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 001-38736
WestRock Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 37-1880617 | |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) | |
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1000 Abernathy Road NE, Atlanta, Georgia |
| 30328 | |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (770) 448-2193
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | WRK | New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 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.
Large accelerated filer | ☒ |
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| Accelerated filer | ☐ |
Non-accelerated filer | ☐ |
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| Smaller reporting company | ☐ |
Emerging growth company | ☐ |
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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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class |
| Outstanding as of April |
Common Stock, $0.01 par value |
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WESTROCK COMPANY
INDEX
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PART I |
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Item 1. |
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| 3 | |
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| 4 | |
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| Condensed Consolidated Balance Sheets at March 31, | 5 |
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| 6 | |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II |
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Item 1. |
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Item 1A. |
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Item 6. |
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2
PART I: FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS (UNAUDITED) |
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| Three Months Ended |
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| Six Months Ended |
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| Three Months Ended |
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| Six Months Ended |
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| March 31, |
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| March 31, |
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| March 31, |
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| March 31, |
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(In millions, except per share data) |
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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Net sales |
| $ | 4,447.3 |
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| $ | 4,620.0 |
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| $ | 8,871.0 |
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| $ | 8,947.4 |
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| $ | 4,437.8 |
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| $ | 4,447.3 |
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| $ | 8,839.3 |
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| $ | 8,871.0 |
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Cost of goods sold |
|
| 3,642.5 |
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| 3,720.4 |
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| 7,257.2 |
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| 7,266.0 |
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| 3,688.2 |
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| 3,642.5 |
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| 7,336.8 |
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| 7,257.2 |
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Gross profit |
|
| 804.8 |
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| 899.6 |
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| 1,613.8 |
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| 1,681.4 |
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| 749.6 |
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| 804.8 |
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| 1,502.5 |
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| 1,613.8 |
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Selling, general and administrative, excluding intangible amortization |
|
| 418.6 |
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| 444.1 |
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| 844.3 |
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| 845.0 |
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| 458.4 |
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| 418.6 |
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| 876.2 |
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| 844.3 |
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Selling, general and administrative intangible amortization |
|
| 100.1 |
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| 102.4 |
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| 201.9 |
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| 195.3 |
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| 88.6 |
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| 100.1 |
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| 180.5 |
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| 201.9 |
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Gain on disposal of assets |
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| (5.6 | ) |
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| — |
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| (6.9 | ) |
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| (43.8 | ) | ||||||||||||||||
Loss (gain) on disposal of assets |
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| 0.3 |
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| (5.6 | ) |
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| 2.8 |
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| (6.9 | ) | ||||||||||||||||
Multiemployer pension withdrawal expense |
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| 0.9 |
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| — |
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| 0.9 |
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| — |
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| — |
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| 0.9 |
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| — |
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| 0.9 |
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Land and Development impairments |
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| — |
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| 13.0 |
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| — |
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| 13.0 |
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Restructuring and other costs |
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| 16.4 |
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| 34.8 |
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| 46.5 |
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| 89.2 |
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| 5.2 |
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| 16.4 |
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| 12.9 |
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| 46.5 |
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Operating profit |
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| 274.4 |
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| 305.3 |
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| 527.1 |
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| 582.7 |
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| 197.1 |
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| 274.4 |
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| 430.1 |
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| 527.1 |
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Interest expense, net |
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| (97.3 | ) |
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| (111.8 | ) |
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| (190.8 | ) |
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| (206.2 | ) |
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| (83.5 | ) |
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| (97.3 | ) |
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| (177.3 | ) |
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| (190.8 | ) |
(Loss) gain on extinguishment of debt |
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| (0.5 | ) |
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| 0.4 |
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| (0.5 | ) |
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| (1.5 | ) | ||||||||||||||||
Loss on extinguishment of debt |
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| — |
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| (0.5 | ) |
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| (1.1 | ) |
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| (0.5 | ) | ||||||||||||||||
Pension and other postretirement non-service income |
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| 26.1 |
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| 18.7 |
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| 52.8 |
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| 36.0 |
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| 35.0 |
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| 26.1 |
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| 69.9 |
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| 52.8 |
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Other expense, net |
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| (0.9 | ) |
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| (3.3 | ) |
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| (4.6 | ) |
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| (6.0 | ) | ||||||||||||||||
Equity in income (loss) of unconsolidated entities |
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| 4.9 |
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| (0.2 | ) |
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| 8.7 |
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| 6.6 |
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Other (expense) income, net |
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| (13.4 | ) |
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| (0.9 | ) |
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| 7.4 |
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| (4.6 | ) | ||||||||||||||||
Equity in income of unconsolidated entities |
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| 9.7 |
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| 4.9 |
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| 18.7 |
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| 8.7 |
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Income before income taxes |
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| 206.7 |
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| 209.1 |
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| 392.7 |
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| 411.6 |
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| 144.9 |
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| 206.7 |
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| 347.7 |
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| 392.7 |
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Income tax expense |
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| (57.8 | ) |
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| (47.2 | ) |
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| (104.3 | ) |
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| (109.9 | ) |
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| (30.5 | ) |
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| (57.8 | ) |
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| (80.8 | ) |
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| (104.3 | ) |
Consolidated net income |
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| 148.9 |
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| 161.9 |
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| 288.4 |
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| 301.7 |
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| 114.4 |
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| 148.9 |
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| 266.9 |
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| 288.4 |
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Less: Net income attributable to noncontrolling interests |
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| (0.8 | ) |
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| (1.5 | ) |
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| (1.8 | ) |
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| (2.2 | ) |
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| (1.9 | ) |
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| (0.8 | ) |
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| (2.4 | ) |
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| (1.8 | ) |
Net income attributable to common stockholders |
| $ | 148.1 |
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| $ | 160.4 |
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| $ | 286.6 |
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| $ | 299.5 |
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| $ | 112.5 |
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| $ | 148.1 |
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| $ | 264.5 |
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| $ | 286.6 |
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Basic earnings per share attributable to common stockholders |
| $ | 0.57 |
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| $ | 0.63 |
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| $ | 1.11 |
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| $ | 1.17 |
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| $ | 0.42 |
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| $ | 0.57 |
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| $ | 1.00 |
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| $ | 1.11 |
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Diluted earnings per share attributable to common stockholders |
| $ | 0.57 |
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| $ | 0.62 |
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| $ | 1.10 |
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| $ | 1.15 |
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| $ | 0.42 |
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| $ | 0.57 |
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| $ | 0.99 |
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| $ | 1.10 |
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Basic weighted average shares outstanding |
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| 259.0 |
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| 256.6 |
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| 258.6 |
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| 255.7 |
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| 264.9 |
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| 259.0 |
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| 263.8 |
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| 258.6 |
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Diluted weighted average shares outstanding |
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| 260.2 |
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| 259.4 |
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| 260.1 |
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| 259.4 |
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| 267.0 |
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| 260.2 |
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| 265.9 |
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| 260.1 |
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Cash dividends paid per common share |
| $ | 0.465 |
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| $ | 0.455 |
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| $ | 0.93 |
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| $ | 0.91 |
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See Accompanying Notes to Condensed Consolidated Financial Statements
3
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
| Three Months Ended |
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| Six Months Ended |
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| Three Months Ended |
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| Six Months Ended |
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| March 31, |
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| March 31, |
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| March 31, |
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| March 31, |
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(In millions) |
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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Consolidated net income |
| $ | 148.9 |
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| $ | 161.9 |
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| $ | 288.4 |
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| $ | 301.7 |
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| $ | 114.4 |
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| $ | 148.9 |
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| $ | 266.9 |
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| $ | 288.4 |
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Other comprehensive (loss) income, net of tax: |
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Other comprehensive income, net of tax: |
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Foreign currency translation (loss) gain |
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| (387.5 | ) |
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| 25.2 |
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| (287.1 | ) |
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| (39.7 | ) |
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| (87.2 | ) |
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| (387.5 | ) |
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| 109.7 |
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| (287.1 | ) |
Derivatives: |
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Deferred loss on cash flow hedges |
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| (8.9 | ) |
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| — |
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| (9.4 | ) |
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| — |
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| — |
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| (8.9 | ) |
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| (0.1 | ) |
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| (9.4 | ) |
Reclassification adjustment of net loss on cash flow hedges included in earnings |
|
| 2.5 |
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| — |
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| 1.2 |
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| — |
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| 1.4 |
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| 2.5 |
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| 2.9 |
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| 1.2 |
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Defined benefit pension and other postretirement benefit plans: |
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Amortization and settlement recognition of net actuarial loss, included in pension cost |
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| 8.5 |
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| 3.2 |
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| 17.2 |
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| 8.1 |
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| 5.8 |
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| 8.5 |
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| 11.4 |
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| 17.2 |
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Amortization and settlement recognition of prior service cost, included in pension cost |
|
| 1.0 |
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| 0.4 |
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| 1.5 |
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| 0.9 |
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| 1.0 |
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| 1.0 |
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| 2.1 |
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| 1.5 |
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Other comprehensive (loss) income, net of tax |
|
| (384.4 | ) |
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| 28.8 |
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| (276.6 | ) |
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| (30.7 | ) |
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| (79.0 | ) |
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| (384.4 | ) |
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| 126.0 |
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| (276.6 | ) |
Comprehensive (loss) income |
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| (235.5 | ) |
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| 190.7 |
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| 11.8 |
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| 271.0 |
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Comprehensive income (loss) |
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| 35.4 |
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| (235.5 | ) |
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| 392.9 |
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| 11.8 |
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Less: Comprehensive income attributable to noncontrolling interests |
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| (0.5 | ) |
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| (1.0 | ) |
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| (1.6 | ) |
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| (1.7 | ) |
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| (1.9 | ) |
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| (0.5 | ) |
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| (2.8 | ) |
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| (1.6 | ) |
Comprehensive (loss) income attributable to common stockholders |
| $ | (236.0 | ) |
| $ | 189.7 |
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| $ | 10.2 |
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| $ | 269.3 |
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Comprehensive income (loss) attributable to common stockholders |
| $ | 33.5 |
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| $ | (236.0 | ) |
| $ | 390.1 |
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| $ | 10.2 |
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See Accompanying Notes to Condensed Consolidated Financial Statements
4
WESTROCK COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share data) |
| March 31, 2020 |
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| September 30, 2019 |
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| March 31, 2021 |
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| September 30, 2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 640.2 |
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| $ | 151.6 |
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| $ | 334.0 |
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| $ | 251.1 |
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Accounts receivable (net of allowances of $58.2 and $53.2) |
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| 2,222.1 |
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| 2,193.2 |
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Accounts receivable (net of allowances of $71.5 and $66.3) |
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| 2,416.2 |
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| 2,142.7 |
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Inventories |
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| 2,125.4 |
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| 2,107.5 |
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| 2,090.9 |
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| 2,023.4 |
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Other current assets |
|
| 501.2 |
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| 496.2 |
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|
| 529.8 |
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| 520.5 |
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Assets held for sale |
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| 3.3 |
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| 25.8 |
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|
| 13.7 |
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|
| 7.0 |
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Total current assets |
|
| 5,492.2 |
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|
| 4,974.3 |
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|
| 5,384.6 |
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| 4,944.7 |
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Property, plant and equipment, net |
|
| 11,036.3 |
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|
| 11,189.5 |
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| 10,572.5 |
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| 10,778.9 |
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Goodwill |
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| 7,264.0 |
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| 7,285.6 |
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|
| 5,959.1 |
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|
| 5,962.2 |
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Intangibles, net |
|
| 3,845.9 |
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|
| 4,059.5 |
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|
| 3,499.9 |
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|
| 3,667.2 |
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Restricted assets held by special purpose entities |
|
| 1,270.9 |
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| 1,274.3 |
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| 1,264.0 |
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|
| 1,267.5 |
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Prepaid pension asset |
|
| 278.6 |
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|
| 224.7 |
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|
| 436.8 |
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|
| 368.7 |
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Other assets |
|
| 1,772.4 |
|
|
| 1,148.8 |
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|
| 1,855.0 |
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|
| 1,790.5 |
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Total Assets |
| $ | 30,960.3 |
|
| $ | 30,156.7 |
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| $ | 28,971.9 |
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| $ | 28,779.7 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Current portion of debt |
| $ | 432.0 |
|
| $ | 561.1 |
|
| $ | 549.5 |
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| $ | 222.9 |
|
Accounts payable |
|
| 1,696.4 |
|
|
| 1,831.8 |
|
|
| 1,796.8 |
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|
| 1,674.2 |
|
Accrued compensation and benefits |
|
| 381.5 |
|
|
| 470.4 |
|
|
| 515.1 |
|
|
| 386.7 |
|
Other current liabilities |
|
| 629.9 |
|
|
| 571.8 |
|
|
| 691.3 |
|
|
| 645.1 |
|
Total current liabilities |
|
| 3,139.8 |
|
|
| 3,435.1 |
|
|
| 3,552.7 |
|
|
| 2,928.9 |
|
Long-term debt due after one year |
|
| 10,424.6 |
|
|
| 9,502.3 |
|
|
| 8,393.1 |
|
|
| 9,207.7 |
|
Pension liabilities, net of current portion |
|
| 274.1 |
|
|
| 294.0 |
|
|
| 298.5 |
|
|
| 305.2 |
|
Postretirement benefit liabilities, net of current portion |
|
| 152.3 |
|
|
| 162.1 |
|
|
| 147.0 |
|
|
| 145.4 |
|
Non-recourse liabilities held by special purpose entities |
|
| 1,140.9 |
|
|
| 1,145.2 |
|
|
| 1,132.0 |
|
|
| 1,136.5 |
|
Deferred income taxes |
|
| 2,878.4 |
|
|
| 2,878.0 |
|
|
| 2,872.6 |
|
|
| 2,916.9 |
|
Other long-term liabilities |
|
| 1,450.6 |
|
|
| 1,053.9 |
|
|
| 1,503.8 |
|
|
| 1,490.3 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
| ||||||||
Redeemable noncontrolling interests |
|
| 1.6 |
|
|
| 1.9 |
|
|
| 2.2 |
|
|
| 1.3 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 30.0 million shares authorized; 0 shares outstanding |
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
Common Stock, $0.01 par value; 600.0 million shares authorized; 259.2 million and 257.8 million shares outstanding at March 31, 2020 and September 30, 2019, respectively |
|
| 2.6 |
|
|
| 2.6 |
| ||||||||
Common Stock, $0.01 par value; 600.0 million shares authorized; 265.9 million and 260.4 million shares outstanding at March 31, 2021 and September 30, 2020, respectively |
|
| 2.7 |
|
|
| 2.6 |
| ||||||||
Capital in excess of par value |
|
| 10,784.4 |
|
|
| 10,739.4 |
|
|
| 11,057.5 |
|
|
| 10,916.3 |
|
Retained earnings |
|
| 2,114.4 |
|
|
| 1,997.1 |
|
|
| 1,186.0 |
|
|
| 1,031.6 |
|
Accumulated other comprehensive loss |
|
| (1,419.0 | ) |
|
| (1,069.2 | ) |
|
| (1,194.3 | ) |
|
| (1,319.9 | ) |
Total stockholders’ equity |
|
| 11,482.4 |
|
|
| 11,669.9 |
|
|
| 11,051.9 |
|
|
| 10,630.6 |
|
Noncontrolling interests |
|
| 15.6 |
|
|
| 14.3 |
|
|
| 18.1 |
|
|
| 16.9 |
|
Total equity |
|
| 11,498.0 |
|
|
| 11,684.2 |
|
|
| 11,070.0 |
|
|
| 10,647.5 |
|
Total Liabilities and Equity |
| $ | 30,960.3 |
|
| $ | 30,156.7 |
|
| $ | 28,971.9 |
|
| $ | 28,779.7 |
|
See Accompanying Notes to Condensed Consolidated Financial Statements
5
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
(In millions, except per share data) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Number of Shares of Common Stock Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 258.4 |
|
|
| 255.2 |
|
|
| 257.8 |
|
|
| 253.5 |
|
|
| 263.3 |
|
|
| 258.4 |
|
|
| 260.4 |
|
|
| 257.8 |
|
Shares issued under restricted stock plan |
|
| 0.8 |
|
|
| 2.7 |
|
|
| 0.8 |
|
|
| 3.0 |
| ||||||||||||||||
Issuance of common stock, net of stock received for minimum tax withholdings (1) |
|
| — |
|
|
| 0.1 |
|
|
| 0.6 |
|
|
| 2.5 |
| ||||||||||||||||
Purchases of common stock |
|
| — |
|
|
| (1.1 | ) |
|
| — |
|
|
| (2.1 | ) | ||||||||||||||||
Issuance of common stock, net of stock received for tax withholdings |
|
| 2.6 |
|
|
| 0.8 |
|
|
| 5.5 |
|
|
| 1.4 |
| ||||||||||||||||
Balance at end of period |
|
| 259.2 |
|
|
| 256.9 |
|
|
| 259.2 |
|
|
| 256.9 |
|
|
| 265.9 |
|
|
| 259.2 |
|
|
| 265.9 |
|
|
| 259.2 |
|
Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | 2.6 |
|
| $ | 2.6 |
|
| $ | 2.6 |
|
| $ | 2.5 |
|
| $ | 2.6 |
|
| $ | 2.6 |
|
| $ | 2.6 |
|
| $ | 2.6 |
|
Issuance of common stock, net of stock received for minimum tax withholdings (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
| ||||||||||||||||
Issuance of common stock, net of stock received for tax withholdings |
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
| ||||||||||||||||
Balance at end of period |
|
| 2.6 |
|
|
| 2.6 |
|
|
| 2.6 |
|
|
| 2.6 |
|
|
| 2.7 |
|
|
| 2.6 |
|
|
| 2.7 |
|
|
| 2.6 |
|
Capital in Excess of Par Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 10,770.0 |
|
|
| 10,720.6 |
|
|
| 10,739.4 |
|
|
| 10,588.9 |
|
|
| 10,949.4 |
|
|
| 10,770.0 |
|
|
| 10,916.3 |
|
|
| 10,739.4 |
|
Compensation expense under share-based plans |
|
| 16.0 |
|
|
| 18.2 |
|
|
| 29.5 |
|
|
| 36.1 |
|
|
| 31.0 |
|
|
| 16.0 |
|
|
| 50.9 |
|
|
| 29.5 |
|
Issuance of common stock, net of stock received for minimum tax withholdings (1) |
|
| (1.6 | ) |
|
| (1.9 | ) |
|
| 15.5 |
|
|
| 82.9 |
| ||||||||||||||||
Fair value of share-based awards issued in business combinations |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70.8 |
| ||||||||||||||||
Purchases of common stock |
|
| — |
|
|
| (44.4 | ) |
|
| — |
|
|
| (86.2 | ) | ||||||||||||||||
Issuance of common stock, net of stock received for tax withholdings |
|
| 77.1 |
|
|
| (1.6 | ) |
|
| 90.3 |
|
|
| 15.5 |
| ||||||||||||||||
Balance at end of period |
|
| 10,784.4 |
|
|
| 10,692.5 |
|
|
| 10,784.4 |
|
|
| 10,692.5 |
|
|
| 11,057.5 |
|
|
| 10,784.4 |
|
|
| 11,057.5 |
|
|
| 10,784.4 |
|
Retained Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 2,087.5 |
|
|
| 1,635.3 |
|
|
| 1,997.1 |
|
|
| 1,573.3 |
|
|
| 1,126.3 |
|
|
| 2,087.5 |
|
|
| 1,031.6 |
|
|
| 1,997.1 |
|
Adoption of accounting standards (2) |
|
| — |
|
|
| — |
|
|
| 73.5 |
|
|
| 43.5 |
| ||||||||||||||||
Adoption of accounting standards (1) |
|
| — |
|
|
| — |
|
|
| (3.8 | ) |
|
| 73.5 |
| ||||||||||||||||
Net income attributable to common stockholders |
|
| 148.1 |
|
|
| 160.4 |
|
|
| 286.6 |
|
|
| 299.5 |
|
|
| 112.5 |
|
|
| 148.1 |
|
|
| 264.5 |
|
|
| 286.6 |
|
Dividends declared (per share - $0.465, $0.455, $0.93 and $0.91) (3) |
|
| (121.2 | ) |
|
| (124.5 | ) |
|
| (242.8 | ) |
|
| (242.3 | ) | ||||||||||||||||
Issuance of common stock, net of stock received for minimum tax withholdings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) | ||||||||||||||||
Purchases of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.4 | ) | ||||||||||||||||
Dividends declared (per share - $0.20, $0.465, $0.40 and $0.93) (2) |
|
| (52.6 | ) |
|
| (121.2 | ) |
|
| (106.1 | ) |
|
| (242.8 | ) | ||||||||||||||||
Issuance of common stock, net of stock received for tax withholdings |
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| — |
| ||||||||||||||||
Balance at end of period |
|
| 2,114.4 |
|
|
| 1,671.2 |
|
|
| 2,114.4 |
|
|
| 1,671.2 |
|
|
| 1,186.0 |
|
|
| 2,114.4 |
|
|
| 1,186.0 |
|
|
| 2,114.4 |
|
Accumulated Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| (1,034.9 | ) |
|
| (754.8 | ) |
|
| (1,069.2 | ) |
|
| (695.3 | ) |
|
| (1,115.3 | ) |
|
| (1,034.9 | ) |
|
| (1,319.9 | ) |
|
| (1,069.2 | ) |
Adoption of ASU 2018-02 reclassification of stranded tax effects resulting from Tax Reform |
|
| — |
|
|
| — |
|
|
| (73.4 | ) |
|
| — |
| ||||||||||||||||
Adoption of accounting standards (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (73.4 | ) | ||||||||||||||||
Other comprehensive (loss) income, net of tax |
|
| (384.1 | ) |
|
| 29.3 |
|
|
| (276.4 | ) |
|
| (30.2 | ) |
|
| (79.0 | ) |
|
| (384.1 | ) |
|
| 125.6 |
|
|
| (276.4 | ) |
Balance at end of period |
|
| (1,419.0 | ) |
|
| (725.5 | ) |
|
| (1,419.0 | ) |
|
| (725.5 | ) |
|
| (1,194.3 | ) |
|
| (1,419.0 | ) |
|
| (1,194.3 | ) |
|
| (1,419.0 | ) |
Total Stockholders’ equity |
|
| 11,482.4 |
|
|
| 11,640.8 |
|
|
| 11,482.4 |
|
|
| 11,640.8 |
|
|
| 11,051.9 |
|
|
| 11,482.4 |
|
|
| 11,051.9 |
|
|
| 11,482.4 |
|
Noncontrolling Interests: (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Noncontrolling Interests: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Balance at beginning of period |
|
| 15.3 |
|
|
| 11.8 |
|
|
| 14.3 |
|
|
| 13.0 |
|
|
| 17.1 |
|
|
| 15.3 |
|
|
| 16.9 |
|
|
| 14.3 |
|
Net income |
|
| 0.3 |
|
|
| 1.1 |
|
|
| 1.3 |
|
|
| 1.4 |
|
|
| 1.0 |
|
|
| 0.3 |
|
|
| 1.2 |
|
|
| 1.3 |
|
Contributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
| ||||||||||||||||
Distributions and adjustments to noncontrolling interests |
|
| — |
|
|
| (0.1 | ) |
|
| — |
|
|
| (1.8 | ) | ||||||||||||||||
Balance at end of period |
|
| 15.6 |
|
|
| 12.8 |
|
|
| 15.6 |
|
|
| 12.8 |
|
|
| 18.1 |
|
|
| 15.6 |
|
|
| 18.1 |
|
|
| 15.6 |
|
Total equity |
| $ | 11,498.0 |
|
| $ | 11,653.6 |
|
| $ | 11,498.0 |
|
| $ | 11,653.6 |
|
| $ | 11,070.0 |
|
| $ | 11,498.0 |
|
| $ | 11,070.0 |
|
| $ | 11,498.0 |
|
| (1) |
|
6
| For fiscal |
|
| Includes cash dividends paid and dividend equivalent units on certain restricted stock awards. |
|
| Excludes amounts related to contingently redeemable noncontrolling interests, which are separately classified outside of permanent equity on the Condensed Consolidated Balance Sheets. |
See Accompanying Notes to Condensed Consolidated Financial Statements
76
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
| $ | 288.4 |
|
| $ | 301.7 |
|
| $ | 266.9 |
|
| $ | 288.4 |
|
Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
| 755.7 |
|
|
| 742.8 |
|
|
| 725.9 |
|
|
| 755.7 |
|
Cost of real estate sold |
|
| 16.1 |
|
|
| 11.0 |
|
|
| — |
|
|
| 16.1 |
|
Deferred income tax expense |
|
| 11.4 |
|
|
| 39.6 |
| ||||||||
Deferred income tax (benefit) expense |
|
| (54.6 | ) |
|
| 11.4 |
| ||||||||
Share-based compensation expense |
|
| 29.6 |
|
|
| 35.5 |
|
|
| 51.1 |
|
|
| 29.6 |
|
Pension and other postretirement funding (more) than expense (income) |
|
| (41.1 | ) |
|
| (27.0 | ) | ||||||||
401(k) match and company contribution in common stock |
|
| 89.5 |
|
|
| — |
| ||||||||
Pension and other postretirement funding more than expense (income) |
|
| (56.1 | ) |
|
| (41.1 | ) | ||||||||
Gain on sale of sawmill |
|
| (16.5 | ) |
|
| — |
| ||||||||
Gain on sale of investment |
|
| (14.7 | ) |
|
| — |
| ||||||||
Multiemployer pension withdrawal expense |
|
| 0.9 |
|
|
| — |
|
|
| — |
|
|
| 0.9 |
|
Land and Development impairments |
|
| — |
|
|
| 13.0 |
| ||||||||
Other impairment adjustments |
|
| 2.2 |
|
|
| 10.0 |
|
|
| 22.5 |
|
|
| 2.2 |
|
Gain on disposal of plant and equipment and other, net |
|
| (6.2 | ) |
|
| (45.5 | ) | ||||||||
Loss (gain) on disposal of plant and equipment and other, net |
|
| 2.8 |
|
|
| (6.2 | ) | ||||||||
Other, net |
|
| (11.3 | ) |
|
| (46.3 | ) |
|
| (53.1 | ) |
|
| (11.3 | ) |
Change in operating assets and liabilities, net of acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (60.4 | ) |
|
| 117.3 |
|
|
| (257.0 | ) |
|
| (60.4 | ) |
Inventories |
|
| (63.2 | ) |
|
| (67.5 | ) |
|
| (79.9 | ) |
|
| (63.2 | ) |
Other assets |
|
| (132.9 | ) |
|
| (128.9 | ) |
|
| (126.6 | ) |
|
| (132.9 | ) |
Accounts payable |
|
| (106.7 | ) |
|
| (143.4 | ) |
|
| 111.5 |
|
|
| (106.7 | ) |
Income taxes |
|
| 17.7 |
|
|
| (27.0 | ) |
|
| 52.7 |
|
|
| 17.7 |
|
Accrued liabilities and other |
|
| (101.4 | ) |
|
| (120.3 | ) |
|
| 187.2 |
|
|
| (101.4 | ) |
Net cash provided by operating activities |
|
| 598.8 |
|
|
| 665.0 |
|
|
| 851.6 |
|
|
| 598.8 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (616.2 | ) |
|
| (625.4 | ) |
|
| (303.0 | ) |
|
| (616.2 | ) |
Cash paid related to business combinations, net of cash acquired |
|
| — |
|
|
| (3,349.3 | ) | ||||||||
Investment in unconsolidated entities |
|
| (0.7 | ) |
|
| (0.2 | ) |
|
| (0.1 | ) |
|
| (0.7 | ) |
Proceeds from sale of sawmill |
|
| 58.5 |
|
|
| — |
| ||||||||
Proceeds from sale of investments |
|
| 28.3 |
|
|
| — |
| ||||||||
Proceeds from sale of property, plant and equipment |
|
| 21.3 |
|
|
| 105.3 |
|
|
| 3.1 |
|
|
| 21.3 |
|
Proceeds from property, plant and equipment insurance settlement |
|
| 1.4 |
|
|
| 8.8 |
|
|
| 1.7 |
|
|
| 1.4 |
|
Other, net |
|
| 4.9 |
|
|
| 10.2 |
|
|
| 16.3 |
|
|
| 4.9 |
|
Net cash used for investing activities |
|
| (589.3 | ) |
|
| (3,850.6 | ) |
|
| (195.2 | ) |
|
| (589.3 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes |
|
| — |
|
|
| 1,498.5 |
| ||||||||
Additions to revolving credit facilities |
|
| 375.0 |
|
|
| 192.2 |
|
|
| 395.0 |
|
|
| 375.0 |
|
Repayments of revolving credit facilities |
|
| (65.0 | ) |
|
| (20.0 | ) |
|
| (275.0 | ) |
|
| (65.0 | ) |
Additions to debt |
|
| 580.1 |
|
|
| 3,957.9 |
|
|
| 255.2 |
|
|
| 580.1 |
|
Repayments of debt |
|
| (208.2 | ) |
|
| (3,209.6 | ) |
|
| (857.0 | ) |
|
| (208.2 | ) |
(Repayments) additions to commercial paper, net |
|
| (34.8 | ) |
|
| 588.3 |
| ||||||||
Repayments of commercial paper, net |
|
| — |
|
|
| (34.8 | ) | ||||||||
Other debt additions, net |
|
| 85.9 |
|
|
| 16.4 |
|
|
| 7.0 |
|
|
| 85.9 |
|
Issuances of common stock, net of related minimum tax withholdings |
|
| 13.4 |
|
|
| 3.2 |
| ||||||||
Purchases of common stock |
|
| — |
|
|
| (88.6 | ) | ||||||||
Issuances of common stock, net of related tax withholdings |
|
| 0.2 |
|
|
| 13.4 |
| ||||||||
Cash dividends paid to stockholders |
|
| (240.7 | ) |
|
| (233.7 | ) |
|
| (105.8 | ) |
|
| (240.7 | ) |
Cash distributions paid to noncontrolling interests |
|
| (0.7 | ) |
|
| (2.8 | ) |
|
| (0.7 | ) |
|
| (0.7 | ) |
Other, net |
|
| 2.1 |
|
|
| 3.0 |
|
|
| (3.5 | ) |
|
| 2.1 |
|
Net cash provided by financing activities |
|
| 507.1 |
|
|
| 2,704.8 |
| ||||||||
Net cash (used for) provided by financing activities |
|
| (584.6 | ) |
|
| 507.1 |
| ||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (28.0 | ) |
|
| (1.8 | ) |
|
| 11.1 |
|
|
| (28.0 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash |
|
| 488.6 |
|
|
| (482.6 | ) | ||||||||
Increase in cash, cash equivalents and restricted cash |
|
| 82.9 |
|
|
| 488.6 |
| ||||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 151.6 |
|
|
| 636.8 |
|
|
| 251.1 |
|
|
| 151.6 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 640.2 |
|
| $ | 154.2 |
|
| $ | 334.0 |
|
| $ | 640.2 |
|
87
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds |
| $ | 75.1 |
|
| $ | 94.3 |
|
| $ | 82.2 |
|
| $ | 75.1 |
|
Interest, net of amounts capitalized |
| $ | 204.4 |
|
| $ | 202.9 |
|
| $ | 174.7 |
|
| $ | 204.4 |
|
The adoption of ASC 842, Leases, resulted in recognition of non-cash right-of-use assets (“ROU”) and non-cash operating lease liabilities. See “Note 13. Leases” for more information on the impact of this adoption.
Supplemental schedule of non-cash investing and financing activities:
Liabilities assumed in the six months ended March 31, 2019 primarily relate to the KapStone Acquisition (as hereinafter defined). See “Note 3. Acquisitions” for more information.
|
| Six Months Ended |
| |
|
| March 31, |
| |
(In millions) |
| 2019 |
| |
|
|
|
| |
Fair value of assets acquired, including goodwill |
| $ | 5,912.4 |
|
Cash consideration for the purchase of businesses, net of cash acquired |
|
| (3,350.2 | ) |
Stock issued for the purchase of a business |
|
| (70.1 | ) |
Fair value of share-based awards issued in the purchase of a business |
|
| (70.8 | ) |
Deferred payments and unpaid working capital |
|
| 16.6 |
|
Liabilities assumed |
| $ | 2,437.9 |
|
See Accompanying Notes to Condensed Consolidated Financial Statements
9
8
WESTROCK COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Month Periods Ended March 31, 20202021
(Unaudited)
Unless the context otherwise requires, “we”, “us”, “our”, “WestRock” and “the Company” refer to the business of WestRock Company, its wholly-owned subsidiaries and its partially-owned consolidated subsidiaries.
We are a multinational provider of sustainable fiber-based paper and packaging solutions for consumer and corrugated packaging markets.solutions. We partner with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. Our team members support customers around the world from our operating and business locations in North America, South America, Europe, Asia and Australia.
Note 1. | Basis of Presentation and Significant Accounting Policies |
Basis of Presentation
Our independent registered public accounting firm has not audited ourthe accompanying interim financial statements. We derived the condensed consolidated balance sheet at September 30, 20192020 from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 20192020 (the “Fiscal 20192020 Form 10-K”). In the opinion of our management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of income for the three and six months ended March 31, 20202021 and March 31, 2019,2020, our statements of comprehensive income (loss) for the three and six months ended March 31, 20202021 and March 31, 2019,2020, our balance sheets at March 31, 20202021 and September 30, 2019,2020, our statements of cash flows for the six months ended March 31, 20202021 and March 31, 2019,2020, and our statements of equity for the three and six months ended March 31, 20202021 and March 31, 2019.2020.
We have condensed or omitted certain notes and other information from the interim financial statements presented in this report. Therefore, these interim financial statements should be read in conjunction with the Fiscal 20192020 Form 10-K. The results for the three and six months ended March 31, 20202021 are not necessarily indicative of results that may be expected for the full year.
Reclassifications and Adjustments
DuringCertain amounts in prior periods have been reclassified to conform with the second quarter of fiscal 2020, we evaluated our revolving credit facilities and determined that for certain facilities the borrowings and repayments should be presented gross instead of net on the condensed consolidated statements of cash flow and corrected the presentation of the priorcurrent year by an immaterial amount.presentation.
COVID-19 Pandemic
The global impact of the COVID-19 pandemic (“COVID-19”) continues to evolve rapidly.evolve. The pandemic has affected our operational and financial performance and the extent of its effect on our operational and financial performance will continue to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact (including the distribution and effectiveness of vaccines), and the direct and indirect economic effects of the pandemic and related containment measures, among others.
At March 31, 2020,2021, we evaluated the then current economic environment, including our current assessment of the impact of COVID-19, as well as the ransomware incident discussed below, and we believe that there were no indicators of impairment of our long-lived assets, including goodwill, that required a quantitative test to be performed. Our estimates involve numerous assumptions about the future growth and potential volatility in revenues and costs, capital expenditures, industry and global economic factors, interest rate environment and future business strategy. Accordingly, our accounting estimates may materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances and the potential impact thereof.thereof, including performing interim goodwill impairment assessments, as warranted. If actual results are not consistent with our assumptions and estimates, we may be exposed to impairment losses that could be material.See “Note 1. Description of Business and Summary of Significant Accounting Policies — Goodwill and Long-Lived Assets” in the Fiscal 2020 Form 10-K for additional
109
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
information regarding the results of, and our methods and assumptions applied to perform, our goodwill impairment testing in fiscal 2020.
Ransomware Incident
As previously disclosed, on January 23, 2021 we detected a ransomware incident impacting certain of our systems. Promptly upon our detection of this incident, we initiated response and containment protocols and our security teams, supplemented by leading cyber defense firms, worked to remediate this incident. These actions included taking preventative measures, including shutting down certain systems out of an abundance of caution, as well as taking steps to supplement existing security monitoring, scanning and protective measures. We notified law enforcement and contacted our customers to apprise them of the situation.
We undertook extensive efforts to identify, contain and recover from this incident quickly and securely. Our teams worked to maintain our business operations and minimize the impact on our customers and teammates. All systems are back in service. All of our mills and converting locations began producing and shipping paper and packaging at pre-ransomware levels in March 2021 or earlier. Our mill system production was approximately 115,000 tons lower than planned for the quarter ended March 31, 2021 as a result of this incident. While shipments from some of our facilities initially lagged behind production levels, this gap closed as systems were restored during the second quarter of fiscal 2021. In locations where technology issues were identified, we used alternative methods, in many cases manual methods, to process and ship orders. We systematically brought our information systems back online in a controlled, phased approach.
We estimate the segment income impact of the lost sales and operational disruption of this incident on our operations in the second quarter of fiscal 2021 to be approximately $50 million, as well as approximately $20 million of ransomware recovery costs, primarily professional fees. We estimate that the total insurance claim will be approximately $75 million. We expect to recover substantially all of the ransomware losses from cyber and business interruption insurance in future periods. Disputes over the extent of insurance coverage for claims are not uncommon, and there will be a time lag between the initial incurrence of costs and the receipt of any insurance proceeds. While the impact of lost sales and operational disruption is behind us, we expect to incur some additional recovery costs in the second half of fiscal 2021, albeit at a diminished rate.
We are making information technology investments that we had planned to make in future periods in order to further strengthen our information security infrastructure. We engaged a leading cybersecurity defense firm that completed a forensics investigation of the ransomware incident and we are taking appropriate actions in response to the findings. For example, in the short-term, we reset all credentials Company-wide and strengthened security tooling across our servers and workstations. In the long-term, we are continuing to advance the maturity and effectiveness of our information security resiliency strategy and capabilities. Our technology team has accelerated its roadmap to further strengthen the resiliency of our information security infrastructure across the Company that aims to enable us to detect, respond and recover more quickly from security and technical incidents. More specifically, we plan to take actions to improve our security monitoring capabilities and enhance the information security within our mills and plants.
Significant Accounting Policies
See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section in the Fiscal 20192020 Form 10-K for a summary of our significant accounting policies.
Recent Accounting Developments
New Accounting Standards — Recently Adopted
In FebruaryNovember 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02,2018-18 “Income Statement – Reporting Comprehensive IncomeCollaborative Arrangements (Topic 220)808): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive IncomeClarifying the Interaction Between Topic 808 and Topic 606”. The, which provides targeted amendments in this update provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in the period of adoption or retrospectively in each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) (or portion thereof) is recorded. We adopted the provisions of this ASU on October 1, 2019. Upon adoption, we elected to reclassify stranded tax effects of the Tax Act within accumulated other comprehensive income to retained earnings. The reclassification of stranded tax effects from accumulated other comprehensive income increased retained earnings by $73.4 million, all of which related to our employee benefit plans.
In February 2016, the FASB issued ASU 2016-02 “Leases”, which is codified in Accounting Standards Codification (“ASC”) 842808, “Leases”Collaborative arrangements” and ASC 606, “Revenues from Contracts with Customers” (“ASC 842606”) and supersedes current lease guidance. The amendments in ASC 840 “Leases”. This ASU requires lessees to put a ROU asset and lease liability on their balance sheet for operating and financing leases that have a term of more than one year. Expense will be recognized in the income statement similar to current accounting guidance. For lessors, this ASU modifiesrequire transactions between participants in a collaborative arrangement to be accounted for under ASC 606 only when the classification criteria and the accounting for sales-type and direct financing leases. Entities will need to disclose qualitative and quantitative information about their leases, including characteristics and amounts recognized in the financial statements. counterparty is a customer. We adopted the provisions of ASC 842ASU 2018-18 on October 1, 2019 using the modified retrospective approach and, as a result,2020. The adoption did not restate prior periods. See “Note 13. Leases” for additional details.
New Accounting Standards — Recently Issued
See “Note 1. Description of Business and Summary of Significant Accounting Policies — New Accounting Standards — Recently Issued” of the Notes to Consolidated Financial Statements section of the Fiscal 2019 Form 10-K for information on new accounting standards issued prior to the beginning of fiscal 2020 but not yet adopted and where we do not expect that the adoption will have a material impact on our consolidated financial statements. Below is a description of new accounting standards for which we (i) are in the process of evaluating the impact on our consolidated financial statements, (ii) have determined that the new standard could have a material impact on our consolidated financial statements or (iii) have determined since the Fiscal 2019 Form 10-K that we do not expect the adoption of the new standard will have a material impact on our consolidated financial statements. We have not elected to early adopt any of the new accounting standards described below to the extent early adoption is permitted.
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This ASU provides temporary optional expedients and exceptions for applying Generally Accepted Accounting Principles (“GAAP”) guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“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. We are currently evaluating the impact of this ASU.
In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 under GAAP. This ASU also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal
1110
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this ASU.
In October 2018, the FASB issued ASU 2018-17 “Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities”.” This ASU changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety, as currently required under GAAP. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We do not expectgenerally accepted accounting principles in the adoption of this ASU to have a material impact on our consolidated financial statements.
In October 2018, the FASB issued ASU 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606”, which provides targeted amendments to ASC 808, “Collaborative
arrangements”U.S. (“ASC 808”) and ASC 606 “Revenue from Contracts with Customers” (“ASC 606GAAP”). We adopted the provisions of ASU 2018-17 on October 1, 2020. The amendments in this ASU require transactions between participants in a collaborative arrangement to be accounted for under ASC 606 when the counterparty is a customer. This ASU precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty isadoption did not a customer for that transaction. This ASU also amends ASC 808 to refer to the unit-of-account guidance in ASC 606 and requires it to be used only when assessing whether a transaction is in scope of ASC 606. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 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”. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. We adopted the provisions of ASU 2018-15 prospectively on October 1, 2020. The provisions may be adopted prospectively or retrospectively. This ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating thedid not have a material impact of this ASU.on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14 “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans”. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. TheseWe adopted the provisions will be applied retrospectively. Thisof ASU is effective for fiscal years ending after December 15,2018-14 retrospectively on October 1, 2020. Early adoption is permitted. We are currently evaluating the impact of this ASU.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit losses:Losses: Measurement of Credit Losses on financialFinancial Instruments (Topic 326)” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years,instruments and will be applied asreplaces the incurred loss model with a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period for which the guidance is effective.model that reflects expected credit losses. In April 2019, the FASB issued ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”), which addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” (“ASU 2019-05”), which provides targeted transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option. In November 2019, the FASB issued ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses” (“ASU 2019-11”), which makes certain narrow-scope amendments to Topic 326, including allowing entities to exclude accrued interest amounts from various required disclosures under Topic 326. In February 2020, the FASB issued ASU 2020-02 “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842)” (“ASU 2020-02”), which adds and amends paragraphs in the Accounting Standards CodificationASC to reflect the issuance of U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 119
12
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
primarily related to the new credit losses standard. The provisions of ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 related to Topic 326 are effective concurrent with the adoption of ASU 2016-13. We adopted ASU 2016-13 and its subsequent revisions using the modified retrospective transition approach on October 1, 2020. The adoption of ASU 2016-13 and its subsequent revisions resulted in us recognizing a cumulative effect adjustment of $3.8 million (net of tax) decrease to opening balance of retained earnings related to our allowance for doubtful accounts primarily for our trade accounts receivable balance.
New Accounting Standards — Recently Issued
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This ASU 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 London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. In January 2021, the FASB issued ASU 2021-01, which adds implementation guidance to clarify certain optional expedients in Topic 848. The ASUs can be adopted after their respective issuance dates through December 31, 2022. We are currently evaluating the impact of these ASUs.
11
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 under GAAP. This ASU also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 (fiscal 2022 for us) and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of this ASU.
Note 2. | Revenue Recognition |
Disaggregated Revenue
ASC 606 requires that we disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The tables below disaggregate our revenue by geographical market and product type (segment). Net sales are attributed to geographical markets based on the location of the seller.our selling location. In fiscal 2020, we completed our real estate monetization; therefore, we will 0t have any Land and Development sales in fiscal 2021.
|
| Three Months Ended March 31, 2021 |
| |||||||||||||
(In millions) |
| Corrugated Packaging |
|
| Consumer Packaging |
|
| Intersegment Sales |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 2,797.1 |
|
| $ | 1,231.7 |
|
| $ | (65.3 | ) |
| $ | 3,963.5 |
|
South America |
|
| 96.5 |
|
|
| 23.1 |
|
|
| — |
|
|
| 119.6 |
|
Europe |
|
| 1.1 |
|
|
| 265.9 |
|
|
| — |
|
|
| 267.0 |
|
Asia Pacific |
|
| 18.7 |
|
|
| 69.2 |
|
|
| (0.2 | ) |
|
| 87.7 |
|
Total |
| $ | 2,913.4 |
|
| $ | 1,589.9 |
|
| $ | (65.5 | ) |
| $ | 4,437.8 |
|
|
| Six Months Ended March 31, 2021 |
| |||||||||||||
(In millions) |
| Corrugated Packaging |
|
| Consumer Packaging |
|
| Intersegment Sales |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 5,567.3 |
|
| $ | 2,485.7 |
|
| $ | (123.2 | ) |
| $ | 7,929.8 |
|
South America |
|
| 177.5 |
|
|
| 45.3 |
|
|
| — |
|
|
| 222.8 |
|
Europe |
|
| 2.0 |
|
|
| 515.2 |
|
|
| (0.1 | ) |
|
| 517.1 |
|
Asia Pacific |
|
| 31.1 |
|
|
| 138.8 |
|
|
| (0.3 | ) |
|
| 169.6 |
|
Total |
| $ | 5,777.9 |
|
| $ | 3,185.0 |
|
| $ | (123.6 | ) |
| $ | 8,839.3 |
|
|
| Three Months Ended March 31, 2020 |
| |||||||||||||||||
(In millions) |
| Corrugated Packaging |
|
| Consumer Packaging |
|
| Land and Development |
|
| Intersegment Sales |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 2,765.7 | �� |
| $ | 1,281.6 |
|
| $ | — |
|
| $ | (51.4 | ) |
| $ | 3,995.9 |
|
South America |
|
| 100.7 |
|
|
| 18.8 |
|
|
| — |
|
|
| — |
|
|
| 119.5 |
|
Europe |
|
| 2.5 |
|
|
| 253.4 |
|
|
| — |
|
|
| — |
|
|
| 255.9 |
|
Asia Pacific |
|
| 13.6 |
|
|
| 62.5 |
|
|
| — |
|
|
| (0.1 | ) |
|
| 76.0 |
|
Total |
| $ | 2,882.5 |
|
| $ | 1,616.3 |
|
| $ | — |
|
| $ | (51.5 | ) |
| $ | 4,447.3 |
|
|
| Six Months Ended March 31, 2020 |
| |||||||||||||||||
(In millions) |
| Corrugated Packaging |
|
| Consumer Packaging |
|
| Land and Development |
|
| Intersegment Sales |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 5,554.6 |
|
| $ | 2,480.4 |
|
| $ | 18.9 |
|
| $ | (92.9 | ) |
| $ | 7,961.0 |
|
South America |
|
| 208.3 |
|
|
| 38.8 |
|
|
| — |
|
|
| — |
|
|
| 247.1 |
|
Europe |
|
| 4.3 |
|
|
| 498.0 |
|
|
| — |
|
|
| — |
|
|
| 502.3 |
|
Asia Pacific |
|
| 24.8 |
|
|
| 136.0 |
|
|
| — |
|
|
| (0.2 | ) |
|
| 160.6 |
|
Total |
| $ | 5,792.0 |
|
| $ | 3,153.2 |
|
| $ | 18.9 |
|
| $ | (93.1 | ) |
| $ | 8,871.0 |
|
|
| Three Months Ended March 31, 2019 |
| |||||||||||||||||
(In millions) |
| Corrugated Packaging |
|
| Consumer Packaging |
|
| Land and Development |
|
| Intersegment Sales |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 2,865.3 |
|
| $ | 1,308.3 |
|
| $ | 0.8 |
|
| $ | (39.8 | ) |
| $ | 4,134.6 |
|
South America |
|
| 109.6 |
|
|
| 17.9 |
|
|
| — |
|
|
| — |
|
|
| 127.5 |
|
Europe |
|
| — |
|
|
| 269.6 |
|
|
| — |
|
|
| — |
|
|
| 269.6 |
|
Asia Pacific |
|
| 15.8 |
|
|
| 72.5 |
|
|
| — |
|
|
| — |
|
|
| 88.3 |
|
Total |
| $ | 2,990.7 |
|
| $ | 1,668.3 |
|
| $ | 0.8 |
|
| $ | (39.8 | ) |
| $ | 4,620.0 |
|
1312
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
| Six Months Ended March 31, 2019 |
| |||||||||||||||||
(In millions) |
| Corrugated Packaging |
|
| Consumer Packaging |
|
| Land and Development |
|
| Intersegment Sales |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 5,471.7 |
|
| $ | 2,564.7 |
|
| $ | 14.7 |
|
| $ | (77.7 | ) |
| $ | 7,973.4 |
|
South America |
|
| 218.4 |
|
|
| 37.4 |
|
|
| — |
|
|
| — |
|
|
| 255.8 |
|
Europe |
|
| — |
|
|
| 530.1 |
|
|
| — |
|
|
| — |
|
|
| 530.1 |
|
Asia Pacific |
|
| 34.4 |
|
|
| 154.9 |
|
|
| — |
|
|
| (1.2 | ) |
|
| 188.1 |
|
Total |
| $ | 5,724.5 |
|
| $ | 3,287.1 |
|
| $ | 14.7 |
|
| $ | (78.9 | ) |
| $ | 8,947.4 |
|
|
| Six Months Ended March 31, 2020 |
| |||||||||||||||||
(In millions) |
| Corrugated Packaging |
|
| Consumer Packaging |
|
| Land and Development |
|
| Intersegment Sales |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 5,554.6 |
|
| $ | 2,480.4 |
|
| $ | 18.9 |
|
| $ | (92.9 | ) |
| $ | 7,961.0 |
|
South America |
|
| 208.3 |
|
|
| 38.8 |
|
|
| — |
|
|
| — |
|
|
| 247.1 |
|
Europe |
|
| 4.3 |
|
|
| 498.0 |
|
|
| — |
|
|
| — |
|
|
| 502.3 |
|
Asia Pacific |
|
| 24.8 |
|
|
| 136.0 |
|
|
| — |
|
|
| (0.2 | ) |
|
| 160.6 |
|
Total |
| $ | 5,792.0 |
|
| $ | 3,153.2 |
|
| $ | 18.9 |
|
| $ | (93.1 | ) |
| $ | 8,871.0 |
|
Revenue Contract Balances
Contract assets are rights to consideration in exchange for goods that we have transferred to a customer when that right is conditional on something other than the passage of time. Contract assets are reduced when title and riskthe control of lossthe goods passes to the customer. Contract liabilities represent obligations to transfer goods or services to a customer for which we have received consideration. Contract liabilities are reduced once control of the goods is transferred to the customer.
The opening and closing balances of our contract assets and contract liabilities are as follows. Contract assets and contract liabilities are aggregatedreported within Other current assets and Other current liabilities, respectively, on the condensed consolidated balance sheet.
(In millions) |
| Contract Assets (Short-Term) |
|
| Contract Liabilities (Short-Term) |
| ||
|
|
|
|
|
|
|
|
|
Beginning balance - October 1, 2019 |
| $ | 188.0 |
|
| $ | 7.7 |
|
Ending balance - March 31, 2020 |
|
| 198.0 |
|
|
| 23.8 |
|
Increase / (Decrease) |
| $ | 10.0 |
|
| $ | 16.1 |
|
|
|
We account for acquisitions in accordance with ASC 805, “Business Combinations”. The estimated fair values of all assets acquired and liabilities assumed in acquisitions are provisional and may be revised as a result of additional information obtained during the measurement period of up to one year from the acquisition date. See “Note 3. Acquisitions and Investment” of the Notes to Consolidated Financial Statements section in the Fiscal 2019 Form 10-K for information about our prior year acquisitions and investments. For the three and six months ended March 31, 2020, no changes to our fiscal 2019 provisional fair value estimates of assets and liabilities assumed in acquisitions, where the measurement period was open at the beginning of the fiscal year, have been significant, and we do not anticipate future changes to these amounts to be significant.
KapStone Acquisition
On November 2, 2018, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 28, 2018, among WRKCo Inc. (formerly known as WestRock Company), which we refer to as “WRKCo”, KapStone Paper and Packaging Corporation (“KapStone”), the Company (formerly known as Whiskey Holdco, Inc.), Whiskey Merger Sub, Inc. and Kola Merger Sub, Inc., the Company acquired all of the outstanding shares of KapStone through a transaction in which: (i) Whiskey Merger Sub, Inc. merged with and into WRKCo, with WRKCo surviving the merger as a wholly owned subsidiary of the Company and (ii) Kola Merger Sub, Inc. merged with and into KapStone, with KapStone surviving the merger as a wholly owned subsidiary of the Company (collectively, the “KapStone Acquisition”). Effective as of the effective time of the KapStone Acquisition (the “Effective Time”), Whiskey Holdco, Inc. changed its name to “WestRock Company” and WRKCo changed its name to “WRKCo Inc.”
14
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
KapStone is a leading North American producer and distributor of containerboard, corrugated products and specialty papers, including liner and medium containerboard, kraft papers and saturating kraft. KapStone also owns Victory Packaging, a packaging solutions distribution company with facilities in the U.S., Canada and Mexico. We have included the financial results of KapStone in our Corrugated Packaging segment since the date of the KapStone Acquisition.
Pursuant to the KapStone Acquisition, at the Effective Time, (a) each issued and outstanding share of common stock, par value $0.01 per share, of WRKCo was converted into 1 share of common stock, par value $0.01 per share, of the Company (“Company common stock”) and (b) each issued and outstanding share of common stock, par value $0.0001 per share, of KapStone (“KapStone common stock”) (other than shares of KapStone common stock owned by (i) KapStone or any of its subsidiaries or (ii) any KapStone stockholder who properly exercised appraisal rights with respect to its shares of KapStone common stock in accordance with Section 262 of the Delaware General Corporation Law) was automatically canceled and converted into the right to receive (1) $35.00 per share in cash, without interest (the “Cash Consideration”), or, at the election of the holder of such share of KapStone common stock, (2) 0.4981 shares of Company common stock (the “Stock Consideration”) and cash in lieu of fractional shares, subject to proration procedures designed to ensure that the Stock Consideration would be received in respect of no more than 25% of the shares of KapStone common stock issued and outstanding immediately prior to the Effective Time (the “Maximum Stock Amount”). Each share of KapStone common stock in respect of which a valid election of Stock Consideration was not made by 5:00 p.m. New York City time on September 5, 2018 was converted into the right to receive the Cash Consideration.KapStone stockholders elected to receive Stock Consideration that was less than the Maximum Stock Amount and no proration was required.
The consideration for the KapStone Acquisition was $4.9 billion including debt assumed, a long-term financing obligation and assumed equity awards. As a result, KapStone stockholders received in the aggregate approximately $3.3 billion in cash and 1.6 million shares of WestRock common stock with a value of $70.1 million, or approximately 0.6% of the issued and outstanding shares of WestRock common stock immediately following the Effective Time. Pursuant to the Merger Agreement, at the Effective Time, the Company assumed any outstanding awards granted under the equity-based incentive plans of WRKCo and KapStone (including the shares underlying such awards), the award agreements evidencing the grants of such awards and, in the case of the WRKCo equity-based incentive plans, the remaining shares available for issuance under the applicable plan, in each case subject to adjustments to such awards in the manner set forth in the Merger Agreement. Included in the consideration was $70.8 million related to outstanding KapStone equity awards that were replaced with WestRock equity awards with identical terms for pre-combination service. The amount related to post-combination service will be expensed over the remaining service period of the awards.
15
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table summarizes the fair values of the assets acquired and liabilities assumed in the KapStone Acquisition by major class of assets and liabilities as of the acquisition date, as well as adjustments made during fiscal 2019 and fiscal 2020 (referred to as “measurement period adjustments”) (in millions):
|
| Amounts Recognized as of the Acquisition Date |
|
| Measurement Period Adjustments (1) |
|
| Amounts Recognized as of Acquisition Date (as Adjusted) (2) |
| |||
Cash and cash equivalents |
| $ | 8.6 |
|
| $ | — |
|
| $ | 8.6 |
|
Current assets, excluding cash and cash equivalents |
|
| 878.9 |
|
|
| (30.2 | ) |
|
| 848.7 |
|
Property, plant and equipment, net |
|
| 1,910.3 |
|
|
| 11.5 |
|
|
| 1,921.8 |
|
Goodwill |
|
| 1,755.0 |
|
|
| 0.5 |
|
|
| 1,755.5 |
|
Intangible assets |
|
| 1,336.1 |
|
|
| 30.3 |
|
|
| 1,366.4 |
|
Other long-term assets |
|
| 27.9 |
|
|
| (0.1 | ) |
|
| 27.8 |
|
Total assets acquired |
|
| 5,916.8 |
|
|
| 12.0 |
|
|
| 5,928.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
| 33.3 |
|
|
| — |
|
|
| 33.3 |
|
Current liabilities |
|
| 337.5 |
|
|
| 7.9 |
|
|
| 345.4 |
|
Long-term debt due after one year |
|
| 1,333.4 |
|
|
| — |
|
|
| 1,333.4 |
|
Accrued pension and other long-term benefits |
|
| 9.8 |
|
|
| 2.8 |
|
|
| 12.6 |
|
Deferred income taxes |
|
| 609.7 |
|
|
| (1.4 | ) |
|
| 608.3 |
|
Other long-term liabilities |
|
| 118.4 |
|
|
| 2.7 |
|
|
| 121.1 |
|
Total liabilities assumed |
|
| 2,442.1 |
|
|
| 12.0 |
|
|
| 2,454.1 |
|
Net assets acquired |
| $ | 3,474.7 |
|
| $ | — |
|
| $ | 3,474.7 |
|
(In millions) |
| Contract Assets (Short-Term) |
|
| Contract Liabilities (Short-Term) |
| ||
|
|
|
|
|
|
|
|
|
Beginning balance - October 1, 2020 |
| $ | 185.8 |
|
| $ | 12.0 |
|
Ending balance - March 31, 2021 |
|
| 191.1 |
|
|
| 21.9 |
|
Increase |
| $ | 5.3 |
|
| $ | 9.9 |
|
|
|
|
|
The fair value assigned to goodwill is primarily attributable to buyer-specific synergies expected to arise after the KapStone Acquisition (e.g., enhanced geographic reach of the combined organization, increased vertical integration and other synergistic opportunities) and the assembled work force of KapStone, as well as from establishing deferred tax liabilities for the assets and liabilities acquired. The goodwill and intangible assets resulting from the KapStone Acquisition will not be amortizable for tax purposes.
The following table summarizes the weighted average life and the fair value of intangible assets recognized in the KapStone Acquisition, excluding goodwill (in millions, except lives):
|
| Weighted Avg. Life |
|
| Gross Carrying Amount |
| ||
Customer relationships |
|
| 11.7 |
|
| $ | 1,303.0 |
|
Trademarks and tradenames |
|
| 16.9 |
|
|
| 54.2 |
|
Favorable contracts |
|
| 6.0 |
|
|
| 9.2 |
|
Total |
|
| 11.9 |
|
| $ | 1,366.4 |
|
None of the intangible assets have significant residual value. The intangible assets are being amortized over estimated useful lives ranging from one to 20 years based on a straight-line basis because the amortization pattern was not reliably determinable.
Note | Restructuring and Other Costs |
Summary of Restructuring and Other Initiatives
We recorded pre-tax restructuring and other costs of $5.2 and $12.9 million for the three and six months ended March 31, 2021 and $16.4 million and $46.5 million for the three and six months ended March 31, 2020 and $34.8 million and $89.2 million for the three and six months ended March 31, 2019.2020. These amounts are not comparable since the timing and scope of the individual actions associated with
16
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
each restructuring, acquisition, divestitureintegration or integrationdivestiture can vary. We present our restructuring and other costs in more detail below.
The following table summarizes our Restructuring and other costs (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Restructuring |
| $ | 8.0 |
|
| $ | 24.3 |
|
| $ | 32.7 |
|
| $ | 50.0 |
|
| $ | 4.1 |
|
| $ | 8.0 |
|
| $ | 10.7 |
|
| $ | 32.7 |
|
Other |
|
| 8.4 |
|
|
| 10.5 |
|
|
| 13.8 |
|
|
| 39.2 |
|
|
| 1.1 |
|
|
| 8.4 |
|
|
| 2.2 |
|
|
| 13.8 |
|
Restructuring and other costs |
| $ | 16.4 |
|
| $ | 34.8 |
|
| $ | 46.5 |
|
| $ | 89.2 |
|
| $ | 5.2 |
|
| $ | 16.4 |
|
| $ | 12.9 |
|
| $ | 46.5 |
|
13
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Restructuring
Our restructuring charges are primarily associated with restructuring portions of our operations (i.e. partial or complete plant closures), employee costs due to merger and acquisition-related workforce reductions including aand voluntary retirement programprograms in fiscal 2019 and 2020. A partial plant closure may consist of shutting down a machine and/or a workforce reduction.
When we close a facility, if necessary, we recognize a write-down to reduce the carrying value of related property, plant and equipment orand lease right-of-use assets (“ROU”) to their fair value and record charges for severance and other propertyemployee-related costs. We reduce the carrying value of the assets classified as held for sale to their estimated fair value less cost to sell and record charges for severance and other employee-related costs.sell. Any subsequent change in fair value less cost to sell prior to disposition is recognized as it is identified; however, no gain is recognized in excess of the cumulative loss previously recorded unless the actual selling price exceeds the original carrying value. At the time of each announcedFor plant closure,closures, we also generally expect to record future period costs for equipment relocation, facility carrying costs and costs to terminate a lease or contract before the end of its term and employee-related costs.term.
Although specific circumstances vary, our strategy has generally been to consolidate our sales and operations into large well-equipped plants that operate at high utilization rates and take advantage of available capacity created by operational excellence initiatives and/or further optimize our system following mergers and acquisitions or a changing business environment. Therefore, we generally transfer a substantial portion of each closed plant’s assets and production to our other plants. We believe these actions have allowed us to more effectively manage our business. In our former Land and Development segment, the restructuring charges primarily consisted of severance and other employee costs associated with the essentially completed accelerated monetization strategy and wind-down of operations and lease costs.
17
14
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
While restructuring costs are not charged to our segments and, therefore, do not reduce segment income, we highlight the segment to which the charges relate. The following table presents a summary of restructuring charges related to active restructuring initiatives that we incurred during the three and six months ended March 31, 20202021 and 2019,2020, the cumulative recorded amount since we started the initiatives and our estimate of the total costs we expect to incur (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Six Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
|
|
|
|
|
|
|
|
| March 31, |
|
| March 31, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Cumulative |
|
| Total Expected |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| Cumulative |
|
| Total Expected |
| ||||||||||||
Corrugated Packaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
| $ | 0.3 |
|
| $ | 4.0 |
|
| $ | 2.5 |
|
| $ | 7.1 |
|
| $ | 96.6 |
|
| $ | 96.6 |
|
| $ | — |
|
| $ | 0.3 |
|
| $ | — |
|
| $ | 2.5 |
|
| $ | 94.4 |
|
| $ | 94.4 |
|
Severance and other employee costs |
|
| (3.5 | ) |
|
| 4.1 |
|
|
| 3.6 |
|
|
| 10.7 |
|
|
| 38.1 |
|
|
| 38.1 |
|
|
| (0.4 | ) |
|
| (3.5 | ) |
|
| (1.1 | ) |
|
| 3.6 |
|
|
| 51.3 |
|
|
| 51.3 |
|
Equipment and inventory relocation costs |
|
| 0.9 |
|
|
| 1.0 |
|
|
| 1.3 |
|
|
| 1.4 |
|
|
| 9.5 |
|
|
| 10.2 |
|
|
| — |
|
|
| 0.9 |
|
|
| — |
|
|
| 1.3 |
|
|
| 8.7 |
|
|
| 9.2 |
|
Facility carrying costs |
|
| 0.4 |
|
|
| 0.9 |
|
|
| 1.0 |
|
|
| 2.0 |
|
|
| 19.5 |
|
|
| 20.4 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| 21.9 |
|
|
| 23.4 |
|
Other costs |
|
| 0.2 |
|
|
| 0.3 |
|
|
| 0.4 |
|
|
| 0.3 |
|
|
| 5.6 |
|
|
| 5.8 |
|
|
| 0.4 |
|
|
| 0.2 |
|
|
| 0.5 |
|
|
| 0.4 |
|
|
| 4.0 |
|
|
| 4.0 |
|
Restructuring total |
| $ | (1.7 | ) |
| $ | 10.3 |
|
| $ | 8.8 |
|
| $ | 21.5 |
|
| $ | 169.3 |
|
| $ | 171.1 |
|
| $ | 0.2 |
|
| $ | (1.7 | ) |
| $ | 0.4 |
|
| $ | 8.8 |
|
| $ | 180.3 |
|
| $ | 182.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
| $ | — |
|
| $ | (0.2 | ) |
| $ | 0.5 |
|
| $ | (0.2 | ) |
| $ | 30.1 |
|
| $ | 30.1 |
|
| $ | — |
|
| $ | — |
|
| $ | 0.2 |
|
| $ | 0.5 |
|
| $ | 35.3 |
|
| $ | 35.3 |
|
Severance and other employee costs |
|
| 7.4 |
|
|
| 2.9 |
|
|
| 13.1 |
|
|
| 2.8 |
|
|
| 51.5 |
|
|
| 51.5 |
|
|
| 2.4 |
|
|
| 7.4 |
|
|
| 5.9 |
|
|
| 13.1 |
|
|
| 43.3 |
|
|
| 43.3 |
|
Equipment and inventory relocation costs |
|
| — |
|
|
| 0.4 |
|
|
| 0.1 |
|
|
| 0.7 |
|
|
| 6.0 |
|
|
| 6.5 |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| 3.8 |
|
|
| 3.8 |
|
Facility carrying costs |
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 1.9 |
|
|
| 1.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.0 |
|
|
| 1.3 |
|
Other costs |
|
| 0.4 |
|
|
| 2.7 |
|
|
| 0.6 |
|
|
| 3.2 |
|
|
| 9.2 |
|
|
| 10.3 |
|
|
| 0.8 |
|
|
| 0.4 |
|
|
| 1.6 |
|
|
| 0.6 |
|
|
| 20.4 |
|
|
| 20.4 |
|
Restructuring total |
| $ | 7.8 |
|
| $ | 6.0 |
|
| $ | 14.3 |
|
| $ | 6.5 |
|
| $ | 98.7 |
|
| $ | 100.3 |
|
| $ | 3.2 |
|
| $ | 7.8 |
|
| $ | 7.9 |
|
| $ | 14.3 |
|
| $ | 103.8 |
|
| $ | 104.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1.8 |
|
| $ | 1.8 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1.8 |
|
| $ | 1.8 |
|
Severance and other employee costs |
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
| 0.1 |
|
|
| 13.8 |
|
|
| 13.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13.8 |
|
|
| 13.8 |
|
Other costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.0 |
|
|
| 3.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5.0 |
|
|
| 5.0 |
|
Restructuring total |
| $ | — |
|
| $ | 0.2 |
|
| $ | — |
|
| $ | 0.1 |
|
| $ | 18.6 |
|
| $ | 18.6 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 20.6 |
|
| $ | 20.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and other employee costs |
| $ | 1.2 |
|
|
| 5.6 |
|
|
| 8.9 |
|
|
| 19.8 |
|
| $ | 47.2 |
|
| $ | 47.2 |
|
| $ | (0.7 | ) |
|
| 1.2 |
|
|
| 0.9 |
|
|
| 8.9 |
|
| $ | 60.3 |
|
| $ | 60.3 |
|
Other costs |
|
| 0.7 |
|
|
| 2.2 |
|
|
| 0.7 |
|
|
| 2.1 |
|
|
| 8.1 |
|
|
| 8.1 |
|
|
| 1.4 |
|
|
| 0.7 |
|
|
| 1.5 |
|
|
| 0.7 |
|
|
| 10.5 |
|
|
| 10.5 |
|
Restructuring total |
| $ | 1.9 |
|
| $ | 7.8 |
|
| $ | 9.6 |
|
| $ | 21.9 |
|
| $ | 55.3 |
|
| $ | 55.3 |
|
| $ | 0.7 |
|
| $ | 1.9 |
|
| $ | 2.4 |
|
| $ | 9.6 |
|
| $ | 70.8 |
|
| $ | 70.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
| $ | 0.3 |
|
| $ | 3.8 |
|
| $ | 3.0 |
|
| $ | 6.9 |
|
| $ | 128.5 |
|
| $ | 128.5 |
|
| $ | — |
|
| $ | 0.3 |
|
| $ | 0.2 |
|
| $ | 3.0 |
|
| $ | 131.5 |
|
| $ | 131.5 |
|
Severance and other employee costs |
|
| 5.1 |
|
|
| 12.8 |
|
|
| 25.6 |
|
|
| 33.4 |
|
|
| 150.6 |
|
|
| 150.6 |
|
|
| 1.3 |
|
|
| 5.1 |
|
|
| 5.7 |
|
|
| 25.6 |
|
|
| 168.7 |
|
|
| 168.7 |
|
Equipment and inventory relocation costs |
|
| 0.9 |
|
|
| 1.4 |
|
|
| 1.4 |
|
|
| 2.1 |
|
|
| 15.5 |
|
|
| 16.7 |
|
|
| — |
|
|
| 0.9 |
|
|
| 0.2 |
|
|
| 1.4 |
|
|
| 12.5 |
|
|
| 13.0 |
|
Facility carrying costs |
|
| 0.4 |
|
|
| 1.1 |
|
|
| 1.0 |
|
|
| 2.0 |
|
|
| 21.4 |
|
|
| 22.3 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| 22.9 |
|
|
| 24.7 |
|
Other costs |
|
| 1.3 |
|
|
| 5.2 |
|
|
| 1.7 |
|
|
| 5.6 |
|
|
| 25.9 |
|
|
| 27.2 |
|
|
| 2.6 |
|
|
| 1.3 |
|
|
| 3.6 |
|
|
| 1.7 |
|
|
| 39.9 |
|
|
| 39.9 |
|
Restructuring total |
| $ | 8.0 |
|
| $ | 24.3 |
|
| $ | 32.7 |
|
| $ | 50.0 |
|
| $ | 341.9 |
|
| $ | 345.3 |
|
| $ | 4.1 |
|
| $ | 8.0 |
|
| $ | 10.7 |
|
| $ | 32.7 |
|
| $ | 375.5 |
|
| $ | 377.8 |
|
1815
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
We have defined “Net property, plant and equipment costs” as used in this Note 43 as property, plant and equipment write-downs, subsequent adjustments to fair value for assets classified as held for sale, subsequent (gains) or losses on sales of property, plant and equipment and related parts and supplies on such assets, if any.
Other Costs
Our other costs consist of acquisition, integration and divestiture costs. We incur costs when we acquire or divest businesses. Acquisition costs include costs associated with transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees, as well as potential litigation costs associated with those activities. We incur integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as work associated with information systems and other projects, including spending to support future acquisitions, and primarily consist of professional services and labor. Divestiture costs consist primarily of similar professional fees. We consider acquisition, divestitureintegration and integrationdivestiture costs to be Corporatecorporate costs regardless of the segment or segments involved in the transaction.
The following table presents our acquisition integration and divestitureintegration costs (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Acquisition costs |
| $ | 0.3 |
|
| $ | 3.0 |
|
| $ | 0.4 |
|
| $ | 27.0 |
|
| $ | 0.5 |
|
| $ | 0.3 |
|
| $ | 0.7 |
|
| $ | 0.4 |
|
Integration costs |
|
| 8.1 |
|
|
| 0.1 |
|
|
| 13.4 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 8.1 |
|
|
| 1.3 |
|
|
| 13.4 |
|
Divestiture costs |
|
| — |
|
|
| 7.4 |
|
|
| — |
|
|
| 12.0 |
|
|
| 0.2 |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
Other total |
| $ | 8.4 |
|
| $ | 10.5 |
|
| $ | 13.8 |
|
| $ | 39.2 |
|
| $ | 1.1 |
|
| $ | 8.4 |
|
| $ | 2.2 |
|
| $ | 13.8 |
|
The following table summarizes the changes in the restructuring accrual, which is primarily composed of accrued severance and other employee costs, and presents a reconciliation of the restructuring accrual charges to the line item “Restructuring and other costs” on our condensed consolidated statements of income (in millions):
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Accrual at beginning of fiscal year |
| $ | 32.3 |
|
| $ | 31.6 |
|
| $ | 17.2 |
|
| $ | 32.3 |
|
Additional accruals |
|
| 27.5 |
|
|
| 32.3 |
|
|
| 8.3 |
|
|
| 27.5 |
|
Payments |
|
| (27.3 | ) |
|
| (24.2 | ) |
|
| (10.4 | ) |
|
| (27.3 | ) |
Adjustment to accruals |
|
| (1.9 | ) |
|
| (2.7 | ) |
|
| (2.5 | ) |
|
| (1.9 | ) |
Foreign currency rate changes |
|
| — |
|
|
| (0.1 | ) |
|
| 0.1 |
|
|
| — |
|
Accrual at March 31 |
| $ | 30.6 |
|
| $ | 36.9 |
|
| $ | 12.7 |
|
| $ | 30.6 |
|
1916
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Reconciliation of accruals and charges to restructuring and other costs (in millions):
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Additional accruals and adjustments to accruals (see table above) |
| $ | 25.6 |
|
| $ | 29.6 |
|
| $ | 5.8 |
|
| $ | 25.6 |
|
Acquisition costs |
|
| 0.4 |
|
|
| 27.0 |
|
|
| 0.7 |
|
|
| 0.4 |
|
Integration costs |
|
| 13.4 |
|
|
| 12.0 |
|
|
| 1.3 |
|
|
| 13.4 |
|
Divestiture costs |
|
| — |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| — |
|
Net property, plant and equipment |
|
| 3.0 |
|
|
| 6.9 |
| ||||||||
Net property, plant and equipment costs |
|
| 0.2 |
|
|
| 3.0 |
| ||||||||
Severance and other employee costs |
|
| (0.3 | ) |
|
| 6.3 |
|
|
| 0.1 |
|
|
| (0.3 | ) |
Equipment and inventory relocation costs |
|
| 1.4 |
|
|
| 2.1 |
|
|
| 0.2 |
|
|
| 1.4 |
|
Facility carrying costs |
|
| 1.0 |
|
|
| 2.0 |
|
|
| 1.0 |
|
|
| 1.0 |
|
Other costs |
|
| 2.0 |
|
|
| 3.1 |
|
|
| 3.4 |
|
|
| 2.0 |
|
Total restructuring and other costs |
| $ | 46.5 |
|
| $ | 89.2 |
|
| $ | 12.9 |
|
| $ | 46.5 |
|
Note | Retirement Plans |
We have defined benefit pension plans and other postretirement benefit plans for certain U.S. and non-U.S. employees. Certain plans were frozen for salaried and non-union hourly employees at various times in the past, although someand nearly all of our remaining salaried and non-union hourly employees meeting certain criteria are still accruing benefits.benefits ceased accruing benefits as of December 31, 2020. In addition, we participate in several multiemployer pension plans (“MEPP” or “MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements. We also have supplemental executive retirement plans and other non-qualified defined benefit pension plans that provide unfunded supplemental retirement benefits to certain of our current and former executives. See “Note 5. Retirement Plans” and “Note 5. Retirement Plans — Multiemployer Plans” of the Notes to Consolidated Financial Statements section in the Fiscal 20192020 Form 10-K for more information regarding our involvement with retirement plans and involvement with MEPPs.
MEPPsMEPPs
In the normal course of business, we evaluate our potential exposure to MEPPs, including with respect to potential withdrawal liabilities. During fiscal 2018, we submitted formal notification to withdraw from the Pace Industry Union-Management Pension Fund (“PIUMPF”) and the Central States, Southeast and Southwest Areas Pension Plan (“Central States”), and recorded estimated withdrawal liabilities for each. Subsequently, in fiscal 2019 and 2020, we received demand letters from PIUMPF, including a demand for withdrawal liabilities and for our proportionate share of PIUMPF’s accumulated funding deficiency, and we refined our liability, the impact of which was not significant. We have challenged the PIUMPF accumulated funding deficiency demands. We began making monthly payments (approximately $0.7 million per month for 20 years) for the PIUMPF withdrawal liabilities in fiscal 2020, excluding the accumulated funding deficiency demands. It is reasonably possible that we may incur withdrawal liabilities with respect to certain other MEPPs in connection with such withdrawals. Our estimate of any such withdrawal liability, both individually and in the aggregate, is not material for the remaining plans in which we participate.
In September 2019, we received a demand from PIUMPF asserting that we owe $170.3 million on an undiscounted basis (approximately $0.7 million per month for the next 20 years) with respect to our withdrawal liability. The initial demand did not address any assertion of liability for PIUMPF’s accumulated funding deficiency. In October 2019, we received 2 additional demand letters from PIUMPF related to a subsidiary of ours asserting that we owe $2.3 million on an undiscounted basis to be paid over 20 years with respect to the subsidiary’s withdrawal liability and $2.0 million for its accumulated funding deficiency. In February 2020, we received a demand letter from PIUMPF asserting that we owe $51.2 million for our pro-rata share of PIUMPF’s accumulated funding deficiency, including interest. We are evaluating each of these demands and we expect to challenge the accumulated funding deficiency demands. We began making monthly payments for these withdrawal liabilities in fiscal 2020. At March 31, 20202021 and September 30, 2019,2020, we had recorded withdrawal liabilities recorded of $241.0$243.2 million and $237.2$252.0 million, respectively.respectively, including liabilities associated with PIUMPF.
2017
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Pension and Postretirement Income / Expense
The following table presents a summary of the components of net pension income (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Service cost |
| $ | 14.2 |
|
| $ | 11.4 |
|
| $ | 27.3 |
|
| $ | 22.3 |
|
| $ | 13.6 |
|
| $ | 14.2 |
|
| $ | 27.1 |
|
| $ | 27.3 |
|
Interest cost |
|
| 49.5 |
|
|
| 58.7 |
|
|
| 99.4 |
|
|
| 115.2 |
|
|
| 46.7 |
|
|
| 49.5 |
|
|
| 93.1 |
|
|
| 99.4 |
|
Expected return on plan assets |
|
| (90.8 | ) |
|
| (85.9 | ) |
|
| (181.6 | ) |
|
| (168.8 | ) |
|
| (92.3 | ) |
|
| (90.8 | ) |
|
| (184.0 | ) |
|
| (181.6 | ) |
Amortization of net actuarial loss |
|
| 11.8 |
|
|
| 5.4 |
|
|
| 23.7 |
|
|
| 12.4 |
|
|
| 8.0 |
|
|
| 11.8 |
|
|
| 15.9 |
|
|
| 23.7 |
|
Amortization of prior service cost |
|
| 2.1 |
|
|
| 1.3 |
|
|
| 3.5 |
|
|
| 2.6 |
|
|
| 2.0 |
|
|
| 2.1 |
|
|
| 4.0 |
|
|
| 3.5 |
|
Curtailment loss |
|
| 0.4 |
|
|
| 0.9 |
|
|
| 0.4 |
|
|
| 0.9 |
|
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| 0.4 |
|
Company defined benefit plan income |
|
| (12.8 | ) |
|
| (8.2 | ) |
|
| (27.3 | ) |
|
| (15.4 | ) |
|
| (22.0 | ) |
|
| (12.8 | ) |
|
| (43.9 | ) |
|
| (27.3 | ) |
Multiemployer and other plans |
|
| 0.4 |
|
|
| 0.1 |
|
|
| 0.7 |
|
|
| 0.3 |
|
|
| 0.4 |
|
|
| 0.4 |
|
|
| 0.8 |
|
|
| 0.7 |
|
Net pension income |
| $ | (12.4 | ) |
| $ | (8.1 | ) |
| $ | (26.6 | ) |
| $ | (15.1 | ) |
| $ | (21.6 | ) |
| $ | (12.4 | ) |
| $ | (43.1 | ) |
| $ | (26.6 | ) |
The non-service elements of our pension and postretirement costs set forth in this Note 5.4. Retirement Plans are reflected in the condensed consolidated statements of income line item “Pension and other postretirement non-service income”. The service cost components are reflected in cost“Cost of goods soldsold” and selling,“Selling, general and administrative, excluding intangible amortizationamortization” line items.
We maintain other postretirement benefit plans that provide certain health care and life insurance benefits for certain salaried and hourly employees who meet specified age and service requirements as defined by the plans. The following table presents a summary of the components of the net postretirement cost (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Service cost |
| $ | 0.3 |
|
| $ | 0.3 |
|
| $ | 0.7 |
|
| $ | 0.6 |
|
| $ | 0.3 |
|
| $ | 0.3 |
|
| $ | 0.6 |
|
| $ | 0.7 |
|
Interest cost |
|
| 1.8 |
|
|
| 2.0 |
|
|
| 3.6 |
|
|
| 3.9 |
|
|
| 1.5 |
|
|
| 1.8 |
|
|
| 2.9 |
|
|
| 3.6 |
|
Amortization of net actuarial gain |
|
| (0.2 | ) |
|
| (0.4 | ) |
|
| (0.4 | ) |
|
| (0.8 | ) |
|
| (0.3 | ) |
|
| (0.2 | ) |
|
| (0.6 | ) |
|
| (0.4 | ) |
Amortization of prior service credit |
|
| (0.7 | ) |
|
| (0.7 | ) |
|
| (1.4 | ) |
|
| (1.4 | ) |
|
| (0.6 | ) |
|
| (0.7 | ) |
|
| (1.2 | ) |
|
| (1.4 | ) |
Net postretirement cost |
| $ | 1.2 |
|
| $ | 1.2 |
|
| $ | 2.5 |
|
| $ | 2.3 |
|
| $ | 0.9 |
|
| $ | 1.2 |
|
| $ | 1.7 |
|
| $ | 2.5 |
|
Employer Contributions
During the three and six months ended March 31, 2020,2021, we made contributions to our qualified and supplemental defined benefit pension plans of $4.1$5.2 million and $12.6$10.8 million, respectively, and for the three and six months ended March 31, 2019,2020, we made contributions of $5.5$4.1 million and $9.5 million.$12.6 million, respectively.
During the three and six months ended March 31, 2021, we funded an aggregate of $1.8 million and $3.1 million, respectively, and for the three and six months ended March 31, 2020, we funded an aggregate of $1.7 million and $3.7 million, respectively, and for the three and six months ended March 31, 2019, we funded an aggregate of $1.7 million and $4.4 million, respectively, to our other postretirement benefit plans.
Note | Income Taxes |
The effective tax rate for the three and six months ended March 31, 2021 was 21.0% and 23.2%, respectively. The effective tax rate for both periods was impacted by (i) the inclusion of state taxes, (ii) tax expense related to stock-based compensation, (iii) the exclusion of tax benefits related to losses recorded by certain foreign operations, partially offset by (iv) tax benefit related to remeasurement of deferred taxes as a result of a state law change and (v) research and development tax credits.
18
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The effective tax rate for the three and six months ended March 31, 2020 was 28.0% and 26.6%, respectively. The effective tax rate for the three and six months ended March 31, 2020 both periods was higher than the statutory federal rate primarily due to (i) the inclusion of state taxes, (ii) income derived from certain foreign jurisdictions subject to higher tax rates, (iii) the exclusion of tax benefits related to losses recorded by certain foreign operations and (iv) tax expense related to stock based compensation, partially offset by research and development tax credits.
21
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The effective tax rate for the three and six months ended March 31, 2019 was 22.6% and 26.7%, respectively. The effective tax rate for the three months ended March 31, 2019 was higher than the statutory federal rate primarily due to (i) the inclusion of state taxes, (ii) income derived from certain foreign jurisdictions subject to higher tax rates and (iii) the exclusion of tax benefits related to losses recorded by certain foreign operations, partially offset by (iv) the inclusion of tax benefits related to share-based compensation and (v) research and development tax credits. The effective tax rate for the six months ended March 31, 2019 was higher than the statutory federal rate primarily due to (i) the inclusion of state taxes, (ii) income derived from certain foreign jurisdictions subject to higher tax rates, (iii) the exclusion of tax benefits related to losses recorded by certain foreign operations, (iv) the limitation of certain transaction costs and (v) the increase of deferred tax liabilities in certain state jurisdictions, partially offset by (vi) the inclusion of tax benefits related to share-based compensation, (vii) research and development tax credits and (viii) an adjustment of the valuation allowance against net operating losses of foreign subsidiaries.
Note | Segment Information |
We report our financial results of operations in the following 32 reportable segments: Corrugated Packaging, which consists of our containerboard mills, corrugated packaging and distribution operations, as well as our merchandising displays and recycling procurement operations; and Consumer Packaging, which consists of our consumer mills and food and beverage and partition operations; andoperations. Prior to the completion of our monetization program in fiscal 2020, we had a third reportable segment, Land and Development, which previously sold real estate, primarily in the Charleston, SC region. Certain income and expenses are not allocated to our segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect thesesuch amounts. Items not allocated are reported as non-allocated expenses or in other line items in the table below after segment income.
22
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following tables show selected operating data for our segments (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net sales (aggregate): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
| $ | 2,882.5 |
|
| $ | 2,990.7 |
|
| $ | 5,792.0 |
|
| $ | 5,724.5 |
|
| $ | 2,913.4 |
|
| $ | 2,882.5 |
|
| $ | 5,777.9 |
|
| $ | 5,792.0 |
|
Consumer Packaging |
|
| 1,616.3 |
|
|
| 1,668.3 |
|
|
| 3,153.2 |
|
|
| 3,287.1 |
|
|
| 1,589.9 |
|
|
| 1,616.3 |
|
|
| 3,185.0 |
|
|
| 3,153.2 |
|
Land and Development |
|
| — |
|
|
| 0.8 |
|
|
| 18.9 |
|
|
| 14.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18.9 |
|
Total |
| $ | 4,498.8 |
|
| $ | 4,659.8 |
|
| $ | 8,964.1 |
|
| $ | 9,026.3 |
|
| $ | 4,503.3 |
|
| $ | 4,498.8 |
|
| $ | 8,962.9 |
|
| $ | 8,964.1 |
|
Less net sales (intersegment): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
| $ | 20.7 |
|
| $ | 19.4 |
|
| $ | 39.0 |
|
| $ | 37.4 |
|
| $ | 18.6 |
|
| $ | 20.7 |
|
| $ | 40.6 |
|
| $ | 39.0 |
|
Consumer Packaging |
|
| 30.8 |
|
|
| 20.4 |
|
|
| 54.1 |
|
|
| 41.5 |
|
|
| 46.9 |
|
|
| 30.8 |
|
|
| 83.0 |
|
|
| 54.1 |
|
Total |
| $ | 51.5 |
|
| $ | 39.8 |
|
| $ | 93.1 |
|
| $ | 78.9 |
|
| $ | 65.5 |
|
| $ | 51.5 |
|
| $ | 123.6 |
|
| $ | 93.1 |
|
Net sales (unaffiliated customers): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
| $ | 2,861.8 |
|
| $ | 2,971.3 |
|
| $ | 5,753.0 |
|
| $ | 5,687.1 |
|
| $ | 2,894.8 |
|
| $ | 2,861.8 |
|
| $ | 5,737.3 |
|
| $ | 5,753.0 |
|
Consumer Packaging |
|
| 1,585.5 |
|
|
| 1,647.9 |
|
|
| 3,099.1 |
|
|
| 3,245.6 |
|
|
| 1,543.0 |
|
|
| 1,585.5 |
|
|
| 3,102.0 |
|
|
| 3,099.1 |
|
Land and Development |
|
| — |
|
|
| 0.8 |
|
|
| 18.9 |
|
|
| 14.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18.9 |
|
Total |
| $ | 4,447.3 |
|
| $ | 4,620.0 |
|
| $ | 8,871.0 |
|
| $ | 8,947.4 |
|
| $ | 4,437.8 |
|
| $ | 4,447.3 |
|
| $ | 8,839.3 |
|
| $ | 8,871.0 |
|
Segment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
| $ | 244.5 |
|
| $ | 310.3 |
|
| $ | 527.9 |
|
| $ | 557.1 |
|
| $ | 205.3 |
|
| $ | 244.5 |
|
| $ | 420.3 |
|
| $ | 527.9 |
|
Consumer Packaging |
|
| 90.8 |
|
|
| 85.2 |
|
|
| 137.0 |
|
|
| 162.1 |
|
|
| 81.2 |
|
|
| 90.8 |
|
|
| 173.7 |
|
|
| 137.0 |
|
Land and Development |
|
| — |
|
|
| 0.5 |
|
|
| 1.4 |
|
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.4 |
|
Segment income |
|
| 335.3 |
|
|
| 396.0 |
|
|
| 666.3 |
|
|
| 720.4 |
|
|
| 286.5 |
|
|
| 335.3 |
|
|
| 594.0 |
|
|
| 666.3 |
|
Gain on sale of certain closed facilities |
|
| 5.0 |
|
|
| — |
|
|
| 5.5 |
|
|
| 50.5 |
|
|
| — |
|
|
| 5.0 |
|
|
| 0.9 |
|
|
| 5.5 |
|
Multiemployer pension withdrawal expense |
|
| (0.9 | ) |
|
| — |
|
|
| (0.9 | ) |
|
| — |
|
|
| — |
|
|
| (0.9 | ) |
|
| — |
|
|
| (0.9 | ) |
Land and Development impairments |
|
| — |
|
|
| (13.0 | ) |
|
| — |
|
|
| (13.0 | ) | ||||||||||||||||
Restructuring and other costs |
|
| (16.4 | ) |
|
| (34.8 | ) |
|
| (46.5 | ) |
|
| (89.2 | ) |
|
| (5.2 | ) |
|
| (16.4 | ) |
|
| (12.9 | ) |
|
| (46.5 | ) |
Non-allocated expenses |
|
| (17.6 | ) |
|
| (24.4 | ) |
|
| (35.8 | ) |
|
| (43.4 | ) |
|
| (39.5 | ) |
|
| (17.6 | ) |
|
| (63.3 | ) |
|
| (35.8 | ) |
Interest expense, net |
|
| (97.3 | ) |
|
| (111.8 | ) |
|
| (190.8 | ) |
|
| (206.2 | ) |
|
| (83.5 | ) |
|
| (97.3 | ) |
|
| (177.3 | ) |
|
| (190.8 | ) |
(Loss) gain on extinguishment of debt |
|
| (0.5 | ) |
|
| 0.4 |
|
|
| (0.5 | ) |
|
| (1.5 | ) | ||||||||||||||||
Other expense, net |
|
| (0.9 | ) |
|
| (3.3 | ) |
|
| (4.6 | ) |
|
| (6.0 | ) | ||||||||||||||||
Loss on extinguishment of debt |
|
| — |
|
|
| (0.5 | ) |
|
| (1.1 | ) |
|
| (0.5 | ) | ||||||||||||||||
Other (expense) income, net |
|
| (13.4 | ) |
|
| (0.9 | ) |
|
| 7.4 |
|
|
| (4.6 | ) | ||||||||||||||||
Income before income taxes |
| $ | 206.7 |
|
| $ | 209.1 |
|
| $ | 392.7 |
|
| $ | 411.6 |
|
| $ | 144.9 |
|
| $ | 206.7 |
|
| $ | 347.7 |
|
| $ | 392.7 |
|
19
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
| $ | 239.6 |
|
| $ | 242.7 |
|
| $ | 483.9 |
|
| $ | 461.2 |
|
| $ | 229.9 |
|
| $ | 239.6 |
|
| $ | 462.2 |
|
| $ | 483.9 |
|
Consumer Packaging |
|
| 133.2 |
|
|
| 139.2 |
|
|
| 268.5 |
|
|
| 277.8 |
|
|
| 130.1 |
|
|
| 133.2 |
|
|
| 261.1 |
|
|
| 268.5 |
|
Corporate |
|
| 1.7 |
|
|
| 1.8 |
|
|
| 3.3 |
|
|
| 3.8 |
|
|
| 1.4 |
|
|
| 1.7 |
|
|
| 2.6 |
|
|
| 3.3 |
|
Total |
| $ | 374.5 |
|
| $ | 383.7 |
|
| $ | 755.7 |
|
| $ | 742.8 |
|
| $ | 361.4 |
|
| $ | 374.5 |
|
| $ | 725.9 |
|
| $ | 755.7 |
|
In October 2018, our containerboard and pulp mill located in Panama City, FL sustained extensive damage from Hurricane Michael. In fiscal 2019, we received the majority of our Hurricane Michael-related insurance proceeds. In the three months ended December 31, 2019, we received the remaining Hurricane Michael-related insurance proceeds of $32.3 million, of which $29.5 million was recorded as a reduction of cost of goods sold in our Corrugated Packaging segment. The remaining $2.8 million was deferred and recorded as a reduction of cost of goods sold in the three months ended March 31, 2020. The insurance proceeds consisted of $11.7 million of business interruption recoveries and $20.6 million for direct costs and property damage. Our condensed consolidated statement of cash flows for the six months ended March 31, 2020 included $30.9 million in net cash provided by operating activities and $1.4 million of cash proceeds included in net cash used for investing activities.activities related to Hurricane Michael.
Note 7. | Interest Expense, Net |
23
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)The components of interest expense, net are as follows (in millions):
In the three and six months ended March 31, 2019, we received Hurricane Michael-related insurance proceeds of $60.0 million and $80.0 million, respectively, that were recorded as a reduction of cost of goods sold in our Corrugated Packaging segment. The insurance proceeds for the six months ended March 31, 2019 consisted of $30.0 million of business interruption recoveries and $50.0 million for direct costs and property damage. Our condensed consolidated statement of cash flows for the six months ended March 31, 2019 included $71.2 million in net cash provided by operating activities and $8.8 million of cash proceeds included in net cash used for investing activities.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Interest expense |
| $ | (94.9 | ) |
| $ | (112.1 | ) |
| $ | (200.4 | ) |
| $ | (231.3 | ) |
Interest income |
|
| 11.4 |
|
|
| 14.8 |
|
|
| 23.1 |
|
|
| 40.5 |
|
Interest expense, net |
| $ | (83.5 | ) |
| $ | (97.3 | ) |
| $ | (177.3 | ) |
| $ | (190.8 | ) |
Note 8. | Inventories |
We value substantially all of our U.S. inventories at the lower of cost or market, with cost determined on a last-in first-out (“LIFO”) basis. We value all other inventories at the lower of cost and net realizable value, with cost determined using methods that approximate cost computed on a first-in first-out (“FIFO”) basis. These other inventories represent primarily foreign inventories, distribution business inventories, spare parts inventories and certain inventoried supplies.
The components of inventories were as follows (in millions):
|
| March 31, 2020 |
|
| September 30, 2019 |
|
| March 31, 2021 |
|
| September 30, 2020 |
| ||||
Finished goods and work in process |
| $ | 982.6 |
|
| $ | 938.9 |
|
| $ | 917.8 |
|
| $ | 844.2 |
|
Raw materials |
|
| 766.8 |
|
|
| 818.8 |
|
|
| 784.4 |
|
|
| 772.7 |
|
Spare parts and supplies |
|
| 494.2 |
|
|
| 479.7 |
|
|
| 517.9 |
|
|
| 500.3 |
|
Inventories at FIFO cost |
|
| 2,243.6 |
|
|
| 2,237.4 |
|
|
| 2,220.1 |
|
|
| 2,117.2 |
|
LIFO reserve |
|
| (118.2 | ) |
|
| (129.9 | ) |
|
| (129.2 | ) |
|
| (93.8 | ) |
Net inventories |
| $ | 2,125.4 |
|
| $ | 2,107.5 |
|
| $ | 2,090.9 |
|
| $ | 2,023.4 |
|
20
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Note 9. | Property, Plant and Equipment |
The components of property, plant and equipment were as follows (in millions):
|
| March 31, 2020 |
|
| September 30, 2019 |
|
| March 31, 2021 |
|
| September 30, 2020 |
| ||||
Property, plant and equipment at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings |
| $ | 2,491.9 |
|
| $ | 2,442.3 |
|
| $ | 2,546.6 |
|
| $ | 2,524.7 |
|
Machinery and equipment |
|
| 14,921.1 |
|
|
| 14,743.6 |
|
|
| 15,432.9 |
|
|
| 15,147.3 |
|
Forestlands and mineral rights |
|
| 120.5 |
|
|
| 144.0 |
|
|
| 112.6 |
|
|
| 110.8 |
|
Transportation equipment |
|
| 28.8 |
|
|
| 31.2 |
|
|
| 28.0 |
|
|
| 29.1 |
|
Leasehold improvements |
|
| 102.5 |
|
|
| 100.2 |
|
|
| 105.9 |
|
|
| 103.6 |
|
|
|
| 17,664.8 |
|
|
| 17,461.3 |
|
|
| 18,226.0 |
|
|
| 17,915.5 |
|
Less: accumulated depreciation, depletion and amortization |
|
| (6,628.5 | ) |
|
| (6,271.8 | ) |
|
| (7,653.5 | ) |
|
| (7,136.6 | ) |
Property, plant and equipment, net |
| $ | 11,036.3 |
|
| $ | 11,189.5 |
|
| $ | 10,572.5 |
|
| $ | 10,778.9 |
|
Note 10. | Fair Value |
Assets and Liabilities Measured or Disclosed at Fair Value
We estimate fair values in accordance with ASC 820, “Fair Value Measurement”. See “Note 12. Fair Value” of the Notes to Consolidated Financial Statements section of the Fiscal 20192020 Form 10-K for more information. We disclose the fair value of our long-term debt in “Note 11. Debt”. We disclose the fair value of our pension and postretirement assets and liabilities in “Note 5. Retirement Plans” of the Notes to Consolidated Financial Statements section of the Fiscal 20192020 Form 10-K.
24
NotesThe three and six months ended March 31, 2021, reflect a charge of $22.5 million associated with not exercising an option to Condensed Consolidated Financial Statements (Unaudited) (Continued)purchase an additional equity interest in Grupo Gondi that was recorded in other (expense) income, net.
Financial Instruments Not Recognized at Fair Value
Financial instruments not recognized at fair value on a recurring or nonrecurring basis include cash and cash equivalents, accounts receivable, certain other current assets, short-term debt, accounts payable, certain other current liabilities and long-term debt. With the exception of long-term debt, the carrying amounts of these financial instruments approximate their fair values due to their short maturities.
Fair Value of Nonfinancial Assets and Nonfinancial Liabilities
We measure certain nonfinancial assets and nonfinancial liabilities at fair value on a nonrecurring basis. These assets and liabilities include equity method investments andwhen they are deemed to be other-than-temporarily impaired, investments for which the fair value measurement alternative is elected, assets acquired and liabilities assumed when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in a merger or an acquisition or in a nonmonetary exchange, and property, plant and equipment, ROU assets related to operating leases, goodwill and other and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. See “Note 4.3. Restructuring and Other Costs” for impairments associated with restructuring activities presented as “net property, plant and equipment costs”. During the three and six months ended March 31, 20202021 and 2019,2020, we did not have any significant non-restructuring nonfinancial assets or nonfinancial liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition other than in the second quarter of fiscal 2019 when we recorded a $13.0 million pre-tax non-cash impairment of certain mineral rights.recognition.
21
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Accounts Receivable Sales AgreementAgreements
We are a party to an accounts receivable sales agreement (the “A/R Sales Agreement”) to sell to a third party financial institution all of the short-term receivables generated from certain customer trade accounts, on a revolving basis.accounts. On September 19, 2019,17, 2020, we amended the A/R Sales Agreementthen existing agreement and increased the purchase limit to $650.0$700.0 million. The A/R Sales Agreement has a one year term and may be terminated early by either party. The terms of the A/R Sales Agreementamended agreement limit the balance of receivables sold to the amount available to fund such receivables sold, and eliminatedthereby eliminating the receivable for proceeds from the financial institution at any transfer date. Effective with the amended agreement, the facility is committed and has a term of 364 days. Transfers under the A/R Sales Agreementagreement meet the requirements to be accounted for as sales in accordance with guidance in ASC 860, “Transfers and Servicing”. We also have a similar facility that we entered into on December 4, 2020 that has a $88.5 million purchase limit, is uncommitted and has a term of one year. The customers from these facilities are not included in the Receivables Securitization Facility that is discussed in “Note 11. Debt”.
The following table presents a summary of the activity under the A/R Sales Agreementthese accounts receivable sales agreements for the six months ended March 31, 20202021 and March 31, 20192020 (in millions):
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Receivable from financial institution at beginning of fiscal year |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Receivables sold to the financial institution and derecognized |
|
| 1,210.2 |
|
|
| 943.0 |
|
|
| (1,302.8 | ) |
|
| (1,210.2 | ) |
Receivables collected by financial institution |
|
| (1,219.6 | ) |
|
| (956.4 | ) |
|
| 1,271.0 |
|
|
| 1,219.6 |
|
Cash paid to financial institution |
|
| 9.4 |
|
|
| 13.4 |
| ||||||||
Cash proceeds from (paid to) financial institution |
|
| 31.8 |
|
|
| (9.4 | ) | ||||||||
Receivable from financial institution at March 31 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
BasedReceivables sold under these accounts receivable sales agreements as of the respective balance sheet dates were approximately $621.1 million and $589.4 million as of March 31, 2021 and September 30, 2020, respectively.
Cash proceeds related to the receivables sold are included in cash from operating activities in the condensed consolidated statement of cash flows in the accounts receivable line item. While the expense recorded in connection with the sale of receivables may vary based on current rates and levels of receivables sold, the expense recorded in connection with the sale of receivables is approximately $4was $2.7 million per quarterand $5.7 million for the three and six months ended March 31, 2021, respectively, and $4.1 million and $8.4 million for the three and six months ended March 31, 2020, respectively, and is recorded in “other expense,(expense) income, net”. The future amount may fluctuate based on in the levelcondensed consolidated statements of activity and other factors.income. Although the sales are made without recourse, we maintain continuing involvement with the sold receivables as we provide collections services related to the transferred assets. The associated servicing liability is not material given the high quality of the customers underlying the receivables and the anticipated short collection period.
2522
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Note 11. | Debt |
See “Note 13. Debt” of the Notes to Consolidated Financial Statements section in the Fiscal 20192020 Form 10-K for additional information on our debt and interest rates on that debt.
The following table shows the carrying value of the individual components of our debt (in millions):
|
| March 31, 2020 |
|
| September 30, 2019 |
|
| March 31, 2021 |
|
| September 30, 2020 |
| ||||
Public bonds due fiscal 2020 to 2022 |
| $ | 505.3 |
|
| $ | 507.8 |
| ||||||||
Public bonds due fiscal 2022 |
| $ | 399.6 |
|
| $ | 399.3 |
| ||||||||
Public bonds due fiscal 2023 to 2028 |
|
| 3,771.3 |
|
|
| 3,769.1 |
|
|
| 3,775.9 |
|
|
| 3,773.6 |
|
Public bonds due fiscal 2029 to 2033 |
|
| 2,191.5 |
|
|
| 2,197.6 |
|
|
| 2,772.7 |
|
|
| 2,778.9 |
|
Public bonds due fiscal 2037 to 2047 |
|
| 178.8 |
|
|
| 179.0 |
|
|
| 178.4 |
|
|
| 178.6 |
|
Term loan facilities |
|
| 2,096.3 |
|
|
| 2,295.5 |
|
|
| 848.8 |
|
|
| 1,547.6 |
|
Revolving credit and swing facilities |
|
| 807.1 |
|
|
| 396.0 |
|
|
| 370.0 |
|
|
| 250.0 |
|
Receivables securitization |
|
| 475.0 |
|
|
| — |
| ||||||||
Commercial paper |
|
| 304.5 |
|
|
| 339.2 |
| ||||||||
Finance lease obligations |
|
| 280.7 |
|
|
| 185.8 |
|
|
| 269.3 |
|
|
| 274.8 |
|
Supplier financing and commercial card programs |
|
| 108.4 |
|
|
| 123.2 |
| ||||||||
Vendor financing and commercial card programs |
|
| 96.8 |
|
|
| 89.8 |
| ||||||||
International and other debt |
|
| 137.7 |
|
|
| 70.2 |
|
|
| 231.1 |
|
|
| 138.0 |
|
Total debt |
|
| 10,856.6 |
|
|
| 10,063.4 |
|
|
| 8,942.6 |
|
|
| 9,430.6 |
|
Less: current portion of debt |
|
| 432.0 |
|
|
| 561.1 |
|
|
| 549.5 |
|
|
| 222.9 |
|
Long-term debt due after one year |
| $ | 10,424.6 |
|
| $ | 9,502.3 |
|
| $ | 8,393.1 |
|
| $ | 9,207.7 |
|
A portion of the debt classified as long-term may be paid down earlier than scheduled at our discretion without penalty. Certain customary restrictive covenants govern theour maximum availability under our credit facilities. We test and report our compliance with these covenants as required and were in compliance with all of our covenants at March 31, 2020. The increase in finance lease obligations during fiscal 2020 was primarily the result of our adoption of the leasing guidance codified in ASC 842 that recharacterized a short-term and long-term liability for 2 chip mills to a $100.3 million finance lease obligation.2021.
The estimated fair value of our debt was approximately $10.9$9.7 billion as of March 31, 20202021 and $10.6$10.4 billion at September 30, 2019.2020. The fair value of our long-term debt is categorized as level 2 within the fair value hierarchy and is primarily either based on quoted prices for those or similar instruments, or approximates theapproximate their carrying amount as the variable interest rates reprice frequently at observable current market rates.
Revolving Credit Facility
On November 21, 2019, we amended our $2.0 billion unsecured revolving credit facility entered into on July 1, 2015 (the “Revolving Credit Facility”) to, among other things, increase the committed principal to $2.3 billion, increase the maximum permitted Debt to Capitalization Ratio (as defined in the credit agreement) from 0.60:1:00 to 0.65:1.00 and extend its maturity date to November 21, 2024 and increase the committed principal to $2.3 billion. The2024. A portion of the revolving credit facility thatRevolving Credit Facility may be used to fund borrowings in certain non-U.S. dollar currencies including Canadian dollars, Euro and British Pounds was increased from $400 million to $500 million. Additionally, we may request up to $200 million of the revolving credit facility to be used to fund borrowings in Mexican pesos.currencies. At March 31, 2020 we had $350.0 million outstanding that was classified as long-term debt2021 and at September 30, 20192020, there were 0 amounts outstanding under the facility.
In connection withTerm Loans
At September 30, 2020, there was $648.9 million outstanding on the amendment of the Credit Facility, on November 21, 2019,five-year unsecured term loan we terminated our $450.0 million unsecured revolving credit facilityentered into with Wells Fargo, as administrative agent, on March 7, 2018. During the first quarter of fiscal 2021, we paid off the term loan primarily using cash on hand.
On June 7, 2019, we entered into a $300.0 million credit agreement providing for a five-year unsecured term loan with Bank National Association,of America, N.A., as administrative agent. The facility is scheduled to mature on June 7, 2024. The applicable interest rate margins are 0.825% to 1.750% per annum for LIBOR rate loans and 0.000% to 0.750% per annum for alternate base rate loans, in each case depending on the Leverage Ratio (as defined in the credit agreement) or our corporate credit ratings, whichever yields a lower applicable interest rate margin, at such time. At March 31, 2021 and September 30, 2020, the outstanding balance of this facility was $250.0 million and $300.0 million outstanding, respectively.
On September 27, 2019, one of our wholly-owned subsidiaries, WestRock Southeast, LLC, entered into a credit agreement (the “Farm Loan Credit Agreement”) with CoBank ACB, as administrative agent, that replaced our then-existing facility. The Farm Loan Credit Agreement provides for a seven-year senior unsecured term loan in an aggregate principal amount of $600.0 million (the “Farm Loan Credit Facility”). At any time, we may increase the principal amount by up to $300.0 million by written notice. The Farm Loan Credit Facility is guaranteed by the Company, WRKCo Inc. and WestRock RKT, LLC (“RKT”) and WestRock MWV, LLC (“MWV”, and together with RKT, the “Guarantor Subsidiaries”). The carrying value of this facility at March 31, 2021 and September 30, 2020 was $598.8 million and $598.7 million, respectively.
23
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Receivables Securitization Facility
On May 2, 2019,March 12, 2021, we amended our existing $700.0 million receivables securitization agreement (the “Receivables Securitization Facility”) to, among other things, extend, including extending its maturity to March 11, 2024, establishing the transition to the Secure Overnight Funding Rate at a future date from July 22, 2019 to May 2, 2022. On March 27, 2020, we amendeda blend of the facility to add additional Company legal entities that may serve to increasemarket rate for asset-backed commercial paper and the amount of eligible receivables serving as collateral.one-month LIBOR rate plus a credit spread, and revising certain fees. At March 31, 20202021 and September 30, 2019,2020, maximum
26
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
available borrowings, excluding amounts outstanding under the Receivables Securitization Facility, were $678.5$592.1 million and $592.1$700.0 million, respectively. The carrying amount of accounts receivable collateralizing the maximum available borrowings at March 31, 20202021 and September 30, 20192020 were approximately $1,081.7$898.5 million and $959.3$1,128.3 million, respectively. We have continuing involvement with the underlying receivables as we provide credit and collections services pursuant to the Receivables Securitization Facility agreement.Facility. At March 31, 2020 there was $475.0 million outstanding that was classified as long-term debt. At2021 and September 30, 20192020, there were 0 amounts outstanding under this facility.
European Revolving Credit Facility
On April 27, 2018,February 26, 2021, we entered into a €500.0 millionreplaced our existing revolving credit facility with an incremental €100.0 million accordion feature with Coöperatieve Rabobank U.A., New York Branch, as administrative agent. The amendments included, among other things, increasing the administrative agent forfacility to €600.0 million while maintaining the syndicate of banks.incremental €100.0 million accordion feature. This facility provides for a 3-yearthree-year unsecured U.S. dollar, Euro and British Pound denominated borrowing of not more than €500.0 million. On November 21, 2019, we amended the revolving credit facility to, among other things, extend the maturity date from April 27, 2021 to November 21, 2022.€600.0 million maturing on February 26, 2024. At March 31, 20202021, we had borrowed $310.0$370.0 million under this facility and entered into foreign currency exchange contracts of $310.5$370.3 million as an economic hedge for the U.S. dollar denominated borrowing plus interest by a non-U.S. dollar functional currency entity. The net of gains or losses from these foreign currency exchange contracts and the changes in the remeasurement of the U.S. dollar denominated borrowing in our foreign subsidiaries have been immaterial to our condensed consolidated statements of income. At March 31, 2020, NaN of the total amount outstanding was classified as short-term debt. At September 30, 2019,2020, we had borrowed $350.0$250.0 million under this facility, of which $175.0 million was classified as short-term debt.the then-existing facility.
Commercial Paper Program
On October 31, 2017,December 7, 2018, we established an unsecured commercial paper program pursuant to which we were able to issue short-term, unsecured commercial paper notes in an aggregate principal amount at any time not to exceed $1.0 billion with up to 397-day maturities. On December 7, 2018, we terminated the commercial paper program and established a new unsecured commercial paper program with WRKCo Inc. as the issuer. Under the new program, we may issue short-term unsecured commercial paper notes in an aggregate principal amount at any time not to exceed $1.0 billion with up to 397-day maturities. The commercial paper program has no expiration date and can be terminated by either the agent or us with not less than 30 days’ notice. Our $2.3 billion unsecured revolving credit facilityRevolving Credit Facility is intended to backstop the commercial paper program. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The net proceeds from issuances of notes under the program were initially used to repay amounts outstanding under the KapStone securitization facility that were assumed in the KapStone Acquisition and subsequently terminated, and have been, and are expected to continue to be, used for general corporate purposes. At March 31, 2020, there was $304.5 million outstanding and the average borrowing rate was 2.20%.2021 At September 30, 2019, there was $339.2 million outstanding and the average borrowing rate was 2.39%. At March 31, 2020 and September 30, 20192020, there were 0 amounts outstanding, .$250.0
Brazil Export Credit Note
On January 18, 2021, we entered into a credit agreement to provide for R$500.0 million of a senior unsecured term loan of WestRock Celulose, Papel E Embalagens Ltda. (a subsidiary of the totalCompany), as borrower, and the Company, as guarantor. The outstanding amount outstandingof the principal will be repaid in equal, semiannual installments beginning on January 19, 2023until the facility matures on January 19, 2026. The proceeds of the facility are to be used to support the production of goods or acquisition of inputs that are essential or ancillary to export activities. Loans issued under the facility will bear interest at a floating rate based on Brazil’s Certificate of Interbank Deposit rate plus a spread of 2.50%. At March 31, 2021, there was classified as long-term debt.R$500.0 million ($86.7 million) outstanding.
Note 12. |
|
The notes issued by WRKCo (“Issuer”) and registered under the Securities Act of 1933, as amended, are fully and unconditionally guaranteed on a joint and several basis by WestRock Company (“Parent”) and WestRock RKT, LLC (“RKT”) and WestRock MWV, LLC (“MWV”) (RKT and MWV are together referred to as the “Guarantor Subsidiaries”). See “Note 13. Debt — Exchanged Notes” and “Note 14. Selected Condensed Consolidating Financial Statements of Parent, Issuer, Guarantors and Non-Guarantors” of the Notes to Consolidated Financial Statements section in the Fiscal 2019 Form 10-K for additional information regarding our registered notes and the guarantees of our notes.
In accordance with GAAP, we retrospectively account for changes in our legal structure that constitute transfers of businesses between issuers, guarantors and non-guarantors. As such, our prior period financials may vary from those previously reported. The information in the prior year tables reflect such revisions, as well as revisions to correct immaterial errors in prior presentations.
In accordance with Rule 3-10 of Regulation S-X, the following tables present condensed consolidating financial data of the Parent, the Issuer, the Guarantor Subsidiaries, the non-guarantor subsidiaries and
27
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
eliminations. Such financial data include the related Condensed Consolidating Statements of Income for the three and six months ended March 31, 2020 and March 31, 2019, Condensed Consolidating Balance Sheets as of March 31, 2020 and September 30, 2019 and Condensed Consolidating Statements of Cash Flows for the six months ended March 31, 2020 and March 31, 2019.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2020 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
| |||||||||||||||||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 630.9 |
|
| $ | 4,479.1 |
|
| $ | (662.7 | ) |
| $ | 4,447.3 |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 502.2 |
|
|
| 3,794.8 |
|
|
| (654.5 | ) |
|
| 3,642.5 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 128.7 |
|
|
| 684.3 |
|
|
| (8.2 | ) |
|
| 804.8 |
|
Selling, general and administrative, excluding intangible amortization |
|
| — |
|
|
| 0.1 |
|
|
| 27.9 |
|
|
| 390.6 |
|
|
| — |
|
|
| 418.6 |
|
Selling, general and administrative intangible amortization |
|
| — |
|
|
| — |
|
|
| 24.5 |
|
|
| 75.6 |
|
|
| — |
|
|
| 100.1 |
|
Loss (gain) on disposal of assets |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| (5.7 | ) |
|
| — |
|
|
| (5.6 | ) |
Multiemployer pension withdrawal expense |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.9 |
|
Restructuring and other costs |
|
| — |
|
|
| 2.0 |
|
|
| — |
|
|
| 14.4 |
|
|
| — |
|
|
| 16.4 |
|
Operating profit (loss) |
|
| — |
|
|
| (2.1 | ) |
|
| 76.1 |
|
|
| 208.6 |
|
|
| (8.2 | ) |
|
| 274.4 |
|
Interest (expense) income, net |
|
| — |
|
|
| (63.8 | ) |
|
| (33.6 | ) |
|
| 0.1 |
|
|
| — |
|
|
| (97.3 | ) |
Intercompany interest (expense) income, net |
|
| — |
|
|
| (3.3 | ) |
|
| (24.2 | ) |
|
| 19.3 |
|
|
| 8.2 |
|
|
| — |
|
Loss on extinguishment of debt |
|
| — |
|
|
| (0.4 | ) |
|
| — |
|
|
| (0.1 | ) |
|
| — |
|
|
| (0.5 | ) |
Pension and other postretirement non- service (expense) income |
|
| — |
|
|
| — |
|
|
| (1.9 | ) |
|
| 28.0 |
|
|
| — |
|
|
| 26.1 |
|
Other income (expense), net |
|
| 0.1 |
|
|
| — |
|
|
| 0.2 |
|
|
| (1.2 | ) |
|
| — |
|
|
| (0.9 | ) |
Equity in income of unconsolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.9 |
|
|
| — |
|
|
| 4.9 |
|
Equity in income of consolidated entities |
|
| 148.0 |
|
|
| 252.3 |
|
|
| 111.1 |
|
|
| — |
|
|
| (511.4 | ) |
|
| — |
|
Income before income taxes |
|
| 148.1 |
|
|
| 182.7 |
|
|
| 127.7 |
|
|
| 259.6 |
|
|
| (511.4 | ) |
|
| 206.7 |
|
Income tax benefit (expense) |
|
| — |
|
|
| 17.3 |
|
|
| (4.0 | ) |
|
| (71.1 | ) |
|
| — |
|
|
| (57.8 | ) |
Consolidated net income |
|
| 148.1 |
|
|
| 200.0 |
|
|
| 123.7 |
|
|
| 188.5 |
|
|
| (511.4 | ) |
|
| 148.9 |
|
Less: Net income attributable to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.8 | ) |
|
| — |
|
|
| (0.8 | ) |
Net income attributable to common stockholders |
| $ | 148.1 |
|
| $ | 200.0 |
|
| $ | 123.7 |
|
| $ | 187.7 |
|
| $ | (511.4 | ) |
| $ | 148.1 |
|
Comprehensive loss attributable to common stockholders |
| $ | (236.0 | ) |
| $ | (184.9 | ) |
| $ | (247.9 | ) |
| $ | (190.1 | ) |
| $ | 622.9 |
|
| $ | (236.0 | ) |
28
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended March 31, 2020 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
| |||||||||||||||||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 1,220.2 |
|
| $ | 8,939.6 |
|
| $ | (1,288.8 | ) |
| $ | 8,871.0 |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 983.8 |
|
|
| 7,546.0 |
|
|
| (1,272.6 | ) |
|
| 7,257.2 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 236.4 |
|
|
| 1,393.6 |
|
|
| (16.2 | ) |
|
| 1,613.8 |
|
Selling, general and administrative, excluding intangible amortization |
|
| — |
|
|
| 0.3 |
|
|
| 56.7 |
|
|
| 787.3 |
|
|
| — |
|
|
| 844.3 |
|
Selling, general and administrative intangible amortization |
|
| — |
|
|
| — |
|
|
| 50.5 |
|
|
| 151.4 |
|
|
| — |
|
|
| 201.9 |
|
Gain on disposal of assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6.9 | ) |
|
| — |
|
|
| (6.9 | ) |
Multiemployer pension withdrawal expense |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.9 |
|
Restructuring and other costs |
|
| — |
|
|
| 3.6 |
|
|
| — |
|
|
| 42.9 |
|
|
| — |
|
|
| 46.5 |
|
Operating profit (loss) |
|
| — |
|
|
| (3.9 | ) |
|
| 129.1 |
|
|
| 418.1 |
|
|
| (16.2 | ) |
|
| 527.1 |
|
Interest (expense) income, net |
|
| — |
|
|
| (128.5 | ) |
|
| (68.8 | ) |
|
| 6.5 |
|
|
| — |
|
|
| (190.8 | ) |
Intercompany interest (expense) income, net |
|
| — |
|
|
| (6.8 | ) |
|
| (49.4 | ) |
|
| 40.0 |
|
|
| 16.2 |
|
|
| — |
|
Loss on extinguishment of debt |
|
| — |
|
|
| (0.4 | ) |
|
| — |
|
|
| (0.1 | ) |
|
| — |
|
|
| (0.5 | ) |
Pension and other postretirement non- service (expense) income |
|
| — |
|
|
| — |
|
|
| (3.8 | ) |
|
| 56.6 |
|
|
| — |
|
|
| 52.8 |
|
Other income (expense), net |
|
| 0.1 |
|
|
| — |
|
|
| 1.3 |
|
|
| (6.0 | ) |
|
| — |
|
|
| (4.6 | ) |
Equity in income of unconsolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.7 |
|
|
| — |
|
|
| 8.7 |
|
Equity in income of consolidated entities |
|
| 286.5 |
|
|
| 478.9 |
|
|
| 249.4 |
|
|
| — |
|
|
| (1,014.8 | ) |
|
| — |
|
Income before income taxes |
|
| 286.6 |
|
|
| 339.3 |
|
|
| 257.8 |
|
|
| 523.8 |
|
|
| (1,014.8 | ) |
|
| 392.7 |
|
Income tax benefit (expense) |
|
| — |
|
|
| 34.8 |
|
|
| (1.7 | ) |
|
| (137.4 | ) |
|
| — |
|
|
| (104.3 | ) |
Consolidated net income |
|
| 286.6 |
|
|
| 374.1 |
|
|
| 256.1 |
|
|
| 386.4 |
|
|
| (1,014.8 | ) |
|
| 288.4 |
|
Less: Net income attributable to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| (1.8 | ) |
Net income attributable to common stockholders |
| $ | 286.6 |
|
| $ | 374.1 |
|
| $ | 256.1 |
|
| $ | 384.6 |
|
| $ | (1,014.8 | ) |
| $ | 286.6 |
|
Comprehensive income (loss) attributable to common stockholders |
| $ | 10.2 |
|
| $ | 98.7 |
|
| $ | (11.6 | ) |
| $ | 116.1 |
|
| $ | (203.2 | ) |
| $ | 10.2 |
|
29
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2019 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
| |||||||||||||||||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 639.2 |
|
| $ | 4,638.1 |
|
| $ | (657.3 | ) |
| $ | 4,620.0 |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 526.8 |
|
|
| 3,850.9 |
|
|
| (657.3 | ) |
|
| 3,720.4 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 112.4 |
|
|
| 787.2 |
|
|
| — |
|
|
| 899.6 |
|
Selling, general and administrative, excluding intangible amortization |
|
| — |
|
|
| 0.3 |
|
|
| 14.2 |
|
|
| 429.6 |
|
|
| — |
|
|
| 444.1 |
|
Selling, general and administrative intangible amortization |
|
| — |
|
|
| — |
|
|
| 26.2 |
|
|
| 76.2 |
|
|
| — |
|
|
| 102.4 |
|
Land and Development impairments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13.0 |
|
|
| — |
|
|
| 13.0 |
|
Restructuring and other costs |
|
| — |
|
|
| 3.9 |
|
|
| 0.1 |
|
|
| 30.8 |
|
|
| — |
|
|
| 34.8 |
|
Operating profit (loss) |
|
| — |
|
|
| (4.2 | ) |
|
| 71.9 |
|
|
| 237.6 |
|
|
| — |
|
|
| 305.3 |
|
Interest expense, net |
|
| — |
|
|
| (65.0 | ) |
|
| (42.0 | ) |
|
| (4.8 | ) |
|
| — |
|
|
| (111.8 | ) |
Intercompany interest income (expense), net |
|
| — |
|
|
| 0.5 |
|
|
| (27.5 | ) |
|
| 27.0 |
|
|
| — |
|
|
| — |
|
Gain on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
Pension and other postretirement non- service (expense) income |
|
| — |
|
|
| — |
|
|
| (1.7 | ) |
|
| 20.4 |
|
|
| — |
|
|
| 18.7 |
|
Other (expense) income, net |
|
| — |
|
|
| (3.4 | ) |
|
| (1.0 | ) |
|
| 1.1 |
|
|
| — |
|
|
| (3.3 | ) |
Equity in loss of unconsolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
Equity in income of consolidated entities |
|
| 160.4 |
|
|
| 195.5 |
|
|
| 168.2 |
|
|
| — |
|
|
| (524.1 | ) |
|
| — |
|
Income before income taxes |
|
| 160.4 |
|
|
| 123.4 |
|
|
| 168.3 |
|
|
| 281.1 |
|
|
| (524.1 | ) |
|
| 209.1 |
|
Income tax benefit (expense) |
|
| — |
|
|
| 17.9 |
|
|
| 0.6 |
|
|
| (65.7 | ) |
|
| — |
|
|
| (47.2 | ) |
Consolidated net income |
|
| 160.4 |
|
|
| 141.3 |
|
|
| 168.9 |
|
|
| 215.4 |
|
|
| (524.1 | ) |
|
| 161.9 |
|
Less: Net income attributable to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.5 | ) |
|
| — |
|
|
| (1.5 | ) |
Net income attributable to common stockholders |
| $ | 160.4 |
|
| $ | 141.3 |
|
| $ | 168.9 |
|
| $ | 213.9 |
|
| $ | (524.1 | ) |
| $ | 160.4 |
|
Comprehensive income attributable to common stockholders |
| $ | 189.7 |
|
| $ | 170.4 |
|
| $ | 200.0 |
|
| $ | 243.6 |
|
| $ | (614.0 | ) |
| $ | 189.7 |
|
30
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended March 31, 2019 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
| |||||||||||||||||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 1,263.0 |
|
| $ | 8,971.9 |
|
| $ | (1,287.5 | ) |
| $ | 8,947.4 |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 1,027.7 |
|
|
| 7,525.8 |
|
|
| (1,287.5 | ) |
|
| 7,266.0 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 235.3 |
|
|
| 1,446.1 |
|
|
| — |
|
|
| 1,681.4 |
|
Selling, general and administrative, excluding intangible amortization |
|
| — |
|
|
| 0.4 |
|
|
| 27.3 |
|
|
| 817.3 |
|
|
| — |
|
|
| 845.0 |
|
Selling, general and administrative intangible amortization |
|
| — |
|
|
| — |
|
|
| 52.3 |
|
|
| 143.0 |
|
|
| — |
|
|
| 195.3 |
|
Gain on disposal of assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (43.8 | ) |
|
| — |
|
|
| (43.8 | ) |
Land and Development impairments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13.0 |
|
|
| — |
|
|
| 13.0 |
|
Restructuring and other costs |
|
| — |
|
|
| 3.9 |
|
|
| 0.1 |
|
|
| 85.2 |
|
|
| — |
|
|
| 89.2 |
|
Operating profit (loss) |
|
| — |
|
|
| (4.3 | ) |
|
| 155.6 |
|
|
| 431.4 |
|
|
| — |
|
|
| 582.7 |
|
Interest expense, net |
|
| — |
|
|
| (112.0 | ) |
|
| (91.9 | ) |
|
| (2.3 | ) |
|
| — |
|
|
| (206.2 | ) |
Intercompany interest income (expense), net |
|
| — |
|
|
| 3.5 |
|
|
| (54.6 | ) |
|
| 51.1 |
|
|
| — |
|
|
| — |
|
(Loss) gain on extinguishment of debt |
|
| — |
|
|
| (1.8 | ) |
|
| 0.4 |
|
|
| (0.1 | ) |
|
| — |
|
|
| (1.5 | ) |
Pension and other postretirement non- service (expense) income |
|
| — |
|
|
| — |
|
|
| (3.4 | ) |
|
| 39.4 |
|
|
| — |
|
|
| 36.0 |
|
Other expense, net |
|
| — |
|
|
| (4.0 | ) |
|
| (0.4 | ) |
|
| (1.6 | ) |
|
| — |
|
|
| (6.0 | ) |
Equity in income of unconsolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.6 |
|
|
| — |
|
|
| 6.6 |
|
Equity in income of consolidated entities |
|
| 299.5 |
|
|
| 394.2 |
|
|
| 414.4 |
|
|
| — |
|
|
| (1,108.1 | ) |
|
| — |
|
Income before income taxes |
|
| 299.5 |
|
|
| 275.6 |
|
|
| 420.1 |
|
|
| 524.5 |
|
|
| (1,108.1 | ) |
|
| 411.6 |
|
Income tax benefit (expense) |
|
| — |
|
|
| 29.0 |
|
|
| (1.3 | ) |
|
| (137.6 | ) |
|
| — |
|
|
| (109.9 | ) |
Consolidated net income |
|
| 299.5 |
|
|
| 304.6 |
|
|
| 418.8 |
|
|
| 386.9 |
|
|
| (1,108.1 | ) |
|
| 301.7 |
|
Less: Net income attributable to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.2 | ) |
|
| — |
|
|
| (2.2 | ) |
Net income attributable to common stockholders |
| $ | 299.5 |
|
| $ | 304.6 |
|
| $ | 418.8 |
|
| $ | 384.7 |
|
| $ | (1,108.1 | ) |
| $ | 299.5 |
|
Comprehensive income attributable to common stockholders |
| $ | 269.3 |
|
| $ | 276.9 |
|
| $ | 395.2 |
|
| $ | 355.2 |
|
| $ | (1,027.3 | ) |
| $ | 269.3 |
|
31
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
| |||||||||||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | 0.2 |
|
| $ | 469.6 |
|
| $ | 170.4 |
|
| $ | — |
|
| $ | 640.2 |
|
Accounts receivable |
|
| — |
|
|
| — |
|
|
| 26.7 |
|
|
| 2,229.1 |
|
|
| (33.7 | ) |
|
| 2,222.1 |
|
Inventories |
|
| — |
|
|
| — |
|
|
| 266.2 |
|
|
| 1,859.2 |
|
|
| — |
|
|
| 2,125.4 |
|
Other current assets |
|
| 0.4 |
|
|
| — |
|
|
| 7.2 |
|
|
| 493.6 |
|
|
| — |
|
|
| 501.2 |
|
Intercompany receivables |
|
| — |
|
|
| 378.1 |
|
|
| 1.7 |
|
|
| 1,779.2 |
|
|
| (2,159.0 | ) |
|
| — |
|
Assets held for sale |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.3 |
|
|
| — |
|
|
| 3.3 |
|
Total current assets |
|
| 0.4 |
|
|
| 378.3 |
|
|
| 771.4 |
|
|
| 6,534.8 |
|
|
| (2,192.7 | ) |
|
| 5,492.2 |
|
Property, plant and equipment, net |
|
| — |
|
|
| — |
|
|
| 15.1 |
|
|
| 11,021.2 |
|
|
| — |
|
|
| 11,036.3 |
|
Goodwill |
|
| — |
|
|
| — |
|
|
| 1,158.6 |
|
|
| 6,105.4 |
|
|
| — |
|
|
| 7,264.0 |
|
Intangibles, net |
|
| — |
|
|
| — |
|
|
| 1,434.5 |
|
|
| 2,411.4 |
|
|
| — |
|
|
| 3,845.9 |
|
Restricted assets held by special purpose entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,270.9 |
|
|
| — |
|
|
| 1,270.9 |
|
Prepaid pension asset |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 278.6 |
|
|
| — |
|
|
| 278.6 |
|
Intercompany notes receivable |
|
| — |
|
|
| 155.0 |
|
|
| 170.6 |
|
|
| 3,026.8 |
|
|
| (3,352.4 | ) |
|
| — |
|
Investments in consolidated subsidiaries |
|
| 11,983.4 |
|
|
| 18,703.0 |
|
|
| 20,161.8 |
|
|
| — |
|
|
| (50,848.2 | ) |
|
| — |
|
Other assets |
|
| — |
|
|
| 69.1 |
|
|
| 241.3 |
|
|
| 1,553.8 |
|
|
| (91.8 | ) |
|
| 1,772.4 |
|
Total Assets |
| $ | 11,983.8 |
|
| $ | 19,305.4 |
|
| $ | 23,953.3 |
|
| $ | 32,202.9 |
|
| $ | (56,485.1 | ) |
| $ | 30,960.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
| $ | — |
|
| $ | 179.5 |
|
| $ | 106.1 |
|
| $ | 146.4 |
|
| $ | — |
|
| $ | 432.0 |
|
Accounts payable |
|
| — |
|
|
| 1.4 |
|
|
| 33.3 |
|
|
| 1,695.4 |
|
|
| (33.7 | ) |
|
| 1,696.4 |
|
Accrued compensation and benefits |
|
| 0.2 |
|
|
| — |
|
|
| 14.4 |
|
|
| 366.9 |
|
|
| — |
|
|
| 381.5 |
|
Other current liabilities |
|
| — |
|
|
| 23.9 |
|
|
| 77.6 |
|
|
| 528.4 |
|
|
| — |
|
|
| 629.9 |
|
Intercompany payables |
|
| 501.2 |
|
|
| 29.8 |
|
|
| 1,583.1 |
|
|
| 44.9 |
|
|
| (2,159.0 | ) |
|
| — |
|
Total current liabilities |
|
| 501.4 |
|
|
| 234.6 |
|
|
| 1,814.5 |
|
|
| 2,782.0 |
|
|
| (2,192.7 | ) |
|
| 3,139.8 |
|
Long-term debt due after one year |
|
| — |
|
|
| 6,761.1 |
|
|
| 1,975.6 |
|
|
| 1,687.9 |
|
|
| — |
|
|
| 10,424.6 |
|
Intercompany notes payable |
|
| — |
|
|
| 636.3 |
|
|
| 2,390.5 |
|
|
| 325.6 |
|
|
| (3,352.4 | ) |
|
| — |
|
Pension liabilities, net of current portion |
|
| — |
|
|
| — |
|
|
| 142.9 |
|
|
| 131.2 |
|
|
| — |
|
|
| 274.1 |
|
Postretirement benefit liabilities, net of current portion |
|
| — |
|
|
| — |
|
|
| 25.3 |
|
|
| 127.0 |
|
|
| — |
|
|
| 152.3 |
|
Non-recourse liabilities held by special purpose entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,140.9 |
|
|
| — |
|
|
| 1,140.9 |
|
Deferred income taxes |
|
| — |
|
|
| — |
|
|
| 265.8 |
|
|
| 2,704.4 |
|
|
| (91.8 | ) |
|
| 2,878.4 |
|
Other long-term liabilities |
|
| — |
|
|
| 12.4 |
|
|
| 176.5 |
|
|
| 1,261.7 |
|
|
| — |
|
|
| 1,450.6 |
|
Redeemable noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.6 |
|
|
| — |
|
|
| 1.6 |
|
Total stockholders’ equity |
|
| 11,482.4 |
|
|
| 11,661.0 |
|
|
| 17,162.2 |
|
|
| 22,025.0 |
|
|
| (50,848.2 | ) |
|
| 11,482.4 |
|
Noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15.6 |
|
|
| — |
|
|
| 15.6 |
|
Total equity |
|
| 11,482.4 |
|
|
| 11,661.0 |
|
|
| 17,162.2 |
|
|
| 22,040.6 |
|
|
| (50,848.2 | ) |
|
| 11,498.0 |
|
Total Liabilities and Equity |
| $ | 11,983.8 |
|
| $ | 19,305.4 |
|
| $ | 23,953.3 |
|
| $ | 32,202.9 |
|
| $ | (56,485.1 | ) |
| $ | 30,960.3 |
|
32
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2019 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
| |||||||||||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | — |
|
| $ | 17.8 |
|
| $ | 133.8 |
|
| $ | — |
|
| $ | 151.6 |
|
Accounts receivable |
|
| — |
|
|
| — |
|
|
| 31.1 |
|
|
| 2,201.7 |
|
|
| (39.6 | ) |
|
| 2,193.2 |
|
Inventories |
|
| — |
|
|
| — |
|
|
| 254.3 |
|
|
| 1,853.2 |
|
|
| — |
|
|
| 2,107.5 |
|
Other current assets |
|
| — |
|
|
| 1.2 |
|
|
| 11.8 |
|
|
| 483.2 |
|
|
| — |
|
|
| 496.2 |
|
Intercompany receivables |
|
| — |
|
|
| 227.7 |
|
|
| — |
|
|
| 1,128.6 |
|
|
| (1,356.3 | ) |
|
| — |
|
Assets held for sale |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25.8 |
|
|
| — |
|
|
| 25.8 |
|
Total current assets |
|
| — |
|
|
| 228.9 |
|
|
| 315.0 |
|
|
| 5,826.3 |
|
|
| (1,395.9 | ) |
|
| 4,974.3 |
|
Property, plant and equipment, net |
|
| — |
|
|
| — |
|
|
| 18.9 |
|
|
| 11,170.6 |
|
|
| — |
|
|
| 11,189.5 |
|
Goodwill |
|
| — |
|
|
| — |
|
|
| 1,158.6 |
|
|
| 6,127.0 |
|
|
| — |
|
|
| 7,285.6 |
|
Intangibles, net |
|
| — |
|
|
| — |
|
|
| 1,485.0 |
|
|
| 2,574.5 |
|
|
| — |
|
|
| 4,059.5 |
|
Restricted assets held by special purpose entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,274.3 |
|
|
| — |
|
|
| 1,274.3 |
|
Prepaid pension asset |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 224.7 |
|
|
| — |
|
|
| 224.7 |
|
Intercompany notes receivable |
|
| — |
|
|
| 155.0 |
|
|
| 156.9 |
|
|
| 3,026.8 |
|
|
| (3,338.7 | ) |
|
| — |
|
Investments in consolidated subsidiaries |
|
| 11,973.6 |
|
|
| 18,524.2 |
|
|
| 20,103.6 |
|
|
| — |
|
|
| (50,601.4 | ) |
|
| — |
|
Other assets |
|
| — |
|
|
| 67.8 |
|
|
| 185.3 |
|
|
| 971.8 |
|
|
| (76.1 | ) |
|
| 1,148.8 |
|
Total Assets |
| $ | 11,973.6 |
|
| $ | 18,975.9 |
|
| $ | 23,423.3 |
|
| $ | 31,196.0 |
|
| $ | (55,412.1 | ) |
| $ | 30,156.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
| $ | — |
|
| $ | 135.3 |
|
| $ | 108.9 |
|
| $ | 316.9 |
|
| $ | — |
|
| $ | 561.1 |
|
Accounts payable |
|
| — |
|
|
| 0.7 |
|
|
| 31.3 |
|
|
| 1,839.4 |
|
|
| (39.6 | ) |
|
| 1,831.8 |
|
Accrued compensation and benefits |
|
| 0.3 |
|
|
| — |
|
|
| 14.5 |
|
|
| 455.6 |
|
|
| — |
|
|
| 470.4 |
|
Other current liabilities |
|
| — |
|
|
| 18.6 |
|
|
| 83.8 |
|
|
| 469.4 |
|
|
| — |
|
|
| 571.8 |
|
Intercompany payables |
|
| 303.4 |
|
|
| — |
|
|
| 1,052.9 |
|
|
| — |
|
|
| (1,356.3 | ) |
|
| — |
|
Total current liabilities |
|
| 303.7 |
|
|
| 154.6 |
|
|
| 1,291.4 |
|
|
| 3,081.3 |
|
|
| (1,395.9 | ) |
|
| 3,435.1 |
|
Long-term debt due after one year |
|
| — |
|
|
| 6,608.0 |
|
|
| 1,982.9 |
|
|
| 911.4 |
|
|
| — |
|
|
| 9,502.3 |
|
Intercompany notes payable |
|
| — |
|
|
| 636.3 |
|
|
| 2,390.5 |
|
|
| 311.9 |
|
|
| (3,338.7 | ) |
|
| — |
|
Pension liabilities, net of current portion |
|
| — |
|
|
| — |
|
|
| 147.6 |
|
|
| 146.4 |
|
|
| — |
|
|
| 294.0 |
|
Postretirement benefit liabilities, net of current portion |
|
| — |
|
|
| — |
|
|
| 25.7 |
|
|
| 136.4 |
|
|
| — |
|
|
| 162.1 |
|
Non-recourse liabilities held by special purpose entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,145.2 |
|
|
| — |
|
|
| 1,145.2 |
|
Deferred income taxes |
|
| — |
|
|
| — |
|
|
| 278.9 |
|
|
| 2,675.2 |
|
|
| (76.1 | ) |
|
| 2,878.0 |
|
Other long-term liabilities |
|
| — |
|
|
| 12.9 |
|
|
| 131.2 |
|
|
| 909.8 |
|
|
| — |
|
|
| 1,053.9 |
|
Redeemable noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.9 |
|
|
| — |
|
|
| 1.9 |
|
Total stockholders’ equity |
|
| 11,669.9 |
|
|
| 11,564.1 |
|
|
| 17,175.1 |
|
|
| 21,862.2 |
|
|
| (50,601.4 | ) |
|
| 11,669.9 |
|
Noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14.3 |
|
|
| — |
|
|
| 14.3 |
|
Total equity |
|
| 11,669.9 |
|
|
| 11,564.1 |
|
|
| 17,175.1 |
|
|
| 21,876.5 |
|
|
| (50,601.4 | ) |
|
| 11,684.2 |
|
Total Liabilities and Equity |
| $ | 11,973.6 |
|
| $ | 18,975.9 |
|
| $ | 23,423.3 |
|
| $ | 31,196.0 |
|
| $ | (55,412.1 | ) |
| $ | 30,156.7 |
|
33
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended March 31, 2020 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
| $ | 227.3 |
|
| $ | (194.0 | ) |
| $ | 443.7 |
|
| $ | 121.8 |
|
| $ | — |
|
| $ | 598.8 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (616.2 | ) |
|
| — |
|
|
| (616.2 | ) |
Investment in unconsolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.7 | ) |
|
| — |
|
|
| (0.7 | ) |
Proceeds from sale of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 21.2 |
|
|
| — |
|
|
| 21.3 |
|
Proceeds from property, plant and equipment insurance settlement |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.4 |
|
|
| — |
|
|
| 1.4 |
|
Intercompany notes proceeds |
|
| — |
|
|
| — |
|
|
| 3.1 |
|
|
| — |
|
|
| (3.1 | ) |
|
| — |
|
Other, net |
|
| — |
|
|
| — |
|
|
| 4.9 |
|
|
| — |
|
|
| — |
|
|
| 4.9 |
|
Net cash provided by (used for) investing activities |
|
| — |
|
|
| — |
|
|
| 8.1 |
|
|
| (594.3 | ) |
|
| (3.1 | ) |
|
| (589.3 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to revolving credit facilities |
|
| — |
|
|
| 350.0 |
|
|
| — |
|
|
| 25.0 |
|
|
| — |
|
|
| 375.0 |
|
Repayments of revolving credit facilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (65.0 | ) |
|
| — |
|
|
| (65.0 | ) |
Additions to debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 580.1 |
|
|
| — |
|
|
| 580.1 |
|
Repayments of debt |
|
| — |
|
|
| (200.0 | ) |
|
| — |
|
|
| (8.2 | ) |
|
| — |
|
|
| (208.2 | ) |
Repayments of commercial paper, net |
|
| — |
|
|
| (34.8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34.8 | ) |
Other debt additions, net |
|
| — |
|
|
| 79.0 |
|
|
| — |
|
|
| 6.9 |
|
|
| — |
|
|
| 85.9 |
|
Issuances of common stock, net of related minimum tax withholdings |
|
| 13.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13.4 |
|
Cash dividends paid to stockholders |
|
| (240.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (240.7 | ) |
Cash distributions paid to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.7 | ) |
|
| — |
|
|
| (0.7 | ) |
Intercompany notes payments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.1 | ) |
|
| 3.1 |
|
|
| — |
|
Other, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.1 |
|
|
| — |
|
|
| 2.1 |
|
Net cash (used for) provided by financing activities |
|
| (227.3 | ) |
|
| 194.2 |
|
|
| — |
|
|
| 537.1 |
|
|
| 3.1 |
|
|
| 507.1 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28.0 | ) |
|
| — |
|
|
| (28.0 | ) |
Increase in cash, cash equivalents and restricted cash |
|
| — |
|
|
| 0.2 |
|
|
| 451.8 |
|
|
| 36.6 |
|
|
| — |
|
|
| 488.6 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| — |
|
|
| — |
|
|
| 17.8 |
|
|
| 133.8 |
|
|
| — |
|
|
| 151.6 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | — |
|
| $ | 0.2 |
|
| $ | 469.6 |
|
| $ | 170.4 |
|
| $ | — |
|
| $ | 640.2 |
|
34
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The condensed consolidating statements of cash flows for the six months ended March 31, 2020 do not include non-cash transactions between Parent, Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries. From time to time, we may enter into non-cash transactions for simplicity of execution of intercompany transactions. These may include intercompany non-cash capitalizations, intercompany non-cash returns of capital, intercompany debt-to-equity conversions or other transactions of a similar nature. The table below summarizes these non-cash transactions.
|
| Six Months Ended March 31, 2020 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany notes issued |
| $ | — |
|
| $ | — |
|
| $ | (29.1 | ) |
| $ | — |
|
| $ | 29.1 |
|
| $ | — |
|
Intercompany notes proceeds |
| $ | — |
|
| $ | — |
|
| $ | 12.3 |
|
| $ | — |
|
| $ | (12.3 | ) |
| $ | — |
|
Intercompany capital investment |
| $ | — |
|
| $ | — |
|
| $ | (0.6 | ) |
| $ | — |
|
| $ | 0.6 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany notes borrowing |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 29.1 |
|
| $ | (29.1 | ) |
| $ | — |
|
Intercompany notes payments |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (12.3 | ) |
| $ | 12.3 |
|
| $ | — |
|
Intercompany capital receipt |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 0.6 |
|
| $ | (0.6 | ) |
| $ | — |
|
Intercompany dividends paid |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (31.2 | ) |
| $ | 31.2 |
|
| $ | — |
|
35
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended March 31, 2019 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
| $ | 319.1 |
|
| $ | (93.1 | ) |
| $ | (196.9 | ) |
| $ | 635.9 |
|
| $ | — |
|
| $ | 665.0 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
|
| — |
|
|
| (2.4 | ) |
|
| (623.0 | ) |
|
| — |
|
|
| (625.4 | ) |
Cash paid related to business combinations, net of cash acquired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,349.3 | ) |
|
| — |
|
|
| (3,349.3 | ) |
Investment in unconsolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
Proceeds from sale of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 105.3 |
|
|
| — |
|
|
| 105.3 |
|
Proceeds from property, plant and equipment insurance settlement |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.8 |
|
|
| — |
|
|
| 8.8 |
|
Intercompany notes issued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (75.7 | ) |
|
| 75.7 |
|
|
| — |
|
Intercompany notes proceeds |
|
| — |
|
|
| 9.2 |
|
|
| 1.3 |
|
|
| 3,800.0 |
|
|
| (3,810.5 | ) |
|
| — |
|
Intercompany capital investment |
|
| (563.0 | ) |
|
| (563.0 | ) |
|
| — |
|
|
| — |
|
|
| 1,126.0 |
|
|
| — |
|
Other, net |
|
| — |
|
|
| — |
|
|
| 8.6 |
|
|
| 1.6 |
|
|
| — |
|
|
| 10.2 |
|
Net cash (used for) provided by investing activities |
|
| (563.0 | ) |
|
| (553.8 | ) |
|
| 7.5 |
|
|
| (132.5 | ) |
|
| (2,608.8 | ) |
|
| (3,850.6 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes |
|
| — |
|
|
| 1,498.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,498.5 |
|
Additions to revolving credit facilities |
|
| — |
|
|
| 67.2 |
|
|
| — |
|
|
| 125.0 |
|
|
| — |
|
|
| 192.2 |
|
Repayments of revolving credit facilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20.0 | ) |
|
| — |
|
|
| (20.0 | ) |
Additions to debt |
|
| — |
|
|
| 3,801.9 |
|
|
| — |
|
|
| 156.0 |
|
|
| — |
|
|
| 3,957.9 |
|
Repayments of debt |
|
| — |
|
|
| (1,489.7 | ) |
|
| (357.5 | ) |
|
| (1,362.4 | ) |
|
| — |
|
|
| (3,209.6 | ) |
Additions to commercial paper, net |
|
| — |
|
|
| 588.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 588.3 |
|
Other debt additions, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16.4 |
|
|
| — |
|
|
| 16.4 |
|
Issuances of common stock, net of related minimum tax withholdings |
|
| 3.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.2 |
|
Purchases of common stock |
|
| (88.6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88.6 | ) |
Cash dividends paid to stockholders |
|
| (233.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (233.7 | ) |
Cash distributions paid to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.8 | ) |
|
| — |
|
|
| (2.8 | ) |
Intercompany notes borrowing |
|
| — |
|
|
| — |
|
|
| 75.7 |
|
|
| — |
|
|
| (75.7 | ) |
|
| — |
|
Intercompany notes payments |
|
| — |
|
|
| (3,800.0 | ) |
|
| — |
|
|
| (10.5 | ) |
|
| 3,810.5 |
|
|
| — |
|
Intercompany capital receipt |
|
| 563.0 |
|
|
| — |
|
|
| — |
|
|
| 563.0 |
|
|
| (1,126.0 | ) |
|
| — |
|
Other, net |
|
| — |
|
|
| (19.5 | ) |
|
| — |
|
|
| 22.5 |
|
|
| — |
|
|
| 3.0 |
|
Net cash provided by (used for) financing activities |
|
| 243.9 |
|
|
| 646.7 |
|
|
| (281.8 | ) |
|
| (512.8 | ) |
|
| 2,608.8 |
|
|
| 2,704.8 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| (1.8 | ) |
Decrease in cash, cash equivalents and restricted cash |
|
| — |
|
|
| (0.2 | ) |
|
| (471.2 | ) |
|
| (11.2 | ) |
|
| — |
|
|
| (482.6 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| — |
|
|
| 0.2 |
|
|
| 490.8 |
|
|
| 145.8 |
|
|
| — |
|
|
| 636.8 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | — |
|
| $ | — |
|
| $ | 19.6 |
|
| $ | 134.6 |
|
| $ | — |
|
| $ | 154.2 |
|
36
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The condensed consolidating statements of cash flows for the six months ended March 31, 2019 do not include non-cash transactions between Parent, Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries. From time to time, we may enter into non-cash transactions for simplicity of execution of intercompany transactions. These may include intercompany non-cash capitalizations, intercompany non-cash returns of capital, intercompany debt-to-equity conversions or other transactions of a similar nature. The table below summarizes these non-cash transactions.
|
| Six Months Ended March 31, 2019 |
| |||||||||||||||||||||
(In millions) |
| Parent |
|
| Issuer |
|
| Guarantor Subsidiaries |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables |
| $ | (140.9 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 140.9 |
|
| $ | — |
|
Intercompany payables |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 140.9 |
|
| $ | (140.9 | ) |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany notes issued |
| $ | — |
|
| $ | (3,800.0 | ) |
| $ | (4,519.8 | ) |
| $ | (8,057.5 | ) |
| $ | 16,377.3 |
|
| $ | — |
|
Intercompany notes proceeds |
| $ | — |
|
| $ | 4,519.8 |
|
| $ | 4,519.8 |
|
| $ | 4,257.5 |
|
| $ | (13,297.1 | ) |
| $ | — |
|
Intercompany capital investment |
| $ | (10,396.2 | ) |
| $ | (5,434.8 | ) |
| $ | (5,983.6 | ) |
| $ | — |
|
| $ | 21,814.6 |
|
| $ | — |
|
Intercompany return of capital |
| $ | 563.0 |
|
| $ | 1,478.0 |
|
| $ | 915.0 |
|
| $ | — |
|
| $ | (2,956.0 | ) |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany notes borrowing |
| $ | — |
|
| $ | 3,800.0 |
|
| $ | 457.5 |
|
| $ | 12,119.8 |
|
| $ | (16,377.3 | ) |
| $ | — |
|
Intercompany notes payments |
| $ | — |
|
| $ | — |
|
| $ | (457.5 | ) |
| $ | (12,839.6 | ) |
| $ | 13,297.1 |
|
| $ | — |
|
Intercompany capital receipt |
| $ | — |
|
| $ | 10,396.2 |
|
| $ | 4,977.3 |
|
| $ | 6,441.1 |
|
| $ | (21,814.6 | ) |
| $ | — |
|
Intercompany capital distribution |
| $ | (563.0 | ) |
| $ | (563.0 | ) |
| $ | (457.5 | ) |
| $ | (1,372.5 | ) |
| $ | 2,956.0 |
|
| $ | — |
|
Intercompany dividends paid |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (572.4 | ) |
| $ | 572.4 |
|
| $ | — |
|
37
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Note 13.Leases
On October 1, 2019, we adopted ASU 2016-02 “Leases”, which is codified in ASC 842 and supersedes current lease guidance in ASC 840, using the modified retrospective approach and as a result we did not restate prior periods. We elected the package of three practical expedients permitted within the standard pursuant to which we did not reassess initial direct costs, lease classification or whether our contracts contain or are leases. In addition, we also applied the practical expedient to account for the lease and non-lease components as a single lease component for all of our leases. We also made an accounting policy election to not recognize ROU assets and liability for leases with a term of 12 months or less unless the lease includes an option to renew or purchase the underlying asset that are reasonably certain to be exercised. The adoption of ASC 842 resulted in the recognition of ROU assets of $731.1 million (net of deferred rent and favorable/unfavorable lease liabilities) with corresponding operating lease liabilities of $783.9 million. The condensed consolidated financial statements for the periods ended March 31, 2020 are presented under the new standard, while comparative periods presented have not been adjusted and continue to be reported in accordance with the previous standard.
We lease various real estate, including certain operating facilities, warehouses, office space and land. We also lease material handling equipment, vehicles and certain other equipment. Our total lease cost, net was $79.2 million and $160.1 million during the three and six months ended March 31, 2021, respectively. Our total lease cost, net was $81.1 million and $160.1 million during the three and six months ended March 31, 2020, respectively. We obtained $98.4 million and $58.7 million of ROU assets represent our right to use an underlying assetin exchange for the lease term and lease liabilities represent our obligation to make lease payments arising fromduring the lease. Effective October 1, 2019, operating lease ROU assetssix months ended March 31, 2021 and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Our leases may include options to extend or terminate the lease. These options to extend are included in the lease term when it is reasonably certain that we will exercise that option. Some leases provide for variable payments, however, because they are not based on an index or rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common area maintenance, insurance, taxes and utilities. Variable payments for equipment, vehicles and leases within supply agreements primarily relate to usage, repairs, and maintenance. As the implicit rate is not readily determinable for our leases, we apply a portfolio approach using an estimated incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized basis over a similar term, which is based on market and company specific information. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate, and apply the rate based on the currency of the lease, which is updated on a quarterly basis for measurement of new lease liabilities.2020, respectively.
Components of Lease Costs
The following table presents certain information related to the lease costs for finance and operating leases (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
| ||
|
| March 31, 2020 |
|
| March 31, 2020 |
| ||
Operating lease costs |
| $ | 50.5 |
|
| $ | 100.0 |
|
Variable and short-term lease costs |
|
| 27.7 |
|
|
| 54.0 |
|
Sublease income |
|
| (1.8 | ) |
|
| (3.5 | ) |
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of lease assets |
|
| 2.7 |
|
|
| 5.5 |
|
Interest on lease liabilities |
|
| 2.0 |
|
|
| 4.1 |
|
Total lease cost, net |
| $ | 81.1 |
|
| $ | 160.1 |
|
3824
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Supplemental Balance Sheet Information Related to Leases
The table below presents the lease-related assets and liabilities recorded on thesupplemental balance sheet information related to leases (in millions):
|
| Condensed Consolidated Balance Sheet Caption |
| March 31, 2020 |
|
| Condensed Consolidated Balance Sheet Caption |
| March 31, 2021 |
|
| September 30, 2020 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset |
| Other assets |
| $ | 683.2 |
|
| Other assets |
| $ | 696.4 |
|
| $ | 658.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities |
| Other current liabilities |
| $ | 171.4 |
|
| Other current liabilities |
| $ | 181.9 |
|
| $ | 172.7 |
|
Operating lease liabilities |
| Other long-term liabilities |
|
| 567.9 |
|
| Other long-term liabilities |
|
| 573.2 |
|
|
| 545.8 |
|
Total operating lease liabilities |
|
|
| $ | 739.3 |
|
|
|
| $ | 755.1 |
|
| $ | 718.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
| $ | 146.8 |
|
|
|
| $ | 143.0 |
|
| $ | 143.2 |
|
Accumulated depreciation |
|
|
|
| (17.7 | ) |
|
|
|
| (23.7 | ) |
|
| (19.1 | ) |
Property, plant and equipment, net |
|
|
| $ | 129.1 |
|
|
|
| $ | 119.3 |
|
| $ | 124.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current finance lease liabilities |
| Current portion of debt |
| $ | 9.2 |
|
| Current portion of debt |
| $ | 8.8 |
|
| $ | 9.0 |
|
Noncurrent finance lease liabilities |
| Long-term debt due after one year |
|
| 271.5 |
|
| Long-term debt due after one year |
|
| 260.5 |
|
|
| 265.8 |
|
Total finance lease liabilities |
|
|
| $ | 280.7 |
|
|
|
| $ | 269.3 |
|
| $ | 274.8 |
|
Our finance lease portfolio includes certain assets that are either fully depreciated or transferred for which the lease arrangement requires a one-time principal repayment on the maturity date of the lease obligation.
Lease Term and Discount Rate
| ||||
| ||||
|
| |||
|
| |||
| ||||
|
|
| ||
|
|
|
Supplemental Cash Flow Information Related to Leases
The table below presents supplemental cash flow information related to leases (in millions):
|
| Six Months Ended |
| |
|
| March 31, 2020 |
| |
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows related to operating leases |
| $ | 100.7 |
|
Operating cash flows related to finance leases |
| $ | 5.2 |
|
Financing cash flows related to finance leases |
| $ | 5.2 |
|
39
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Maturity of Lease Liabilities
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities and finance lease liabilities recorded on the balance sheet (in millions):
|
| March 31, 2020 |
| |||||||||
|
| Operating Leases |
|
| Finance Leases |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining fiscal 2020 |
| $ | 98.7 |
|
| $ | 8.7 |
|
| $ | 107.4 |
|
Fiscal 2021 |
|
| 172.4 |
|
|
| 16.0 |
|
|
| 188.4 |
|
Fiscal 2022 |
|
| 136.7 |
|
|
| 15.3 |
|
|
| 152.0 |
|
Fiscal 2023 |
|
| 107.3 |
|
|
| 13.3 |
|
|
| 120.6 |
|
Fiscal 2024 |
|
| 86.7 |
|
|
| 12.0 |
|
|
| 98.7 |
|
Thereafter |
|
| 206.6 |
|
|
| 301.4 |
|
|
| 508.0 |
|
Total lease payments |
|
| 808.4 |
|
|
| 366.7 |
|
|
| 1,175.1 |
|
Less: Interest (1) |
|
| (69.1 | ) |
|
| (86.0 | ) |
|
| (155.1 | ) |
Present value of future lease payments |
| $ | 739.3 |
|
| $ | 280.7 |
|
| $ | 1,020.0 |
|
|
|
At September 30, 2019, future minimum payments under all existing non-cancelable operating leases for the succeeding five years and thereafter were as follows (in millions):
Fiscal 2020 |
| $ | 214.3 |
|
Fiscal 2021 |
|
| 180.1 |
|
Fiscal 2022 |
|
| 136.3 |
|
Fiscal 2023 |
|
| 108.3 |
|
Fiscal 2024 |
|
| 85.3 |
|
Thereafter |
|
| 206.1 |
|
Total |
| $ | 930.4 |
|
Note | Commitments and Contingencies |
EnvironmentalHealth and Safety
Our business involves the use of heavy equipment, machinery and chemicals and requires the performance of activities that create safety exposures. The health and safety of our teammates is our first priority, and we have established safety policies, programs, procedures and training for our manufacturing operations. We are subject to a broad range of foreign, federal, state and local environmental,laws and regulations relating to occupational health and safety, and our safety program includes measures required for compliance. In addition, our program includes the ongoing identification and elimination of workplace exposures that can lead to injuries and sharing of health and safety best practices. Failure to comply with applicable health and safety laws and regulations could subject us to fines, corrective actions or other sanctions.
Certain governmental authorities in locations where we do business have established asbestos standards for the workplace. Although we do not use asbestos in manufacturing our products, asbestos containing material (“ACM”) is present in some of the facilities we lease or own. For those facilities where ACM is present and ACM is subject to regulation, we have established procedures for properly managing it.
We do not believe that future compliance with occupational health and safety laws and regulations will have a material adverse effect on our results of operations, financial condition or cash flows.
Environmental
We are subject to numerous foreign, federal, state, local and international environmental laws and regulations, including those governing discharges to air, soil and water,water; the management, treatment and disposal of hazardous substances, solid waste and hazardous wastes,wastes; the investigation and remediation of contamination
25
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
resulting from historical site operationsoperations; and releasesrequirements relating to the use of chemicals in packaging. We are also subject to the requirements of environmental permits and similar authorizations issued by various governmental authorities. Complex and lengthy processes may be required to obtain and renew approvals, permits, and licenses for new, existing or modified facilities. Additionally, the use and handling of various chemicals or hazardous substances,materials require release prevention plans and the health and safety of employees.emergency response procedures. Our compliance initiatives related to these laws and regulations could result in significant costs, which could negatively impact our results of operations, financial condition and cash flows. Any failureFailure to comply with environmental or health and safety laws and regulations, or any permits and authorizations required thereunder, could subject us to fines, corrective actionactions or other sanctions.
40
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
We have been named as a potentially responsible party (“PRP”) in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). Many of these proceedings involve the cleanup of hazardous substances at sites that received waste from many different sources. While joint and several liability is authorized under CERCLA and analogous state laws, liability for CERCLA cleanups is typically shared with other PRPs, and costs are commonly allocated according to relative amounts of waste deposited and other factors. We believe we have insurance and contractual indemnification rights that may allow us to recover certain defense and other costs at some CERCLA sites. There are other remediation costs typically associated with the cleanup of hazardous substances at our current, closed or formerly-owned facilities, and recorded as liabilities in our balance sheet. Remediation costs are recorded in our financial statements when they become probable and reasonably estimable.
See “Note 18. Commitments and Contingencies” of the Notes to Consolidated Financial Statements section in the Fiscal 20192020 Form 10-K for information related to environmental matters.
As of March 31, 2020,2021, we had $9.5$4.9 million reserved for environmental liabilities on an undiscounted basis, of which $3.7$1.7 million is included in other long-term liabilities and $5.8$3.2 million is included in other current liabilities, including amounts accrued in connection with environmental obligations relating to manufacturing facilities that we have closed. We believe the liability for these matters was adequately reserved at March 31, 2020.2021.
Litigation
We have been named a defendant in asbestos-related personal injury litigation. To date, the costs resulting from the litigation, including settlement costs, have not been significant. As of March 31, 2020,2021, there were approximately 1,0251,400 such lawsuits. We believe that we have substantial insurance coverage, subject to applicable deductibles and policy limits, with respect to asbestos claims. We also have valid defenses to these asbestos-related personal injury claims and intend to continue to defend them vigorously. Should the volume of litigation grow substantially beyond our expectations, it is possible that we could incur significant costs resolving these cases. We do not expect the resolution of pending asbestos litigation and proceedings to have a material adverse effect on our results of operations, financial condition or cash flows. In any given period or periods, however, it is possible such proceedings or matters could have a materialan adverse effect on our results of operations, financial condition or cash flows. At March 31, 2021, we had a $13.8 million estimated liability for these matters.
We are a defendant in a number of other lawsuits and claims arising out of the conduct of our business. While the ultimate results of such suits or other proceedings against us cannot be predicted with certainty, we believe the resolution of these other matters will not have a material adverse effect on our results of operations, financial condition or cash flows.
Brazil Tax Liability
On August 6, 2019,
We are challenging claims by the Brazil Administrative Council of Tax Appeals (“CARF”) published a decision finding usFederal Revenue Department that we are liable for underpayment of tax, penalties and interest. The matter has proceeded through the CARF principallyinterest in two proceedings, covering tax years 2003relation to 2008 and 2009 to 2012. Certain aspects of the two cases remain pending before CARF, including the dispute related to tax years 2003 to 2008, and penalties relating to tax years 2009 to 2012.
On October 4, 2019, we filed an annulment action in federal tax court challenging an administrative decision of CARF. This federal court action arises from a claim that a subsidiary of MeadWestvaco Corporation (the predecessor of WestRock MWV, LLC) had reduced its tax liability related to the goodwill generated by the 2002 merger of 2 subsidiariesof its Brazil subsidiaries. The matter has proceeded through the Brazil Administrative Council of Tax Appeals (“CARF”) principally in Brazil. two proceedings, covering tax years 2003 to 2008 and 2009 to 2012. The tax and interest claim relating to tax years 2009 to 2012 was finalized and is now the subject of an annulment action we filed in the Brazil federal court. CARF notified us of its final decision regarding the tax, penalties and interest claims relating to tax years 2003 to 2008 on June 3, 2020. We have filed an annulment action in Brazil federal court with respect to that decision as well. The dispute related to penalties for tax years 2009 to 2012 remains before CARF.
26
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
We assert that we have 0 liability in these matters.The total amount in dispute before CARF and in the annulment actionactions relating to the claimed tax deficiency was R$685696 million ($133121 million) as of March 31, 20202021, including various penalties and interest. The U.S. dollar equivalent has fluctuated significantly due to changes in exchange rates. The amount of our uncertain tax position reserve for this matter, that excludes certain penalties, is included in the unrecognized tax benefits table. See “Note 6. Income Taxes” of the Notes to Consolidated Financial Statements section in the Fiscal 2019 2020 Form 10-K. Resolution of the uncertain tax positions could have a material adverse effect on our cash flows and results of operations or materially benefit our results of operations in future periods depending upon their ultimate resolution.
Guarantees
We make certain guarantees in the normal course of conducting our operations, for compliance with certain laws and regulations, or in connection with certain business dispositions. The guarantees include items such as funding of net losses in proportion to our ownership share of certain joint ventures, debt guarantees related to certain unconsolidated entities acquired in acquisitions, indemnifications of lessors in certain facilities and
41
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
equipment operating leases for items such as additional taxes being assessed due to a change in tax law and certain other agreements. We estimate our exposure to these matters could be approximately $50 million. As of March 31, 2020,2021, we had recorded $9.6 million for the estimated fair value of these guarantees. We are unable to estimate our maximum exposure under operating leases because it is dependent on potential changes in the tax laws; however, we believe our exposure related to guarantees would not have a material impact on our results of operations, financial condition or cash flows.
Indirect Tax Claim
In March 2017, the Supreme Court of Brazil issued a decision concluding that certain state value added tax should not be included in the calculation of federal gross receipts taxes. Subsequently, in fiscal 2019 and 2020, the Supreme Court of Brazil rendered favorable decisions on sixeight of our cases granting us the right to recover certain state value added tax. WeThe tax authorities in Brazil have filed a Motion of Clarification with the Supreme Court of Brazil and the timing of the decision is unknown at this time. However, based on our evaluation and the opinion of our tax and legal advisors, we believe the decision reduced our gross receipts tax in Brazil prospectively and retrospectively, and will allow us to recover tax amounts collected by the government. Based on our preliminary evaluation andDue to the opinionvolume of our tax and legal advisors,invoices being reviewed (January 2002 to September 2019), we have recorded the estimated recoveries across several periods beginning in the fourth quarter of fiscal 2019 as we recorded a $12.2 million receivable for our expected recoveryhave reviewed the documents and interest primarily as a reduction of cost of goods sold for the period March 2017 to September 2019. During the three months ended December 31, 2019, we recorded an additional receivable of $33.8 million for our estimate of our expected recovery and interest for the period January 2010 to February 2017. We recorded $23.1 million as a reduction of cost of goods sold and $10.7 million as a reduction of interest expense. Duringamount has become estimable.
In the three months ended March 31, 2020, we recorded an additionala receivable of $1.3 million for our estimate of our expected recovery and interest for the period January 2002 to December 2003. We recordedthat consisted primarily of a $0.4 million as a reduction of cost of goods sold and a $0.9 million as a reduction of interest expense.expense, net. In the six months ended March 31, 2021 and 2020, we recorded a receivable for our expected recovery and interest that consisted primarily of a $0.6 million and $23.5 million reduction of cost of goods sold and a $0.3 million and $11.6 million reduction of interest expense, net, respectively. We will continue to evaluateare monitoring the impact of the court’s decision on the remainderstatus of our cases. Additionally, we areremaining cases, and subject to the resolution in the process of calculating additional recoveries for the years 2004 to 2009, andcourts, we may record additional amounts in future periods as we complete our analysis.periods.
Note | Equity and Other Comprehensive Income (Loss) |
Equity
Stock Repurchase Program
In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of our common stock, par value $0.01 per share (“Common Stock,”), representing approximately 15% of our outstanding common stock, par value $0.01 per share (“Common Stock”) as of July 1, 2015. The shares of Common Stock may be repurchased over an indefinite period of time at the discretion of management. Pursuant to the program, in the six months ended March 31, 2021 and March 31, 2020, we repurchased 0 shares of Common Stock. In the six months ended March 31, 2019, we repurchased approximately 2.1 million shares of Common Stock for an aggregate cost of $88.6 million. As of March 31, 2020,2021, we had approximately 19.1 million shares of Common Stock available for repurchase under the program.
4227
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Accumulated Other Comprehensive Loss
The tables below summarize the changes in accumulated other comprehensive loss, net of tax, by component for the six months ended March 31, 20202021 and March 31, 20192020 (in millions):
|
| Deferred (Loss) Income on Cash Flow Hedges |
|
| Defined Benefit Pension and Postretirement Plans |
|
| Foreign Currency Items |
|
| Total (1) |
| ||||
Balance at September 30, 2019 |
| $ | 0.7 |
|
| $ | (698.0 | ) |
| $ | (371.9 | ) |
| $ | (1,069.2 | ) |
Other comprehensive loss before reclassifications |
|
| (9.4 | ) |
|
| — |
|
|
| (286.6 | ) |
|
| (296.0 | ) |
Amounts reclassified from accumulated other comprehensive loss |
|
| 1.1 |
|
|
| 18.5 |
|
|
| — |
|
|
| 19.6 |
|
Net current period other comprehensive (loss) income |
|
| (8.3 | ) |
|
| 18.5 |
|
|
| (286.6 | ) |
|
| (276.4 | ) |
Reclassification of stranded tax effects |
|
| — |
|
|
| (73.4 | ) |
|
| — |
|
|
| (73.4 | ) |
Balance at March 31, 2020 |
| $ | (7.6 | ) |
| $ | (752.9 | ) |
| $ | (658.5 | ) |
| $ | (1,419.0 | ) |
|
| Cash Flow Hedges |
|
| Defined Benefit Pension and Postretirement Plans |
|
| Foreign Currency Items |
|
| Total (1) |
| ||||
Balance at September 30, 2020 |
| $ | (5.6 | ) |
| $ | (727.7 | ) |
| $ | (586.6 | ) |
| $ | (1,319.9 | ) |
Other comprehensive (loss) income before reclassifications |
|
| (0.1 | ) |
|
| — |
|
|
| 109.5 |
|
|
| 109.4 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| 2.9 |
|
|
| 13.3 |
|
|
| — |
|
|
| 16.2 |
|
Net current period other comprehensive income |
|
| 2.8 |
|
|
| 13.3 |
|
|
| 109.5 |
|
|
| 125.6 |
|
Balance at March 31, 2021 |
| $ | (2.8 | ) |
| $ | (714.4 | ) |
| $ | (477.1 | ) |
| $ | (1,194.3 | ) |
(1) All amounts are net of tax and noncontrolling interests.
|
| Deferred Loss on Cash Flow Hedges |
|
| Defined Benefit Pension and Postretirement Plans |
|
| Foreign Currency Items |
|
| Total (1) |
| ||||
Balance at September 30, 2018 |
| $ | (0.2 | ) |
| $ | (465.9 | ) |
| $ | (229.2 | ) |
| $ | (695.3 | ) |
Other comprehensive loss before reclassifications |
|
| — |
|
|
| — |
|
|
| (39.0 | ) |
|
| (39.0 | ) |
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
|
| 8.8 |
|
|
| — |
|
|
| 8.8 |
|
Net current period other comprehensive income (loss) |
|
| — |
|
|
| 8.8 |
|
|
| (39.0 | ) |
|
| (30.2 | ) |
Balance at March 31, 2019 |
| $ | (0.2 | ) |
| $ | (457.1 | ) |
| $ | (268.2 | ) |
| $ | (725.5 | ) |
|
| Cash Flow Hedges |
|
| Defined Benefit Pension and Postretirement Plans |
|
| Foreign Currency Items |
|
| Total (1) |
| ||||
Balance at September 30, 2019 |
| $ | 0.7 |
|
| $ | (698.0 | ) |
| $ | (371.9 | ) |
| $ | (1,069.2 | ) |
Other comprehensive loss before reclassifications |
|
| (9.4 | ) |
|
| — |
|
|
| (286.6 | ) |
|
| (296.0 | ) |
Amounts reclassified from accumulated other comprehensive loss |
|
| 1.1 |
|
|
| 18.5 |
|
|
| — |
|
|
| 19.6 |
|
Net current period other comprehensive (loss) income |
|
| (8.3 | ) |
|
| 18.5 |
|
|
| (286.6 | ) |
|
| (276.4 | ) |
Reclassification of stranded tax effects |
|
| — |
|
|
| (73.4 | ) |
|
| — |
|
|
| (73.4 | ) |
Balance at March 31, 2020 |
| $ | (7.6 | ) |
| $ | (752.9 | ) |
| $ | (658.5 | ) |
| $ | (1,419.0 | ) |
(1) All amounts are net of tax and noncontrolling interests.
The net of tax amounts were determined using the jurisdictional statutory rates, and reflect effective tax rates averaging 24% to 25% for the six months ended March 31, 2021 and 26% to 27% for the six months ended March 31, 2020 and 25% to 26% for the six months ended March 31, 2019.2020. Although we are impacted by the exchange rates of a number of currencies, foreign currency translation adjustments recorded in accumulated other comprehensive loss for the six months ended March 31, 2021 were primarily due to gains in the Canadian dollar, Mexican Peso and British Pound partially offset by losses in the Brazilian Real, each against the U.S. dollar. Foreign currency translation gains recorded in accumulated other comprehensive loss for the six months ended March 31, 2020 were primarily due to losses in the Brazilian Real, Mexican Peso, Canadian dollar, Australian dollar and Euro partially offset by gains in the British Pound, each against the U.S. dollar. Foreign currency translation losses recorded in accumulated other comprehensive loss for the six months ended March 31, 2019 were primarily due to losses in the Canadian dollar, Mexican Peso and Euro, partially offset by gains in the Brazilian Real, each against the U.S. dollar.
43
28
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table summarizes the reclassifications out of accumulated other comprehensive loss by component (in millions):
|
| Three Months Ended |
|
| Three Months Ended |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| March 31, 2020 |
|
| March 31, 2019 |
|
| March 31, 2021 |
|
| March 31, 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Pretax |
|
| Tax |
|
| Net of Tax |
|
| Pretax |
|
| Tax |
|
| Net of Tax |
|
| Pretax |
|
| Tax |
|
| Net of Tax |
|
| Pretax |
|
| Tax |
|
| Net of Tax |
| ||||||||||||
Amortization of defined benefit pension and postretirement items: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (2) |
| $ | (11.5 | ) |
| $ | 3.1 |
|
| $ | (8.4 | ) |
| $ | (4.1 | ) |
| $ | 1.1 |
|
| $ | (3.0 | ) |
| $ | (7.4 | ) |
| $ | 1.7 |
|
| $ | (5.7 | ) |
| $ | (11.5 | ) |
| $ | 3.1 |
|
| $ | (8.4 | ) |
Prior service costs (2) |
|
| (1.3 | ) |
|
| 0.3 |
|
|
| (1.0 | ) |
|
| (0.6 | ) |
|
| 0.2 |
|
|
| (0.4 | ) |
|
| (1.3 | ) |
|
| 0.3 |
|
|
| (1.0 | ) |
|
| (1.3 | ) |
|
| 0.3 |
|
|
| (1.0 | ) |
Subtotal defined benefit plans |
|
| (12.8 | ) |
|
| 3.4 |
|
|
| (9.4 | ) |
|
| (4.7 | ) |
|
| 1.3 |
|
|
| (3.4 | ) |
|
| (8.7 | ) |
|
| 2.0 |
|
|
| (6.7 | ) |
|
| (12.8 | ) |
|
| 3.4 |
|
|
| (9.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap hedge gain (3) |
|
| 0.3 |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Interest rate swap hedge (loss) gain (3) |
|
| (1.9 | ) |
|
| 0.5 |
|
|
| (1.4 | ) |
|
| 0.3 |
|
|
| — |
|
|
| 0.3 |
| ||||||||||||||||||||||||
Natural gas commodity hedge loss (4) |
|
| (3.7 | ) |
|
| 1.0 |
|
|
| (2.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.7 | ) |
|
| 1.0 |
|
|
| (2.7 | ) |
Subtotal cash flow hedges |
|
| (3.4 | ) |
|
| 1.0 |
|
|
| (2.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.9 | ) |
|
| 0.5 |
|
|
| (1.4 | ) |
|
| (3.4 | ) |
|
| 1.0 |
|
|
| (2.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period |
| $ | (16.2 | ) |
| $ | 4.4 |
|
| $ | (11.8 | ) |
| $ | (4.7 | ) |
| $ | 1.3 |
|
| $ | (3.4 | ) |
| $ | (10.6 | ) |
| $ | 2.5 |
|
| $ | (8.1 | ) |
| $ | (16.2 | ) |
| $ | 4.4 |
|
| $ | (11.8 | ) |
(1) Amounts in parentheses indicate charges to earnings. Amounts pertaining to noncontrolling interests are excluded.
(2) Included in the computation of net periodic pension cost. See “Note 5.4. Retirement Plans” for additional details.
(3) These accumulated other comprehensive income components are included in interestInterest expense, net.
(4) These accumulated other comprehensive income components are included in costCost of goods sold.
|
| Six Months Ended |
|
| Six Months Ended |
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| March 31, 2020 |
|
| March 31, 2019 |
|
| March 31, 2021 |
|
| March 31, 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Pretax |
|
| Tax |
|
| Net of Tax |
|
| Pretax |
|
| Tax |
|
| Net of Tax |
|
| Pretax |
|
| Tax |
|
| Net of Tax |
|
| Pretax |
|
| Tax |
|
| Net of Tax |
| ||||||||||||
Amortization of defined benefit pension and postretirement items: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (2) |
| $ | (23.1 | ) |
| $ | 6.1 |
|
| $ | (17.0 | ) |
| $ | (10.7 | ) |
| $ | 2.8 |
|
| $ | (7.9 | ) |
| $ | (14.8 | ) |
| $ | 3.6 |
|
| $ | (11.2 | ) |
| $ | (23.1 | ) |
| $ | 6.1 |
|
| $ | (17.0 | ) |
Prior service costs (2) |
|
| (2.0 | ) |
|
| 0.5 |
|
|
| (1.5 | ) |
|
| (1.2 | ) |
|
| 0.3 |
|
|
| (0.9 | ) |
|
| (2.8 | ) |
|
| 0.7 |
|
|
| (2.1 | ) |
|
| (2.0 | ) |
|
| 0.5 |
|
|
| (1.5 | ) |
Reclassification of stranded tax effects (3) |
|
| — |
|
|
| 73.4 |
|
|
| 73.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 73.4 |
|
|
| 73.4 |
|
Subtotal defined benefit plans |
|
| (25.1 | ) |
|
| 80.0 |
|
|
| 54.9 |
|
|
| (11.9 | ) |
|
| 3.1 |
|
|
| (8.8 | ) |
|
| (17.6 | ) |
|
| 4.3 |
|
|
| (13.3 | ) |
|
| (25.1 | ) |
|
| 80.0 |
|
|
| 54.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap hedge gain (4) |
|
| 1.0 |
|
|
| (0.2 | ) |
|
| 0.8 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Natural gas commodity hedge loss (5) |
|
| (2.6 | ) |
|
| 0.7 |
|
|
| (1.9 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Interest rate swap hedge (loss) gain (4) |
|
| (3.9 | ) |
|
| 1.0 |
|
|
| (2.9 | ) |
|
| 1.0 |
|
|
| (0.2 | ) |
|
| 0.8 |
| ||||||||||||||||||||||||
Natural gas commodity hedge gain (5) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.6 | ) |
|
| 0.7 |
|
|
| (1.9 | ) | ||||||||||||||||||||||||
Subtotal cash flow hedges |
|
| (1.6 | ) |
|
| 0.5 |
|
|
| (1.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.9 | ) |
|
| 1.0 |
|
|
| (2.9 | ) |
|
| (1.6 | ) |
|
| 0.5 |
|
|
| (1.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period |
| $ | (26.7 | ) |
| $ | 80.5 |
|
| $ | 53.8 |
|
| $ | (11.9 | ) |
| $ | 3.1 |
|
| $ | (8.8 | ) |
| $ | (21.5 | ) |
| $ | 5.3 |
|
| $ | (16.2 | ) |
| $ | (26.7 | ) |
| $ | 80.5 |
|
| $ | 53.8 |
|
(1) Amounts in parentheses indicate charges to earnings. Amounts pertaining to noncontrolling interests are excluded.
(2) Included in the computation of net periodic pension cost. See “Note 5.4. Retirement Plans” for additional details.
(3) Amount reclassified to retained earnings as a result of the adoption of ASU 2018-02.
(4) These accumulated other comprehensive income components are included in interestInterest expense, net.
(5) These accumulated other comprehensive income components are included in costCost of goods sold.
4429
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Note | Earnings Per Share |
The restricted stock awards that we grant to non-employee directors are considered participating securities as they receive non-forfeitable rights to dividends at the same rate as our Common Stock. As participating securities, we include these instruments in the earnings allocation in computing earnings per share under the two-class method described in ASC 260, “Earnings per Share.Share”. The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in millions, except per share data):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
| $ | 148.1 |
|
| $ | 160.4 |
|
| $ | 286.6 |
|
| $ | 299.5 |
|
| $ | 112.5 |
|
| $ | 148.1 |
|
| $ | 264.5 |
|
| $ | 286.6 |
|
Less: Distributed and undistributed income available to participating securities |
|
| (0.1 | ) |
|
| — |
|
|
| (0.1 | ) |
|
| — |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| (0.1 | ) |
Distributed and undistributed income available to common stockholders |
| $ | 148.0 |
|
| $ | 160.4 |
|
| $ | 286.5 |
|
| $ | 299.5 |
|
| $ | 112.4 |
|
| $ | 148.0 |
|
| $ | 264.4 |
|
| $ | 286.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 259.0 |
|
|
| 256.6 |
|
|
| 258.6 |
|
|
| 255.7 |
|
|
| 264.9 |
|
|
| 259.0 |
|
|
| 263.8 |
|
|
| 258.6 |
|
Effect of dilutive stock options and non- participating securities |
|
| 1.2 |
|
|
| 2.8 |
|
|
| 1.5 |
|
|
| 3.7 |
|
|
| 2.1 |
|
|
| 1.2 |
|
|
| 2.1 |
|
|
| 1.5 |
|
Diluted weighted average shares outstanding |
|
| 260.2 |
|
|
| 259.4 |
|
|
| 260.1 |
|
|
| 259.4 |
|
|
| 267.0 |
|
|
| 260.2 |
|
|
| 265.9 |
|
|
| 260.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to common stockholders |
| $ | 0.57 |
|
| $ | 0.63 |
|
| $ | 1.11 |
|
| $ | 1.17 |
|
| $ | 0.42 |
|
| $ | 0.57 |
|
| $ | 1.00 |
|
| $ | 1.11 |
|
Diluted earnings per share attributable to common stockholders |
| $ | 0.57 |
|
| $ | 0.62 |
|
| $ | 1.10 |
|
| $ | 1.15 |
|
| $ | 0.42 |
|
| $ | 0.57 |
|
| $ | 0.99 |
|
| $ | 1.10 |
|
Approximately 1.80.6 million and 1.61.8 million awards in the three months ended March 31, 20202021 and March 31, 2019,2020, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive. Approximately 1.40.6 million and 1.31.4 million awards in the six months ended March 31, 20202021 and March 31, 2019,2020, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive.
|
|
As previously disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2019, we currently own a 32.3% interest in our joint venture with Grupo Gondi in Mexico (the “Joint Venture”). In connection with the our investment in the Joint Venture, we entered into an option agreement pursuant to which we and certain other shareholders of the Joint Venture (the “Partners”) agreed to future put and call options with respect to the equity interests in the Joint Venture held by each party. Pursuant to the option agreement, the Partners had the right on April 1, 2020 to sell us up to 24% of the equity interest in the Joint Venture at fair market value. The Partners did not exercise this right.
Pursuant to the option agreement, between October 1, 2020 and April 1, 2021, we may exercise a right to purchase an additional 18.7% equity interest in the Joint Venture from the Partners at a predetermined purchase price. If we exercise our right to purchase the additional 18.7% equity interest, the Partners may elect to sell us the Partners’ remaining interest at fair market value at that time, or a portion thereof in the future in accordance with the terms of the option agreement.
4530
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the condensed consolidated financial statements and Notes thereto included herein and our audited Consolidated Financial Statements and Notes thereto for the fiscal year ended September 30, 2019,2020, as well as the information under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are part of the Fiscal 20192020 Form 10-K. The following discussion includes certain non-GAAP financial measures. See our reconciliations of non-GAAP financial measures in the “Non-GAAP Financial Measures” section below.
OverviewOVERVIEW
We are a multinational provider of sustainable fiber-based paper and packaging solutions for consumer and corrugated packaging markets.solutions. We partner with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. Our team members support customers around the world from our operating and business locations in North America, South America, Europe, Asia and Australia.
Presentation
We report our financial results of operations in the following threetwo reportable segments: Corrugated Packaging, which consists of our containerboard mills, corrugated packaging and distribution operations, as well as our merchandising displays and recycling procurement operations; and Consumer Packaging, which consists of our consumer mills and food and beverage and partition operations; andoperations. Prior to the completion of our monetization program in fiscal 2020, we had a third reportable segment, Land and Development, which previously sold real estate, primarily in the Charleston, SC region. Certain income and expenses are not allocated to our segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect thesesuch amounts. See “Note 1. Basis of Presentation and Significant Accounting Policies—Policies — Basis of Presentation” and “Note 7. Segment Information” for more information.
Acquisitions
On November 2, 2018, we completed the KapStone Acquisition. KapStone is a leading North American producer and distributor of containerboard, corrugated products and specialty papers, including liner and medium containerboard, kraft papers and saturating kraft. KapStone also owns Victory Packaging, a packaging solutions distribution company with facilities in the U.S., Canada and Mexico. We have included the financial results of KapStone in our Corrugated Packaging segment since the date of the KapStone Acquisition.EXECUTIVE SUMMARY
See “Note 3. Acquisitions and Investment” of the Notes to Consolidated Financial Statements section in the Fiscal 2019 Form 10-K and “Note 3. Acquisitions” of the Notes to Condensed Consolidated Financial Statements for more information.
Executive Summary
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
(In millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
|
|
| |||||||||||||
Net sales |
| $ | 4,447.3 |
|
| $ | 4,620.0 |
|
| $ | 8,871.0 |
|
| $ | 8,947.4 |
|
Segment income |
| $ | 335.3 |
|
| $ | 396.0 |
|
| $ | 666.3 |
|
| $ | 720.4 |
|
Net sales of $4,447.3$4,437.8 million for the second quarter of fiscal 20202021 decreased $172.7$9.5 million, or 3.7%0.2%, compared to the second quarter of fiscal 2019.2020. This decrease was primarily due to lower pulpthe aggregate lost sales associated with the ransomware incident and corrugated priceswinter weather (“the Events”) of an estimated $189.1 million that were partially offset by the impact of higher selling price/mix and lower consumer paperboardhigher volumes as well as unfavorable foreign currency impacts across our segments,excluding the Events. See the discussion under “Ransomware Incident” below for more information.
Earnings per diluted share were $0.42 and $0.57 in each casethe three months ended March 31, 2021 and 2020, respectively. Adjusted Earnings Per Diluted Share were $0.54 and $0.67 in the three months ended March 31, 2021 and 2020, respectively. The lost sales and operational disruption from the Events had a negative impact of $80.1 million pre-tax, or $0.23 per share, on both earnings per diluted share and Adjusted Earnings Per Diluted Share. See the discussion and tables under “Non-GAAP Financial Measures” below.
Net cash provided by operating activities in the six months ended March 31, 2021 and 2020 was $851.6 million and $598.8 million, respectively, primarily due to $334.8 million of favorable working capital compared to the prior year quarter.
COVID-19 did not have a significant impact on our earningsperiod, including the payment of certain fiscal 2020 bonuses and the Company’s 401(k) match and annual company contribution (i.e. up to 5% and 2.5%, respectively) in the form of stock, rather than cash, and deferral of certain payroll taxes in connection with the WestRock Pandemic Action Plan that were partially offset by an increase in accounts receivable associated with delayed billing related to the ransomware incident during the second quarter of fiscal 2020. Segment income decreased $60.7 million2021. We expect the level of accounts receivable to normalize in the secondthird quarter of fiscal 2020 compared to2021. During the second quartersix months ended March 31, 2021, we paid down $488.0 million of fiscal 2019, primarily due to lower Corrugated Packaging segment income partially offset by higher Consumer Packaging segment income. debt.
A detailed review of our performance appears below under “Results of Operations (Consolidated)” and “Results of Operations (Segment Data)”.
4631
COVID-19 ResponseRansomware Incident
WestRock Pandemic Action PlanAs previously disclosed, on January 23, 2021 we detected a ransomware incident impacting certain of our systems. Promptly upon our detection of this incident, we initiated response and containment protocols and our security teams, supplemented by leading cyber defense firms, worked to remediate this incident. These actions included taking preventative measures, including shutting down certain systems out of an abundance of caution, as well as taking steps to supplement existing security monitoring, scanning and protective measures. We notified law enforcement and contacted our customers to apprise them of the situation.
We undertook extensive efforts to identify, contain and recover from this incident quickly and securely. Our teams worked to maintain our business operations and minimize the impact on our customers and teammates. All systems are back in service. All of our mills and converting locations began producing and shipping paper and packaging at pre-ransomware levels in March 2021 or earlier. Our mill system production was approximately 115,000 tons lower than planned for the quarter ended March 31, 2021 as a result of this incident. While shipments from some of our facilities initially lagged behind production levels, this gap closed as systems were restored during the second quarter of fiscal 2021. In locations where technology issues were identified, we used alternative methods, in many cases manual methods, to process and ship orders. We systematically brought our information systems back online in a controlled, phased approach.
We estimate segment income impact of the lost sales and operational disruption of this incident on our operations in the second quarter of fiscal 2021 to be approximately $50 million, as well as approximately $20 million of ransomware recovery costs, primarily professional fees. We estimate that the total insurance claim will be approximately $75 million. We expect to recover substantially all of the ransomware losses from cyber and business interruption insurance in future periods. Disputes over the extent of insurance coverage for claims are not uncommon, and there will be a time lag between the initial incurrence of costs and the receipt of any insurance proceeds. While the impact of lost sales and operational disruption is behind us, we expect to incur some additional recovery costs in the second half of fiscal 2021, albeit at a diminished rate.
We are executingmaking information technology investments that we had planned to make in future periods in order to further strengthen our differentiated strategy with financial strength and substantial liquidity,information security infrastructure. We engaged a leading cybersecurity defense firm that completed a forensics investigation of the ransomware incident and we are adapting quicklytaking appropriate actions in response to changing market conditions. Given the uncertainties associated withfindings. For example, in the severityshort-term, we reset all credentials Company-wide and duration of COVID-19,strengthened security tooling across our servers and workstations. In the long-term, we are implementingcontinuing to advance the WestRock Pandemic Action Plan, whichmaturity and effectiveness of our information security resiliency strategy and capabilities. Our technology team has accelerated its roadmap to further strengthen the resiliency of our information security infrastructure across the Company that aims to enable us to detect, respond and recover more quickly from security and technical incidents. More specifically, we expect will provide an additional $1 billion in cash that we will be ableplan to use throughtake actions to improve our security monitoring capabilities and enhance the end of fiscal 2021 to reduceinformation security within our outstanding indebtedness. Pursuant to the WestRock Pandemic Action Plan, we are:mills and plants.
Expectations for the Third Quarter of Fiscal 2021 and Fiscal 2021 |
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|
We expect to benefit from strong demand for our products during the fiscal third quarter. Our earnings for the fiscal third quarter should increase sequentially as we return to normal business operations and benefit from continued strength in packaging demand and the implementation of previously published price increases. These items are expected to be partially offset by modest sequential inflation across recycled fiber, chemical and transportation costs. In our Corrugated Packaging segment, the third fiscal quarter is our peak mill outage quarter and we expect to take approximately 112,000 tons of scheduled maintenance downtime across our North American containerboard mills. In our Consumer Packaging segment, we had approximately 20,000 tons of paperboard shipments that were deferred from the actionssecond fiscal quarter to the third fiscal quarter due to the disruptions that we take underexperienced during the WestRock Pandemic Action Plan will position ussecond fiscal quarter.
For fiscal 2021, we expect to sustainbenefit from the continued flow through of previously published price increases and growth in packaging across our primary end markets, as well as the benefit from completing certain of our strategic capital projects. For example, we expect our Florence, SC mill to reach full production levels by the end of the fourth quarter of fiscal 2021 and improved margins from our business in Brazil that were negatively impacted in the first half of fiscal 2021 by maintenance and capital outages at the Tres Barras mill. In addition, our short-term incentive payouts for fiscal 2020 were below target and we will continue accruing short-term incentive payouts for fiscal 2021 at a range of economic level that is higher than the payout level for fiscal 2020. Given our outlook for earnings
32
and market conditions and position us for long-term success.anticipated strong cash flows, we expect to continue to reduce our debt.
Health and Safety of our TeammatesCOVID-19 RESPONSE
Our first priority is the health and safety of our teammates, and weteammates. We have taken, and continue to take, actions to protect the health and safety of our teammates during COVID-19. We are:
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|
|
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|
|
We have also implemented temperature screenings in compliance with applicable law and launched an online Coronavirus Resource Center to keep our teammates up to date on Company and health authority information, including information from the World Health Organization and the U.S. Centers for Disease Control and Prevention.
Business Continuity
Our business is an essential part of the global supply chain. Our paper and packaging products enable our customers to package essential food, beverage, health products, cleaning products and other goods. We are continuing to operate and meet or exceed our customers’ needs in this rapidly evolving demand environment.
47
We have In May 2020, we formed a business continuity team comprised of senior leaders throughout our organization that developscontinues to meet regularly to develop and implementsimplement business continuity plans to ensure that our operations are well positioned to continue producing and delivering products to customers without disruption. The business continuity team meets daily to identify and address issues as they arise and focuses on taking actions that address current circumstances associated with COVID-19 while positioning us for future growth.
Financial FlexibilityDuring the three and Liquiditysix months ended March 31, 2021, we recorded $7.1 million and $40.8 million of expense related to COVID-19, including $22.0 million of relief payments to employees in the first quarter of fiscal 2021. The balance was for increased costs for safety, cleaning and other items related to COVID-19. We began tracking the impact of costs for safety, cleaning and other items related to COVID-19 in the third quarter of fiscal 2020. We expect to continue to incur additional costs related to safety, cleaning and other items related to COVID-19 as needed in the foreseeable future.
We continue to execute our differentiated strategy with financial strength and substantial liquidity, and we continue to adapt to changing market conditions as a result of COVID-19. At March 31, 2021, we had approximately $3.6 billion of availability under long-term committed credit facilities and cash and cash equivalents. We have limited debt maturities prior to March 2022. We continue to believe that we have substantial liquidity to navigate the current dynamic environment. Our cashenvironment, and cash equivalents and long-term committed available borrowings aggregated to more than $2.5 billion of liquidity at March 31, 2020. We have limited debt maturities prior to March 2022. We remain focused on maintaining our investment grade rating and managing our working capital and taking appropriate actions to ensure our access to necessary liquidity.
The Coronavirus Aid, Relief,WestRock Pandemic Action Plan
Given the uncertainties associated with the severity and Economic Security (“CARES”) Act allows employersduration of the pandemic, in May 2020 we announced, and began implementing, the WestRock Pandemic Action Plan. We have modified the WestRock Pandemic Action Plan as the impact of COVID-19 has continued and we may further modify it in the future by, for example, increasing our dividend, changing our capital expenditure assumptions, future estimates or the duration of the planned items. We expect that the actions that we have undertaken and will continue to postpone paying theirundertake pursuant to the plan will provide an additional approximately $1 billion in cash through the end of calendar 2021 that we will be able to use to reduce our outstanding indebtedness. Pursuant to the WestRock Pandemic Action Plan, as modified, we are committed to: (i) continue to protect the safety and well-being of our teammates, (ii) continue to match our supply with our customers’ demand, (iii) reduce discretionary expenses, (iv) use Common Stock to make Company funded 401(k) match and annual contribution (i.e. up to 5% and 2.5%, respectively) beginning July 1, 2020 through September 30, 2021, (v) target reducing fiscal 2021 capital investments to a range of $800 million to $900 million (up from an initial range of $600 to $800 million), and (vi) resetting our quarterly dividend to $0.20 per share for an annual rate of $0.80 per share, which we did in May 2020. On May 4, 2021, our board of directors declared a quarterly dividend of $0.24 per share, an increase of $0.04 per share, or 20%, representing a $0.96 per share annualized dividend.
In addition, we followed through on previously disclosed commitments under the WestRock Pandemic Action Plan, as modified, including that we (i) decreased the salaries of our senior executive team by up to 25% from May 1, 2020 through December 31, 2020 and decreased the retainer for members of our board of directors by 25% for the third and fourth calendar quarters of 2020, (ii) used Common Stock to pay our annual incentive for fiscal 2020 for nearly all participants and set the payout level at 50% of the target opportunity subject to a safety modifier, as well as for Company funded 401(k) match and our annual contribution as noted above, and (iii) postponed $116.5 million of employment taxes incurred through the end of calendar year 2020.2020, pursuant to relief offered under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. We expectalso reduced fiscal 2020 capital investments to postpone an estimated $120$978.1 million of such payments over the next three quarters and will be requiredafter targeting to pay 50% of these amounts in December 2021 and the remaining 50% in December 2022.
End Market Segment Demand Trendsreduce them by approximately $150 million to approximately $950 million.
End market demand trends are changing quickly. 33
We experienced strong demand from e-commerceIn fiscal 2020, we achieved more than $350 million of the approximately $1 billion goal set forth in the second fiscal quarter and we expect that e-commerce demand may remain strong in the third fiscal quarter. During the second fiscal quarter, pantry stocking by consumers at the endWestRock Pandemic Action Plan, as modified. As of March positively impacted demand in31, 2021, we had achieved more than $750 million of the food, beverage, household cleaning and paper products, diapers and liquid packaging markets segments.approximately $1 billion goal. We expect that demand levelsour actions under the WestRock Pandemic Action Plan will continue to position us both to sustain our business in thesea range of economic and market segments will return to more normal levels. The protein markets have shifted from being strongly positive to negative during the second half of Aprilconditions and early May due to disruptions at protein plants caused by COVID-19, although, we expect that these disruptions are likely transitory. COVID-19 has also negatively impacted demand from our industrial and distribution customers due to shelter in place and similar orders and our foodservice and commercial print market segments are continuing a pattern of decline.for long-term success.
See Item 7. “These trends among our end market segments have continued into April. More than 130Management’s Discussion and Analysis of our customers have reported temporary plant closuresFinancial Condition and reduced shifts due to COVID-19. We are not certain whether these trends will continue into future reporting periods and, if so, for how long. We believe that our diverse portfolioResults of paper and packaging products positions us well to adapt and meet our customers’ changing needs across a broad cross-section of the economy.Operations — COVID-19 RESPONSE — WestRock Pandemic Action Plan
Expectations for the Third Quarter of Fiscal 2020
We believe that recent trends that we have experienced” in our end market segment demand are likely to cause our sales and earnings in the fiscal third quarter to decline sequentially compared to our sales and earnings in the second quarter of fiscal 2020. Changing demand trends across many of our end markets will likely negatively impact volumes in specific portions of our business. In addition to an uncertain volume outlook, our financial results in the fiscal third quarter will reflect the flow through of the published price reductionsFiscal 2020 Form 10-K for linerboard that were announced in January 2020 and the published price reductions for SBS and recycled boxboard paper grades that were announced in February 2020. Our business in the third fiscal quarter will also likely be negatively impacted by rising recycled fiber costs. The cost of recycled fiber has risen by more than $50 per ton since December 2019.
During the fiscal third quarter, we expect to provide one-time recognition awards to our teammates who work in manufacturing and operations.additional information.
48
GoodwillRESULTS OF OPERATIONS
At March 31, 2020, we evaluated the current economic environment, including our current assessment of the impact of COVID-19, and we believe that there were no indicators of impairment of our long-lived assets, including goodwill that required a quantitative test to be performed. Our estimates involve numerous assumptions about the future growth and potential volatility in revenues and costs, capital expenditures, industry and global economic factors, interest rate environment and future business strategy. Accordingly, our accounting estimates may materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to impairment losses that could be material. See Item 1A. “Risk Factors — We Have a Significant Amount of Goodwill and Other Intangible Assets and a Write-Down Would Adversely Impact Our Operating Results and Shareholders” in the Fiscal 2019 Form 10-K.
Non-GAAP Financial Measures
We report our financial results in accordance with GAAP. However, we have included financial measures that were not prepared in accordance with GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures of other companies.
We use the non-GAAP financial measures “Adjusted Net Income” and “Adjusted Earnings Per Diluted Share”. Management believes these non-GAAP financial measures provide our board of directors, investors, potential investors, securities analysts and others with useful information to evaluate our performance because the measures exclude restructuring and other costs and other specific items that management believes are not indicative of the ongoing operating results of the business. We and our board of directors use this information to evaluate our performance relative to other periods. We believe that the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Earnings Per Diluted Share are Net income attributable to common stockholders and Earnings per diluted share, respectively.
Earnings per diluted share were $0.57 in the second quarter of fiscal 2020 compared to $0.62 in the second quarter of fiscal 2019. Adjusted Earnings Per Diluted Share were $0.67 and $0.80 in the second quarter of fiscal 2020 and 2019, respectively.
49
Set forth below is a reconciliation of the non-GAAP financial measure Adjusted Earnings Per Diluted Share to Earnings per diluted share, the most directly comparable GAAP measure (in dollars per share) for the periods indicated.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Earnings per diluted share |
| $ | 0.57 |
|
| $ | 0.62 |
|
| $ | 1.10 |
|
| $ | 1.15 |
|
Restructuring and other items |
|
| 0.04 |
|
|
| 0.10 |
|
|
| 0.13 |
|
|
| 0.31 |
|
North Charleston and Florence transition and reconfiguration costs |
|
| 0.06 |
|
|
| — |
|
|
| 0.11 |
|
|
| — |
|
Accelerated depreciation on major capital projects and certain plant closures |
|
| 0.02 |
|
|
| 0.02 |
|
|
| 0.05 |
|
|
| 0.05 |
|
Losses at closed plants, transition and start-up costs |
|
| 0.03 |
|
|
| 0.01 |
|
|
| 0.04 |
|
|
| 0.02 |
|
Brazil indirect tax |
|
| — |
|
|
| — |
|
|
| (0.09 | ) |
|
| — |
|
Direct (recoveries) expenses from Hurricane Michael, net of related proceeds |
|
| — |
|
|
| — |
|
|
| (0.05 | ) |
|
| 0.12 |
|
Litigation recovery |
|
| (0.03 | ) |
|
| — |
|
|
| (0.03 | ) |
|
| — |
|
Gain on sale of certain closed facilities |
|
| (0.02 | ) |
|
| — |
|
|
| (0.02 | ) |
|
| (0.15 | ) |
Land and Development impairment and operating results (1) |
|
| — |
|
|
| 0.04 |
|
|
| — |
|
|
| 0.04 |
|
Inventory stepped-up in purchase accounting, net of LIFO |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.07 |
|
Interest accretion and other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.02 | ) |
Impact of Tax Cuts and Jobs Act |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.02 |
|
Other |
|
| — |
|
|
| 0.01 |
|
|
| 0.02 |
|
|
| 0.02 |
|
Adjusted Earnings Per Diluted Share |
| $ | 0.67 |
|
| $ | 0.80 |
|
| $ | 1.26 |
|
| $ | 1.63 |
|
|
|
The GAAP results in the tables below for Pre-Tax, Tax and Net of Tax are equivalent to the line items “Income before income taxes”, “Income tax expense” and “Consolidated net income”, respectively, as reported on the statements of income. Set forth below are reconciliations of Adjusted Net Income to the most directly comparable GAAP measure, Net income attributable to common stockholders (represented in the table below as the GAAP Results for Consolidated net income (i.e. Net of Tax) and the impact of Noncontrolling interests), for the periods indicated (in millions):
50
|
| Three Months Ended March 31, 2020 |
|
| Six Months Ended March 31, 2020 |
| ||||||||||||||||||
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
| $ | 206.7 |
|
| $ | (57.8 | ) |
| $ | 148.9 |
|
| $ | 392.7 |
|
| $ | (104.3 | ) |
| $ | 288.4 |
|
Restructuring and other items |
|
| 16.4 |
|
|
| (3.9 | ) |
|
| 12.5 |
|
|
| 46.5 |
|
|
| (11.6 | ) |
|
| 34.9 |
|
North Charleston and Florence transition and reconfiguration costs |
|
| 21.8 |
|
|
| (5.4 | ) |
|
| 16.4 |
|
|
| 37.1 |
|
|
| (9.1 | ) |
|
| 28.0 |
|
Accelerated depreciation on major capital projects and certain plant closures |
|
| 5.5 |
|
|
| (1.3 | ) |
|
| 4.2 |
|
|
| 17.1 |
|
|
| (4.2 | ) |
|
| 12.9 |
|
Losses at closed plants, transition and start-up costs |
|
| 9.1 |
|
|
| (2.5 | ) |
|
| 6.6 |
|
|
| 13.5 |
|
|
| (3.6 | ) |
|
| 9.9 |
|
Multiemployer pension withdrawal |
|
| 0.9 |
|
|
| (0.2 | ) |
|
| 0.7 |
|
|
| 0.9 |
|
|
| (0.2 | ) |
|
| 0.7 |
|
Loss on extinguishment of debt |
|
| 0.5 |
|
|
| (0.1 | ) |
|
| 0.4 |
|
|
| 0.5 |
|
|
| (0.1 | ) |
|
| 0.4 |
|
Brazil indirect tax |
|
| (1.3 | ) |
|
| 0.3 |
|
|
| (1.0 | ) |
|
| (35.1 | ) |
|
| 10.9 |
|
|
| (24.2 | ) |
Hurricane Michael recovery of direct costs, net |
|
| (0.6 | ) |
|
| 0.2 |
|
|
| (0.4 | ) |
|
| (16.6 | ) |
|
| 4.1 |
|
|
| (12.5 | ) |
Litigation recovery |
|
| (11.5 | ) |
|
| 2.8 |
|
|
| (8.7 | ) |
|
| (11.5 | ) |
|
| 2.8 |
|
|
| (8.7 | ) |
Gain on sale of certain closed facilities |
|
| (5.0 | ) |
|
| 1.2 |
|
|
| (3.8 | ) |
|
| (5.5 | ) |
|
| 1.3 |
|
|
| (4.2 | ) |
Land and Development operating results |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.3 | ) |
|
| 0.3 |
|
|
| (1.0 | ) |
Other |
|
| 0.8 |
|
|
| (0.2 | ) |
|
| 0.6 |
|
|
| 6.1 |
|
|
| (1.5 | ) |
|
| 4.6 |
|
Adjusted Results |
| $ | 243.3 |
|
| $ | (66.9 | ) |
| $ | 176.4 |
|
| $ | 444.4 |
|
| $ | (115.2 | ) |
| $ | 329.2 |
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
| (0.8 | ) |
|
|
|
|
|
|
|
|
|
| (1.8 | ) |
Adjusted Net Income |
|
|
|
|
|
|
|
|
| $ | 175.6 |
|
|
|
|
|
|
|
|
|
| $ | 327.4 |
|
|
| Three Months Ended March 31, 2019 |
|
| Six Months Ended March 31, 2019 |
| ||||||||||||||||||
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
| $ | 209.1 |
|
| $ | (47.2 | ) |
| $ | 161.9 |
|
| $ | 411.6 |
|
| $ | (109.9 | ) |
| $ | 301.7 |
|
Restructuring and other items |
|
| 34.8 |
|
|
| (8.0 | ) |
|
| 26.8 |
|
|
| 89.2 |
|
|
| (8.9 | ) |
|
| 80.3 |
|
Direct expenses from Hurricane Michael, net of related proceeds |
|
| (1.1 | ) |
|
| 0.3 |
|
|
| (0.8 | ) |
|
| 38.7 |
|
|
| (9.5 | ) |
|
| 29.2 |
|
Inventory stepped-up in purchase accounting, net of LIFO |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24.7 |
|
|
| (6.0 | ) |
|
| 18.7 |
|
Accelerated depreciation on major capital projects |
|
| 8.7 |
|
|
| (2.2 | ) |
|
| 6.5 |
|
|
| 17.6 |
|
|
| (4.5 | ) |
|
| 13.1 |
|
Land and Development impairment and operating results (1) |
|
| 12.5 |
|
|
| (3.1 | ) |
|
| 9.4 |
|
|
| 11.8 |
|
|
| (2.9 | ) |
|
| 8.9 |
|
Losses at closed plants, transition and start-up costs |
|
| 4.5 |
|
|
| (1.3 | ) |
|
| 3.2 |
|
|
| 6.8 |
|
|
| (1.9 | ) |
|
| 4.9 |
|
Gain on extinguishment of debt |
|
| (0.4 | ) |
|
| 0.1 |
|
|
| (0.3 | ) |
|
| 1.5 |
|
|
| (0.4 | ) |
|
| 1.1 |
|
Gain on sale of certain closed facilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50.5 | ) |
|
| 12.4 |
|
|
| (38.1 | ) |
Interest accretion and other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5.5 | ) |
|
| 1.3 |
|
|
| (4.2 | ) |
Impact of Tax Cuts and Jobs Act |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.1 |
|
|
| 4.1 |
|
Other |
|
| 2.7 |
|
|
| (0.6 | ) |
|
| 2.1 |
|
|
| 6.5 |
|
|
| (1.5 | ) |
|
| 5.0 |
|
Adjusted Results |
| $ | 270.8 |
|
| $ | (62.0 | ) |
| $ | 208.8 |
|
| $ | 552.4 |
|
| $ | (127.7 | ) |
| $ | 424.7 |
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
| (1.5 | ) |
|
|
|
|
|
|
|
|
|
| (2.2 | ) |
Adjusted Net Income |
|
|
|
|
|
|
|
|
| $ | 207.3 |
|
|
|
|
|
|
|
|
|
| $ | 422.5 |
|
|
|
51
We discuss certain of these charges in more detail in “Note 4. Restructuring and Other Costs” of the Notes to Condensed Consolidated Financial Statements.
Results of Operations (Consolidated)
The following table summarizes our consolidated results for the three and six months ended March 31, 20202021 and March 31, 20192020 (in millions):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net sales |
| $ | 4,447.3 |
|
| $ | 4,620.0 |
|
| $ | 8,871.0 |
|
| $ | 8,947.4 |
|
| $ | 4,437.8 |
|
| $ | 4,447.3 |
|
| $ | 8,839.3 |
|
| $ | 8,871.0 |
|
Cost of goods sold |
|
| 3,642.5 |
|
|
| 3,720.4 |
|
|
| 7,257.2 |
|
|
| 7,266.0 |
|
|
| 3,688.2 |
|
|
| 3,642.5 |
|
|
| 7,336.8 |
|
|
| 7,257.2 |
|
Gross profit |
|
| 804.8 |
|
|
| 899.6 |
|
|
| 1,613.8 |
|
|
| 1,681.4 |
|
|
| 749.6 |
|
|
| 804.8 |
|
|
| 1,502.5 |
|
|
| 1,613.8 |
|
Selling, general and administrative, excluding intangible amortization |
|
| 418.6 |
|
|
| 444.1 |
|
|
| 844.3 |
|
|
| 845.0 |
|
|
| 458.4 |
|
|
| 418.6 |
|
|
| 876.2 |
|
|
| 844.3 |
|
Selling, general and administrative intangible amortization |
|
| 100.1 |
|
|
| 102.4 |
|
|
| 201.9 |
|
|
| 195.3 |
|
|
| 88.6 |
|
|
| 100.1 |
|
|
| 180.5 |
|
|
| 201.9 |
|
Gain on disposal of assets |
|
| (5.6 | ) |
|
| — |
|
|
| (6.9 | ) |
|
| (43.8 | ) | ||||||||||||||||
Loss (gain) on disposal of assets |
|
| 0.3 |
|
|
| (5.6 | ) |
|
| 2.8 |
|
|
| (6.9 | ) | ||||||||||||||||
Multiemployer pension withdrawal expense |
|
| 0.9 |
|
|
| — |
|
|
| 0.9 |
|
|
| — |
|
|
| — |
|
|
| 0.9 |
|
|
| — |
|
|
| 0.9 |
|
Land and Development impairments |
|
| — |
|
|
| 13.0 |
|
|
| — |
|
|
| 13.0 |
| ||||||||||||||||
Restructuring and other costs |
|
| 16.4 |
|
|
| 34.8 |
|
|
| 46.5 |
|
|
| 89.2 |
|
|
| 5.2 |
|
|
| 16.4 |
|
|
| 12.9 |
|
|
| 46.5 |
|
Operating profit |
|
| 274.4 |
|
|
| 305.3 |
|
|
| 527.1 |
|
|
| 582.7 |
|
|
| 197.1 |
|
|
| 274.4 |
|
|
| 430.1 |
|
|
| 527.1 |
|
Interest expense, net |
|
| (97.3 | ) |
|
| (111.8 | ) |
|
| (190.8 | ) |
|
| (206.2 | ) |
|
| (83.5 | ) |
|
| (97.3 | ) |
|
| (177.3 | ) |
|
| (190.8 | ) |
(Loss) gain on extinguishment of debt |
|
| (0.5 | ) |
|
| 0.4 |
|
|
| (0.5 | ) |
|
| (1.5 | ) | ||||||||||||||||
Loss on extinguishment of debt |
|
| — |
|
|
| (0.5 | ) |
|
| (1.1 | ) |
|
| (0.5 | ) | ||||||||||||||||
Pension and other postretirement non-service income |
|
| 26.1 |
|
|
| 18.7 |
|
|
| 52.8 |
|
|
| 36.0 |
|
|
| 35.0 |
|
|
| 26.1 |
|
|
| 69.9 |
|
|
| 52.8 |
|
Other expense, net |
|
| (0.9 | ) |
|
| (3.3 | ) |
|
| (4.6 | ) |
|
| (6.0 | ) | ||||||||||||||||
Equity in income (loss) of unconsolidated entities |
|
| 4.9 |
|
|
| (0.2 | ) |
|
| 8.7 |
|
|
| 6.6 |
| ||||||||||||||||
Other (expense) income, net |
|
| (13.4 | ) |
|
| (0.9 | ) |
|
| 7.4 |
|
|
| (4.6 | ) | ||||||||||||||||
Equity in income of unconsolidated entities |
|
| 9.7 |
|
|
| 4.9 |
|
|
| 18.7 |
|
|
| 8.7 |
| ||||||||||||||||
Income before income taxes |
|
| 206.7 |
|
|
| 209.1 |
|
|
| 392.7 |
|
|
| 411.6 |
|
|
| 144.9 |
|
|
| 206.7 |
|
|
| 347.7 |
|
|
| 392.7 |
|
Income tax expense |
|
| (57.8 | ) |
|
| (47.2 | ) |
|
| (104.3 | ) |
|
| (109.9 | ) |
|
| (30.5 | ) |
|
| (57.8 | ) |
|
| (80.8 | ) |
|
| (104.3 | ) |
Consolidated net income |
|
| 148.9 |
|
|
| 161.9 |
|
|
| 288.4 |
|
|
| 301.7 |
|
|
| 114.4 |
|
|
| 148.9 |
|
|
| 266.9 |
|
|
| 288.4 |
|
Less: Net income attributable to noncontrolling interests |
|
| (0.8 | ) |
|
| (1.5 | ) |
|
| (1.8 | ) |
|
| (2.2 | ) |
|
| (1.9 | ) |
|
| (0.8 | ) |
|
| (2.4 | ) |
|
| (1.8 | ) |
Net income attributable to common stockholders |
| $ | 148.1 |
|
| $ | 160.4 |
|
| $ | 286.6 |
|
| $ | 299.5 |
|
| $ | 112.5 |
|
| $ | 148.1 |
|
| $ | 264.5 |
|
| $ | 286.6 |
|
Net Sales (Unaffiliated Customers)
(In millions, except percentages) |
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
|
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| ||||||||||||
Fiscal 2019 |
| $ | 4,327.4 |
|
| $ | 4,620.0 |
|
| $ | 8,947.4 |
|
| $ | 4,690.0 |
|
| $ | 4,651.6 |
|
| $ | 18,289.0 |
| ||||||||||||||||||||||||
Fiscal 2020 |
| $ | 4,423.7 |
|
| $ | 4,447.3 |
|
| $ | 8,871.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4,423.7 |
|
| $ | 4,447.3 |
|
| $ | 8,871.0 |
|
| $ | 4,236.3 |
|
| $ | 4,471.5 |
|
| $ | 17,578.8 |
|
Fiscal 2021 |
| $ | 4,401.5 |
|
| $ | 4,437.8 |
|
| $ | 8,839.3 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
% Change |
|
| 2.2 | % |
|
| (3.7 | )% |
|
| (0.9 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.5 | )% |
|
| (0.2 | )% |
|
| (0.4 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
34
Net sales in the second quarter of fiscal 20202021 decreased $172.7$9.5 million compared to the second quarter of fiscal 2019.2020. This decrease was primarily due to lower corrugated and pulp prices and lower consumer paperboard volumes as well as unfavorable foreign currency impacts across our segments, in each case compared to the prior year quarter, whichestimated $189.1 million of aggregate lost sales associated with the Events that were partially offset by the impact of higher containerboard volumes.selling price/mix, and higher volumes excluding the Events.
Net sales in the six months ended March 31, 20202021 decreased $76.4$31.7 million compared to the six months ended March 31, 2019. 2020. WThe decrease was primarily due to lowere experienced higher selling prices across our segmentsprice/mix, and lower consumer paperboardhigher volumes as well asin the period excluding the Events that decreased net sales by $189.1 million. Additionally, we experienced aggregate unfavorable foreign currency impacts across our segments, in each case comparedsegments. The decrease was also due to the prior year period. These decreases were partially offsetabsence of $18.9 million of Land and Development net sales due to the completion of the monetization program in fiscal 2020. The change in net sales by higher containerboard volumes
52
and the KapStone Acquisition as the prior year period included only five months of KapStone ownership as the transaction closed on November 2, 2018. We discuss our segment sales in greater detailis outlined below in “Results of Operations (Segment Data)— Corrugated Packaging Segment” and “Results of Operations — Consumer Packaging Segment”.
Cost of Goods Sold
(In millions, except percentages) |
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
|
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| ||||||||||||
Fiscal 2019 |
| $ | 3,545.6 |
|
| $ | 3,720.4 |
|
| $ | 7,266.0 |
|
| $ | 3,701.1 |
|
| $ | 3,572.9 |
|
| $ | 14,540.0 |
| ||||||||||||||||||||||||
Fiscal 2020 |
| $ | 3,614.7 |
|
| $ | 3,642.5 |
|
| $ | 7,257.2 |
|
| $ | 3,466.3 |
|
| $ | 3,658.1 |
|
| $ | 14,381.6 |
| ||||||||||||||||||||||||
(% of Net Sales) |
|
| 81.9 | % |
|
| 80.5 | % |
|
| 81.2 | % |
|
| 78.9 | % |
|
| 76.8 | % |
|
| 79.5 | % |
|
| 81.7 | % |
|
| 81.9 | % |
|
| 81.8 | % |
|
| 81.8 | % |
|
| 81.8 | % |
|
| 81.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020 |
| $ | 3,614.7 |
|
| $ | 3,642.5 |
|
| $ | 7,257.2 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Fiscal 2021 |
| $ | 3,648.6 |
|
| $ | 3,688.2 |
|
| $ | 7,336.8 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
(% of Net Sales) |
|
| 81.7 | % |
|
| 81.9 | % |
|
| 81.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 82.9 | % |
|
| 83.1 | % |
|
| 83.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
The $77.9$45.7 million decreaseincrease in cost of goods sold in the second quarter of fiscal 20202021 compared to the prior year quarter was primarily due to a decrease in net sales, nethigher cost deflationinflation and productivity improvements thatother items, including operational disruption associated with the Events. In the second quarter of fiscal 2021, we recorded costs of goods sold of $7.0 million related to costs for safety, cleaning and other items related to COVID-19. These items were partially offset by productivity improvements and other manufacturing cost increases, including increaseditems. We expect to continue to incur additional costs resulting fromrelated to safety, cleaning and other items related to COVID-19 as needed in the North Charleston, SC mill reconfiguration. In the three months ended March 31, 2019, we incurred approximately $28.9 million of direct costs and property damage associated with Hurricane Michael and received Hurricane Michael-related insurance proceeds of $60.0 million that were recorded as a reduction of cost of goods sold in our Corrugated Packaging segment. Half of the insurance proceeds was for the recovery of direct costs and property damage, and the other half was for business interruption recoveries.foreseeable future.
The $8.8$79.6 million decreaseincrease in cost of goods sold in the six months ended March 31, 2020 2021compared to the prior year period was primarily due to a decrease in overall net sales, nethigher cost deflationinflation and productivity improvements, whichother items, including operational disruption associated with the Events and COVID-19 related costs. These items were partially offset by increased costproductivity improvements and other items. In the first half of fiscal 2021, we recorded costs of goods sold associated with the impact of acquisitions (primarily an additional month of KapStone ownership in fiscal 2020)$36.5 million related to COVID-19 primarily for relief payments to employees and increased costs for safety, cleaning and other manufacturing cost increases, including increased costs resulting from the North Charleston, SC mill reconfiguration. items related to COVID-19. IInn the six months ended March 31, 2020, and 2019, we incurred approximately $4.0 million and $88.7 million, respectively, of direct costs and property damage associated with Hurricane Michael, and received Hurricane Michael-related insurance proceeds of $32.3 million and $80.0 million, respectively, which were recorded as a reduction of cost of goods sold in our Corrugated Packaging segment. The insurance proceeds were for $20.6 million and $50.0 million of direct costs and property damage for the six months ended March 31, 2020 and 2019, respectively, and for $11.7 million and $30.0 million for business interruption recoveries, respectively. See “Hurricane Michael” below for additional information. In the six months ended March 31, 2020, we recorded a reduction of cost of goods sold of $23.5 million in connection with an indirect tax claim in Brazil, primarily in the Corrugated Packaging segment. See “Note 14. CommitmentsThe insurance proceeds were for $20.6 million of direct costs and Contingencies — Indirect Tax Claim” ofproperty damage for the Notes to Condensed Consolidated Financial Statements for additional information. In the six months ended March 31, 2019, we recorded a $24.72020 and for $11.7 million acquisition inventory step-up charge in our Corrugated Packaging segment related to the KapStone Acquisition. for business interruption recoveries.
We discuss these items in greater detail below in “Results of Operations (Segment Data)— Corrugated Packaging Segment” and “Results of Operations — Consumer Packaging Segment”.
Selling, General and Administrative Excluding Intangible Amortization
(In millions, except percentages) |
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
|
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| ||||||||||||
Fiscal 2019 |
| $ | 400.9 |
|
| $ | 444.1 |
|
| $ | 845.0 |
|
| $ | 442.4 |
|
| $ | 427.8 |
|
| $ | 1,715.2 |
| ||||||||||||||||||||||||
Fiscal 2020 |
| $ | 425.7 |
|
| $ | 418.6 |
|
| $ | 844.3 |
|
| $ | 390.1 |
|
| $ | 390.0 |
|
| $ | 1,624.4 |
| ||||||||||||||||||||||||
(% of Net Sales) |
|
| 9.3 | % |
|
| 9.6 | % |
|
| 9.4 | % |
|
| 9.4 | % |
|
| 9.2 | % |
|
| 9.4 | % |
|
| 9.6 | % |
|
| 9.4 | % |
|
| 9.5 | % |
|
| 9.2 | % |
|
| 8.7 | % |
|
| 9.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020 |
| $ | 425.7 |
|
| $ | 418.6 |
|
| $ | 844.3 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Fiscal 2021 |
| $ | 417.8 |
|
| $ | 458.4 |
|
| $ | 876.2 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
(% of Net Sales) |
|
| 9.6 | % |
|
| 9.4 | % |
|
| 9.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9.5 | % |
|
| 10.3 | % |
|
| 9.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
35
Selling, general, and administrative expenses (“SG&A”) excluding intangible amortization decreased $25.5increased $39.8 million in the second quarter of fiscal 2021 compared to the prior year quarter. The increase was primarily due to a $33.9 million increase in bonus and stock-based compensation expense as a result of fiscal 2021 payments projected to be higher than fiscal 2020 payments due to the actions we took in fiscal 2020 in connection with the WestRock Pandemic Action Plan discussed above, and included a $9.6 million acceleration of stock-based compensation in connection with the departure of our former Chief Executive Officer in the current quarter. In addition, we incurred increased aggregate costs for consulting, professional and legal fees of $17.7 million compared to the prior year quarter, in part, due to travel and other reductionsprimarily associated with the implementation of shelterransomware incident. These increases were partially offset by a $11.6 million reduction in placetravel and entertainment associated with prolonged shelter-in-place orders as a result of COVID-19 that were
53
initiated in response to COVID-19. the ongoing effects of COVID-19, as well as a $4.5 million decrease in bad debt expense compared to the prior year period.
SG&A excluding intangible amortization decreased $0.7increased $31.9 million in the six months ended March 31, 20202021 compared to the six months ended March 31, 2019. 2020. DecreasesThe increase was primarily due to a $62.5 million increase in bonus and stock-based compensation expense as a result of fiscal 2021 payments projected to be higher than fiscal 2020 payments, and included a $9.6 million acceleration of stock-based compensation in connection with the departure of our former Chief Executive Officer. In addition, we incurred increased aggregate costs for consulting, professional and legal fees of $14.1 million compared to the six months ended March 31, 2020prior year quarter, primarily associated with the ransomware incident. These increases were partially offset by an additional montha $26.2 million reduction in travel and entertainment associated with prolonged shelter-in-place orders in response to the ongoing effects of KapStone ownershipCOVID-19, as well as a $9.6 million decrease in fiscal 2020. bad debt expense compared to the prior year period.
The favorable SG&A impact of shelter in placeshelter-in-place orders as a result of COVID-19 and increased levels of bonus and stock-based compensation expense as compared to fiscal 2020 will likely continue to some degree in the near term.
Selling, General and Administrative Intangible Amortization
SG&A intangible amortization was $100.1$88.6 million and $102.4$100.1 million in the second quarter of fiscal 2021 and 2020, and 2019, respectively.SG&A intangible amortization was $201.9$180.5 million and $195.3$201.9 million in the six months ended March 31, 20202021 and March 31, 2019,2020, respectively. The increase indeclines were primarily attributable to certain intangibles from prior acquisitions reaching full amortization.
Loss (Gain) on Disposal of Assets
In the three and six months ended March 31, 2020 was primarily due to an additional month2021, we recorded a loss on disposal of KapStone ownership in fiscal 2020.
Gain on Disposalassets of Assets
$0.3 and $2.8 million. In the three and six months ended March 31, 2020, we recorded a gain on disposal of assets of $5.6 million and $6.9 million, respectively. In the six months ended March 31, 2019, we recorded a gain on disposal of assets of $43.8 million, primarily due to a $48.5 million gain on sale of our former beverage facility located in Atlanta, GA.
Land and Development Impairments
In the second quarter of fiscal 2019, we recorded a $13.0 million pre-tax non-cash impairment of certain mineral rights. This charge is not reflected in segment income.
Restructuring and Other Costs
We recorded aggregate pre-tax restructuring and other costs of $16.4$5.2 million and $34.8$16.4 million in the second quarter of fiscal 20202021 and 2019,2020, respectively, and $46.512.9 million and $89.246.5 million in the six months ended March 31, 20202021 and March 31, 2019,2020, respectively. These amounts are not comparable since the timing and scope of the individual actions associated with a given restructuring, acquisition, integration or divestiture vary. We generally expect the integration of a closed facility’s assets and production with other facilities to enable the receiving facilities to better leverage their fixed costs while eliminating fixed costs from the closed facility. See “Note 4.3. Restructuring and Other Costs” of the Notes to Condensed Consolidated Financial Statements for additional information.
Interest Expense, net
Interest expense, net for the second quarter of fiscal 20202021 was $97.3$83.5 million compared to $111.8$97.3 million for the prior year quarter. The decrease iswas primarily due to lower levels of debt and lowercompared to the prior year period, as well as a $8.1 million reduction in interest expense associated with the remeasurement of our multiemployer pension liabilities for the change in interest rates in the second quarter of fiscal 2020.2021.
Interest expense, net for the six months ended March 31, 20202021 was $190.8$177.3 million compared to $206.2$190.8 million for the prior year period.Interest expense, net in the three and six months ended March 31, 2020 decreased The decrease is primarily as an additional monthdue to lower levels of KapStone ownershipdebt in fiscal 2020 was more than offset by2021 compared to the prior
36
year period. Additionally, the current year period included the $8.1 million reduction in interest expense associated with the remeasurement of our multiemployer pension liabilities and the prior year included $11.6 million of interest income recorded in connection with an indirect tax claim in Brazil in the six months ended March 31,first half of fiscal 2020. In addition, the decrease was due to lower levels of debt and lower interest rates in the current year period.
See “Note 14.13. Commitments and Contingencies — Indirect Tax Claim” of the Notes to Condensed Consolidated Financial Statements for additional information.
Pension and Other Postretirement Non-Service Income
Pension and other postretirement non-service income for the second quarter of fiscal 20202021 was $26.1$35.0 million compared to $18.7$26.1 million for the second quarter of fiscal 2019.2020. Pension and other postretirement non-service income for the six months ended March 31, 20202021 was $52.8$69.9 million compared to $36.0$52.8 million for the six months ended March 31, 2019.2020. The increases wereincrease was primarily due to the increase in plan asset balances used to determine the expected return on plan assets for fiscal 2020.2021. Customary pension and other postretirement (income) costs are included in segment income. See “Note 5.4. Retirement Plans” of the Notes to Condensed Consolidated Financial Statements for more information.
54
Other expense,(expense) income, net
Other expense,(expense) income, net for the second quarter of fiscal 20202021 was $0.9expense of $13.4 million compared to $3.3expense of $0.9 million in the second quarter of fiscal 2019. 2020. The expense in the second quarter of fiscal 2021 was primarily due to a charge of $22.5 million associated with not exercising an option to purchase an additional equity interest in Grupo Gondi, plus other items, that were partially offset by a $16.5 million gain on sale of the Summerville, SC sawmill.
Other expense,(expense) income, net for the six months ended March 31, 20202021 was $4.6income of $7.4 million compared to $6.0expense of $4.6 million for the six months ended March 31, 2019.first half of fiscal 2020. The first half of fiscal 2021 included a $16.5 million gain on sale of the Summerville, SC sawmill and a $14.7 million gain on sale of a legacy cost method investment which were partially offset by a $22.5 million charge associated with not exercising an option to purchase an additional equity interest in Grupo Gondi, plus other items.
Provision for Income Taxes
We recorded income tax expense of $30.5 million for the three months ended March 31, 2021 compared to $57.8 million for the three months ended March 31, 2020 compared to an income tax expense of $47.2 million for the three months ended March 31, 2019.2020. The effective tax rate for the three months ended March 31, 20202021 was 28.0%21.0%, while the effective tax rate for the three months ended March 31, 20192020 was 22.6%28.0%.
We recorded income tax expense of $80.8 million for the six months ended March 31, 2021 compared to $104.3 million for the six months ended March 31, 2020 compared to income2020. The effective tax expense of $109.9 millionrate for the six months ended March 31, 2019. The2021 was 23.2%, while the effective tax rate for the six months ended March 31, 2020 was 26.6%, while the effective tax rate for the six months ended March 31, 2019 was 26.7%.
See “Note 6.5. Income Taxes” of the Notes to Condensed Consolidated Financial Statements for the primary factors impacting our effective tax rates.
Hurricane MichaelCorrugated Packaging Segment
In October 2018, our containerboard and pulp mill located in Panama City, FL sustained extensive damage from Hurricane Michael. We shut down the mill’s operations in advance of the hurricane’s landfall. Repair work was completed on the two paper machines and related infrastructure during June 2019 and these paper machines are producing at normal production levels. In fiscal 2019, we received $180.0 million of insurance proceeds. In the first quarter of fiscal 2020, we settled our property damage and business interruption insurance claim for $212.3 million (net of our $15 million deductible), and received the remaining $32.3 million of insurance proceeds.
The insurance proceeds received in the six months ended March 31, 2020 consisted of $11.7 million of business interruption recoveries and $20.6 million for direct costs and property damage. In the three and six months ended March 31, 2019, we received insurance proceeds of $60.0 million and $80.0 million, respectively. The insurance proceeds for the six months ended March 31, 2019 consisted of $30.0 million of business interruption recoveries and $50.0 million for direct costs and property damage. We discuss the financial impact of Hurricane Michael in greater detail below in “Results of Operations (Segment Data) — Segment Income (Corrugated Packaging Segment)”.
Results of Operations (Segment Data)
North American Corrugated Packaging Shipments
Corrugated Packaging shipments are expressed as a tons equivalent, which includes external and intersegment tons shipped from our Corrugated Packaging mills plus Corrugated Packaging container shipments converted from billion square feet (“BSF”) to tons. We have presented the Corrugated Packaging shipments in two groups: North American and Brazil / India because we believe investors, potential investors, securities analysts and others find this breakout useful when evaluating our operating performance. We have included the impact of the KapStone Acquisition beginning in the first quarter of fiscal 2019. The second quarter and full year fiscal 2019 amounts in the table below have been adjusted by an immaterial amount to adjust the acquired KapStone operations. The shipment data table excludes merchandising displays since there is not a common unit of measure. The table below reflects shipments in thousands of tons, BSF and millions of square feet (“MMSF”). per shipping day. The number of shipping days vary by geographic location.
5537
North American Corrugated Packaging Shipments
|
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
|
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| ||||||||||||
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
North American Corrugated Packaging Shipments - thousands of tons |
|
| 2,346.7 |
|
|
| 2,510.2 |
|
|
| 4,856.9 |
|
|
| 2,644.2 |
|
|
| 2,616.4 |
|
|
| 10,117.5 |
|
|
| 2,591.2 |
|
|
| 2,618.8 |
|
|
| 5,210.0 |
|
|
| 2,504.4 |
|
|
| 2,504.4 |
|
|
| 10,218.8 |
|
North American Corrugated Containers Shipments - BSF |
|
| 22.5 |
|
|
| 23.4 |
|
|
| 45.9 |
|
|
| 24.3 |
|
|
| 24.1 |
|
|
| 94.3 |
|
|
| 23.9 |
|
|
| 23.8 |
|
|
| 47.7 |
|
|
| 23.2 |
|
|
| 24.9 |
|
|
| 95.8 |
|
North American Corrugated Containers Per Shipping Day - MMSF |
|
| 369.4 |
|
|
| 372.2 |
|
|
| 370.8 |
|
|
| 384.7 |
|
|
| 382.7 |
|
|
| 377.3 |
|
|
| 385.9 |
|
|
| 371.2 |
|
|
| 378.4 |
|
|
| 369.3 |
|
|
| 388.0 |
|
|
| 378.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
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|
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|
|
|
|
|
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|
|
|
|
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Fiscal 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||||||||||||||||
North American Corrugated Packaging Shipments - thousands of tons |
|
| 2,591.2 |
|
|
| 2,618.8 |
|
|
| 5,210.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,519.3 |
|
|
| 2,485.2 |
|
|
| 5,004.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Corrugated Containers Shipment - BSF |
|
| 23.9 |
|
|
| 23.8 |
|
|
| 47.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25.4 |
|
|
| 24.7 |
|
|
| 50.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Corrugated Containers Per Shipping Day - MMSF |
|
| 385.9 |
|
|
| 371.2 |
|
|
| 378.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 416.7 |
|
|
| 391.5 |
|
|
| 403.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil / India Corrugated Packaging Shipments
|
| First Quarter |
|
| Second Quarter |
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| |||||||||||||||||||||||||||
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Brazil / India Corrugated Packaging Shipments - thousands of tons |
|
| 185.6 |
|
| 176.5 |
|
| 362.1 |
|
|
| 171.0 |
|
|
| 194.6 |
|
|
| 727.7 |
| ||||||||||||||||||||||
Brazil / India Corrugated Containers Shipments - BSF |
|
| 1.6 |
|
| 1.5 |
|
| 3.1 |
|
| 1.6 |
|
|
| 1.7 |
|
|
| 6.4 |
| |||||||||||||||||||||||
Brazil / India Corrugated Containers Per Shipping Day - MMSF |
|
| 20.7 |
|
| 20.6 |
| 20.6 |
|
|
| 21.0 |
|
|
| 21.8 |
|
|
| 21.0 |
| |||||||||||||||||||||||
|
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|
|
| First Quarter |
|
| Second Quarter |
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| |||||
Fiscal 2020 |
|
|
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|
|
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|
|
|
|
|
|
Brazil / India Corrugated Packaging Shipments - thousands of tons |
|
| 168.1 |
|
| 182.5 |
|
| 350.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 168.1 |
|
| 182.5 |
|
| 350.6 |
|
|
| 176.4 |
|
|
| 185.1 |
|
|
| 712.1 |
|
Brazil / India Corrugated Containers Shipments - BSF |
|
| 1.7 |
|
| 1.6 |
|
| 3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.7 |
|
| 1.6 |
|
| 3.3 |
|
| 1.6 |
|
|
| 1.9 |
|
|
| 6.8 |
| |
Brazil / India Corrugated Containers Per Shipping Day - MMSF |
|
| 22.9 |
|
| 21.3 |
| 22.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22.9 |
|
| 21.3 |
| 22.1 |
|
|
| 21.0 |
|
|
| 24.3 |
|
|
| 22.4 |
| ||
|
|
|
|
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|
|
|
|
|
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|
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|
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|
|
| ||||||||||||||||||||||
Fiscal 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Brazil / India Corrugated Packaging Shipments - thousands of tons |
|
| 156.8 |
|
| 183.9 |
|
| 340.7 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Brazil / India Corrugated Containers Shipments - BSF |
|
| 1.8 |
|
| 1.9 |
|
| 3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Brazil / India Corrugated Containers Per Shipping Day - MMSF |
|
| 23.5 |
|
| 24.5 |
|
| 24.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5638
Corrugated Packaging Segment – Net Sales and Income
(In millions, except percentages) |
| Net Sales (1) |
|
| Segment Income |
|
| Return on Sales |
|
| Net Sales (1) |
|
| Segment Income |
|
| Return on Sales |
| ||||||
|
|
|
| |||||||||||||||||||||
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
First Quarter |
| $ | 2,733.8 |
|
| $ | 246.8 |
|
|
| 9.0 | % | ||||||||||||
Second Quarter |
|
| 2,990.7 |
|
|
| 310.3 |
|
|
| 10.4 |
| ||||||||||||
Six Months Ended March 31, 2019 |
|
| 5,724.5 |
|
|
| 557.1 |
|
|
| 9.7 |
| ||||||||||||
Third Quarter |
|
| 3,072.8 |
|
|
| 392.7 |
|
|
| 12.8 |
| ||||||||||||
Fourth Quarter |
|
| 3,019.4 |
|
|
| 449.8 |
|
|
| 14.9 |
| ||||||||||||
Total |
| $ | 11,816.7 |
|
| $ | 1,399.6 |
|
|
| 11.8 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
| $ | 2,909.5 |
|
| $ | 283.4 |
|
|
| 9.7 | % |
| $ | 2,909.5 |
|
| $ | 283.4 |
|
|
| 9.7 | % |
Second Quarter |
|
| 2,882.5 |
|
|
| 244.5 |
|
|
| 8.5 |
|
|
| 2,882.5 |
|
|
| 244.5 |
|
|
| 8.5 |
|
Six Months Ended March 31, 2020 |
| $ | 5,792.0 |
|
| $ | 527.9 |
|
|
| 9.1 | % |
|
| 5,792.0 |
|
|
| 527.9 |
|
|
| 9.1 |
|
Third Quarter |
|
| 2,728.8 |
|
|
| 227.9 |
|
|
| 8.4 |
| ||||||||||||
Fourth Quarter |
|
| 2,898.4 |
|
|
| 281.9 |
|
|
| 9.7 |
| ||||||||||||
Total |
| $ | 11,419.2 |
|
| $ | 1,037.7 |
|
|
| 9.1 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Fiscal 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
First Quarter |
| $ | 2,864.5 |
|
| $ | 215.0 |
|
|
| 7.5 | % | ||||||||||||
Second Quarter |
|
| 2,913.4 |
|
|
| 205.3 |
|
|
| 7.0 |
| ||||||||||||
Six Months Ended March 31, 2021 |
| $ | 5,777.9 |
|
| $ | 420.3 |
|
|
| 7.3 | % |
(1) Net sales before intersegment eliminations.
Net Sales (Corrugated(Aggregate) — Corrugated Packaging Segment)Segment
Net sales of the Corrugated Packaging segment increased $30.9 million in the second quarter of fiscal 2021 compared to the prior year quarter. The increase primarily consisted of $60.3 million of higher selling price/mix on sales that was partially offset by $22.3 million of unfavorable foreign currency impacts and $18.7 million of lower volumes. Excluding the estimated impact of $77.0 million and $39.9 million of lower volumes due to the ransomware incident and winter weather, respectively, volumes would have increased $98.2 million. Record second quarter North American per day box shipments during the quarter increased 5.5% compared to the prior year period.
Net sales of the Corrugated Packaging segment decreased $108.2 million in the second quarter of fiscal 2020 compared to the prior year quarter. The decrease primarily consisted of $169.7 million from lower corrugated selling price/mix on sales and $18.3 million related to the unfavorable impacts of foreign currency. These decreases were partially offset by $76.7 million of higher volumes in the second quarter of fiscal 2020.
Net sales of the Corrugated Packaging segment increased $67.5$14.1 million in the six months ended March 31, 20202021 compared to the prior year period,period. The decrease primarily reflecting $278.3consisted of $54.6 million of net sales from the acquired KapStone operations for the month of October 2019. In addition, we had $80.3 million of higher volumes in the six months ended March 31, 2020. These increases were partially offset by $278.2 million from lower corrugated selling price/mix on sales that was more than offset by $49.1 million of unfavorable foreign currency impacts and $27.1$31.5 million relatedof lower volumes. Excluding the estimated impact of $77.0 million and $39.9 million of lower volumes due to the unfavorable impacts of foreign currency.ransomware incident and winter weather, respectively, volumes would have increased $85.4 million. Record North American per day box shipments during the six month period increased 6.7% compared to the prior year period.
Segment Income (Corrugated— Corrugated Packaging Segment)Segment
Segment income attributable to the Corrugated Packaging segment in the second quarter of fiscal 20202021 decreased $65.8$39.2 million primarily due to an estimated $94.7 million of net cost inflation, $40.5 million estimated impact of the ransomware incident, $15.9 million estimated impact of winter weather and safety, cleaning and other items related to COVID-19 aggregating $4.0 million. These items were partially offset by $71.1 million of margin impact from higher selling price/mix, $18.7 million of higher volumes, which excludes the impact of the Events, $9.7 million of lower depreciation and amortization and $16.4 million of other items, including lower costs compared to the prior year quarter primarily duerelated to the margin impact of lower selling price/mix of $169.7 million and other manufacturing cost increases, including increased costs resulting from the North Charleston, SCSouth Carolina mill reconfiguration. These decreases were partially offset by an estimated $45.2 millionreconfiguration project and the Florence, South Carolina paper machine project that decreased operating results in the second quarter of net cost deflation, $40.4 million of higher volumes, $19.1 million of productivity improvements, an estimated $17.2 million decreased impact of economic downtime and $7.2 million from a litigation recovery. fiscal 2020. Net cost deflationinflation consisted primarily of lower recoveredhigher recovered fiber, energy, virgin fiber, chemical, freight and freightwage and other costs that were partially offset by higher wage and other costslower virgin fiber compared to the prior year quarter. The impact of Hurricane Michael net of insurance proceeds was an unfavorable $3.8 million in the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019.
Segment income attributable to the Corrugated Packaging segment in the six months ended March 31, 20202021 decreased $29.2$107.6 million compared to the prior year period, primarily due to an estimated $158.1 million of net cost inflation, $40.5 million estimated impact of the ransomware incident, $15.9 million estimated impact of winter weather, $21.4 million related to COVID-19 primarily for relief payments to employees and increased costs for
39
safety, cleaning and other items related to COVID-19 and $28.3 million of Hurricane Michael insurance recoveries net of direct costs in the prior year period as well as $20.9 million of decreased indirect tax claims in Brazil. These items were partially offset by $65.4 million of margin impact of lowerfrom higher selling price/mix, $14.0 million of $298.3higher volumes, which excludes the impact of the Events in the second quarter of fiscal 2021, $21.7 million of lower depreciation and amortization, primarily due to accelerated depreciation incurred in the prior year period associated with the Florence, SC paper machine project and the North Charleston, SC reconfiguration project, $18.4 million of estimated productivity savings net of the Tres Barras planned maintenance outage in the first quarter of fiscal 2021 and other manufacturing cost increases, including increasedfavorable items aggregating $58.0 million. These other favorable items included lower costs resulting fromcompared to the prior year period for the North Charleston, SC mill reconfiguration project and the Florence, SC paper machine project, the decreased negative impact of increased maintenance downtime. These decreases were partially offset by the net favorable impact of Hurricane Michael in the six months ended March 31, 2020 compared to the prior year period. The net recovery of Hurricane Michael direct costs and property damage was a favorable $55.3 million compared to the prior year period net expense incurred, and the impact of business interruption recoveries in the current year period compared to lost production and sales net of recoveries in the
57
prior year period were an estimated favorable $39.8 million. In addition, we realized an estimated $93.3 million of net cost deflation, $47.1 million of higher volumes, $41.7 million of productivity improvements, $21.5 million for an indirect tax claim in Brazil, an estimated $14.5 million decreased impact of economic downtime and $7.2 million from a litigation recovery. other items. Net cost deflationinflation consisted primarily of lower recoveredhigher recovered fiber, energy, virgin fiber, freight, chemical and chemicalwage and other costs that were partially offset by higher wage and other costslower virgin fiber compared to the prior year period. The prior year period included an acquisition inventory step-up charge of $24.7 million.quarter.
We provide additional information regarding the impact of Hurricane Michael on our Panama City mill in more detail above under “
Results of Operations (Consolidated)Consumer Packaging Segment — Hurricane Michael”.
Consumer Packaging Shipments
Consumer Packaging shipments are expressed as a tons equivalent, which includes external and intersegment tons shipped from our Consumer Packaging mills plus Consumer Packaging converting shipments converted from BSF to tons. The shipment data table excludes gypsum paperboard liner tons produced by Seven Hills Paperboard LLC our joint venture in Lynchburg, VA since it is not consolidated.
|
| First Quarter |
|
| Second Quarter |
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| |||||||||||||||||||||||||||||
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Consumer Packaging Shipments - thousands of tons |
|
| 969.6 |
|
| 985.5 |
|
| 1,955.1 |
|
|
| 980.1 |
|
|
| 974.0 |
|
|
| 3,909.2 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First Quarter |
|
| Second Quarter |
|
| Six Months Ended 3/31 |
|
| Third Quarter |
|
| Fourth Quarter |
|
| Fiscal Year |
| ||||||
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging Shipments - thousands of tons |
|
| 922.4 | �� |
| 987.7 |
|
| 1,910.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 922.4 |
|
| 987.7 |
|
|
| 1,910.1 |
|
|
| 984.5 |
|
|
| 976.8 |
|
|
| 3,871.4 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Fiscal 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Consumer Packaging Shipments - thousands of tons |
|
| 940.4 |
|
|
| 913.0 |
|
|
| 1,853.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging Segment – Net Sales and Income
(In millions, except percentages) |
| Net Sales (1) |
|
| Segment Income |
|
| Return on Sales |
|
| Net Sales (1) |
|
| Segment Income |
|
| Return on Sales |
| ||||||
|
|
|
| |||||||||||||||||||||
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
First Quarter |
| $ | 1,618.8 |
|
| $ | 76.9 |
|
|
| 4.8 | % | ||||||||||||
Second Quarter |
|
| 1,668.3 |
|
|
| 85.2 |
|
|
| 5.1 |
| ||||||||||||
Six Months Ended March 31, 2019 |
|
| 3,287.1 |
|
|
| 162.1 |
|
|
| 4.9 |
| ||||||||||||
Third Quarter |
|
| 1,650.1 |
|
|
| 91.0 |
|
|
| 5.5 |
| ||||||||||||
Fourth Quarter |
|
| 1,668.8 |
|
|
| 135.0 |
|
|
| 8.1 |
| ||||||||||||
Total |
| $ | 6,606.0 |
|
| $ | 388.1 |
|
|
| 5.9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
| $ | 1,536.9 |
|
| $ | 46.2 |
|
|
| 3.0 | % |
| $ | 1,536.9 |
|
| $ | 46.2 |
|
|
| 3.0 | % |
Second Quarter |
|
| 1,616.3 |
|
|
| 90.8 |
|
|
| 5.6 |
|
|
| 1,616.3 |
|
|
| 90.8 |
|
|
| 5.6 |
|
Six Months Ended March 31, 2020 |
| $ | 3,153.2 |
|
| $ | 137.0 |
|
|
| 4.3 | % |
|
| 3,153.2 |
|
|
| 137.0 |
|
|
| 4.3 |
|
Third Quarter |
|
| 1,552.6 |
|
|
| 95.3 |
|
|
| 6.1 |
| ||||||||||||
Fourth Quarter |
|
| 1,627.2 |
|
|
| 91.4 |
|
|
| 5.6 |
| ||||||||||||
Total |
| $ | 6,333.0 |
|
| $ | 323.7 |
|
|
| 5.1 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Fiscal 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
First Quarter |
| $ | 1,595.1 |
|
| $ | 92.5 |
|
|
| 5.8 | % | ||||||||||||
Second Quarter |
|
| 1,589.9 |
|
|
| 81.2 |
|
|
| 5.1 |
| ||||||||||||
Six Months Ended March 31, 2021 |
| $ | 3,185.0 |
|
| $ | 173.7 |
|
|
| 5.5 | % |
(1)(1) Net sales before intersegment eliminations.
40
Net Sales (Consumer(Aggregate) — Consumer Packaging Segment)Segment
The $52.0$26.4 million decrease in net sales for the Consumer Packaging segment for the second quarter of fiscal 20202021 compared to the prior year quarter was primarily due to $20.9 million of lower selling price/mix on sales, $19.0$64.5 million of lower volumes and $12.8that were partially offset by $25.1 million of unfavorablefavorable foreign currency impacts.impacts and $13.0 million of higher selling price/mix on sales. Excluding the estimated impact of $40.5 million and $31.7 million of lower volumes due to the ransomware incident and winter weather, respectively, volumes would have increased $7.7 million.
58
The $133.9$31.8 million decreaseincrease in net sales for the Consumer Packaging segment for the six months ended March 31, 20202021 compared to the prior year period was primarily due to $82.8$34.1 million of lower volumes, largely consumer paperboard volumes, $32.1 million of lowerhigher selling price/mix on sales and $21.4$34.9 million of unfavorablefavorable foreign currency impacts.impacts which were partially offset by $37.4 million of lower volumes. Excluding the estimated impact of $40.5 million and $31.7 million due to the ransomware incident and winter weather, respectively, volumes would have increased $34.8 million.
Segment Income (Consumer— Consumer Packaging Segment)Segment
Segment income attributable to the Consumer Packaging segment in the second quarter of fiscal 2020 increased $5.62021 decreased $9.6 million compared to the prior year quarter primarily due to $10.4an estimated $17.5 million of net cost inflation, $14.1 million estimated impact of winter weather, $12.4 million estimated impact of the ransomware incident and safety, cleaning and other items related to COVID-19 aggregating $3.0 million. These items were partially offset by $17.8 million of margin impact from higher selling price/mix, an estimated $13.7 million of productivity improvements, an estimated $8.7 million of net cost deflation, $6.0$3.1 million of lower depreciation and amortization and $3.7$2.0 million of lower outage expense. These items were partially offset by an estimated $10.8 millionhigher volumes, which excludes the impact of margin impact from lower selling price/mix, $7.2 million of lower volumes, an estimated $7.1 million of economic downtime, $1.9 million of unfavorable foreign currency impacts, and other items. the Events. Net cost deflationinflation consisted primarily of lower energy, virgin fiber,higher wage and other costs and higher recovered fiber, chemical, energy and freight costs, which were partially offset by higher wage and otherlower virgin fiber costs.
Segment income attributable to the Consumer Packaging segment for the six months ended March 31, 2020 decreased $25.12021 increased $36.7 million compared to the prior year period primarily due to an estimated $19.5$57.3 million of productivity improvements, $35.9 million of margin impact from lowerhigher selling price/mix, $18.0$8.1 million of higher volumes, which excludes the impact of the Events, $7.4 million of lower volumes, $12.2depreciation and amortization and $14.5 million of increased costs due to outages, an estimated $11.5 million of economic downtime, $6.1 million of unfavorable foreign currency impacts, and other items.items. These items were partially offset by $15.2 million of productivity improvements, an estimated $14.6$31.6 million of net cost deflationinflation, $14.1 million estimated impact of winter weather, $12.4 million estimated impact of the ransomware incident, COVID-19 relief payments and $9.3other safety, cleaning and other items related to COVID-19 aggregating $17.6 million and an estimated $10.8 million of lower depreciation and amortization. economic downtime. Net cost deflationinflation consisted primarily of lower energy,higher wage and other costs and higher recovered fiber, virgin fiber,energy, freight and chemical and freight costs, which were partially offset by higher wage and otherlower virgin fiber costs.
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
We fund our working capital requirements, capital expenditures, mergers, and acquisitions and investments, restructuring activities, dividends and stock repurchases from net cash provided by operating activities, borrowings under our credit facilities, proceeds from the sale of receivables under our A/R Sales Agreement,accounts receivable sales agreements, proceeds from the sale of property, plant and equipment removed from service and proceeds received in connection with the issuance of debt and equity securities. See “Note 11. Debt” of the Notes to Condensed Consolidated Financial Statements and “Note 13. Debt” of the Notes to Consolidated Financial Statements section in the Fiscal 20192020 Form 10-K for more information regarding our debt. Funding for our domestic operations in the foreseeable future is expected to come from sources of liquidity within our domestic operations, including cash and cash equivalents, and available borrowings under our credit facilities. As such, our foreign cash and cash equivalents are not expected to be a key source of liquidity to our domestic operations.
41
Cash and cash equivalents were $640.2$334.0 million at March 31, 20202021 and $151.6$251.1 million at September 30, 2019.2020. Approximately one-fourthfour-fifths of the cash and cash equivalents at March 31, 20202021 was held outside of the U.S. The proportion of cash and cash equivalents held outside of the U.S. generally varies from period to period. At March 31, 20202021 and September 30, 2019,2020, total debt was $10,856.6$8,942.6 million and $10,063.4$9,430.6 million, respectively, $432.0$549.5 million and $561.1$222.9 million of which was short-term at March 31, 20202021 and September 30, 2019,2020, respectively. Included in our total debt at March 31, 20202021 was $217.9200.7 million of non-cash acquisition relatedacquisition-related step-up. The increase in totalTotal debt in fiscal 2020at March 31, 2021 decreased $488.0 million compared to September 30, 2020. Total debt was primarily impacted by the result of borrowings to increase our cash and cash equivalents balance, aggregate capital expenditures and dividends in excess of net cash provided by operating activities as well as our adoptionexceeding aggregate capital expenditures and dividends, despite an increase in accounts receivable during the second quarter of fiscal 2021 associated with delayed billing due to the leasing guidance codifiedransomware incident. We expect the level of accounts receivable to normalize in ASC 842 that recharacterized a short-term and long-term liability for two chip mills to a $100.3 million finance lease obligation at October 1, 2019.the third quarter of fiscal 2021.
At March 31, 2020,2021, we had in excess of $2.5approximately $3.6 billion of availability under our long-term committed credit facilities and cash and cash equivalents. Our primary availability is under our revolving credit facilities and Receivables Securitization Facility, the majority of which matures on November 21, 2024. This liquidity may be used to provide for ongoing working capital needs and for other general corporate purposes, including acquisitions, dividends and stock repurchases. As noted above, the current portion of debt at March 31, 2020 was $432.0 million including fair value of debt step-up, deferred financing costs and unamortized bond discounts aggregating $1.1 million. The face value of debt consisted of $105.0 million of public bonds the majority of which are due in June 2020, $125.0 million under an uncommitted facility with a maturity date in February 2021, approximately $108.4 million of various supplier financing programs, $54.5 million under our commercial paper program and $38.0 million of other items. We have limited debt maturities prior to March 2022.
59
Certain restrictive covenants govern our maximum availability under our credit facilities. We test and report our compliance with these covenants as required by these facilities and were in compliance with these covenants at March 31, 2020.2021.
At March 31, 2020,2021, we had $73.0$66.1 million of outstanding letters of credit not drawn upon.
We use a variety of working capital management strategies, including supply chain financing ("SCF") programs, vendor financing and commercial card programs, a monetization facility where we sell short-term receivables to a group of third-party financial institutions and a receivables securitization facility. We describe these programs below.
We engage in certain customer-based SCF programs to accelerate the receipt of payment for outstanding accounts receivable from certain customers. Certain costs of these programs are borne by the customer or us. Receivables transferred under these customer-based supply chain financing programs generally meet the requirements to be accounted for as sales in accordance with guidance under ASC 860, “Transfers and Servicing” resulting in derecognition of such receivables from our consolidated balance sheets. Receivables involved with these customer-based supply chain finance programs constitute less than 3% of our annual net sales. In addition, we have monetization facilities that sell to third-party financial institutions all of the short-term receivables generated from certain customer trade accounts. See “Note 10. Fair Value — Accounts Receivable Sales Agreements” for a discussion of our monetization facilities.
Our working capital management strategy includes working with our suppliers to revisit terms and conditions, including the extension of payment terms. Our current payment terms with the majority of our suppliers generally range from payable upon receipt to 120 days and vary for items such as the availability of cash discounts. We do not believe our payment terms will be shortened significantly in the near future, and we do not expect our net cash provided by operating activities to be significantly impacted by additional extensions of payment terms. Certain financial institutions offer voluntary SCF programs that enable our suppliers, at their sole discretion, to sell their receivables from us to the financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus might be more beneficial to our suppliers. We and our suppliers agree on commercial terms for the goods and services we procure, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in SCF programs. The suppliers sell us goods or services and issue the associated invoices to us based on the agreed-upon contractual terms. The due dates of the invoices are not extended due to the supplier’s participation in SCF programs. Our suppliers, at their sole discretion if they choose to participate in a SCF program, determine which invoices, if any, they want to sell to the financial institutions. No guarantees are provided by us under SCF programs and we have no economic interest in a supplier’s decision to participate in the SCF program. Therefore, amounts due to our suppliers that elect to participate in SCF programs are included in the line item accounts payable and accrued expenses in our consolidated balance sheet and the activity is reflected in net cash provided by operating activities in our consolidated statements of cash flows. Based on correspondence with the financial institutions that are involved with our two primary SCF programs, while the amount suppliers elect to sell to the financial institutions varies from period to period, the amount generally averages approximately 15% of our accounts payable balance.
42
We also participate in certain vendor financing and commercial card programs to support our travel and entertainment expenses and smaller vendor purchases. Amounts outstanding under these programs are classified as debt primarily because we receive the benefit of extended payment terms and a rebate from the financial institution that we would not have otherwise received without the financial institutions’ involvement. We also have a receivables securitization facility (as defined herein) that allows for borrowing availability based on the eligible underlying accounts receivable and compliance with certain covenants. See “Note 11. Debt” for additional information for a discussion of our receivables securitization facility and the amount outstanding under our vendor financing and commercial card programs.
Cash Flow Activity
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
(In millions) |
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
| ||||||||||
Net cash provided by operating activities |
| $ | 598.8 |
|
| $ | 665.0 |
|
| $ | 851.6 |
|
| $ | 598.8 |
|
Net cash used for investing activities |
| $ | (589.3 | ) |
| $ | (3,850.6 | ) |
| $ | (195.2 | ) |
| $ | (589.3 | ) |
Net cash provided by financing activities |
| $ | 507.1 |
|
| $ | 2,704.8 |
| ||||||||
Net cash (used for) provided by financing activities |
| $ | (584.6 | ) |
| $ | 507.1 |
|
Net cash provided by operating activities during the six months ended March 31, 2020 decreased $66.22021 increased $252.8 million compared to the six months ended March 31, 2019,2020, primarily due to a $77.1$334.8 million net increase in the use of favorable working capital compared to the prior year period.period, including the payment of certain fiscal 2020 bonuses and the Company’s 401(k) match and annual company contribution (i.e. up to 5% and 2.5%, respectively) in the form of stock, rather than cash, and deferral of certain payroll taxes in connection with the WestRock Pandemic Action Plan that were partially offset by an increase in accounts receivable during the second quarter of fiscal 2021 associated with delayed billing related to the ransomware incident. We expect the level of accounts receivable to normalize in the third quarter of fiscal 2021.
Net cash used for investing activities of $195.2 million in the six months ended March 31, 2021 consisted primarily of $303.0 million for capital expenditures that were partially offset by $58.5 million of proceeds from the sale of the Summerville, SC sawmill and $28.3 million of proceeds from the sale of investments. Net cash used for investing activities of $589.3 million in the six months ended March 31, 2020 consisted primarily of $616.2 million for capital expenditures that waswere partially offset by $21.3 million of proceeds from the sale of property, plant and equipment. Net cash used for investing activities of $3,850.6 million in the six months ended March 31, 2019 consisted primarily of $3,349.3 million for cash paid for the purchase of businesses, net of cash acquired, primarily related to the KapStone Acquisition, and $625.4 million for capital expenditures that were partially offset by $105.3 million of proceeds from the sale of property, plant and equipment, primarily our former beverage facility in Atlanta, GA.
As discussed above, we have reduced our fiscal 2020 capital expenditures to be approximately $950 million from $1.1 billion, including approximately $350 million for our strategic capital projectsWe started up a new paper machine at our Florence, SC mill in October 2020 and Tres Barras, Brazil mills. We expect to complete our strategic projects atramp up to full production by the Florence and Tres Barras mills over the next twelve months. We have had to navigate the impactend of shelter in place and other similar restrictions and the availability of contract and technical resources as a result of COVID-19. We expect to start up the Florence paper machine in the second half of calendar 2020, and thefiscal 2021. The Tres Barras mill upgrade project should be completed in the second quarterspring of fiscal 2021. With the completion of certain of our strategic projects in fiscal 2020, we had expected to transition to our long-range capital expenditure run rate of approximately $900 million to $1.0 billion a year in fiscal 2021. Factoring in our estimated response to COVID-19,2021 and we expect to investbegin ramping up production in the rangesecond half of $600the fiscal year. We expect fiscal 2021 capital investments to be $800 million to $800$900 million, which is higher than the estimates that we incorporated into the WestRock Pandemic Action Plan due to investments that we subsequently identified in fiscal 2021.specific growth projects. At these capital investment levels, we are confident that we will continue to invest in the appropriate safety, environmental and maintenance projects, and complete our strategic mill projects while also making investments to support productivity and growth in our business. These reductions will provide $300 million to $500 million of additional cash available for debt reduction through the end of fiscal 2021. However, it is possible that our capital expenditure assumptions may change, project completion dates may change, or we may decide to invest a different amount depending upon opportunities we identify, or changes in market conditions, or to comply with environmental or other regulatory changes.
In the six months ended March 31, 2021, net cash used for financing activities of $584.6 million consisted primarily of a net decrease in debt of $474.8 million and cash dividends paid to stockholders of $105.8 million. In the six months ended March 31, 2020, net cash provided by financing activities of $507.1 million consisted primarily of a net increase in debt of $733.0 million that was partially offset byand cash dividends paid to stockholders of $240.7 million. In the six months ended March 31, 2019, net cash provided by financing activities of $2,704.8 million consisted primarily of a net increase in debt of $3,023.7 million, primarily in connection with the KapStone Acquisition, that was partially offset by cash dividends paid to stockholders of $233.7 million and purchases of $88.6 million of common stock.
On May 5, 2020,4, 2021, our board of directors declared a quarterly dividend of $0.24 per share, an increase of $0.04 per share, or 20%, representing a $0.96 per share annualized dividend. In February 2021 and November 2020, we paid a quarterly dividend of $0.20 per share, for an annual rate of $0.80respectively, compared to $0.465 per share which is lower than our most recent quarterly dividend. We believe that this reduction in our dividend is prudent given uncertain market conditions and will allow us to allocate additional cash to paying down our outstanding debt. As the situation with COVID-19 evolves, we will re-evaluate our dividend and look to grow our dividend as markets return to normal. In February 2020 and November 2019, we paid a quarterlyrespectively. We believe that reducing our dividend ofin May 2020 was prudent given the uncertain market conditions at the time driven by COVID-19 and that the reduction has allowed us to allocate
6043
$0.465 per share. In fiscal 2019, we paid four quarterly dividends of $0.455 per share for anadditional cash to pay down our outstanding debt. Our short-term goal is to reduce debt and leverage and return capital to stockholders through a competitive annual dividend of $1.82 per share.dividend.
At March 31, 2020, 2021, the U.S. federal, state and foreign net operating losses and other U.S. federal and state tax credits available to us aggregated approximately $83$78 million in future potential reductions of U.S. federal, state and foreign cash taxes. Based on our current projections, we expect to utilize nearly all of the remaining U.S. federal net operating losses and other U.S. federal credits during the current fiscal year. Foreign and state net operating losses and credits will be used over a longer period of time. Our cash tax rate is highly dependent on our taxable income, utilization of net operating losses and credits, changes in tax laws or tax rates, capital expenditures or other factors. Barring significant changes in our current assumptions, including changes in tax laws or tax rates, forecasted taxable income, levels of capital expenditures and other items, we expect our cash tax rate to be significantly lower than our income tax rate in fiscal 2020 and move closersimilar to our income tax rate in fiscal 2021.2021 and slightly higher in fiscal 2022 primarily due to the absence of certain nonrecurring tax credits and the reduction in capital investments, including the timing of depreciation on our qualifying capital investments as allowed under the Tax Cuts and Jobs Act.
Our pension plans in the U.S. are overfunded and we have a pension asset of approximately $0.3$0.4 billion on our condensed consolidated balance sheet as of March 31, 2020.2021. We made contributions of $12.6$10.8 million to our pension and supplemental retirement plans during the six months ended March 31, 2020.2021. Based on current facts and assumptions, we expect to contribute approximately $25$21 million to our U.S. and non-U.S. pension plans in fiscal 2020.2021. We have made contributions and expect to continue to make contributions in the coming years to our pension plans in order to ensure that our funding levels remain adequate in light of projected liabilities and to meet the requirements of the Pension Protection Act of 2006 (the “Pension Act”) and other regulations. Our estimates are based on current factors, such as discount rates and expected return on plan assets. It is possible that our assumptions may change, actual market performance may vary or we may decide to contribute different amounts.
In the normal course of business, we evaluate our potential exposure to MEPPs, including with respect to potential withdrawal liabilities. InDuring fiscal 2018, we submitted formal notification to withdraw from two plansPIUMPF and Central States, and recorded an aggregate estimated withdrawal liability of $184.2 million, nearly all of which wasliabilities for PIUMPF. In Septembereach. Subsequently, in fiscal 2019 and 2020, we received a demand from PIUMPF asserting that we owe $170.3 million on an undiscounted basis (approximately $0.7 million per month for the next 20 years) with respect to our withdrawal liability. The initial demand did not address any assertion of liability for PIUMPF’s accumulated funding deficiency. In October 2019, we received two additional demand letters from PIUMPF, related to a subsidiary of ours asserting that we owe $2.3 million on an undiscounted basis to be paid over 20 years with respect to the subsidiary’s withdrawal liability and $2.0 million for its accumulated funding deficiency. In February 2020, we receivedincluding a demand letter from PIUMPF asserting that we owe $51.2 millionfor withdrawal liabilities and for our pro-rataproportionate share of PIUMPF’s accumulated funding deficiency, including interest. We are evaluating each of these demands and we expect to challengerefined our liability, the impact of which was not significant. We have challenged the PIUMPF accumulated funding deficiency demands. We began making monthly payments (approximately $0.7 million per month for these20 years) for the PIUMPF withdrawal liabilities in fiscal 2020.2020, excluding the accumulated funding deficiency demands. It is reasonably possible that we may incur withdrawal liabilities with respect to certain other MEPPs in connection with such withdrawals. Our estimate of any such withdrawal liability, both individually and in the aggregate, is not material for the remaining plans in which we participate.
At March 31, 2021 and September 30, 2020, we had withdrawal liabilities recorded of $243.2 million and $252.0 million, respectively, including liabilities associated with PIUMPF. See “Note 5. Retirement Plans — Multiemployer Plans” andof the Notes to Consolidated Financial Statements section in the Fiscal 2020 Form 10-K for more information regarding these liabilities. See also Item 1A. “Risk Factors — We May Incur Withdrawal Liability and/or Increased Funding Requirements in Connection with MEPPs” in theour Fiscal 20192020 Form 10-K.
We anticipate that we will be able to fund our capital expenditures, interest payments, dividends and stock repurchases, pension payments, working capital needs, note repurchases, restructuring activities, repayments of current portion of long-term debt and other corporate actions for the foreseeable future from cash generated from operations, borrowings under our credit facilities, proceeds from our A/R Sales Agreement,accounts receivable sales agreements, proceeds from the issuance of debt or equity securities or other additional long-term debt financing, including new or amended facilities. In addition, we continually review our capital structure and conditions in the private and public debt markets in order to optimize our mix of indebtedness andindebtedness. In connection with these reviews, we may seek to refinance existing indebtedness to extend maturities, reduce borrowing costs or otherwise improve the terms and composition of our indebtedness.
Guarantor Summarized Financial Information
WRKCo, Inc. (the “Issuer”), a wholly owned subsidiary of Parent (as defined below), has issued the following debt securities pursuant to offerings registered under the Securities Act of 1933, as amended (collectively for purposes of this subsection, the “Notes”):
44
Aggregate Principal Amount (in millions) |
|
| Stated Coupon Rate |
|
| Maturity Date |
| Referred to as: | ||
|
|
|
|
|
|
|
|
|
|
|
$ | 500 |
|
|
| 3.000 | % |
| September 2024 |
| the 2024 Notes |
$ | 600 |
|
|
| 3.750 | % |
| March 2025 |
| the 2025 Notes |
$ | 750 |
|
|
| 4.650 | % |
| March 2026 |
| the 2026 Notes |
$ | 500 |
|
|
| 3.375 | % |
| September 2027 |
| the 2027 Notes |
$ | 600 |
|
|
| 4.000 | % |
| March 2028 |
| the 2028 Notes |
$ | 500 |
|
|
| 3.900 | % |
| June 2028 |
| the June 2028 Notes |
$ | 750 |
|
|
| 4.900 | % |
| March 2029 |
| the 2029 Notes |
$ | 500 |
|
|
| 4.200 | % |
| June 2032 |
| the 2032 Notes |
$ | 600 |
|
|
| 3.000 | % |
| June 2033 |
| the June 2033 Notes |
Upon issuance, the Notes maturing in 2024, 2025, 2027 and March 2028 were fully and unconditionally guaranteed by the Guarantor Subsidiaries. On November 2, 2018, in connection with the consummation of the KapStone Acquisition, Whiskey Holdco, Inc. became the direct parent of the Issuer, changed its name to WestRock Company (“Parent”) and fully and unconditionally guaranteed these Notes. The remaining Notes were issued by the Issuer subsequent to the consummation of the KapStone Acquisition and were fully and unconditionally guaranteed at the time of issuance by Parent and the Guarantor Subsidiaries. Accordingly, each series of the Notes is fully and unconditionally guaranteed on a joint and several basis by Parent and the Guarantor Subsidiaries (together, the “Guarantors”). Collectively, the Issuer and the Guarantors are the “Obligor Group”.
Each series of Notes and the related guarantees constitute unsecured unsubordinated obligations of the applicable obligor. Each series of Notes and the related guarantees ranks equally in right of payment with all of the applicable obligor’s existing and future unsecured and unsubordinated debt; ranks senior in right of payment to all of the applicable obligor’s existing and future subordinated debt; is effectively junior to the applicable obligor’s existing and future secured debt to the extent of the value of the assets securing such debt; and is structurally subordinated to all of the existing and future liabilities of each subsidiary of the applicable obligor (that is not itself an obligor) that does not guarantee such Notes.
The indentures governing each series of Notes contain covenants that, among other things, limit our ability and the ability of our subsidiaries to grant liens on our assets and enter into sale and leaseback transactions. In addition, the indentures limit, as applicable, the ability of the Issuer and Guarantors to merge, consolidate or sell, convey, transfer or lease our or their properties and assets substantially as an entirety. The covenants contained in the indentures do not restrict the Company’s ability to pay dividends or distributions to stockholders.
The guarantee obligations of the Guarantors under the Notes are also subject to certain limitations and terms similar to those applicable to other guarantees of similar instruments, including that (i) the guarantees are subject to fraudulent transfer and conveyance laws and (ii) the obligations of each Guarantor under its guarantee of each series of Notes will be limited to the maximum amount as will result in the obligations of such Guarantor under its guarantee of such Notes not to be deemed to constitute a fraudulent conveyance or fraudulent transfer under federal or state law.
Under each indenture governing one or more series of the Notes, a Guarantor Subsidiary will be automatically and unconditionally released from its guarantee upon consummation of any transaction permitted under the applicable indenture resulting in such Guarantor Subsidiary ceasing to be an obligor (either as issuer or guarantor). Under the indentures, the guarantee of Parent will be automatically released and will terminate upon the merger of Parent with or into the Issuer or another guarantor, the consolidation of Parent with the Issuer or another guarantor or the transfer of all or substantially all of the assets of Parent to the Issuer or a guarantor. In addition, if the Issuer exercises its defeasance or covenant defeasance option with respect to the Notes of a series in accordance with the terms of the applicable indenture, each guarantor will be automatically and unconditionally released from its guarantee of the Notes of such series and all its obligations under the applicable indenture.
45
The Issuer and each Guarantor is a holding company that conducts substantially all of its business through subsidiaries. Accordingly, repayment of the Issuer’s indebtedness, including the Notes, is dependent on the generation of cash flow by the Issuer’s and each Guarantor’s subsidiaries, as applicable, and their ability to make such cash available to the Issuer and the Guarantors, as applicable, by dividend, debt repayment or otherwise. The Issuer’s and the Guarantors’ subsidiaries may not be able to, or be permitted to, make distributions to enable them to make payments in respect of their obligations, including with respect to the Notes in the case of the Issuer and the guarantees in the case of the Guarantors. Each of the Issuer’s and the Guarantors’ subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit the Issuer’s and the Guarantors’ ability to obtain cash from their subsidiaries. In the event that the Issuer and the Guarantors do not receive distributions from their subsidiaries, the Issuer and the Guarantors may be unable to make required principal and interest payments on their obligations, including with respect to the Notes and the guarantees.
Pursuant to amended Rule 3-10 of Regulation S-X, the summarized financial information below is presented for the Obligor Group on a combined basis after the elimination of intercompany balances and transactions among the Obligor Group and equity in earnings from and investments in the non-Guarantor Subsidiaries. The summarized financial information below should be read in conjunction with the Company’s unaudited condensed consolidated financial statements contained herein, as the summarized financial information may not necessarily be indicative of results of operations or financial position had the subsidiaries operated as independent entities.
SUMMARIZED STATEMENT OF OPERATIONS
|
| Six Months Ended |
| |
(In millions) |
| March 31, 2021 |
| |
|
|
|
|
|
Net sales to unrelated parties |
| $ | 716.3 |
|
Net sales to non-Guarantor Subsidiaries |
| $ | 452.7 |
|
Gross profit |
| $ | 285.3 |
|
Interest expense, net with non-Guarantor Subsidiaries |
| $ | (30.5 | ) |
Net loss and net loss attributable to the Obligor Group |
| $ | (17.9 | ) |
SUMMARIZED BALANCE SHEETS
(In millions) |
| March 31, 2021 |
|
| September 30, 2020 |
| ||
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Total current assets |
| $ | 336.4 |
|
| $ | 334.8 |
|
|
|
|
|
|
|
|
|
|
Noncurrent amounts due from non- Guarantor Subsidiaries |
| $ | 313.9 |
|
| $ | 310.0 |
|
Other noncurrent assets (1) |
|
| 2,070.7 |
|
|
| 2,096.7 |
|
Total noncurrent assets |
| $ | 2,384.6 |
|
| $ | 2,406.7 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current amounts due to non- Guarantor Subsidiaries |
| $ | 1,986.0 |
|
| $ | 1,520.1 |
|
Other current liabilities |
|
| 557.4 |
|
|
| 237.9 |
|
Total current liabilities |
| $ | 2,543.4 |
|
| $ | 1,758.0 |
|
|
|
|
|
|
|
|
|
|
Noncurrent amounts due to non- Guarantor Subsidiaries |
| $ | 2,821.3 |
|
| $ | 2,821.3 |
|
Other noncurrent liabilities |
|
| 7,594.1 |
|
|
| 8,633.4 |
|
Total noncurrent liabilities |
| $ | 10,415.4 |
|
| $ | 11,454.7 |
|
46
(1) | Other noncurrent assets includes aggregate goodwill and intangibles, net of $1,748.2 million and $1,797.2 million as of March 31, 2021 and September 30, 2020, respectively. |
New Accounting Standards
See “Note 1. Basis of Presentation and Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements for a description of recent accounting pronouncements.
Non-GAAP Financial Measures
We report our financial results in accordance with GAAP. However, management believes certain non-GAAP financial measures provide investors and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions, and in evaluating our performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures presented by other companies.
We use the non-GAAP financial measures “Adjusted Net Income” and “Adjusted Earnings Per Diluted Share”. Management believes these measures provide our board of directors, investors, potential investors, securities analysts and others with useful information to evaluate our performance because they exclude restructuring and other costs and other specific items that management believes are not indicative of the ongoing operating results of the business. We and our board of directors use this information to evaluate our performance relative to other periods. We believe that the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Earnings Per Diluted Share are Net income attributable to common stockholders and Earnings per diluted share, respectively.
Set forth below is a reconciliation of the non-GAAP financial measure Adjusted Earnings Per Diluted Share to Earnings per diluted share, the most directly comparable GAAP measure (in dollars per share) for the periods indicated.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Earnings per diluted share |
| $ | 0.42 |
|
| $ | 0.57 |
|
| $ | 0.99 |
|
| $ | 1.10 |
|
COVID-19 relief payments |
|
| — |
|
|
| — |
|
|
| 0.06 |
|
|
| — |
|
Grupo Gondi option |
|
| 0.06 |
|
|
| — |
|
|
| 0.06 |
|
|
| — |
|
Ransomware recovery costs |
|
| 0.06 |
|
|
| — |
|
|
| 0.06 |
|
|
| — |
|
Accelerated compensation - former CEO |
|
| 0.04 |
|
|
| — |
|
|
| 0.04 |
|
|
| — |
|
Restructuring and other items |
|
| 0.01 |
|
|
| 0.04 |
|
|
| 0.03 |
|
|
| 0.13 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 0.01 |
|
|
| — |
|
North Charleston and Florence transition and reconfiguration costs |
|
| — |
|
|
| 0.06 |
|
|
| — |
|
|
| 0.11 |
|
Accelerated depreciation on major capital projects and certain plant closures |
|
| — |
|
|
| 0.02 |
|
|
| — |
|
|
| 0.05 |
|
Losses at closed plants, transition and start-up costs |
|
| — |
|
|
| 0.03 |
|
|
| — |
|
|
| 0.04 |
|
Gain on sale of investment |
|
| — |
|
|
| — |
|
|
| (0.05 | ) |
|
| — |
|
Gain on sale of sawmill |
|
| (0.03 | ) |
|
| — |
|
|
| (0.03 | ) |
|
| — |
|
MEPP liability adjustment due to interest rates |
|
| (0.02 | ) |
|
| — |
|
|
| (0.02 | ) |
|
| — |
|
Brazil indirect tax claim |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.09 | ) |
Hurricane Michael recovery of direct costs, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.05 | ) |
Litigation recovery |
|
| — |
|
|
| (0.03 | ) |
|
| — |
|
|
| (0.03 | ) |
Gain on sale of certain closed facilities |
|
| — |
|
|
| (0.02 | ) |
|
| — |
|
|
| (0.02 | ) |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.02 |
|
Adjusted Earnings Per Diluted Share |
| $ | 0.54 |
|
| $ | 0.67 |
|
| $ | 1.15 |
|
| $ | 1.26 |
|
47
The GAAP results in the table below for Pre-Tax, Tax and Net of Tax are equivalent to the line items “Income before income taxes”, “Income tax expense” and “Consolidated net income”, respectively, as reported on the statements of income. Set forth below are reconciliations of Adjusted Net Income to the most directly comparable GAAP measure, Net income attributable to common stockholders (represented in the table below as the GAAP Results for Consolidated net income (i.e. Net of Tax) less net income attributable to Noncontrolling interests), for the periods indicated (in millions):
|
| Three Months Ended March 31, 2021 |
|
| Six Months Ended March 31, 2021 |
| ||||||||||||||||||
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
| $ | 144.9 |
|
| $ | (30.5 | ) |
| $ | 114.4 |
|
| $ | 347.7 |
|
| $ | (80.8 | ) |
| $ | 266.9 |
|
COVID-19 relief payments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22.0 |
|
|
| (5.4 | ) |
|
| 16.6 |
|
Grupo Gondi option |
|
| 22.5 |
|
|
| (6.7 | ) |
|
| 15.8 |
|
|
| 22.5 |
|
|
| (6.7 | ) |
|
| 15.8 |
|
Ransomware recovery costs |
|
| 19.8 |
|
|
| (4.9 | ) |
|
| 14.9 |
|
|
| 19.8 |
|
|
| (4.9 | ) |
|
| 14.9 |
|
Accelerated compensation - former CEO |
|
| 11.7 |
|
|
| — |
|
|
| 11.7 |
|
|
| 11.7 |
|
|
| — |
|
|
| 11.7 |
|
Restructuring and other items |
|
| 5.2 |
|
|
| (1.4 | ) |
|
| 3.8 |
|
|
| 12.9 |
|
|
| (3.3 | ) |
|
| 9.6 |
|
Losses at closed plants, transition and start-up costs |
|
| 0.8 |
|
|
| (0.2 | ) |
|
| 0.6 |
|
|
| 1.2 |
|
|
| (0.3 | ) |
|
| 0.9 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.1 |
|
|
| (0.3 | ) |
|
| 0.8 |
|
Accelerated depreciation on major capital projects and certain plant closures |
|
| 0.5 |
|
|
| (0.2 | ) |
|
| 0.3 |
|
|
| 0.7 |
|
|
| (0.2 | ) |
|
| 0.5 |
|
Gain on sale of investment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14.7 | ) |
|
| 2.1 |
|
|
| (12.6 | ) |
Gain on sale of sawmill |
|
| (16.5 | ) |
|
| 8.3 |
|
|
| (8.2 | ) |
|
| (16.5 | ) |
|
| 8.3 |
|
|
| (8.2 | ) |
MEPP liability adjustment due to interest rates |
|
| (8.1 | ) |
|
| 2.0 |
|
|
| (6.1 | ) |
|
| (8.1 | ) |
|
| 2.0 |
|
|
| (6.1 | ) |
Gain on sale of certain closed facilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.9 | ) |
|
| 0.2 |
|
|
| (0.7 | ) |
Brazil indirect tax claim |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.9 | ) |
|
| 0.3 |
|
|
| (0.6 | ) |
Adjusted Results |
| $ | 180.8 |
|
| $ | (33.6 | ) |
| $ | 147.2 |
|
| $ | 398.5 |
|
| $ | (89.0 | ) |
| $ | 309.5 |
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
| (1.9 | ) |
|
|
|
|
|
|
|
|
|
| (2.4 | ) |
Adjusted Net Income |
|
|
|
|
|
|
|
|
| $ | 145.3 |
|
|
|
|
|
|
|
|
|
| $ | 307.1 |
|
48
|
| Three Months Ended March 31, 2020 |
|
| Six Months Ended March 31, 2020 |
| ||||||||||||||||||
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
|
| Pre-Tax |
|
| Tax |
|
| Net of Tax |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
| $ | 206.7 |
|
| $ | (57.8 | ) |
| $ | 148.9 |
|
| $ | 392.7 |
|
| $ | (104.3 | ) |
| $ | 288.4 |
|
Restructuring and other items |
|
| 16.4 |
|
|
| (3.9 | ) |
|
| 12.5 |
|
|
| 46.5 |
|
|
| (11.6 | ) |
|
| 34.9 |
|
North Charleston and Florence transition and reconfiguration costs |
|
| 21.8 |
|
|
| (5.4 | ) |
|
| 16.4 |
|
|
| 37.1 |
|
|
| (9.1 | ) |
|
| 28.0 |
|
Accelerated depreciation on major capital projects |
|
| 5.5 |
|
|
| (1.3 | ) |
|
| 4.2 |
|
|
| 17.1 |
|
|
| (4.2 | ) |
|
| 12.9 |
|
Losses at closed plants, transition and start-up costs |
|
| 9.1 |
|
|
| (2.5 | ) |
|
| 6.6 |
|
|
| 13.5 |
|
|
| (3.6 | ) |
|
| 9.9 |
|
Multiemployer pension withdrawal expense |
|
| 0.9 |
|
|
| (0.2 | ) |
|
| 0.7 |
|
|
| 0.9 |
|
|
| (0.2 | ) |
|
| 0.7 |
|
MEPP liability adjustment due to interest rates |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.9 |
|
|
| (0.2 | ) |
|
| 0.7 |
|
Loss on extinguishment of debt |
|
| 0.5 |
|
|
| (0.1 | ) |
|
| 0.4 |
|
|
| 0.5 |
|
|
| (0.1 | ) |
|
| 0.4 |
|
Brazil indirect tax claim |
|
| (1.3 | ) |
|
| 0.3 |
|
|
| (1.0 | ) |
|
| (35.1 | ) |
|
| 10.9 |
|
|
| (24.2 | ) |
Hurricane Michael recovery of direct costs, net |
|
| (0.6 | ) |
|
| 0.2 |
|
|
| (0.4 | ) |
|
| (16.6 | ) |
|
| 4.1 |
|
|
| (12.5 | ) |
Litigation recovery |
|
| (11.5 | ) |
|
| 2.8 |
|
|
| (8.7 | ) |
|
| (11.5 | ) |
|
| 2.8 |
|
|
| (8.7 | ) |
Gain on sale of certain closed facilities |
|
| (5.0 | ) |
|
| 1.2 |
|
|
| (3.8 | ) |
|
| (5.5 | ) |
|
| 1.3 |
|
|
| (4.2 | ) |
Land and Development operating results |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.3 | ) |
|
| 0.3 |
|
|
| (1.0 | ) |
Other |
|
| 0.8 |
|
|
| (0.2 | ) |
|
| 0.6 |
|
|
| 5.2 |
|
|
| (1.3 | ) |
|
| 3.9 |
|
Adjusted Results |
| $ | 243.3 |
|
| $ | (66.9 | ) |
| $ | 176.4 |
|
| $ | 444.4 |
|
| $ | (115.2 | ) |
| $ | 329.2 |
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
| (0.8 | ) |
|
|
|
|
|
|
|
|
|
| (1.8 | ) |
Adjusted Net Income |
|
|
|
|
|
|
|
|
| $ | 175.6 |
|
|
|
|
|
|
|
|
|
| $ | 327.4 |
|
We discuss certain of these charges in more detail in “Note 3. Restructuring and Other Costs” of the Notes to Condensed Consolidated Financial Statements.
Forward-Looking Statements
Statements in this report that do not relate strictly to historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations, beliefs, plans or forecasts and use words such as “may”, “will”, “could”, “would”, “anticipate”, “intend”, “estimate”, “project”, “plan”, “believe”, “expect”, “target” and “potential”, or refer to future time periods, and include statements made in this report regarding, among other things: that the extent of COVID-19’s effect on our operational and financial performance will continue to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, (including the distribution and effectiveness of vaccines) and the direct and indirect economic effects of the pandemic and related containment measures, among others; that our accounting estimates may materially change from period to period due to changing market factors, including those driven by COVID-19; that we dowill continue to monitor future events, changes in circumstances and the potential impact thereof, including performing interim goodwill impairment assessments, as warranted and that if actual results are not anticipateconsistent with our assumptions and estimates, we may be exposed to impairment losses that could be material; that we estimate the segment income impact of the lost sales and operational disruption of the ransomware incident on our operations in the second quarter of fiscal 2021 to be approximately $50 million, as well as approximately $20 million of ransomware recovery costs, primarily professional fees; that we estimate that the total insurance claim will be approximately $75 million; that we expect to recover substantially all of the ransomware losses from cyber and business interruption insurance in future periods; that disputes over the extent of insurance coverage for claims are not uncommon, and there will be a time lag between the initial incurrence of costs and the receipt of any insurance proceeds; that we expect to incur some additional recovery costs in the second half of fiscal 2021, albeit at a diminished rate; that we are making information technology investments that we had planned to make in future periods in order to further strengthen our information security infrastructure; that we are taking appropriate actions in response to the findings of the forensics investigation; that
6149
changeswe are continuing to advance the provisional fair value estimatesmaturity and effectiveness of assetsour information security resiliency strategy and liabilities assumed in acquisitionscapabilities; that we plan to be significant; take actions to improve our security monitoring capabilities and enhance the information security within our mills and plants; that at the time of each announcedfor plant closure,closures, we generally expect to record future period costs for equipment relocation, facility carrying costs and costs to terminate a lease or contract before the end of its term and employee-related costs;term; that we believe that our actions to consolidate our sales and operations into large well-equipped plants that operate at high utilization rates and take advantage of available capacity created by operational excellence initiatives and/or further optimize our system following mergers and acquisitions or a changing business environment have allowed us to more effectively manage our business; resolution of uncertain tax positions could have a material adverse effect on our cash flows or materially benefit our results of operations in future periods depending upon their ultimate resolution; that, with respect to the Brazilian indirect tax claim, we believe the decision reduced our gross receipts tax in Brazil prospectively and retrospectively, and will allow us to recover tax amounts collected by the government and may record additional recovery amounts in future periods as we complete our analysis; that we expect to challenge PIUMPF’s accumulated funding deficiency demands; that it is reasonably possible that we may incur withdrawal liabilities with respect to certain other MEPPs in connection with withdrawals and that our estimate forof any such withdrawal liability, both individually and in the aggregate, is not material for the remaining plans in which we participate; that the future amount in connectionfailure to comply with the sale of receivables may fluctuate based on the level of activityapplicable health and safety laws and regulations could subject us to fines, corrective action or other factors;sanctions and that we expect the net proceeds from issuancesdo not believe that future compliance with occupational health and safety laws and regulations will have a material adverse effect on our results of notes under the commercial paper programoperations, financial condition or cash flows; that complex and lengthy processes may be required to continue to be usedobtain and renew approvals, permits, and licenses for general corporate purposes;new, existing or modified facilities; that our compliance initiatives related to environmental health and safety laws and regulations could result in significant costs, which could negatively impact our results of operations, financial condition and cash flows; that any failure to comply with environmental or health and safety laws and regulations, or any permits and authorizations required thereunder, could subject us to fines, corrective action or other sanctions; that we believe we have insurance and contractual indemnification rights that may allow us to recover certain defense and other costs at some CERCLA sites; that we believe the liability for the environmental matters was adequately reserved as ofat March 31, 2020;2021; our belief that we have substantial insurance coverage, subject to applicable deductibles and policy limits, with respect to asbestos claims; that we have valid defenses to asbestos-related personal injury claims and intend to continue to defend them vigorously; that it is possible that we could incur significant costs resolving these cases should the volume of litigation grow substantially;substantially beyond our expectations; that we do not expect the resolution of pending asbestos litigation and proceedings to have a material adverse effect on our results of operations, financial condition or cash flows but that, in any given period or periods, it is possible such proceedings or matters could have a materialan adverse effect on our results of operations, financial condition or cash flows; our belief that the resolution of certain other lawsuits and claims arising out of the conduct of our business will not have a material adverse effect on our results of operations, financial condition or cash flows; that the resolution of uncertain tax positions could have a material adverse effect on our cash flows and results of operations or materially benefit our results of operations in future periods depending upon their ultimate resolution; that we estimate our exposure to certain guarantees could be approximately $50 million; that we believe our exposure related to guarantees would not have a material impact on our results of operations, financial condition or cash flows; that, we expect fiscal 2020 capital expenditureswith respect to be approximately $950 million, including approximately $350 million forthe Brazilian indirect tax claim, based on our strategic capital projects at our Florence, SCevaluation and Tres Barras, Brazil mills; that we expect to complete or strategic projects at the Florence, SC and Tres Barras, Brazil mills over the next twelve months; that we expect to start up the paper machine in Florence, SC in the second half of calendar 2020 and that the Tres Barras project is expected to start up in the second quarter of fiscal 2021; that with the completion of certainopinion of our strategic projects in fiscal 2020, factoring in our estimated response to COVID-19, we expect to make capital investments in the range of $600 million to $800 million in fiscal 2021; that at these capital investment levels, we are confident that we will continue to invest in the appropriate safety, environmentaltax and maintenance projects and complete our strategic mill projects while also making investments to support productivity and growth in our business; that the reductions we are making in our planned capital investments will provide $300 million to $500 million of additional cash available for debt reduction through the end of fiscal 2021; thatlegal advisors, we believe thatthe decision reduced our dividend reduction is prudent given uncertain market conditionsgross receipts tax in Brazil prospectively and retrospectively, and will allow us to allocaterecover tax amounts collected by the government and, subject to the resolution in the courts, we may record additional cash to paying down our outstanding debt;amounts in future periods; that we will re-evaluatemay further modify the WestRock Pandemic Action Plan in the future by, for example, increasing our dividend, aschanging our capital expenditure assumptions, future estimates or the situation with COVID-19 evolves and look to grow our dividend as markets return to normal;duration of the planned items; that we expect the actions that we take underhave undertaken and will continue to undertake pursuant to the WestRock Pandemic Action Plan toplan will provide an additional approximately $1 billion in cash through the end of calendar 2021 that we will be able to use through the end of fiscal 2021 to reduce our outstanding indebtedness; that, pursuant to the WestRock Pandemic Action Plan, as modified, we are expectingcommitted to: (i) continue to protect the safety and well-being of our teammates, (ii) continue to match our supply with our customers’ demand, (iii) reduce discretionary expenses, (iv) use Common Stock to pay our annual incentive andmake Company funded 401(k) match and annual contributions in calendar 2020; (i.e. up to 5% and 2.5%, respectively) beginning July 1, 2020 through September 30, 2021, (v) target reducing fiscal 2021 capital investments to a range of $800 million to $900 million and (vi) resetting our quarterly dividend to $0.20 per share for an annual rate of $0.80 per share; that we are postponing $120 million of employment taxes incurred through the end of calendar year 2020, pursuant to relief offered under the CARES Act; that we expect that theour actions that we take under the WestRock Pandemic Action Plan will continue to position us both to sustain our business in a range of economic and market conditions and position us for long-term success; that we expect the increase in accounts receivable due to the ransomware incident to normalize in the third quarter of fiscal 2021; that we expect to benefit from strong demand for our products during the fiscal third quarter; that our earnings for the fiscal third quarter should increase sequentially as we return to normal business operations and benefit from continued strength in packaging demand and the implementation of previously published price increases; that these items are expected to be partially offset by modest sequential inflation across recycled fiber, chemical and transportation costs; that, in our Corrugated Packaging segment, we expect to take approximately 112,000 tons
50
of scheduled maintenance downtime across our North American containerboard mills; that, in our Consumer Packaging segment, we had approximately 20,000 tons of paperboard shipments that were deferred from the second fiscal quarter to the third fiscal quarter due to the disruptions that we experienced during the second fiscal quarter; that for fiscal 2021, we expect to benefit from the continued flow through of previously published price increases and growth in packaging across our primary end markets, as well as the benefit from completing certain of our strategic capital projects; that we expect our Florence, SC mill to reach full production levels by the end of the fourth quarter of fiscal 2021 and improved margins from our business in Brazil that were negatively impacted in the first half of fiscal 2021 by maintenance and capital outages at the Tres Barras mill; that our short-term incentive payouts for fiscal 2020 were below target and we will continue accruing short-term incentive payouts for fiscal 2021 at a level that is higher than the payout level for fiscal 2020; that given our outlook for earnings and anticipated strong cash flows, we expect to continue to reduce our debt; that the favorable SG&A impact of shelter-in-place orders as a result of COVID-19 and increased levels of bonus and stock-based compensation expense as compared to fiscal 2020 will likely continue to some degree in the near term; that we expect to continue to incur additional costs related to safety, cleaning and other items related to COVID-19 as needed in the foreseeable future; that we continue to believe that we have substantial liquidity to navigate the current dynamic environment; that weenvironment and remain focused on maintaining our investment grade rating and managing our working capital and taking appropriate actions to ensure our access to necessary liquidity; that e-commerce demand may remain strong inwe generally expect the fiscal third quarter; that demand levels for certain market segments that benefittedintegration of a closed facility’s assets and production with other facilities to enable the receiving facilities to better leverage their fixed costs while eliminating fixed costs from pantry stocking in the second fiscal quarter may return to more normal levels; that we expect disruptions in the protein markets to be transitory; thatclosed facility and our foodservice and commercial print market segments are continuing a pattern of decline; that we believe that our diverse portfolio of
62
paper and packaging products positions us well to adapt and meet our customers’ changing needs across a broad cross-sectionestimate of the economy; that we believe that recent trends that we have experienced in our end market segment demand are likely to cause our sales and earnings in the fiscal third quarter to decline compared to our sales and earnings in the second fiscal quarter; that changing demand trends across many of our end markets will likely negatively impact volumes in specific portions of our business; that our financial results in the fiscal third quarter will reflect the flow through of the published price reductions for linerboard that were announced in January 2020 and the published price reductions for SBS and recycled boxboard paper grades that were announced in February 2020; that our business in the third fiscal quarter will also likely be negatively impacted by rising recycled fiber costs; thattotal cost we expect to provide one-time recognition awards to our teammates who work in manufacturing and operations; incur; that funding for our domestic operations in the foreseeable future is expected to come from sources of liquidity within our domestic operations, including cash and cash equivalents, and available borrowings under our credit facilities; that our foreign cash and cash equivalents are not expected to be a key source of liquidity to our domestic operations; that we do not believe our payment terms will be shortened significantly in the near future, and we do not expect our net cash provided by operating activities to be significantly impacted by additional extensions of payment terms; that the Tres Barras mill upgrade should be completed in the spring of 2021 and begin ramping up production in the second half of fiscal 2021; that at capital investment levels of $800 to $900 million for fiscal 2021, we are confident that we will continue to invest in the appropriate safety, environmental and maintenance projects and complete our strategic mill projects while also making investments to support productivity and growth in our business but that it is possible that our capital expenditure assumptions may change, project completion dates may change, or we may decide to invest a different amount depending upon opportunities we identify, or changes in market conditions, or to comply with environmental or other regulatory changes; that we believe that reduction in our dividend effective May 2020 was prudent given uncertain market conditions driven by COVID-19 and has allowed us to allocate additional cash to pay down our outstanding debt and our short-term goal is to reduce debt and leverage and return capital to stockholders through a competitive annual dividend; that based on our current projections, we expect to utilize nearly all of the remaining U.S. federal net operating losses and other U.S. federal credits primarily overduring the next two yearscurrent fiscal year and that foreign and state net operating losses and credits will be used over a longer period of time; thatbarring significant changes in our current assumptions, including changes in tax laws or tax rates, forecasted taxable income, levels of capital expenditures and other items, we expect our cash tax rate to move closer tobe slightly higher than our income tax rate in fiscal 20202021 and 2021;2022; that based on current facts and assumptions, we expect to contribute approximately $25$21 million to our U.S. and non-U.S. pension plans in fiscal 2020;2021; that we expect to continue to make contributions in the coming years to our pension plans in order to ensure that our funding levels remain adequate in light of projected liabilities and to meet the requirements of the Pension Act and other regulations; that we anticipate that we will be able to fund our capital expenditures, interest payments, dividends and stock repurchases, pension payments, working capital needs, note repurchases, restructuring activities, repayments of current portion of long-term debt and other corporate actions for the foreseeable future from cash generated from operations, borrowings under our credit facilities, proceeds from our A/R Sales Agreement,accounts receivable sales agreements, proceeds from the issuance of debt or equity securities or other additional long-term debt financing, including new or amended facilities; and that we may seek to refinance existing indebtedness to extend maturities, reduce borrowing costs or otherwise improve the terms and composition of our indebtedness.
With respect to these statements, we have made assumptions regarding, among other things, developments related to COVID-19, including the severity, magnitude and duration of the pandemic, negative global economic conditions arising from the pandemic, impacts of governments' responses to the pandemic on our operations, impacts of the pandemic on commercial activity, our customers and consumer preferences and demand, supply
51
chain disruptions, and disruptions in the credit or financial markets; our ability to effectively integrate the operations of KapStone; our ability to effectively respond to the ransomware incident; the results and impact of the KapStone Acquisition; economic, competitive and market conditions generally, including the impact of COVID-19; volumes and price levels of purchases by customers; competitive conditions in our businesses; possible adverse actions of our customers, competitors and suppliers; labor costs; the amount and timing of capital expenditures, including installation costs, project development and implementation costs, severance and other shutdown costs; restructuring costs; utilization of real property that is subject to the restructurings due to realizable values from the sale of such property; credit availability; and raw material and energy costs.
You should not place undue reliance on any forward-looking statements as these statements involve risks, uncertainties, assumptions and other factors that could cause actual results to differ materially, including the following: the level of demand for our products; our ability to respond effectively to the impact of COVID-19; our ability to successfully identify and make performance and productivity improvements; anticipated returns on our capital investments; our ability to achieve benefits from acquisitions, including the KapStone Acquisition, and the timing thereof, including synergies and performance improvements; our ability to successfully implement capital projects; the possibility of and uncertainties related to planned mill outages or production disruptions; market risk from changes in interest rates and commodity prices; increases in energy, raw materials, shipping and capital equipment costs; the Company’s ongoing assessment of the ransomware incident, adverse legal, reputational and financial effects on the Company resulting from the incident or additional cyber incidents and the effectiveness of the Company’s business continuity plans during the ransomware incident; fluctuations in selling prices and volumes; intense competition; the potential loss of key customers; the impact of the Tax Act; the impact of operational restructuring activities; the impact of economic conditions, including expected price changes, competitive pricing pressures and cost increases; our desire or ability to continue to repurchase Common Stock; environmental liabilities; the cost and other effects of complying with governmental laws and regulations; the scope, timing and outcome of any litigation, claims or other proceedings or dispute resolutions and the impact of any such litigation (including with respect to the Brazil Tax Liability)tax liability matter); future debt repayment; our ability to fund our capital expenditures, interest payments, dividends and stock repurchases, pension payments, working capital needs, debt repurchases, restructuring activities, repayments of current portion of long-term debt and other corporate actions; the expected impact of implementing new accounting standards; the impact of changes in assumptions and estimates on which we based the design of our system of disclosure controls and procedures; the occurrence of severe weather or a natural disaster, or other unanticipated
63
problems, such as labor difficulties, equipment failure or unscheduled maintenance and repair, which could result in operational disruptions; adverse changes in general market and industry conditions; and other risks, uncertainties and factors discussed in Item 1A “Risk Factors” of the Fiscal 20192020 Form 10-K. The information contained herein speaks as of the date hereof and we do not have or undertake any obligation to update such information as future events unfold.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See the “Quantitative and Qualitative Disclosures About Market Risk” section in the Fiscal 20192020 Form 10-K for a discussion of certain of the market risks to which we are exposed. There have been no material changes in our exposure to market risk since September 30, 2019.2020.
Item 4. | CONTROLS AND PROCEDURES |
Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 20202021 to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
As previously disclosed on January 23, 2021, we detected a ransomware incident impacting certain of our operational and information technology systems. See “Note 1. Basis of Presentation and Significant Accounting Policies — Ransomware Incident” of the Notes to Condensed Consolidated Financial Statements
52
for additional information. As a result of the incident, we performed additional tests of controls and manual compensating controls. There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
64
53
PART II: OTHER INFORMATION
Item 1. | LEGAL PROCEEDINGS |
See “Note 14.13. Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements for more information.
Item 1A. | RISK FACTORS |
Certain risks and events that could adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock, are described in the “Risk Factors” sectionsections of the Fiscal 20192020 Form 10-K. There have been no material changes in our risk factors from those disclosed in the “Risk Factors” sectionsections of our Fiscal 20192020 Form 10-K, other than the risk factor listed below.10-K.
Our Business Has Been, and Will Continue to Be, Impacted by the Outbreak of the COVID-19 Novel Coronavirus
The global impact of COVID-19 continues to evolve rapidly, and the extent of its effect on our operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others.
In response to the spread of COVID-19, governmental authorities have implemented numerous measures to try to contain the virus, including travel bans and restrictions, quarantines, shelter in place and work from home orders, and shutdowns of so-called “nonessential” businesses. These measures have impacted, and may further impact, our workforce and operations, as well as those of our customers, vendors and suppliers. We have manufacturing operations in the U.S., Canada, Brazil, Mexico, Australia, China and in Europe, and each of these countries or regions has been affected by the outbreak of COVID-19 and taken various measures to try to contain it. Among other impacts to our business from the outbreak of COVID-19:
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Our business has been, and will continue to be, impacted by the outbreak of the COVID-19 novel coronavirus and these impacts may adversely affect our results of operations, cash flows and financial conditions, and the trading price of our Common Stock.
65
Item 6.EXHIBITS
See separate Exhibit Index attached hereto and hereby incorporated by reference.
6654
WESTROCK COMPANY
INDEX TO EXHIBITS
|
|
|
Exhibit 10.1* | ||
|
|
|
Exhibit |
| |
|
| |
Exhibit 22 | ||
Exhibit 31.1* |
| |
|
| |
Exhibit 31.2* |
| |
|
| |
Exhibit 32.1# |
|
Exhibit 101.INS* |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
| |
Exhibit 101.SCH* |
| Inline XBRL Taxonomy Extension Schema. |
|
| |
Exhibit 101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase. |
|
|
|
Exhibit 101.DEF* |
| Inline XBRL Taxonomy Extension Definition Label Linkbase. |
|
| |
Exhibit 101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase. |
|
| |
Exhibit 101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase. |
|
|
|
Exhibit 104* |
| Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101). |
|
|
|
*Filed as part of this quarterly report. $ Management contract or compensatory plan or arrangement. | ||
| ||
#In accordance with SEC Release No. 33-8238, Exhibit 32.1 is to be treated as “accompanying” this report rather than “filed” as part of the report. |
6755
SIGNATURES
Pursuant to the requirements 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.
|
|
| WESTROCK COMPANY |
|
|
| (Registrant) |
|
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|
|
Date: | May | By: | /s/ Ward H. Dickson |
|
|
| Ward H. Dickson |
|
|
| Executive Vice President and Chief Financial Officer |
|
|
| (Principal Financial Officer and duly authorized officer) |
6856