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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20202021
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: 033-80475

GRAPHIC PACKAGING INTERNATIONAL, LLC

(Exact name of registrant as specified in its charter)

Delaware84-0772929
(State or other jurisdiction of(I.R.S. employer
incorporation or organization)identification no.)
1500 Riveredge Parkway, Suite 100
Atlanta,Georgia30328
(Address of principal executive offices)(Zip Code)

(770) 240-7200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerAccelerated filerSmaller reporting company
Non-accelerated filer(Do not check if a smaller reporting company)Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No





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Information Concerning Forward-Looking StatementsINFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements regarding the expectations of Graphic Packaging International, LLC (“GPIL” and, together with its subsidiaries, the “Company”), including, but not limited to, pursuing strategic acquisition opportunities, obtaining adequate wood and fiber supplies, the timinganticipated reduction of International Paper Company's investment in Graphic Packaging International Partners, LLC, reclassification of loss on derivative instruments, termination of the closure of the White Pigeon, MIU.S. pension plan and charges related thereto, charges associated with coated recycled paperboard mill and the shutdown of the PM1 containerboard machine in West Monroe, LA, the exit activity charges expected in connection with the closure of two CRB mills,activities, capital investment, depreciation and amortization, andinterest expense, pension plan contributions and post-retirement health care benefit payments in this report constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations. These risks and uncertainties include, but are not limited to, the effects of the COVID-19 pandemic on the Company's operations and business, inflation of and volatility in raw material and energy costs, changes in consumer buying habits and product preferences, competition with other paperboard manufacturers and converters, product substitution, the Company’s ability to implement its business strategies, including strategic acquisitions, the Company's ability to successfully integrate acquisitions, productivity initiatives and cost reduction plans, the Company’sCompany's debt level, currency movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters, including those that impact the Company's ability to protect and use its intellectual property. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements, except as may be required by law. Additional information regarding these and other risks is contained in Part I, "Item 1A., Risk Factors" of the Company's 20192020 Annual Report on Form 10-K, and in other filings with the Securities and Exchange Commission.








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TABLE OF CONTENTS

EX-31.1
EX-31.2
EX-32.1
EX-32.2
XBRL Content


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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GRAPHIC PACKAGING INTERNATIONAL, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months EndedThree Months Ended
March 31,March 31,
In millions, except per share amountsIn millions, except per share amounts20202019In millions, except per share amounts20212020
Net SalesNet Sales$1,599.1  $1,505.9  Net Sales$1,649 $1,599 
Cost of SalesCost of Sales1,278.3  1,239.8  Cost of Sales1,400 1,278
Selling, General and AdministrativeSelling, General and Administrative135.5  124.5  Selling, General and Administrative126 136
Other Expense, NetOther Expense, Net6.5  1.2  Other Expense, Net6
Business Combinations and Shutdown and Other Special Charges, Net18.7  6.2  
Business Combinations, Shutdown and Other Special Charges, and Exit Activities, NetBusiness Combinations, Shutdown and Other Special Charges, and Exit Activities, Net12 19
Income from OperationsIncome from Operations160.1  134.2  Income from Operations108 160
Nonoperating Pension and Postretirement Benefit Expense(151.6) (0.1) 
Nonoperating Pension and Postretirement Benefit Income (Expense)Nonoperating Pension and Postretirement Benefit Income (Expense)(151)
Interest Expense, NetInterest Expense, Net(33.7) (35.0) Interest Expense, Net(30)(34)
(Loss) Income before Income Taxes and Equity Income of Unconsolidated Entity(25.2) 99.1  
Income Tax Benefit (Expense)1.6  (4.0) 
(Loss) Income before Equity Income of Unconsolidated Entity(23.6) 95.1  
Equity Income of Unconsolidated Entity0.1  0.2  
Net (Loss) Income$(23.5) $95.3  
Income (Loss) before Income TaxesIncome (Loss) before Income Taxes80 (25)
Income Tax (Expense) BenefitIncome Tax (Expense) Benefit(3)1
Net Income (Loss)Net Income (Loss)$77 $(24)

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

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GRAPHIC PACKAGING INTERNATIONAL, LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months EndedThree Months Ended
March 31,March 31,
In millionsIn millions20202019In millions20212020
Net (Loss) Income$(23.5) $95.3  
Other Comprehensive (Loss) Income, Net of Tax:
Net Income (Loss)Net Income (Loss)$77 $(24)
Other Comprehensive Income (Loss), Net of Tax:Other Comprehensive Income (Loss), Net of Tax:
Derivative InstrumentsDerivative Instruments(1.7) (0.6) Derivative Instruments(2)
Pension and Postretirement Benefit PlansPension and Postretirement Benefit Plans194.0  1.9  Pension and Postretirement Benefit Plans194 
Currency Translation AdjustmentCurrency Translation Adjustment(57.0) 4.8  Currency Translation Adjustment(6)(57)
Total Other Comprehensive Income, Net of Tax135.3  6.1  
Total Other Comprehensive (Loss) Income, Net of TaxTotal Other Comprehensive (Loss) Income, Net of Tax(1)135 
Total Comprehensive Income
Total Comprehensive Income
$111.8  $101.4  Total Comprehensive Income$76 $111 

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

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GRAPHIC PACKAGING INTERNATIONAL, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In millions, except share and per share amountsIn millions, except share and per share amountsMarch 31,
2020
December 31, 2019In millions, except share and per share amountsMarch 31, 2021December 31, 2020
ASSETSASSETSASSETS
Current Assets:Current Assets:Current Assets:
Cash and Cash EquivalentsCash and Cash Equivalents$110.2  $148.7  Cash and Cash Equivalents$112 $178 
Receivables, NetReceivables, Net619.5  500.2  Receivables, Net584 649 
Inventories, NetInventories, Net1,143.0  1,095.9  Inventories, Net1,125 1,128 
Other Current AssetsOther Current Assets59.2  50.1  Other Current Assets83 56 
Total Current AssetsTotal Current Assets1,931.9  1,794.9  Total Current Assets1,904 2,011 
Property, Plant and Equipment, NetProperty, Plant and Equipment, Net3,288.1  3,253.8  Property, Plant and Equipment, Net3,631 3,560 
GoodwillGoodwill1,463.2  1,477.0  Goodwill1,477 1,477 
Intangible Assets, NetIntangible Assets, Net460.5  477.3  Intangible Assets, Net423 437 
Other AssetsOther Assets295.2  273.7  Other Assets304 310 
Total AssetsTotal Assets$7,438.9  $7,276.7  Total Assets$7,739 $7,795 
LIABILITIESLIABILITIESLIABILITIES
Current Liabilities:Current Liabilities:Current Liabilities:
Short-Term Debt and Current Portion of Long-Term DebtShort-Term Debt and Current Portion of Long-Term Debt$49.1  $50.4  Short-Term Debt and Current Portion of Long-Term Debt$52 $497 
Accounts PayableAccounts Payable625.7  716.1  Accounts Payable781 825 
Compensation and Employee BenefitsCompensation and Employee Benefits111.3  168.4  Compensation and Employee Benefits158 213 
Other Accrued LiabilitiesOther Accrued Liabilities233.6  241.6  Other Accrued Liabilities250 292 
Total Current LiabilitiesTotal Current Liabilities1,019.7  1,176.5  Total Current Liabilities1,241 1,827 
Long-Term DebtLong-Term Debt3,434.5  2,809.9  Long-Term Debt3,787 3,147 
Deferred Income Tax LiabilitiesDeferred Income Tax Liabilities17.6  27.7  Deferred Income Tax Liabilities23 26 
Accrued Pension and Postretirement BenefitsAccrued Pension and Postretirement Benefits117.9  140.4  Accrued Pension and Postretirement Benefits117 130 
Other Noncurrent LiabilitiesOther Noncurrent Liabilities278.1  265.6  Other Noncurrent Liabilities297 291 
MEMBER'S INTERESTMEMBER'S INTERESTMEMBER'S INTEREST
Member's InterestMember's Interest2,816.0  3,236.8  Member's Interest2,465 2,564 
Accumulated Other Comprehensive LossAccumulated Other Comprehensive Loss(244.9) (380.2) Accumulated Other Comprehensive Loss(191)(190)
Total Member's InterestTotal Member's Interest2,571.1  2,856.6  Total Member's Interest2,274 2,374 
Total Liabilities and Member's InterestTotal Liabilities and Member's Interest$7,438.9  $7,276.7  Total Liabilities and Member's Interest$7,739 $7,795 

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

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GRAPHIC PACKAGING INTERNATIONAL, LLC
CONDENSED CONSOLIDATED STATEMENTS OF MEMBER'S INTEREST
(Unaudited)
Member's InterestAccumulated Other Comprehensive (Loss) IncomeTotal Member's InterestMember's InterestAccumulated Other Comprehensive (Loss) IncomeTotal Member's Interest
In millions, except share amounts
Balances at December 31, 2019$3,236.8  $(380.2) $2,856.6  
Net Loss(23.5) —  (23.5) 
In millionsIn millionsMember's InterestAccumulated Other Comprehensive (Loss) IncomeTotal Member's Interest
Balances at December 31, 2020Balances at December 31, 2020$2,374 
Net IncomeNet Income77 — 77 
Other Comprehensive (Loss) Income, Net of Tax:Other Comprehensive (Loss) Income, Net of Tax:Other Comprehensive (Loss) Income, Net of Tax:
Derivative InstrumentsDerivative Instruments—  (1.7) (1.7) Derivative Instruments— 
Pension and Postretirement Benefit PlansPension and Postretirement Benefit Plans—  194.0  194.0  Pension and Postretirement Benefit Plans— 
Currency Translation AdjustmentCurrency Translation Adjustment—  (57.0) (57.0) Currency Translation Adjustment— (6)(6)
Distribution of Membership Interest, NetDistribution of Membership Interest, Net(397.3) —  (397.3) Distribution of Membership Interest, Net(176)— (176)
Balances at March 31, 2020$2,816.0  $(244.9) $2,571.1  
Balances at March 31, 2021Balances at March 31, 2021$2,465 $(191)$2,274 


Member's InterestAccumulated Other Comprehensive (Loss) IncomeTotal Member's Interest
In millions, except share amounts
Balances at December 31, 2018$3,142.6  $(397.3) $2,745.3  
Net Income95.3  —  95.3  
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments—  (0.6) (0.6) 
Pension and Postretirement Benefit Plans—  1.9  1.9  
Currency Translation Adjustment—  4.8  4.8  
Distribution of Membership Interest, Net(88.7) —  (88.7) 
Balances at March 31, 2019$3,149.2  $(391.2) $2,758.0  

Member's InterestAccumulated Other Comprehensive (Loss) IncomeTotal Member's Interest
In millions
Balances at December 31, 2019$3,237 $(380)$2,857 
Net Loss(24)— (24)
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments— (2)(2)
Pension and Postretirement Benefit Plans— 194 194 
Currency Translation Adjustment— (57)(57)
Distribution of Membership Interest, Net(397)— (397)
Balances at March 31, 2020$2,816 $(245)$2,571 


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


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GRAPHIC PACKAGING INTERNATIONAL, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Three Months EndedThree Months Ended
March 31,March 31,
In millionsIn millions20202019In millions20212020
CASH FLOWS FROM OPERATING ACTIVITIES:CASH FLOWS FROM OPERATING ACTIVITIES:CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income$(23.5) $95.3  
Net Income (Loss)Net Income (Loss)$77 $(24)
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Depreciation and AmortizationDepreciation and Amortization113.6  117.1  Depreciation and Amortization117 114 
Deferred Income TaxesDeferred Income Taxes(7.6) (0.1) Deferred Income Taxes(3)(7)
Amount of Postretirement Expense Greater Than Funding154.3  2.4  
Amount of Postretirement Expense (Less) Greater Than FundingAmount of Postretirement Expense (Less) Greater Than Funding(11)154 
Other, NetOther, Net29.2  3.3  Other, Net23 29 
Changes in Operating Assets and LiabilitiesChanges in Operating Assets and Liabilities(341.1) (390.1) Changes in Operating Assets and Liabilities(155)(341)
Net Cash Used in Operating Activities(75.1) (172.1) 
Net Cash Provided by (Used in) Operating ActivitiesNet Cash Provided by (Used in) Operating Activities48 (75)
CASH FLOWS FROM INVESTING ACTIVITIES:CASH FLOWS FROM INVESTING ACTIVITIES:CASH FLOWS FROM INVESTING ACTIVITIES:
Capital SpendingCapital Spending(146.6) (73.0) Capital Spending(137)(147)
Packaging Machinery SpendingPackaging Machinery Spending(6.5) (7.0) Packaging Machinery Spending(9)(7)
Acquisition of Businesses, Net of Cash AcquiredAcquisition of Businesses, Net of Cash Acquired(42.1) (2.0) Acquisition of Businesses, Net of Cash Acquired(42)
Beneficial Interest on Sold ReceivablesBeneficial Interest on Sold Receivables23.7  279.5  Beneficial Interest on Sold Receivables33 24 
Beneficial Interest Obtained in Exchange for ProceedsBeneficial Interest Obtained in Exchange for Proceeds(3.3) (153.3) Beneficial Interest Obtained in Exchange for Proceeds(5)(3)
Other, NetOther, Net(1.0) (1.0) Other, Net(2)(1)
Net Cash (Used in) Provided by Investing Activities(175.8) 43.2  
Net Cash Used in Investing ActivitiesNet Cash Used in Investing Activities(120)(176)
CASH FLOWS FROM FINANCING ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of DebtProceeds from Issuance of Debt1,225 450 
Retirement of Long-Term DebtRetirement of Long-Term Debt(1,221)
Payments on DebtPayments on Debt(9)(9)
Payments on Debt(9.1) (9.1) 
Proceeds from Issuance of Debt450.0  —  
Borrowings under Revolving Credit FacilitiesBorrowings under Revolving Credit Facilities1,178.5  775.2  Borrowings under Revolving Credit Facilities885 1,179 
Payments on Revolving Credit FacilitiesPayments on Revolving Credit Facilities(986.9) (548.9) Payments on Revolving Credit Facilities(677)(987)
Debt Issuance CostsDebt Issuance Costs(6.4) —  Debt Issuance Costs(5)(7)
Membership DistributionMembership Distribution(404.9) (94.1) Membership Distribution(186)(405)
Other, NetOther, Net(2.7) (2.6) Other, Net(5)(3)
Net Cash Provided by Financing ActivitiesNet Cash Provided by Financing Activities218.5  120.5  Net Cash Provided by Financing Activities218 
Effect of Exchange Rate Changes on CashEffect of Exchange Rate Changes on Cash(6.1) 0.2  Effect of Exchange Rate Changes on Cash(1)(6)
Net Decrease in Cash and Cash EquivalentsNet Decrease in Cash and Cash Equivalents(38.5) (8.2) Net Decrease in Cash and Cash Equivalents(66)(39)
Cash and Cash Equivalents at Beginning of PeriodCash and Cash Equivalents at Beginning of Period148.7  70.5  Cash and Cash Equivalents at Beginning of Period178 149 
CASH AND CASH EQUIVALENTS AT END OF PERIODCASH AND CASH EQUIVALENTS AT END OF PERIOD$110.2  $62.3  CASH AND CASH EQUIVALENTS AT END OF PERIOD$112 $110 
Non-cash Investing and Financing Activities:
Beneficial Interest Obtained (Sold) in Exchange for Trade Receivables$29.8  $(142.9) 
Non-cash Investing Activities:Non-cash Investing Activities:
Beneficial Interest Obtained in Exchange for Trade ReceivablesBeneficial Interest Obtained in Exchange for Trade Receivables$30 $30 
Right-of-Use Assets Obtained in Exchange for New Operating Lease LiabilitiesRight-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities$14.0  $16.0  Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities$22 $14 
Right-of-Use Assets Obtained in Exchange for New Finance Lease Liabilities$—  $5.6  

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

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 — GENERAL INFORMATION

Nature of Business and Basis of Presentation

On December 29, 2017, Graphic Packaging International, Inc. ("GPII"), the primary operating subsidiary of Graphic Packaging Holding Company, a Delaware corporation (“GPHC”), underwent a statutory conversion and became a Delaware limited liability company. As a result, GPII’s name changed to Graphic Packaging International, LLC.

Graphic Packaging International, LLC ("GPIL" and, together with its subsidiaries, the “Company”) is committed to providing consumer packaging that makes a world of difference. The Company is a leading provider of paper-basedsustainable, fiber-based packaging solutions for a wide variety of products to food, beverage, foodservice, and other consumer products companies. The Company operates on a global basis, is one of the largest producers of folding cartons in the United States (“U.S.”) and holds leading market positions in coated-recycled paperboard (“CRB”), coated unbleached kraft paperboard (“CUK”) and solid bleached sulfate paperboard (“SBS”).

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

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

During 2019 and 2018, the Company distributed $247.9 million to2020, GPIP to allow GPIP to repurchase 20.8purchased 32.5 million partnership units from GPI Holding, which increased IP's ownership interestIP for $500 million in GPIP from 20.5% at January 1, 2018cash, fully redeeming the 18.2 million partnership units that were required to 21.6% at December 31, 2019.be redeemed in cash.

On January 28, 2020,February 16, 2021, GPHC announced that IP had notified GPHC of its intent to begin the process of reducing itsexchange additional ownership interest in GPIP. Per thean agreement between the parties, on January 29, 2020,February 19, 2021, GPIP purchased 15.19.3 million partnership units from IP for $250$150 million in cash.cash, and GPHC exchanged 15.3 million common units for an equivalent number of shares of GPHC common stock. As a result, IP’sIP's ownership interest in GPIP decreased from 21.6% to 18.3%7.4% as of January 29, 2020.February 19, 2021.

Unless otherwise negotiated by the parties, IP’s next contractual opportunity to exchange their partnership units isbegins 180 days from the February 19, 2021 purchase date and is limited to the lesser of $250 million or 25% of the units owned immediately following the initial transaction, subject to the cap on the number of units that may be exchanged for shares of GPHC's common stock.a minimum. IP will have further opportunities to exchange their partnership units beginning 180 days after each exchangepurchase date. GPHC may choose to satisfy these exchanges using shares of its common stock, cash, or a combination thereof.

As of March 31, 2021, GPIP had repurchased 44.2 million partnership units from GPI Holding, which distributed the proceeds to GPHC. GPHC used the proceeds to repurchase 44.2 million shares of GPHC's common stock. These partnership unit repurchases increased IP's ownership interest in GPIP, which was 7.4% at March 31, 2021. There were no repurchases of GPHC's common stock for the three months ended March 31, 2021.

The Company’s Condensed Consolidated Financial Statements include all subsidiaries in which the Company has the ability to exercise direct or indirect control over operating and financial policies. Intercompany transactions and balances are eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to current year presentation.

In the Company’s opinion, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary to presentstate fairly the financial position, results of operations and cash flows for the interim periods. The Company’s year endyear-end Condensed Consolidated Balance Sheet data was derived from audited financial statements. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all the information required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with GPIL’s Form 10-K for the year ended December 31, 2019.2020. In addition, the preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates and changes in these estimates are recorded when known.

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue Recognition

The Company has 2 primary activities, the manufacturing and converting of paperboard, from which it generates revenue from contracts with customers. Revenuecustomers, and revenue is disaggregated primarily by geography and type of activity as further explained in "Note 11-Segments.10 — Segment Information." All reportable segments and the Australia and Pacific Rim operating segments recognize revenue under the same method, allocate transaction price using similar methods, and have similar economic factors impacting the uncertainty of revenue and related cash flows.

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Revenue is recognized on the Company's annual and multi-year supply contracts when the Company satisfies the performance obligation by transferring control over the product or service to a customer, which is generally based on shipping terms and passage of title under the point-in-time method of recognition. For the three months ended March 31, 20202021 and 2019,2020, the Company recognized $1,594.6$1,644 million and $1,501.6$1,595 million, respectively, of revenue from contracts with customers.

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

The Company's contract assets consist primarily of contract renewal incentive payments to customers which are amortized over the period in which performance obligations related to the contract renewal are satisfied. As of March 31, 20202021 and December 31, 2019,2020, contract assets were $21.0$16 million and $24.3$15 million, respectively. The Company's contract liabilities consist principally of rebates, and as of March 31, 20202021 and December 31, 20192020 were $43.7$50 million and $49.6$56 million, respectively.

The Company did not have a material amount relating to backlog orders at March 31, 2020 or December 31, 2019.

Accounts Receivable and Allowances

The Company has entered into agreements to sell, on a revolving basis, certain trade accounts receivable to third party financial institutions. Transfers under these agreements meet the requirements to be accounted for as sales in accordance with the Transfers and Servicing topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification"). The loss on sale is not material and is included in Other Expense, Net line item on the Condensed Consolidated Statement of Operations. The following table summarizes the activity under these programs for the three months ended March 31, 20202021 and 2019,2020, respectively:
Three Months Ended
March 31,
In millions20202019
Receivables Sold and Derecognized$610.2  $811.2  
Proceeds Collected on Behalf of Financial Institutions608.8  504.1  
Net Proceeds Paid to Financial Institutions(4.7) (28.8) 
Deferred Purchase Price at March 31(a)
6.7  4.3  
Pledged Receivables at March 31263.5  144.2  

Three Months Ended
March 31,
In millions20212020
Receivables Sold and Derecognized$758 $610 
Proceeds Collected on Behalf of Financial Institutions685 609 
Net Proceeds Received From (Paid to) Financial Institutions62 (5)
Deferred Purchase Price at March 31(a)
Pledged Receivables at March 31160 264 
(a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.

The Company participates inhas also entered into various factoring and supply chain financing arrangements offered by certain customers and has entered into various factoring arrangements thatwhich also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the three months ended March 31, 20202021 and 2019,2020, the Company sold receivables of approximately $72$125 million and $37$72 million, respectively, related to these factoring arrangements.

Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, atwere $689 million and $621 million as of March 31, 20202021 and December 31, 2019, were approximately $563 million and $562 million,2020, respectively.

Business Combinations and Shutdown and Other Special Charges, Net

The following table summarizes the transactions recorded in Business Combinations and Shutdown and Other Special Charges, Net in the Condensed Consolidated Statements of Operations:
Three Months Ended
March 31,
In millions20202019
Charges Associated with Business Combinations$1.5  $2.1  
Shutdown and Other Special Charges4.2  4.1  
Exit Activities(a)
13.0  —  
Total$18.7  $6.2  
(a) Relates to the Company's CRB mills and the PM1 containerboard machine exit activities (see "Note 14 — Exit Activities").

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net

The following table summarizes the transactions recorded in Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net in the Condensed Consolidated Statements of Operations:
Three Months Ended
March 31,
In millions20212020
Charges Associated with Business Combinations$$
Shutdown and Other Special Charges
Exit Activities(a)
13 
Total$12 $19 
(a) Relates to the Company's CRB mills, converting facility closures and the PM1 containerboard machine exit activities (see "Note 12 — Exit Activities").

2021

During 2019, the Company announced its plans to invest $600 million in a new CRB paper machine in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close 2 of its smaller CRB Mills in 2022 in order to remain capacity neutral. Severance, retention, and other charges associated with this project are included in Exit Activities in the table above in the three months ended March 31, 2021 and 2020. For more information, see "Note 12 — Exit Activities." The Company also expects to incur start-up charges of $15 million for the new CRB paper machine in 2021. These start-up charges are included in Shutdown and Other Special Charges in the table above.

During 2019, the Company began a three-year program to dismantle and dispose of idle and abandoned assets primarily at the paperboard mills. Charges related to this program during the three months ended March 31, 2021 and 2020 were $4 million and $2 million, respectively. Expected charges for this program for 2021 are $26 million. Charges associated with this program are included in Shutdown and Other Special Charges in the table above.

2020

On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment. The Company paid $41 million using existing cash and borrowings under its revolving credit facility. The costs associated with this acquisition are included in Charges Associated with Business Combinations in the table above. During the first quarter of 2021, the acquisition accounting for Quad was finalized.

In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. Both will be effective June 30, 2020. Charges associated with these projects are included in Exit Activities in the table above. For more information, see "Note 1412 — Exit Activities."

2019

On September 24, 2019, the Company announced its plan to invest approximately $600 million in a new CRB paper machine in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close 2 of its smaller CRB Mills in 2022 in order to remain capacity neutral. Charges associated with this project are included in Exit Activities in the table above. For more information, see "Note 14 — Exit Activities."

On August 1, 2019, the Company acquired substantially all the assets of Artistic Carton Company ("Artistic"), a diversified producer of folding cartons and CRB. The acquisition included 2 converting facilities located in Auburn, Indiana and Elgin, Illinois (included in the Americas Paperboard Packaging reportable segment) and 1 CRB paperboard mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment).

Charges associated with all acquisitions are included in Charges Associated with Business Combinations in the table above. For more information regarding these acquisitions see "Note 3 — Business Combinations."

During 2019, the Company began a three-year program to dismantle and dispose of idle and abandoned assets primarily at the paperboard mills. Expected charges for this program are approximately $40 million. Charges associated with this program are included in Shutdown and Other Special Charges in the table above.

Adoption of New Accounting Standards

Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model (known as the "current expected credit loss model") that is based on expected losses rather than incurred losses. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.

Effective January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This amendment modifies the disclosure requirements on fair value measurements. The adoption of this standard did not have a material impact on the Company's financial disclosures.

Effective January 1, 2020, the Company adopted ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU broadens the scope of Accounting Standards Codification ("ASC") 350-40 with an updated definition of a hosting arrangement and clarifies certain aspects of accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.

Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20); Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This amendment removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The guidance is effective for fiscal years ending after December 15, 2020 and would be applied on a retrospective basis. The Company is currently evaluating the impact this guidance will have on its related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This amendment modifies ASC 740 to simplify the accounting for income taxes. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this new guidance during the three months ended March 31, 2021. The Company’s adoption did not result in any changes in accounting principle upon transition and the impact to the Company’s overall financial statements is immaterial.

Accounting Standards Not Yet Adopted

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


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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 2 — INVENTORIES, NET

Inventories, Net by major class:
In millionsMarch 31, 2020December 31, 2019
Finished Goods$464.7  $434.8  
Work in Progress132.7  123.4  
Raw Materials378.0  370.0  
Supplies167.6  167.7  
Total$1,143.0  $1,095.9  

In millionsMarch 31, 2021December 31, 2020
Finished Goods$471 $471 
Work in Progress138 133 
Raw Materials337 349 
Supplies179 175 
Total$1,125 $1,128 

NOTE 3 — BUSINESS COMBINATIONS

On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc., a commercial printing company. The converting facility is located in Omaha, Nebraska, close to many of the Company's existing food, beverage and industrial customers. The Company paid approximately $42 million using existing cash and borrowings under its revolving credit facility.

The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date and is subject to adjustments in subsequent periods once the third-party valuations are finalized. The Company recorded $4.0 million related to identifiable intangible assets (customer relationships) and $38.1 million related to net tangible assets (primarily working capital, land/buildings and equipment).

As disclosed in "Note 1 — General Information," the Company completed the Artistic acquisition in 2019. The Company paid approximately $53 million for the Artistic acquisition using existing cash and borrowings under its revolving credit facility. During the three months ended March 31, 2020, the acquisition accounting for Artistic was finalized.


NOTE 4 — DEBT

On March 6, 2020,8, 2021, GPIL completed a private offering of $450.0$400 million aggregate principal amount of its senior unsecured notes0.821% Senior Secured Notes due 2028. The2024 and $400 million aggregate principal amount of its 1.512% Senior Secured Notes will bear interest at an annual rate of 3.50%.due 2026. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under GPIL's revolvingterm loan credit facility,facilities, which is under its senior secured credit facility.

Long-Term Debt is comprisedOn October 15, 2020, GPIL entered into a new $425 million term loan facility under the Third Amended and Restated Credit Agreement with member banks of the following:
In millionsMarch 31, 2020December 31, 2019
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2028$450.0  $—  
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.82%, payable in 2027300.0  300.0  
Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.17%, payable in 2024300.0  300.0  
Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.91%, payable in 2022250.0  250.0  
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.76%, payable in 2021425.0  425.0  
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (2.45% at March 31, 2020) payable through 20231,387.0  1,396.1  
Senior Secured Revolving Facilities with interest payable at floating rates (1.93% at March 31, 2020) payable in 2023243.0  52.8  
Finance Leases133.3  134.2  
Other  5.7  5.4  
Total Long-Term Debt3,494.0  2,863.5  
Less: Current Portion41.2  41.1  
3,452.8  2,822.4  
Less: Unamortized Deferred Debt Issuance Costs18.3  12.5  
Total$3,434.5  $2,809.9  

Farm Credit System (the "Incremental Term A-2 Facility")(collectively, the "Current Credit Agreement"). The Incremental Term A-2 Facility had a delayed draw feature, and the Company drew the entire facility on January 14, 2021. On January 15, 2021, the Company used the proceeds, together with cash on hand, to redeem its 4.75% Senior Notes due in 2021 at par. The redemption included the outstanding principal amount plus accrued and unpaid interest. The Incremental Term A-2 Facility bears interest at a fixed rate of 2.67% due quarterly, matures January 14, 2028, and does not amortize. As long as the loan is outstanding, GPIL will be eligible to receive an annual patronage credit from the participating banks, which will be paid in cash and stock in the lead member bank. Patronage payable each year is variable and based on the individual financial performance of each of the member banks then participating in the loan.
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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-Term Debt is comprised of the following:

In millionsMarch 31, 2021December 31, 2020
Senior Notes with interest payable semi-annually at 0.821%, effective rate of 0.83%, payable in 2024(a)
$400 $
Senior Notes with interest payable semi-annually at 1.512%, effective rate of 1.52%, payable in 2026(a)
400 
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2029(a)
350 350 
Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2028(a)
450 450 
Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.81%, payable in 2027(a)
300 300 
Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.16%, payable in 2024(b)
300 300 
Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.90%, payable in 2022(b)
250 250 
Senior Notes with interest payable semi-annually at 4.75%(b)
425 
Senior Secured Term Loan A-2 Facility with interest payable quarterly at 2.67%, effective rate of 2.68% payable in 2028(a)
425 
Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (1.59% at March 31, 2021) payable through 2023(a)
555 1,360 
Senior Secured Revolving Facilities with interest payable at floating rates (1.56% at March 31, 2021) payable in 2023(a)(c)
286 84 
Finance Leases and Financing Obligations138 139 
Other
Total Long-Term Debt3,858 3,663 
Less: Current Portion45 494 
Total Long-Term Debt Excluding Current Portion3,813 3,169 
Less: Unamortized Deferred Debt Issuance Costs26 22 
Total$3,787 $3,147 
(a) Guaranteed by GPIP and certain domestic subsidiaries.
(b) Guaranteed by GPHC and certain domestic subsidiaries.
(c) The effective interest rates for the Company’s Senior Secured Revolving Credit Facilities were 1.57% and 2.06% as of March 31, 2021 and December 31, 2020, respectively.

At March 31, 2020,2021, the Company and its U.S. and international subsidiaries had the following commitments, amounts outstanding and amounts available under revolving credit facilities:
In millionsTotal
Commitments
Total
Outstanding
Total Available
Senior Secured Domestic Revolving Credit Facility(a)
$1,450.0  $170.0  $1,262.1  
Senior Secured International Revolving Credit Facility174.6  73.0  101.6  
Other International Facilities55.7  13.6  42.1  
Total$1,680.3  $256.6  $1,405.8  

In millionsTotal
Commitments
Total
Outstanding
Total Available
Senior Secured Domestic Revolving Credit Facility(a)
$1,450 $211 $1,218 
Senior Secured International Revolving Credit Facility185 75 110 
Other International Facilities54 11 43 
Total$1,689 $297 $1,371 
(a) In accordance with its debt agreements, the Company’s availability under its revolving credit facilities has been reduced by the amount of standby letters of credit issued of $17.9$21 million as of March 31, 2020.2021. These letters of credit are primarily used as security against the Company's self-insurance obligations and workers’ compensation obligations. These letters of credit expire at various dates through 20202021 and 20212022 unless extended.

The Credit Agreement, the 4.75% Senior Notes due 2027 and the 3.50% Senior Notes due 2028 are guaranteed by GPIP and certain domestic subsidiaries, and the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022 and 4.125% Senior Notes due 2024 are guaranteed by GPHC and certain domestic subsidiaries. For additional information on the financial statements of GPIP, see "Note 13 - Guarantor Condensed Consolidating Financial Statements."

TheCurrent Credit Agreement and the indentures governing the 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022, 4.125% Senior Notes due 2024, 0.821% Senior Notes due 2024, 1.512% Senior Notes due 2026, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028, and 3.50% Senior Notes due 20282029 (the "Indentures"), limit the Company's ability to incur additional indebtedness. Additional covenants contained in the Current Credit Agreement and the Indentures may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, pay membership distributions, and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indentures, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions could limit the Company’s ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.

As of March 31, 2020,2021, the Company was in compliance with the covenants in the Credit Agreement and the Indentures.
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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 54 — EQUITY COMPENSATION

The Company compensates certain of its employees with grants of restricted stock units (“RSUs”) under the Graphic Packaging Holding Company 2014 Omnibus Stock and Incentive Compensation Plan as amended (the “2014 Plan”). Compensation costs related to the grants are recognized in the Consolidated Statements of Operations with a corresponding adjustment to Member's Interest. Under theThe 2014 Plan allows for GPHC may alsoto grant toshares of the Company's employees stock options, stock appreciation rights, restricted stock, and other types of stock-based and cash awards. Awards under the 2014 Plan generally vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the 2014 Plan are from GPHC's authorized but unissued shares. Compensation costs are recognized on a straight-line basis over the requisite service period of the award and are adjusted for actual performance for performance-based awards. As of March 31, 2021, there were 11.4 million shares remaining available to be granted under the 2014 Plan.

Stock Awards, Restricted Stock and Restricted Stock Units

Under the 2014 Plan, all RSUs generally vest and become payable in three years from date of grant. RSUs granted to employees generally contain some combination of service and performance objectives based on various financial targets and relative total shareholder return that must be met for the RSUs to vest. Stock awards granted to non-employee directors as part of their compensation for service on the Board are unrestricted on the grant date.

Data concerning RSUs granted in the first three months of 20202021 is as follows:
RSUsWeighted Average
Grant Date Fair
Value Per Share
RSUs — Employees1,610,179  $15.45  
RSUsWeighted Average
Grant Date Fair
Value Per Share
RSUs — Employees1,522,157 $15.85 

During the three months ended March 31, 2021 and 2020, and 2019, $12.4$11 million and $4.9$13 million, respectively, were charged to compensation expense for stock incentive plans.plans and is primarily included in Selling, General and Administrative expenses in the Condensed Consolidated Statements of Operations.

During the three months ended March 31, 2021 and 2020, and 2019, 0.81.2 million and 0.50.8 million GPHC shares were issued, respectively. The shares issued were primarily related to RSUs granted during 20172018 and 2016,2017, respectively.


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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 65 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS

The Company maintains both defined benefit pension plans and postretirement health care plans that provide medical and life insurance coverage to eligible salaried and hourly retired employees in North America and their dependents. The Company maintains international defined benefit pension plans which are either noncontributory or contributory and are funded in accordance with applicable local laws. Pension or termination benefits are based primarily on years of service and the employee's compensation.

During 2018, the Company began the process of terminating its largest U.S. pension plan (the “US Plan”). This included freezing the plan as of December 31, 2018 and spinning off the active participants to the plan established as part of the NACP Combination (the “NACP Plan”). The NACP plan is open for union and non-union hourly employees of locations that were part of the NACP Combination. During the third quarter of 2019, the Company offered a lump-sum benefit option to certain participants of the US Plan. Lump sum payments of $150.2 million were paid in the fourth quarter of 2019 and the Company recognized a non-cash settlement charge of $39.2 million associated with the payouts.

In the first quarter of 2020, the Company, purchased a group annuity contract using the assets held within the pension trust, purchased a group annuity contract that transferred the remaining pension obligation under the US Planits largest U.S. pension plan of approximately $713 million to an insurance company andcompany. The Company incurred an additional non-cash settlement charge of $152.5$153 million related to this transfer. These non-cash settlement charges relate to Net Actuarial Loss previously recognized in Accumulated Other Comprehensive Loss.

Pension and Postretirement Expense

The pension and postretirement expenses related to the Company’s plans consisted of the following:
Three Months Ended
March 31,
In millions20212020
Components of Net Periodic Cost:
Service Cost$$
Interest Cost
Expected Return on Plan Assets(5)(7)
Net Settlement Loss153 
Amortization:
Actuarial Loss
Net Periodic Cost$$155 

Pension BenefitsPostretirement Health Care Benefits
Three Months EndedThree Months Ended
March 31,March 31,
In millions2020201920202019
Components of Net Periodic Cost:
Service Cost  $3.9  $3.3  $0.1  $0.1  
Interest Cost  4.6  11.5  0.2  0.4  
Administrative Expenses0.1  0.1  —  —  
Expected Return on Plan Assets(6.9) (13.8) —  —  
Net Settlement/Curtailment Loss  152.5  —  —  —  
Amortization:  
 Prior Service Credit  —  —  (0.1) (0.1) 
Actuarial Loss (Gain) 1.6  2.5  (0.4) (0.5) 
Net Periodic Cost (Benefit) $155.8  $3.6  $(0.2) $(0.1) 
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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Employer Contributions

TheIn the first quarter of 2021, the Company made contributions of $0.6a $14 million contribution to its pension plans duringremaining U.S. defined benefit plan by effectively utilizing a portion of the excess balance related to the terminated U.S. defined benefit plan. At March 31, 2021, $6 million remains related to the terminated U.S. defined benefit plan and it is expected that this remainder will be utilized in the same way in the first three monthsquarter of 2020 and 2019. The2022. Excluding this $14 million transfer, the Company expects to make contributions in the range of $10 million to $20 million for the full year 2020.2021. During 2019,the first quarter of 2020, the Company made $11.3$1 million of contributions to its pension plans.

The Company made postretirement health care benefit payments of $0.7 million and $0.5 million during the first three months of 2020 and 2019, respectively. The Company estimates its postretirement health care benefit payments for the full year 2020 to be approximately $3 million. During 2019, the Company made postretirement health care benefit payments of $1.2 million.


NOTE 76 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT

The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging topic of the FASB Codification and those not designated as hedging instruments under this guidance. The Company uses interest rate swaps, natural gas swap contracts, and forward exchange contracts. These derivative instruments are designated as cash flow hedges and, to the extent they are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in Accumulated Other Comprehensive Loss. These changes in fair value will subsequently be reclassified to earnings, contemporaneously with and offsetting changes in the related hedged exposure and presented in the same line of the income statement expected for the hedged item.
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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


For more information regarding the Company’s financial instruments and fair value measurement, see “Note 10 — Financial Instruments, Derivatives and Hedging Activities and Note 11 — Fair Value Measurement” of the Notes to the Consolidated Financial Statements of the Company's 20192020 Form 10-K.

Interest Rate Risk

The Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. Changes in fair value will subsequently be reclassified into earnings as a component of Interest Expense, Net as interest is incurred on amounts outstanding under the term loan facility. The following table summarizes the Company's current interest rate swap positions for each period presented as of March 31, 2020:2021:

StartEnd(In Millions)
Notional Amount
Weighted Average Interest Rate
04/03/201810/01/2020$150.02.36%
12/03/201801/01/2022$120.02.92%
12/03/201801/04/2022$80.02.79%

StartEnd(In Millions)
Notional Amount
Weighted Average Interest Rate
12/03/201801/01/2022$120.02.92%
12/03/201801/04/2022$80.02.79%

During the first three months of 20202021 and 2019,2020, there were 0 amounts of ineffectiveness related to changes in the fair value of interest rate swap agreements. Additionally, there were 0 amounts excluded from the measure of effectiveness.

Commodity Risk

To manage risks associated with future variability in cash flows and price risk attributable to purchases of natural gas, the Company enters into natural gas swap contracts to hedge prices for a designated percentage of its expected natural gas usage. Such contracts are designated as cash flow hedges. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss and resulting gain or loss reclassified into Cost of Sales concurrently with the recognition of the commodity consumed. The Company has hedged approximately 50%35%, and 36%11% of its expected natural gas usage for the remainder of 20202021 and all of 2021,2022, respectively.

During the first three months of 20202021 and 2019,2020, there were 0 amounts of ineffectiveness related to changes in the fair value of natural gas swap contracts. Additionally, there were 0 amounts excluded from the measure of effectiveness.

Foreign Currency Risk

The Company enters into forward exchange contracts to manage risks associated with foreign currency transactions and future variability of cash flows arising from those transactions that may be adversely affected by changes in exchange rates. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss and gains/losses related to these contracts are recognized in Other Expense, Net or Net Sales, when appropriate.

At March 31, 2020,2021, multiple forward exchange contracts existed that expire on various dates through the remainder of 2020.2021. Those purchased forward exchange contracts outstanding at March 31, 20202021 and December 31, 2019,2020, when aggregated and measured in U.S. dollars at contractual rates at March 31, 20202021 and December 31, 2019,2020, had notional amounts totaling $62.3$73 million and $87.6$102 million, respectively.

NaN amounts were reclassified to earnings during the first three months of 20202021 or during 20192020 in connection with forecasted transactions that were considered probable of not occurring and there was 0 amount of ineffectiveness related to changes in the fair value of foreign currency forward contracts. Additionally, there were 0 amounts excluded from the measure of effectiveness.
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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Derivatives not Designated as Hedges

The Company enters into forward exchange contracts to effectively hedge substantially all of its accounts receivables resulting from sales transactions and intercompany loans denominated in foreign currencies in order to manage risks associated with variability in cash flows that may be adversely affected by changes in exchange rates. At March 31, 20202021 and December 31, 2019,2020, multiple foreign currency forward exchange contracts existed, with maturities ranging up to three months. Those foreign currency exchange contracts outstanding at March 31, 20202021 and December 31, 2019,2020, when aggregated and measured in U.S. dollars at contractual rates at March 31, 20202021 and December 31, 2019,2020, had net notional amounts totaling $76.1$101 million and $77.4$80 million, respectively. Unrealized gains and losses resulting from these contracts are recognized in Other Expense, Net and approximately offset corresponding recognized but unrealized gains and losses on the remeasurement of these accounts receivable.

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Fair Value of Financial Instruments

The Company’s derivative instruments are carried at fair value. The Company has determined that the inputs to the valuation of these derivative instruments are Level 2 in the fair value hierarchy. Level 2 inputs are defined as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. The Company uses valuation techniques based on discounted cash flow analyses, which reflect the terms of the derivatives and use observable market-based inputs, including forward rates, and uses market price quotations obtained from independent derivatives brokers, corroborated with information obtained from independent pricing service providers.

As of March 31, 2020,2021, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to its own credit risk. Similarly, there has not been any significant adverse impact to the Company’s derivative assets based on evaluation of the Company’s counterparties’ credit risks. The following table summarizes the fair value of the Company’s derivative instruments:

Derivative Assets(a)
Derivative Liabilities(b)
Derivative Assets(a)
Derivative Liabilities(b)
March 31,December 31,March 31,December 31,March 31,December 31,March 31,December 31,
In millionsIn millions2020201920202019In millions2021202020212020
Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:
Interest rate contracts Interest rate contracts  $—  $—  $11.1  $6.6  Interest rate contracts$$$$
Foreign currency contracts Foreign currency contracts  1.1  —  —  1.5  Foreign currency contracts
Commodity contractsCommodity contracts—  —  2.9  3.4  Commodity contracts
Total DerivativesTotal Derivatives$1.1  $—  $14.0  $11.5  Total Derivatives$$$$
(a) Derivative assets of $1.1$3 million and $2 million are included in Other Current Assets as of March 31, 2020.2021 and December 31, 2020, respectively.

(b) Derivative liabilities of $9.7$6 million and $8.5$9 million are included in Other Accrued Liabilities as of March 31, 20202021 and December 31, 2019, respectively. Derivative liabilities of $4.3 million and $3.0 million are included in Other Noncurrent Liabilities as of March 31, 2020, and December 31, 2019, respectively.

The fair values of the Company’s other financial assets and liabilities at March 31, 20202021 and December 31, 20192020 approximately equal the carrying values reported on the Condensed Consolidated Balance Sheets except for Long-Term Debt. The fair value of the Company’s Long-Term Debt (excluding finance leases and deferred financing fees) was $3,188.5$3,770 million and $2,788.6$3,625 million as compared to the carrying amounts of $3,360.6$3,720 million and $2,729.3$3,524 million as of March 31, 20202021 and December 31, 2019,2020, respectively. The fair value of the Company’s Total Debt, including the Senior Notes, is based on quoted market prices (Level 2 inputs). Level 2 valuation techniques for Long-Term Debt are based on quotations obtained from independent pricing service providers.

Effect of Derivative Instruments

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

Amount of (Gain) Loss Recognized in Accumulated Other Comprehensive LossLocation in Statement of OperationsAmount of (Gain) Loss Recognized in Statement of Operations
 Three Months Ended March 31, Three Months Ended March 31,
In millions2020201920202019
Commodity Contracts$(3.6) $(0.9) Cost of Sales$(3.1) $0.1  
Foreign Currency Contracts(2.8) (1.1) Other Expense, Net(0.4) (0.7) 
Interest Rate Swap Agreements5.5  2.0  Interest Expense, Net0.9  —  
Total$(0.9) $—  $(2.6) $(0.6) 

The effect of derivative instruments not designated as hedging instruments on the Company’s Condensed Consolidated Statements of Operations for the years ended March 31, 2020 and 2019 is as follows:

 Three Months Ended March 31,
In millions20202019
Foreign Currency ContractsOther Expense, Net$5.5  $(0.1) 

Amount of (Gain) Loss Recognized in Accumulated Other Comprehensive LossLocation in Statement of OperationsAmount of Loss Recognized in Statement of Operations
Three Months Ended March 31,Three Months Ended March 31,
In millions2021202020212020
Commodity Contracts$(1)$Cost of Sales$$
Foreign Currency Contracts(2)(3)Other Expense, Net
Interest Rate Swap AgreementsInterest Expense, Net
Total$(3)$Total$$
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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The pre-tax effect of derivative instruments not designated as hedging instruments on the Company’s Condensed Consolidated Statements of Operations is as follows:

Three Months Ended March 31,
In millions20212020
Foreign Currency ContractsOther Income, Net$(3)$(6)

Accumulated Derivative Instruments (Loss) Income

The following is a rollforward of pre-tax Accumulated Derivative Instruments (Loss) Income which is included in the Company’s Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Member's Interest as of March 31, 2020:2021:

In millions
Balance at December 31, 20192020$(10.9)(7)
Reclassification to Earnings(2.6)
Current Period Change in Fair Value0.93 
Balance at March 31, 20202021$(12.6)(2)

At March 31, 2020,2021, the Company expects to reclassify $8.6$2 million of pre-tax losses in the next twelve months from Accumulated Other Comprehensive Loss to earnings, contemporaneously with and offsetting changes in the related hedged exposure. The actual amount that will be reclassified to future earnings may vary from this amount as a result of changes in market conditions.


NOTE 87 — INCOME TAXES

The Company is classified as a disregarded entity for U.S. income tax purposes and is generally not subject to domestic income tax expense. As a result, the consolidated financial statements exclude the tax effect of domestic earnings with the exception of state income tax for certain states that directly tax the operations of disregarded entities. The consolidated financial statements include the local country tax effect of foreign earnings generated by the Company’s wholly-owned international subsidiaries. During the three months ended March 31, 2021, the Company recognized Income Tax Expense of $3 million on Income before Income Taxes of $80 million. During the three months ended March 31, 2020, the Company recognized Income Tax Benefit of $1.6$1 million on Loss before Income Taxes and Equity Income of Unconsolidated Entity of $25.2 million. During the three months ended March 31, 2019, the Company recognized Income Tax Expense of $4.0$25 million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $99.1 million.

.

NOTE 98 — ENVIRONMENTAL AND LEGAL MATTERS

Environmental Matters

The Company is subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those governing discharges to air, soil and water, the management, treatment and disposal of hazardous substances, solid waste and hazardous wastes, the investigation and remediation of contamination resulting from historical site operations and releases of hazardous substances, the recycling of packaging and the health and safety of employees. Compliance initiatives could result in significant costs, which could negatively impact the Company’s consolidated financial position, results of operations or cash flows. Any failure to comply with environmental or health and safety laws and regulations or any permits and authorizations required thereunder could subject the Company to fines, corrective action or other sanctions.

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

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

Legal Matters

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


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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 109 — RELATED PARTY TRANSACTIONS

In connection with the NACP Combination, the Company entered into agreements with IP for transition services, fiber procurement fees, and corrugated products and ink supply. Payments to IP for the three months ended March 31, 20202021 for fiber procurement fees and corrugated products were $2.8$3 million (related to pass through wood purchases of approximately $59$53 million) and $7.8$7 million, respectively. There were no payments to IP for transition services during the three months ended March 31, 2020. Payments to IP for the three months ended March 31, 20192020 for transition services, fiber procurement fees and corrugated products and ink supply were $0.1 million, $2.8$3 million (related to pass through wood purchases of approximately $62$59 million) and $6.3$8 million, respectively. In addition, approximately $1 million of payments were made for purchases unrelated to these agreements for the three months ended March 31, 2019.


NOTE 1110 — SEGMENT INFORMATION

The Company has 3 reportable segments as follows:

Paperboard Mills includes the 98 North American paperboard mills whichthat produce primarily CRB, CUK, and SBS, which is consumed internally to produce paperboard packaging for the Americas and Europe Paperboard Packaging segments. The remaining paperboard is sold externally to a wide variety of paperboard packaging converters and brokers. The Paperboard Mills segment Net Sales represent the sale of paperboard only to external customers. The effect of intercompany transfers to the paperboard packaging segments has been eliminated from the Paperboard Mills segment to reflect the economics of the integration of these segments.

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

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

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

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment information is as follows:

Three Months Ended
March 31,
In millions20212020
NET SALES:
Paperboard Mills$237 $269 
Americas Paperboard Packaging1,169 1,123 
Europe Paperboard Packaging206 177 
Corporate/Other/Eliminations(a)
37 30 
Total$1,649 $1,599 
(LOSS) INCOME FROM OPERATIONS:
Paperboard Mills$(27)$(23)
Americas Paperboard Packaging121 195 
Europe Paperboard Packaging20 12 
Corporate and Other(b)
(6)(24)
Total$108 $160 
DEPRECIATION AND AMORTIZATION:
Paperboard Mills$58 $59 
Americas Paperboard Packaging42 39 
Europe Paperboard Packaging11 10 
Corporate and Other
Total$117 $114 
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes expenses related to business combinations, shutdown and other special charges, and exit activities.

NOTE 11 — ACCUMULATED OTHER COMPREHENSIVE LOSS
The following represents changes in Accumulated Other Comprehensive Loss for the three months ended March 31, 2021 are as follows:

In millions, net of taxDerivatives InstrumentsPension and Postretirement Benefit PlansCurrency Translation AdjustmentsTotal
Balance at December 31, 2020$(17)$(71)$(102)$(190)
Other Comprehensive Income (Loss) before Reclassifications(1)(6)(4)
Amounts Reclassified from Accumulated Other Comprehensive Income into the Condensed Consolidated Statement of Operations, Net of Tax (a)
Net Current-period Other Comprehensive Income (Loss)(6)(1)
Balance at March 31, 2021$(12)$(71)$(108)$(191)
(a) See following table for details about these reclassifications.

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following represents reclassifications out of Accumulated Other Comprehensive Loss for the three months ended March 31, 2021:

In millions
Details about Accumulated Other Comprehensive Loss ComponentsAmount Reclassified from Accumulated Other Comprehensive LossAffected Line Item in the Statement Where Net Income is Presented
Derivatives Instruments:
Foreign Currency Contracts$Other Expense, Net
Interest Rate Swap AgreementsInterest Expense, Net
$Total, Net of Tax
Amortization of Defined Benefit Pension Plans:
Actuarial Losses$(a)
$Total, Net of Tax
Total Reclassifications for the Period$Total, Net of Tax

(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see “Note 5 — Pensions and Other Postretirement Benefits").

NOTE 12 — EXIT ACTIVITIES

During 2019, the Company announced its plans to invest $600 million in a new CRB paper machine in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close 2 of its smaller CRB Mills in 2022 in order to remain capacity neutral.

In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. During the second quarter of 2020, the Company closed the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine.

During the three months ended March 31, 2021 and 2020, the Company recorded $9 million and $18 million of exit costs, respectively. Other costs associated with the start-up of the new CRB paper machine will be recorded in the period in which they are incurred. These costs are included in the Corporate and Other caption in "Note 10 - Segment Information."

The following table summarizes the costs incurred during the three months ended March 31, 2021 and 2020 related to these restructurings:

Three Months Ended
March 31,
In millionsLocation in Statement of Operations20212020
Severance costs and other(a)
Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net$$
Accelerated depreciationCost of Sales
Inventory and asset write-offsBusiness Combinations, Shutdown and Other Special Charges, and Exit Activities, Net
Total$$18 
(a) Costs incurred include activities for post-employment benefits, retention bonuses, incentives and professional services.

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the balance of accrued expenses related to restructuring:

In millionsTotal
Balance at December 31, 2020$12 
Costs incurred
Payments(4)
Balance at March 31, 2021$12 

In conjunction with the closure of the 2 smaller CRB Mills in 2022, the Company currently expects to incur charges associated with these exit activities for post-employment benefits, retention bonuses and incentives in the range of $15 million to $20 million and for accelerated depreciation and inventory and asset write-offs in the range of $50 million to $60 million. Additionally, the Company expects to incur start-up charges of $15 million for the new CRB paper machine in 2021. Through March 31, 2021, the Company has incurred cumulative exit activity charges for post-employment benefits, retention bonuses and incentives of $12 million, accelerated depreciation and inventory and asset write-offs of $32 million, and start-up charges for the new CRB paper machine of $2 million.

For the closures of the White Pigeon, Michigan CRB mill and the shutdown of the PM1 containerboard machine in West Monroe, Louisiana, the Company has incurred cumulative exit activity charges for post-employment benefits of $2 million and accelerated depreciation and inventory and asset write-offs of $17 million through March 31, 2021. The Company does not expect to incur any additional significant charges related to these closures.

NOTE 13 — SUBSEQUENT EVENTS

Amended and Extended Credit Agreement

On April 1, 2021, the Company entered into a Fourth Amended and Restated Credit Agreement to extend the maturity date of certain of its Senior Secured Term Loan Facilities and Senior Secured Revolving Credit Facilities and to amend certain other terms of the agreement including revised debt covenants and collateral requirements. Under the terms of the agreement, $975 million of the Company’s Senior Secured Term Loan Facilities remains outstanding. The Company added approximately $400 million to its Senior Secured Revolving Credit Facilities. $550 million of the Senior Secured Term Loan Facilities and all of the Senior Secured Revolving Credit Facility loans continue to bear interest at a floating rate per annum ranging from LIBOR plus 1.25% to LIBOR plus 2.00%, determined using a pricing grid based upon the Company’s consolidated total leverage ratio from time to time, and the maturity for these loans were extended from January 1, 2023 to April 1, 2026. $425 million of the Senior Secured Term Loan Facilities continue to bear interest at a fixed rate per annum equal to 2.67% and mature on their originally scheduled maturity date of January 14, 2028.

Acquisition

On April 27, 2021, the Company announced that it has entered into an agreement to acquire Americraft Carton, Inc. (“Americraft”), a leader in paperboard folding cartons in North America for approximately $280 million plus approximately $8 million for recently purchased equipment subject to customary working capital true-up. The proposed acquisition includes 7 converting facilities across the United States and represents a significant opportunity for continued paperboard integration. Americraft will add approximately $200 million in sales and is expected to be reported within the Americas Paperboard Packaging reportable segment. The proposed transaction is expected to close in the second or third quarter of 2021.




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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

INTRODUCTION

This management’s discussion and analysis of financial conditions and results of operations is intended to provide investors with an understanding of the Company's past performance, financial condition and prospects. The following will be discussed and analyzed:

ØOverview of Business

ØOverview of 2021 Results

ØResults of Operations

ØFinancial Condition, Liquidity and Capital Resources

ØCritical Accounting Policies

ØNew Accounting Standards

ØBusiness Outlook


OVERVIEW OF BUSINESS

The Company’s objective is to strengthen its position as a leading provider of sustainable fiber-based packaging solutions. To achieve this objective, the Company offers customers its paperboard, cartons, cups, lids, foodservice containers and packaging machines, either as an integrated solution or separately. Cartons, carriers and containers are designed to protect and hold products. Product offerings include a variety of laminated, coated and printed packaging structures that are produced from the Company’s CRB, CUK and SBS paperboard. Innovative designs and combinations of paperboard, films, foils, metallization, holographics and embossing are customized to the individual needs of the customers.

The Company is implementing strategies (i) to expand market share in its current markets and to identify and penetrate new markets; (ii) to capitalize on the Company’s customer relationships, business competencies, and mills and folding carton assets; (iii) to develop and market innovative, sustainable products and applications that benefit from consumer-led sustainability trends; and (iv) to continue to reduce costs by focusing on operational improvements. The Company’s ability to fully implement its strategies and achieve its objectives may be influenced by a variety of factors, many of which are beyond its control, such as inflation of raw material and other costs, and the effect of overcapacity in the worldwide paperboard packaging industry.

Significant Factors That Impact the Company’s Business and Results of Operations

COVID-19 Pandemic. Many uncertainties remain regarding the current novel coronavirus (“COVID-19”) pandemic, including the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. While the COVID-19 pandemic has not materially impacted the Company's overall business, operations, or financial results to date, it may have far-reaching impacts on many aspects of the Company's operations, including impacts on customer and consumer behaviors, business and manufacturing operations, inventory, accounts receivable, the Company’s employees, and the market generally. The Company will continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business accordingly, such as to match the Company's supply with demand by adjusting mill maintenance outages and taking market downtime where appropriate.

Impact of Inflation/Deflation. The Company’s cost of sales consists primarily of energy (including natural gas, fuel oil and electricity), pine and hardwood fiber, chemicals, secondary fibers, purchased paperboard, aluminum foil, ink, plastic films and resins, depreciation expense and labor. Costs increased in the first three months of 2021 by $47 million, compared to the first three months of 2020. The higher costs in the three months ended March 31, 2021 were due to higher labor and benefit costs ($11 million), freight ($10 million), secondary fiber cost ($9 million), chemicals ($9 million), energy ($5 million), external board ($3 million) and other costs, net ($4 million), partially offset by decreases in wood ($4 million).
Because the price of natural gas experiences significant volatility, the Company has entered into contracts designed to manage risks associated with future variability in cash flows caused by changes in the price of natural gas. The Company has entered into natural gas swap contracts to hedge prices for a portion of its expected usage for 2021 and all of 2022. Since negotiated sales contracts and the market largely determine the pricing for its products, the Company is at times limited in its ability to raise prices and pass through to its customers any inflationary or other cost increases that the Company may incur.

Commitment to Cost Reduction. In light of continuing margin pressure throughout the packaging industry, the Company has programs in place that are designed to reduce costs, improve productivity and increase profitability. The Company utilizes a global continuous improvement initiative that uses statistical process control to help design and manage many types of activities, including production and maintenance. This includes a Six Sigma process focused on reducing variable and fixed manufacturing and administrative costs and the use of Lean Sigma principles in manufacturing and supply chain processes.
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The Company’s ability to continue to successfully implement its business strategies and to realize anticipated savings and operating efficiencies is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. If the Company cannot successfully implement the strategic cost reductions or other cost savings plans, it may not be able to continue to compete successfully against other manufacturers. In addition, any failure to generate the anticipated efficiencies and savings could adversely affect the Company’s financial results.

Competition and Market Factors. As some products can be packaged in different types of materials, the Company’s sales are affected by competition from other manufacturers’ CRB, CUK, SBS, folding box board, and recycled clay-coated news. Additional substitute products also include plastic, shrink film and corrugated containers. In addition, while the Company has long-term relationships with many of its customers, the underlying contracts may be re-bid or renegotiated from time to time, and the Company may not be successful in renewing on favorable terms or at all. The Company works to maintain market share through efficiency, product innovation, service and strategic sourcing to its customers; however, pricing and other competitive pressures may occasionally result in the loss of a customer relationship.

In addition, the Company’s sales are driven by consumer buying habits in the markets its customers serve, and recently we have seen net organic sales growth driven by the consumers desire for sustainable packaging solutions and increased at home consumption. Changes in consumer dietary habits and preferences, increases in the costs of living, unemployment rates, access to credit markets, as well as other macroeconomic factors, may negatively affect consumer spending behavior. New product introductions and promotional activity by the Company’s customers and the Company’s introduction of new packaging products also impact its sales.

Debt Obligations. The Company had an aggregate principal amount of $3,865 million of outstanding debt obligations as of March 31, 2021. This debt has consequences for the Company, as it requires a portion of cash flow from operations to be used for the payment of principal and interest, exposes the Company to the risk of increased interest rates and may restrict the Company’s ability to obtain additional financing. Covenants in the Company’s Third Amended and Restated Credit Agreement (as amended by the Incremental Facility Amendment) and the Amended and Restated Credit Agreement (collectively, the “Current Credit Agreement”) and the indentures governing the 4.875% Senior Notes due 2022, 4.125% Senior Notes due 2024, 0.821% Senior Notes due 2024, 1.512% Senior Notes due 2026, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028 and 3.50% Senior Notes due 2029 (the “Indentures”) may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, pay membership distributions, make other restricted payments and make acquisitions or other investments. The Amended and Restated Credit Agreement and the Term Loan Credit Agreement also require compliance with a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. The Company’s ability to comply in future periods with the financial covenants will depend on its ongoing financial and operating performance, which in turn will be subject to many other factors, many of which are beyond the Company’s control. See "Covenant Restrictions" in “Financial Condition, Liquidity and Capital Resources” for additional information regarding the Company’s debt obligations.

The debt and the restrictions under the Current Credit Agreement and the Indentures could limit the Company’s flexibility to respond to changing market conditions and competitive pressures. The outstanding debt obligations and the restrictions may also leave the Company more vulnerable to a downturn in general economic conditions or its business, or unable to carry out capital expenditures that are necessary or important to its growth strategy and productivity improvement programs.

OVERVIEW OF FIRST QUARTER 2021 RESULTS

This management’s discussion and analysis contains an analysis of Net Sales, Income from Operations and other information relevant to an understanding of the Company's results of operations on a Consolidated basis:

Net Sales for the three months ended March 31, 2021, increased $50 million or 3% to $1,649 million from $1,599 million for the three months ended March 31, 2020, due to improved volume related to the acquisitions of Quad and Greif in 2020, organic sales growth including from conversions to fiber-based packaging solutions and new product introductions, and favorable foreign exchange partially offset by lower open market volume of our paperboard, one fewer selling day due to leap year, and lower selling prices.

Income from Operations for the three months ended March 31, 2021 decreased $52 million or 33% to $108 million from $160 million for the three months ended March 31, 2020 due to unfavorable commodity and other inflation (primarily labor and benefits), downtime and mitigation costs related to Winter Storm Uri, lower open market volume of our paperboard, one fewer selling day due to leap year, mix, higher levels of maintenance and downtime costs, and lower pricing, offset by cost savings from continuous improvement and other programs, organic sales growth and acquisitions, and favorable foreign exchange.

Acquisitions, Closures, and Dispositions

On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment.

On April 1, 2020, the Company acquired the Consumer Packaging Group business from Greif, Inc. ("Greif"), a leader in industrial packaging products and services. The acquisition included seven converting facilities across the United States, which are included in the Americas Paperboard Packaging reportable segment.


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RESULTS OF OPERATIONS

Three Months Ended
March 31,
 In millions    20212020
Net Sales$1,649 $1,599 
Income from Operations108 160 
Nonoperating Pension and Postretirement Benefit Income (Expense)(151)
Interest Expense, Net(30)(34)
Income (Loss) before Income Taxes80 (25)
Income Tax (Expense) Benefit(3)
Net Income (Loss)$77 $(24)

FIRST QUARTER 2021 COMPARED WITH FIRST QUARTER 2020

Net Sales

 Three Months Ended March 31,
 
In millions    
20212020IncreasePercent
Change
Consolidated$1,649 $1,599 $50 %


The components of the change in Net Sales are as follows:

 Three Months Ended March 31,
Variances
In millions2020PriceVolume/MixExchangeTotal2021
Consolidated$1,599 $(3)$33 $20 $50 $1,649 

The Company’s Net Sales for the three months ended March 31, 2021 increased by $50 million or 3% to $1,649 million from $1,599 million for the three months ended March 31, 2020 due to Net Sales of $60 million from the acquisitions of Quad and Greif in 2020, organic sales growth including from conversions to fiber-based packaging solutions and new product introductions, and favorable foreign exchange, primarily the Euro, British Pound, Australian Dollar, and Canadian Dollar, partially offset by lower open market volume of our paperboard, one fewer selling day due to leap year, and lower selling prices. Core converting volumes were up, primarily in global beverage, dry foods, frozen foods, pet care and dairy, offset by declines in foodservice packaging including cups, and tissue. The COVID-19 pandemic had a positive impact on volumes in the first quarter of 2021 for food and beverage packaging offset by a reduction in demand for some foodservice products.

Income from Operations
 Three Months Ended March 31,
 
In millions    
20212020DecreasePercent
Change
Consolidated$108 $160 $(52)(33)%

The components of the change in Income from Operations are as follows:

 Three Months Ended March 31,
Variances
In millions2020PriceVolume/MixInflationExchange
Other (a)
Total2021
Consolidated$160 $(3)$(3)$(47)$$(3)$(52)$108 

(a) Includes the Company's cost reduction initiatives, planned mill maintenance costs, mill market downtime costs, expenses related to acquisitions and integration activities, exit activities and shutdown and other special charges.

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Income from Operations for the three months ended March 31, 2021 decreased $52 million or 33% to $108 million from $160 million for the three months ended March 31, 2020. The first quarter of 2021 was negatively impacted by $29 million of Winter Storm Uri related downtime and mitigation costs, unfavorable commodity and other inflation (primarily labor and benefits), lower open market volume of our paperboard, one fewer selling day due to leap year, mix, higher levels of maintenance and downtime costs, and lower pricing. Income from Operations was positively impacted by cost savings from continuous improvement and other programs, organic sales growth and acquisitions, and favorable foreign exchange.

Inflation increased for the three months ended March 31, 2021 by $47 million due to higher labor and benefit costs ($11 million), freight ($10 million), secondary fiber cost ($9 million), chemicals ($9 million), energy ($5 million), external board ($3 million) and other costs, net ($4 million), partially offset by decreases in wood ($4 million).

Nonoperating Pension and Postretirement Benefit

Nonoperating Pension and Postretirement Benefit was income of $2 million for the three months ended March 31, 2021 versus an expense of $151 million for the three months ended March 31, 2020. The decrease in expense was due to a settlement charge of $153 million associated with the Company’s purchase of a group annuity contract that transferred the remaining pension obligation under the largest U.S. Plan of approximately $713 million to an insurance company in the three months ended March 31, 2020.

Interest Expense, Net

Interest Expense, Net was $30 million and $34 million for the three months ended March 31, 2021 and 2020, respectively. Interest Expense, Net decreased due to lower interest rates, partially offset by higher debt balances as compared to the same period in the prior year. As of March 31, 2021, approximately 18% of the Company’s total debt was subject to floating interest rates.

Income Tax Expense

During the three months ended March 31, 2021, the Company recognized Income Tax Expense of $3 million on Income before Income Taxes of $80 million. The Company is classified as a disregarded entity for U.S. income tax purposes and is generally not subject to domestic income tax expense. As a result, the consolidated financial statements exclude the tax effect of domestic earnings with the exception of state income tax for certain states that directly tax the operations of disregarded entities. The consolidated financial statements include the local country tax effect of foreign earnings generated by the Company’s wholly-owned international subsidiaries.

During the three months ended March 31, 2020, the Company recognized Income Tax Benefit of $1 million on Loss before Income Taxes of $25 million.

Segment Reporting

The Company has three reportable segments as follows:

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

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

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

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

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

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Segment information is as follows:

Three Months Ended
March 31,
In millions20202019
NET SALES:
Paperboard Mills$268.5  $275.5  
Americas Paperboard Packaging1,123.4  1,022.8  
Europe Paperboard Packaging176.8  173.8  
Corporate/Other/Eliminations(a)
30.4  33.8  
Total$1,599.1  $1,505.9  
(LOSS) INCOME FROM OPERATIONS:
Paperboard Mills$(22.9) $(4.0) 
Americas Paperboard Packaging194.8  125.6  
Europe Paperboard Packaging12.0  19.2  
Corporate and Other(b)
(23.8) (6.6) 
Total$160.1  $134.2  
DEPRECIATION AND AMORTIZATION:
Paperboard Mills$59.0  $56.2  
Americas Paperboard Packaging39.4  43.7  
Europe Paperboard Packaging9.8  11.8  
Corporate and Other5.4  5.4  
Total$113.6  $117.1  
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes expenses related to business combinations, exit activities, idle and abandoned assets and shutdown and other special charges.


NOTE 12 — ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in the components of Accumulated Other Comprehensive Loss for the three months ended March 31, 2020 are as follows(a):
In millionsDerivatives InstrumentsPension and Postretirement Benefit PlansCurrency Translation AdjustmentsTotal
Balance at December 31, 2019$(20.8) $(245.5) $(113.9) $(380.2) 
Other Comprehensive Income (Loss) before Reclassifications0.9  40.4  (57.0) (15.7) 
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income(b)
(2.6) 153.6  —  151.0  
Net Current-period Other Comprehensive (Loss) Income(1.7) 194.0  (57.0) 135.3  
Balance at March 31, 2020$(22.5) $(51.5) $(170.9) $(244.9) 
(a) All amounts are net-of-tax.
(b) See following table for details about these reclassifications.

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following represents reclassifications out of Accumulated Other Comprehensive Loss for the three months ended March 31, 2020:

In millions
Details about Accumulated Other Comprehensive Loss ComponentsAmount Reclassified from Accumulated Other Comprehensive LossAffected Line Item in the Statement Where Net Income is Presented
Derivatives Instruments:
Commodity Contracts$(3.1)Cost of Sales
Foreign Currency Contracts(0.4)Other Expense, Net
Interest Rate Swap Agreements0.9 Interest Expense, Net
$(2.6)Total, Net of Tax
Amortization of Defined Benefit Pension Plans:
Prior Service Costs$— 
(a)
Actuarial Losses154.1 
(a)
$154.1 Total, Net of Tax
Amortization of Postretirement Benefit Plans:
Prior Service Credits$(0.1)
(a)
Actuarial Gains(0.4)
(a)
$(0.5)Total, Net of Tax
Total Reclassifications for the Period$151.0 
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see “Note 6 — Pensions and Other Postretirement Benefits").


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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 13 — GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
These consolidating financial statements reflect GPIL (the "Issuer"); and the Subsidiary Guarantors, which consist of all material 100% owned subsidiaries of GPIL other than its foreign subsidiaries; and the nonguarantor subsidiaries (herein referred to as “Nonguarantor Subsidiaries”). The Nonguarantor Subsidiaries include all of GPIL's foreign subsidiaries and immaterial domestic subsidiaries. Separate complete financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly and severally, fully and unconditionally liable under the guarantees.


Three Months Ended March 31, 2020
In millionsIssuerCombined Guarantor SubsidiariesCombined Nonguarantor SubsidiariesConsolidating EliminationsConsolidated
Net Sales$1,350.3  $—  $379.3  $(130.5) $1,599.1  
Cost of Sales1,081.4  (0.3) 327.7  (130.5) 1,278.3  
Selling, General and Administrative111.5  (0.7) 24.7  —  135.5  
Other Expense, Net1.9  —  4.6  —  6.5  
Business Combinations and Shutdown and Other Special Charges, Net16.1  —  2.6  —  18.7  
Income from Operations139.4  1.0  19.7  —  160.1  
Nonoperating Pension and Postretirement (Expense) Benefit Income(152.0) —  0.4  —  (151.6) 
Interest Expense, Net(32.8) —  (0.9) —  (33.7) 
Loss on Modification or Extinguishment of Debt—  —  —  —  —  
(Loss) Income before Income Taxes and Equity Income of Unconsolidated Entity(45.4) 1.0  19.2  —  (25.2) 
Income Tax Benefit (Expense)2.8  (0.1) (1.1) —  1.6  
(Loss) Income before Equity Income of Unconsolidated Entities(42.6) 0.9  18.1  —  (23.6) 
Equity Income of Unconsolidated Entity—  —  0.1  —  0.1  
Equity in Net Earnings of Subsidiaries19.1  (0.9) —  (18.2) —  
Net (Loss) Income$(23.5) $—  $18.2  $(18.2) $(23.5) 
Comprehensive Income (Loss)$111.8  $(5.1) $(99.1) $104.2  $111.8  

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Three Months Ended March 31, 2019
In millionsIssuerCombined Guarantor SubsidiariesCombined Nonguarantor SubsidiariesConsolidating EliminationsConsolidated
Net Sales$1,282.9  $—  $340.6  $(117.6) $1,505.9  
Cost of Sales1,062.0  (0.3) 295.7  (117.6) 1,239.8  
Selling, General and Administrative101.1  (0.7) 24.1  —  124.5  
Other (Income) Expense, Net(2.9) —  4.1  —  1.2  
Business Combinations and Shutdown and Other Special Charges, Net5.8  —  0.4  —  6.2  
Income from Operations116.9  1.0  16.3  —  134.2  
Nonoperating Pension and Postretirement Benefit (Expense) Income(0.6) —  0.5  —  (0.1) 
Interest Expense, Net(33.6) —  (1.4) —  (35.0) 
Loss on Modification or Extinguishment of Debt—  —  —  —  —  
Income before Income Taxes and Equity Income of Unconsolidated Entity82.7  1.0  15.4  —  99.1  
Income Tax Expense(3.4) —  (0.6) —  (4.0) 
Income before Equity Income of Unconsolidated Entities79.3  1.0  14.8  —  95.1  
Equity Income of Unconsolidated Entity—  —  0.2  —  0.2  
Equity in Net Earnings of Subsidiaries16.0  (1.0) —  (15.0) —  
Net Income (Loss)$95.3  $—  $15.0  $(15.0) $95.3  
Comprehensive Income (Loss)$101.4  $0.3  $22.9  $(23.2) $101.4  




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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


March 31, 2020
In millions
Issuer
Combined
Guarantor
Subsidiaries
Combined
Nonguarantor
Subsidiaries
Consolidating
Eliminations
Consolidated
ASSETS
Current Assets:
Cash and Cash Equivalents$50.3  $—  $59.9  $—  $110.2  
Receivables, Net179.3  —  440.2  —  619.5  
Inventories, Net874.3  —  268.7  —  1,143.0  
Intercompany Receivables871.1  204.4  —  (1,075.5) —  
Other Current Assets38.8  —  20.4  —  59.2  
Total Current Assets2,013.8  204.4  789.2  (1,075.5) 1,931.9  
Property, Plant and Equipment, Net2,949.5  0.1  338.5  —  3,288.1  
Investment in Consolidated Subsidiaries204.5  9.0  —  (213.5) —  
Goodwill1,299.8  —  163.4  —  1,463.2  
Other Assets550.0  —  205.7  —  755.7  
Total Assets$7,017.6  $213.5  $1,496.8  $(1,289.0) $7,438.9  
LIABILITIES
Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt$40.7  $—  $8.4  $—  $49.1  
Accounts Payable506.2  —  119.5  —  625.7  
Intercompany Payables—  —  1,327.6  (1,327.6) —  
Other Accrued Liabilities253.7  —  91.2  —  344.9  
Total Current Liabilities800.6  —  1,546.7  (1,327.6) 1,019.7  
Long-Term Debt3,355.3  —  79.2  —  3,434.5  
Deferred Income Tax Liabilities4.2  —  13.4  —  17.6  
Other Noncurrent Liabilities286.4  —  109.6  —  396.0  
MEMBER'S INTEREST
Total Member's Interest2,571.1  213.5  (252.1) 38.6  2,571.1  
Total Liabilities and Member's Interest$7,017.6  $213.5  $1,496.8  $(1,289.0) $7,438.9  


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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


December 31, 2019
In millions
Issuer
Combined
Guarantor
Subsidiaries
Combined
Nonguarantor
Subsidiaries
Consolidating
Eliminations
Consolidated
ASSETS
Current Assets:
Cash and Cash Equivalents$59.4  $—  $89.3  $—  $148.7  
Receivables, Net154.0  —  346.2  —  500.2  
Inventories, Net843.6  —  252.3  —  1,095.9  
Intercompany Receivables781.4  203.0  —  (984.4) —  
Other Current Assets29.7  —  20.4  —  50.1  
Total Current Assets1,868.1  203.0  708.2  (984.4) 1,794.9  
Property, Plant and Equipment, Net2,925.4  0.1  328.3  —  3,253.8  
Investment in Consolidated Subsidiaries203.1  15.5  —  (218.6) —  
Goodwill1,299.8  —  177.2  —  1,477.0  
Other Assets536.9  —  214.1  —  751.0  
Total Assets$6,833.3  $218.6  $1,427.8  $(1,203.0) $7,276.7  
LIABILITIES
Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt$40.6  $—  $9.8  $—  $50.4  
Accounts Payable571.4  —  144.7  —  716.1  
Intercompany Payables—  —  1,137.4  (1,137.4) —  
Other Accrued Liabilities315.0  —  95.0  —  410.0  
Total Current Liabilities927.0  —  1,386.9  (1,137.4) 1,176.5  
Long-Term Debt2,751.3  —  58.6  —  2,809.9  
Deferred Income Tax Liabilities4.8  —  22.9  —  27.7  
Other Noncurrent Liabilities293.6  —  112.4  —  406.0  
MEMBER'S INTEREST
Total Member's Interest2,856.6  218.6  (153.0) (65.6) 2,856.6  
Total Liabilities and Member's Interest$6,833.3  $218.6  $1,427.8  $(1,203.0) $7,276.7  

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 Three Months Ended March 31, 2020
In millions
Issuer
Combined
Guarantor
Subsidiaries
Combined
Nonguarantor
Subsidiaries
Consolidating
Eliminations
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income$(23.5) $—  $18.2  $(18.2) $(23.5) 
Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities:
Depreciation and Amortization97.3  —  16.3  —  113.6  
Deferred Income Taxes(3.1) —  (4.5) —  (7.6) 
Amount of Postretirement Expense Greater (Less) Than Funding155.1  —  (0.8) —  154.3  
Equity in Net Earnings of Subsidiaries(19.1) 0.9  —  18.2  —  
Other, Net29.2  —  —  —  29.2  
Changes in Operating Assets and Liabilities(271.3) (0.9) (68.9) —  (341.1) 
Net Cash Used in Operating Activities(35.4) —  (39.7) —  (75.1) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending(122.2) —  (24.4) —  (146.6) 
Packaging Machinery Spending(5.3) —  (1.2) —  (6.5) 
Acquisition of Business, Net of Cash Acquired—  —  (42.1) —  (42.1) 
Cash Receipts on Sold Receivables—  —  23.7  —  23.7  
Beneficial Interest Obtained in Exchange for Proceeds—  —  (3.3) —  (3.3) 
Other, Net(43.1) —  —  42.1  (1.0) 
Net Cash (Used in) Provided by Investing Activities(170.6) —  (47.3) 42.1  (175.8) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Debt(9.1) —  —  —  (9.1) 
Proceeds from the Issuance of Debt450.0  —  —  —  450.0  
Borrowings under Revolving Credit Facilities1,154.2  —  24.3  —  1,178.5  
Payments on Revolving Credit Facilities(984.2) —  (2.7) —  (986.9) 
Membership Distribution(404.9) —  —  —  (404.9) 
Debt Issuance Cost(6.4) —  —  —  (6.4) 
Other, Net(2.7) —  42.1  (42.1) (2.7) 
Net Cash Provided by (Used in) Financing Activities196.9  —  63.7  (42.1) 218.5  
Effect of Exchange Rate Changes on Cash—  —  (6.1) —  (6.1) 
Net Decrease in Cash and Cash Equivalents(9.1) —  (29.4) —  (38.5) 
Cash and Cash Equivalents at Beginning of Period59.4  —  89.3  —  148.7  
CASH AND CASH EQUIVALENTS AT END OF PERIOD$50.3  $—  $59.9  $—  $110.2  

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Three Months Ended March 31, 2019
In millionsIssuerCombined
Guarantor
Subsidiaries
Combined
Nonguarantor
Subsidiaries
Consolidating
Eliminations
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)$95.3  $—  $15.0  $(15.0) $95.3  
Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities:
Depreciation and Amortization99.0  —  18.1  —  117.1  
Deferred Income Taxes2.8  —  (2.9) —  (0.1) 
Amount of Postretirement Expense Greater (Less) Than Funding3.3  —  (0.9) —  2.4  
Equity in Net Earnings of Subsidiaries(16.0) 1.0  —  15.0  —  
Other, Net3.4  —  (0.1) —  3.3  
Changes in Operating Assets and Liabilities(327.1) (1.0) (62.0) —  (390.1) 
Net Cash Used In Operating Activities(139.3) —  (32.8) —  (172.1) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending(56.7) —  (16.3) —  (73.0) 
Packaging Machinery Spending(6.0) —  (1.0) —  (7.0) 
Acquisition of Business, Net of Cash Acquired(2.0) —  —  —  (2.0) 
Cash Receipts on Sold Receivables251.8  —  27.7  —  279.5  
Beneficial Interest Obtained in Exchange for Proceeds(150.0) —  (3.3) —  (153.3) 
Other, Net(1.0) —  —  —  (1.0) 
Net Cash Provided by Investing Activities36.1  —  7.1  —  43.2  
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Debt(9.1) —  —  —  (9.1) 
Borrowings under Revolving Credit Facilities747.5  —  27.7  —  775.2  
Payments on Revolving Credit Facilities(534.5) —  (14.4) —  (548.9) 
Membership Distribution(94.1) —  —  —  (94.1) 
Other, Net(2.6) —  —  —  (2.6) 
Net Cash Provided by Financing Activities107.2  —  13.3  —  120.5  
Effect of Exchange Rate Changes on Cash—  —  0.2  —  0.2  
Net Increase (Decrease) in Cash and Cash Equivalents4.0  —  (12.2) —  (8.2) 
Cash and Cash Equivalents at Beginning of Period14.5  —  56.0  —  70.5  
CASH AND CASH EQUIVALENTS AT END OF PERIOD$18.5  $—  $43.8  $—  $62.3  


NOTE 14 — EXIT ACTIVITIES

During 2019, the Company announced its plans to invest approximately $600 million in a new CRB paper machine in Kalamazoo, MI. In conjunction with the completion of this project, the Company currently expects to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral.

In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. Both will be effective June 30, 2020.

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GRAPHIC PACKAGING INTERNATIONAL, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The Company accounts for the costs associated with these closures in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets ("ASC 360"), ASC 420, Exit or Disposal Costs Obligations ("ASC 420") and ASC 712 Compensation-Nonretirement Post Employment Benefits ("ASC 712"). During the three months ended March 31, 2020, the Company recorded $17.6 million of exit costs. The Company did not record any exit costs during the three months ended March 31, 2019. Other costs associated with the start up of the new CRB paper machine will be recorded in the period in which they are incurred.

The following table summarizes the costs incurred during the three months ended March 31, 2020 related to these restructurings:

Three Months Ended March 31,
In millionsLocation in Statement of Operations2020
Severance costs and other(a)
Business Combinations and Shutdown and Other Special Charges, Net$4.5 
Accelerated depreciationCost of Sales4.6 
Inventory and asset write-offsBusiness Combinations and Shutdown and Other Special Charges, Net8.5 
Total$17.6 
(a) Costs incurred include activities for post-employment benefits, retention bonuses, incentives and professional services.

The following tables summarizes the balance of accrued expenses related to restructuring:

In millions
Balance at December 31, 2019$7.1 
Costs incurred4.3 
Payments(0.4)
Adjustments(a)
0.2 
Balance at March 31, 2020$11.2 
(a) Adjustments related to changes in estimates of severance costs.

In conjunction with the closure of the 2 smaller CRB Mills in 2022, the Company currently expects to incur exit activity charges for post-employment benefits, retention bonuses and incentives in the range of $15 million to $20 million and for accelerated depreciation and inventory and asset write-offs in the range of $50 million to $60 million. Through March 31, 2020, the Company has incurred cumulative exit activity charges for post-employment benefits, retention bonuses and incentives of $9.3 million and accelerated depreciation and inventory and asset write-offs of $11.8 million.

For the closure of the White Pigeon, Michigan CRB mill and the shut down of the PM1 containerboard machine in West Monroe, Louisiana, the Company currently expects to incur exit activity charges for post-employment benefits of approximately $4 million and for accelerated depreciation and inventory and asset write-offs in the range of $13 million to $18 million. Through March 31, 2020, the Company has incurred cumulative exit activity charges for post-employment benefits of $2.9 million and accelerated depreciation and inventory and asset write-offs of $8.5 million.


NOTE 15 — SUBSEQUENT EVENTS

On April 1, 2020, the Company acquired substantially all the assets of the Consumer Packaging Group business from Greif, Inc ("Greif"), a leader in industrial packaging products and services, for approximately $82 million, subject to a customary working capital true-up. The acquisition included 7 converting facilities across the United States which are included in the Americas Paperboard Packaging reportable segment.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

INTRODUCTION

This management’s discussion and analysis of financial conditions and results of operations is intended to provide investors with an understanding of the Company's past performance, financial condition and prospects. The following will be discussed and analyzed:

ØOverview of Business

ØOverview of 2020 Results

ØResults of Operations

ØFinancial Condition, Liquidity and Capital Resources

ØCritical Accounting Policies

ØNew Accounting Standards

ØBusiness Outlook


OVERVIEW OF BUSINESS

The Company’s objective is to strengthen its position as a leading provider of paper-based packaging solutions. To achieve this objective, the Company offers customers its paperboard, cartons, cups, lids, foodservice containers and packaging machines, either as an integrated solution or separately. Cartons, carriers and containers are designed to protect and hold products. Product offerings include a variety of laminated, coated and printed packaging structures that are produced from the Company’s coated recycled board (“CRB”), coated unbleached kraft (“CUK”) and solid bleached sulfate ("SBS"). Innovative designs and combinations of paperboard, films, foils, metallization, holographics and embossing are customized to the individual needs of the customers.

The Company is implementing strategies (i) to expand market share in its current markets and to identify and penetrate new markets; (ii) to capitalize on the Company’s customer relationships, business competencies, and mills and folding carton assets; (iii) to develop and market innovative, sustainable products and applications that benefit from the consumer-led sustainability trends; and (iv) to continue to reduce costs by focusing on operational improvements. The Company’s ability to fully implement its strategies and achieve its objectives may be influenced by a variety of factors, many of which are beyond its control, such as inflation of raw material and other costs, which the Company cannot always pass through to its customers, and the effect of overcapacity in the worldwide paperboard packaging industry.

Significant Factors That Impact The Company’s Business

Impact of Inflation/Deflation. The Company’s cost of sales consists primarily of energy (including natural gas, fuel oil and electricity), pine and hardwood fiber, chemicals, secondary fibers, purchased paperboard, aluminum foil, ink, plastic films and resins, depreciation expense and labor. Costs decreased in the first three months of 2020 by $2.8 million, compared to the first three months of 2019. The lower costs in the three months ended March 31, 2020 were due to energy ($6.7 million), wood ($6.0 million), and secondary fiber cost ($3.8 million) partially offset by higher labor and benefit costs ($12.0 million) and other costs, net ($1.7 million).

Because the price of natural gas experiences significant volatility, the Company has entered into contracts designed to manage risks associated with future variability in cash flows caused by changes in the price of natural gas. The Company has entered into natural gas swap contracts to hedge prices for a portion of its expected usage for the remainder of 2020 and all of 2021. Since negotiated sales contracts and the market largely determine the pricing for its products, the Company is at times limited in its ability to raise prices and pass through to its customers any inflationary or other cost increases that the Company may incur.

Commitment to Cost Reduction. In light of continuing margin pressure throughout the packaging industry, the Company has programs in place that are designed to reduce costs, improve productivity and increase profitability. The Company utilizes a global continuous improvement initiative that uses statistical process control to help design and manage many types of activities, including production and maintenance. This includes a Six Sigma process focused on reducing variable and fixed manufacturing and administrative costs. The Company has expanded the continuous improvement initiative to include the deployment of Lean Sigma principles into manufacturing and supply chain services.

The Company’s ability to continue to successfully implement its business strategies and to realize anticipated savings and operating efficiencies is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. If the Company cannot successfully implement the strategic cost reductions or other cost savings plans, it may not be able to continue to compete successfully against other manufacturers. In addition, any failure to generate the anticipated efficiencies and savings could adversely affect the Company’s financial results.

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Competition and Market Factors. As some products can be packaged in different types of materials, the Company’s sales are affected by competition from other manufacturers’ CRB, CUK, SBS, folding box board, and recycled clay-coated news. Additional substitute products also include plastic, shrink film and corrugated containers. In addition, while the Company has long-term relationships with many of its customers, the underlying contracts may be re-bid or renegotiated from time to time, and the Company may not be successful in renewing on favorable terms or at all. The Company works to maintain market share through efficiency, product innovation and strategic sourcing to its customers; however, pricing and other competitive pressures may occasionally result in the loss of a customer relationship.
Three Months Ended
March 31,
In millions20212020
NET SALES:
Paperboard Mills$237 $269 
Americas Paperboard Packaging1,169 1,123 
Europe Paperboard Packaging206 177 
Corporate/Other/Eliminations(a)
37 30 
Total$1,649 $1,599 
(LOSS) INCOME FROM OPERATIONS:
Paperboard Mills$(27)$(23)
Americas Paperboard Packaging121 195 
Europe Paperboard Packaging20 12 
Corporate and Other(b)
(6)(24)
Total$108 $160 

In addition, the Company’s sales historically are driven by consumer buying habits in the markets its customers serve. Changes in consumer dietary habits and preferences, increases in the costs of living, unemployment rates, access to credit markets, as well as other macroeconomic factors, may negatively affect consumer spending behavior. New product introductions and promotional activity by the Company’s customers and the Company’s introduction of new packaging products also impact its sales.

Debt Obligations. The Company had an aggregate principal amount of $3,501.9 million of outstanding debt obligations as of March 31, 2020. This debt has consequences for the Company, as it requires a portion of cash flow from operations to be used for the payment of principal and interest, exposes the Company to the risk of increased interest rates and may restrict the Company’s ability to obtain additional financing. Covenants in the Company's Amended and Restated Credit Agreement, the Term Loan Credit Agreement and Indentures may, among other things, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, pay membership distributions, make other restricted payments and make acquisitions or other investments. The Amended and Restated Credit Agreement and the Term Loan Credit Agreement also require compliance with a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. The Company’s ability to comply in future periods with the financial covenants will depend on its ongoing financial and operating performance, which in turn will be subject to many other factors, many of which are beyond the Company’s control. See "Covenant Restrictions" in “Financial Condition, Liquidity and Capital Resources” for additional information regarding the Company’s debt obligations.

The debt and the restrictions under the Amended and Restated Credit Agreement, the Term Loan Credit Agreement and the Indentures could limit the Company’s flexibility to respond to changing market conditions and competitive pressures. The outstanding debt obligations and the restrictions may also leave the Company more vulnerable to a downturn in general economic conditions or its business, or unable to carry out capital expenditures that are necessary or important to its growth strategy and productivity improvement programs.

COVID-19 Pandemic. There are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. While, to the Company’s knowledge, the COVID-19 pandemic has not materially impacted its business, operations, or financial results to date, it may have far-reaching impacts on many aspects of its operations, directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, inventory, accounts receivable, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve. The Company will continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business accordingly, such as to balance supply with demand by adjusting mill maintenance outages and taking downtime where appropriate.


OVERVIEW OF FIRST QUARTER 2020 RESULTS

This management’s discussion and analysis contains an analysis of Net Sales, Income from Operations and other information relevant to an understanding of the Company's results of operations. On a Consolidated basis:

Net Sales for the three months ended March 31, 2020, increased $93.2 million or 6.2% to $1,599.1 million from $1,505.9 million for the three months ended March 31, 2019, due to higher selling prices, volume growth, and the Quad and Artistic acquisitions discussed below, partially offset by unfavorable foreign currency exchange rates.

Income from Operations for the three months ended March 31, 2020 increased $25.9 million or 19.3% to $160.1 million from $134.2 million for the three months ended March 31, 2019 due to higher selling prices, cost savings through continuous improvement and other programs, higher volumes, and commodity deflation, partially offset by higher labor and benefits costs, higher charges for exit activities, and unfavorable foreign currency exchange rates.

Acquisitions

On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment.

On August 1, 2019, the Company acquired substantially all the assets of Artistic Carton Company ("Artistic"), a diversified producer of folding cartons and CRB. The acquisition included two converting facilities located in Auburn, Indiana and Elgin, Illinois (included in the Americas Paperboard Packaging reportable segment) and one CRB paperboard mill located in White Pigeon, Michigan (included in the Paperboard Mills reportable segment).



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RESULTS OF OPERATIONS

Three Months Ended
March 31,
 In millions 20202019
Net Sales$1,599.1  $1,505.9  
Income from Operations160.1  134.2  
Nonoperating Pension and Postretirement Benefit Expense(151.6) (0.1) 
Interest Expense, Net(33.7) (35.0) 
(Loss) Income before Income Taxes and Equity Income of Unconsolidated Entity(25.2) 99.1  
Income Tax Benefit (Expense)1.6  (4.0) 
(Loss) Income before Equity Income of Unconsolidated Entity(23.6) 95.1  
Equity Income of Unconsolidated Entity0.1  0.2  
Net (Loss) Income$(23.5) $95.3  


FIRST QUARTER 2020 COMPARED WITH FIRST QUARTER 2019

Net Sales

 Three Months Ended March 31,
 
In millions 
20202019IncreasePercent
Change
Consolidated$1,599.1  $1,505.9  $93.2  6.2 %


The components of the change in Net Sales are as follows:
 Three Months Ended March 31,
Variances
In millions2019PriceVolume/MixExchangeTotal2020
Consolidated$1,505.9  $14.1  $89.0  $(9.9) $93.2  $1,599.1  

The Company’s Net Sales for the three months ended March 31, 2020 increased by $93.2 million or 6.2% to $1,599.1 million from $1,505.9 million for the three months ended March 31, 2019, due to Net Sales of $28.9 million from the Artistic and Quad acquisitions, higher selling prices and volume growth including conversions to our paperboard packaging solutions. These increases were offset by unfavorable foreign currency exchange rates, primarily the Euro, British Pound and Australian dollar. The higher selling prices are the results of announced price increases which benefit from inflationary pass throughs in the converting business partially offset by price declines on open market sales. Core converting volumes were up, primarily in global beverage and dry foods offset by declines in frozen foods and meat products. The COVID-19 pandemic had a net positive impact on volumes in the quarter of approximately 1% which drove approximately $15 million dollars in sales as we began to see an increase in demand for food and beverage packaging in March offset by with a reduction in demand for some foodservice products.

Income from Operations

 Three Months Ended March 31,
 
In millions 
20202019IncreasePercent
Change
Consolidated$160.1  $134.2  $25.9  19.3%


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The components of the change in Income from Operations are as follows:

 Three Months Ended March 31,
Variances
In millions2019PriceVolume/MixInflationExchange
Other (a)
Total2020
Consolidated$134.2  $14.1  $5.4  $2.8  $(8.2) $11.8  $25.9  $160.1  
(a) Includes the Company's cost reduction initiatives, expenses related to acquisitions and integration activities, exit activities and shutdown and other special charges.

Income from Operations for the three months ended March 31, 2020 increased $25.9 million or 19.3% to $160.1 million from $134.2 million for the three months ended March 31, 2019 due to higher selling prices, cost savings through continuous improvement and other programs, higher volumes including from organic volume growth and acquisitions, and commodity deflation, partially offset by higher charges for exit activities related to our announced closures of White Pigeon, Michigan CRB mill and West Monroe, Louisiana PM1 containerboard machine, other inflation (primarily labor and benefits), increased incentive costs and unfavorable foreign currency exchange rates. Commodity costs decreased in the first three months of 2020 by $2.8 million due to energy ($6.7 million), wood ($6.0 million), and secondary fiber cost ($3.8 million) partially offset by higher labor and benefit costs ($12.0 million) and other costs, net ($1.7 million).

Nonoperating Pension and Postretirement Benefit

Nonoperating Pension and Postretirement Benefit was an expense of $151.6 million for the three months ended March 31, 2020 versus an expense of $0.1 million in 2019. The increase in expense was due to a settlement charge of $152.5 million associated with the Company’s purchase of a group annuity contract that transferred the remaining pension benefit obligation under the largest US Plan of approximately $713 million to an insurance company.

Interest Expense, Net

Interest Expense, Net was $33.7 million and $35.0 million for the three months ended March 31, 2020 and 2019, respectively. Interest Expense, Net decreased due primarily to lower interest rates, partially offset by higher debt balances as compared to the same period in the prior year. As of March 31, 2020, approximately 38% of the Company’s total debt was subject to floating interest rates.

Income Tax Expense

During the three months ended March 31, 2020, the Company recognized Income Tax Benefit of $1.6 million on Loss before Income Taxes and Equity Income of Unconsolidated Entity of $25.2 million. The Company is classified as a disregarded entity for U.S. income tax purposes and is generally not subject to domestic income tax expense. As a result, the consolidated financial statements exclude the tax effect of domestic earnings with the exception of state income tax for certain states that directly tax the operations of disregarded entities. The consolidated financial statements include the local country tax effect of foreign earnings generated by the Company’s wholly-owned international subsidiaries.

During the three months ended March 31, 2019, the Company recognized Income Tax Expense of $4.0 million on Income before Income Taxes and Equity Income of Unconsolidated Entity of $99.1 million.

Segment Reporting

The Company has three reportable segments as follows:

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

Americas Paperboard Packaging includes paperboard packaging folding cartons and cups, lids, and food containers sold primarily to consumer packaged goods, quick-service restaurants and foodservice companies serving the food, beverage, and consumer product markets in the Americas.

Europe Paperboard Packaging includes paperboard packaging, primarily folding cartons, sold primarily to consumer packaged goods companies serving the food, beverage and consumer product markets in Europe.

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

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

Three Months Ended
March 31,
In millions20202019
NET SALES:
Paperboard Mills$268.5  $275.5  
Americas Paperboard Packaging1,123.4  1,022.8  
Europe Paperboard Packaging176.8  173.8  
Corporate/Other/Eliminations(a)
30.4  33.8  
Total$1,599.1  $1,505.9  
(LOSS) INCOME FROM OPERATIONS:
Paperboard Mills$(22.9) $(4.0) 
Americas Paperboard Packaging194.8  125.6  
Europe Paperboard Packaging12.0  19.2  
Corporate and Other(b)
(23.8) (6.6) 
Total$160.1  $134.2  
(a) Includes revenue from contracts with customers for the Australia and Pacific Rim operating segments.
(b) Includes expenses related to business combinations, exit activities, idle and abandoned assets and shutdown and other special charges.charges, and exit activities.


20202021 COMPARED WITH 20192020

First Quarter 20202021 Compared to First Quarter 20192020

Paperboard Mills

Net Sales decreased from prior year due to lower selling prices, customer mix, and lower open market volume of CUK offset by higherand mix. Lower open market volume was primarily due to the closure of SBS and CRB including the White Pigeon, Michigan CRB mill which was acquired as part of Artistic.and the shut down the PM1 containerboard machine in West Monroe, Louisiana and fewer production and one fewer selling day due to leap year. The Company also internalized more paperboard tons across all substrates.tons.

Loss from Operations increased due to thedowntime and mitigation costs related to Winter Storm Uri, commodity inflation, lower selling prices,open market volume, higher levels of maintenance and downtime costs, higher labor and benefits costs, and customer mix of open market volume partially offset by productivity improvements, including benefits from capital projects, and commodity deflation.projects. The commodity deflationinflation was primarily due to higher prices for freight, secondary fiber, energy, and chemicals offset by lower prices for secondary fiber, wood, and energy.wood.

Americas Paperboard Packaging

Net Sales increased due to higher selling prices, volumethe Greif and Quad acquisitions, organic sales growth including conversions to our paperboardfiber-based packaging solutions, new product introductions, and the Artisticfavorable foreign currency exchange rates offset by lower volume due to fewer shipping days and Quad acquisitions.lower selling prices. Higher volumes in global beverage, frozen foods, pet care, dry foods and new product introductionsdairy were offset by declines in frozen foodstissue and meat products.foodservice packaging including cups. In beverage, volumes increased in allmost categories including soft drink, craft and specialty, and big beer. The COVID-19 pandemic had a net positive impact on volumes in the first quarter as we began to see an increase in demandof 2021 for food and beverage packaging in March along withoffset by a reduction in demand for some foodservice products.

Income from Operations increaseddecreased due to downtime and mitigation costs related to Winter Storm Uri, commodity inflation, other inflation (primarily labor and benefits), higher levels of maintenance and downtime costs, one fewer selling day due to leap year, and lower selling prices offset by higher volumes including from organic sales growth and acquisitions and cost savings through continuous improvement and other programs, higher volumes, and commodity deflation, partially offset by other inflation (primarily labor and benefits) and unfavorable foreign currency exchange rates.programs. The commodity deflationinflation was primarily due to higher prices for freight, secondary fiber, energy, chemicals and external board offset by lower prices for secondary fiber, wood, and energy.wood.

Europe Paperboard Packaging

Net Sales increased as higher pricing anddue to increased volumes led by beverage and convenience, were partially offset by unfavorablefavorable foreign currency exchange rates.rates, and mix.

Income from Operations decreasedincreased due to higherincreased volumes, mix, and cost savings through continuous improvement and other programs offset by commodity inflation primarilyand higher labor and benefits and external board. The increased costs were partially offset by the higher selling prices and increased volumes.costs.


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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company broadly defines liquidity as its ability to generate sufficient funds from both internal and external sources to meet its obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

Cash Flows
Three Months EndedThree Months Ended
March 31,March 31,
In millionsIn millions20202019In millions20212020
Net Cash Used in Operating Activities$(75.1) $(172.1) 
Net Cash (Used in) Provided by Investing Activities$(175.8) $43.2  
Net Cash Provided by (Used in) Operating ActivitiesNet Cash Provided by (Used in) Operating Activities$48 $(75)
Net Cash Used in Investing ActivitiesNet Cash Used in Investing Activities$(120)$(176)
Net Cash Provided by Financing ActivitiesNet Cash Provided by Financing Activities$218.5  $120.5  Net Cash Provided by Financing Activities$$218 

Net cash used inprovided by operating activities for the first three months of 20202021 totaled $75.1$48 million compared to $172.1$75 million used in operating activities for the same period in 2019.2020. The decreasefavorable increase was mainly due primarilyto improved working capital compared to the restructuringprior year period driven by the Company’s increased utilization of certain of the Company'sits accounts receivable sale and securitization programs as well as improved operations as compared to the same period in the prior year.during Q1 2021. Pension contributions for the first three months of 2021 and 2020 were $14 million and 2019 were $0.6 million.$1 million, respectively.

Net cash used in investing activities for the first three months of 20202021 totaled $175.8$120 million, compared to $43.2$176 million provided by investing activities for the same period in 2019.2020. Capital spending was $153.1$146 million and $80.0$154 million in 20202021 and 2019,2020, respectively. In 2020, the Company paid approximately $42$41 million for the Quad acquisition. In 2019, the Company paid the remaining $2.0 million for the Letica acquisition. Net beneficial interest decreased by $105.8 million as a result of the restructuring of certain of the Company's accounts receivable sale and securitization programs. Net cash receipts related to the accounts receivable securitization and sale programs were $20.4$28 million and $126.2$21 million in 20202021 and 2019,2020, respectively.

Net cash provided by financing activities for the first three months of 20202021 totaled $218.5$7 million, compared to $120.5$218 million provided by financing activities for the same period in 2019.2020. Current year activities include a debt drawing of $425 million Incremental Term A-2 Facility and used the proceeds, together with cash on hand, to redeem its 4.75% Senior Notes due in 2021. Other current year activities includes an offering of $400 million aggregate principal amount of 0.821% Senior Notes due 2024, and a debt offering of $400 million aggregate principal amount of 1.512% Senior Notes due 2026. The net proceeds of $796 million were used by the Company to repay a portion of the outstanding borrowings under GPIL's term loan credit facilities, which is under its senior secured credit facility. The Company also made membership distributions of $186 million including $150 million to allow GPIP to purchase 9.3 million partnership units from IP. Additionally, the Company made borrowings under revolving credit facilities primarily for capital spending, membership distributions and payments on debt of $9 million. In the prior year period, the Company had a debt offering of $450 million aggregate principal amount of 3.50% senior notesSenior Notes due 2028. The Company used the net proceeds to repay a portion of its outstanding borrowings under its senior secured revolving credit facility. Additionally, the Company had netalso made borrowings under revolving credit facilities of $191.6 million primarily for capital spending and payments on debt of $9.1$9 million. The Company also paid membership distributions of $404.9$405 million to GPIP, which is primarily made up of $250.0$250 million to allowpartnership units from GPIP to purchase 15.1 million partnership units from IP and $119.4$119 million to allow GPIP to repurchase 9.7 million partnership units from GPI Holding.

Supplemental Guarantor Financial Information

As further discussed in “Note 3 – DebtIn,” the prior year period,Senior Notes issued by GPIL (the “Issuer”) are guaranteed by certain domestic subsidiaries (the “Subsidiary Guarantors”), which consist of all material 100% owned subsidiaries of GPIL other than its foreign subsidiaries. The Company’s remaining subsidiaries (the “Nonguarantor Subsidiaries”) include all of GPIL’s foreign subsidiaries and immaterial domestic subsidiaries. The Subsidiary Guarantors are jointly and severally, fully and unconditionally liable under the Company had net borrowings under revolving credit facilities of $226.3 million and made payments on debt of $9.1 million. In addition, the Company paid membership distributions of $94.1 million to GPIP, which is primarily made up of $60.0 million to allow GPIP to repurchase 5.0 million partnership units from GPI Holding.guarantees.

The summarized financial information below is presented on a combined basis, consisting of the Issuer and Subsidiary Guarantors (collectively, the “Obligor Group”), and is presented after the elimination of: (i) intercompany transactions and balances among the Issuer and Subsidiary Guarantors, and (ii) equity in earnings from and investments in the Nonguarantor Subsidiaries.

In millionsThree Months Ended March 31, 2021
SUMMARIZED STATEMENTS OF OPERATIONS
Net Sales(a)
$1,376 
Cost of Sales1,170 
Income from Operations91 
Net Income60 
(a) Includes Net Sales to Nonguarantor Subsidiaries of $135 million.
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In millionsMarch 31, 2021December 31, 2020
SUMMARIZED BALANCE SHEET
Current assets (excluding intercompany receivable from Nonguarantor)$1,133 $1,131 
Noncurrent assets5,251 5,033 
Intercompany receivables from Nonguarantor344 334 
Current liabilities956 1,513 
Noncurrent liabilities4,054 3,411 

Liquidity and Capital Resources

The Company's liquidity needs arise primarily from the funding of its capital expenditures, debt service on its indebtedness, ongoing operating costs, working capital, and membership distributions. Principal and interest payments under the term loan facilities and the revolving credit facilities, together with principal and interest payments on the Company's 4.75% Senior Notes due 2021, 4.875% Senior Notes due 2022, 4.125% Senior Notes due 2024, 0.821% Senior Notes due 2024, 1.512% Senior Notes due 2026, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028, and 3.50% Senior Notes due 20282029 (the "Notes"), represent liquidity requirements for the Company. Based upon current levels of operations, anticipated cost savings and expectations as to future growth, the Company believes that cash generated from operations, together with amounts available under its revolving credit facilities and other available financing sources, will be adequate to permit the Company to meet its debt service obligations, necessary capital expenditure program requirements and ongoing operating costs and working capital needs, although no assurance can be given in this regard. The Company's future financial and operating performance, ability to service or refinance its debt and ability to comply with the covenants and restrictions contained in its debt agreements (see “Covenant Restrictions” below) will be subject to future economic conditions, including conditions in the credit markets, and to financial, business and other factors, many of which are beyond the Company's control, and will be substantially dependent on the selling prices and demand for the Company's products, raw material and energy costs, and the Company's ability to successfully implement its overall business and profitability strategies.

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The Company has entered into agreements to sell, on a revolving basis, certain trade accounts receivable to third party financial institutions. Transfers under these agreements meet the requirements to be accounted for as sales in accordance with the Transfers and Servicing topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification"). The loss on sale is not material and is included in Other Expense, Net line item on the Condensed Consolidated Statement of Operations. The following table summarizes the activity under these programs for the three months ended March 31, 20202021 and 2019,2020, respectively:
Three Months Ended
March 31,
In millions20202019
Receivables Sold and Derecognized$610.2  $811.2  
Proceeds Collected on Behalf of Financial Institutions608.8  504.1  
Net Proceeds Paid to Financial Institutions(4.7) (28.8) 
Deferred Purchase Price at March 31(a)
6.7  4.3  
Pledged Receivables at March 31263.5  144.2  
(a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.
Three Months Ended
March 31,
In millions20212020
Receivables Sold and Derecognized$758 $610 
Proceeds Collected on Behalf of Financial Institutions685 609 
Net Proceeds Received From (Paid to) Financial Institutions62 (5)
Deferred Purchase Price at March 31
Pledged Receivables at March 31160 264 

The Company participates in supply chain financing arrangements offered by certain customers and has entered into various factoring arrangements that also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the three months ended March 31, 20202021 and 2019,2020, the Company sold receivables of approximately $72$125 million and $37$72 million, respectively, related to these factoring arrangements.

Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were approximately $563$689 million and $562$621 million as of March 31, 20202021 and December 31, 2019,2020, respectively.

Covenant Restrictions

Covenants contained in the Amended and RestatedCurrent Credit Agreement the Term Loan Credit Agreement (collectively, the "Credit Agreement") and the Indentures may, among other things, limit the ability to incur additional indebtedness, restrict the ability of the Company to dispose of assets, incur guarantee obligations, prepay other indebtedness, pay membership distributions, and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the indentures under which the Notes are issued, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions, together with disruptions in the credit markets, could limit the Company's ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.

Under the terms of the Current Credit Agreement, the Company must comply with a maximum Consolidated Total Leverage Ratio covenant and a minimum Consolidated Interest Expense Ratio covenant. The Third Amended and Restated Credit Agreement, which contains the definitions of these covenants, was filed as an exhibit to the Company's Form 8-K filed on January 2, 2018.
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The Current Credit Agreement requires that the Company maintain a maximum Consolidated Total Leverage Ratio of less than 4.25 to 1.00. At March 31, 2020,2021, the Company was in compliance with such covenant and the ratio was 2.963.43 to 1.00.

The Company must also comply with a minimum Consolidated Interest Expense Ratio of 3.00 to 1.00. At March 31, 2020,2021, the Company was in compliance with such covenant and the ratio was 8.248.83 to 1.00.

As of March 31, 2020,2021, the Company's credit was rated BB+ by Standard & Poor's and Ba1 by Moody's Investor Services. Standard & Poor's and Moody's Investor Services' ratings on the Company included a stable outlook.

Capital Investment

The Company’s capital investment in the first three months of 20202021 was $153.1$146 million compared to $80.0$154 million in the first three months of 2019.2020. The capital investments were primarily due to planned asset upgrades at the U.S.-based mills, including the new CRB paper machine in Kalamazoo, MI discussed in "Note 1412 — Exit Activities," and continued investments made as part of the integration of acquisitions.

Environmental Matters

Some of the Company’s current and former facilities are the subject of environmental investigations and remediations resulting from historical operations and the release of hazardous substances or other constituents. Some current and former facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future or for which indemnification claims may be asserted against the Company. Also, closures or sales of facilities may necessitate further investigation and may result in remediation at those facilities. The Company has established reserves for those facilities or issues where liability is probable and the costs are reasonably estimable.

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For further discussion of the Company’s environmental matters, see "Note 9 -8 — Environmental and Legal Matters" in the Notes to Condensed Consolidated Financial Statements.


CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates, and changes in these estimates are recorded when known. The critical accounting policies used by management in the preparation of the Company’s condensed consolidated financial statements are those that are important both to the presentation of the Company’s financial condition and results of operations and require significant judgments by management with regard to estimates used.

The Company’s most critical accounting policies, which require significant judgment or involve complex estimations, are described in GPIL's Form 10-K for the year ended December 31, 2019.2020.

The Company performed its annual goodwill impairment tests as of October 1, 2019.2020. The Company concluded that all reporting units with goodwill have a fair value that exceeds their carrying value, and thus goodwill was not impaired. The Foodservice and Australia reporting units had fair values that exceed their respective carrying values by 32%17% and 17%37%, respectively, whereas all other reporting units exceeded by more than 50%45%. The Foodservice and Australia reporting units had goodwill totaling $43.0$43 million and $12.5$16 million, respectively at March 31, 2020.2021. While the Company does not believe that the impact on the business to date of the COVID-19 pandemic has triggered the need to perform an impairment test on goodwill, wethe Company will continue to assess the impact on our business.

its business and will perform its annual goodwill impairment tests as of October 1, 2021.

NEW ACCOUNTING STANDARDS

For a discussion of recent accounting pronouncements impacting the Company, see "Note 1 - General Information" in the Notes to Condensed Consolidated Financial Statements.


BUSINESS OUTLOOK

Total capital investment for 20202021 is expected to be approximately $600$700 million.

The Company also expects the following in 2020, subject to finalization of acquisition accounting for the Artistic and Quad acquisitions:2021:

Depreciation and amortization expense between $455of approximately $460 million, and $465 million, excluding approximately $5 million of pension amortization and $20$24 million of accelerated depreciation related to exit activities.

Pension plan contributions between $10 million and $20 million.

million, excluding $14 million reflected as a contribution to the remaining U.S defined benefit plan that effectively utilized a portion of the excess balance related to the terminated U.S. defined benefit plan.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

For a discussion of certain market risks related to the Company, see Part II, “Item 7A, Quantitative and Qualitative Disclosure about Market Risk”, in the Company’s Form 10-K for the year ended December 31, 2019.2020. There have been no significant developments with respect to derivatives or exposure to market risk during the first three months of 2020.2021. For a discussion of the Company’s Financial Instruments, Derivatives and Hedging Activities, see the Company’s Form 10-K for the year ended December 31, 20192020 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources.”


ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management has carried out an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended. Based upon such evaluation, management has concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2020.2021.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 20202021 that has materially affected, or is likely to materially affect, the Company’s internal control over financial reporting.


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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to a number of lawsuits arising in the ordinary conduct of its business. Although the timing and outcome of these lawsuits cannot be predicted with certainty, the Company does not believe that disposition of these lawsuits will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. For more information see "Note 9 -8 — Environmental and Legal Matters" in the Notes to Condensed Consolidated Financial Statements.


ITEM 1A. RISK FACTORS

The Company’s financial results could be adversely impacted by global events outside the Company’s control, such as the current COVID-19 pandemic.

As a result of the current COVID-19 pandemic, there could be unpredictable disruptions to the Company’s operations that could reduce its future revenues and negatively impact the Company’s financial condition. The COVID-19 pandemic may result in supply chain and transportation disruptions to and from our facilities, and affected employees could impact the Company’s ability to operate its facilities and distribute products to its customers in a timely fashion. In addition, the COVID-19 pandemic has resulted in extreme volatility and disruptions in the capital and credit markets as well as widespread furloughs and layoffs for employees. This volatility and loss of employment may negatively impact consumer buying habits, which could adversely affect the Company’s financial results.

Other than as noted above, thereThere have been no material changes from the risk factors previously disclosed in the Company’sGPIL's Form 10-K for the year ended December 31, 2019.2020.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 4. MINE SAFETY DISCLOSURES

None.


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ITEM 6. EXHIBITS
Exhibit NumberDescription
10.1
14.1
31.1
31.2
32.1
32.2
101.INSInstance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GRAPHIC PACKAGING INTERNATIONAL, LLC
(Registrant)    

/s/ STEPHEN R. SCHERGERExecutive Vice President and Chief Financial Officer (Principal Financial Officer)April 21, 202027, 2021
Stephen R. Scherger
/s/ CHARLES D. LISCHERSenior Vice President and Chief Accounting Officer (Principal Accounting Officer)April 21, 202027, 2021
Charles D. Lischer



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