GRAPHIC PACKAGING HOLDING CO [GPK] Filings

10-Q 1 gpk-20210930.htm 10-Q gpk-20210930

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 September 30, 2021


☐			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: 001-33988

Graphic Packaging Holding Company

(Exact name of registrant as specified in its charter)


Delaware		26-0405422
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification no.)

1500 Riveredge Parkway, Suite 100
Atlanta,	Georgia	30328
(Address of principal executive offices)		(Zip Code)

(770) 240-7200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share	GPK	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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

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

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

Large accelerated filer

☑

Accelerated filer

☐

Smaller reporting company

☐

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Emerging growth company

☐

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

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

As of October 25, 2021, there were 307,099,121 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements regarding the expectations of Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”), including, but not limited to, the timing of the closing of the AR Packaging Group AB acquisition, the timing of payments under the Tax Receivable Agreement (as hereinafter defined), startup charges for the new paperboard machine in Kalamazoo, Michigan, the charges relating to the disposal of idle assets, the reclassification of pre-tax gains to earnings, the availability of U.S. federal income tax attributes to offset U.S. federal income taxes and the timing related to the Company's future U.S. federal income tax payments, charges for exit activities, capital investment, depreciation and amortization, interest expense, pension plan contributions in this report constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations. These risks and uncertainties include, but are not limited to, the effects of the COVID-19 pandemic on the Company's operations and business, inflation of and volatility in raw material and energy costs, changes in consumer buying habits and product preferences, competition with other paperboard manufacturers and converters, product substitution, the Company’s ability to implement its business strategies, including strategic acquisitions, the Company's ability to successfully integrate acquisitions, productivity initiatives and cost reduction plans, the Company’s debt level, currency movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters, including those that could impact the Company’s ability to utilize its U.S. federal income tax attributes to offset taxable income or U.S. federal income taxes and those that impact the Company's ability to protect and use its intellectual property. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements, except as may be required by law. Additional information regarding these and other risks is contained in Part I, "Item 1A., Risk Factors" of the Company's 2020 Annual Report on Form 10-K, and in other filings with the Securities and Exchange Commission.

Table of Contents

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION			4
ITEM 1. FINANCIAL STATEMENTS			4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			38
ITEM 4. CONTROLS AND PROCEDURES			38
PART II — OTHER INFORMATION			39
ITEM 1. LEGAL PROCEEDINGS			39
ITEM 1A. RISK FACTORS			39
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			39
ITEM 4. MINE SAFETY DISCLOSURES			39
ITEM 6. EXHIBITS			40
SIGNATURES			41
EX-31.1
EX-31.2
EX-32.1
EX-32.2
XBRL Content

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions, except per share amounts	2021		2020		2021		2020
Net Sales	$	1,782	$	1,698	$	5,168	$	4,908
Cost of Sales	1,502		1,442		4,384		4,069
Selling, General and Administrative	128		126		379		394
Other (Income) Expense, Net	(2)		2		2		3
Business Combinations, Shutdown and Other Special Charges, and Exit Activities, Net	33		9		79		48
Income from Operations	121		119		324		394
Nonoperating Pension and Postretirement Benefit Income (Expense)	1		—		4		(151)
Interest Expense, Net	(29)		(32)		(88)		(96)

Income before Income Taxes and Equity Income of Unconsolidated Entity	93		87		240		147
Income Tax Expense	(20)		(8)		(64)		(21)
Income before Equity Income of Unconsolidated Entity	73		79		176		126
Equity Income of Unconsolidated Entity	—		—		1		—
Net Income	73		79		177		126
Net Income Attributable to Noncontrolling Interest	—		(15)		(12)		(23)
Net Income Attributable to Graphic Packaging Holding Company	$	73	$	64	$	165	$	103

Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic	$	0.24	$	0.23	$	0.56	$	0.37
Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted	$	0.24	$	0.23	$	0.56	$	0.36

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

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



Three Months Ended September 30,
2021
In millions	Graphic Packaging Holding Company
Net Income	$	73
Other Comprehensive Income (Loss), Net of Tax:

Derivative Instruments	4
Pension and Postretirement Benefit Plans	1
Currency Translation Adjustment	(17)
Total Other Comprehensive Loss, Net of Tax	(12)
Total Comprehensive Income	$	61


2020
	Graphic Packaging Holding Company		Noncontrolling Interest		Redeemable Noncontrolling Interest		Total
Net Income	$	64	$	13	$	2	$	79
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	6		1		—		7
Pension and Postretirement Benefit Plans	—		1		(1)		—
Currency Translation Adjustment	24		4		1		29

Total Other Comprehensive Income, Net of Tax	30		6		—		36
Total Comprehensive Income	$	94	$	19	$	2	$	115


Nine Months Ended September 30,
2021
In millions	Graphic Packaging Holding Company		Noncontrolling Interest		Total
Net Income	$	165	$	12	$	177
Other Comprehensive Income (Loss), Net of Tax:

Derivative Instruments	9		1		10
Pension and Postretirement Benefit Plans	21		—		21
Currency Translation Adjustment	(16)		—		(16)

Total Other Comprehensive Income, Net of Tax	14		1		15
Total Comprehensive Income	$	179	$	13	$	192


2020
	Graphic Packaging Holding Company		Noncontrolling Interest		Redeemable Noncontrolling Interest		Total
Net Income (Loss)	$	103	$	26	$	(3)	$	126
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	7		1		—		8
Pension and Postretirement Benefit Plans	114		33		9		156
Currency Translation Adjustment	(10)		(3)		—		(13)

Total Other Comprehensive Income, Net of Tax	111		31		9		151
Total Comprehensive Income	$	214	$	57	$	6	$	277

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

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except share and per share amounts	September 30, 2021		December 31, 2020
ASSETS

Current Assets:
Cash and Cash Equivalents	$	67	$	179
Receivables, Net	643		654
Inventories, Net	1,181		1,128
Other Current Assets	78		59

Total Current Assets	1,969		2,020
Property, Plant and Equipment, Net	4,020		3,560
Goodwill	1,539		1,478
Intangible Assets, Net	446		437
Other Assets	314		310
Total Assets	$	8,288	$	7,805

LIABILITIES

Current Liabilities:
Short-Term Debt and Current Portion of Long-Term Debt	$	22	$	497
Accounts Payable	890		825
Compensation and Employee Benefits	166		213

Other Accrued Liabilities	421		321
Total Current Liabilities	1,499		1,856
Long-Term Debt	4,132		3,147
Deferred Income Tax Liabilities	416		540
Accrued Pension and Postretirement Benefits	102		130
Other Noncurrent Liabilities	285		292



SHAREHOLDERS’ EQUITY
Preferred Stock, par value $0.01 per share; 100,000,000 shares authorized; no shares issued or outstanding	—		—
Common Stock, par value $0.01 per share; 1,000,000,000 shares authorized; 307,071,620 and 267,726,373 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	3		3
Capital in Excess of Par Value	2,032		1,715
Retained Earnings (Accumulated Deficit)	51		(48)
Accumulated Other Comprehensive Loss	(232)		(246)
Total Graphic Packaging Holding Company Shareholders' Equity	1,854		1,424
Noncontrolling Interest	—		416
Total Equity	1,854		1,840
Total Liabilities and Shareholders' Equity	$	8,288	$	7,805

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

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

(Unaudited)



	Common Stock			Capital in Excess of Par Value		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive (Loss) Income
In millions, except share amounts	Shares	Amount								Noncontrolling Interest		Total Equity
Balances at December 31, 2020	267,726,373	$	3	$	1,715	$	(48)	$	(246)	$	416	$	1,840
Net Income	—	—		—		54		—		8		62
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	—	—		—		—		3		1		4
Pension and Postretirement Benefit Plans	—	—		—		—		10		—		10
Currency Translation Adjustment	—	—		—		—		(4)		(1)		(5)

Reduction of IP's Ownership Interest	15,307,000	—		70		—		—		(216)		(146)


Dividends Declared	—	—		—		(21)		—		—		(21)
Distribution of Membership Interest	—	—		—		—		—		(4)		(4)
Recognition of Stock-Based Compensation, Net	—	—		(3)		—		—		—		(3)
Issuance of Shares for Stock-Based Awards	1,168,394	—		—		—		—		—		—
Balances at March 31, 2021	284,201,767	$	3	$	1,782	$	(15)	$	(237)	$	204	$	1,737
Net Income	—	—		—		38		—		4		42
Other Comprehensive Income, Net of Tax:
Derivative Instruments	—	—		—		—		2		—		2
Pension and Postretirement Benefit Plans	—	—		—		—		10		—		10
Currency Translation Adjustment	—	—		—		—		5		1		6
Reduction of IP's Ownership Interest	22,773,072	—		241		—		—		(207)		34

Dividends Declared	—	—		—		(22)		—		—		(22)
Distribution of Membership Interest	—	—		—		—		—		(2)		(2)
Recognition of Stock-Based Compensation, Net	—	—		7		—		—		—		7
Issuance of Shares for Stock-Based Awards	70,868	—		—		—		—		—		—
Balances at June 30, 2021	307,045,707	$	3	$	2,030	$	1	$	(220)	$	—	$	1,814
Net Income	—	—		—		73		—		—		73
Other Comprehensive Income, Net of Tax:
Derivative Instruments	—	—		—		—		4		—		4
Pension and Postretirement Benefit Plans	—	—		—		—		1		—		1
Currency Translation Adjustment	—	—		—		—		(17)		—		(17)

Dividends Declared	—	—		—		(23)		—		—		(23)
Recognition of Stock-Based Compensation, Net	—	—		2		—		—		—		2
Issuance of Shares for Stock-Based Awards	25,913	—		—		—		—		—		—
Balances at September 30, 2021	307,071,620	$	3	$	2,032	$	51	$	(232)	$	—	$	1,854

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

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

(Unaudited)



	Common Stock			Capital in Excess of Par Value		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest		Total Equity		Redeemable Noncontrolling Interest
In millions, except share amounts	Shares	Amount
Balances at December 31, 2019	290,246,907	$	3	$	1,877	$	56	$	(367)	$	488	$	2,057	$	304
Net Loss	—	—		—		(13)		—		(2)		(15)		(5)
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments	—	—		—		—		(1)		—		(1)		—
Pension and Postretirement Benefit Plans	—	—		—		—		114		32		146		9
Currency Translation Adjustment	—	—		—		—		(46)		(10)		(56)		(1)
Repurchase of Common Stock(a)	(9,667,034)	—		(53)		(71)		—		—		(124)		—
Dividends Declared	—	—		—		(21)		—		—		(21)		—
Redemption of IP's Ownership Interest	—	—		—		—		—		—		—		(250)
Redeemable Noncontrolling Interest Redemption Value Adjustment	—	—		18		—		—		—		18		(18)
Tax Effect of IP Redemption	—	—		7		—		—		—		7
Distribution of Membership Interest	—	—		—		—		—		(5)		(5)		(1)
Recognition of Stock-Based Compensation, Net	—	—		4		—		—		—		4		—
Issuance of Shares for Stock-Based Awards	788,561	—		—		—		—		—		—		—
Balances at March 31, 2020	281,368,434	$	3	$	1,853	$	(49)	$	(300)	$	503	$	2,010	$	38
Net Income	—	—		—		52		—		15		67		—
Other Comprehensive Income, Net of Tax:
Derivative Instruments	—	—		—		—		2		—		2		—
Pension and Postretirement Benefit Plans	—	—		—		—		—		—		—		1
Currency Translation Adjustment	—	—		—		—		12		3		15		—
Repurchase of Common Stock(b)	(2,622,283)	—		(14)		(19)		—		—		(33)		—
Redeemable Noncontrolling Interest Redemption Value Adjustment	—	—		(5)		—		—		—		(5)		5
Dividends Declared	—	—				(21)		—		.		(21)		—
Distribution of Membership Interest	—	—		—		—		—		(5)		(5)		—
Recognition of Stock-Based Compensation, Net	—	—		7		—		—		—		7		—
Issuance of Shares for Stock-Based Awards	93,381	—		—		—		—		—		—		—
Balances at June 30, 2020	278,839,532	$	3	$	1,841	$	(37)	$	(286)	$	516	$	2,037	$	44

Net Income	—	—		—		64		—		13		77		2
Other Comprehensive Income (Loss), Net of Tax:
Derivative Instruments	—	—		—		—		6		1		7		—
Pension and Postretirement Benefit Plans	—	—		—		—		—		1		1		(1)
Currency Translation Adjustment	—	—		—		—		24		4		28		1
Repurchase of Common Stock(c)	(6,607,221)	—		(36)		(58)		—		—		(94)
Redeemable Noncontrolling Interest Redemption Value Adjustment	—	—		(1)		—		—		—		(1)		1
Redemption of IP's Ownership Interest	—	—		(87)		—		—		(124)		(211)		(46)
Tax Effect of IP Redemption	—	—		9		—		—		—		9		—
Dividends Declared	—	—		—		(21)		—		—		(21)		—
Distribution of Membership Interest	—	—		—		—		—		(5)		(5)		(1)
Recognition of Stock-Based Compensation, Net	—	—		7		—		—		—		7		—
Issuance of Shares for Stock-Based Awards	4,533	—		—		—		—		—		—		—
Balances at September 30, 2020	272,236,844	$	3	$	1,733	$	(52)	$	(256)	$	406	$	1,834	$	—

(a) Includes 410,400 shares repurchased but not yet settled as of March 31, 2020.

(b) Includes 14,436 shares repurchased but not yet settled as of June 30, 2020.

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

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GRAPHIC PACKAGING HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 30,
In millions	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	177	$	126

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	356		357

Deferred Income Taxes	45		(6)
Amount of Postretirement Expense (Less) Greater Than Funding	(23)		145

Other, Net	79		31
Changes in Operating Assets and Liabilities	(175)		(264)
Net Cash Provided by Operating Activities	459		389

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Spending	(566)		(403)
Packaging Machinery Spending	(22)		(23)
Acquisition of Businesses, Net of Cash Acquired	(292)		(121)



Beneficial Interest on Sold Receivables	97		86
Beneficial Interest Obtained in Exchange for Proceeds	(6)		(7)
Other, Net	(3)		(9)
Net Cash Used in Investing Activities	(792)		(477)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of Common Stock	—		(247)
Proceeds from Issuance of Debt	1,586		800
Retirement of Long-Term Debt	(1,226)		—
Payments on Debt	(13)		(27)
Redemption of Noncontrolling Interest	(150)		(500)

Borrowings under Revolving Credit Facilities	2,876		2,181
Payments on Revolving Credit Facilities	(2,700)		(2,123)

IP Tax Receivable Agreement Payment	(43)		—
Repurchase of Common Stock related to Share-Based Payments	(15)		(9)
Debt Issuance Costs	(16)		(12)
Dividends and Distributions Paid to GPIP Partner	(71)		(80)
Other, Net	(5)		10
Net Cash Provided by (Used in) Financing Activities	223		(7)

Effect of Exchange Rate Changes on Cash	(2)		(2)

Net Decrease in Cash and Cash Equivalents	(112)		(97)
Cash and Cash Equivalents at Beginning of Period	179		153
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	67	$	56

Non-cash Investing Activities:
Beneficial Interest Obtained in Exchange for Trade Receivables	$	94	$	103
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	$	58	$	55
Non-cash Financing Activities:

Non-cash Exchange of Stock Issuance for Redemption of Noncontrolling Interest	$	(652)	$	—

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

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — 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.

On May 21, 2021, IP exchanged its remaining 22.8 million partnership units for an equivalent number of shares of GPHC common stock. As a result, IP has no ownership interest remaining in GPIP as of May 21, 2021.

In connection with both the February 19, 2021 and May 21, 2021 exchanges, 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, payments pursuant to the Tax Receivable Agreement (“TRA”), executed in connection with the formation of the partnership on January 1, 2018, are 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 TRA liabilities of $43 million and $66 million, for the February 19, 2021 and May 21, 2021 exchanges, respectively. The TRA liabilities were recorded through adjustments to Capital in Excess of Par Value during the first and second quarters of 2021, respectively. In accordance with the terms of the TRA, the Company settled the liability for the February exchange during the third quarter and expects the liability for the May exchange to be settled during the fourth quarter of 2021. Additionally, the Company recorded an adjustment through Capital in Excess of Par Value to decrease its net domestic Deferred Tax Liability (“DTL”) by $58 million in connection with the February exchange and $109 million in connection with the May exchange. 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 exchanges 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.

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.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In the Company’s opinion, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the interim periods. The Company’s year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all the information required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with GPHC’s Form 10-K for the year ended December 31, 2020. In addition, the preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates and changes in these estimates are recorded when known.

Revenue Recognition

The Company has two primary activities, manufacturing and converting paperboard, from which it generates revenue from contracts with customers. Revenue is disaggregated primarily by geography and type of activity as further explained in "Note 11 — 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 September 30, 2021 and 2020, the Company recognized $1,775 million and $1,691 million, respectively, of revenue from contracts with customers. For the nine months ended September 30, 2021 and 2020, the Company recognized $5,151 million and $4,891 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 September 30, 2021 and December 31, 2020, contract assets were $15 million and $15 million, respectively. The Company's contract liabilities consist principally of rebates, and as of September 30, 2021 and December 31, 2020 were $60 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 (Income) Expense, Net line item on the Condensed Consolidated Statement of Operations. The following table summarizes the activity under these programs for the nine months ended September 30, 2021 and 2020, respectively:


	Nine Months Ended
	September 30,
In millions	2021		2020
Receivables Sold and Derecognized	$	2,230	$	2,077
Proceeds Collected on Behalf of Financial Institutions	2,202		2,029
Net Proceeds Received From Financial Institutions	39		37
Deferred Purchase Price at September 30(a)	8		10
Pledged Receivables at September 30	154		267

(a) Included in Other Current Assets on the Condensed Consolidated Balance Sheet and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.

The Company also participates in supply chain financing arrangements offered by certain customers and has entered into various factoring arrangements that also qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the nine months ended September 30, 2021 and 2020, the Company sold receivables of $493 million and $238 million, respectively, related to these factoring arrangements.

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GRAPHIC PACKAGING HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were $661 million and $621 million as of September 30, 2021 and December 31, 2020, respectively.

Share Repurchases and Dividends

During the first nine months of 2021, the Company's board of directors declared three regular quarterly dividends of $0.075 per share of common stock to shareholders of record as follows:



Date Declared	Record Date	Payment Date
February 25, 2021	March 15, 2021	April 5, 2021
May 26, 2021	June 15, 2021	July 5, 2021
July 29, 2021	September 15, 2021	October 5, 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 nine months of 2021, the Company did not repurchase any shares of its common stock under the 2019 share repurchase program. During the nine months ended September 30, 2020, the Company repurchased 18,896,538 shares of its common stock at an average price of $13.31 under the 2019 share repurchase program. As of September 30, 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				Nine Months Ended
	September 30,				September 30,
In millions	2021		2020		2021		2020
Charges Associated with Business Combinations	$	25	$	1	$	48	$	(3)
Shutdown and Other Special Charges	5		4		20		30
Exit Activities(a)	3		4		11		21

Total	$	33	$	9	$	79	$	48

(a) Relates to the Company's CRB mills, converting facility closures and the PM1 containerboard machine exit activities (see "Note 14 — Exit Activities").

2021

During 2019, the Company announced its plans to invest in a new CRB paper machine in Kalamazoo, Michigan. At the time of the announcement, the Company expected to close two of its smaller CRB Mills in 2022 in order to remain capacity neutral. During the third quarter of 2021, the Company decided to continue to operate one of the two original smaller CRB mills at least through 2022. Severance, retention, and other charges associated with this project are included in Exit Activities in the table above in the three and nine months ended September 30, 2021 and 2020. For more information, see "Note 14 — Exit Activities." The Company also expects to incur start-up charges of approximately $