
Translation adjustment . . . . . . . . . . . . . . . . .
Balance as of September 30, 2016
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses. . . . . .
1,499.9
$
—
1,499.9
29.0
(3.5)
1,525.4
—
1,525.4
183.3
2.4
(43.6)
1,667.5
—
1,667.5
52.4
(24.0)
(4.9)
31.5
$
405.0
(42.8)
362.2
42.2
(3.4)
443.8
(42.8)
401.0
2,586.5
(1.1)
(6.8)
3,022.4
(42.8)
2,979.6
8.0
—
67.6
0.4
1,722.5
—
1,722.5
$
3,098.4
(42.8)
3,055.6
$
$
1,904.9
(42.8)
1,862.1
71.2
(6.9)
1,969.2
(42.8)
1,926.4
2,769.8
1.3
(50.4)
4,689.9
(42.8)
4,647.1
60.4
(24.0)
62.7
31.9
4,820.9
(42.8)
4,778.1
The goodwill acquired in fiscal 2016 related to the SP Fiber Acquisition and the Packaging Acquisition. The goodwill disposed
of in the Corrugated Packaging segment in fiscal 2016 relates to the disposal of a portion of the reporting unit in connection with
the investment in the Grupo Gondi unconsolidated joint venture. The goodwill acquired in fiscal 2015 primarily relates to the
Combination. The goodwill acquired in fiscal 2014 related to the acquisitions of the Tacoma Mill, NPG and AGI In-Store.
120
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 21. Financial Results by Quarter (Unaudited)
Fiscal 2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension risk transfer expense . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other costs, net . . . . . . . . . . . . . . . . . . . .
Gain on extinguishment of debt . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations. . . . . . . . . . . . . .
(Loss) income from discontinued operations, net of tax . . .
Consolidated net (loss) income . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income attributable to common stockholders . . .
Basic (loss) earnings per share from continuing operations
Diluted (loss) earnings per share from continuing
operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic (loss) earnings per share attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted (loss) earnings per share attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,470.9
654.7
—
162.8
—
30.4
(482.1)
(451.7)
(453.5)
0.12
0.12
(1.76)
(1.73)
(In millions, except per share data)
3,596.5
$
727.3
3,492.7
657.3
$
—
111.1
—
58.4
1.4
59.8
56.9
0.22
0.22
0.22
0.22
—
43.1
—
152.4
(58.7)
93.7
92.3
0.60
0.59
0.37
0.36
$
3,611.7
719.3
370.7
49.4
2.7
(86.4)
(5.3)
(91.7)
(92.0)
(0.34)
(0.34)
(0.37)
(0.37)
Fiscal 2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,514.2
469.5
Pension lump sum settlement and retiree medical
curtailment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other costs, net . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt. . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations. . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . .
Consolidated net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common stockholders . . . . . . . .
Basic earnings per share from continuing operations . . . . .
Diluted earnings per share from continuing operations . . .
Basic earnings per share attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.9
5.4
—
125.6
—
125.6
125.1
0.89
0.88
0.89
0.88
(In millions, except per share data)
2,538.9
$
2,455.6
$
457.1
—
17.2
—
110.4
—
110.4
109.8
0.78
0.77
0.78
0.77
526.3
(0.4)
13.1
—
157.9
—
157.9
156.4
1.11
1.10
1.11
1.10
$
3,616.1
685.4
—
105.1
(2.6)
107.3
10.6
117.9
115.8
0.41
0.40
0.45
0.44
We computed the interim earnings per common and common equivalent share amounts as if each quarter was a discrete period.
As a result, the sum of the basic and diluted earnings per share by quarter will not necessarily total the annual basic and diluted
earnings per share.
(Loss) income from discontinued operations in the first quarter of fiscal 2016 financial results by quarter (unaudited) table
includes a pre-tax non-cash goodwill impairment charge of $478.3 million as a result of our evaluation of whether events or
changes in circumstances had occurred that would indicate whether it was more likely than not that the goodwill of our then-
121
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
owned Specialty Chemicals reporting unit was impaired. No tax benefit was recorded for the goodwill impairment. For additional
information see “Note 7. Discontinued Operations”. Basic and diluted earnings per share attributable to common stockholders
were decreased by approximately $1.86 and $1.83 per share, respectively.
(Loss) income from discontinued operations in the third quarter of fiscal 2016 financial results by quarter (unaudited) table
includes a $101.1 million pre-tax non-cash impairment of our Specialty Chemicals customer relationships intangible that was
evaluated at the time of the Separation. Basic and diluted earnings per share attributable to common stockholders were each
decreased by approximately $0.27 per share. For additional information regarding the impairment charge or the Separation see
“Note 7. Discontinued Operations” of the Notes to Consolidated Financial Statements.
Income from continuing operations in the fourth quarter of fiscal 2016 financial results by quarter (unaudited) table was
decreased due to a non-cash charge of $370.7 million recorded on the line item “Pension risk transfer expense” on our Consolidated
Statements of Operations as we settled $2.5 billion in pension obligations of the WestRock Company Consolidated Pension Plan.
Basic and diluted earnings per share from continuing operations and basic and diluted earnings per share attributable to common
stockholders were each decreased by approximately $0.91 per share. For additional information see “Note 14. Retirement Plans”.
During the first quarter of fiscal 2015, we partially settled obligations of one of our defined benefit pension plans through
lump sum payments to certain eligible former employees who were not currently receiving a monthly benefit. Income from
continuing operations before income taxes included a $20.0 million pre-tax non-cash charge to earnings. Additionally, in the first
quarter of fiscal 2015, changes in retiree medical coverage for certain employees covered by the USW master agreement resulted
in the recognition of an estimated $8.1 million pre-tax non-cash curtailment gain. The aforementioned items are recorded on the
line item “Pension lump sum settlement and retiree medical curtailment, net” on our Consolidated Statements of Operations.Basic
and diluted earnings per share from continuing operations and basic and diluted earnings per share attributable to common
stockholders were each decreased by approximately $0.06 per share. For additional information see “Note 14. Retirement Plans”.
Income from continuing operations in the second quarter of fiscal 2015 financial results by quarter (unaudited) table was
increased due to a reduction of cost of goods sold of $5.5 million pre-tax to record an additional value of spare parts at our
containerboard mills acquired in the Smurfit-Stone Acquisition. Basic and diluted earnings per share from continuing operations
and basic and diluted earnings per share attributable to common stockholders were increased by approximately $0.03 and $0.02
per share, respectively, during the second quarter of fiscal 2015 for the aforementioned items.
Income from continuing operations in the fourth quarter of fiscal 2015 financial results by quarter (unaudited) table was
reduced due to the inclusion of $63.4 million pre-tax of acquisition inventory step-up expense net of related LIFO impact recorded
in our segments as increased cost of goods sold. Basic and diluted earnings per share from continuing operations and basic and
diluted earnings per share attributable to common stockholders were each decreased by approximately $0.16 per share. Income
from discontinued operations in the fourth quarter of fiscal 2015 financial results by quarter (unaudited) table was reduced due to
the inclusion of $8.2 million pre-tax of acquisition inventory step-up expense, net of related LIFO impact recorded in our former
Specialty Chemicals segment as increased cost of goods sold. Basic and diluted earnings per share attributable to common
stockholders were each decreased by approximately $0.18 per share during the fourth quarter of fiscal 2015 for these two inventory
step-up expense items.
Note 22. Subsequent Events (Unaudited)
Pension Settlement Offer
In September 2016, we committed to an offer to partially settle obligations of our U.S. defined benefit pension plans in the
first quarter of fiscal 2017, through lump sum and annuity payments to certain eligible former employees who are not currently
receiving a monthly benefit. Eligible former employees whose present value of future pension benefits exceed a certain minimum
threshold can either voluntarily accept or not accept the offer and continue to be entitled to their monthly benefit upon retirement.
Based on our experience and that of other companies implementing similar programs, our advisors estimate that former employees
representing approximately $160 million to $200 million of aggregate pension benefit obligation will accept the pension settlement
offer. Lump sum and/or annuity payments will be made out of existing plan assets and we expect the plan’s funded status to be
materially unchanged as a result of the proposed transaction. However, depending upon the percentage of former employees that
accept the offer, and whether or not settlement accounting is required, we might recognize a non-cash charge in the period in which
the settlements occur. The amounts are estimates as they are subject to the percentage of former employees that accept the offer
122
WESTROCK COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and other factors, such as, but not limited to, whether or not the plan is remeasured in the first quarter of fiscal 2017, changes in
the discount rate and the actual return on plan assets since the September 30, 2016 measurement date.
Home Health and Beauty - Evaluation of Strategic Alternatives
In November 2016, we announced that our board of directors had authorized us to evaluate strategic alternatives for our
Home Health and Beauty business. These alternatives include the potential sale of the business during fiscal 2017. In the event
we sell the business for cash, we expect to use the sale proceeds in a manner that is consistent with our balanced capital
allocation strategy.
123
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
WestRock Company
We have audited the accompanying consolidated balance sheets of WestRock Company as of September 30, 2016 and 2015, and
the related consolidated statements of operations, comprehensive (loss) income, equity and cash flows for each of the three years
in the period ended September 30, 2016. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of WestRock Company at September 30, 2016 and 2015, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended September 30, 2016, 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),
WestRock Company’s internal control over financial reporting as of September 30, 2016, 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 November 23, 2016, expressed an unqualified opinion thereon.
Atlanta, Georgia
November 23, 2016
/s/ Ernst & Young LLP
124
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
WestRock Company
We have audited WestRock Company’s internal control over financial reporting as of September 30, 2016, 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). WestRock 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 Annual 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
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.
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.
In our opinion, WestRock Company maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of WestRock Company as of September 30, 2016 and 2015, and the related consolidated statements
of operations, comprehensive (loss) income, equity, and cash flows for each of the three years in the period ended September 30,
2016 of WestRock Company, and our report dated November 23, 2016, expressed an unqualified opinion thereon.
Atlanta, Georgia
November 23, 2016
/s/ Ernst & Young LLP
125
WESTROCK COMPANY
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s Responsibility for the Financial Statements
The management of WestRock Company is responsible for the preparation and integrity of the consolidated financial statements
appearing in our Annual Report on Form 10-K. The financial statements were prepared in conformity with GAAP appropriate in
the circumstances and, accordingly, include certain amounts based on our best judgments and estimates. Financial information in
this Annual Report on Form 10-K is consistent with that in the financial statements.
Internal Control Over Financial Reporting
Management of our company is responsible for establishing and maintaining adequate internal control over financial reporting
as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial
statements. Our internal control over financial reporting is supported by a program of internal audits and appropriate reviews by
management, written policies and guidelines, careful selection and training of qualified personnel and a written code of conduct
adopted by our board of directors that is applicable to all officers and employees of our Company and subsidiaries, as well as a
code of conduct that is applicable to all of our directors.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even
when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and
presentation. 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.
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2016. In making
this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control—Integrated Framework (2013 framework). The scope of our efforts to comply with Section 404 of
the Sarbanes-Oxley Act with respect to fiscal 2016 included all of our operations. Based on our assessment, management believes
that we maintained effective internal control over financial reporting as of September 30, 2016.
Our independent auditors, Ernst & Young LLP, an independent registered public accounting firm, are appointed by the Audit
Committee of our board of directors. Ernst & Young LLP has audited and reported on the consolidated financial statements of
WestRock Company, and has issued an attestation report on the effectiveness of our internal control over financial reporting. The
report of the independent registered public accounting firm is contained in this Annual Report.
Audit Committee Responsibility
The Audit Committee of our board of directors, composed solely of directors who are independent in accordance with the
requirements of the New York Stock Exchange listing standards, the Exchange Act and our Corporate Governance Guidelines,
meets with the independent auditors, management and internal auditors periodically to discuss internal control over financial
reporting and auditing and financial reporting matters. The Audit Committee reviews with the independent auditors the scope and
results of the audit effort. The Audit Committee also meets periodically with the independent auditors and the chief internal auditor
without management present to ensure that the independent auditors and the chief internal auditor have free access to the Audit
Committee. Our Audit Committee’s Report can be found in the Proxy Statement for the Annual Meeting of Stockholders to be
held on January 27, 2017, which will be filed on or before December 31, 2016, is incorporated herein by reference.
STEVEN C. VOORHEES,
Chief Executive Officer and President
WARD H. DICKSON,
Executive Vice President and Chief Financial Officer
November 23, 2016
126
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable - there were no changes in or disagreements with accountants on accounting and financial disclosure.
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and other procedures that are designed with the objective of ensuring the following:
•
•
that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and
that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding
required disclosure.
We have performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures
as of September 30, 2016, under the supervision and with the participation of our management, including our CEO and CFO.
Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of
September 30, 2016, to provide reasonable assurance that we record, process, summarize and report the information we must
disclose in reports that we file or submit under the Exchange Act within the time periods specified in the SEC's rules and forms.
In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as
ours are designed to do. Management also noted that the design of any system of controls is also based in part upon certain
assumptions about the likelihood of future events, and that there can be no assurance that any such design will succeed in achieving
its stated goals under all potential future conditions, regardless of how remote. Management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Internal Control Over Financial Reporting
The report called for by Item 308(a) of Regulation S-K is incorporated herein by reference to Management’s Annual Report
on Internal Control over Financial Reporting of WestRock Company, included in Part II, Item 8 of this report.
The attestation report called for by Item 308(b) of Regulation S-K is incorporated herein by reference to the Report of
Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, included in Part II, Item 8 of this
report.
Management has evaluated, with the participation of our CEO and CFO, changes in our internal controls over financial
reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2016. In connection with
that evaluation, we have determined that there was no change in internal control over financial reporting during the fourth quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
CEO and CFO Certifications
Our CEO and CFO have filed with the SEC the certifications required by Section 302 of the Sarbanes-Oxley Act as Exhibits
31.1 and 31.2, respectively, to this Annual Report on Form 10-K. In addition, on March 3, 2016, our CEO certified to the New
York Stock Exchange that he was not aware of any violation by the Company of the NYSE corporate governance listing standards
as in effect on March 3, 2016. The foregoing certification was unqualified.
Item 9B.
OTHER INFORMATION
Not applicable.
127
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Identification of Executive Officers
The executive officers of the Company are as follows as of November 22, 2016:
EXECUTIVE OFFICERS
Name
Age
Position Held
Steven C. Voorhees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62 Chief Executive Officer and President
Robert A. Feeser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55 President, Consumer Packaging
Jeffrey W. Chalovich . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
President, Corrugated Packaging
James B. Porter III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65 President, Business Development and Latin America
Ward H. Dickson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54 Executive Vice President and Chief Financial Officer
Robert B. McIntosh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
Executive Vice President, General Counsel and
Secretary
Jennifer Graham-Johnson . . . . . . . . . . . . . . . . . . . . . . . . .
48 Chief Human Resources Officer
A. Stephen Meadows . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66 Chief Accounting Officer
Steven C. Voorhees has served as WestRock’s chief executive officer and president since July 1, 2015. He served as RockTenn’s
chief executive officer from November 2013 through June 30, 2015, as RockTenn’s president and chief operating officer from
January 2013 through October 2013 and served as RockTenn’s executive vice president and chief financial officer, from
September 2000 to January 2013. Mr. Voorhees also served as RockTenn’s chief administrative officer from July 2008 to January
2013.
Robert A. Feeser has served as WestRock’s president, consumer packaging since September 2016. He had previously served
as WestRock’s executive vice president of consumer paper and global solutions since July 1, 2015. Prior to the Combination, Mr.
Feeser served as MWV’s executive vice president of global operations. He joined MWV in 1987, and held a number of leadership
roles in operations, sales, marketing and general management company, including as MWV’s senior vice president of packaging
from 2010 through 2014 and as MWV’s president, packaging resources group from 2004 through 2010.
Jeffrey W. Chalovich has served as WestRock’s president, corrugated packaging since September 2016. He previously served
as WestRock’s executive vice president of corrugated containers and commercial excellence. He served as Rock-Tenn’s senior
vice president and general manager of corrugated containers through June 30, 2015. Mr. Chalovich joined RockTenn in connection
with its acquisition of Southern Container Corp in March 2008, where he served in a variety of sales and general management
roles.
James B. Porter III has served as WestRock’s president, business development and Latin America since September 2016. He
previously served as WestRock’s’s president, paper solutions since July 1, 2015. He served as RockTenn’s president, paper solutions
from April 2014 through June 30, 2015, as RockTenn’s president - corrugated packaging from July 2012 to April 2014, as
RockTenn’s president - corrugated packaging and recycling from May 2011 to July 2012 and as executive vice president of
RockTenn’s corrugated packaging business from July 2008 until May 2011. Mr. Porter joined RockTenn in connection with its
acquisition of Southern Container Corp. in March 2008. Prior to his appointment as executive vice president of RockTenn, Mr. Porter
served as the president and chief operating officer of Southern Container from 2004 and served as the president of Solvay
Paperboard, a subsidiary of Southern Container, from 1997 through 2004.
128
Ward H. Dickson has served as WestRock’s executive vice president and chief financial officer since July 1, 2015. He served
as RockTenn’s executive vice president and chief financial officer from September 2013 through June 30, 2015. From November
2011 until September 2013, he served as the senior vice president of finance for the global sales and service organization of Cisco
Systems, Inc., and, from July 2009 to November 2011, he served as the vice president of finance for the global sales and service
organization of Cisco. Mr. Dickson served as the vice president of finance at Scientific Atlanta, a division of Cisco, from February
2006 until July 2009. Prior to Cisco’s acquisition of Scientific Atlanta, Inc. in February 2006, Mr. Dickson had served as that
company’s vice president of worldwide financial operations since 2003.
Robert B. McIntosh has served as WestRock’s executive vice president, general counsel and secretary since July 1, 2015. He
served as RockTenn’s executive vice president, general counsel and secretary from January 2009 through June 30, 2015 and as
RockTenn’s senior vice president, general counsel and secretary from August 2000 until January 2009. Mr. McIntosh joined
RockTenn in 1995 as vice president and general counsel.
Jennifer Graham-Johnson has served as WestRock’s chief human resources officer since July 1, 2015. She served as RockTenn’s
executive vice president, human resources from April 2012 through June 30, 2015, as RockTenn’s senior vice president, employee
services from February 2012 until April 2012, as RockTenn’s vice president of employee services from August 2008 until February
2012 and as RockTenn’s vice president of benefits from November 2003 until August 2008. Ms. Graham-Johnson joined RockTenn
in 1993.
A. Stephen Meadows has served as WestRock’s chief accounting officer since July 1, 2015. Mr. Meadows served as RockTenn’s
chief accounting officer from July 2006 through June 30, 2015.
All of our executive officers are elected annually by, and serve at the discretion of, the board of directors. Our bylaws provide
that until July 1, 2018, the affirmative vote of at least three-fourths of the whole board of directors will be required for the removal
or termination of, or any determination not to, or failure to, appoint Mr. Voorhees as our chief executive officer and president.
The information in the sections under the heading “Election of Directors” entitled “Board of Directors,” “Nominees for
Election,” “Committees of the Board of Directors — Audit Committee,” “Codes of Business Conduct and Ethics — Code of
Ethical Conduct for Chief Executive Officer and Senior Financial Officers,” and “Codes of Business Conduct and Ethics —
Copies” and in the section under the heading “Additional Information” entitled “Section 16(a) Beneficial Ownership Reporting
Compliance” in the Proxy Statement for the Annual Meeting of Stockholders to be held on January 27, 2017, which will be filed
on or before December 31, 2016, is incorporated herein by reference.
Item 11.
EXECUTIVE COMPENSATION
The information required by this item will be contained in our definitive proxy statement issued in connection with our 2017
annual meeting of stockholders and is incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item will be contained in our definitive proxy statement issued in connection with our 2017
annual meeting of stockholders and is incorporated herein by reference.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be contained in our definitive proxy statement issued in connection with our
2017 annual meeting of stockholders and is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be contained in our definitive proxy statement issued in connection with our 2017
annual meeting of stockholders and is incorporated herein by reference.
129
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements.
PART IV
The following consolidated financial statements of our company and our consolidated subsidiaries and the Report of the
Independent Registered Public Accounting Firm are included in Part II, Item 8 of this report:
Consolidated Statements of Operations for the years ended September 2016, 2015 and 2014 . . . . . . . . . . . . .
Consolidated Statements of Comprehensive (Loss) Income for the years ended September 2016, 2015 and
2014
Consolidated Balance Sheets as of September 30, 2016 and 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity for the years ended September 30, 2016, 2015 and 2014. . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended September 30, 2016, 2015 and 2014. . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting . . .
Management’s Annual Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
Reference
52
53
54
55
57
60
124
125
126
2. Financial Statement Schedule of WestRock Company.
All schedules are omitted because they are not applicable or not required because this information is provided in the financial
statements.
3. Exhibits.
See separate Exhibit Index attached hereto and incorporated herein.
(b) See Item 15(a)(3) and separate Exhibit Index attached hereto and incorporated herein.
(c) Not applicable.
Item 16.
FORM 10-K SUMMARY
None.
130
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: November 23, 2016
By:
/s/ STEVEN C. VOORHEES
Steven C. Voorhees
Chief Executive Officer and President
WESTROCK COMPANY
131
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ STEVEN C. VOORHEES
Steven C. Voorhees
/s/ WARD H. DICKSON
Ward H. Dickson
/s/ A. STEPHEN MEADOWS
A. Stephen Meadows
/s/ JOHN A. LUKE, JR.
John A. Luke, Jr.
Chief Executive Officer and President (Principal Executive
Officer), Director
November 23, 2016
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
November 23, 2016
Chief Accounting Officer (Principal Accounting Officer)
November 23, 2016
Director, Non-Executive Chairman of the Board
November 23, 2016
/s/ TIMOTHY J. BERNLOHR
Timothy J. Bernlohr
Director
/s/ J. POWELL BROWN
Director
J. Powell Brown
/s/ MICHAEL E. CAMPBELL
Director
Michael E. Campbell
/s/ TERRELL K. CREWS
Director
Terrell K. Crews
/s/ RUSSELL M. CURREY
Director
Russell M. Currey
/s/ G. STEPHEN FELKER
Director
G. Stephen Felker
/s/ LAWRENCE L. GELLERSTEDT, III Director
Lawrence L. Gellerstedt, III
/s/ GRACIA C. MARTORE
Director
Gracia C. Martore
/s/ JAMES E. NEVELS
Director
James E. Nevels
/s/ TIMOTHY H. POWERS
Director
Timothy H. Powers
/s/ BETTINA M. WHYTE
Director
Bettina M. Whyte
/s/ ALAN D. WILSON
Director
Alan D. Wilson
132
November 23, 2016
November 14, 2016
November 15, 2016
November 23, 2016
November 23, 2016
November 23, 2016
November 12, 2016
November 23, 2016
November 23, 2016
November 19, 2016
November 23, 2016
November 14, 2016
Exhibit
Number
2.1
2.2(a)
2.2(b)
2.3
3.1
3.2
4.1(a)
4.1(b)
4.1(c)
4.1(d)
4.1(e)
4.1(f)
4.1(g)
4.1(h)
INDEX TO EXHIBITS
Description of Exhibits
— Agreement and Plan of Merger, dated as of January 23, 2011, by and among, Rock-Tenn Company, Sam
Acquisition, LLC and Smurfit-Stone Container Corporation (incorporated by reference to Exhibit 2.1 of
RockTenn's Current Report on Form 8-K, filed on January 24, 2011).
— Second Amended and Restated Business Combination Agreement, dated as of April 17, 2015, by and
among WestRock Company, MeadWestvaco Corporation, Rock-Tenn Company, Milan Merger Sub, LLC
and Rome Merger Sub, Inc. (incorporated by reference to Annex A of WestRock’s Registration Statement
on Form S-4 initially filed with the SEC on March 10, 2015 and as amended on April 20, 2015, May 6,
2015 and May 18, 2015, File No. 333-202643).†
— First Amendment to the Second Amended and Restated Business Combination Agreement, dated as of
May 5, 2015, by and among WestRock Company, MeadWestvaco Corporation, Rock-Tenn Company,
Milan Merger Sub, LLC and Rome Merger Sub, Inc. (incorporated by reference to Exhibit 2.2 of
WestRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).†
— Separation and Distribution Agreement, dated May 14, 2016, between WestRock Company and Ingevity
Corporation (incorporated by reference to Exhibit 2.1 of WestRock’s Current Report on Form 8-K filed
on May 19, 2016).
— Amended and Restated Certificate of Incorporation of WestRock Company (incorporated by reference
to Exhibit 3.1 of WestRock’s Current Report on Form 8-K filed on July 2, 2015).
— Second Amended and Restated Bylaws of WestRock Company (incorporated by reference to Exhibit
99.2 of WestRock’s Current Report on Form 8-K filed on September 13, 2016).
— Form of Indenture, dated as of July 15, 1982, between The Mead Corporation and Deutsche Bank Trust
Company Americas (formerly Bankers Trust Company), as Trustee (incorporated by reference to Exhibit
4.viv of MWV’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001).
— First Supplemental Indenture, dated as of March 1, 1987, to the Indenture dated as of July 15, 1982,
between The Mead Corporation and Deutsche Bank Trust Company Americas (formerly Bankers Trust
Company), as Trustee (incorporated by reference to Exhibit 4.viv of MWV’s Annual Report on Form
10-K for the Transition Period ended December 31, 2001).
— Second Supplemental Indenture, dated as of October 15, 1989, to the Indenture dated as of July 15, 1982,
between The Mead Corporation and Deutsche Bank Trust Company Americas (formerly Bankers Trust
Company), as Trustee (incorporated by reference to Exhibit 4.viv of MWV’s Annual Report on Form
10-K for the Transition Period ended December 31, 2001).
— Third Supplemental Indenture, dated as of November 15, 1991, to the Indenture dated as of July 15,
1982, between The Mead Corporation and Deutsche Bank Trust Company Americas (formerly Bankers
Trust Company), as Trustee (incorporated by reference to Exhibit 4.viv of MWV’s Annual Report on
Form 10-K for the Transition Period ended December 31, 2001).
— Fourth Supplemental Indenture, dated as of January 31, 2002, to the Indenture dated as of July 15, 1982,
between The Mead Corporation, WestRock MWV, LLC (formerly MeadWestvaco Corporation),
Westvaco Corporation and Deutsche Bank Trust Company Americas (formerly Bankers Trust Company),
as Trustee (incorporated by reference to Exhibit 4.2 of MWV’s Current Report on Form 8-K filed on
February 1, 2002).
— Fifth Supplemental Indenture, dated as of December 31, 2002, to the Indenture dated as of July 15, 1982,
between MW Custom Papers, Inc. and Deutsche Bank Trust Company Americas, as Trustee (incorporated
by reference to Exhibit 4.2 of MWV’s Current Report on Form 8-K filed on January 7, 2003).
— Sixth Supplemental Indenture, dated as of December 31, 2002, to the Indenture dated as of July 15, 1982,
between WestRock MWV, LLC (formerly MeadWestvaco Corporation) and Deutsche Bank Trust
Company Americas, as Trustee (incorporated by reference to Exhibit 4.3 of MWV’s Current Report on
Form 8-K filed on January 7, 2003).
— Seventh Supplemental Indenture, dated as of July 1, 2015, to the Indenture dated as of July 15, 1982,
between WestRock MWV, LLC (formerly MeadWestvaco Corporation) and Deutsche Bank Trust
Company Americas, as Trustee (incorporated by reference to Exhibit 4.3 of WestRock’s Current Report
on Form 8-K filed on July 2, 2015).
Exhibit
Number
4.2(a)
4.2(b)
4.2(c)
4.2(d)
4.3(a)
4.3(b)
4.3(c)
4.3(d)
4.3(e)
4.4(a)
4.4(b)
Description of Exhibits
— Form of Indenture, dated as of March 1, 1983, between Westvaco Corporation and The Bank of New
York (formerly Irving Trust Company), as Trustee (incorporated by reference to Exhibit 2 of Westvaco
Corporation’s Registration Statement on Form 8-A filed on January 24, 1984).
— First Supplemental Indenture, dated as of January 31, 2002, to the Indenture dated as of March 1, 1983,
by and among Westvaco Corporation, WestRock MWV, LLC (formerly MeadWestvaco Corporation),
The Mead Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1
of MWV’s Current Report on Form 8-K filed on February 1, 2002).
— Second Supplemental Indenture, dated as of December 31, 2002, to the Indenture dated as of March 1,
1983, between WestRock MWV, LLC (formerly MeadWestvaco Corporation) and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.1 of MWV’s Current Report on Form 8-K filed
on January 7, 2003).
— Third Supplemental Indenture, dated as of July 1, 2015, to the Indenture dated as of March 1, 1983,
between WestRock MWV, LLC (formerly MeadWestvaco Corporation) and The Bank of New York
Mellon, as Trustee (incorporated by reference to Exhibit 4.4 of WestRock’s Current Report on Form 8-
K filed on July 2, 2015).
— Indenture, dated as of February 1, 1993, between The Mead Corporation and The First National Bank
of Chicago, as Trustee (incorporated by reference to Exhibit 4.vv of MWV’s Annual Report on Form
10-K for the Transition Period ended December 31, 2001).
— First Supplemental Indenture, dated as of January 31, 2002, to the Indenture dated as of February 1, 1993,
between The Mead Corporation, WestRock MWV, LLC (formerly MeadWestvaco Corporation),
Westvaco Corporation and Bank One Trust Company, NA, as Trustee (incorporated by reference to
Exhibit 4.3 of MWV’s Current Report on Form 8-K filed on February 1, 2002).
— Second Supplemental Indenture, dated as of December 31, 2002, to the Indenture dated as of February
1, 1993, between MW Custom Papers, Inc. and Bank One Trust Company, NA, as Trustee (incorporated
by reference to Exhibit 4.4 of MWV’s Current Report on Form 8-K filed on January 7, 2003).
— Third Supplemental Indenture, dated as of December 31, 2002, to the Indenture dated as of February 1,
1993, between WestRock MWV, LLC (formerly MeadWestvaco Corporation) and Bank One Trust
Company, NA, as Trustee (incorporated by reference to Exhibit 4.5 of MWV’s Current Report on Form
8-K filed on January 7, 2003).
— Fourth Supplemental Indenture, dated as of July 1, 2015, to the Indenture dated as of February 1, 1993,
between WestRock MWV, LLC (formerly MeadWestvaco Corporation) and The Bank of New York
Mellon, as Trustee (incorporated by reference to Exhibit 4.5 of WestRock’s Current Report on Form 8-
K filed on July 2, 2015).
— Indenture, dated as of April 2, 2002, by and among WestRock MWV, LLC (formerly MeadWestvaco
Corporation), Westvaco Corporation, The Mead Corporation and The Bank of New York, as Trustee,
(incorporated by reference to Exhibit 4(a) of MWV’s Current Report on Form 8-K filed on April 2, 2002).
— First Supplemental Indenture, dated as of July 1, 2015, to the Indenture dated as of April 2, 2002, between
WestRock MWV, LLC (formerly MeadWestvaco Corporation) and The Bank of New York Mellon, as
Trustee (incorporated by reference to Exhibit 4.6 of WestRock’s Current Report on Form 8-K filed on
July 2, 2015).
4.5(a)
—
Indenture, dated as of February 22, 2012, by and among Rock-Tenn Company, the Guarantors (as defined
therein) and HSBC Bank USA, National Association, as Trustee (incorporated by reference to Exhibit
4.18 of RockTenn’s Registration Statement on Form S-4 filed on February 8, 2013, File No. 333-186552).
4.5(b)
4.5(c)
— Registration Rights Agreement, dated as of February 22, 2012, by and among Rock-Tenn Company, the
Guarantors (as defined therein), and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Wells Fargo Securities, LLC, as representatives of the several Initial Purchasers
(incorporated by reference to Exhibit 4.20 of RockTenn’s Registration Statement on Form S-4 filed on
February 8, 2013, File No. 333-186552).
— First Supplemental Indenture, dated as of November 7, 2013, to the Indenture dated as of February 22,
2012, by and among Rock-Tenn Company, the Guarantors (as defined therein) and HSBC Bank USA,
National Association, as Trustee (incorporated by reference to Exhibit 4.6(c) of WestRock’s Annual
Report on Form 10-K for the year ended September 30, 2015).
Exhibit
Number
4.5(d)
4.5(e)
4.6(a)
4.6(b)
4.6(c)
4.6(d)
4.6(e)
*10.1(a)
*10.1(b)
*10.1(c)
*10.2(a)
*10.2(b)
*10.3
Description of Exhibits
— Second Supplemental Indenture, dated as of February 21, 2014, to the Indenture dated as of February
22, 2012, by and among Rock-Tenn Company, the Guarantors (as defined therein) and HSBC Bank USA,
National Association, as Trustee (incorporated by reference to Exhibit 4.6(d) of WestRock’s Annual
Report on Form 10-K for the year ended September 30, 2015).
— Third Supplemental Indenture, dated as of July 1, 2015, to the Indenture dated as of February 22, 2012,
by and among Rock-Tenn Company, the Guarantors (as defined therein) and HSBC Bank USA, National
Association, as Trustee (incorporated by reference to Exhibit 4.1 of WestRock’s Current Report on Form
8-K filed on July 2, 2015).
— Indenture, dated as of September 11, 2012, by and among Rock-Tenn Company, the Guarantors (as
defined therein) and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by
reference to Exhibit 4.1 of RockTenn's Current Report on Form 8-K filed on October 2, 2012).
— Registration Rights Agreement, dated as of September 11, 2012, by and among Rock-Tenn Company,
the Guarantors (as defined therein), and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as
representatives of the several Initial Purchasers (incorporated by reference to Exhibit 4.2 of RockTenn's
Current Report on Form 8-K filed on October 2, 2012).
— First Supplemental Indenture, dated as of November 7, 2013, to the Indenture dated as of September 11,
2012, by and among Rock-Tenn Company, the Guarantors (as defined therein) and The Bank of New
York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.7(c) of WestRock’s
Annual Report on Form 10-K for the year ended September 30, 2015).
— Second Supplemental Indenture, dated as of February 21, 2014, to the Indenture dated as of September
11, 2012, by and among Rock-Tenn Company, the Guarantors (as defined therein) and The Bank of New
York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.7(d) of WestRock’s
Annual Report on Form 10-K for the year ended September 30, 2015).
— Third Supplemental Indenture, dated as of July 1, 2015, to the Indenture dated as of September 11, 2012,
by and among Rock-Tenn Company, the Guarantors (as defined therein) and The Bank of New York
Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of WestRock’s Current
Report on Form 8-K filed on July 2, 2015).
— The Mead Corporation 1996 Stock Option Plan, as amended through June 24, 1999 and amended February
22, 2001 (incorporated by reference to Exhibit 10.3 of The Mead Corporation’s Quarterly Report on
Form 10-Q for the quarter ended July 4, 1999 and Appendix 2 of The Mead Corporation’s Definitive
Proxy Statement for the 2001 Annual Meeting of Shareholders filed with the SEC on March 9, 2001,
respectively).
— Amendment to The Mead Corporation 1996 Stock Option Plan, effective April 23, 2002 (incorporated
by reference to Exhibit 10.3 of MWV’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2002).
— Amendment to The Mead Corporation 1996 Stock Option Plan, effective January 23, 2007 (incorporated
by reference to Exhibit 10.4 of MWV’s Annual Report on Form 10-K for the year ended December 31,
2007).
— Rock-Tenn Company Annual Executive Bonus Program (incorporated by reference to Appendix A of
RockTenn’s Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders filed with the SEC
on December 19, 2001).
— Amendment Number 1 to Rock-Tenn Company Annual Executive Bonus Program (incorporated by
reference to Exhibit 10.1 of RockTenn’s Quarterly Report on Form 10-Q for the quarter ended December
31, 2008).
— Rock-Tenn Company Supplemental Retirement Savings Plan, effective as of May 15, 2003 (incorporated
by reference to Exhibit 4.1 of RockTenn’s Registration Statement on Form S-8 filed on April 30, 2003,
File No. 333-104870).
*10.4(a)
— Rock-Tenn Company 2004 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 of RockTenn’s
Current Report on Form 8-K filed on February 3, 2005).
*10.4(b)
— Amendment Number One to Rock-Tenn Company 2004 Incentive Stock Plan (incorporated by reference
to Exhibit 10.1 of RockTenn’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007).
Exhibit
Number
*10.4(c)
*10.4(d)
*10.4(e)
*10.4(f)
*10.5
*10.6(a)
*10.6(b)
*10.6(c)
*10.7(a)
*10.7(b)
*10.7(c)
*10.7(d)
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
Description of Exhibits
— Amendment Number 2 to Rock-Tenn Company 2004 Incentive Stock Plan (incorporated by reference
to Exhibit 10.5 of RockTenn’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008).
— Amendment Number 3 to Rock-Tenn Company 2004 Incentive Stock Plan (incorporated by reference
to Exhibit 10.2 of RockTenn’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).
— Amendment Number 4 to Rock-Tenn Company 2004 Incentive Stock Plan (incorporated by reference
to Exhibit 10.1 of RockTenn’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).
— Amendment Number 5 to Rock-Tenn Company 2004 Incentive Stock Plan (incorporated by reference
to Exhibit 10.2 of RockTenn’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).
— MeadWestvaco Corporation 2005 Performance Incentive Plan effective April 22, 2005 and as amended
February 26, 2007, January 1, 2009, February 28, 2011 and February 25, 2013 (incorporated by reference
to Exhibit 10.1 of MWV’s Current Report on Form 8-K filed on April 25, 2013).
— Amended and Restated Rock-Tenn Company Supplemental Retirement Savings Plan, effective as of
January 1, 2006 (incorporated by reference to Exhibit 10.4 of RockTenn’s Quarterly Report on Form 10-
Q for the quarter ended December 31, 2005).
— Second Amendment to the Rock-Tenn Company Supplemental Retirement Savings Plan, effective as of
November 16, 2007 (incorporated by reference to Exhibit 10.2 of RockTenn’s Quarterly Report on Form
10-Q for the quarter ended December 31, 2007).
— First Amendment to the Rock-Tenn Company Supplemental Retirement Savings Plan, effective as of
October 1, 2011 (incorporated by reference to Exhibit 10.1 of RockTenn’s Quarterly Report on Form 10-
Q for the quarter ended March 31, 2012).
— MeadWestvaco Corporation Deferred Income Plan Restatement, effective January 1, 2007 (incorporated
by reference to Exhibit 10.25 of MWV’s Annual Report on Form 10-K for the year ended December 31,
2008).
— First Amendment to the MeadWestvaco Corporation Deferred Income Plan (2007 Restatement) effective
September 1, 2013 (incorporated by reference to Exhibit 10.7(b) of WestRock’s Annual Report on Form
10-K for the year ended September 30, 2015).
— Second Amendment to the MeadWestvaco Corporation Deferred Income Plan (2007 Restatement)
effective January 1, 2015 (incorporated by reference to Exhibit 10.7(c) of WestRock’s Annual Report on
Form 10-K for the year ended September 30, 2015).
— Third Amendment to the MeadWestvaco Corporation Deferred Income Plan (2007 Restatement) effective
July 1, 2015 (incorporated by reference to Exhibit 10.7(d) of WestRock’s Annual Report on Form 10-K
for the year ended September 30, 2015).
— MeadWestvaco Corporation Executive Retirement Plan, as amended and restated effective January 1,
2009 except as otherwise provided (incorporated by reference to Exhibit 10.24 of MWV’s Annual Report
on Form 10-K for the year ended December 31, 2008).
— MeadWestvaco Corporation Retirement Restoration Plan, effective January 1, 2009, except as otherwise
provided (incorporated by reference to Exhibit 10.26 of MWV’s Annual Report on Form 10-K for the
year ended December 31, 2008).
— Stock Option Awards in 2009 - Terms and Conditions (incorporated by reference to Exhibit 10.3 of
MWV’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).
— Service Based Restricted Stock Unit Awards in 2009 - Terms and Conditions (incorporated by reference
to Exhibit 10.4 of MWV’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).
— Rock-Tenn Company Supplemental Executive Retirement Plan Amended and Restated effective as of
October 27, 2011(incorporated by reference to Exhibit 10.2 of RockTenn’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2012).
— Amended and Restated Rock-Tenn Company 2004 Incentive Stock Plan effective as of January 27, 2012
(incorporated by reference to Exhibit 10.1 of the RockTenn’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012).
*10.14
— Stock Option Awards (for 2012) (incorporated by reference to Exhibit 10.43 of MWV’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2012).
Exhibit
Number
*10.15
10.16
*10.17
*10.18
*10.19
10.20
*10.21
*10.22
*10.23
10.24(a)
10.24(b)
*10.25
*10.26
10.27(a)
Description of Exhibits
— Summary of MeadWestvaco Corporation 2013 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.46 of MWV’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013).
— Master Purchase and Sale Agreement, dated October 28, 2013, by and among MeadWestvaco
Corporation, MWV Community Development and Land Management, LLC and MWV Community
Development, Inc., as sellers, and Plum Creek Timberlands, L.P., Plum Creek Marketing, Inc., Plum
Creek Land Company and Highland Mineral Resources, LLC, as purchasers, and Plum Creek Timber
Company, Inc. (incorporated by reference to Exhibit 2.1 of MWV’s Current Report on Form 8-K filed
on October 29, 2013).
— Summary of MeadWestvaco Corporation 2014 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.51 of MWV’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).
— Amendments to Grants under the MeadWestvaco Corporation 2005 Performance Incentive Plan Amended
and Restated Effective February 25, 2013 (2005 Performance Incentive Plan), effective January 27, 2014
(incorporated by reference to Exhibit 10.47 of MWV’s Annual Report on Form 10-K for the year ended
December 31, 2013).
— Employment Agreement between MeadWestvaco Corporation and Robert K. Beckler, dated March 3,
2014 (incorporated by reference to Exhibit 10.1 of MWV’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2014).
— Sixth Amended and Restated Receivables Sale Agreement, dated July 22, 2016, among WestRock
Company of Texas, WestRock Converting Company, WestRock Mill Company, LLC, WestRock -
Southern Container, LLC, WestRock California, Inc., WestRock Minnesota Corporation, WestRock CP,
LLC, WestRock - Solvay, LLC, WestRock - REX, LLC, WestRock - Graphics, Inc., WestRock
Commercial, LLC, WestRock Packaging, Inc., WestRock Slatersville LLC, WestRock Consumer
Packaging Group, LLC, WestRock Dispensing Systems, Inc., and WestRock Packaging Systems, LLC.
— Employment Agreement by and among RockTenn-Southern Container, LLC (successor-in-interest to
Southern Container Corp.), Rock-Tenn Services Inc., and James B. Porter III, dated as of December 22,
2014, and effective as of January 1, 2015 (incorporated by reference to Exhibit 10.1 of RockTenn’s
Quarterly Report on Form 10-Q for the quarter ending December 31, 2014).
— Summary of MeadWestvaco Corporation 2015 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.51 of MWV’s quarterly report on Form 10-Q for the period ended March 31, 2015).
— Summary of MeadWestvaco Corporation 2015 Annual Incentive Plan (incorporated by reference to
Exhibit 10.50 to MWV’s quarterly report on Form 10-Q for the period ended March 31, 2015).
— Seventh Amended and Restated Credit and Security Agreement, dated as of June 29, 2015 among Rock-
Tenn Financial, Inc., as Borrower, Rock-Tenn Converting Company, as Servicer, the Lenders and Co-
Agents from time to time party thereto, and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
“Rabobank Nederland”, New York Branch, as Administrative Agent and as Funding Agent (incorporated
by reference to Exhibit 10.1 of WestRock’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2015).
— Eighth Amended and Restated Credit and Security Agreement, dated July 22, 2016, among WestRock
Financial Inc., WestRock Converting Company, the lenders and co-agents from time to time party thereto
and Cooperatieve Rabobank, U.A.
— Letter Agreement between MeadWestvaco Corporation, Rock-Tenn Company and John A. Luke, Jr.,
dated June 30, 2015 (incorporated by reference to Exhibit 10.25 of WestRock’s Annual Report on Form
10-K for the year ended September 30, 2015).
— Letter Agreement between MeadWestvaco Corporation, Rock-Tenn Company and Robert K. Beckler,
dated June 30, 2015 (incorporated by reference to Exhibit 10.26 of WestRock’s Annual Report on Form
10-K for the year ended September 30, 2015).
— Credit Agreement, dated as of July 1, 2015, among the Company, Rock-Tenn Company of Canada
Holdings Corp./Compagnie de Holdings RockTenn du Canada Corp., certain subsidiaries of the Company
from time to time party thereto as subsidiary borrowers, certain subsidiaries of the Company from time
to time party thereto as guarantors, the lenders party thereto and Wells Fargo Bank, National Association,
as administrative agent and multicurrency agent (incorporated by reference to Exhibit 10.1 of WestRock’s
Current Report on Form 8-K filed on July 2, 2015).
Exhibit
Number
10.27(b)
10.28
10.29
*10.30
10.31
*10.32
*10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
Description of Exhibits
— Amendment No. 1, dated July 1, 2016, among WestRock Company, WestRock Company of Canada
Holdings Corp./Compagnie de Holdings WestRock du Canada Corp., the other Credit Parties, the Lenders
thereto and Wells Fargo Bank, National Association, as administrative agent and multicurrency agent
for the Lenders to the Credit Agreement, dated July 1, 2015 (incorporated by reference to Exhibit 10.27.1
of WestRock’s Current Report on Form 8-K filed on July 7, 2016).
— Credit Agreement, dated as of July 1, 2015, among RockTenn CP, LLC, Rock-Tenn Converting Company
and MeadWestvaco Virginia Corporation, as borrowers, as the guarantors from time to time party thereto,
the lenders from time to time party thereto and CoBank, ACB, as administrative agent (incorporated by
reference to Exhibit 10.2 of WestRock’s Current Report on Form 8-K filed on July 2, 2015).
— Fifth Amended and Restated Performance Undertaking, dated as of September 1, 2015, executed by
Westrock RKT Company, as successor-in-interest to Rock-Tenn Company, and Westrock Company
(incorporated by reference to Exhibit 10.29 of WestRock’s Annual Report on Form 10-K for the year
ended September 30, 2015).
— WestRock Company 2016 Deferred Compensation Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.30 of WestRock’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2016).
— Uncommitted and Revolving Credit Line Agreement, dated November 2, 2015, between Sumitomo
Mitsui Banking Corporation and WestRock Company (incorporated by reference to Exhibit 10.1 of
WestRock’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2015).
— Employee Stock Purchase Plan, dated February 2, 2016 (incorporated by reference to Exhibit 10.1 of
WestRock’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).
— WestRock Company 2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of WestRock’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2016).
— Uncommitted and Revolving Credit Line Agreement, dated February 11, 2016, between The Bank of
Tokyo-Mitsubishi UFJ, Ltd. and WestRock Company (incorporated by reference to Exhibit 10.3 of
WestRock’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
— Uncommitted Line of Credit, dated March 4, 2016, between Cooperatieve Rabobank U.A., New York
Branch and WestRock Company (incorporated by reference to Exhibit 10.4 of WestRock’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2016.
— Trust Agreement, dated May 6, 2016, among Ingevity Corporation, The Bank of New York Mellon Trust
Company, N.A. and WestRock Company (incorporated by reference to Exhibit 10.1 of WestRock’s
Current Report on Form 8-K filed on May 11, 2016).
— Covington Plant Services Agreement, dated May 11, 2016, between Ingevity Virginia Corporation and
WestRock Virginia, LLC (incorporated by reference to Exhibit 10.2 of WestRock’s Current Report on
Form 8-K filed on May 11, 2016).
— Covington Plant Ground Lease Agreement, dated May 11, 2016, between Ingevity Virginia Corporation
and WestRock Virginia, LLC (incorporated by reference to Exhibit 10.3 of WestRock’s Current Report
on Form 8-K filed on May 11, 2016).
— Tax Matters Agreement, dated May 14, 2016, between WestRock Company and Ingevity Corporation
(incorporated by reference to Exhibit 10.1 of WestRock’s Current Report on Form 8-K filed on May 19,
2016).
— Transition Services Agreement, dated May 14, 2016, between WestRock Company and Ingevity
Corporation (incorporated by reference to Exhibit 10.2 of WestRock’s Current Report on Form 8-K filed
on May 19, 2016).
— Employee Matters Agreement, dated May 14, 2016, between WestRock Company and Ingevity
Corporation (incorporated by reference to Exhibit 10.3 of WestRock’s Current Report on Form 8-K filed
on May 19, 2016).
— Crude Tall Oil and Black Liquor Soap Skimmings Agreement, dated January 2, 2016, between WestRock
Shared Services, LLC and WestRock MWV, LLC, on the one hand, and Ingevity Corporation, on the
other hand (incorporated by reference to Exhibit 10.4 of WestRock’s Current Report on Form 8-K filed
on May 19, 2016).
Exhibit
Number
10.43
— Intellectual Property Agreement, dated May 14, 2016, between WestRock Company and Ingevity
Corporation (incorporated by reference to Exhibit 10.5 of WestRock’s Current Report on Form 8-K filed
on May 19, 2016).
Description of Exhibits
@10.44
— Commitment Agreement, dated September 8, 2016, among WestRock Company, Prudential Insurance
Company of America and State Street Bank and Trust Company.
21
23
31.1
31.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
— Subsidiaries of the Registrant.
— Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
— Certification Accompanying Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by Steven C. Voorhees, Chief Executive Officer and President of WestRock Company.
— Certification Accompanying Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by Ward H. Dickson, Executive Vice President and Chief Financial Officer of WestRock
Company.
— XBRL Instance Document.
— XBRL Taxonomy Extension Schema.
— XBRL Taxonomy Extension Calculation Linkbase.
— XBRL Taxonomy Definition Label Linkbase.
— XBRL Taxonomy Extension Label Linkbase.
— XBRL Taxonomy Extension Presentation Linkbase.
Additional Exhibits.
In accordance with SEC Release No. 33-8238, Exhibit 32.1 is to be treated as “accompanying” this report rather than “filed”
as part of the report.
32.1
— Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, executed by Steven C. Voorhees, Chief Executive Officer and President of WestRock
Company, and by Ward H. Dickson, Executive Vice President and Chief Financial Officer of WestRock
Company.
* Management contract or compensatory plan or arrangement.
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. WestRock hereby undertakes to furnish
supplementally copies of any of the omitted schedules upon request by the SEC.
@ Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the
Exchange Act. Confidential portions of this exhibit have been separately filed with the SEC.
Exhibit 31.1
CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Steven C. Voorhees, Chief Executive Officer and President, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of WestRock Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: November 23, 2016
/s/ Steven C. Voorhees
Steven C. Voorhees
Chief Executive Officer and President
A signed original of this written statement required by Section 302, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 302, has been provided to WestRock Company and will be retained by WestRock Company and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit 31.2
CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Ward H. Dickson, Executive Vice President and Chief Financial Officer, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of WestRock Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: November 23, 2016
/s/ Ward H. Dickson
Ward H. Dickson
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 302, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 302, has been provided to WestRock Company and will be retained by WestRock Company and furnished to the
Securities and Exchange Commission or its staff upon request.
[THIS PAGE INTENTIONALLY LEFT BLANK]
Appendix A
Non-GAAP Measures and Reconciliations
We have included in the 2016 Annual Report financial measures that were not prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”). Non-GAAP financial measures should be viewed in addition to, and not as
an alternative for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures
presented by other companies.
Below, we define the non-GAAP financial measures we use, discuss the reasons that we believe this information is useful to
management and may be useful to investors and provide reconciliations of the non-GAAP financial measures to the most directly
comparable financial measures calculated in accordance with GAAP.
Credit Agreement EBITDA
“Credit Agreement EBITDA” is calculated in accordance with the definition contained in our Credit Agreement. Credit
Agreement EBITDA is generally defined as Income from Continuing Operations plus: consolidated interest expense, income taxes
of the consolidated companies determined in accordance with GAAP, depreciation and amortization expense of the consolidated
companies determined in accordance with GAAP, loss on extinguishment of debt and financing fees, certain non-cash and cash
charges incurred, including goodwill impairment, certain restructuring and other costs, merger, acquisition and integration costs,
expenses related to the transfer of pension risk, charges and expenses associated with the write-up of inventory acquired and other
items.
Our management uses Credit Agreement EBITDA and Credit Agreement EBITDA margin to evaluate compliance with our
debt covenants and borrowing capacity available under our Credit Agreement and as a measure of operating performance.
Management believes that investors also use these measures to evaluate our compliance with our debt covenants and available
borrowing capacity. Borrowing capacity is dependent upon, in addition to other measures, the “Credit Agreement Debt/EBITDA
ratio” or the “Leverage Ratio,” which is defined as Total Funded Debt divided by Credit Agreement EBITDA.
Set forth below is a reconciliation of Credit Agreement EBITDA to the most directly comparable GAAP measure, Income
from Continuing Operations (in millions):
Income from continuing operations
Interest expense, net
Income taxes
Depreciation and amortization
Additional permitted charges
Credit Agreement EBITDA
Net sales
Credit Agreement EBITDA margin
Year Ended
September 30,
2016
$
$
$
154.8
184.0
89.8
1,089.3
804.1
2,322.0
14,171.8
16.4%
Additional permitted charges in the table above for the twelve months ended September 30, 2016, includes among other items
$370.7 million for Pension risk transfer expense, $366.4 million for qualifying Restructuring and other costs, net and $8.1 million
of inventory step-up for the twelve months ended September 30, 2016.
A- 1
Adjusted Free Cash Flow
Adjusted free cash flow is defined as Net Cash Provided by Operating Activities, excluding after-tax cash restructuring costs
minus capital expenditures. We believe the most directly comparable GAAP measure is net cash provided by operating activities.
Management believes this is an important measure in evaluating our financial performance and uses the measure to assess our
ability to generate cash without incurring additional external financings.
Net cash provided by operating activities
Less: Capital expenditures
Free Cash Flow
Plus: Cash Restructuring and other costs, net of tax
Adjusted Free Cash Flow
Forward-looking Guidance
Year Ended
September 30,
2016
$
$
1,688.4
(796.7)
891.7
139.3
1,031.0
We are not providing forward-looking guidance for U.S. GAAP reported financial measures or a reconciliation of forward-
looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because we are unable to predict
with reasonable certainty the ultimate outcome of certain significant items without unreasonable effort. These items include, but
are not limited to, merger and acquisition-related expenses, restructuring expenses, asset impairments, litigation settlements,
changes to contingent consideration and certain other gains or losses. These items are uncertain, depend on various factors, and
could have a material impact on U.S. GAAP reported results for the guidance period.
A- 2
STOCKHOLDER INFORMATION
COMPANY ADDRESSES
504 Thrasher Street
Norcross, GA 30071
770-448-2193
501 S. 5th Street
Richmond, VA 23219
804-444-1000
INVESTOR RELATIONS
Investor Relations Department
WestRock Company
504 Thrasher Street
Norcross, GA 30071
678-291-7900
Fax: 678-291-7903
TRANSFER AGENT AND REGISTRAR
First Class/Certified Mail:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
AUDITORS
Ernst & Young LLP
55 Ivan Allen Jr. Boulevard
Suite 1000
Atlanta, GA 30308
Courier Services:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
DIRECT DEPOSIT OF DIVIDENDS
WestRock stockholders may have their
quarterly cash dividends automatically
deposited to checking, savings or
money market accounts through the
automatic clearing house system. If
you wish to participate in the program,
please contact:
Computershare Trust Company, N.A.
800-568-3476
www.computershare.com
ANNUAL MEETING
Westin Atlanta Perimeter North
7 Concourse Parkway NE
Atlanta, GA 30328
Friday, January 27, 2017, at 9:00 a.m.
COMMON STOCK
Our Common Stock trades on the New
York Stock Exchange under the symbol
“WRK”.
As of November 29, 2016, there were
approximately 6,959 stockholders
of record of our Common Stock. The
number of stockholders of record
includes one single stockholder, Cede &
Co., for all of the shares of our Common
Stock held by our stockholders
in individual brokerage accounts
maintained at banks, brokers and
institutions.
STOCK PERFORMANCE
The graph below reflects the cumulative stockholder return on the investment
of $100 on September 30, 2011, in Rock-Tenn Company’s Class A Common
Stock (assuming the reinvestment of dividends) through September 30, 2016,
for WestRock Company’s Common Stock compared to the return on the
same investment in the S&P 500 Index and our Industry Peer Group and the
reinvestment of dividends. This graph assumes that the Rock-Tenn Common
Stock originally purchased was converted into WestRock Company Common
Stock as of July 1, 2015 in connection with the business combination between
MeadWestvaco Corporation and Rock-Tenn Company. Our Industry Peer Group
consists of public companies that either compete directly in one or more of our
product lines or are diversified, international manufacturing companies1.
© 2016 Standard & Poor’s, a division of The McGraw-Hill Companies Inc. All rights reserved.
Fiscal 2016
Fiscal 2015
High
Low
High
Low
First Quarter
$57.85
$42.75
$62.50
$43.32
Second Quarter
$45.71
$29.73
$71.47
$59.35
Third Quarter
$44.49
$35.52
$66.88
$59.25
Fourth Quarter
$49.18
$36.33
$66.40
$48.80
1 Peer Group includes: 3M Company, Alcoa Inc., Ball Corporation, Crown Holdings, Inc., The Goodyear
Tire & Rubber Company, Graphic Packaging Holding Company, International Paper Company,
Kimberly-Clark Corporation, Nucor Corporation, Owens-Illinois Inc., Packaging Corporation of
America, Sealed Air Corporation, United States Steel Corporation and Weyerhaeuser Company.
Comparison of 5-Year Cumulative Total Return2
$300
$250
$200
$150
$100
$50
WestRock Co.
S&P 500
Peer Group
09/11
$100
$100
$100
09/12
$150.21
$130.20
$130.73
09/13
$213.25
$155.39
$164.43
09/14
$203.24
$186.05
$200.89
09/15
$224.05
$184.91
$191.03
09/16
$242.37
$213.44
$235.91
PLEASE RECYCLE
Cover printed on WestRock Tango® 12pt C2S
www.westrock.com