General Information | GENERAL INFORMATION Nature of Business Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”) is committed to providing consumer packaging that makes a world of difference. The Company is a leading provider of sustainable, fiber-based packaging solutions for a wide variety of products to food, beverage, foodservice and other consumer products companies. The Company operates on a global basis, is one of the largest producers of folding cartons in the United States ("U.S.") and holds leading market positions in coated-recycled paperboard ("CRB"), coated unbleached kraft paperboard ("CUK") and solid bleached sulfate paperboard ("SBS"). The Company’s customers include many of the world’s most widely recognized companies and brands with prominent market positions in beverage, food, foodservice, and other consumer products. The Company strives to provide its customers with innovative sustainable packaging solutions designed to deliver marketing and performance benefits at a competitive cost by capitalizing on its low-cost paperboard mills and converting facilities, its proprietary carton and packaging designs, and its commitment to quality and service. On January 1, 2018, GPHC, a Delaware corporation, International Paper Company, a New York corporation (“IP”), Graphic Packaging International Partners, LLC, a Delaware limited liability company formerly known as Gazelle Newco LLC and a wholly- owned subsidiary of the Company (“GPIP”), and Graphic Packaging International, LLC, a Delaware limited liability company formerly known as Graphic Packaging International, Inc. and a direct subsidiary of GPIP (“GPIL”), completed a series of transactions pursuant to an agreement dated October 23, 2017, among the foregoing parties (the “Transaction Agreement”). Pursuant to the Transaction Agreement (i) a wholly-owned subsidiary of the Company transferred its ownership interest in GPIL to GPIP; (ii) IP transferred its North America Consumer Packaging (“NACP”) business to GPIP, which was then subsequently transferred to GPIL; (iii) GPIP issued membership interests to IP, and IP was admitted as a member of GPIP; and (iv) GPIL assumed certain indebtedness of IP (the "NACP Combination"). During 2020, GPIP purchased 32.5 million partnership units from IP for $500 million in cash, fully redeeming the 18.2 million partnership units that were required to be redeemed in cash. On February 16, 2021, the Company announced that IP had notified the Company of its intent to exchange additional partnership units. Per an agreement between the parties, on February 19, 2021, GPIP purchased 9.3 million partnership units from IP for $150 million in cash, and IP exchanged 15.3 million partnership units for an equivalent number of shares of GPHC common stock. As a result, IP's ownership interest in GPIP decreased to 7.4% as of February 19, 2021. In connection with the February 19, 2021 exchange, pursuant to elections under Section 754 of the Internal Revenue Code, the Company expects to obtain an increase with respect to the tax basis in the assets of GPIP and certain of its subsidiaries. As a result, a payment pursuant to the Tax Receivable Agreement (“TRA”), executed in connection with the formation of the partnership on January 1, 2018, will be required. The TRA provides for the payment by the Company to IP of 50% of the present value of any tax benefits projected to be realized by the Company upon IP’s exchange of its membership interest into GPHC stock. As such, the Company recorded a TRA liability of approximately $43 million, which is included in Other Accrued Liabilities as of March 31, 2021, with the offset to Additional Paid-In Capital.. In accordance with the terms of the TRA, the Company expects the liability to be settled during the third quarter of 2021. Additionally, the Company recorded an adjustment through Additional Paid-in Capital to decrease its net domestic Deferred Tax Liability (“DTL”) by $58 million. The decrease in the DTL reflects the change in the outside basis difference associated with the Company’s investment in the partnership and includes the impact of the tax basis step up triggered by the exchange pursuant to Section 754 of the Internal Revenue Code in addition to other changes to book and tax basis as a result of the Company’s increased ownership interest in the partnership. Unless otherwise negotiated by the parties, IP's next contractual opportunity to exchange their partnership units begins 180 days from the February 19, 2021 purchase date and is limited to the lesser of $250 million or 25% of the units owned immediately following the initial transaction, subject to a minimum. IP will have further opportunities to exchange their partnership units beginning 180 days after each purchase date. The Company may choose to satisfy these exchanges using shares of its common stock, cash, or a combination thereof. As of March 31, 2021, GPIP had repurchased 44.2 million partnership units from GPI Holding, which distributed the proceeds to GPHC. GPHC used the proceeds to repurchase 44.2 million shares of GPHC's common stock. These partnership unit repurchases increased IP's ownership interest in GPIP, which was 7.4% at March 31, 2021. There were no repurchases of GPHC's common stock for the three months ended March 31, 2021. The Company’s Condensed Consolidated Financial Statements include all subsidiaries in which the Company has the ability to exercise direct or indirect control over operating and financial policies. Intercompany transactions and balances are eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to current year presentation. Revenue Recognition The Company has two primary activities, manufacturing and converting paperboard, from which it generates revenue from contracts with customers, and revenue is disaggregated primarily by geography and type of activity as further explained in " Note 10 — Segment Information. " All reportable segments and the Australia and Pacific Rim operating segments recognize revenue under the same method, allocate transaction price using similar methods, and have similar economic factors impacting the uncertainty of revenue and related cash flows. Revenue is recognized on the Company's annual and multi-year supply contracts when the Company satisfies the performance obligation by transferring control over the product or service to a customer, which is generally based on shipping terms and passage of title under the point-in-time method of recognition. For the three months ended March 31, 2021 and 2020, the Company recognized $1,644 million and $1,595 million, respectively, of revenue from contracts with customers. The transaction price allocated to each performance obligation consists of the stand-alone selling price, estimates of rebates and other sales or contract renewal incentives, and cash discounts and sales returns ("variable consideration") and excludes sales tax. Estimates are made for Variable Consideration based on contract terms and historical experience of actual results and are applied to the performance obligations as they are satisfied. Purchases by the Company’s principal customers are manufactured and shipped with minimal lead time, therefore performance obligations are generally satisfied shortly after manufacturing and shipment. The Company uses standard payment terms that are consistent with industry practice. The Company's contract assets consist primarily of contract renewal incentive payments to customers which are amortized over the period in which performance obligations related to the contract renewal are satisfied. As of March 31, 2021 and December 31, 2020, contract assets were $16 million and $15 million, respectively. The Company's contract liabilities consist principally of rebates, and as of March 31, 2021 and December 31, 2020 were $50 million and $56 million, respectively. Accounts Receivable and Allowances The Company has entered into agreements to sell, on a revolving basis, certain trade accounts receivable to third party financial institutions. Transfers under these agreements meet the requirements to be accounted for as sales in accordance with the Transfers and Servicing topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification"). The loss on sale is not material and is included in Other Expense, Net line item on the Condensed Consolidated Statement of Operations. The following table summarizes the activity under these programs for the three months ended March 31, 2021 and 2020, respectively: Three Months Ended March 31, In millions 2021 2020 Receivables Sold and Derecognized $ 758 $ 610 Proceeds Collected on Behalf of Financial Institutions 685 609 Net Proceeds Received From (Paid to) Financial Institutions 62 (5) Deferred Purchase Price at March 31 (a) 9 7 Pledged Receivables at March 31 160 264 (a) Included in Other Current Assets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure. The Company has also entered into various factoring and supply chain financing arrangements which also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the three months ended March 31, 2021 and 2020, the Company sold receivables of $125 million and $72 million, respectively, related to these factoring arrangements. Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were $689 million and $621 million as of March 31, 2021 and December 31, 2020, respectively. On February 25, 2021, the Company's board of directors declared a regular quarterly dividend of $0.075 per share of common stock payable on April 5, 2021 to shareholders of record as of March 15, 2021. On January 28, 2019, the Company's board of directors authorized a share repurchase program to allow the Company to purchase up to $500 million of the Company's issued and outstanding shares of common stock through open market purchases, privately negotiated transactions and Rule 10b5-1 plans (the "2019 share repurchase program"). During the first three months of 2021, the Company did not repurchase any shares of its common stock under the 2019 share repurchase program. During the three months ended March 31, 2020, the Company repurchased 9,667,034 shares of its common stock at an average price of $12.87 under the 2019 share repurchase program. As of March 31, 2021, the Company has $147 million available for additional repurchases under the 2019 share repurchase program. Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net The following table summarizes the transactions recorded in Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net in the Condensed Consolidated Statements of Operations: Three Months Ended March 31, In millions 2021 2020 Charges Associated with Business Combinations $ — $ 2 Shutdown and Other Special Charges 8 4 Exit Activities (a) 4 13 Total $ 12 $ 19 (a) Relates to the Company's CRB mills, converting facility closures and the PM1 containerboard machine exit activities (see " Note 13 — Exit Activities" ). 2021 During 2019, the Company announced its plans to invest $600 million in a new CRB paper machine in Kalamazoo, Michigan. In conjunction with the completion of this project, the Company currently expects to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral. Severance, retention, and other charges associated with this project are included in Exit Activities in the table above in the three months ended March 31, 2021 and 2020. For more information, see "Note 13 — Exit Activities." The Company also expects to incur start-up charges of $15 million for the new CRB paper machine in 2021. These start-up charges are included in Shutdown and Other Special Charges in the table above. During 2019, the Company began a three-year program to dismantle and dispose of idle and abandoned assets primarily at the paperboard mills. Charges related to this program during the three months ended March 31, 2021 and 2020 were $4 million and $2 million, respectively. Expected charges for this program for 2021 are $26 million. Charges associated with this program are included in Shutdown and Other Special Charges in the table above. 2020 On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc. ("Quad"), a commercial printing company. The converting facility is located in Omaha, Nebraska and is included in the Americas Paperboard Packaging reportable segment. The Company paid $41 million using existing cash and borrowings under its revolving credit facility. The costs associated with this acquisition are included in Charges Associated with Business Combinations in the table above. During the first quarter of 2021, the acquisition accounting for Quad was finalized. In March 2020, the Company made the decision to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana. Charges associated with these projects are included in Exit Activities in the table above. For more information, see " Note 13 — Exit Activities ." Adoption of New Accounting Standards In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . This amendment modifies ASC 740 to simplify the accounting for income taxes. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this new guidance during the three months ended March 31, 2021. The Company’s adoption did not result in any changes in accounting principle upon transition and the impact to the Company’s overall financial statements is immaterial. Accounting Standards Not Yet Adopted In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This standard provides temporary optional expedients and exceptions for applying GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The ASU can be adopted after its issuance date through December 31, 2022. The Company is currently evaluating the impact of this new accounting guidance. |