GRAPHIC PACKAGING HOLDING CO
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
|
þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2009 | ||
|
or
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||
|
o
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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 of incorporation) |
(I.R.S. employer
identification no.) |
|
| 814 Livingston Court, Marietta, Georgia | 30067 | |
| (Address of principal executive offices) | (Zip Code) |
(770) 644-3000
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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|
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Common Stock, $0.01 par value per share
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New York Stock Exchange | |
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Series A Junior Participating Preferred Stock
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New York Stock Exchange | |
|
Purchase Rights Associated with the Common Stock
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
The aggregate market value of voting and non-voting common
equity held by non-affiliates at June 30, 2009 was
$142.5 million.
As of February 19, 2010 there were approximately
343,247,088 shares of the registrant’s Common Stock,
$0.01 par value per share outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 20,
2010 are incorporated by reference into Part III of this
Annual Report on
Form 10-K.
TABLE OF
CONTENTS OF
FORM 10-K
2
Table of Contents
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, statements regarding the effect of deflation of
certain input costs, price increases for coated paperboard and
cartons, cost savings from its continuous improvement programs,
capital investment, depreciation and amortization, interest
expense, debt reduction and 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 Company’s substantial
amount of debt, inflation of and volatility in raw material and
energy costs, continuing pressure for lower cost products, the
Company’s ability to implement its business strategies,
including productivity initiatives and cost reduction plans,
currency movements and other risks of conducting business
internationally, and the impact of regulatory and litigation
matters, including those that could limit the Company’s
ability to utilize its net operating losses to offset taxable
income 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.
Additional information regarding these and other risks is
contained herein under “Item 1A., Risk Factors.”
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Table of Contents
PART I
| ITEM 1. | BUSINESS |
Overview
Graphic Packaging Holding Company (“GPHC” and,
together with its subsidiaries, the “Company”) is
committed to providing packaging solutions that improve the
world in which we live. The Company is a leading provider of
packaging solutions for a wide variety of products to food,
beverage and other consumer products companies. Additionally,
the Company is the largest U.S. producer of folding cartons
and holds a leading market position in coated unbleached kraft
paperboard, coated-recycled boxboard and multi-wall bags.
The Company’s customers include some of the world’s
most widely recognized companies and well-known brands and they
generally hold prominent market positions in the beverage, food
and other consumer products industries. The Company strives to
provide its customers with packaging solutions designed to
deliver marketing and performance benefits at a competitive cost
by capitalizing on its low-cost paperboard mills and converting
plants, proprietary carton and packaging designs, and its
commitment to customer service.
On March 10, 2008, the businesses of Graphic Packaging
Corporation (“GPC”) and Altivity Packaging, LLC
(“Altivity”) were combined through a series of
transactions. A new publicly-traded parent company, GPHC, was
formed and all of the equity interests in Bluegrass Container
Holdings, LLC (“BCH”), Altivity’s parent company,
were contributed to GPHC in exchange for shares of GPHC’s
common stock. Subsequently, all of the equity interests in BCH
were contributed to GPHC’s primary operating company,
Graphic Packaging International, Inc. (“GPII”).
Together, these transactions are referred to herein as the
“Altivity Transaction.” For additional information on
the Altivity Transaction, see Note 4 in the Notes to
Consolidated Financial Statements included herein under
“Item 8., Financial Statements and Supplementary
Data.”
GPHC was incorporated on June 21, 2007 under the laws of
the State of Delaware, under the name New Giant Corporation.
GPHC did not conduct any material activities until after the
closing of the Altivity Transaction.
Products
The Company reports its results in three business segments:
paperboard packaging, multi-wall bag and specialty packaging. As
a result of the Altivity Transaction, the Company’s
business segments were revised and the segment disclosures for
2007 results were reclassified. The Company operates in four
geographic areas: the United States (“U.S.”)/Canada,
Central/South America, Europe and Asia Pacific. For business
segment and geographic area information for each of the last
three fiscal years, see Note 18 in the Notes to
Consolidated Financial Statements included herein under
“Item 8., Financial Statements and Supplementary
Data.”
Paperboard
Packaging
The Company’s paperboard packaging products deliver
marketing and performance benefits at a competitive cost. The
Company supplies paperboard cartons and carriers designed to
protect and contain products while providing:
| • | convenience through ease of carrying, storage, delivery, dispensing of product and food preparation for consumers; | |
| • | a smooth surface printed with high-resolution, multi-color graphic images that help improve brand awareness and visibility of products on store shelves; and | |
| • | durability, stiffness and wet and dry tear strength; leak, abrasion and heat resistance; barrier protection from moisture, oxygen, oils and greases as well as enhanced microwave heating performance. |
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Table of Contents
The Company provides a wide range of paperboard packaging
solutions for the following end-use markets:
| • | beverage, including beer, soft drinks, energy drinks, water and juices; | |
| • | food, including cereal, desserts, frozen, refrigerated and microwavable foods and pet foods; | |
| • | prepared foods, including snacks, quick-serve foods for restaurants and food service products; and | |
| • | household products, including dishwasher and laundry detergent, health care and beauty aids, and tissues and papers. |
The Company’s packaging applications meet the needs of its
customers for:
Strength Packaging.
The Company provides
sturdiness to meet a variety of packaging needs, including tear
and wet strength, puncture resistance, durability and
compression strength (providing stacking strength to meet store
display packaging requirements).
Promotional Packaging.
The Company offers a
broad range of promotional packaging options that help
differentiate its customers’ products. These promotional
enhancements improve brand awareness and visibility on store
shelves.
Convenience Packaging.
These packaging
solutions improve package usage and food preparation:
| • | beverage multiple-packaging — Multi-packs for beer, soft drinks, energy drinks, water and juices; | |
| • | active microwave technologies — Substrates that improve the preparation of foods in the microwave; and | |
| • | easy opening and closing features — Pour spouts and sealable liners. |
Barrier Packaging.
The Company provides
packages that protect against moisture, grease, oil, oxygen,
sunlight, insects and other potential product-damaging factors.
The Company produces paperboard at its mills; prints, cuts and
glues (“converts”) the paperboard into folding cartons
at its converting plants; and designs and manufactures
specialized, proprietary packaging machines that package bottles
and cans and, to a lesser extent, non-beverage consumer
products. The Company also installs its packaging machines at
customer plants and provides support, service and advanced
performance monitoring of the machines.
The Company offers a variety of laminated, coated and printed
packaging structures that are produced from its coated
unbleached kraft (“CUK”), coated-recycled board
(“CRB”) and uncoated-recycled board (“URB”),
as well as other grades of paperboard that are purchased from
third-party suppliers.
Below is the paperboard production at each of the Company’s
mills during 2009:
|
2009 Net Tons
|
||||||
| Location | Product | # of Machines | Produced | |||
|
West Monroe, LA
|
CUK | 2 | 724,000 | |||
|
Macon, GA
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CUK | 2 | 576,000 | |||
|
Kalamazoo, MI
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CRB | 2 | 419,000 | |||
|
Battle Creek, MI
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CRB | 2 | 162,000 | |||
|
Middletown, OH
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CRB | 1 | 156,000 | |||
|
Santa Clara, CA
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CRB | 1 | 134,000 | |||
|
Pekin, IL
|
URB | 1 | 38,000 | |||
|
West Monroe, LA
|
Containerboard | 2 | 159,000 | |||
The Company consumes most of its coated board output in its
carton converting operations, which is an integral part of its
low-cost converting strategy. In 2009, excluding containerboard,
82% of mill production was consumed internally.
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Table of Contents
CUK Production.
The Company is the larger of
two worldwide producers of CUK. CUK is a specialized
high-quality grade of coated paperboard with excellent wet and
dry tear strength characteristics and printability for high
resolution graphics that make it particularly suited for a
variety of packaging applications.
CRB Production.
The Company is the largest
domestic producer of CRB. CRB is manufactured entirely from
recycled fibers, primarily old corrugated containers
(“OCC”), doubled-lined kraft cuttings from corrugated
box plants (“DLK”), old newspapers (“ONP”),
and box cuttings. The recycled fibers are re-pulped, formed on
paper machines, and clay-coated to provide an excellent printing
surface for superior quality graphics and appearance
characteristics.
URB Production.
URB is an uncoated 100%
recycled paperboard used in the manufacture of chipboard for
folding cartons, gift boxes, trays and file folders, and tube
stock for manufacture of tubes, cores, cans and composite
containers.
Containerboard.
The Company manufactures
corrugated medium and kraft paper for sale in the open market.
Corrugated medium is combined with linerboard to make corrugated
containers. Kraft paper is used primarily to make grocery bags
and sacks.
The Company converts CUK and CRB, as well as other grades of
paperboard, into cartons at converting plants the Company
operates in various locations across North America and
internationally, converting plants associated with its joint
ventures in Japan and China, contract converters and at
licensees outside the U.S. The converting plants print, cut
and glue paperboard into cartons designed to meet customer
specifications.
Multi-wall
Bag
The Company’s multi-wall bag business is the leading
supplier of multi-wall bags in North America. This business has
traditionally provided packaging for low-cost, bulk-type
commodity products. However, with the continuing evolution of
materials management, bag construction, and distribution
systems, the Company has gained access to
end-markets
in which higher-value products are now being packaged in
multi-wall bags. Key
end-markets
include food and agriculture, building materials, chemicals,
minerals and pet food.
The Company’s multi-wall bag facilities are strategically
located throughout the U.S., allowing it to provide a high level
of service to customers, minimize freight and logistics costs,
improve order turnaround times and improve supply chain
reliability.
Specialty
Packaging
The Company’s specialty packaging business includes
flexible packaging and labels.
The Company’s flexible packaging business operates modern
and technologically competitive manufacturing plants in North
America and has an established position in
end-markets
for food products, pharmaceutical and medical products, personal
care, industrial, pet food and pet care products. Products
include retort pouches (such as meals ready to go), medical test
kits, multi-layer laminations for
hard-to-hold
products (such as iodine), batch inclusion bags and film,
shingle wrap and plastic bags and films for building materials
(such as ready-mix concrete). Approximately 17% of the plastics
produced are consumed internally.
The Company’s label business focuses on heat transfer
labels and lithographic labels and provides customers with
high-quality labels utilizing multiple technology applications.
The Company operates dedicated label plants which produce labels
for food, beverage, pharmaceutical, automotive, household and
industrial products, detergents, and the health and beauty
markets.
Joint
Ventures
The Company is a party to joint ventures with Rengo Riverwood
Packaging, Ltd. (in Japan) and Graphic Hung Hing Packaging Ltd.
(in China), in which it holds a 50% and 60% ownership interest,
respectively. The joint venture agreements cover CUK supply, use
of proprietary carton designs and marketing and distribution of
packaging systems.
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Table of Contents
Marketing
and Distribution
The Company markets its paperboard and paperboard-based products
principally to multinational beverage, food, and other
well-recognized consumer product companies. The multinational
beverage companies include Anheuser-Busch InBev, MillerCoors
Brewing Company, PepsiCo and The
Coca-Cola
Company. Non-beverage consumer product customers include Kraft
Foods, Inc., General Mills, Inc., Nestlé Group, Kellogg
Company, HAVI Global Solutions, and Kimberly-Clark Corporation,
among others. The Company also sells paperboard in the open
market to independent and integrated paperboard converters.
Distribution of the Company’s principal products is
primarily accomplished through direct sales offices in the U.S.,
Australia, Brazil, China, Germany, Italy, Japan, Mexico, Spain
and the United Kingdom, and, to a lesser degree, through broker
arrangements with third parties.
During 2009, the Company did not have any one customer that
represented 10% or more of its net sales.
Competition
Although a relatively small number of large competitors hold a
significant portion of the paperboard packaging market, the
Company’s business is subject to strong competition. There
are only two major CUK producers in the U.S., MeadWestvaco
Corporation and the Company.
In beverage packaging, cartons made from CUK compete with
substitutes such as plastics and corrugated packaging for
packaging glass or plastic bottles, cans and other primary
containers. Although plastics and corrugated packaging are
typically priced lower than CUK, the Company believes that
cartons made from CUK offer advantages over these materials in
areas such as distribution, high-quality graphics, carton
designs, package performance, package line speed, environmental
friendliness and design flexibility.
In non-beverage consumer packaging, the Company’s
paperboard also competes with MeadWestvaco’s CUK, as well
as CRB and solid bleached sulfate (“SBS”) from
numerous competitors, and internationally, folding boxboard and
white-lined chip. CUK and CRB have generally been priced in a
range that is lower than SBS board. There are a large number of
producers in the paperboard markets. Suppliers of paperboard
compete primarily on the basis of price, strength and
printability of their paperboard, quality and service.
The Company’s multi-wall bag business competes with a small
number of large competitors. Additionally, the Company faces
increasing competition from products imported primarily from
Asia.
The U.S. specialty packaging industry is highly fragmented,
comprised of over 500 companies operating 800 converting
facilities. Participants range from small, private companies to
multinational firms.
Raw
Materials
Paperboard
Packaging
The paperboard packaging produced by the Company comes from pine
trees. Pine pulpwood, paper and recycled fibers (including DLK
and OCC) and energy used in the manufacture of paperboard, as
well as poly sheeting, plastic resins and various chemicals used
in the coating of paperboard, represent the largest components
of the Company’s variable costs of paperboard production.
For its West Monroe, LA and Macon, GA mills, the Company relies
on private landowners and the open market for all of its pine
pulpwood and recycled fiber requirements, supplemented by CUK
clippings that are obtained from its converting operations. The
Company believes that adequate supplies from both private
landowners and open market fiber currently are available to meet
its fiber needs at these mills.
The Kalamazoo, MI mill produces coated 100% recycled paperboard
made primarily from OCC, ONP, and boxboard clippings. The market
price of each of the various recycled fiber grades fluctuates
with supply and demand. The Company has many sources for its
fiber requirements and believes that the supply is adequate to
satisfy its needs.
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The coated- and uncoated-recycled board produced at the
Battle Creek, MI; Middletown, OH; Santa Clara, CA; and
Pekin, IL mills is made from 100% recycled fiber. The Company
procures its recycled fiber from both a large national
corporation and local independent fiber suppliers. The
internalization of the Company’s recycled fiber procurement
function enables the Company to attain the lowest market price
for its recycled fiber given the Company’s highly
fragmented supplier base. The Company believes there are
adequate supplies of recycled fiber to serve its mills.
In addition to paperboard that is supplied to its converting
operations from its own mills, the Company converts a variety of
other paperboard grades such as SBS. The Company purchases such
paperboard requirements, including additional CRB and URB, from
outside vendors. The majority of external board purchases are
acquired through long term arrangements with other major
industry suppliers.
Multi-wall
Bag
The multi-wall bag operations use a combination of natural
kraft, high performance, bleached, metallic and clay-coated
papers in its converting operations. The paper is supplied
directly through North American paper mills, under supply
agreements that are typically reviewed annually.
Specialty
Packaging
The flexible packaging group currently purchases the majority of
its primary raw material of polyethylene resins or additives
from a number of major industry suppliers. Other key material
purchases include various films, aluminum foil, inks and
adhesives that are secured through a variety of agreements,
generally with terms of one to six years.
The label group purchases its primary raw materials, which
include heat transfer papers and coated one-side and two-side
papers, from a limited number of suppliers. In addition, the
group purchases wet strength and metalized paper for specific,
niche label applications and shrink sleeve film substrates
through a variety of agreements, generally with terms of one to
six years.
Energy
Energy, including natural gas, fuel oil and electricity,
represents a significant portion of the Company’s
manufacturing costs. The Company has entered into contracts
designed to manage risks associated with future variability in
cash flows and price risk related to future energy cost
increases for a portion of its natural gas requirements,
primarily at its U.S. mills. The Company’s hedging
program for natural gas is discussed in Note 10 in the
Notes to Consolidated Financial Statements included herein under
“Item 8., Financial Statements and Supplementary
Data.”
Backlog
Orders from the Company’s principal customers are
manufactured and shipped with minimal lead time. The Company did
not have a material amount relating to backlog orders at
December 31, 2009 or 2008.
Seasonality
The Company’s net sales, income from operations and cash
flows from operations are subject to moderate seasonality, with
demand usually increasing in the late spring through early fall
due to the beverage, folding carton, housing and construction
markets.
Research
and Development
The Company’s research and development staff works directly
with its sales and marketing personnel to understand long-term
consumer and retailer trends and create relevant new packaging.
These innovative solutions provide customers with differentiated
packaging to meet customer needs. The Company’s development
efforts include, but are not limited to, extending the shelf
life of customers’ products; reducing
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production costs; enhancing the heat-managing characteristics of
food packaging; and refining packaging appearance through new
printing techniques and materials.
Sustainability represents one of the strongest trends in the
packaging industry. The Company’s strategy is to combine
sustainability with innovation to create new solutions for its
customers. The Company’s goal is that over the next three
years, 75% of the Company’s new product sales will come
from more sustainable packaging solutions.
For more information on research and development expenses see
Note 1 in the Notes to Consolidated Financial Statements
included herein under “Item 8., Financial Statements
and Supplementary Data.”
Patents
and Trademarks
As of December 31, 2009, the Company had a large patent
portfolio, presently owning, controlling or holding rights to
more than 1,300 U.S. and foreign patents, with more than
900 U.S. and foreign patent applications currently pending.
The Company’s patent portfolio consists primarily of
patents relating to packaging machinery, manufacturing methods,
structural carton designs, microwave packaging technology,
barrier protection packaging, multi-wall packaging and
manufacturing methods. These patents and processes are
significant to the Company’s operations and are supported
by trademarks such as
Cap-Sac
®
,
DI-NA-CAL
®
,
Fridge
Vendor
®
,
IntegraPak
tm
,
Kitchen
Master
®
,
Micro
Flex
®
Q,
MicroRite
®
,
Peel
Pak
®
,
Quilt
Wave
tm
,
Quick
Crisp
®
,
Soni-Lok
®
,
Soni-Seal
®
,
The Yard
Master
®
,
and
Z-Flute
®
.
The Company takes significant steps to protect its intellectual
property and proprietary rights.
Culture
and Employees
The Company’s corporate vision — to provide
packaging solutions that improve the world in which we
live — and values of respect, integrity,
relationships, teamwork and accountability guide employee
behavior, expectations and relations. In 2009, the Company
completed its second company-wide culture survey, in which 80%
of employees participated. The survey is part of the
Company’s ongoing efforts to build a high-performance
culture and improve the manner in which work is done across the
Company. This effort is in line with the Company’s focus on
continuous improvement utilizing processes like Lean Sigma and
Six Sigma.
As of December 31, 2009, the Company had approximately
13,100 employees worldwide (excluding employees of joint
ventures), of which approximately 51% were represented by labor
unions and covered by collective bargaining agreements. As of
December 31, 2009, approximately 200 of the Company’s
employees were working under an expired contract, which is
currently being negotiated, and 1,600 were covered under
collective bargaining agreements that expire within one year.
The Company considers its employee relations to be satisfactory.
Environmental
Matters
The Company is subject to federal, state and local environmental
regulations and employs a team of professionals in order to
maintain compliance at each of its facilities. For additional
information on such regulation and compliance, see
“Environmental Matters” in “Item 7.,
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and Note 15 in the Notes to
Consolidated Financial Statements included herein under
“Item 8., Financial Statements and Supplementary
Data.”
Available
Information
The Company’s website is located at
http://www.graphicpkg.com.
The Company makes available, free of charge through its website,
its Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after such materials are
electronically filed or furnished to the Securities and Exchange
Commission (the “SEC”). The Company also makes certain
investor presentations and access to analyst conference calls
available through its website. The
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Table of Contents
information contained or incorporated into the Company’s
website is not a part of this Annual Report on
Form 10-K.
| ITEM 1A. | RISK FACTORS |
The following risks could affect (and in some cases have
affected) the Company’s actual results and could cause such
results to differ materially from estimates or expectations
reflected in certain forward-looking statements:
The
Company’s substantial indebtedness may adversely affect its
financial health, its ability to obtain financing in the future,
and its ability to react to changes in its business.
As of December 31, 2009, the Company had an aggregate
principal amount of $2,800.2 million of outstanding debt.
Because of the Company’s substantial debt, the
Company’s ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general
corporate purposes may be restricted in the future. The Company
is also exposed to the risk of increased interest costs because
approximately $181 million of its debt is at variable rates
of interest. A significant portion of the Company’s cash
flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the
funds available for other purposes. In 2010, the Company
estimates it will pay between $170 million and
$190 million in interest on its outstanding debt
obligations.
Additionally, the Company’s Credit Agreement dated
May 16, 2007, as amended (the “Credit Agreement”)
and the indentures governing its 9.5% Senior Notes due 2017
and 9.5% Senior Subordinated Notes due 2013 (the
“Indentures”) contain covenants that prohibit or
restrict, among other things, the disposal of assets, the
incurrence of additional indebtedness (including guarantees),
payment of dividends, loans or advances and certain other types
of transactions. The Credit Agreement also requires compliance
with a maximum consolidated secured leverage ratio. The
Company’s ability to comply in future periods with these
covenants will depend on its ongoing financial and operating
performance.
The substantial debt and the restrictions under the Credit
Agreement and the Indentures could limit the Company’s
flexibility to respond to changing market conditions and
competitive pressures. The material outstanding debt obligations
and the restrictions may also leave the Company more vulnerable
to a downturn in general economic conditions or its business, or
unable to carry out capital expenditures that are necessary or
important to its growth strategy and productivity improvement
programs.
The
Company’s reliance on a large number of financial
institutions for a significant portion of its cash requirements
could adversely affect the Company’s liquidity and cash
flow.
The Company has exposure to many companies in the financial
services industry, particularly commercial and investment banks
that participate in its revolving credit facilities and that are
counterparties to the Company’s interest rate swaps and
natural gas and currency hedges. The failure of these financial
institutions, or their inability or unwillingness to fund the
Company’s revolving credit facility or fulfill their
obligations under swaps and hedges, could have a material
adverse effect on the Company’s liquidity position and cash
flow.
Significant
increases in prices for raw materials, energy, transportation
and other necessary supplies and services could adversely affect
the Company’s financial results.
Limitations in the availability of — and increases
in — the costs of raw materials, including
petroleum-based materials, energy, wood, transportation and
other necessary goods and services, could have an adverse effect
on the Company’s financial results. The Company is also
limited in its ability to pass along such cost increases to
customers, due to contractual provisions and competitive reasons.
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There is
no guarantee that the Company’s efforts to reduce costs, or
to maintain current level run rates for realized cost synergies
and operating efficiencies, will be successful.
The Company utilizes a global continuous improvement initiative
that uses statistical process control to help design and manage
many types of activities, including production and maintenance.
In addition, the Company has accelerated and achieved cost
synergies and operating efficiencies resulting from the Altivity
Transaction sooner than expected. The Company’s ability to
implement successfully its business strategies and to realize
anticipated savings, in addition to maintaining current level
run rates for these cost synergies and operating efficiencies is
subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the
Company’s control. If the Company cannot successfully
implement the strategic cost reductions or other cost savings
plans, or maintain current level run rates for realized cost
synergies and operating efficiencies, it may not be able to
continue to compete successfully against other manufacturers. In
addition, any failure to generate the anticipated efficiencies
and savings could adversely affect the Company’s financial
results.
If a
material percentage of the ownership interests in the
Company’s stockholders who own five percent or more of the
Company’s common stock are sold or transferred, the
Company’s ability to use its net operating losses to offset
its future taxable income may be limited under Section 382
of the Internal Revenue Code.
As of December 31, 2009, the Company had approximately
$1.3 billion of net operating losses (“NOLs”)
available to offset future income for U.S. federal tax
liability purposes. The Company’s ability to use such NOLs
to offset income can be limited, however, if the Company
undergoes an “ownership change” within the meaning of
Section 382 of the Internal Revenue Code
(“Section 382”). In general, an ownership change
occurs whenever the aggregate percentage of the Company’s
common stock owned directly or indirectly by its stockholders
who own five percent or more of the Company’s common stock
(“Significant Stockholders”) increases by more than
50 percentage points over the lowest aggregate percentage
of the Company’s common stock owned directly or indirectly
by such Significant Stockholders at any time during the
preceding three years. In addition, under certain circumstances,
issuances, sales or other dispositions or acquisitions of the
ownership interests in the Company’s Significant
Stockholders can be deemed an ownership change for the Company.
Although the Stockholders Agreement dated as of July 7,
2007 among the Company, the Coors family trusts and foundation,
Clayton, Dubilier & Rice Fund V Limited
Partnership, Old Town, S.A. (formerly known as EXOR Group,
S.A.), Field Holdings, Inc., and certain affiliates of TPG
Capital L.P. contains certain restrictions and limitations on
purchasing additional shares of the Company’s common stock
or selling the shares of the Company’s common stock owned
by such Significant Stockholders as of the date of the
agreement, the Company has little control over changes in the
ownership interests of such Significant Stockholders.
If an ownership change occurs, Section 382 establishes an
annual limitation on the amount of deferred tax assets
attributable to previously incurred NOLs that may be used to
offset taxable income in future years. As a result, the
Company’s tax liability for such years could increase
significantly. The magnitude of the annual limitation on the use
of deferred tax assets and the effect of such limitation on the
Company is difficult to assess and depends in part on the market
value of the Company at the time of the ownership change and
prevailing interest rates.
Work
stoppages and other labor relations matters may make it
substantially more difficult or expensive for the Company to
manufacture and distribute its products, which could result in
decreased sales or increased costs, either of which would
negatively impact the Company’s financial condition and
results of operations.
Approximately 51% of the Company’s workforce is represented
by labor unions, whose goals and objectives may differ
significantly from the Company’s. The Company may not be
able to successfully negotiate new union contracts covering the
employees at its various sites without work stoppages or labor
11
Table of Contents
difficulties. These events may also occur as a result of other
factors. A prolonged disruption at any of the Company’s
facilities due to work stoppages or labor difficulties could
have a material adverse effect on its net sales, margins and
cash flows. In addition, if new union contracts contain
significant increases in wages or other benefits, the
Company’s margins would be adversely impacted.
The
Company may not be able to adequately protect its intellectual
property and proprietary rights, which could harm its future
success and competitive position.
The Company’s future success and competitive position
depend in part upon its ability to obtain and maintain
protection for certain proprietary carton and packaging machine
technologies used in its value-added products, particularly
those incorporating the Cap-Sac, DI-NA-CAL, Fridge Vendor,
IntegraPak, Kitchen Master, MicroFlex Q, MicroRite, Peel Pak,
Quilt Wave, Qwik Crisp, Soni-Lok, Soni-Seal, The Yard Master and
Z-Flute technologies. Failure to protect the Company’s
existing intellectual property rights may result in the loss of
valuable technologies or may require it to license other
companies’ intellectual property rights. It is possible
that any of the patents owned by the Company may be invalidated,
rendered unenforceable, circumvented, challenged or licensed to
others or any of its pending or future patent applications may
not be issued within the scope of the claims sought by the
Company, if at all. Further, others may develop technologies
that are similar or superior to the Company’s technologies,
duplicate its technologies or design around its patents, and
steps taken by the Company to protect its technologies may not
prevent misappropriation of such technologies.
Competition
for sales of the Company’s products could have an adverse
effect on the Company’s financial results.
The Company competes with other manufacturers, both domestically
and internationally. The Company’s products also compete
with other manufacturers’ CUK board and other substrates,
SBS and recycled clay-coated news (“CCN”). Substitute
products also include plastic, shrink film and corrugated
containers. In addition, while the Company has long-term
relationships with many of its customers, the underlying
contracts may be re-bid or renegotiated from time to time, and
the Company may not be successful in renewing on favorable terms
or at all. The Company works to maintain market share through
efficiency, product innovation and strategic sourcing to its
customers; however, pricing and other competitive pressures may
occasionally result in the loss of a customer relationship.
The
Company is subject to environmental, health and safety laws and
regulations, and costs to comply with such laws and regulations,
or any liability or obligation imposed under such laws or
regulations, could negatively impact its financial condition and
results of operations.
The Company is subject to a broad range of foreign, federal,
state and local environmental, health and safety laws and
regulations, including those governing discharges to air, soil
and water, the management, treatment and disposal of hazardous
substances, the investigation and remediation of contamination
resulting from releases of hazardous substances, and the health
and safety of employees. Additionally, the Company cannot
currently assess the impact that future emission standards,
climate control initiatives and enforcement practices will have
on the Company’s operations and capital expenditure
requirements. Environmental liabilities and obligations may
result in significant costs, which could negatively impact the
Company’s financial position, results of operations or cash
flows. See Note 15 in the Notes to Consolidated Financial
Statements included herein under “Item 8., Financial
Statements and Supplementary Data.”
The
Company’s working capital, cash flow and profitability
could be adversely impacted by the current economic downturn,
changes in governmental regulations, and the global
consolidation of the businesses of the Company’s
customers.
Reduced availability of credit, lower profitability resulting
from the current economic downturn, and increased costs as a
result of changes in governmental regulations may adversely
affect the ability of some of the Company’s customers and
suppliers to obtain funds for operations and capital
expenditures. This could negatively impact the Company’s
ability to collect receivables in a timely manner and to obtain
raw materials
12
Table of Contents
and supplies. In addition, increased global consolidation of the
Company’s customer base could lead to increased pressure on
the Company to concede to less favorable price and payment
terms. Without the Company’s ability to counter such
customer concessions by obtaining favorable price and payment
term concessions from its own suppliers, the Company’s
working capital, cash flow and profitability could be negatively
impacted.
The Company’s cash flows may also be adversely impacted by
the Company’s pension funding obligations. The
Company’s pension funding obligations are dependent upon
multiple factors resulting from actual plan experience and
assumptions of future experience. The Company has unfunded
obligations under its domestic and foreign defined benefit
pension plans, and the funded status of these plans is dependent
upon various factors, including returns on invested assets, the
level of certain market interest rates and the discount rate
used to determine pension obligations. Unfavorable returns on
the plan assets or unfavorable changes in applicable laws or
regulations could materially change the timing and amount of
required plan funding, which would reduce the cash available for
the Company.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES |
Headquarters
The Company leases its principal executive offices in Marietta,
GA.
Operating
Facilities
A listing of the principal properties owned or leased and
operated by the Company is set forth below. The Company’s
buildings are adequate and suitable for the business of the
Company. The Company also leases certain smaller facilities,
warehouses and office space throughout the U.S. and in
foreign countries from time to time. The operating locations
include 7 paperboard mills and 39 paperboard converting, 12
multi-wall bag and 11 specialty plants.
| Type of Facility and Location | Related Segment(s) or Use of Facility | |
|
Paperboard Mills:
|
||
|
Battle Creek, MI
|
Paperboard Packaging | |
|
Kalamazoo, MI
|
Paperboard Packaging | |
|
Macon, GA
|
Paperboard Packaging | |
|
Middletown, OH
|
Paperboard Packaging | |
|
Pekin, IL
|
Paperboard Packaging | |
|
Santa Clara, CA
|
Paperboard Packaging | |
|
West Monroe, LA
|
Paperboard Packaging; Research and Development | |
|
Paperboard Packaging:
|
||
|
Atlanta, GA
|
Paperboard Packaging | |
|
Bristol, Avon, United Kingdom
|
Paperboard Packaging | |
|
Carol Stream, IL
|
Paperboard Packaging; Research and Development | |
|
Centralia, IL
|
Paperboard Packaging | |
|
Charlotte, NC
|
Paperboard Packaging | |
|
Cincinnati, OH
|
Paperboard Packaging | |
|
Elk Grove,
IL
(a)
|
Paperboard Packaging | |
|
Fort Smith,
AR
(a)
|
Paperboard Packaging | |
|
Fort Wayne,
IN
(b)
|
Paperboard Packaging | |
|
Golden, CO
|
Paperboard Packaging; Research and Development | |
|
Gordonsville, TN
|
Paperboard Packaging | |
|
Idaho Falls, ID
|
Paperboard Packaging | |
|
Igualada, Barcelona,
Spain
(a)
|
Paperboard Packaging; Packaging Machinery Engineering Design and Manufacturing | |
|
Irvine, CA
|
Paperboard Packaging; Design Center | |
|
Jundiai, Sao Paulo, Brazil
|
Paperboard Packaging | |
|
Kalamazoo, MI
|
Paperboard Packaging | |
13
Table of Contents
| Type of Facility and Location | Related Segment(s) or Use of Facility | |
|
Kendallville, IN
|
Paperboard Packaging | |
|
La Porte, IN
|
Paperboard Packaging | |
|
Lawrenceburg, TN
|
Paperboard Packaging | |
|
Lumberton, NC
|
Paperboard Packaging | |
|
Marion, OH
|
Paperboard Packaging | |
|
Masnieres, France
|
Paperboard Packaging | |
|
Menasha, WI
|
Paperboard Packaging; Research and Development | |
|
Mississauga, Ontario, Canada
|
Paperboard Packaging; Research and Development | |
|
Mitchell, SD
|
Paperboard Packaging | |
|
Morris,
IL
(b)
|
Paperboard Packaging | |
|
Muncie,
IN
(b)
|
Paperboard Packaging | |
|
Orchard Park, CA
|
Paperboard Packaging | |
|
Pacific, MO
|
Paperboard Packaging | |
|
Perry, GA
|
Paperboard Packaging | |
|
Piscataway, NJ
|
Paperboard Packaging | |
|
Queretaro, Mexico
|
Paperboard Packaging | |
|
Renton, WA
|
Paperboard Packaging | |
|
Santa Clara,
CA
(b)
|
Paperboard Packaging | |
|
Solon, OH
|
Paperboard Packaging | |
|
Tuscaloosa, AL
|
Paperboard Packaging | |
|
Valley Forge, PA
|
Paperboard Packaging; Design Center | |
|
Wausau, WI
|
Paperboard Packaging | |
|
West Monroe,
LA
(a)
|
Paperboard Packaging | |
|
Multi-wall Bag:
|
||
|
Arcadia, LA
|
Multi-wall Bag | |
|
Cantonment,
FL
(b)
|
Multi-wall Bag | |
|
Eastman, GA
|
Multi-wall Bag | |
|
Fowler, IN
|
Multi-wall Bag | |
|
Jacksonville, AR
|
Multi-wall Bag | |
|
Kansas City, MO
|
Multi-wall Bag | |
|
Louisville, KY
|
Multi-wall Bag | |
|
New Philadelphia, OH
|
Multi-wall Bag | |
|
North Portland, OR
|
Multi-wall Bag | |
|
Quincy, IL
|
Multi-wall Bag | |
|
Salt Lake City, UT
|
Multi-wall Bag | |
|
Wellsburg, WV
|
Multi-wall Bag | |
|
Specialty Packaging:
|
||
|
Bellwood,
IL
(b)
|
Specialty Packaging — Ink | |
|
Brampton, Ontario, Canada
|
Specialty Packaging — Flexible Packaging | |
|
Des Moines, IA
|
Specialty Packaging — Flexible Packaging | |
|
Greensboro, NC
|
Specialty Packaging — Labels | |
|
Menomonee Falls,
WI
(b)
|
Specialty Packaging — Ink | |
|
Milwaukee, WI
|
Specialty Packaging — Flexible Packaging | |
|
Norwood, OH
|
Specialty Packaging — Labels | |
|
Portage, IN
|
Specialty Packaging — Flexible Packaging | |
|
Riverdale,
IL
(b)
|
Specialty Packaging — Ink | |
|
Schaumburg, IL
|
Specialty Packaging — Flexible Packaging | |
|
St. Charles,
IL
(b)
|
Specialty Packaging — Labels | |
|
Country Headquarters:
|
||
|
Bella Vista, New South Wales, Australia
|
Paperboard Packaging | |
|
Milan, Lombardy, Italy
|
Paperboard Packaging | |
|
Melbourne, Victoria, Australia
|
Paperboard Packaging | |
|
Pulheim, North Rhine-Westphalia, Germany
|
Paperboard Packaging | |
|
PuDong, Shanghai, China
|
Paperboard Packaging | |
|
Tokyo, Japan
|
Paperboard Packaging | |
|
Other:
|
||
|
Concord, NH
|
Research and Development | |
|
Crosby, MN
|
Packaging Machinery Engineering Design and Manufacturing | |
|
Marietta, GA
|
Research and Development; Packaging Machinery Engineering Design | |
14
Table of Contents
Notes:
| (a) | Multiple facilities in this location. | |
| (b) | The Company has announced the intended closure of the location. |
| ITEM 3. | LEGAL PROCEEDINGS |
The Company is a party to a number of lawsuits arising in the
ordinary conduct of its business. Although the timing and
outcome of these lawsuits cannot be predicted with certainty,
the Company does not believe that disposition of these lawsuits
will have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash
flows. See Note 15 in the Notes to Consolidated Financial
Statements included herein under “Item 8., Financial
Statements and Supplementary Data.”
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of security holders during
the fiscal quarter ended December 31, 2009.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G (3) of
Form 10-K,
the following list is included as an unnumbered item in
Part I of this Report in lieu of being included in the
definitive proxy statement that will be filed within
120 days after December 31, 2009.
David W. Scheible,
53, is the President and Chief
Executive Officer of GPHC. He was appointed to GPHC’s Board
upon its formation (under the name New Giant Corporation) in
June 2007. Prior to the Altivity Transaction, he had served as a
director, President and Chief Executive Officer of GPC since
January 1, 2007. Prior to that time, Mr. Scheible had
served as Chief Operating Officer of GPC since October 2004.
Mr. Scheible served as Executive Vice President of
Commercial Operations from August 2003 until October 2004.
Mr. Scheible served as Graphic Packaging International
Corporation’s (“GPIC”) Chief Operating Officer
from 1999 until August 2003. He also served as President of
GPIC’s Flexible Division from January to June 1999.
Previously, Mr. Scheible was affiliated with the Avery
Dennison Corporation, working most recently as its Vice
President and General Manager of the Specialty Tape Division
from 1995 through 1999 and Vice President and General Manager of
the Automotive Division from 1993 to 1995.
Daniel J. Blount,
54, is the Senior Vice President and
Chief Financial Officer of GPHC. Prior to the Altivity
Transaction, he had served as Senior Vice President and Chief
Financial Officer of GPC since September 2005. From October 2003
until September 2005, he was the Senior Vice President,
Integration of GPC and from August 2003 until October 2003, he
was the Senior Vice President, Integration, Chief Financial
Officer and Treasurer. From June 2003 until August 2003, he was
Senior Vice President, Chief Financial Officer and Treasurer of
Riverwood Holding, Inc. From September 1999 until June 2003,
Mr. Blount was Senior Vice President and Chief Financial
Officer of Riverwood Holding, Inc. Mr. Blount was named
Vice President and Chief Financial Officer of Riverwood Holding,
Inc. in September 1998. Prior to joining Riverwood Holding,
Inc., Mr. Blount spent 13 years at Montgomery Kone,
Inc., an elevator, escalator and moving ramp product
manufacturer, installer and service provider, most recently
serving as Senior Vice President, Finance.
Cynthia A. Baerman
, 47, is the Senior Vice President,
Human Resources of GPHC. Mrs. Baerman joined GPHC in March
2009 from JohnsonDiversey, a global leader in sanitation
products and services, where she served as Vice President and
General Manager of its Food and Beverage Division from September
2006 until February 2009, and as Vice President, Human Resources
from March 2005 until January 2007. From January 2004 until
January 2005, Mrs. Baerman was Vice President of Human
Resources at Barilla America. Mrs. Baerman previously held
senior leadership positions in human resources at top companies
in the food and beverage sector, including Kraft Foods, Miller
Brewing Company and Anheuser-Busch Companies.
John C. Best,
50, is the Vice President, Business
Development of GPHC. Prior to the Altivity Transaction, he had
served as Vice President, Business Development of GPC since
January 2006, with responsibility for Marketing, Research and
Development and the successful sale of value-added products into
the marketplace.
15
Table of Contents
Previously, he had served as Vice President of Sales for GPC
from August 1999 to December 2005. Mr. Best joined GPC in
1994 as the Business Unit Manager for the Folding Carton
Division.
Michael P. Doss,
43
,
is the Senior Vice President,
Consumer Packaging Division of GPHC. Prior to the Altivity
Transaction, he had served as Senior Vice President, Consumer
Products Packaging of GPC since September 2006. From July 2000
until September 2006, he was the Vice President of Operations,
Universal Packaging Division. Since joining GPIC in 1990,
Mr. Doss held positions of increasing management
responsibility, including Plant Manager at the Gordonsville, TN
and Wausau, WI plants. Mr. Doss was Director of Web Systems
for the Universal Packaging Division prior to his promotion to
Vice President of Operations.
Kristopher L. Dover
, 45, is the Senior Vice President,
Flexible Group of GPHC. Prior to the Altivity Transaction,
Mr. Dover served as Vice President and General Manager,
Multi-wall Bag from August 2007 until March 2008 and as Vice
President — Operations from December 2006 until August
2007 for Altivity Packaging. Mr. Dover was Vice President,
Global Operations — Beverage from January 2006 until
December 2006 and Vice President, Operations — Europe
from August 2004 until January 2006 and Director of Operations
from August 2003 until August 2004 for GPC. Mr. Dover
joined GPIC in 1999 and held various management positions in its
U.S. and European operations.
Deborah R. Frank,
49, is the Vice President and Chief
Accounting Officer of GPHC. Prior to the Altivity Transaction,
she served as Vice President and Controller of GPC since April
2005. Prior to joining the Company, Ms. Frank held various
positions of increasing responsibility in the finance,
accounting, audit, international and corporate areas at Kimberly
Clark Corporation, most recently serving as Assistant Controller.
Philip H. Geminder II
, 53, is the Vice President and
Chief Integration Officer of GPHC. Prior to the Altivity
Transaction, he served as the Vice President, Integration of GPC
from September 2007 through March 2008. Prior to that time, he
had served as Vice President, Finance of GPC since August 2003
and Vice President, Financial Services of GPIC since January
2000. Before joining GPIC, Mr. Geminder served as Director
of Finance with Avery Dennison Corporation after spending
18 years in various positions with Honeywell International
Inc.
Stephen A. Hellrung,
62
,
is the Senior Vice
President, General Counsel and Secretary of GPHC. Prior to the
Altivity Transaction, he had served as Senior Vice President,
General Counsel and Secretary of GPC since October 2003. He was
Senior Vice President, General Counsel and Secretary of
Lowe’s Companies, Inc., a home improvement specialty
retailer, from April 1999 until June 2003. Prior to joining
Lowe’s Companies, Mr. Hellrung held similar positions
with Pillsbury Company and Bausch & Lomb, Incorporated.
Alan R. Nichols
, 47, is the Senior Vice President, Mills
Division of GPHC. He served as Vice President, Mills from August
2008 until March 2009. From March 2008 until August 2008,
Mr. Nichols was Vice President, CRB Mills. Prior to the
Altivity Transaction, Mr. Nichols served as Vice President,
CRB Mills for Altivity Packaging from February 2007 until March
2008 and was the Division Manufacturing Manager, Mills for
Altivity Packaging and the Consumer Products Division of
Smurfit-Stone from August 2005. From February 2001 until August
2005, Mr. Nichols was the General Manager of the Wabash
Mill for Smurfit-Stone.
Michael R. Schmal,
56, is the Senior Vice President,
Beverage Packaging Division of GPHC. Prior to the Altivity
Transaction, he had served as Senior Vice President, Beverage of
GPC since August 2003. From October 1996 until August 2003,
Mr. Schmal was the Vice President and General Manager,
Brewery Group of Riverwood Holding, Inc. Prior to that time,
Mr. Schmal held various positions with Riverwood Holding,
Inc. since 1981.
Joseph P. Yost, 42,
is the Senior Vice President, Supply
Chain of GPHC. From 2006 to 2009, he served as Vice President,
Operations Support — Consumer Packaging Division.
Mr. Yost has also served in the following positions with
Graphic Packaging legacy companies — Director, Finance
and Centralized Services from 2003 to 2006 with GPII, Director,
Finance and Centralized Services from 2000 to 2003 with GPC,
Manager, Operations Planning and Analysis — Consumer
Products Division from 1999 to 2000 and other management
positions from 1997 to 1999 with Fort James Corporation.
16
Table of Contents
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
GPHC’s common stock (together with the associated stock
purchase rights) is traded on the New York Stock Exchange under
the symbol “GPK.” The historical range of the high and
low sales price per share for each quarter of 2009 and 2008 are
as follows:
| 2009 | 2008 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
|
First Quarter
|
$ | 1.25 | $ | 0.58 | $ | 3.61 | $ | 2.73 | ||||||||
|
Second Quarter
|
2.46 | 0.82 | 3.10 | 2.02 | ||||||||||||
|
Third Quarter
|
2.31 | 1.55 | 3.11 | 1.96 | ||||||||||||
|
Fourth Quarter
|
3.67 | 2.24 | 2.06 | 0.94 | ||||||||||||
No cash dividends have been paid during the last three years to
the Company’s common stockholders. The Company’s
intent is not to pay dividends at this time. Additionally, the
Company’s credit facilities and the indentures governing
its debt securities place substantial limitations on the
Company’s ability to pay cash dividends on its common stock
(see “Covenant Restrictions” in “Item 7.,
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and Note 6 in the Notes to
Consolidated Financial Statements included herein under
“Item 8., Financial Statements and Supplementary
Data”).
On February 19, 2010, there were approximately 2,359
stockholders of record and approximately 4,090 beneficial
holders of GPHC’s common stock.
Total
Return to Stockholders
The following graph compares the total returns (assuming
reinvestment of dividends) of the common stock of the Company
and its immediate predecessor, GPC, the Standard &
Poor’s (“S&P”) 500 Stock Index and the Dow
Jones (“DJ”) U.S. Container & Packaging
Index. The graph assumes $100 invested on December 31, 2004
in GPC’s common stock and each of the indices. The stock
price performance on the following graph is not necessarily
indicative of future stock price performance.
| 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | |||||||||||||||||||
|
Graphic Packaging Holding Company
|
$ | 100.00 | $ | 31.67 | $ | 60.14 | $ | 51.25 | $ | 15.83 | $ | 48.19 | ||||||||||||
|
S&P 500 Stock Index
|
100.00 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | ||||||||||||||||||
|
DJ U.S. Container & Packaging Index
|
100.00 | 99.37 | 111.38 | 118.87 | 74.53 | 104.68 | ||||||||||||||||||
17
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA |
The selected consolidated financial data set forth below should
be read in conjunction with “Item 7.,
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the Consolidated Financial
Statements of the Company and the Notes to Consolidated
Financial Statements included herein under “Item 8.,
Financial Statements and Supplementary Data.”
| Year Ended December 31, | ||||||||||||||||||||
| In millions, except per share amounts | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||
|
Net Sales
|
$ | 4,095.8 | $ | 4,079.4 | $ | 2,421.2 | $ | 2,321.7 | $ | 2,294.3 | ||||||||||
|
Income from Operations
|
282.7 | 149.9 | 151.2 | 93.8 | 86.5 | |||||||||||||||
|
Income (Loss) from Continuing Operations
|
56.4 | (98.8 | ) | (49.1 | ) | (97.4 | ) | (90.1 | ) | |||||||||||
|
Loss from Discontinued Operations,
|
||||||||||||||||||||
|
Net of Taxes
|
— | (0.9 | ) | (25.5 | ) | (3.1 | ) | (1.0 | ) | |||||||||||
|
Net Income (Loss)
|
56.4 | (99.7 | ) | (74.6 | ) | (100.5 | ) | (91.1 | ) | |||||||||||
|
Income (Loss) Per Share — Basic and Diluted:
|
||||||||||||||||||||
|
Continuing Operations
|
0.16 | (0.31 | ) | (0.24 | ) | (0.48 | ) | (0.45 | ) | |||||||||||
|
Discontinued Operations
|
— | (0.00 | ) | (0.13 | ) | (0.02 | ) | (0.01 | ) | |||||||||||
|
Total
|
0.16 | (0.32 | ) | (0.37 | ) | (0.50 | ) | (0.46 | ) | |||||||||||
|
Weighted average number of shares outstanding:
|
||||||||||||||||||||
|
Basic
|
343.1 | 315.8 | 201.8 | 201.1 | 200.0 | |||||||||||||||
|
Diluted
|
344.6 | 315.8 | 201.8 | 201.1 | 200.0 | |||||||||||||||
|
Balance Sheet Data:
|
||||||||||||||||||||
|
(as of period end)
|
||||||||||||||||||||
|
Cash and Equivalents
|
$ | 149.8 | $ | 170.1 | $ | 9.3 | $ | 7.3 | $ | 12.7 | ||||||||||
|
Total Assets
|
4,701.8 | 4,983.1 | 2,777.3 | 2,888.6 | 3,005.2 | |||||||||||||||
|
Total Debt
|
2,800.2 | 3,183.8 | 1,878.4 | 1,922.7 | 1,978.3 | |||||||||||||||
|
Total Shareholders’ Equity
|
728.8 | 525.2 | 144.0 | 181.7 | 268.7 | |||||||||||||||
|
Additional Data:
|
||||||||||||||||||||
|
Depreciation & Amortization
|
$ | 305.4 | $ | 264.3 | $ | 189.6 | $ | 188.5 | $ | 198.8 | ||||||||||
|
Capital Spending
|
129.9 | 183.3 | 95.9 | 94.5 | 110.8 | |||||||||||||||
|
Research, Development and Engineering Expense
|
7.2 | 8.0 | 9.2 | 10.8 | 9.2 | |||||||||||||||
18
Table of Contents
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
INTRODUCTION
This management’s discussion and analysis of financial
condition and results of operations is intended to provide
investors with an understanding of the Company’s past
performance, its financial condition and its prospects. The
following will be discussed and analyzed:
Overview of Business
Overview of 2009 Results
Results of Operations
Financial Condition, Liquidity and Capital Resources
Critical Accounting Policies
New Accounting Standards
Business Outlook
OVERVIEW
OF BUSINESS
The Company’s objective is to strengthen its position as a
leading provider of packaging solutions. To achieve this
objective, the Company offers customers its paperboard, cartons
and packaging machines, either as an integrated solution or
separately. Cartons and carriers are designed to protect and
contain products. Product offerings include a variety of
laminated, coated and printed packaging structures that are
produced from the Company’s CUK, CRB and URB, as well as
other grades of paperboard that are purchased from third party
suppliers. Innovative designs and combinations of paperboard,
films, foils, metallization, holographics and embossing are
customized to the individual needs of the customers.
The Company is also a leading supplier of multi-wall bags and in
addition to a full range of products, provides customers with
value-added graphical and technical support, and packaging
workshops to help educate customers.
The Company’s specialty packaging business has an
established position in end-markets for food products,
pharmaceutical and medical products, personal care, industrial,
pet food and pet care products. In addition, the Company’s
label business focuses on two product lines: heat transfer
labels and lithographic labels.
The Company is implementing strategies (i) to expand market
share in its current markets and to identify and penetrate new
markets; (ii) to capitalize on the Company’s customer
relationships, business competencies, and mills and converting
assets; (iii) to develop and market innovative, sustainable
products and applications; and (iv) to continue to reduce
costs by focusing on operational improvements. The
Company’s ability to fully implement its strategies and
achieve its objective may be influenced by a variety of factors,
many of which are beyond its control, such as inflation of raw
material and other costs, which the Company cannot always pass
through to its customers, and the effect of overcapacity in the
worldwide paperboard packaging industry.
Significant
Factors That Impact The Company’s Business
Impact of Inflation.
The Company’s cost
of sales consists primarily of energy (including natural gas,
fuel oil and electricity), pine pulpwood, chemicals, recycled
fibers, purchased paperboard, paper, aluminum foil, ink, plastic
films and resins, depreciation expense and labor. Although the
Company is currently experiencing some deflation of certain
input costs, its cost of goods sold during 2009 reflects the
higher costs associated with the inventory on hand at
December 31, 2008. Deflation decreased year over year costs
by $0.2 million in 2009, while inflation increased year
over year costs by $126.3 million and $39.3 million in
2008 and 2007, respectively. The lower costs in 2009 are
primarily related to fiber, wood and corrugated shipping
containers ($22.4 million); chemical-based inputs
($21.6 million); energy ($19.5 million), mainly due
19
Table of Contents
to the price of natural gas; and freight ($5.1 million).
These lower costs were partially offset by labor and related
benefits ($30.7 million); the December 31, 2008
inventory sold during the first quarter of 2009
($19.5 million); outside board purchases
($15.9 million); and other costs ($2.3 million).
As the price of natural gas has experienced significant
variability, the Company has entered into contracts designed to
manage risks associated with future variability in cash flows
caused by changes in the price of natural gas. As of
December 31, 2009, the Company has hedged approximately 52%
of its expected natural gas usage for the year 2010. Since
negotiated sales contracts and the market largely determine the
pricing for its products, the Company is at times limited in its
ability to raise prices and pass through to its customers any
inflationary or other cost increases that the Company may incur.
Substantial Debt Obligations.
The Company has
$2,800.2 million of outstanding debt obligations as of
December 31, 2009. This debt can have significant
consequences for the Company, as it requires a significant
portion of cash flow from operations to be used for the payment
of principal and interest, exposes the Company to the risk of
increased interest rates and restricts the Company’s
ability to obtain additional financing. Covenants in the
Company’s Credit Agreement and Indentures also prohibit or
restrict, among other things, the disposal of assets, the
incurrence of additional indebtedness (including guarantees),
payment of dividends, loans or advances and certain other types
of transactions. These restrictions could limit the
Company’s flexibility to respond to changing market
conditions and competitive pressures. The Credit Agreement also
requires compliance with a maximum consolidated secured leverage
ratio. The Company’s ability to comply in future periods
with the financial covenant will depend on its ongoing financial
and operating performance, which in turn will be subject to many
other factors, many of which are beyond the Company’s
control. See “Covenant Restrictions” in
“Financial Condition, Liquidity and Capital Resources”
for additional information regarding the Company’s debt
obligations.
The substantial debt and the restrictions under the Credit
Agreement and the Indentures could limit the Company’s
flexibility to respond to changing market conditions and
competitive pressures. The material outstanding debt obligations
and the restrictions may also leave the Company more vulnerable
to a downturn in general economic conditions or its business, or
unable to carry out capital expenditures that are necessary or
important to its growth strategy and productivity improvement
programs.
Commitment to Cost Reduction.
In light of
increasing margin pressure throughout the packaging industry,
the Company has programs in place that are designed to reduce
costs, improve productivity and increase profitability. The
Company utilizes a global continuous improvement initiative that
uses statistical process control to help design and manage many
types of activities, including production and maintenance. This
includes a Six Sigma process focused on reducing variable and
fixed manufacturing and administrative costs. The Company
expanded the continuous improvement initiative to include the
deployment of Lean Sigma principles into manufacturing and
supply chain services. As the Company strengthens the systems
approach to continuous improvement, Lean Sigma supports the
efforts to build a high performing culture. During 2009, the
Company achieved $60.8 million in cost savings as compared
to 2008, through its continuous improvement programs and
manufacturing initiatives.
In addition, the Company has accelerated and achieved cost
synergies and operating efficiencies resulting from the Altivity
Transaction sooner than expected. The Company’s ability to
implement successfully its business strategies and to realize
anticipated savings, in addition to maintaining current level
run rates for these cost synergies and operating efficiencies is
subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the
Company’s control. If the Company cannot successfully
implement the strategic cost reductions or other cost savings
plans, or maintain current level run rates for realized cost
synergies and operating efficiencies, it may not be able to
continue to compete successfully against other manufacturers. In
addition, any failure to generate the anticipated efficiencies
and savings could adversely affect the Company’s financial
results.
Competition and Market Factors.
As some
products can be packaged in different types of materials, the
Company’s sales are affected by competition from other
manufacturers’ CUK board and other substrates such as SBS
and CCN. Substitute products also include plastic, shrink film
and corrugated containers. In addition, while the Company has
long-term relationships with many of its customers, the
underlying contracts may be
20
Table of Contents
re-bid or renegotiated from time to time, and the Company may
not be successful in renewing on favorable terms or at all. The
Company works to maintain market share through efficiency,
product innovation and strategic sourcing to its customers;
however, pricing and other competitive pressures may
occasionally result in the loss of a customer relationship.
In addition, the Company’s sales historically are driven by
consumer buying habits in the markets its customers serve.
Continuing increases in the costs of living, conditions in the
residential real estate market, rising unemployment rates,
reduced access to credit and declining consumer confidence, as
well as other macroeconomic factors, may significantly
negatively affect consumer spending behavior, which could have a
material adverse effect on demand for the Company’s
products. New product introductions and promotional activity by
the Company’s customers and the Company’s introduction
of new packaging products also impact its sales. The
Company’s containerboard business is subject to conditions
in the cyclical worldwide commodity paperboard markets, which
have a significant impact on containerboard sales. In addition,
the Company’s net sales, income from operations and cash
flows from operations are subject to moderate seasonality, with
demand usually increasing in the late spring through early fall
due to the beverage, folding carton, housing and construction
markets.
OVERVIEW
OF 2009 RESULTS
This management’s discussion and analysis contains an
analysis of Net Sales, Income from Operations and other
information relevant to an understanding of results of
operations. To enhance the understanding of continuing
operations, this discussion and analysis excludes discontinued
operations for all periods presented. Information on
discontinued operations can be found in Note 14 in the
Notes to Consolidated Financial Statements included herein under
“Item 8., Financial Statements and Supplementary
Data.”
| • | Net Sales in 2009 increased by $16.4 million, or 0.4%, to $4,095.8 million from $4,079.4 million in 2008 due primarily to $331.3 million volume achieved as a result of the Altivity Transaction, improved pricing in beverage and consumer products as well as higher volume/mix in beverage. These increases were partially offset by the impact of divested businesses, lower consumer products volume, lower volume and pricing in multi-wall bag and specialty packaging, and unfavorable changes in currency exchange rates, primarily in Europe. | |
| • | Income from Operations in 2009 increased by $132.8 million, or 88.6%, to $282.7 million from $149.9 million in 2008. This increase was primarily due to a $137.8 million alternative fuel tax credit (net of expenses), cost savings through continuous improvement and synergy programs, and the Altivity Transaction. These increases were partially offset by the lower volume, higher unabsorbed fixed costs and merger-related, pension and depreciation expenses. | |
| • | Throughout 2009, the Company burned alternative fuel mixtures at its West Monroe, LA and Macon, GA mills in order to produce energy and recover chemicals. The U.S. Internal Revenue Code allows an excise tax credit under certain circumstances for the use of alternative fuels and alternative fuel mixtures. In the first quarter 2009, the Company filed an application with the Internal Revenue Service (the “IRS”) for certification of eligibility to receive the tax credit for its use of black liquor in alternative fuel mixtures in the recovery boilers at the mills. During the second quarter 2009, the Company received notification from the IRS that its registration as an alternate fuel mixer had been approved. The Company has submitted refund claims totaling $147.2 million based on fuel usage at the two mills from mid-January 2009 through December 31, 2009. The Company received refunds totaling $134.8 million through the end of the year. The net impact of the tax credit is included in Restructuring and Other Special (Credits) Charges in the amount of $137.8 million for the year ended December 31, 2009 and is included in corporate for segment reporting purposes. The excise tax credit expired on December 31, 2009. |
21
Table of Contents
RESULTS
OF OPERATIONS
The Company’s results of operations and cash flows for 2008
include the results of Altivity from March 10, 2008, the
date of the Altivity Transaction, through December 31,
2008. The results of operations for 2007 represent the results
of the Company’s operations prior to the Altivity
Transaction.
Segment
Information
The Company reports its results in three business segments:
paperboard packaging, multi-wall bag and specialty packaging.
Prior segment results have been reclassified for the allocation
of certain corporate costs.
| Year Ended December 31, | ||||||||||||||
| In millions | 2009 | 2008 | 2007 | |||||||||||
|
NET SALES:
|
||||||||||||||
|
Paperboard Packaging
|
$ | 3,423.5 | $ | 3,377.4 | $ | 2,340.6 | ||||||||
|
Multi-wall Bag
|
471.6 | 478.1 | 80.6 | |||||||||||
|
Specialty Packaging
|
200.7 | 223.9 | — | |||||||||||
|
Total
|
$ | 4,095.8 | $ | 4,079.4 | $ | 2,421.2 | ||||||||
|
INCOME (LOSS) FROM OPERATIONS:
|
||||||||||||||
|
Paperboard Packaging
|
$ | 288.3 | $ | 220.9 | $ | 177.8 | ||||||||
|
Multi-wall Bag
|
3.9 | 25.9 | 6.3 | |||||||||||
|
Specialty Packaging
|
(1.4 | ) | 9.6 | — | ||||||||||
|
Corporate
|
(8.1 | ) | (106.5 | ) | (32.9 | ) | ||||||||
|
Total
|
$ | 282.7 | $ | 149.9 | $ | 151.2 | ||||||||
2009
COMPARED WITH 2008
Net
Sales
| Year Ended December 31, | ||||||||||||||||
|
Increase
|
Percent
|
|||||||||||||||
| In millions | 2009 | 2008 | (Decrease) | Change | ||||||||||||
|
Paperboard Packaging
|
$ | 3,423.5 | $ | 3,377.4 | $ | 46.1 | 1.4 | % | ||||||||
|
Multi-wall Bag
|
471.6 | 478.1 | (6.5 | ) | (1.4 | ) | ||||||||||
|
Specialty Packaging
|
200.7 | 223.9 | (23.2 | ) | (10.4 | ) | ||||||||||
|
Total
|
$ | 4,095.8 | $ | 4,079.4 | $ | 16.4 | 0.4 | % | ||||||||
The components of the change in Net Sales by segment are as
follows:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||
| Variances | ||||||||||||||||||||||||||||||||
| Volume/Mix | ||||||||||||||||||||||||||||||||
|
Divested
|
||||||||||||||||||||||||||||||||
| In millions | 2008 | Price | Acquisition | Organic | Businesses | Exchange | Total | 2009 | ||||||||||||||||||||||||
|
Paperboard Packaging
|
$ | 3,377.4 | $ | 15.0 | $ | 209.3 | $ | (106.2 | ) | $ | (55.5 | ) | $ | (16.5 | ) | $ | 46.1 | $ | 3,423.5 | |||||||||||||
|
Multi-wall Bag
|
478.1 | (11.8 | ) | 80.0 | (67.9 | ) | (6.8 | ) | — | (6.5 | ) | 471.6 | ||||||||||||||||||||
|
Specialty Packaging
|
223.9 | (7.6 | ) | 42.0 | (40.4 | ) | (16.8 | ) | (0.4 | ) | (23.2 | ) | 200.7 | |||||||||||||||||||
|
Total
|
$ | 4,079.4 | $ | (4.4 | ) | $ | 331.3 | $ | (214.5 | ) | $ | (79.1 | ) | $ | (16.9 | ) | $ | 16.4 | $ | 4,095.8 | ||||||||||||
Paperboard
Packaging
The Company’s Net Sales from paperboard packaging in 2009
increased by $46.1 million, or 1.4%, to
$3,423.5 million from $3,377.4 million in 2008 as a
result of the Altivity Transaction, improved pricing in beverage
and consumer products, as well as higher volume/mix in beverage.
Beverage volumes were up in the
22
Table of Contents
beer market, primarily in the
sub-premium
category, but remained down in soft drink. Beer sales also
benefited by the move to 30-pack. The increase in Net Sales was
partially offset by lower volume in consumer products,
containerboard and European open market, and the impact of the
two coated-recycled board mills divested in September 2008. The
lower consumer products sales were due to a decision to exit
lower margin business as well as the general market conditions
in which volume has remained steady in staples (e.g., dry mixes,
cereal, pizza) and continues to be down in discretionary items
(e.g., candy, eating out). Management idled the corrugated
medium machine at the West Monroe, LA mill for 36 days
during the first six months of 2009 due to softness in that
market. Unfavorable currency exchange rate changes, primarily in
Europe, also negatively impacted Net Sales.
Multi-wall
Bag
The Company’s Net Sales from multi-wall bag in 2009
decreased by $6.5 million as the volume increase from the
Altivity Transaction was offset by lower volumes due to market
declines in the building products, chemicals, minerals, and
agriculture and food industries, lower pricing due to negotiated
deflationary pass throughs, and the impact of the divested
business.
Specialty
Packaging
The Company’s Net Sales from specialty packaging in 2009
decreased by $23.2 million compared to 2008 as the volume
increase from the Altivity Transaction was offset by lower
volumes due to market declines in the building products,
chemicals, and food and pharmaceutical industries, the impact of
the divested business, and lower pricing due to negotiated
deflationary pass throughs.
Income
(Loss) from Operations
| Year Ended December 31, | ||||||||||||||||||
|
Increase
|
Percent
|
|||||||||||||||||
| In millions | 2009 | 2008 | (Decrease) | Change | ||||||||||||||
|
Paperboard Packaging
|
$ | 288.3 | $ | 220.9 | $ | 67.4 | 30.5 | % | ||||||||||
|
Multi-wall Bag
|
3.9 | 25.9 | (22.0 | ) | (84.9 | ) | ||||||||||||
|
Specialty Packaging
|
(1.4 | ) | 9.6 | (11.0 | ) | N.M. | (a) | |||||||||||
|
Corporate
|
(8.1 | ) | (106.5 | ) | 98.4 | N.M. | (a) | |||||||||||
|
Total
|
$ | 282.7 | $ | 149.9 | $ | 132.8 | 88.6 | % | ||||||||||
Note:
| (a) | Percentage calculation not meaningful. |
The components of the change in Income (Loss) from Operations by
segment are as follows:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
| Variances | ||||||||||||||||||||||||||||||||||||
| Volume/Mix | ||||||||||||||||||||||||||||||||||||
| In millions | 2008 | Price | Acquisition | Organic | Inflation | Exchange | Other(a) | Total | 2009 | |||||||||||||||||||||||||||
|
Paperboard Packaging
|
$ | 220.9 | $ | 15.0 | $ | 19.5 | $ | (20.0 | ) | $ | (19.0 | ) | $ | (2.0 | ) | $ | 73.9 | $ | 67.4 | $ | 288.3 | |||||||||||||||
|
Multi-wall Bag
|
25.9 | (11.8 | ) | 1.1 | (8.0 | ) | 9.0 | — | (12.3 | ) | (22.0 | ) | 3.9 | |||||||||||||||||||||||
|
Specialty Packaging
|
9.6 | (7.6 | ) | 2.3 | (8.6 | ) | 10.2 | 1.6 | (8.9 | ) | (11.0 | ) | (1.4 | ) | ||||||||||||||||||||||
|
Corporate
|
(106.5 | ) | — | 24.4 | — | — | 9.5 | 64.5 | 98.4 | (8.1 | ) | |||||||||||||||||||||||||
|
Total
|
$ | 149.9 | $ | (4.4 | ) | $ | 47.3 | $ | (36.6 | ) | $ | 0.2 | $ | 9.1 | $ | 117.2 | $ | 132.8 | $ | 282.7 | ||||||||||||||||
Note:
| (a) | Includes the Company’s cost reduction initiatives, the alternative fuel tax credit and merger-related expenses. |
23
Table of Contents
Paperboard
Packaging
The Company’s Income from Operations from paperboard
packaging in 2009 increased by $67.4 million, or 30.5%, to
$288.3 million from $220.9 million in 2008 as a result
of cost savings and synergies, the Altivity Transaction and the
improved pricing. These increases were partially offset by the
lower volume, higher inflation and depreciation expense and
higher unabsorbed fixed costs, including the 36 days of
downtime of the corrugated medium machine. The inflation was
primarily related to labor and related benefits, primarily
pension expense, ($29.8 million); outside board purchases
($20.4 million); and the December 31, 2008 inventory
sold during the first quarter of 2009 ($19.5 million);
partially offset by lower costs primarily for secondary fiber,
energy and wood ($50.7 million). In 2008, the Company
recorded a charge for the permanent shutdown of the #2
coated board machine at the West Monroe, LA mill.
Multi-wall
Bag
The Company’s Income from Operations from multi-wall bag in
2009 decreased by $22.0 million as a result of the lower
pricing and volume, lower fixed cost absorption due to downtime
for inventory control, and higher depreciation and work force
reduction expenses. The higher costs were partially offset by
lower inflation, primarily for external board and chemical-based
inputs.
Specialty
Packaging
The Company’s Income from Operations from specialty
packaging in 2009 decreased by $11.0 million as a result of
the lower volume and pricing. In addition, in the fourth quarter
of 2009, the Company recorded an $11.5 million impairment
charge relating to its flexible packaging facility in Ontario,
Canada. These decreases were offset by lower costs, primarily
for chemical-based inputs, the volume increase from the Altivity
Transaction and the gain on the sale of the ink business.
Corporate
The Company’s Loss from Operations from corporate was
$8.1 million in 2009 compared to $106.5 million in
2008. The improvement resulted primarily from the alternative
fuel tax credit (net of expenses) of $137.8 million. The
improvement was partially offset by higher merger-related
expenses of $22.7 million, excluding an $18.8 million
noncash charge related to excess maintenance, repair and
overhaul (“MRO”) inventory, and higher incentive
expense. As part of the integration strategy, control over MRO
inventory was centralized and the current on hand/replenishment
strategy was reviewed. As a result of the review, the Company
determined that $18.8 million of inventory on hand was
excess and recorded a noncash charge. Results for 2008 included
$24.4 million of expense related to the
step-up
in
inventory basis to fair value, partially offset by a favorable
$10.4 million
mark-to-market
adjustment for an interest rate swap.
INTEREST
EXPENSE, INCOME TAX EXPENSE, AND EQUITY IN NET EARNINGS OF
AFFILIATES
Interest
Expense
Interest Expense decreased by $19.9 million to
$196.8 million in 2009 from $216.7 million in 2008.
Interest Expense decreased due to lower average rates on the
unhedged portion of the Company’s debt. During the fourth
quarter 2009, the Company recorded a non-cash credit to interest
expense of $13.8 million related to the interest rate swap
mentioned above. The Company should have been amortizing the
fair value of the swap as of the date of hedge designation on a
straight line basis to reduce interest expense since
August 2008. The effect on prior periods was not material
to the consolidated financial statements in those periods. The
swap expired in January 2010. As of December 31, 2009,
approximately 7% of the Company’s total debt was subject to
floating interest rates.
24
Table of Contents
Income
Tax Expense
During 2009, the Company recognized Income Tax Expense of
$24.1 million on Income before Income Taxes and Equity in
Net Earnings of Affiliates of $79.2 million. During 2008,
the Company recognized Income Tax Expense of $34.4 million
on Loss before Income Taxes and Equity in Net Earnings of
Affiliates of $65.5 million. Income Tax Expense for 2009
and 2008 primarily relates to the noncash expense of
$31.6 million and $29.4 million, respectively,
associated with the amortization of goodwill for tax purposes.
In addition, in 2009, the Company determined that a valuation
allowance for its U.K. operations was no longer required. The
Company has approximately $1.3 billion of NOLs for
U.S. federal income tax purposes, which may be used to
offset future taxable income.
Equity
in Net Earnings of Affiliates
Equity in Net Earnings of Affiliates was $1.3 million in
2009 and $1.1 million in 2008 and is related to the
Company’s equity investment in the joint venture, Rengo
Riverwood Packaging, Ltd.
2008
COMPARED WITH 2007
Net
Sales
| Year Ended December 31, | ||||||||||||||||||
|
Percent
|
||||||||||||||||||
| In millions | 2008 | 2007 | Increase | Change | ||||||||||||||
|
Paperboard Packaging
|
$ | 3,377.4 | $ | 2,340.6 | $ | 1,036.8 | 44.3 | % | ||||||||||
|
Multi-wall Bag
|
478.1 | 80.6 | 397.5 | N.M. (a | ) | |||||||||||||
|
Specialty Packaging
|
223.9 | — | 223.9 | N.M. (a | ) | |||||||||||||
|
Total
|
$ | 4,079.4 | $ | 2,421.2 | $ | 1,658.2 | 68.5 | % | ||||||||||
Note:
| (a) | Percentage calculation not meaningful since the segment was created as a result of the Altivity Transaction. |
The components of the change in Net Sales by segment are as
follows:
| Year Ended December 31, | ||||||||||||||||||||||||||||
| Variances | ||||||||||||||||||||||||||||
| Volume/Mix | ||||||||||||||||||||||||||||
| In millions | 2007 | Price | Acquisition | Organic | Exchange | Total | 2008 | |||||||||||||||||||||
|
Paperboard Packaging
|
$ | 2,340.6 | $ | 41.0 | $ | 990.0 | $ | (7.1 | ) | $ | 12.9 | $ | 1,036.8 | $ | 3,377.4 | |||||||||||||
|
Multi-wall Bag
|
80.6 | 6.4 | 387.9 | 3.2 | — | 397.5 | 478.1 | |||||||||||||||||||||
|
Specialty Packaging
|
— | — | 223.9 | — | — | 223.9 | 223.9 | |||||||||||||||||||||
|
Total
|
$ | 2,421.2 | $ | 47.4 | $ | 1,601.8 | $ | (3.9 | ) | $ | 12.9 | $ | 1,658.2 | $ | 4,079.4 | |||||||||||||
Paperboard
Packaging
The Company’s Net Sales from paperboard packaging in 2008
increased by $1,036.8 million, or 44.3%, to
$3,377.4 million from $2,340.6 million in 2007 as a
result of the Altivity Transaction, improved pricing across all
product lines, as well as improved product mix primarily in
North American food and consumer cartons, beverage and Europe.
The improvement in pricing reflects negotiated inflationary cost
pass throughs and other contractual increases, as well as price
increases on open market roll stock. The Company implemented a
$50 per ton price increase for its CRB and URB effective with
shipments on or after July 28, 2008, and a $40 per ton
price increase for CUK grades, effective with shipments on or
after August 1, 2008. The improvement in product mix was
primarily in the soft drink, retail carryout, cereal and dry
foods product lines, as well as the introduction of new beer
promotion items and the introduction of 18 multi-packs which
were previously packaged in containerboard. Also contributing to
the increase was favorable currency exchange rates, primarily in
Europe, Japan, Australia and Brazil. The improved mix was more
than offset by lower volume as the result of the Company exiting
lower margin business and lower open market sales in
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Europe. Beverage sales volume decreased in the fourth quarter
and impacted the full year due to continued softness in the soft
drink market due to price increases as well as downtime taken in
the beer market.
Multi-wall
Bag
The Company’s Net Sales from multi-wall bag in 2008
increased by $397.5 million as a result of the Altivity
Transaction, as well as improved pricing and volume. The
improved pricing was due to negotiated cost pass through
increases. The Altivity sales were attributable to price and
volume primarily in the bag packaging markets.
Specialty
Packaging
The Company’s Net Sales from specialty packaging in 2008
increased by $223.9 million compared to 2007 as a result of
the acquisition of the specialty packaging segment in the
Altivity Transaction.
Income
(Loss) from Operations
| Year Ended December 31, | ||||||||||||||||
|
Increase
|
Percent
|
|||||||||||||||
| In millions | 2008 | 2007 | (Decrease) | Change | ||||||||||||
|
Paperboard Packaging
|
$ | 220.9 | $ | 177.8 | $ | 43.1 | 24.2 | % | ||||||||
|
Multi-wall Bag
|
25.9 | 6.3 | 19.6 | N.M. (a | ) | |||||||||||
|
Specialty Packaging
|
9.6 | — | 9.6 | N.M. (a | ) | |||||||||||
|
Corporate
|
(106.5 | ) | (32.9 | ) | (73.6 | ) | N.M. (a | ) | ||||||||
|
Total
|
$ | 149.9 | $ | 151.2 | $ | (1.3 | ) | (0.9 | )% | |||||||
Note:
| (a) | Percentage calculation not meaningful since the segment was impacted as a result of the Altivity Transaction. |
The components of the change in Income (Loss) from Operations by
segment are as follows:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
| Variances | ||||||||||||||||||||||||||||||||||||
| Volume/Mix | ||||||||||||||||||||||||||||||||||||
| In millions | 2007 | Price | Acquisition | Organic | Inflation | Exchange | Other(a) | Total | 2008 | |||||||||||||||||||||||||||
|
Paperboard Packaging
|
$ | 177.8 | $ | 41.0 | $ | 46.7 | $ | 3.6 | $ | (120.9 | ) | $ | 1.1 | $ | 71.6 | $ | 43.1 | $ | 220.9 | |||||||||||||||||
|
Multi-wall Bag
|
6.3 | 6.4 | 17.5 | 0.7 | (5.4 | ) | — | 0.4 | 19.6 | 25.9 | ||||||||||||||||||||||||||
|
Specialty Packaging
|
— | — | 9.6 | — | — | — | — | 9.6 | 9.6 | |||||||||||||||||||||||||||
|
Corporate
|
(32.9 | ) | — | (56.7 | ) | — | — | (9.6 | ) | (7.3 | ) | (73.6 | ) | (106.5 | ) | |||||||||||||||||||||
|
Total
|
$ | 151.2 | $ | 47.4 | $ | 17.1 | $ | 4.3 | $ | (126.3 | ) | $ | (8.5 | ) | $ | 64.7 | $ | (1.3 | ) | $ | 149.9 | |||||||||||||||
Note:
| (a) | Includes the benefits from the Company’s cost reduction initiatives. |
Paperboard
Packaging
The Company’s Income from Operations from paperboard
packaging in 2008 increased by $43.1 million, or 24.2%, to
$220.9 million from $177.8 million in 2007 as a result
of $52.2 million of continuing cost reduction initiatives,
the Altivity transaction, the improved pricing, and improved
product mix. These increases more than offset inflationary
pressures of $120.9 million, primarily related to
chemical-based inputs ($40.3 million); fiber and outside
board purchases ($38.5 million); energy costs
($26.9 million), mainly due to the price of natural gas;
labor and related benefits ($15.5 million); and freight
($5.8 million), partially offset by other lower costs of
$6.1 million. The Company also recorded a charge for the
previously announced permanent shutdown of the #2 coated
board machine at the West Monroe, LA mill. Results in 2007
included charges related to the continued infrastructure updates
at this mill, accelerated depreciation for assets taken out
26
Table of Contents
of service due to efficiency improvements, and higher expenses
in Europe, primarily relating to the start up costs for a new
converting facility in France.
Multi-wall
Bag
The Company’s Income from Operations from multi-wall bag in
2008 increased by $19.6 million to $25.9 million from
$6.3 million in 2007 as a result of the Altivity
Transaction, the improved pricing and cost saving initiatives of
$1.6 million. These increases were partially offset by
inflation costs. The segment’s Income from Operations was
attributable to volume primarily in the bag packaging markets.
Specialty
Packaging
The Company’s Income from Operations from specialty
packaging in 2008 increased by $9.6 million compared to
2007 as a result of the acquisition of the specialty packaging
segment in the Altivity Transaction.
Corporate
The Company’s Loss from Operations from corporate was
$106.5 million in 2008 compared to a loss of
$32.9 million in 2007. This $73.6 million increase was
due primarily to Altivity Transaction related expenses of
$28.1 million and the inclusion of Altivity Corporate
expenses of $11.8 million. In addition, the Company
recorded $24.4 million of expense related to the
step-up
in
inventory basis to fair value. These expenses were offset by a
favorable $10.4 million fair value adjustment for an
interest rate swap and lower bonus accruals, partially offset by
a net foreign currency loss of $9.6 million. The swap was
assumed in the Altivity Transaction. Results for 2007 were
positively impacted by the reversal of a $3.0 million
liability recorded at the time of the merger of GPII and
Riverwood Holdings, Inc. in 2003.
INTEREST
EXPENSE, INCOME TAX EXPENSE, AND EQUITY IN NET EARNINGS OF
AFFILIATES
Interest
Expense
Interest Expense increased by $48.5 million to
$216.7 million in 2008 from $168.2 million in 2007.
Interest Expense increased due to the additional debt acquired
as a result of the Altivity Transaction. As of December 31,
2008, approximately 22% of the Company’s total debt was
subject to floating interest rates.
Income
Tax Expense
During 2008, the Company recognized Income Tax Expense of
$34.4 million on Loss before Income Taxes and Equity in Net
Earnings of Affiliates of $65.5 million. During 2007, the
Company recognized Income Tax Expense of $23.9 million on
Loss before Income Taxes and Equity in Net Earnings of
Affiliates of $26.1 million. Income Tax Expense for 2008
and 2007 primarily relates to the noncash expense associated
with the amortization of goodwill for tax purposes, benefits
related to losses in certain foreign countries and tax
withholding in foreign jurisdictions. Income tax expense for
2007 also increased due to a liability related to a judgment
received in a Swedish tax court.
Equity
in Net Earnings of Affiliates
Equity in Net Earnings of Affiliates was $1.1 million in
2008 and $0.9 million in 2007 and is related to the
Company’s equity investment in the joint venture, Rengo
Riverwood Packaging, Ltd.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as its ability to generate
sufficient funds from both internal and external sources to meet
its obligations and commitments. In addition, liquidity includes
the ability to obtain appropriate debt and equity financing and
to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore,
liquidity cannot be considered separately from capital resources
that consist of current or potentially available funds for use
in achieving long-range business objectives and meeting debt
service commitments.
27
Table of Contents
Cash
Flows
| Years Ended December 31, | ||||||||
| In millions | 2009 | 2008 | ||||||
|
Net Cash Provided by Operating Activities
|
$ | 502.9 | $ | 184.2 | ||||
|
Net Cash Used in Investing Activities
|
(124.1 | ) | (143.8 | ) | ||||
|
Net Cash (Used in) Provided by Financing Activities
|
(399.2 | ) | 119.8 | |||||
Net cash provided by operating activities in 2009 totaled
$502.9 million, compared to $184.2 million in 2008.
The increase was primarily due to cash received from the
alternative fuel tax credit of $134.8 million; improved
working capital of $117.1 million primarily as a result of
lower inventory levels; higher net income when adjusted for
noncash items such as depreciation and amortization and, in
2008, the $24.4 million inventory
step-up
related to Altivity, the $12.6 million write-off of
the #2 coated board machine at the West Monroe, LA mill,
and lower postemployment contributions of $15.2 million.
Net cash used in investing activities in 2009 totaled
$124.1 million, compared to $143.8 million in 2008.
This year over year change was due primarily to a decrease in
capital spending of $53.4 million in 2009, the
$60.2 million of cash acquired by the Company in the
Altivity Transaction, and higher proceeds from the sales of
assets in 2008, partially offset by $30.3 million in
acquisition costs in 2008.
Net cash used in financing activities in 2009 totaled
$399.2 million, compared to $119.8 million provided by
financing activities in 2008. This change was primarily due to
higher net debt repayments in 2009, as well as the repayment of
funds borrowed under the Company’s revolving credit
facilities in 2008 when the credit and securities markets were
more volatile and the Company felt it necessary to maintain
sufficient cash to meet any foreseeable liquidity needs.
Liquidity
and Capital Resources
The Company’s liquidity needs arise primarily from debt
service on its substantial indebtedness and from the funding of
its capital expenditures, ongoing operating costs and working
capital. Principal and interest payments under the term loan
facility and the revolving credit facility, together with
principal and interest payments on the Company’s
9.5% Senior Notes due 2017 and 9.5% Senior
Subordinated Notes due 2013 (“Notes”), represent
significant liquidity requirements for the Company. Based upon
current levels of operations, anticipated cost savings and
expectations as to future growth, the Company believes that cash
generated from operations, together with amounts available under
its revolving credit facility and other available financing
sources, will be adequate to permit the Company to meet its debt
service obligations, necessary capital expenditure program
requirements and ongoing operating costs and working capital
needs, although no assurance can be given in this regard. The
Company’s future financial and operating performance,
ability to service or refinance its debt and ability to comply
with the covenants and restrictions contained in its debt
agreements (see “Covenant Restrictions”) will be
subject to future economic conditions, including conditions in
the credit markets, and to financial, business and other
factors, many of which are beyond the Company’s control,
and will be substantially dependent on the selling prices and
demand for the Company’s products, raw material and energy
costs, and the Company’s ability to successfully implement
its overall business and profitability strategies.
As of December 31, 2009, the Company had approximately
$1.3 billion of NOLs for U.S. federal income tax
purposes. These NOLs generally may be used by the Company to
offset taxable income earned in subsequent taxable years.
However, the Company’s ability to use these NOLs to offset
its future taxable income may be subject to significant
limitations as a result of certain shifts in ownership due to
direct or indirect transfers of the Company’s common stock
by one or more five percent stockholders, or issuance or
redemption of the Company’s common stock, which, when taken
together with previous changes in ownership of the
Company’s common stock, constitute an ownership change
under Section 382. Imposition of any such limitation of the
use of NOLs could have an adverse effect on the Company’s
future after tax free cash flow.
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Table of Contents
Covenant
Restrictions
The Credit Agreement and the Indentures limit the Company’s
ability to incur additional indebtedness. Additional covenants
contained in the Credit Agreement and the Indentures, among
other things, restrict the ability of the Company to dispose of
assets, incur guarantee obligations, prepay other indebtedness,
make dividends and other restricted payments, create liens, make
equity or debt investments, make acquisitions, modify terms of
the indentures under which the Notes are issued, engage in
mergers or consolidations, change the business conducted by the
Company and its subsidiaries, and engage in certain transactions
with affiliates. Such restrictions, together with the highly
leveraged nature of the Company and recent disruptions in the
credit markets, could limit the Company’s ability to
respond to changing market conditions, fund its capital spending
program, provide for unexpected capital investments or take
advantage of business opportunities.
Under the terms of the Credit Agreement, the Company must comply
with a maximum consolidated secured leverage ratio, which is
defined as the ratio of: (a) total long-term and short-term
indebtedness of the Company and its consolidated subsidiaries as
determined in accordance with generally accepted accounting
principles in the United States (“U.S. GAAP”),
plus the aggregate cash proceeds received by the Company and its
subsidiaries from any receivables or other securitization but
excluding therefrom (i) all unsecured indebtedness,
(ii) all subordinated indebtedness permitted to be incurred
under the Credit Agreement, and (iii) all secured
indebtedness of foreign subsidiaries to (b) Adjusted
EBITDA, which we refer to as Credit Agreement
EBITDA
(1)
.
Pursuant to this financial covenant, the Company must maintain a
maximum consolidated secured leverage ratio of less than the
following:
|
Maximum Consolidated
|
||
| Secured Leverage Ratio (1) | ||
|
October 1, 2008 — September 30, 2009
|
5.00 to 1.00 | |
|
October 1, 2009 and thereafter
|
4.75 to 1.00 | |
Note:
| (1) | Credit Agreement EBITDA is defined in the Credit Agreement as consolidated net income before consolidated net interest expense, non-cash expenses and charges, total income tax expense, depreciation expense, expense associated with amortization of intangibles and other assets, non-cash provisions for reserves for discontinued operations, extraordinary, unusual or non-recurring gains or losses or charges or credits, gain or loss associated with sale or write-down of assets not in the ordinary course of business, any income or loss accounted for by the equity method of accounting, and projected run rate cost savings, prior to or within a twelve month period. |
At December 31, 2009, the Company was in compliance with
the financial covenant in the Credit Agreement and the ratio was
as follows:
Consolidated Secured Leverage Ratio — 2.94 to 1.00
The Company’s management believes that presentation of the
consolidated secured leverage ratio and Credit Agreement EBITDA
herein provides useful information to investors because
borrowings under the Credit Agreement are a key source of the
Company’s liquidity, and the Company’s ability to
borrow under the Credit Agreement is dependent on, among other
things, its compliance with the financial ratio covenant. Any
failure by the Company to comply with this financial covenant
could result in an event of default, absent a waiver or
amendment from the lenders under such agreement, in which case
the lenders may be entitled to declare all amounts owed to be
due and payable immediately.
Credit Agreement EBITDA is a financial measure not calculated in
accordance with U.S. GAAP, and is not a measure of net
income, operating income, operating performance or liquidity
presented in accordance with U.S. GAAP. Credit Agreement
EBITDA should be considered in addition to results prepared in
accordance with U.S. GAAP, but should not be considered a
substitute for or superior to U.S. GAAP results. In
addition, Credit Agreement EBITDA may not be comparable to
EBITDA or similarly titled measures utilized by other companies
because other companies may not calculate Credit Agreement
EBITDA in the same manner as the Company does.
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Table of Contents
The calculations of the components of the maximum consolidated
secured leverage ratio for and as of the period ended
December 31, 2009 are listed below:
|
Twelve Months Ended
|
||||
| In millions | December 31, 2009 | |||
|
Net Income
|
$ | 56.4 | ||
|
Income Tax Expense
|
24.1 | |||
|
Interest Expense, Net
|
196.4 | |||
|
Depreciation and Amortization
|
305.4 | |||
|
Dividends Received, Net of Earnings of Equity Affiliates
|
0.1 | |||
|
Non-Cash Provisions for Reserves for Discontinued Operations
|
— | |||
|
Other Non-Cash Charges
|
56.5 | |||
|
Merger Related Expenses
|
50.8 | |||
|
Losses Associated with Sale/Write-Down of Assets
|
39.1 | |||
|
Other Non-Recurring/Extraordinary/Unusual Items
|
(127.5 | ) | ||
|
Projected Run Rate Cost
Savings
(a)
|
60.1 | |||
|
Credit Agreement EBITDA
|
$ | 661.4 | ||
|
As of
|
||||
|
December 31,
|
||||
| In millions | 2009 | |||
|
Short-Term Debt
|
$ | 17.6 | ||
|
Long-Term Debt
|
2,782.6 | |||
|
Total Debt
|
$ | 2,800.2 | ||
|
Less
Adjustments
(b)
|
857.0 | |||
|
Consolidated Secured Indebtedness
|
$ | 1,943.2 | ||
Notes:
| (a) | As defined by the Credit Agreement, this represents projected cost savings expected by the Company to be realized as a result of specific actions taken or expected to be taken prior to or within twelve months of the period in which Credit Agreement EBITDA is to be calculated, net of the amount of actual benefits realized or expected to be realized from such actions. |
The terms of the Credit Agreement limit the amount of projected
run rate cost savings that may be used in calculating Credit
Agreement EBITDA by stipulating that such amount may not exceed
the lesser of (i) ten percent of EBITDA as defined in the
Credit Agreement for the last twelve-month period (before giving
effect to projected run rate cost savings) and
(ii) $100 million. As a result, in calculating Credit
Agreement EBITDA above, the Company used projected run rate cost
savings of $60.1 million or ten percent of EBITDA as
calculated in accordance with the Credit Agreement, which amount
is lower than total projected cost savings identified by the
Company, net of actual benefits realized for the twelve month
period ended December 31, 2009. Projected run rate cost
savings were calculated by the Company solely for its use in
calculating Credit Agreement EBITDA for purposes of determining
compliance with the maximum consolidated secured leverage ratio
contained in the Credit Agreement and should not be used for any
other purpose.
| (b) | Represents consolidated indebtedness/securitization that is either (i) unsecured, or (ii) all subordinated indebtedness permitted to be incurred under the Credit Agreement, or secured indebtedness permitted to be incurred by the Company’s foreign subsidiaries per the Credit Agreement. |
The Senior Notes and Senior Subordinated Notes are rated B- by
Standard & Poor’s and B3 by Moody’s Investor
Services. The Company’s indebtedness under the Credit
Agreement is rated BB by Standard & Poor’s and
Ba3 by Moody’s Investor Services. As of December 31,
2009, Moody’s Investor Services’ ratings on the
Company remain on negative outlook, while Standard &
Poor’s ratings on the Company have a positive outlook.
During 2009, cash paid for interest was $219.5 million.
If inflationary pressures on key inputs resume, or depressed
selling prices, lower sales volumes, increased operating costs
or other factors have a negative impact on the Company’s
ability to increase its profitability, the Company may not be
able to maintain its compliance with the financial covenant in
its Credit Agreement. The Company’s ability to comply in
future periods with the financial covenant in the Credit
Agreement will depend on its ongoing financial and operating
performance, which in turn will be subject to economic
30
Table of Contents
conditions and to financial, business and other factors, many of
which are beyond the Company’s control, and will be
substantially dependent on the selling prices for the
Company’s products, raw material and energy costs, and the
Company’s ability to successfully implement its overall
business strategies, and meet its profitability objective. If a
violation of the financial covenant or any of the other
covenants occurred, the Company would attempt to obtain a waiver
or an amendment from its lenders, although no assurance can be
given that the Company would be successful in this regard. The
Credit Agreement and the indentures governing the Notes have
certain cross-default or cross-acceleration provisions; failure
to comply with these covenants in any agreement could result in
a violation of such agreement which could, in turn, lead to
violations of other agreements pursuant to such cross-default or
cross-acceleration provisions. If an event of default occurs,
the lenders are entitled to declare all amounts owed to be due
and payable immediately. The Credit Agreement is collateralized
by substantially all of the Company’s domestic assets.
Capital
Investment
The Company’s capital investment in 2009 was
$129.9 million compared to $183.3 million (including
$38.1 million for Altivity) in 2008. During 2009, the
Company had capital spending of $102.1 million for
improving process capabilities, $21.0 million for capital
spares, $6.6 million for manufacturing packaging machinery
and $0.2 million for compliance with environmental laws and
regulations.
Environmental
Matters
Some of the Company’s current and former facilities are the
subject of environmental investigations and remediations
resulting from historical operations and the release of
hazardous substances or other constituents. Some current and
former facilities have a history of industrial usage for which
investigation and remediation obligations may be imposed in the
future or for which indemnification claims may be asserted
against the Company. Also, potential future closures or sales of
facilities may necessitate further investigation and may result
in future remediation at those facilities. The Company has
established reserves for those facilities or issues where
liability is probable and the costs are reasonably estimable.
For further discussion of the Company’s environmental
matters, see Note 15 in the Notes to Consolidated Financial
Statements included herein under “Item 8., Financial
Statements and Supplementary Data.”
Contractual
Obligations and Commitments
A summary of our contractual obligations and commitments as of
December 31, 2009 is as follows:
| Payments Due by Period | ||||||||||||||||||||
|
Less than
|
More than
|
|||||||||||||||||||
| In millions | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
|
Long-Term Debt
|
$ | 2,792.6 | $ | 10.0 | $ | 40.8 | $ | 2,318.1 | $ | 423.7 | ||||||||||
|
Operating Leases
|
159.3 | 42.3 | 63.1 | 28.3 | 25.6 | |||||||||||||||
|
Interest Payable
|
1,015.6 | 171.1 | 345.4 | 278.7 | 220.4 | |||||||||||||||
|
Purchase
Obligations
(a)
|
607.6 | 116.5 | 165.7 | 117.3 | 208.1 | |||||||||||||||
|
Pension Funding
|
58.0 | 58.0 | — | — | — | |||||||||||||||
|
Total Contractual
Obligations
(b)
|
$ | 4,633.1 | $ | 397.9 | $ | 615.0 | $ | 2,742.4 | $ | 877.8 | ||||||||||
Notes:
| (a) | Purchase obligations primarily consist of commitments related to pine pulpwood, wood chips, and wood processing and handling. | |
| (b) | Some of the figures included in this table are based on management’s estimates and assumptions about these obligations. Because these estimates and assumptions are necessarily subjective, the obligations the Company will actually pay in the future periods may vary from those reflected in the table. |
31
Table of Contents
International
Operations
For 2009, before intercompany eliminations, net sales from
operations outside of the U.S. represented approximately
10% of the Company’s net sales. The Company’s revenues
from export sales fluctuate with changes in foreign currency
exchange rates. At December 31, 2009, approximately 7% of
its total assets were denominated in currencies other than the
U.S. dollar. The Company has significant operations in
countries that use the British pound sterling, the Australian
dollar, the Japanese yen or the euro as their functional
currencies. The effect of a generally stronger U.S. dollar
against these currencies produced a net currency translation
adjustment gain of $7.8 million, which was recorded as an
adjustment to Shareholders’ Equity for the year ended
December 31, 2009. The magnitude and direction of this
adjustment in the future depends on the relationship of the
U.S. dollar to other currencies. The Company cannot predict
major currency fluctuations. The Company pursues a currency
hedging program in order to limit the impact of foreign currency
exchange fluctuations on financial results. See “Financial
Instruments” below.
Financial
Instruments
The functional currency of the Company’s international
subsidiaries is the local currency for the country in which the
subsidiaries own their primary assets. The translation of the
applicable currencies into U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts
using a weighted average exchange rate during the period. Any
related translation adjustments are recorded directly to
shareholders’ equity. Gains and losses on foreign currency
transactions are included in Other (Income) Expense, Net for the
period in which the exchange rate changes.
The Company pursues a currency hedging program which utilizes
derivatives to limit the impact of foreign currency exchange
fluctuations on its consolidated financial results. Under this
program, the Company has entered into forward exchange contracts
in the normal course of business to hedge certain foreign
currency denominated transactions. Realized and unrealized gains
and losses on these forward contracts are included in the
measurement of the basis of the related foreign currency
transaction when recorded. The Company also pursues a hedging
program which utilizes derivatives designed to manage risks
associated with future variability in cash flows and price risk
related to future energy cost increases. Under this program the
Company has entered into natural gas swap contracts to hedge a
portion of its natural gas requirements through December 2010.
Realized gains and losses on these contracts are included in the
financial results concurrently with the recognition of the
commodity purchased. The Company uses interest rate swaps to
manage interest rate risks on future income caused by interest
rate changes on its variable rate term loan facility. These
instruments involve, to varying degrees, elements of market and
credit risk in excess of the amounts recognized in the
Consolidated Balance Sheets. The Company does not hold or issue
financial instruments for trading purposes. See
“Item 7A., Quantitative and Qualitative Disclosure
About Market Risk.”
CRITICAL
ACCOUNTING POLICIES
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of net sales and expenses during the reporting
period. Actual results could differ from these estimates, and
changes in these estimates are recorded when known. The critical
accounting policies used by management in the preparation of the
Company’s consolidated financial statements are those that
are important both to the presentation of the Company’s
financial condition and results of operations and require
significant judgments by management with regard to estimates
used. The critical judgments by management relate to pension
benefits, retained insurable risks, future cash flows associated
with impairment testing for goodwill and long-lived assets, and
deferred income taxes.
•
Pension Benefits
The Company sponsors defined benefit pension plans (the
“Plans”) for eligible employees in North America and
certain international locations. The funding policy for the
qualified defined benefit plans is to, at
32
Table of Contents
a minimum, contribute assets as required by the Internal Revenue
Code Section 412. Nonqualified U.S. plans providing
benefits in excess of limitations imposed by the
U.S. income tax code are not funded.
The Company’s pension expense for defined benefit pension
plans was $47.9 million in 2009 compared with
$19.7 million in 2008. Pension expense is calculated based
upon a number of actuarial assumptions applied to each of the
defined benefit plans. The weighted average expected long-term
rate of return on pension fund assets used to calculate pension
expense was 7.91% and 7.96% in 2009 and 2008, respectively. The
expected long-term rate of return on pension assets was
determined based on several factors, including historical rates
of return, input from our pension investment consultants and
projected long-term returns of broad equity and bond indices.
The Company evaluates its long-term rate of return assumptions
annually and adjusts them as necessary.
The Company determined pension expense using both the fair value
of assets and a calculated value that averages gains and losses
over a period of years. Investment gains or losses represent the
difference between the expected and actual return on assets. As
of December 31, 2009, the net actuarial loss was
$189.6 million. These net losses may increase future
pension expense if not offset by (i) actual investment
returns that exceed the assumed investment returns, or
(ii) other factors, including reduced pension liabilities
arising from higher discount rates used to calculate pension
obligations, or (iii) other actuarial gains, including
whether such accumulated actuarial losses at each measurement
date exceed the “corridor” determined under the
Compensation — Retirement Benefits
topic of the
Financial Accounting Standards Board (“FASB”)
Accounting Standards
Codification
tm
(“the FASB Codification”).
The discount rate used to determine the present value of future
pension obligations at December 31, 2009 was based on a
yield curve constructed from a portfolio of high-quality
corporate debt securities with maturities ranging from
1 year to 30 years. Each year’s expected future
benefit payments were discounted to their present value at the
appropriate yield curve rate thereby generating the overall
discount rate for the Company’s pension obligations. The
weighted average discount rate used to determine the pension
obligations was 6.10% and 6.28% in 2009 and 2008, respectively.
The Company’s pension expense is estimated to be
approximately $32 million in 2010. The estimate is based on
a weighted average expected long-term rate of return of 7.95%, a
weighted average discount rate of 6.10% and other assumptions.
Pension expense beyond 2010 will depend on future investment
performance, the Company’s contribution to the plans,
changes in discount rates and other factors related to covered
employees in the plans.
If the discount rate assumptions for the Company’s
U.S. plans were reduced by 0.25%, pension expense would
increase by approximately $3 million and the
December 31, 2009 pension funding obligation would increase
by about $22 million.
The fair value of assets in the Company’s plans was
$622.2 million at December 31, 2009 and
$489.0 million at December 31, 2008. The projected
benefit obligations exceed the fair value of plan assets by
$236.7 million and $323.1 million as of
December 31, 2009 and 2008, respectively. Primarily due to
the lower discount rates, the accumulated benefit obligation
(“ABO”) exceeded plan assets by $219.1 million at
the end of 2009. At the end of 2008, the ABO exceeded the fair
value of plan assets by $295.7 million.
•
Retained Insurable Risks
The Company is self-insured for certain losses relating to
workers’ compensation claims and employee medical and
dental benefits. Provisions for expected losses are recorded
based on the Company’s estimates, on an undiscounted basis,
of the aggregate liabilities for known claims and estimated
claims incurred but not reported. The Company has purchased
stop-loss coverage or insurance with deductibles in order to
limit its exposure to significant claims. The Company also has
an extensive safety program in place to minimize its exposure to
workers’ compensation claims. Self-insured losses are
accrued based upon estimates of the aggregate uninsured claims
incurred using certain actuarial assumptions and loss
development factors followed in the insurance industry and
historical experience.
33
Table of Contents
•
Goodwill
The Company evaluates goodwill for potential impairment annually
as of October 1 of each year, as well as whenever events or
changes in circumstances suggest that the fair value of a
reporting unit may no longer exceed its carrying amount.
Potential impairment of goodwill is measured at the reporting
unit level by comparing the reporting unit’s carrying
amount including goodwill, to the estimated fair value of the
reporting unit.
A reporting unit is an operating segment or one level below an
operating segment (referred to as a component). A component of
an operating segment is a reporting unit if the component
constitutes a business for which discrete financial information
is available and senior management regularly reviews the
operating results of that component. The Company’s
reporting units are all one level below the reported segments
except for the multi-wall bag reporting unit which is also an
operating segment. As of October 1, 2009, the Company had
eleven reporting units, of which six of the units had goodwill.
The estimated fair value of each reporting unit is determined by
utilizing a discounted cash flow analysis based on the
Company’s forecasts discounted using a weighted average
cost of capital and market indicators of terminal year cash
flows based upon a multiple of EBITDA. If the carrying amount of
a reporting unit exceeds its estimated fair value, goodwill is
considered potentially impaired. In determining fair value,
management relies on and considers a number of factors,
including but not limited to, operating results, business plans,
economic projections, forecasts including anticipated future
cash flows, and market data and analysis, including market
capitalization. Fair value determinations are sensitive to
changes in the factors described above. There are inherent
uncertainties related to these factors and judgments in applying
them to the analysis of goodwill recoverability.
The Company performed its annual goodwill impairment test as of
October 1, 2009. In performing the annual impairment test,
the Company utilized a number of assumptions. The assumed
revenue growth rates of the reporting units were consistent with
historic growth rates. Projected margins were based on the
current cost structure including synergies achieved from the
Altivity Transaction, as well as on-going cost savings
initiatives. Other assumptions included a weighted average cost
of capital of 8.0% as of October 1, 2009.
The Company performed sensitivity analyses related to the
weighted average cost of capital and concluded that the weighted
average cost of capital could increase by 150 basis points
and all of the reporting units would continue to have estimated
fair value in excess of carrying value.
The Company concluded that the fair value of its reporting units
exceeded their carrying values including goodwill at
October 1, 2009 and, therefore, that goodwill was not
impaired.
The assumptions used in the goodwill impairment testing process
could be adversely impacted by certain of the risks discussed in
“Item 1A., Risk Factors” and thus could result in
future goodwill impairment charges.
•
Recovery of Long-Lived Assets
The Company reviews long-lived assets (including property, plant
and equipment and intangible assets) for impairment whenever
events or changes in circumstances indicate that the carrying
amount of such long-lived assets may not be fully recoverable by
undiscounted cash flows. Measurement of the impairment loss, if
any, is based on the fair value of the asset, which is
determined by an income, cost or market approach. The Company
evaluates the recovery of its long-lived assets by analyzing
operating results and considering significant events or changes
in the business environment that may have triggered impairment.
See Note 13 in the Notes to Consolidated Financial
Statements included herein under “Item 8., Financial
Statements and Supplementary Data.”
•
Deferred Income Taxes and Potential Assessments
As of December 31, 2009, the Company, in accordance with
the
Income Taxes
topic of the FASB Codification, has
determined that $83.8 million of undistributed foreign
earnings are not intended to be reinvested indefinitely by its
non-U.S. subsidiaries.
Deferred income tax was recorded as a reduction to the
34
Table of Contents
Company’s NOLs on these undistributed earnings as well as
the financial statement carrying value in excess of tax basis in
the amount of $32.0 million. As of December 31, 2008,
the Company had determined that $68.4 million of
undistributed foreign earnings were not intended to be
reinvested indefinitely. Deferred income tax was recorded as a
reduction to the Company’s NOLs on these undistributed
earnings, as well as the financial statement carrying value in
excess of tax basis in the amount of $30.5 million. The
Company periodically determines whether the
non-U.S. subsidiaries
will invest their undistributed earnings indefinitely and
reassesses this determination as appropriate.
The Company records current liabilities for potential
assessments. The accruals relate to uncertain tax positions in a
variety of taxing jurisdictions and are based on what management
believes will be the most likely outcome of these positions.
These liabilities may be affected by changing interpretations of
laws, rulings by tax authorities, or the expiration of the
statute of limitations.
NEW
ACCOUNTING STANDARDS
For a discussion of recent accounting pronouncements impacting
the Company, see Note 1 in the Notes to Consolidated
Financial Statements included herein under “Item 8.,
Financial Statements and Supplementary Data.”
BUSINESS
OUTLOOK
The Company expects to realize between $80 million and
$100 million of year over year operating cost savings from
its continuous improvement programs, including Lean Sigma
manufacturing projects and synergies.
Total capital investment for 2010 is expected to be between
$130 million and $150 million and is expected to
relate principally to the Company’s process capability
improvements (approximately $113 million), acquiring
capital spares (approximately $20 million), and producing
packaging machinery (approximately $7 million).
The Company also expects the following in 2010:
| • | Depreciation and amortization between $310 million and $330 million. | |
| • | Interest expense of $180 million to $200 million, including $9 million of noncash interest expense associated with amortization of debt issuance costs. | |
| • | Debt reduction of $180 million to $200 million. | |
| • | Pension plan contributions of $45 million to $70 million. |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
The Company does not trade or use derivative instruments with
the objective of earning financial gains on interest or currency
rates, nor does it use leveraged instruments or instruments
where there are no underlying exposures identified.
Interest
Rates
The Company is exposed to changes in interest rates, primarily
as a result of its short-term and long-term debt, which bear
both fixed and floating rate debt. The Company uses interest
rate swap agreements effectively to fix the LIBOR rate on
variable rate borrowings. At December 31, 2009, the Company
had interest rate swap agreements with a notional amount of
$2,170.0 million, including $400.0 million in forward
starting interest rate swaps.
The table below sets forth interest rate sensitivity information
related to the Company’s debt.
35
Table of Contents
Long-Term
Debt Principal Amount by Maturity-Average Interest
Rate
| Expected Maturity Date | ||||||||||||||||||||||||||||||||
|
Fair
|
||||||||||||||||||||||||||||||||
| In millions | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | Value | ||||||||||||||||||||||||
|
Total Debt
|
||||||||||||||||||||||||||||||||
|
Fixed Rate
|
$ | — | $ | — | $ | 0.8 | $ | 425.0 | $ | — | $ | 423.7 | (a) | $ | 849.5 | $ | 881.8 | |||||||||||||||
|
Average Interest Rate
|
— | % | — | % | 8.63 | % | 9.5 | % | — | % | 9.5 | % | ||||||||||||||||||||
|
Variable Rate
|
$ | 10.0 | $ | 20.0 | $ | 20.0 | $ | 20.0 | $ | 1,873.1 | $ | — | $ | 1,943.1 | $ | 1,880.8 | ||||||||||||||||
|
Average Interest Rate, spread range is 2.00% — 2.75%
|
LIBOR |
+.
spread |
LIBOR+
spread |
LIBOR |
+.
spread |
LIBOR |
+.
spread |
LIBOR |
+.
spread |
— | ||||||||||||||||||||||
Total
Interest Rate Swaps-Notional Amount by Expiration-Average Swap
Rate
| Expected Maturity Date | ||||||||||||||||||||||||||||
|
Fair
|
||||||||||||||||||||||||||||
| In millions | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Value | |||||||||||||||||||||
|
Interest Rate Swaps (Pay
|
||||||||||||||||||||||||||||
|
Fixed/Receive Variable)
|
||||||||||||||||||||||||||||
|
Notional
|
$920.0 | $330.0 | $ | 920.0 | $ | — | $ | — | $ | 2,170.0 | $ | (36.1 | ) | |||||||||||||||
|
Average Pay Rate
|
3.98 | % | 3.13 | % | 2.62 | % | — | % | — | % | ||||||||||||||||||
| 3-Month | 3-Month | 3-Month | ||||||||||||||||||||||||||
|
Average Receive Rate
|
LIBOR | LIBOR | LIBOR | — | — | |||||||||||||||||||||||
Note:
| (a) | $425.0 million face amount. |
Foreign
Exchange Rates
The Company enters into forward exchange contracts to
effectively hedge substantially all accounts receivable
resulting from transactions denominated in foreign currencies.
The purpose of these forward exchange contracts is to protect
the Company from the risk that the eventual functional currency
cash flows resulting from the collection of these accounts
receivable will be adversely affected by changes in exchange
rates. At December 31, 2009, multiple foreign currency
forward exchange contracts existed, with maturities ranging up
to three months. Those forward currency exchange contracts
outstanding at December 31, 2009, when aggregated and
measured in U.S. dollars at December 31, 2009 exchange
rates, had net notional amounts totaling $10.1 million. The
Company continuously monitors these forward exchange contracts
and adjusts accordingly to minimize the exposure.
The Company also enters into forward exchange contracts to hedge
certain other anticipated foreign currency transactions. The
purpose of these contracts is to protect the Company from the
risk that the eventual functional currency cash flows resulting
from anticipated foreign currency transactions will be adversely
affected by changes in exchange rates.
During the years ended December 31, 2009 and 2008, no
amounts were reclassified to earnings in connection with
forecasted transactions that were no longer considered probable
of occurring and there was no amount of ineffectiveness related
to changes in the fair value of foreign currency forward
contracts. Additionally, there were no amounts excluded from the
measure of effectiveness during the years ended
December 31, 2009 and 2008.
36
Table of Contents
Foreign
Exchange Rates Contractual Amount by Expected
Maturity-Average Contractual Exchange Rate
Maturity-Average Contractual Exchange Rate
|
December 31,
|
||||||||||
| 2009 | ||||||||||
|
Contract
|
Fair
|
|||||||||
| In millions | Amount | Value | ||||||||
|
FORWARD EXCHANGE AGREEMENTS:
|
||||||||||
|
Receive $US/Pay Yen
|
$ | 31.6 | $ | 0.1 | ||||||
|
Weighted average contractual exchange rate
|
92.44 | |||||||||
|
Receive $US/Pay Euro
|
$ | 19.9 | $ | 0.8 | ||||||
|
Weighted average contractual exchange rate
|
1.49 | |||||||||
|
Receive $US/Pay GBP
|
$ | 9.1 | $ | 0.1 | ||||||
|
Weighted average contractual exchange rate
|
1.63 | |||||||||
Natural
Gas Contracts
The Company entered into natural gas swap contracts to hedge
prices for approximately 52% of its expected natural gas usage
through December 2010 with a weighted average contractual rate
of $5.68 per MMBTU. The carrying amount and fair value of the
natural gas swap contracts is an asset of $0.3 million as
of December 31, 2009, and is recorded as Other Current
Assets in the Consolidated Balance Sheet. Such contracts are
designated as cash flow hedges and are accounted for by
deferring the quarterly change in fair value of the outstanding
contracts in Shareholders’ Equity. On the date a contract
matures, the resulting gain or loss is reclassified into Cost of
Sales concurrently with the recognition of the commodity
purchased. The ineffective portion of the swap contracts change
in fair value, if any, would be recognized immediately in
earnings.
37
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO
FINANCIAL STATEMENTS
| Page | ||||
| 39 | ||||
| 40 | ||||
| 41 | ||||
| 42 | ||||
| 43 | ||||
| 84 | ||||
38
Table of Contents
| Year Ended December 31, | ||||||||||||
| In millions, except per share amounts | 2009 | 2008 | 2007 | |||||||||
|
Net Sales
|
$ | 4,095.8 | $ | 4,079.4 | $ | 2,421.2 | ||||||
|
Cost of Sales
|
3,567.2 | 3,587.1 | 2,089.4 | |||||||||
|
Selling, General and Administrative
|
305.3 | 298.9 | 179.2 | |||||||||
|
Research, Development and Engineering
|
7.2 | 8.0 | 9.2 | |||||||||
|
Other (Income) Expense, Net
|
(13.5 | ) | 2.3 | (7.8 | ) | |||||||
|
Restructuring and Other Special (Credits) Charges
|
(53.1 | ) | 33.2 | — | ||||||||
|
Income from Operations
|
282.7 | 149.9 | 151.2 | |||||||||
|
Interest Income
|
0.4 | 1.3 | 0.4 | |||||||||
|
Interest Expense
|
(196.8 | ) | (216.7 | ) | (168.2 | ) | ||||||
|
Loss on Early Extinguishment of Debt
|
(7.1 | ) | — | (9.5 | ) | |||||||
|
Income (Loss) before Income Taxes and Equity in Net Earnings of
Affiliates
|
79.2 | (65.5 | ) | (26.1 | ) | |||||||
|
Income Tax Expense
|
(24.1 | ) | (34.4 | ) | (23.9 | ) | ||||||
|
Income (Loss) before Equity in Net Earnings of Affiliates
|
55.1 | (99.9 | ) | (50.0 | ) | |||||||
|
Equity in Net Earnings of Affiliates
|
1.3 | 1.1 | 0.9 | |||||||||
|
Income (Loss) from Continuing Operations
|
56.4 | (98.8 | ) | (49.1 | ) | |||||||
|
Loss from Discontinued Operations, Net of Taxes
|
— | (0.9 | ) | (25.5 | ) | |||||||
|
Net Income (Loss)
|
$ | 56.4 | $ | (99.7 | ) | $ | (74.6 | ) | ||||
|
Income (Loss) Per Share — Basic and Diluted
|
||||||||||||
|
Continuing Operations
|
$ | 0.16 | $ | (0.31 | ) | $ | (0.24 | ) | ||||
|
Discontinued Operations
|
— | (0.00 | ) | (0.13 | ) | |||||||
|
Total
|
$ | 0.16 | $ | (0.32 | ) | $ | (0.37 | ) | ||||
|
Weighted Average Number of Shares Outstanding —
Basic
|
343.1 | 315.8 | 201.8 | |||||||||
|
Weighted Average Number of Shares Outstanding —
Diluted
|
344.6 | 315.8 | 201.8 | |||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
39
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
| December 31, | ||||||||||
| In millions, except share amounts | 2009 | 2008 | ||||||||
|
ASSETS
|
||||||||||
|
Current Assets:
|
||||||||||
|
Cash and Cash Equivalents
|
$ | 149.8 | $ | 170.1 | ||||||
|
Receivables, Net
|
382.3 | 369.6 | ||||||||
|
Inventories
|
436.5 | 532.0 | ||||||||
|
Deferred Income Tax Assets
|
34.7 | 31.2 | ||||||||
|
Other Current Assets
|
18.0 | 25.7 | ||||||||
|
Total Current Assets
|
1,021.3 | 1,128.6 | ||||||||
|
Property, Plant and Equipment, Net
|
1,797.4 | 1,935.1 | ||||||||
|
Goodwill
|
1,204.6 | 1,204.8 | ||||||||
|
Intangible Assets, Net
|
620.0 | 664.6 | ||||||||
|
Other Assets
|
58.5 | 50.0 | ||||||||
|
Total Assets
|
$ | 4,701.8 | $ | 4,983.1 | ||||||
| LIABILITIES | ||||||||||
|
Current Liabilities:
|
||||||||||
|
Short-Term Debt and Current Portion of Long-Term Debt
|
$ | 17.6 | $ | 18.6 | ||||||
|
Accounts Payable
|
350.8 | 333.4 | ||||||||
|
Compensation and Employee Benefits
|
105.6 | 87.2 | ||||||||
|
Interest Payable
|
42.7 | 57.8 | ||||||||
|
Other Accrued Liabilities
|
127.6 | 188.6 | ||||||||
|
Total Current Liabilities
|
644.3 | 685.6 | ||||||||
|
Long-Term Debt
|
2,782.6 | 3,165.2 | ||||||||
|
Deferred Income Tax Liabilities
|
226.9 | 187.8 | ||||||||
|
Accrued Pension and Postretirement Benefits
|
284.6 | 375.8 | ||||||||
|
Other Noncurrent Liabilities
|
34.6 | 43.5 | ||||||||
|
Total Liabilities
|
3,973.0 | 4,457.9 | ||||||||
|
SHAREHOLDERS’ EQUITY
|
||||||||||
|
Preferred Stock, par value $.01 per share;
100,000,000 shares authorized at December 31, 2009 and
December 31, 2008; no shares issued or outstanding
|
— | — | ||||||||
|
Common Stock, par value $.01 per share;
1,000,000,000 shares authorized at December 31, 2009
and 2008, respectively; 343,245,250 and 342,522,470 shares
issued and outstanding at December 31, 2009 and 2008,
respectively
|
3.4 | 3.4 | ||||||||
|
Capital in Excess of Par Value
|
1,958.2 | 1,955.4 | ||||||||
|
Accumulated Deficit
|
(1,019.0 | ) | (1,075.4 | ) | ||||||
|
Accumulated Other Comprehensive Loss
|
(213.8 | ) | (358.2 | ) | ||||||
|
Total Shareholders’ Equity
|
728.8 | 525.2 | ||||||||
|
Total Liabilities and Shareholders’ Equity
|
$ | 4,701.8 | $ | 4,983.1 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
40
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
|
Accumulated
|
||||||||||||||||||||||||
|
Capital in
|
Other
|
|||||||||||||||||||||||
| Common Stock |
Excess of
|
Accumulated
|
Comprehensive
|
Comprehensive
|
||||||||||||||||||||
| In millions, except share amounts | Shares | Amount | Par Value | Deficit | Income (Loss) | Income (Loss) | ||||||||||||||||||
|
Balances at December 31, 2006
|
200,584,591 | 2.0 | 1,186.8 | (901.1 | ) | (106.0 | ) | |||||||||||||||||
|
Net Loss
|
— | — | — | (74.6 | ) | — | $ | (74.6 | ) | |||||||||||||||
|
Other Comprehensive Income (Loss):
|
||||||||||||||||||||||||
|
Derivative Instruments Loss
|
— | — | — | — | (2.5 | ) | (2.5 | ) | ||||||||||||||||
|
Pension Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 20.5 | 20.5 | ||||||||||||||||||
|
Amortization of Prior Service Cost Included in Net Periodic
Pension Cost
|
— | — | — | — | 4.7 | 4.7 | ||||||||||||||||||
|
Postretirement Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 3.2 | 3.2 | ||||||||||||||||||
|
Amortization of Prior Service Cost Included in Net Periodic
Pension Cost
|
— | — | — | — | 0.1 | 0.1 | ||||||||||||||||||
|
Postemployment Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 1.5 | 1.5 | ||||||||||||||||||
|
Currency Translation Adjustment
|
— | — | — | — | 4.6 | 4.6 | ||||||||||||||||||
|
Total Comprehensive Loss
|
— | — | — | — | — | $ | (42.5 | ) | ||||||||||||||||
|
Issuance of Shares for Stock-Based Awards
|
393,978 | — | 4.8 | — | — | |||||||||||||||||||
|
Balances at December 31, 2007
|
200,978,569 | $ | 2.0 | $ | 1,191.6 | $ | (975.7 | ) | $ | (73.9 | ) | |||||||||||||
|
Net Loss
|
— | — | — | (99.7 | ) | — | $ | (99.7 | ) | |||||||||||||||
|
Other Comprehensive Income (Loss):
|
||||||||||||||||||||||||
|
Derivative Instruments Loss
|
— | — | — | — | (60.6 | ) | (60.6 | ) | ||||||||||||||||
|
Pension Benefit Plans:
|
||||||||||||||||||||||||
|
Net Loss Arising During Period
|
— | — | — | — | (214.9 | ) | (214.9 | ) | ||||||||||||||||
|
Amortization of Prior Service Cost Included in Net Periodic
Pension Cost
|
— | — | — | — | 2.7 | 2.7 | ||||||||||||||||||
|
Postretirement Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 0.9 | 0.9 | ||||||||||||||||||
|
Amortization of Prior Service Cost Included in Net Periodic
Pension Cost
|
— | — | — | — | 1.5 | 1.5 | ||||||||||||||||||
|
Postemployment Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 1.2 | 1.2 | ||||||||||||||||||
|
Currency Translation Adjustment
|
— | — | — | — | (15.1 | ) | (15.1 | ) | ||||||||||||||||
|
Total Comprehensive Loss
|
— | — | — | — | — | $ | (384.0 | ) | ||||||||||||||||
|
Common Stock Issued for Acquisition
|
139,445,038 | 1.4 | 761.4 | — | — | |||||||||||||||||||
|
Issuance of Shares for Stock-Based Awards
|
2,098,863 | — | 2.4 | — | — | |||||||||||||||||||
|
Balances at December 31, 2008
|
342,522,470 | $ | 3.4 | $ | 1,955.4 | $ | (1,075.4 | ) | $ | (358.2 | ) | |||||||||||||
|
Net Income
|
— | — | — | 56.4 | — | $ | 56.4 | |||||||||||||||||
|
Other Comprehensive Income (Loss):
|
||||||||||||||||||||||||
|
Derivative Instruments Income
|
— | — | — | — | 33.4 | 33.4 | ||||||||||||||||||
|
Pension Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 70.3 | 70.3 | ||||||||||||||||||
|
Amortization of Prior Service Cost Included in Net Periodic
Pension Cost
|
— | — | — | — | 21.4 | 21.4 | ||||||||||||||||||
|
Postretirement Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 8.4 | 8.4 | ||||||||||||||||||
|
Amortization of Prior Service Cost Included in Net Periodic
Pension Cost
|
— | — | — | — | (0.8 | ) | (0.8 | ) | ||||||||||||||||
|
Postemployment Benefit Plans:
|
||||||||||||||||||||||||
|
Net Gain Arising During Period
|
— | — | — | — | 3.9 | 3.9 | ||||||||||||||||||
|
Currency Translation Adjustment
|
— | — | — | — | 7.8 | 7.8 | ||||||||||||||||||
|
Total Comprehensive Income
|
— | — | — | — | — | $ | 200.8 | |||||||||||||||||
|
Issuance of Shares for Stock-Based Awards
|
722,780 | — | 2.8 | — | — | |||||||||||||||||||
|
Balances at December 31, 2009
|
343,245,250 | $ | 3.4 | $ | 1,958.2 | $ | (1,019.0 | ) | $ | (213.8 | ) | |||||||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
41
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GRAPHIC
PACKAGING HOLDING COMPANY
| Year Ended December 31, | ||||||||||||
| In millions | 2009 | 2008 | 2007 | |||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net Income (Loss)
|
$ | 56.4 | $ | (99.7 | ) | $ | (74.6 | ) | ||||
|
Noncash Items Included in Net Income (Loss):
|
||||||||||||
|
Depreciation and Amortization
|
305.4 | 264.3 | 194.8 | |||||||||
|
Write-off of Debt Issuance Costs on Early Extinguishment of Debt
|
2.3 | — | 9.5 | |||||||||
|
Amortization of Deferred Debt Issuance Costs
|
8.5 | 7.9 | 6.9 | |||||||||
|
Deferred Income Taxes
|
19.6 | 28.0 | 19.0 | |||||||||
|
Amount of Postemployment Expense Greater (Less) Than Funding
|
4.7 | (38.4 | ) | (7.2 | ) | |||||||
|
Inventory Step Up Related to Altivity
|
— | 24.4 | — | |||||||||
|
Impairment Charges/Asset Write-offs
|
15.3 | 14.9 | 21.0 | |||||||||
|
Other, Net
|
(7.4 | ) | 1.8 | 8.2 | ||||||||
|
Changes in Operating Assets and Liabilities (See Note 3)
|
98.1 | (19.0 | ) | (35.9 | ) | |||||||
|
Net Cash Provided by Operating Activities
|
502.9 | 184.2 | 141.7 | |||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Capital Spending
|
(129.9 | ) | (183.3 | ) | (95.9 | ) | ||||||
|
Acquisition Costs Related to Altivity
|
— | (30.3 | ) | — | ||||||||
|
Cash Acquired Related to Altivity
|
— | 60.2 | — | |||||||||
|
Proceeds from Sales of Assets, Net of Selling Costs
|
9.8 | 20.3 | 9.5 | |||||||||
|
Other, Net
|
(4.0 | ) | (10.7 | ) | (4.4 | ) | ||||||
|
Net Cash Used in Investing Activities
|
(124.1 | ) | (143.8 | ) | (90.8 | ) | ||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds from Issuance of Debt
|
423.8 | 1,200.0 | 1,135.0 | |||||||||
|
Payments on Debt
|
(664.5 | ) | (1,195.9 | ) | (1,180.0 | ) | ||||||
|
Borrowings under Revolving Credit Facilities
|
105.9 | 985.8 | 848.4 | |||||||||
|
Payments on Revolving Credit Facilities
|
(249.1 | ) | (853.4 | ) | (846.3 | ) | ||||||
|
Debt Issuance Costs and Early Tender Premiums
|
(16.1 | ) | (16.3 | ) | (7.0 | ) | ||||||
|
Other, Net
|
0.8 | (0.4 | ) | (0.1 | ) | |||||||
|
Net Cash (Used in) Provided by Financing Activities
|
(399.2 | ) | 119.8 | (50.0 | ) | |||||||
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
0.1 | 0.6 | 1.1 | |||||||||
|
Net (Decrease) Increase in Cash and Cash Equivalents
|
(20.3 | ) | 160.8 | 2.0 | ||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
170.1 | 9.3 | 7.3 | |||||||||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 149.8 | $ | 170.1 | $ | 9.3 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
42
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GRAPHIC
PACKAGING HOLDING COMPANY
| NOTE 1 — | NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature
of Business
Graphic Packaging Holding Company (“GPHC” and,
together with its subsidiaries, the “Company”) is a
leading provider of packaging solutions for a wide variety of
products to food, beverage and other consumer products
companies. The Company is the largest North American producer of
folding cartons and holds a leading market position in coated
unbleached kraft paperboard, coated-recycled boxboard and
multi-wall bags. The Company’s customers include some of
the most widely recognized companies in the world. The Company
strives to provide its customers with packaging solutions
designed to deliver marketing and performance benefits at a
competitive cost by capitalizing on its low-cost paperboard
mills and converting plants, proprietary carton and packaging
designs, and its commitment to customer service.
GPHC became a new publicly-traded parent company when, on
March 10, 2008, the businesses of Graphic Packaging
Corporation (“GPC”) and Altivity Packaging, LLC
(“Altivity”) were combined through a series of
transactions. All of the equity interests in Altivity’s
parent company were contributed to GPHC in exchange for
139,445,038 shares of GPHC’s common stock, par value
$0.01. Stockholders of GPC received one share of GPHC common
stock for each share of GPC common stock held immediately prior
to the transactions. Subsequently, all of the equity interests
in Altivity’s parent company were contributed to
GPHC’s primary operating company, Graphic Packaging
International, Inc. (“GPII”). Together, these
transactions are referred to herein as the “Altivity
Transaction.”
For accounting purposes, the Altivity Transaction was accounted
for as a purchase by GPHC under the Financial Accounting
Standards Board (“FASB”) Statement of Financial
Accounting Standards (“SFAS”) No. 141,
Business Combinations,
(“SFAS 141”). Under
the purchase method of accounting, the assets and liabilities of
Altivity were recorded, as of the date of the closing of the
Altivity Transaction, at their respective fair values and added
to those of GPII. The difference between the purchase price and
the fair values of the assets acquired and liabilities assumed
of Altivity was recorded as goodwill. The historical financial
statements of GPC became the historical financial statements of
GPHC. The accompanying Consolidated Statements of Operations and
Cash Flows for the year ended December 31, 2008 includes
nine months and approximately three weeks of Altivity and twelve
months of GPC’s results. See Note 4 —
Altivity Transaction.
On March 5, 2008, the United States Department of Justice
issued a Consent Decree that required the divesture of two mills
as a condition of the Altivity Transaction. On July 8,
2008, GPII signed an agreement with an affiliate of Sun Capital
Partners, Inc. to sell two coated-recycled boxboard mills as
required by the Consent Decree. The sale of the mills was
completed on September 17, 2008. The mills that were sold
are located in Philadelphia, Pennsylvania and in Wabash, Indiana.
GPHC and GPC conduct no significant business and have no
independent assets or operations other than GPHC’s
ownership of all of GPC’s outstanding common stock, and
GPC’s ownership of all of GPII’s outstanding common
stock.
Basis
of Presentation and Principles of Consolidation
The Company’s Consolidated Financial Statements include all
subsidiaries in which the Company has the ability to exercise
direct or indirect control over operating and financial
policies. The accompanying Consolidated Financial Statements
include the worldwide operations of the paperboard packaging
segment which includes the paperboard packaging, packaging
machinery, and containerboard businesses; the multi-wall bag
segment which converts kraft and specialty paper into multi-wall
bags, consumer bags and specialty retail bags; and the specialty
packaging business segment which produces flexible packaging,
label solutions, and laminations. Intercompany transactions and
balances are eliminated in consolidation.
43
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GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has reclassified the presentation of certain prior
period information to conform to the current presentation
format. This includes the reclassification of certain amounts
within Cost of Sales; Selling, General and Administrative; and
Other (Income) Expense, Net to Restructuring and Other Special
(Credits) Charges. These reclassifications had no impact on the
Consolidated Balance Sheets, operating income, Consolidated
Statements of Shareholders’ Equity or Consolidated
Statements of Cash Flows and had an immaterial impact on certain
captions on the Consolidated Statements of Operations.
The results of operations for Graphic Packaging International
Sweden, the Company’s discontinued operations, have been
eliminated from the Company’s continuing operations and
classified as discontinued operations for each period presented
within the Company’s Consolidated Statements of Operations.
See Note 14 — Discontinued Operations.
The Company holds a 50% ownership interest in a joint venture
with Rengo Riverwood Packaging, Ltd. (in Japan) which is
accounted for using the equity method.
We have evaluated subsequent events for disclosure through
February 23, 2010, the date of issuance of the
Company’s financial statements.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(“U.S.”) requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of net sales and expenses during the reporting
periods. Actual results could differ from these estimates, and
changes in these estimates are recorded when known. Estimates
are used in accounting for, among other things, pension
benefits, retained insurable risks, slow-moving and obsolete
inventory, allowance for doubtful accounts, useful lives for
depreciation and amortization, future cash flows, discount rates
and earnings before interest, taxes, depreciation and
amortization (“EBITDA”) multiples associated with
impairment testing of goodwill and long-term assets, fair value
of derivative financial instruments, deferred income tax assets
and potential income tax assessments, and contingencies.
Revenue
Recognition
The Company receives revenue from the sales of manufactured
products. The Company recognizes sales revenue when all of the
following criteria are met: persuasive evidence of an agreement
exists, delivery has occurred or services have been rendered,
the Company’s price to the buyer is fixed and determinable
and collectability is reasonably assured. Delivery is not
considered to have occurred until the customer takes title and
assumes the risks and rewards of ownership. The timing of
revenue recognition is largely dependent on shipping terms.
Revenue is recorded at the time of shipment for terms designated
as free on board (“f.o.b.”) shipping point. For sales
transactions designated f.o.b. destination, revenue is recorded
when title to the product passes upon delivery to the customer.
The Company recognizes revenues on its annual and multi-year
carton supply contracts as the shipment occurs in accordance
with the shipping terms discussed above.
Discounts and allowances are comprised of trade allowances and
rebates, cash discounts and sales returns. Cash discounts and
sales returns are estimated using historical experience. Trade
allowances are based on the estimated obligations and historical
experience. Customer rebates are determined based on the
quantity purchased and are recorded at the time of sale.
Shipping
and Handling
The Company includes shipping and handling costs in Cost of
Sales.
44
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GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Depreciation
and Amortization, and Impairment
Depreciation is computed using the straight-line method based on
the following estimated useful lives of the related assets:
|
Buildings
|
40 years | |||
|
Land improvements
|
15 years | |||
|
Machinery and equipment
|
3 to 40 years | |||
|
Furniture and fixtures
|
10 years | |||
|
Automobiles, trucks and tractors
|
3 to 5 years | |||
Depreciation expense for 2009, 2008 and 2007 was
$256.9 million, $222.8 million and
$177.8 million, respectively.
The Company assesses its long-lived assets, including certain
identifiable intangibles, for impairment whenever events or
circumstances indicate that the carrying value of an asset may
not be recoverable. To analyze recoverability, the Company
projects future cash flows, undiscounted and before interest,
over the remaining life of such assets. If these projected cash
flows are less than the carrying amount, an impairment would be
recognized, resulting in a write-down of assets with a
corresponding charge to earnings. The impairment loss is
measured based upon the difference between the carrying amount
and the fair value of the assets. The Company assesses the
appropriateness of the useful life of its long-lived assets
periodically. See Note 13 — Impairment.
Intangible assets (liabilities) with a determinable life are
amortized on a straight-line basis over that period. The
amortization expense for each intangible asset (liability) is
recorded in the Consolidated Statements of Operations according
to the nature of that asset (liability).
Goodwill is the Company’s only intangible asset not subject
to amortization at December 31, 2009 and 2008. The
following table displays the intangible assets (liabilities)
that continue to be subject to amortization and aggregate
amortization expense as of December 31, 2009 and 2008:
| December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||
|
Gross
|
Gross
|
|||||||||||||||||||||||||||
|
Carrying
|
Accumulated
|
Net Carrying
|
Carrying
|
Accumulated
|
Net Carrying
|
|||||||||||||||||||||||
| In millions | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
|
Amortizable Intangible Assets (Liabilities):
|
||||||||||||||||||||||||||||
|
Customer Relationships
|
$ | 656.3 | $ | 91.5 | $ | 564.8 | $ | 656.3 | $ | 54.1 | $ | 602.2 | ||||||||||||||||
|
Non-Compete Agreements
|
31.5 | 28.2 | 3.3 | 31.5 | 25.8 | 5.7 | ||||||||||||||||||||||
|
Patents, Trademarks and Licenses
|
124.2 | 71.6 | 52.6 | 119.8 | 62.6 | 57.2 | ||||||||||||||||||||||
|
Supply Contracts and Leases
|
(2.1 | ) | (1.4 | ) | (0.7 | ) | (1.0 | ) | (0.5 | ) | (0.5 | ) | ||||||||||||||||
|
Total
|
$ | 809.9 | $ | 189.9 | $ | 620.0 | $ | 806.6 | $ | 142.0 | $ | 664.6 | ||||||||||||||||
The Company recorded amortization expense for the years ended
December 31, 2009, 2008 and 2007 of $48.5 million,
$41.5 million and $11.8 million, respectively,
relating to intangible assets (liabilities) subject to
amortization. The Company expects amortization expense to be
approximately $49 million, $47 million,
$44 million, $43 million and $43 million per year
for 2010, 2011, 2012, 2013 and 2014, respectively.
Research
and Development
Research and development costs, which relate primarily to the
development and design of new packaging machines and products,
are expensed as incurred. Expenses for the years ended
December 31, 2009, 2008 and 2007 were $7.2 million,
$8.0 million and $9.2 million, respectively.
45
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GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Cash
and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of
deposit and other marketable securities with original maturities
of three months or less.
Accounts
Receivable and Allowances
Accounts receivable are stated at the amount owed by the
customer, net of an allowance for estimated uncollectible
accounts, returns and allowances, and cash discounts. The
allowance for doubtful accounts is estimated based on historical
experience, current economic conditions and the credit
worthiness of customers. Receivables are charged to the
allowance when determined to be no longer collectible.
Inventories
Inventories are stated at the lower of cost or market with cost
determined principally by the
first-in,
first-out (“FIFO”) basis. Average cost basis is used
to determine the cost of supplies inventories. Raw materials and
consumables used in the production process such as wood chips
and chemicals are valued at purchase cost on a FIFO basis upon
receipt. Work in progress and finished goods inventories are
valued at the cost of raw material consumed plus direct
manufacturing costs (such as labor, utilities and supplies) as
incurred and an applicable portion of manufacturing overhead.
Inventories are stated net of an allowance for slow-moving and
obsolete inventory.
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost. Betterments,
renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance charges are
expensed as incurred. The Company’s cost and related
accumulated depreciation applicable to assets retired or sold
are removed from the accounts and the gain or loss on
disposition is included in income from operations.
Interest is capitalized on assets under construction for one
year or longer with an estimated spending of $1.0 million
or more. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset’s
estimated useful life. Capitalized interest was
$2.4 million, $1.8 million and $0.4 million in
the years ended December 31, 2009, 2008 and 2007,
respectively.
Alternative
Fuel Tax Credit
Throughout 2009, the Company burned alternative fuel mixtures at
its West Monroe, LA and Macon, GA mills in order to produce
energy and recover chemicals. The U.S. Internal Revenue
Code allows an excise tax credit under certain circumstances for
the use of alternative fuels and alternative fuel mixtures. In
the first quarter 2009, the Company filed an application with
the Internal Revenue Service (the “IRS”) for
certification of eligibility to receive the tax credit for its
use of black liquor in alternative fuel mixtures in the recovery
boilers at the mills. During the second quarter 2009, the
Company received notification from the IRS that its registration
as an alternate fuel mixer had been approved. The Company has
submitted refund claims totaling $147.2 million based on
fuel usage at the two mills from mid-January 2009 through
December 31, 2009. The Company received refunds totaling
$134.8 million through the end of the year. The net impact
of the tax credit is included in Restructuring and Other Special
(Credits) Charges in the amount of $137.8 million for the
year ended December 31, 2009 and is included in corporate
for segment reporting purposes. The excise tax credit expired on
December 31, 2009.
46
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Goodwill
The Company tests goodwill for impairment annually as of
October 1, as well as whenever events or changes in
circumstances suggest that the estimated fair value of a
reporting unit may no longer exceed its carrying amount.
Recoverability of goodwill is measured at the reporting unit
level by comparing the reporting unit’s carrying amount
including goodwill, to the fair value of the reporting unit. The
estimated fair value of each reporting unit is determined by
utilizing a discounted cash flow analysis based on the
Company’s forecasts discounted using a weighted average
cost of capital and market indicators of terminal year cash
flows based upon a multiple of EBITDA. If the carrying amount of
a reporting unit exceeds its estimated fair value, goodwill is
considered potentially impaired. In determining fair value,
management relies on and considers a number of factors,
including but not limited to, operating results, business plans,
economic projections, forecasts including anticipated future
cash flows, and market data and analysis, including market
capitalization. Fair value determinations are sensitive to
changes in the factors described above. There are inherent
uncertainties related to these factors and judgments in applying
them to the analysis of goodwill recoverability.
The following is a rollforward of goodwill by business segment
as of December 31, 2009:
|
Paperboard
|
Multi-wall
|
Specialty
|
||||||||||||||
| In millions | Packaging | Bag | Packaging | Total | ||||||||||||
|
Balance at December 31, 2007
|
$ | 641.5 | $ | — | $ | — | $ | 641.5 | ||||||||
|
Altivity Purchase Accounting
|
408.8 | 61.9 | 92.6 | 563.3 | ||||||||||||
|
Balance at December 31, 2008
|
$ | 1,050.3 | $ | 61.9 | $ | 92.6 | $ | 1,204.8 | ||||||||
|
Altivity Purchase Accounting Finalization
|
(4.4 | ) | — | 4.8 | 0.4 | |||||||||||
|
Divesture of Businesses
|
— | (1.5 | ) | (0.4 | ) | (1.9 | ) | |||||||||
|
Foreign Currency Effects
|
— | — | 1.3 | 1.3 | ||||||||||||
|
Balance at December 31, 2009
|
$ | 1,045.9 | $ | 60.4 | $ | 98.3 | $ | 1,204.6 | ||||||||
Retained
Insurable Risks
It is the Company’s policy to self-insure or fund a portion
of certain expected losses related to group health benefits and
workers’ compensation claims. Provisions for expected
losses are recorded based on the Company’s estimates, on an
undiscounted basis, of the aggregate liabilities for known
claims and estimated claims incurred but not reported.
Asset
Retirement Obligations
Asset retirement obligations are accounted for in accordance
with the provisions of the
Asset Retirement and Environmental
Obligations
topic of FASB Accounting Standards
Codification
tm
(“the FASB Codification”). A liability and asset are
recorded equal to the present value of the estimated costs
associated with the retirement of long-lived assets where a
legal or contractual obligation exists and the liability can be
reasonably estimated. The liability is accreted over time and
the asset is depreciated over the remaining life of the asset.
Asset retirement obligations with indeterminate settlement dates
are not recorded.
International
Currency
The functional currency of the international subsidiaries is the
local currency for the country in which the subsidiaries own
their primary assets. The translation of the applicable
currencies into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance
sheet date and for
47
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
revenue and expense accounts using a weighted average exchange
rate during the period. Any related translation adjustments are
recorded directly to a separate component of Shareholders’
Equity, unless there is a sale or complete liquidation of the
underlying foreign investments.
The Company pursues a currency hedging program which utilizes
derivatives to limit the impact of foreign currency exchange
fluctuations on its consolidated financial results. Under this
program, the Company has entered into forward exchange contracts
in the normal course of business to hedge certain foreign
currency denominated transactions. Realized and unrealized gains
and losses on these forward contracts are included in the
measurement of the basis of the related foreign currency
transaction when recorded.
Adoption
of New Accounting Standards
Effective for the fourth quarter of 2009, the Company adopted
new guidance as required by the
Fair Value Measurements and
Disclosures
topic of the FASB Codification in regards to
measuring liabilities at fair value. The guidance clarifies that
in circumstances in which a quoted price in an active market for
the identical liability is not available, the fair value of the
liability must be measured using the quoted price of the
identical liability when traded as an asset, the quoted prices
for similar liabilities or similar liabilities when traded as
assets, or another valuation technique, such as a present value
technique, that is consistent with the principles of the
Fair
Value Measurements and Disclosures
topic of the FASB
Codification. The guidance also clarifies that no valuation
adjustments are necessary regarding the existence of a
restriction that prevents the transfer of the liability. The
adoption did not have an impact on the Company’s financial
position, results of operations or cash flows.
Effective for the year ended December 31, 2009, the Company
implemented the additional disclosures regarding plan assets of
defined benefit pension or other postretirement plans. The
additional disclosures required by the
Compensation — Retirement Benefits
topic of the
FASB Codification include a description of investment policies
and strategies, the fair value of each major category of plan
assets, the inputs and valuation techniques used to measure the
fair value of plan assets, the effect of fair value measurements
using significant unobservable inputs on changes in plan assets,
and the significant concentrations of risk within plan assets.
See Note 8 — Postretirement and Other Benefits.
Effective July 1, 2009, the Company adopted the
Generally Accepted Accounting Principles
topic of the
FASB Codification. This accounting standard establishes the FASB
Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial
statements in conformity with U.S. generally accepted
accounting principles (“U.S. GAAP”). Rules and
interpretive releases of the Securities and Exchange Commission
(“SEC”) under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC
registrants. The FASB Codification was developed to organize
U.S. GAAP pronouncements by topic so that users can more
easily access authoritative accounting guidance. All guidance
contained in the FASB Codification carries an equal level of
authority. The FASB Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered,
non-SEC accounting literature not included in the FASB
Codification is non-authoritative. References made to FASB
guidance throughout this document have been updated, where
applicable, for the FASB Codification. The exception to such
referencing is with certain grandfathered accounting standards
which continue to be referenced by the Company as such standards
remain authoritative for past transactions that have an ongoing
effect in the Company’s financial statements.
Effective in the second quarter of 2009, the Company adopted new
guidance as required by the
Subsequent Events
topic of
the FASB Codification. This guidance established general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before the financial statements
are issued or are available to be issued. The Company is
required to disclose the date through which it has evaluated
subsequent events and the basis for that date, that is, whether
that date represents the date the financial statements were
issued or were available to be issued. The adoption did not have
an impact on the
48
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company’s financial position, results of operations or cash
flows. See Note 1 — Basis of Presentation and
Principles of Consolidation.
Effective in the second quarter of 2009, the Company implemented
new disclosures as required by the
Financial Instruments
topic of the FASB Codification. Under the new guidance, fair
value disclosures are required on a quarterly basis for any
financial instruments that are not currently reflected on the
balance sheet at fair value. Previous guidance required only
annual disclosure of the fair value of these assets and
liabilities.
Effective in the first quarter of 2009, the Company implemented
new disclosure enhancements as required by the
Derivatives
and Hedging
topic of the FASB Codification. The requirements
include the disclosure of the fair values of derivative
instruments and their gains and losses in a tabular format. See
Note 11 — Fair Value Measurement.
Effective January 1, 2009, the Company adopted amended
guidance as required by the
Consolidation
topic of the
FASB Codification. The new guidance concerns certain
consolidation procedures and establishes accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. The
adoption did not have a material impact on the Company’s
financial position, results of operations or cash flows.
Revised guidance as required by the
Business Combinations
topic of the FASB Codification was effective for the Company
January 1, 2009. The amended guidance establishes
principles and requirements for how the acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain
purchase; and determines what information to disclose to enable
users of the financial statements to evaluate the nature and
financial effects of the business combination. Additional
guidance addresses application issues raised by preparers,
auditors, and members of the legal profession on initial
recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. The Company will
assess the impact of adoption when a business combination arises.
Revised guidance as required by the
Intangibles —
Goodwill and Other
topic of the FASB Codification was
adopted by the Company January 1, 2009. The guidance amends
the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset other than goodwill. This amendment
was issued to improve the consistency between the useful life of
a recognized intangible asset other than goodwill under the
Intangibles — Goodwill and Other
topic of the
FASB Codification and the period of expected cash flows used to
measure the fair value of the asset under the
Business
Combinations
topic of the FASB Codification and other
U.S. GAAP. The adoption did not have a material impact on
the Company’s financial position, results of operations or
cash flows.
Effective January 1, 2009, the Company adopted the fair
value guidance integrated into the
Fair Value Measurements
and Disclosures
topic of the FASB Codification in regards to
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The
FASB’s guidance establishes a common definition for fair
value to be applied to U.S. GAAP requiring use of fair
value, establishes a framework for measuring fair value and
expands disclosures about such fair value measurements. The
adoption did not have a material impact on the Company’s
financial position, results of operations or cash flows. See
Note 11 — Fair Value Measurement.
Accounting
Standards Not Yet Adopted
In December 2009, the FASB issued guidance amending the
Consolidation
topic of the FASB Codification in order to
clarify the accounting and reporting for decreases in ownership
of a subsidiary. This scope clarification will be effective for
the Company in the first quarter of 2010, and is not expected to
have a material impact on the Company’s financial position,
results of operations or cash flows.
49
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In January 2010, the FASB issued guidance to improve the
disclosure requirements related to the
Fair Value
Measurements and Disclosures
topic of the FASB Codification.
The guidance requires entities to disclose separately the
amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons
for the transfers. In addition, entities are required to present
separately information about purchases, sales, issuances, and
settlements for fair value measurements using significant
unobservable inputs (Level 3). The disclosures related to
Level 1 and Level 2 fair value measurements are
effective for the Company in 2010 and the disclosures related to
Level 3 fair value measurements are effective for the
Company in 2011. The guidance requires new disclosures only, and
will have no impact on the Company’s consolidated financial
position, results of operation, or cash flows.
| NOTE 2 — | SUPPLEMENTAL BALANCE SHEET DATA |
Receivables, Net:
| In millions | 2009 | 2008 | ||||||
|
Trade
|
$ | 356.5 | $ | 358.3 | ||||
|
Less: Allowance
|
(4.6 | ) | (3.9 | ) | ||||
| 351.9 | 354.4 | |||||||
|
Other
|
30.4 | 15.2 | ||||||
|
Total
|
$ | 382.3 | $ | 369.6 | ||||
Inventories by Major Class:
| In millions | 2009 | 2008 | ||||||
|
Finished Goods
|
$ | 251.9 | $ | 301.3 | ||||
|
Work in Progress
|
40.3 | 46.0 | ||||||
|
Raw Materials
|
105.2 | 116.5 | ||||||
|
Supplies
|
63.6 | 77.9 | ||||||
| 461.0 | 541.7 | |||||||
|
Less: Allowance
|
(24.5 | ) | (9.7 | ) | ||||
|
Total
|
$ | 436.5 | $ | 532.0 | ||||
Property, Plant and Equipment, Net:
| In millions | 2009 | 2008 | ||||||
|
Property, Plant and Equipment, at Cost
|
||||||||
|
Land and Improvements
|
$ | 134.3 | $ | 136.2 | ||||
|
Buildings
|
357.3 | 344.4 | ||||||
|
Machinery and Equipment
|
3,106.7 | 3,011.3 | ||||||
|
Construction-in-Progress
|
62.6 | 110.6 | ||||||
| 3,660.9 | 3,602.5 | |||||||
|
Less: Accumulated Depreciation
|
(1,863.5 | ) | (1,667.4 | ) | ||||
|
Total
|
$ | 1,797.4 | $ | 1,935.1 | ||||
50
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Other Assets:
| In millions | 2009 | 2008 | ||||||
|
Deferred Debt Issuance Costs, Net of Amortization of
$20.9 million and $19.5 million for 2009 and 2008,
respectively
|
$ | 34.4 | $ | 34.0 | ||||
|
Deferred Income Tax Assets
|
9.4 | 0.4 | ||||||
|
Prepaid Benefit Cost
|
2.2 | — | ||||||
|
Other
|
12.5 | 15.6 | ||||||
|
Total
|
$ | 58.5 | $ | 50.0 | ||||
Other Accrued Liabilities:
| In millions | 2009 | 2008 | ||||||
|
Fair Value of Derivatives
|
$ | 36.1 | $ | 84.3 | ||||
|
Restructuring Reserves
|
7.6 | 19.1 | ||||||
|
Other
|
83.9 | 85.2 | ||||||
|
Total
|
$ | 127.6 | $ | 188.6 | ||||
| NOTE 3 — | SUPPLEMENTAL CASH FLOW INFORMATION |
Cash Flow (Used in) Provided by Operations Due to Changes in
Operating Assets and Liabilities:
| In millions | 2009 | 2008 | 2007 | |||||||||
|
Receivables, Net
|
$ | (6.5 | ) | $ | 16.5 | $ | (4.4 | ) | ||||
|
Inventories
|
91.0 | 32.6 | (27.0 | ) | ||||||||
|
Prepaid Expenses
|
8.8 | (13.7 | ) | (11.5 | ) | |||||||
|
Accounts Payable
|
19.4 | (21.4 | ) | 16.1 | ||||||||
|
Compensation and Employee Benefits
|
12.4 | (27.8 | ) | 6.6 | ||||||||
|
Income Taxes
|
0.1 | (4.8 | ) | (0.4 | ) | |||||||
|
Interest Payable
|
(15.1 | ) | 16.5 | (7.3 | ) | |||||||
|
Other Accrued Liabilities
|
(17.3 | ) | (17.1 | ) | (14.0 | ) | ||||||
|
Other Noncurrent Liabilities
|
5.3 | 0.2 | 6.0 | |||||||||
|
Total
|
$ | 98.1 | $ | (19.0 | ) | $ | (35.9 | ) | ||||
Cash paid for interest and cash paid, net of refunds, for income
taxes was as follows:
| In millions | 2009 | 2008 | 2007 | |||||||||
|
Interest
|
$ | 219.5 | $ | 193.4 | $ | 168.3 | ||||||
|
Income Taxes
|
7.7 | 5.0 | 2.9 | |||||||||
Significant noncash activities were as follows:
| In millions | 2009 | 2008 | 2007 | |||||||||
|
Issuance of Common Stock Related to Acquisition
|
$ | — | $ | 762.8 | $ | — | ||||||
51
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| NOTE 4 — | ALTIVITY TRANSACTION |
On March 10, 2008, the businesses of GPC and Altivity were
combined in a transaction accounted for under SFAS 141.
Altivity was the largest privately-held producer of folding
cartons and a market leader in all of its major businesses,
including coated-recycled boxboard, multi-wall bag and specialty
packaging. Altivity operated recycled boxboard mills and
consumer product packaging facilities in North America.
The Company determined that the relative outstanding share
ownership, voting rights, and the composition of the governing
body and senior management positions required GPC to be the
acquiring entity for accounting purposes, resulting in the
historical financial statements of GPC becoming the historical
financial statements of the Company. Under the purchase method
of accounting, the assets and liabilities of Altivity were
recorded, as of the date of the closing of the Altivity
Transaction, at their respective fair values and added to those
of GPII. The purchase price for the acquisition was based on the
average closing price of the Company’s common stock on the
NYSE for two days prior to, including, and two days subsequent
to the public announcement of the transaction of $5.47 per share
and capitalized transaction costs. The purchase price has been
allocated to the assets acquired and liabilities assumed based
on the estimated fair values at the date of the Altivity
Transaction. The final purchase price allocation is as follows:
| In millions | ||||
|
Purchase Price
|
$ | 762.8 | ||
|
Acquisition Costs
|
30.3 | |||
|
Assumed Debt
|
1,167.6 | |||
|
Total Purchase Consideration
|
$ | 1,960.7 | ||
| In millions | ||||
|
Cash and Cash Equivalents
|
$ | 60.2 | ||
|
Receivables, Net
|
181.2 | |||
|
Inventories
|
265.0 | |||
|
Prepaids
|
13.1 | |||
|
Property, Plant and Equipment
|
636.7 | |||
|
Intangible Assets
|
561.1 | |||
|
Other Assets
|
4.5 | |||
|
Total Assets Acquired
|
1,721.8 | |||
|
Current Liabilities, Excluding Current Portion of Long-Term Debt
|
253.7 | |||
|
Pension and Postemployment Benefits
|
35.3 | |||
|
Other Noncurrent Liabilities
|
35.8 | |||
|
Total Liabilities Assumed
|
324.8 | |||
|
Net Assets Acquired
|
1,397.0 | |||
|
Goodwill
|
563.7 | |||
|
Total Estimated Fair Value of Net Assets Acquired
|
$ | 1,960.7 | ||
52
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has finalized plans to close certain facilities of
the acquired company and has established restructuring reserves
that are considered liabilities assumed in the Altivity
Transaction. See Note 5 — Restructuring Reserves.
The excess of the total purchase consideration over the
aggregate fair value of identifiable net assets acquired was
allocated to goodwill. Management believes that the portion of
the total purchase consideration attributable to goodwill
represents benefits expected as a result of the acquisition,
including 1) significant cost-reduction opportunities and
synergies by combining sales and support functions and
eliminating duplicate corporate functions,
2) diversification of the Company’s product line and
new opportunities for top-line growth, which will allow the
Company to compete effectively in the global packaging market,
and 3) expansion of the Company’s manufacturing system
to include expanded folding carton converting operations,
multi-wall bag facilities, flexible packaging facilities, ink
manufacturing facilities and label facilities.
The following table shows the final allocation of goodwill by
segment:
|
Paperboard
|
Multi-wall
|
Specialty
|
||||||||||||||
| In millions | Packaging | Bag | Packaging | Total | ||||||||||||
|
Goodwill
|
$ | 404.4 | $ | 61.9 | $ | 97.4 | $ | 563.7 | ||||||||
The Company expects to deduct approximately $430 million of
goodwill for tax purposes.
The following table summarizes acquired intangibles other than
goodwill:
| In millions | ||||
|
Customer Relationships
|
$ | 546.4 | ||
|
Non-Compete Agreements
|
8.2 | |||
|
Trademarks and Patents
|
7.5 | |||
|
Leases and Supply Contracts
|
(1.0 | ) | ||
|
Total Estimated Fair Value of Intangible Assets
|
$ | 561.1 | ||
The fair value of intangible assets is being amortized on a
straight-line basis over the remaining useful life, estimated at
the date of the Altivity Transaction, of 17 years for
customer relationships and four years for trademarks and
patents, and over the remaining contractual period for the
non-compete, lease and supply contracts. Amortization expense is
estimated to be approximately $34 million for each of the
next five years.
The following unaudited pro forma consolidated results of
operations assume that the acquisition of Altivity occurred as
of the beginning of the periods presented and excludes the 2008
and 2007 results for the two coated-recycled board mills
divested in September 2008. This pro forma data is based on
historical information and does not necessarily reflect the
actual results that would have occurred, nor is it indicative of
future results of operations.
| Year Ended December 31, | ||||||||
| In millions | 2008 | 2007 | ||||||
|
Net Sales
|
$ | 4,415.0 | $ | 4,323.3 | ||||
|
Net Loss
|
(66.6 | ) | (71.0 | ) | ||||
|
Loss Per Share — Basic and Diluted
|
(0.19 | ) | (0.21 | ) | ||||
| NOTE 5 — | RESTRUCTURING RESERVES |
In conjunction with the Altivity Transaction, the Company
formulated plans to close or exit certain production facilities
of Altivity. Restructuring reserves were established for
employee severance and benefit
53
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
payments, facility closure costs and equipment removal. These
restructuring reserves were established in accordance with the
requirements of Emerging Issues Task Force (“EITF”)
95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination,
and were considered liabilities
assumed in the Altivity Transaction. The Company has announced
the closure of nine Altivity facilities, all within the
Company’s paperboard packaging segment. The restructuring
activities are expected to be substantially completed by
December 31, 2010.
In addition, as of December 31, 2009, the Company has
closed a GPC facility within the Company’s paperboard
packaging segment and a bag facility within the Company’s
multi-wall bag segment. Termination benefits and retention
bonuses related to workforce reduction were accrued in
accordance with the requirements of the
Exit or Disposal Cost
Obligations
topic of the FASB Codification.
The amount of termination benefits recorded in 2009 and 2008
totaled $4.1 million and $1.6 million, respectively.
These termination benefits are included in Restructuring and
Other Special (Credits) Charges in the Consolidated Statements
of Operations. The portion of the restructuring reserves
expected to be settled within one year is included in Other
Accrued Liabilities on the Company’s Consolidated Balance
Sheets. The long-term portion of these reserves is included in
Other Noncurrent Liabilities on the Company’s Consolidated
Balance Sheets.
The following table summarizes the transactions within the
restructuring reserves:
|
Severance
|
Facility
|
Equipment
|
||||||||||||||
| In millions | and Benefits | Closure Costs | Removal | Total | ||||||||||||
|
Establish Reserve
|
$ | 7.0 | $ | 8.5 | $ | 1.8 | $ | 17.3 | ||||||||
|
Additions to Reserves
|
13.4 | 2.3 | 0.8 | 16.5 | ||||||||||||
|
Cash Payments
|
(6.1 | ) | (0.7 | ) | (0.5 | ) | (7.3 | ) | ||||||||
|
Other Adjustments
|
(0.4 | ) | (0.3 | ) | (0.1 | ) | (0.8 | ) | ||||||||
|
Balance at December 31, 2008
|
$ | 13.9 | $ | 9.8 | $ | 2.0 | $ | 25.7 | ||||||||
|
Additions to Reserves
|
6.4 | 0.9 | 0.3 | 7.6 | ||||||||||||
|
Cash Payments
|
(11.8 | ) | (2.2 | ) | (0.3 | ) | (14.3 | ) | ||||||||
|
Other Adjustments
|
(5.0 | ) | (5.0 | ) | (1.4 | ) | (11.4 | ) | ||||||||
|
Balance at December 31, 2009
|
$ | 3.5 | $ | 3.5 | $ | 0.6 | $ | 7.6 | ||||||||
Accelerated or incremental depreciation was recorded for assets
that will be removed from service before the end of their
originally estimated useful lives due to the facility closures.
The amount of accelerated depreciation recorded in 2009 and 2008
was $9.1 million and $5.4 million respectively.
| NOTE 6 — | DEBT |
Short-Term Debt is composed of the following:
| In millions | 2009 | 2008 | ||||||
|
Short-Term Borrowings
|
$ | 7.6 | $ | 7.2 | ||||
|
Current Portion of Long-Term Debt
|
10.0 | 11.4 | ||||||
|
Total
|
$ | 17.6 | $ | 18.6 | ||||
Short-term borrowings are principally at the Company’s
international subsidiaries. The weighted average interest rate
on short-term borrowings as of December 31, 2009 and 2008
was 2.9% and 3.7%, respectively.
54
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On May 16, 2007, the Company entered into a
$1,355 million Credit Agreement (“Credit
Agreement”). The Credit Agreement provided for a
$300 million revolving credit facility due on May 16,
2013 and a $1,055 million term loan facility due on
May 16, 2014. The revolving credit facility bears interest
at a rate of LIBOR plus 225 basis points and the term loan
facility bears interest at a rate of LIBOR plus 200 basis
points. The Company’s obligations under the Credit
Agreement are collateralized by substantially all of the
Company’s domestic assets.
On March 10, 2008, the Company entered into Amendment
No. 1 and Amendment No. 2 to the Credit Agreement.
Under such amendments, the Company obtained (i) a new
$1,200 million term loan facility, due on May 16,
2014, to refinance the outstanding amounts under Altivity’s
parent company’s existing first and second lien credit
facilities and (ii) an increase to the Company’s
existing revolving credit facility to $400 million due on
May 16, 2013. The Company’s existing
$1,055 million term loan facility remains in place. The new
term loan bears interest at LIBOR plus 275 basis points.
The Company’s weighted average interest rate on senior
secured term debt equals approximately LIBOR plus
237.5 basis points. In connection with the new term loan
and revolver increase, the Company recorded approximately
$16 million of deferred financing costs.
The Credit Agreement replaced the Company’s previous
revolving credit and term loan facilities and, in 2007 in
accordance with the
Debt
topic of the FASB Codification,
the Company recorded a charge of $9.5 million, which
represented a portion of the unamortized deferred financing
costs associated with the previous revolving credit and term
loan facilities. This charge is reflected as Loss on Early
Extinguishment of Debt in the Company’s Consolidated
Statements of Operations. In connection with the Credit
Agreement, the Company recorded approximately $7 million of
deferred financing costs. These costs, combined with the
remainder of the deferred financing costs relating to the
previous senior secured credit agreement, are being amortized
over the term of the facilities.
On December 3, 2009, the Company entered into Amendment
No. 3 to the Credit Agreement. In satisfaction of a
condition precedent to the effectiveness of Amendment
No. 3, the Company made a $150.0 million voluntary
prepayment of the outstanding term loans under the Credit
Agreement (the “Initial Term Loan Prepayment”).
Amendment No. 3 increases the basket under which the
Company may voluntarily redeem or repurchase prior to maturity
its 9.5% Senior Subordinated Notes due 2013 from time to
time outstanding by an amount equal to $37.5 million plus
75.0% of the aggregate principal amount of prepayments of the
term loans under the Company’s Credit Agreement made after
the effective date of Amendment No. 3 (excluding the
Initial Term Loan Prepayment). As a condition precedent to any
future redemption or repurchase of the notes prior to their
maturity, Amendment No. 3 requires that the Company have
available liquidity (defined as cash and cash equivalents on
hand plus availability under the Company’s senior secured
revolver) of at least $250.0 million. In connection with
Amendment No. 3, the Company recorded deferred financing
costs of approximately $1 million. These costs are being
amortized using the effective interest method over the term of
the facilities.
On June 16, 2009, the Company completed the issuance and
sale of $245 million aggregate principal amount of its
9.5% Senior Notes due in 2017. The proceeds from the
offering were $238.4 million after deducting the original
issue discount. The proceeds were used to retire, through a
tender offer, $225 million aggregate principal amount of
the 8.5% Senior Notes due in 2011 and to pay applicable
early tender premiums and offering expenses.
On August 5, 2009, the Company announced that it would
redeem and prepay approximately $20 million in aggregate
principal and interest of the 8.5% Senior Notes due in
2011. The Credit Agreement contains, among other exceptions to
the restrictions on prepayment of the Senior Notes, a
$20 million basket for such redemptions. The redemption
occurred on September 4, 2009 (the
“Redemption Date”), at a redemption price equal
to 100% of the principal amount of the notes redeemed, plus
accrued and unpaid interest up to, but not
55
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
including the Redemption Date. In total, $19.9 million
aggregate principal amount of the 8.5% Senior Notes due in
2011 was redeemed on September 4, 2009.
On August 20, 2009, the Company completed the issuance and
sale of an additional $180 million of 9.5% Senior
Notes due in 2017. The proceeds from the offering were
$185.4 million, including a premium of $5.4 million.
These proceeds were used to redeem the remaining
$180.1 million aggregate principal amount of the
8.5% Senior Notes due in 2011, to pay accrued interest on
these existing notes, and to pay fees and expenses incurred in
connection with the offering and redemption.
In connection with the above retirements, the Company recorded
charges of $7.1 million. The charges are reflected as Loss
on Early Extinguishment of Debt in the Company’s
Consolidated Statements of Operations, and consist of
unamortized deferred financing costs and, in regards to the June
retirement, the early tender premiums associated with the
8.5% Senior Notes due in 2011. In connection with the
9.5% Senior Notes due in 2017, the Company recorded
deferred financing costs of approximately $10 million.
These costs are being amortized using the effective interest
method over the term of the 9.5% Senior Notes due in 2017.
Long-Term Debt is composed of the following:
| In millions | 2009 | 2008 | ||||||
|
Senior Notes with interest payable semi-annually at 8.5%,
payable in 2011
|
$ | — | $ | 425.0 | ||||
|
Senior Notes with interest payable semi-annually at 9.5%,
payable in 2017 ($425.0 million face amount)
|
423.7 | — | ||||||
|
Senior Subordinated Notes with interest payable semi-annually at
9.5%, payable in 2013
|
425.0 | 425.0 | ||||||
|
Senior Secured Term Loan Facility with interest payable at
various dates at floating rates (2.28% at December 31,
2009) payable through 2014
|
890.7 | 1,000.3 | ||||||
|
Senior Secured Term Loan Facility with interest payable at
various dates at floating rates (3.04% at December 31,
2009) payable through 2014
|
1,052.4 | 1,182.3 | ||||||
|
Senior Secured Revolving Facility with interest payable at
various dates at floating rates (2.48% at December 31,
2009) payable in 2013
|
— | 143.2 | ||||||
|
Other
|
0.8 | 0.8 | ||||||
| 2,792.6 | 3,176.6 | |||||||
|
Less, current portion
|
10.0 | 11.4 | ||||||
|
Total
|
$ | 2,782.6 | $ | 3,165.2 | ||||
Long-Term Debt maturities are as follows:
| In millions | ||||
|
2010
|
$ | 10.0 | ||
|
2011
|
20.0 | |||
|
2012
|
20.8 | |||
|
2013
|
445.0 | |||
|
2014
|
1,873.1 | |||
|
After 2014
|
423.7 | |||
|
Total
|
$ | 2,792.6 | ||
56
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At December 31, 2009, the Company and its U.S. and
international subsidiaries had the following commitments,
amounts outstanding and amounts available under revolving credit
facilities:
|
Total
|
Total
|
Total
|
||||||||||
| In millions | Commitments | Outstanding | Available (a) | |||||||||
|
Revolving Credit Facility
|
$ | 400.0 | $ | — | $ | 363.0 | ||||||
|
International Facilities
|
17.6 | 7.6 | 10.0 | |||||||||
|
Total
|
$ | 417.6 | $ | 7.6 | $ | 373.0 | ||||||
Note:
| (a) | In accordance with its debt agreements, the Company’s availability under its Revolving Credit Facility has been reduced by the amount of standby letters of credit issued of $37.0 million as of December 31, 2009. These letters of credit are used as security against its self-insurance obligations and workers’ compensation obligations. These letters of credit expire at various dates through 2011 unless extended. |
The Credit Agreement and the indentures governing the
9.5% Senior Notes and the 9.5% Senior Subordinated
Notes (the “Notes”) limit the Company’s ability
to incur additional indebtedness. Additional covenants contained
in the Credit Agreement and the Indentures, among other things,
restrict the ability of the Company to dispose of assets, incur
guarantee obligations, prepay other indebtedness, make dividend
and other restricted payments, create liens, make equity or debt
investments, make acquisitions, modify terms of indentures under
which the Notes are issued, engage in mergers or consolidations,
change the business conducted by the Company and its
subsidiaries, and engage in certain transactions with
affiliates. Such restrictions, together with the highly
leveraged nature of the Company, could limit the Company’s
ability to respond to changing market conditions, fund its
capital spending program, provide for unexpected capital
investments or take advantage of business opportunities.
As of December 31, 2009, the Company was in compliance with
the financial covenant in the Credit Agreement. The
Company’s ability to comply in future periods with the
financial covenant in the Credit Agreement will depend on its
ongoing financial and operating performance, which in turn will
be subject to economic conditions and to financial, business and
other factors, many of which are beyond the Company’s
control, and will be substantially dependent on the selling
prices for the Company’s products, raw material and energy
costs, and the Company’s ability to successfully implement
its overall business strategies and meet its profitability
objective. If a violation of the financial covenant or any of
the other covenants occurred, the Company would attempt to
obtain a waiver or an amendment from its lenders, although no
assurance can be given that the Company would be successful in
this regard. The Credit Agreement and the indentures governing
the Notes have certain cross-default or cross-acceleration
provisions; failure to comply with these covenants in any
agreement could result in a violation of such agreement which
could, in turn, lead to violations of other agreements pursuant
to such cross-default or cross-acceleration provisions. If an
event of default occurs, the lenders are entitled to declare all
amounts owed to be due and payable immediately.
| NOTE 7 — | STOCK INCENTIVE PLANS |
The Company has six equity compensation plans, but since 2004
the Company’s only plan pursuant to which new grants are
made is the Graphic Packaging Holding Company Amended and
Restated 2004 Stock and Incentive Compensation Plan (previously
named the Graphic Packaging Corporation 2004 Stock and Incentive
Compensation Plan, the “2004 Plan”). Under the 2004
Plan, the Company may grant stock options, stock appreciation
rights, restricted stock, restricted stock units and other types
of stock-based and cash awards to employees and directors of the
Company. The other plans are the 2003 Riverwood Holding, Inc.
Long-Term Incentive Plan (“2003 LTIP”), the Riverwood
Holding, Inc. 2002 Stock Incentive Plan (“2002 SIP”),
the Amended and Restated Riverwood Holding, Inc. Stock Incentive
Plan (“1996 SIP”), the Graphic Packaging Equity
Incentive Plan (“EIP”), and the Graphic Packaging
Equity Compensation Plan for Non-Employee Directors
(“Graphic NEDP”). Stock options and other awards
granted under all of the Company’s plans
57
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
generally vest and expire in accordance with terms established
at the time of grant. Shares issued pursuant to awards under the
plans are from the Company’s authorized but unissued
shares. Compensation costs are recognized on a straight-line
basis over the requisite service period of the award.
Stock
Options
GPC and the Company have not granted any options since 2004. The
weighted average fair value of stock options is estimated to be
$2.73 per option as of the date of grant for stock options
granted in 2004. The Company used the Black-Scholes Merton
option pricing model to value stock options with the following
assumptions: dividend yield of zero, expected volatility ranging
from 0% to 74%, risk-free interest rates ranging from 4.23% to
6.75%, a zero forfeiture rate and an expected life of 3 to
10 years.
The following table summarizes information pertaining to stock
options outstanding and exercisable at December 31, 2009
and the option exercise price range per plan. No options have
been granted under the 2004 Plan, so this plan has been omitted
from the table.
|
Weighted
|
Shares
|
Weighted
|
Weighted Average
|
|||||||||||||||||||||
|
Shares
|
Average
|
Subject to
|
Average
|
Exercise
|
Remaining
|
|||||||||||||||||||
|
Subject
|
Exercise
|
Exercisable
|
Exercise
|
Price
|
Contractual Life
|
|||||||||||||||||||
| Plan | to Options | Price | Options | Price | Range | in Years | ||||||||||||||||||
|
2003 LTIP
|
684,070 | $ | 5.96 | 684,070 | $ | 5.96 | $4.70 to $6.57 | 3.7 | ||||||||||||||||
|
2002 SIP
|
2,130,754 | 7.88 | 2,130,754 | 7.88 | 7.88 | 2.0 | ||||||||||||||||||
|
1996 SIP
|
1,081,675 | 6.57 | 1,081,675 | 6.57 | 6.57 | 0.3 | ||||||||||||||||||
|
EIP
|
2,539,593 | 7.44 | 2,539,593 | 7.44 | 1.56 to 13.74 | 3.5 | ||||||||||||||||||
|
Graphic NEDP
|
6,000 | 4.29 | 6,000 | 4.29 | 2.88 to 7.11 | 0.8 | ||||||||||||||||||
|
Total
|
6,442,092 | $ | 7.28 | 6,442,092 | $ | 7.28 | — | 2.5 | ||||||||||||||||
As of December 31, 2009 and 2008, there were 6,442,092 and
7,115,887 exercisable options, respectively.
A summary of option activity during the three years ended
December 31, 2009 is as follows:
|
Weighted Average
|
||||||||
| Options | Exercise Price | |||||||
|
Outstanding — December 31, 2006
|
14,886,487 | 6.97 | ||||||
|
Exercised
|
(303,640 | ) | 2.93 | |||||
|
Canceled
|
(1,852,609 | ) | 4.70 | |||||
|
Outstanding — December 31, 2007
|
12,730,238 | 7.41 | ||||||
|
Exercised
|
— | — | ||||||
|
Canceled
|
(5,614,351 | ) | 7.66 | |||||
|
Outstanding — December 31, 2008
|
7,115,887 | $ | 7.21 | |||||
|
Exercised
|
— | — | ||||||
|
Canceled
|
(673,795 | ) | 6.54 | |||||
|
Outstanding — December 31, 2009
|
6,442,092 | $ | 7.28 | |||||
Stock
Awards, Restricted Stock and Restricted Stock Units
The Company’s 2004 Plan permits the grant of stock awards,
restricted stock and restricted stock units (“RSUs”).
All RSUs vest and become payable in one to five years from date
of grant. Upon vesting, RSUs are payable in cash and shares of
common stock, based on the proportion set forth in the grant
agreements.
58
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Data concerning RSUs and stock awards granted in the years ended
December 31:
| Shares in thousands | 2009 | 2008 | 2007 | |||||||||
|
RSUs — Employees
|
8,390 | 1,140 | 2,501 | |||||||||
|
Weighted-average price per share
|
$ | 0.89 | $ | 2.72 | $ | 4.76 | ||||||
|
Stock Awards — Board of Directors
|
651 | 434 | 50 | |||||||||
|
Weighted-average price per share
|
$ | 1.52 | $ | 2.28 | $ | 4.83 | ||||||
The value of the RSUs is based on the market value of the
Company’s common stock on the date of grant. The shares
payable in cash are subject to variable accounting and marked to
market accordingly. The RSUs payable in cash are recorded as
liabilities, whereas the RSUs payable in shares are recorded in
Shareholders’ Equity. At December 31, 2009 and 2008,
the Company had 8,705,119 and 1,087,510 RSUs outstanding,
respectively. The unrecognized expense at December 31, 2009
is approximately $11 million and is expected to be
recognized over a weighted average period of 2 years.
The value of a stock award is based on the market value of the
Company’s common stock at the date of grant. These awards
are fully vested on the date of grant.
During 2009, 2008 and 2007, the Company also issued 15,607,
56,823 and 17,782 shares of phantom stock, respectively,
representing compensation deferred by one of its directors.
These shares of phantom stock are fully vested on the date of
grant and are payable upon termination of service as a director.
The Company also has an obligation to issue 48,653 shares
in payment of employee deferred compensation.
During 2009, 2008 and 2007, $5.9 million, $6.6 million
and $6.6 million, respectively, was charged to compensation
expense for RSUs and stock awards. Of the amount charged to
expense during 2008, $7.1 million was attributable to the
accelerated vesting of RSUs and other payments triggered by the
change of control resulting from the Altivity Transaction on
March 10, 2008.
| NOTE 8 — | POSTRETIREMENT AND OTHER BENEFITS |
DEFINED
BENEFIT PLANS
The Company maintains both defined benefit pension plans and
postretirement health care plans that provide medical and life
insurance coverage to eligible salaried and hourly retired
employees in North America and their dependents. The Company
maintains international defined benefit pension plans which are
both noncontributory and contributory and are funded in
accordance with applicable local laws. Pension or termination
benefits are based primarily on years of service and the
employees’ compensation.
Currently, the North American plans are closed to newly-hired
salaried and non-union hourly employees. The U.K. defined
benefit plan was frozen effective March 31, 2001 and
replaced with a defined contribution plan.
59
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Pension
and Postretirement Expense
The pension and postretirement expenses related to the
Company’s plans consisted of the following:
|
Postretirement Health
|
||||||||||||||||||||||||
| Pension Benefits | Care Benefits | |||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||
| In millions | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | ||||||||||||||||||
|
Components of Net Periodic Cost:
|
||||||||||||||||||||||||
|
Service Cost
|
$ | 20.5 | $ | 18.5 | $ | 14.7 | $ | 1.4 | $ | 1.3 | $ | 1.0 | ||||||||||||
|
Interest Cost
|
50.5 | 47.5 | 42.4 | 3.3 | 3.1 | 2.5 | ||||||||||||||||||
|
Expected Return on Plan Assets
|
(41.8 | ) | (51.3 | ) | (45.6 | ) | — | — | — | |||||||||||||||
|
Amortizations:
|
||||||||||||||||||||||||
|
Prior Service Cost
|
1.2 | 2.7 | 2.3 | (0.1 | ) | (0.2 | ) | 0.1 | ||||||||||||||||
|
Actuarial Loss (Gain)
|
20.2 | 2.2 | 2.7 | (1.2 | ) | (0.6 | ) | (0.1 | ) | |||||||||||||||
|
Curtailment Gain
|
(3.2 | ) | — | — | — | — | — | |||||||||||||||||
|
Other
|
0.5 | 0.1 | — | — | — | — | ||||||||||||||||||
|
Net Periodic Cost
|
$ | 47.9 | $ | 19.7 | $ | 16.5 | $ | 3.4 | $ | 3.6 | $ | 3.5 | ||||||||||||
Certain assumptions used in determining the pension and
postretirement expenses were as follows:
|
Postretirement Health
|
||||||||||||||||||||||||
| Pension Benefits | Care Benefits | |||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
|
Weighted Average Assumptions:
|
||||||||||||||||||||||||
|
Discount Rate
|
6.28 | % | 6.21 | % | 5.84 | % | 6.27 | % | 6.17 | % | 5.95 | % | ||||||||||||
|
Rate of Increase in Future Compensation Levels
|
2.52 | % | 2.44 | % | 2.43 | % | — | — | — | |||||||||||||||
|
Expected Long-Term Rate of Return on Plan Assets
|
7.91 | % | 7.96 | % | 7.96 | % | — | — | — | |||||||||||||||
|
Initial Health Care Cost Trend Rate
|
— | — | — | 9.00 | % | 9.00 | % | 9.00 | % | |||||||||||||||
|
Ultimate Health Care Cost Trend
Rate
(a)
|
— | — | — | 5.00 | % | 5.00 | % | 5.00 | % | |||||||||||||||
|
Ultimate
Year
(a)
|
— | — | — | 2017 | 2017 | 2016 | ||||||||||||||||||
Note:
| (a) | One of the salaried plan’s costs was capped beginning in 1999. |
60
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Funded
Status
The following table sets forth the funded status of the
Company’s pension and postretirement plans as of December
31:
|
Post Retirement
|
||||||||||||||||||
|
Health Care
|
||||||||||||||||||
| Pension Benefits | Benefits | |||||||||||||||||
| In millions | 2009 | 2008 | 2009 | 2008 | ||||||||||||||
|
Change in Benefit Obligation:
|
||||||||||||||||||
|
Benefit Obligation at Beginning of Year
|
$ | 812.1 | $ | 740.5 | $ | 57.0 | $ | 44.4 | ||||||||||
|
Acquisition
|
— | 50.5 | — | 14.3 | ||||||||||||||
|
Service Cost
|
20.5 | 18.5 | 1.4 | 1.3 | ||||||||||||||
|
Interest Cost
|
50.5 | 47.5 | 3.3 | 3.1 | ||||||||||||||
|
Actuarial Loss (Gain)
|
3.2 | 30.0 | (9.3 | ) | 0.3 | |||||||||||||
|
Amendments
|
— | — | — | (1.8 | ) | |||||||||||||
|
Foreign Currency Exchange
|
13.2 | (39.0 | ) | 0.2 | (0.4 | ) | ||||||||||||
|
Curtailment
|
(3.5 | ) | (0.5 | ) | (0.6 | ) | (1.7 | ) | ||||||||||
|
Settlement
|
(1.7 | ) | — | — | — | |||||||||||||
|
Benefits Paid
|
(36.0 | ) | (34.8 | ) | (2.9 | ) | (2.7 | ) | ||||||||||
|
Other
|
0.6 | (0.6 | ) | 0.5 | 0.2 | |||||||||||||
|
Benefit Obligation at End of Year
|
$ | 858.9 | $ | 812.1 | $ | 49.6 | $ | 57.0 | ||||||||||
|
Change in Plan Assets:
|
||||||||||||||||||
|
Fair Value of Plan Assets at Beginning of Year
|
$ | 489.0 | $ | 611.8 | $ | — | $ | — | ||||||||||
|
Acquisition
|
— | 32.1 | — | — | ||||||||||||||
|
Actual Return on Plan Assets
|
115.5 | (141.7 | ) | — | — | |||||||||||||
|
Employer Contributions
|
43.6 | 59.0 | 2.9 | 2.7 | ||||||||||||||
|
Foreign Currency Exchange
|
12.3 | (36.7 | ) | — | — | |||||||||||||
|
Benefits Paid
|
(37.7 | ) | (34.8 | ) | (2.9 | ) | (2.7 | ) | ||||||||||
|
Other
|
(0.5 | ) | (0.7 | ) | — | — | ||||||||||||
|
Fair Value of Plan Assets at End of Year
|
$ | 622.2 | $ | 489.0 | $ | — | $ | — | ||||||||||
|
Plan Assets Less than Projected Benefit Obligation
|
$ | (236.7 | ) | $ | (323.1 | ) | $ | (49.6 | ) | $ | (57.0 | ) | ||||||
|
Amounts Recognized in the Consolidated Balance Sheets Consist of:
|
||||||||||||||||||
|
Noncurrent Asset — Prepaid Benefit Cost
|
$ | 2.2 | $ | — | $ | — | $ | — | ||||||||||
|
Accrued Pension and Postretirement Benefits
Liability — Current
|
(0.8 | ) | (0.7 | ) | (3.1 | ) | (3.6 | ) | ||||||||||
|
Accrued Pension and Postretirement Benefits
Liability — Noncurrent
|
(238.1 | ) | (322.4 | ) | (46.5 | ) | (53.4 | ) | ||||||||||
|
Accumulated Other Comprehensive Income:
|
||||||||||||||||||
|
Net Actuarial Loss (Gain)
|
189.6 | 278.9 | (13.4 | ) | (5.4 | ) | ||||||||||||
|
Prior Service Cost (Income)
|
0.3 | 1.0 | (1.3 | ) | (1.4 | ) | ||||||||||||
|
Weighted Average Calculations:
|
||||||||||||||||||
|
Discount Rate
|
6.10% | 6.28% | 5.93% | 6.27% | ||||||||||||||
|
Rates of Increase in Future Compensation Levels
|
2.19% | 2.52% | — | 2.50% | ||||||||||||||
|
Initial Health Care Cost Trend Rate
|
— | — | 8.50% | 9.00% | ||||||||||||||
|
Ultimate Health Care Cost Trend Rate(a)
|
— | — | 5.00% | 5.00% | ||||||||||||||
|
Ultimate Year
|
— | — | 2017 | 2017 | ||||||||||||||
Accumulated
Benefit Obligation
The accumulated benefit obligation, (“ABO”), for all
defined benefit pension plans was $841.3 million and
$784.7 million at December 31, 2009 and 2008,
respectively. All of the Company’s defined benefit pension
plans had an ABO in excess of plan assets at December 31,
2009 and 2008, except at December 31, 2009, one plan had
assets of $17.2 million and an ABO of $15.0 million.
61
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Employer
Contributions
During 2009 and 2008, the Company made $43.6 million and
$59.0 million, respectively, of contributions to its
pension plans. The Company also made postretirement health care
benefit payments of $2.9 million and $2.7 million
during 2009 and 2008, respectively. For 2010, the Company
expects to make contributions of $45 to $70 million to its
pension plans and approximately $3 million to its
postretirement health care plans.
Pension
Assets
The Company’s overall investment strategy is to achieve a
mix of investments for long-term growth and near-term benefit
payments through diversification of asset types, fund strategies
and fund managers. Investment risk is measured on an on-going
basis through annual liability measurements, periodic
asset/liability studies, and quarterly investment portfolio
reviews. The plans invest in the following major asset
categories: cash, equity securities, fixed income securities,
real estate and diversified growth funds. At December 31,
2009 and 2008, pension investments did not include any direct
investments in the Company’s stock or the Company’s
debt.
The weighted average allocation of plan assets and the target
allocation by asset category is as follows:
| Target | 2009 | 2008 | ||||||||||
|
Cash
|
0.0 | % | 1.0 | % | 3.0 | % | ||||||
|
Equity Securities
|
52.0 | 53.4 | 50.5 | |||||||||
|
Fixed Income Securities
|
42.0 | 40.2 | 46.5 | |||||||||
|
Other Investments
|
6.0 | 5.4 | — | |||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
The plans’ investment in equity securities primarily
includes investments in U.S. and international companies of
varying sizes and industries. The strategy of these investments
is to 1) exceed the return of an appropriate benchmark for
such equity classes and 2) through diversification, reduce
volatility while enhancing long term real growth.
The plans’ investment in fixed income securities includes
government bonds, investment grade bonds and non-investment
grade bonds across a broad and diverse issuer base. The strategy
of these investments is to provide income and stability and to
diversify the fixed income exposure of the plan assets, thereby
reducing volatility.
The Company’s approach to developing the expected long-term
rate of return on pension plan assets combines an analysis of
historical investment performance by asset class, the
Company’s investment guidelines and current and expected
economic fundamentals.
62
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth, by category and within the fair
value hierarchy, the fair value of the Company’s pension
assets at December 31, 2009:
| Fair Value Measurements at December 31, 2009 | ||||||||||||||||
|
Quoted Prices in
|
||||||||||||||||
|
Active Markets
|
Significant
|
|||||||||||||||
|
for Identical
|
Significant
|
Unobservable
|
||||||||||||||
|
Assets
|
Observable Inputs
|
Inputs
|
||||||||||||||
| In millions | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
Asset Category:
|
||||||||||||||||
|
Cash
|
$ | 6.1 | $ | 6.1 | $ | — | $ | — | ||||||||
|
Equity securities:
|
||||||||||||||||
|
Domestic
|
227.5 | 227.5 | — | — | ||||||||||||
|
Foreign
|
104.9 | 104.9 | — | — | ||||||||||||
|
Fixed income securities:
|
||||||||||||||||
|
Government
securities
(a)
|
97.7 | — | 97.7 | — | ||||||||||||
|
Investment grade fixed income
securities
(b)
|
89.3 | — | 89.3 | — | ||||||||||||
|
Non-investment grade fixed income
securities
(c)
|
62.7 | 62.7 | — | — | ||||||||||||
|
Other Investments:
|
||||||||||||||||
|
Real
estate
(d)
|
11.4 | 11.4 | — | — | ||||||||||||
|
Diversified Growth
fund
(e)
|
22.6 | 22.6 | — | — | ||||||||||||
|
Total
|
$ | 622.2 | $ | 435.2 | $ | 187.0 | $ | — | ||||||||
Notes:
| (a) | This category includes U.S. Treasury inflation protected securities (“TIPS”) as well as index linked U.K. government gilts. | |
| (b) | This category focuses on high-quality, investment grade fixed income securities, while managing risk relative to the Barclays Capital Aggregate Bond Index. | |
| (c) | This category represents non-investment grade bonds like high-yield bonds. | |
| (d) | This category represents investments in real estate funds which are traded daily on a public exchange. | |
| (e) | The fund invests in a combination of traditional investments (equities, bonds, and foreign exchange) and advanced techniques from across the globe, seeking to achieve returns through active asset allocation over a three to five year horizon. |
Postretirement
Health Care Trend Rate Sensitivity
Assumed health care cost trend rates affect the amounts reported
for postretirement health care benefit plans. A
one-percentage-point change in assumed health care trend rates
would have the following effects on 2009 data:
| One Percentage Point | ||||||||
| In millions | Increase | Decrease | ||||||
|
Health Care Trend Rate Sensitivity:
|
||||||||
|
Effect on Total Interest and Service Cost Components
|
$ | 0.3 | $ | (0.3 | ) | |||
|
Effect on Year-End Postretirement Benefit Obligation
|
$ | 3.7 | $ | (3.5 | ) | |||
63
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Estimated
Future Benefit Payments
The following represents the Company’s estimated future
pension and postretirement health care benefit payments through
the year 2019:
|
Postretirement Health
|
||||||||
| In millions | Pension Plans | Care Benefits | ||||||
|
2010
|
$ | 41.4 | $ | 3.6 | ||||
|
2011
|
43.1 | 3.8 | ||||||
|
2012
|
45.8 | 3.8 | ||||||
|
2013
|
48.8 | 4.0 | ||||||
|
2014
|
51.6 | 4.2 | ||||||
|
2015 — 2019
|
305.0 | 23.8 | ||||||
Amounts
Expected to Be Recognized in Net Periodic Benefit Costs in
2010
During 2010, amounts expected to be recognized in Net Periodic
Benefit Costs are as follows:
|
Postretirement
|
||||||||||||
|
Pension
|
Health Care
|
Postemployment
|
||||||||||
| In millions | Benefits | Benefits | Benefits (a) | |||||||||
|
Recognition of Prior Service Cost
|
$ | 0.5 | $ | (0.2 | ) | $ | — | |||||
|
Recognition of Actuarial Loss (Gain)
|
9.3 | (1.6 | ) | 0.5 | ||||||||
Note:
| (a) | The Company maintains postemployment benefits for U.S. employees. Certain benefits are based on years of service. In 2009, the Company recorded a net actuarial gain of $3.2 to Accumulated Other Comprehensive Loss. |
Multi-Employer
Plan
Certain of the Company’s employees participate in
multi-employer plans that provide both pension and other
postretirement health care benefits to employees under
union-employer organization agreements. Expense for these plans
for the years ended December 31, 2009 and 2008 were
$8.3 million and $5.8 million, respectively. The
multi-employer plans were assumed as part of the Altivity
Transaction.
DEFINED
CONTRIBUTION PLANS
The Company provides defined contribution plans for eligible
U.S. employees. The Company’s contributions to the
plans are based upon employee contributions and the
Company’s annual operating results. Contributions to these
plans for the years ended December 31, 2009, 2008 and 2007
were $20.2 million, $17.6 million and
$8.2 million, respectively. Contributions for the year
ended December 31, 2008 includes $8.6 million for
Altivity since the acquisition.
| NOTE 9 — | INCOME TAXES |
The U.S. and international components of Income (Loss)
before Income Taxes and Equity in Net Earnings of Affiliates
consisted of the following:
| Year Ended December 31, | ||||||||||||
| In millions | 2009 | 2008 | 2007 | |||||||||
|
U.S.
|
$ | 85.8 | $ | (74.5 | ) | $ | (26.3 | ) | ||||
|
International
|
(6.6 | ) | 9.0 | 0.2 | ||||||||
|
Income (Loss) before Income Taxes and Equity in Net Earnings of
Affiliates
|
$ | 79.2 | $ | (65.5 | ) | $ | (26.1 | ) | ||||
64
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The provisions for Income Tax Expense on Income (Loss) before
Income Taxes and Equity in Net Earnings of Affiliates consisted
of the following:
| Year Ended December 31, | ||||||||||||
| In millions | 2009 | 2008 | 2007 | |||||||||
|
Current (Expense) Benefit
|
||||||||||||
|
U.S.
|
$ | 0.1 | $ | (0.4 | ) | $ | 0.2 | |||||
|
International
|
(4.6 | ) | (6.0 | ) | (5.1 | ) | ||||||
|
Total Current
|
(4.5 | ) | (6.4 | ) | (4.9 | ) | ||||||
|
Deferred (Expense) Benefit
|
||||||||||||
|
U.S.
|
(31.4 | ) | (28.3 | ) | (19.6 | ) | ||||||
|
International
|
11.8 | 0.3 | 0.6 | |||||||||
|
Total Deferred
|
(19.6 | ) | (28.0 | ) | (19.0 | ) | ||||||
|
Income Tax Expense
|
$ | (24.1 | ) | $ | (34.4 | ) | $ | (23.9 | ) | |||
A reconciliation of Income Tax Expense on Income (Loss) before
Income Taxes and Equity in Net Earnings of Affiliates at the
federal statutory rate of 35% compared with the Company’s
actual Income Tax Expense is as follows:
| Year Ended December 31, | ||||||||||||||||||||||||
| In millions | 2009 | Percent | 2008 | Percent | 2007 | Percent | ||||||||||||||||||
|
Income Tax (Expense) Benefit at U.S. Statutory Rate
|
$ | (27.7 | ) | 35.0 | % | $ | 22.9 | 35.0 | % | $ | 9.1 | 35.0 | % | |||||||||||
|
U.S. State and Local Tax (Expense) Benefit
|
(4.2 | ) | 5.3 | 2.0 | 3.0 | 0.9 | 3.5 | |||||||||||||||||
|
Change in Valuation Allowance
|
37.8 | (47.7 | ) | (30.8 | ) | (47.0 | ) | (9.1 | ) | (35.1 | ) | |||||||||||||
|
International Tax Rate Differences
|
0.1 | (0.1 | ) | — | — | (2.8 | ) | (10.7 | ) | |||||||||||||||
|
Amortization of Goodwill
|
(31.6 | ) | 39.9 | (29.4 | ) | (44.9 | ) | (19.6 | ) | (75.0 | ) | |||||||||||||
|
Foreign Withholding Tax
|
(0.1 | ) | 0.1 | (0.1 | ) | (0.2 | ) | (0.1 | ) | (0.3 | ) | |||||||||||||
|
Adjustment to Tax Contingencies
|
(0.1 | ) | 0.1 | (0.1 | ) | (0.1 | ) | (2.0 | ) | (7.5 | ) | |||||||||||||
|
Other
|
1.7 | (2.2 | ) | 1.1 | 1.7 | (0.3 | ) | (1.3 | ) | |||||||||||||||
|
Income Tax Expense
|
$ | (24.1 | ) | 30.4 | % | $ | (34.4 | ) | (52.5 | )% | $ | (23.9 | ) | (91.4 | )% | |||||||||
65
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The tax effects of differences that give rise to significant
portions of the deferred income tax assets and deferred income
tax liabilities as of December 31 were as follows:
| In millions | 2009 | 2008 | ||||||
|
Current Deferred Income Tax Assets:
|
||||||||
|
Compensation Based Accruals
|
$ | 34.9 | $ | 31.5 | ||||
|
Other
|
16.2 | 16.5 | ||||||
|
Valuation Allowance
|
(16.4 | ) | (16.8 | ) | ||||
|
Net Current Deferred Income Tax Assets
|
$ | 34.7 | $ | 31.2 | ||||
|
Noncurrent Deferred Income Tax Assets & Liabilities:
|
||||||||
|
Net Operating Loss Carryforwards
|
$ | 537.5 | $ | 575.0 | ||||
|
Postretirement Benefits
|
90.3 | 128.9 | ||||||
|
Tax Credits
|
12.7 | 13.5 | ||||||
|
Other
|
59.3 | 54.9 | ||||||
|
Valuation Allowance
|
(239.1 | ) | (287.5 | ) | ||||
|
Property, Plant and Equipment
|
(269.6 | ) | (284.2 | ) | ||||
|
Goodwill
|
(188.3 | ) | (156.7 | ) | ||||
|
Other Intangibles
|
(220.3 | ) | (231.3 | ) | ||||
|
Net Noncurrent Deferred Income Tax Assets & Liabilities
|
$ | (217.5 | ) | $ | (187.4 | ) | ||
|
Net Deferred Income Tax Liability
|
$ | (182.8 | ) | $ | (156.2 | ) | ||
The Company has reviewed the net deferred income tax assets as
of December 31, 2009 and 2008, respectively, and determined
that it is more likely than not that some or all of the net
deferred income tax assets will not be realized. The valuation
allowance of $255.5 million and $304.3 million at
December 31, 2009 and 2008, respectively, is maintained on
the remaining net deferred income tax assets for which the
Company has not determined that realization is more likely than
not. Of the total valuation allowance, $26.1 million
relates to foreign jurisdictions and the remaining
$229.4 million relates to the U.S. The need for a
valuation allowance is made on a
country-by-country
basis, and the amount of the valuation allowance has changed as
of December 31, 2009 over 2008 primarily due to operating
activities in various countries in 2009 and changes in deferred
income tax balances. As of December 31, 2009, the Company
has concluded that due to difficulty in maintaining
profitability and the lack of sufficient future taxable income
of the appropriate character, realization is less than more
likely than not on the deferred income tax assets related
primarily to the Company’s Brazil, China, France, Germany,
and U.S. operations.
The U.S. federal net operating loss carryforwards expire as
follows:
| In millions | ||||
|
2012
|
$ | 250.0 | ||
|
2018
|
295.0 | |||
|
2019
|
196.8 | |||
|
2021
|
144.2 | |||
|
2022
|
72.1 | |||
|
2023
|
122.0 | |||
|
2025
|
24.2 | |||
|
2026
|
94.6 | |||
|
2028
|
140.0 | |||
|
Total
|
$ | 1,338.9 | ||
U.S. state net operating loss carryforward amounts total
$1.2 billion and expire in various years.
66
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
International net operating loss carryforward amounts total
$97.5 million, of which substantially all have no
expiration date.
As of December 31, 2009, the Company, in accordance with
the
Income Taxes
topic of the FASB Codification, has
determined that $83.8 million of undistributed foreign
earnings are not intended to be reinvested indefinitely by its
non-U.S. subsidiaries.
Deferred income tax was recorded as a reduction to the
Company’s net operating losses on these undistributed
earnings as well as the financial statement carrying value in
excess of tax basis in the amount of $32.0 million. As of
December 31, 2008, the Company had determined that
$68.4 million of undistributed foreign earnings were not
intended to be reinvested indefinitely. Deferred income tax was
recorded as a reduction to the Company’s net operating
losses on these undistributed earnings as well as the financial
statement carrying value in excess of tax basis in the amount of
$30.5 million. The Company periodically determines whether
the
non-U.S. subsidiaries
will invest their undistributed earnings indefinitely and
reassesses this determination as appropriate.
Uncertain
Tax Positions
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
| In millions | 2009 | 2008 | 2007 | |||||||||
|
Balance at January 1,
|
$ | 1.4 | $ | 1.4 | $ | 4.1 | ||||||
|
Additions for tax positions of prior years
|
0.1 | 0.1 | 2.6 | |||||||||
|
Reductions for tax positions of prior years
|
— | — | (1.4 | ) | ||||||||
|
Settlements
|
— | — | (4.4 | ) | ||||||||
|
Effect of Exchange Rate Changes
|
— | (0.1 | ) | 0.5 | ||||||||
|
Balance at December 31,
|
$ | 1.5 | $ | 1.4 | $ | 1.4 | ||||||
At December 31, 2009, the gross unrecognized tax benefits
of $1.5 million, if recognized, would affect the annual
effective income tax rate.
The Company recognizes potential accrued interest and penalties
related to unrecognized tax benefits within its global
operations in Income Tax Expense. The Company had
$0.2 million and $0.1 million for the payment of
interest and penalties accrued at December 31, 2009 and
2008, respectively.
The Company does not anticipate that total unrecognized tax
benefits will significantly change within the next
12 months.
The Company files income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to
U.S. federal, state and local, or
non-U.S. income
tax examinations by tax authorities for years before 1999.
| NOTE 10 — | FINANCIAL INSTRUMENTS, DERIVATIVES AND HEDGING ACTIVITIES |
The Company is exposed to fluctuations in interest rates on its
variable debt, fluctuations in foreign currency transaction cash
flows and variability in cash flows attributable to certain
commodity purchases. The Company actively monitors these
fluctuations and periodically uses derivatives and other
financial instruments to hedge exposures to interest rate,
currency and commodity risks. The Company’s use of
derivative instruments may result in short-term gains or losses
and may increase volatility in its earnings. The Company does
not trade or use derivative instruments with the objective of
earning financial gains on interest or currency rates, nor does
it use leveraged instruments or instruments where there are no
underlying exposures identified.
67
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Interest
Rate Risk
The Company uses interest rate swaps to manage interest rate
risks on future interest payments caused by interest rate
changes on its variable rate term loan facility. The
differential to be paid or received under these agreements is
recognized as an adjustment to Interest Expense related to the
debt. At December 31, 2009, the Company had interest rate
swap agreements with a notional amount of $2,170.0 million,
including $400.0 million in forward starting interest rate
swaps, which expire on various dates from 2010 to 2012 under
which the Company will pay fixed rates of 2.24% to 5.06% and
receive the three-month LIBOR rates.
These derivative instruments are designated as cash flow hedges
and, to the extent they are effective in offsetting the
variability of the hedged cash flows, changes in the
derivatives’ fair value are not included in current
earnings but are included in Accumulated Other Comprehensive
Loss. These changes in fair value will subsequently be
reclassified into earnings as a component of Interest Expense as
interest is incurred on amounts outstanding under the term loan
facility. Ineffectiveness measured in the hedging relationship
is recorded in earnings in the period it occurs.
During 2008, the Company recorded a favorable fair value
adjustment of $10.4 million to income for an interest rate
swap assumed in the Altivity Transaction. During the fourth
quarter 2009, the Company recorded a non-cash credit to interest
expense of $13.8 million related to this interest rate
swap. The Company should have been amortizing the fair value of
the swap as of the date of hedge designation on a straight line
basis to reduce interest expense since August 2008. The
effect on prior periods was not material to the consolidated
financial statements in those periods. The swap expired in
January 2010.
During 2009 and 2008, there were minimal amounts of
ineffectiveness. Additionally, there were no amounts excluded
from the measure of effectiveness.
Commodity
Risk
To manage risks associated with future variability in cash flows
and price risk attributable to certain commodity purchases, the
Company enters into natural gas swap contracts to hedge prices
for approximately 52% of its expected natural gas usage through
2010 with a weighted average contractual rate of $5.68 per one
million British Thermal Units. Such contracts are designated as
cash flow hedges. When a contract matures, the resulting gain or
loss is reclassified into Cost of Sales concurrently with the
recognition of the commodity purchased. The ineffective portion
of the swap contract’s change in fair value, if any, would
be recognized immediately in earnings.
During 2009 and 2008, there were minimal amounts of
ineffectiveness related to changes in the fair value of natural
gas swap contracts. Additionally, there were no amounts excluded
from the measure of effectiveness.
Foreign
Currency Risk
The Company enters into forward exchange contracts to manage
risks associated with future variability in cash flows resulting
from anticipated foreign currency transactions that may be
adversely affected by changes in exchange rates. Such contracts
are designated as cash flow hedges. Gains/losses, if any,
related to these contracts are recognized in Other (Income)
Expense, Net when the anticipated transaction affects income.
At December 31, 2009 and 2008, multiple forward exchange
contracts existed that expire on various dates throughout 2010.
Those purchased forward exchange contracts outstanding at
December 31, 2009 and 2008, when aggregated and measured in
U.S. dollars at contractual rates at December 31, 2009
and 2008, respectively, had notional amounts totaling
$60.6 million and $80.8 million.
No amounts were reclassified to earnings during 2009 and 2008 in
connection with forecasted transactions that were no longer
considered probable of occurring, and there was no amount of
ineffectiveness related to
68
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
changes in the fair value of foreign currency forward contracts.
Additionally, there were no amounts excluded from the measure of
effectiveness during 2009 and 2008.
Derivatives
not Designated as Hedges
The Company enters into forward exchange contracts to
effectively hedge substantially all of accounts receivable
resulting from transactions denominated in foreign currencies in
order to manage risks associated with foreign currency
transactions adversely affected by changes in exchange rates. At
December 31, 2009 and 2008, multiple foreign currency
forward exchange contracts existed, with maturities ranging up
to three months. Those foreign currency exchange contracts
outstanding at December 31, 2009 and 2008, when aggregated
and measured in U.S. dollars at exchange rates at
December 31, 2009 and 2008, respectively, had net notional
amounts totaling $10.1 million and $4.4 million.
Generally, unrealized gains and losses resulting from these
contracts are recognized in Other (Income) Expense, Net and
approximately offset corresponding unrealized gains and losses
recognized on these accounts receivable.
Foreign
Currency Movement Effect
Net international currency exchange (gains) losses included in
determining Income from Operations for the years ended
December 31, 2009, 2008 and 2007 were $(0.8) million,
$10.7 million and $(1.3) million, respectively.
| NOTE 11 — | FAIR VALUE MEASUREMENT |
Effective January 1, 2008, the Company adopted the fair
value guidance integrated into the
Fair Value Measurements
and Disclosures
topic of the FASB Codification in regards to
financial assets and financial liabilities. The FASB delayed the
effective date of the guidance related to nonfinancial assets
and nonfinancial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually), which the Company
subsequently adopted as of January 1, 2009. Nonfinancial
assets and nonfinancial liabilities include those measured at
fair value in goodwill impairment testing, asset retirement
obligations initially measured at fair value, and those assets
and liabilities initially measured at fair value in a business
combination.
The FASB’s guidance defines fair value, establishes a
framework for measuring fair value and expands the fair value
disclosure requirements. The accounting guidance applies to
accounting pronouncements that require or permit fair value
measurements. It indicates, among other things, that a fair
value measurement assumes that the transaction to sell an asset
or transfer a liability occurs in the principal market for the
asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. The
guidance defines fair value based upon an exit price model,
whereby fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The guidance clarifies that fair value should be based on
assumptions that market participants would use, including a
consideration of non-performance risk.
In adopting the requirements of the
Fair Value Measurements
and Disclosures
topic, the Company has determined that its
financial assets and financial liabilities include derivative
instruments which are carried at fair value and are valued using
Level 2 inputs in the fair value hierarchy.
Valuation
Hierarchy
The
Fair Value Measurements and Disclosures
topic
establishes a valuation hierarchy for disclosure of the inputs
to valuation used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows:
Level 1 inputs — quoted prices (unadjusted) in
active markets for identical assets or liabilities.
69
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Level 2 inputs — quoted prices for similar assets
and liabilities in active markets or inputs that are observable
for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of
the financial instrument.
Level 3 inputs — unobservable inputs based on the
Company’s own assumptions used to measure assets and
liabilities at fair value.
An asset or liability’s classification within the hierarchy
is determined based on the lowest level input that is
significant to the fair value measurement.
Fair
Value of Financial Instruments
The fair value of the Company’s derivative instruments as
of December 31, 2009 is as follows:
|
Derivative
|
Derivative
|
|||||||||||
|
Assets
|
Liabilities
|
|||||||||||
|
Balance Sheet
|
December 31,
|
Balance Sheet
|
December 31,
|
|||||||||
| In millions | Location | 2009 | Location | 2009 | ||||||||
|
Derivative Contracts Designated as Hedging Instruments
|
||||||||||||
|
Commodity Contracts
|
Other Current Assets | $ | 0.3 | Other Accrued Liabilities | $ | — | ||||||
|
Foreign Currency Contracts
|
Other Current Assets | 1.0 | Other Accrued Liabilities | — | ||||||||
|
Interest Rate Swap Agreements
|
Other Current Assets | — | Other Accrued Liabilities | (36.1 | ) | |||||||
|
Total Derivative Contracts
|
$ | 1.3 | $ | (36.1 | ) | |||||||
As of December 31, 2009, there has not been any significant
impact to the fair value of the Company’s derivative
liabilities due to its own credit risk. Similarly, there has not
been any significant adverse impact to the Company’s
derivative assets based on evaluation of the Company’s
counterparties’ credit risks.
The fair values of the Company’s other financial assets and
liabilities at December 31, 2009 and 2008 approximately
equal the carrying values reported on the Consolidated Balance
Sheets except for Long-Term Debt. The fair value of the
Company’s Long-Term Debt was $2,762.6 million and
$2,438.5 million as compared to the carrying amounts of
$2,792.6 million and $3,176.6 million as of
December 31, 2009 and 2008, respectively. The fair value of
Long-Term Debt is based on quoted market prices.
Effect
of Derivative Instruments
The effect of derivative instruments in cash flow hedging
relationships on the Company’s Consolidated Statements of
Operations for the year ended December 31, 2009 is as
follows:
|
Amount of Loss (Gain)
|
Location
|
Location
|
Amount of (Gain) Loss
|
|||||||||||||
|
Recognized in
|
in Statement of
|
Amount of Loss (Gain)
|
in Statement of
|
Recognized in
|
||||||||||||
|
Accumulated Other
|
Operations
|
Recognized in Statement of
|
Operations
|
Statement of
|
||||||||||||
|
Comprehensive Income
|
(Effective
|
Operations
|
(Ineffective
|
Operations
|
||||||||||||
| In millions | (Loss) | Portion) | (Effective Portion) | Portion) | (Ineffective Portion) | |||||||||||
|
Commodity Contracts
|
$ | 15.5 | Cost of Sales | $ | 43.0 | Cost of Sales | $ | (0.8 | ) | |||||||
|
Foreign Currency Contracts
|
(2.2 | ) | Other (Income) Expense, Net | (0.5 | ) | Other (Income) Expense, Net | — | |||||||||
|
Interest Rate Swap Agreements
|
29.1 | Interest Expense | 33.3 | Interest Expense | 0.1 | |||||||||||
|
Total
|
$ | 42.4 | $ | 75.8 | $ | (0.7 | ) | |||||||||
70
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of derivative instruments not designated as hedging
instruments on the Company’s Consolidated Statements of
Operations for the year ended December 31, 2009 is as
follows:
|
Amount of Loss
|
||||||
|
Location in
|
Recognized in
|
|||||
|
Statement of
|
Statement of
|
|||||
| In millions | Operations | Operations | ||||
|
Foreign Currency Contracts
|
Other (Income) Expense, Net | $ | 3.8 | |||
Accumulated
Derivative Instruments (Loss) Gain
The following is a rollforward of Accumulated Derivative
Instruments (Loss) Gain which is included in Accumulated Other
Comprehensive Loss in the Company’s Consolidated Balance
Sheets and Consolidated Statements of Shareholders’ Equity
as of December 31:
| In millions | 2009 | 2008 | 2007 | |||||||||
|
Balance at January 1
|
$ | (68.5 | ) | $ | (7.9 | ) | $ | (5.4 | ) | |||
|
Reclassification to earnings
|
75.8 | 10.2 | 9.3 | |||||||||
|
Current period change in fair value
|
(42.4 | ) | (70.8 | ) | (11.8 | ) | ||||||
|
Balance at December 31
|
$ | (35.1 | ) | $ | (68.5 | ) | $ | (7.9 | ) | |||
At December 31, 2009, the Company expects to reclassify
$3.4 million of losses in 2010 from Accumulated Derivative
Instruments Loss (Gain) to earnings, contemporaneously with and
offsetting changes in the related hedged exposure. The actual
amount that will be reclassified to future earnings may vary
from this amount as a result of changes in market conditions.
| NOTE 12 — | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
The changes in the components of Accumulated Other Comprehensive
Income (Loss) are as follows:
| Years Ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||
|
Pretax
|
Tax
|
Net
|
Pretax
|
Tax
|
Net
|
Pretax
|
Tax
|
Net
|
||||||||||||||||||||||||||||
| In millions | Amount | Effect | Amount | Amount | Effect | Amount | Amount | Effect | Amount | |||||||||||||||||||||||||||
|
Derivative Instruments Gain (Loss)
|
$ | 33.4 | $ | — | $ | 33.4 | $ | (60.6 | ) | $ | — | $ | (60.6 | ) | $ | (2.5 | ) | $ | — | $ | (2.5 | ) | ||||||||||||||
|
Currency Translation Adjustment
|
7.8 | — | 7.8 | (15.1 | ) | — | (15.1 | ) | 4.6 | — | 4.6 | |||||||||||||||||||||||||
|
Pension Benefit Plans
|
90.0 | 1.7 | 91.7 | (212.2 | ) | — | (212.2 | ) | 25.2 | — | 25.2 | |||||||||||||||||||||||||
|
Postretirement Benefit Plans
|
7.9 | (0.3 | ) | 7.6 | 2.4 | — | 2.4 | 3.3 | — | 3.3 | ||||||||||||||||||||||||||
|
Postemployment Benefit Plans
|
3.9 | — | 3.9 | 1.2 | — | 1.2 | 1.5 | — | 1.5 | |||||||||||||||||||||||||||
|
Accumulated Other Comprehensive Income (Loss)
|
$ | 143.0 | $ | 1.4 | $ | 144.4 | $ | (284.3 | ) | $ | — | $ | (284.3 | ) | $ | 32.1 | $ | — | $ | 32.1 | ||||||||||||||||
The balances of Accumulated Other Comprehensive Income (Loss),
net of applicable taxes are as follows:
| December 31, | ||||||||
| In millions | 2009 | 2008 | ||||||
|
Accumulated Derivative Instruments Loss
|
$ | (35.1 | ) | $ | (68.5 | ) | ||
|
Currency Translation Adjustment
|
(5.4 | ) | (13.2 | ) | ||||
|
Pension Benefit Plans
|
(188.2 | ) | (279.9 | ) | ||||
|
Postretirement Benefit Plans
|
14.4 | 6.8 | ||||||
|
Postemployment Benefit Plans
|
0.5 | (3.4 | ) | |||||
|
Accumulated Other Comprehensive Loss
|
$ | (213.8 | ) | $ | (358.2 | ) | ||
71
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| NOTE 13 — | IMPAIRMENT |
In accordance with the
Property, Plant, and Equipment
topic of the FASB Codification, the Company reviews
long-lived assets for impairment when events or changes in
circumstances indicate the carrying value of these assets may
exceed their current fair values.
During 2009, the Company recognized an impairment charge of
$11.5 million relating to a flexible packaging plant
located in Ontario, Canada. A current year operating loss, as
well as the projection of continuing losses, led the Company to
test the plant’s long-lived assets for impairment. Fair
value was determined using an income approach based on
management’s assumptions and a market approach based on
comparable sales of similar assets. The impairment charge is
included as a component of Restructuring and Other Special
(Credits) Charges on the Consolidated Statements of Operations
and is a component of the Company’s specialty packaging
segment.
During 2007, the Company recognized an impairment charge of
$18.6 million relating to its paperboard mill located in
Norrköping, Sweden. The Company’s plan to sell the
operations led to the testing for impairment of these long-lived
assets. The fair value of the impaired assets was determined
based on selling price less cost to sell. The impairment charge
is reflected as a component of Loss from Discontinued Operations
on the Consolidated Statements of Operations and as a component
of the Company’s paperboard packaging segment.
| NOTE 14 — | DISCONTINUED OPERATIONS |
On October 16, 2007, Graphic Packaging International
Holding Sweden AB (the “Seller”), an indirect
wholly-owned subsidiary of the Company, entered into a Sale and
Purchase Agreement with Lagrumment December nr 1031 Aktiebolg, a
company organized under the laws of Sweden that was renamed
Fiskeby International Holding AB (the “Purchaser”),
and simultaneously completed the transactions contemplated by
such agreement. Pursuant to such Purchase and Sales Agreement,
the Purchaser acquired all of the outstanding shares of Graphic
Packaging International Sweden (“GP-Sweden”).
GP-Sweden and its subsidiaries are in the business of
developing, manufacturing and selling paper and packaging boards
made from recycled fiber. The Sale and Purchase Agreement
specified that the purchase price was $8.6 million and
contained customary representations and warranties of the Seller.
The Purchaser is affiliated with Jeffery H. Coors, the former
Vice Chairman and a member of the Board of Directors of the
Company. The Seller undertook the sale of GP-Sweden to the
Purchaser after a thorough exploration of strategic alternatives
with respect to GP-Sweden. The transactions contemplated by the
Sale and Purchase Agreement were approved by the Audit Committee
of the Board of Directors of the Company pursuant to its Policy
Regarding Related Party Transactions and by the full Board of
Directors other than Mr. Coors.
In 2008, the Company determined an additional $0.9 million
environmental reserve related to GP-Sweden was necessary and
recorded this in discontinued operations within the
Company’s Consolidated Statements of Operations.
The long-lived assets of GP-Sweden comprised operations and cash
flows that could be distinguished from the rest of the Company.
Since these cash flows have been eliminated from ongoing
operations, the results of operations were reported in
discontinued operations for all periods presented.
72
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Summarized financial information for discontinued operations is
as follows:
| Year Ended December 31, | ||||||||
| In millions | 2008 | 2007 | ||||||
|
Net Sales
|
$ | — | $ | 83.4 | ||||
|
Loss before Income Taxes
|
(0.9 | ) | (33.4 | ) | ||||
GP-Sweden was included in the paperboard packaging segment and
the Europe geographic area.
| NOTE 15 — | ENVIRONMENTAL AND LEGAL MATTERS |
Environmental
Matters
The Company is subject to a broad range of foreign, federal,
state and local environmental, health and safety laws and
regulations, including those governing discharges to air, soil
and water, the management, treatment and disposal of hazardous
substances, solid waste and hazardous wastes, the investigation
and remediation of contamination resulting from historical site
operations and releases of hazardous substances, and the health
and safety of employees. Compliance initiatives could result in
significant costs, which could negatively impact the
Company’s financial position, results of operations or cash
flows, although the Company is not currently aware of any
required compliance initiatives that are expected to require
material expenditures. Any failure to comply with environmental
or health and safety laws and regulations or any permits and
authorizations required thereunder could subject the Company to
fines, corrective action or other sanctions.
Some of the Company’s current and former facilities are the
subject of environmental investigations and remediations
resulting from historical operations and the release of
hazardous substances or other constituents. Some current and
former facilities have a history of industrial usage for which
investigation and remediation obligations may be imposed in the
future or for which indemnification claims may be asserted
against the Company. Also, potential future closures or sales of
facilities may necessitate further investigation and may result
in future remediation at those facilities.
On October 8, 2007, the Company received a notice from the
United States Environmental Protection Agency (the
“EPA”) indicating that it is a potentially responsible
party for the remedial investigation and feasibility study to be
conducted at the Devil’s Swamp Lake site in East Baton
Rouge Parish, Louisiana. The Company believes it is a de minimis
contributor to the site and expects to enter into negotiations
with the EPA and other potentially responsible parties regarding
its potential responsibility and liability, but it is too early
in the investigation process to quantify possible costs with
respect to such site.
The Company has established reserves for those facilities or
issues where liability is probable and the costs are reasonably
estimable. The Company believes that the amounts accrued for all
of its loss contingencies, and the reasonably possible loss
beyond the amounts accrued, are not material to the
Company’s financial position, results of operations or cash
flows. The Company cannot estimate with certainty other future
corrective compliance, investigation or remediation costs. Costs
relating to historical usage that the Company considers to be
reasonably possible are not quantifiable at this time. The
Company will continue to monitor environmental issues at each of
its facilities and will revise its accruals, estimates and
disclosures relating to past, present and future operations, as
additional information is obtained.
Legal
Matters
The Company is a party to a number of lawsuits arising in the
ordinary conduct of its business. Although the timing and
outcome of these lawsuits cannot be predicted with certainty,
the Company does not believe that disposition of these lawsuits
will have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash
flows.
73
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GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| NOTE 16 — | COMMITMENTS AND CONTINGENCIES |
The Company leases certain warehouse facilities, office space,
data processing equipment and plant equipment under long-term,
non-cancelable contracts that expire at various dates and are
subject to renewal options. At December 31, 2009, total
minimum rental payments under these leases were as follows:
| In millions | At December 31, | |||
|
2010
|
$ | 42.3 | ||
|
2011
|
36.0 | |||
|
2012
|
27.1 | |||
|
2013
|
16.8 | |||
|
2014
|
11.5 | |||
|
Thereafter
|
25.6 | |||
|
Total
|
$ | 159.3 | ||
Total rental expense was approximately $40 million,
$42 million and $17 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
The Company has entered into other long-term contracts
principally for the purchase of fiber and chip processing. The
minimum purchase commitments extend beyond 2014. At
December 31, 2009, total commitments under these contracts
were as follows:
| In millions | At December 31, | |||
|
2010
|
$ | 116.5 | ||
|
2011
|
85.1 | |||
|
2012
|
80.6 | |||
|
2013
|
59.2 | |||
|
2014
|
58.1 | |||
|
Thereafter
|
208.1 | |||
|
Total
|
$ | 607.6 | ||
| NOTE 17 — | RELATED PARTY TRANSACTIONS |
MillerCoors Brewing Company, a newly formed joint venture
between Molson Coors Brewing Company (formerly known as the
Adolph Coors Company) and SABMiller, accounted for approximately
$260 million of the Company’s Net Sales for the year
ended December 31, 2009. For the years ended
December 31, 2008 and 2007, Molson Coors Brewing Company
(or its predecessor, Coors Brewing Company) accounted for
approximately $87 million and $85 million,
respectively, of the Company’s Net Sales. For the year
ended December 31, 2008, SABMiller accounted for
approximately $132 million of the Company’s Net Sales.
The Company continues to sell packaging products to MillerCoors
Brewing Company. The supply agreement with MillerCoors Brewing
Company has been extended until March 2010 and is currently
being negotiated. Mr. Jeffrey H. Coors, a member of the
Company’s Board of Directors, was an Executive Vice
President of the Adolph Coors Company from 1991 to 1992 and its
President from 1985 to 1989. Together with family members and
related trusts, Mr. Coors owns a significant interest in
Molson Coors Brewing Company.
On October 16, 2007, the Company sold an indirect
wholly-owned subsidiary to a purchaser affiliated with Jeffrey
H. Coors. See Note 14 — Discontinued Operations.
| NOTE 18 — | BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION |
As a result of the Altivity Transaction, the Company’s
reporting segments were revised as follows: the Company’s
containerboard/other were combined into the paperboard packaging
segment and additionally, two new segments were created,
multi-wall bag and specialty packaging. These segments are
evaluated by the chief operating decision maker based primarily
on Income from Operations. The Company’s reportable
74
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GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
segments are based upon strategic business units that offer
different products. The accounting policies of the reportable
segments are the same as those described above in
Note 1 — Nature of Business and Summary of
Significant Accounting Policies.
The paperboard packaging segment is highly integrated and
includes a system of mills and plants that produces a broad
range of paperboard grades convertible into folding cartons.
Folding cartons are used primarily to protect products, such as
food, detergents, paper products, beverages, and health and
beauty aids, while providing point of purchase advertising. The
paperboard packaging business segment includes the design,
manufacture and installation of packaging machinery related to
the assembly of cartons and the production and sale of
corrugating medium and kraft paper from paperboard mills in the
U.S.
The multi-wall bag business segment converts kraft and specialty
paper into multi-wall bags, consumer bags and specialty retail
bags. The bags are designed to ship and protect a wide range of
industrial and consumer products including fertilizers,
chemicals, concrete, and pet and food products.
The specialty packaging business segment primarily includes
flexible packaging, label solutions and laminations. This
segment converts a wide variety of technologically advanced
films for use in the food, pharmaceutical and industrial
end-markets. Flexible packaging paper and metallicized paper
labels and heat transfer labels are used in a wide range of
consumer applications.
Prior year segment results have been reclassified for the
allocation of certain corporate costs and assets.
The Company did not have any one customer who accounted for 10%
or more of the Company’s net sales during 2009, 2008 or
2007.
Business segment information is as follows:
| Year Ended December 31, | ||||||||||||
| In millions | 2009 | 2008 | 2007 | |||||||||
|
NET SALES:
|
||||||||||||
|
Paperboard Packaging
|
$ | 3,423.5 | $ | 3,377.4 | $ | 2,340.6 | ||||||
|
Multi-wall Bag
|
471.6 | 478.1 | 80.6 | |||||||||
|
Specialty Packaging
|
200.7 | 223.9 | — | |||||||||
|
Total
|
$ | 4,095.8 | $ | 4,079.4 | $ | 2,421.2 | ||||||
|
INCOME (LOSS) FROM OPERATIONS:
|
||||||||||||
|
Paperboard Packaging
|
$ | 288.3 | $ | 220.9 | $ | 177.8 | ||||||
|
Multi-wall Bag
|
3.9 | 25.9 | 6.3 | |||||||||
|
Specialty Packaging
|
(1.4 | ) | 9.6 | — | ||||||||
|
Corporate
(a)
|
(8.1 | ) | (106.5 | ) | (32.9 | ) | ||||||
|
Total
|
$ | 282.7 | $ | 149.9 | $ | 151.2 | ||||||
|
CAPITAL EXPENDITURES:
|
||||||||||||
|
Paperboard Packaging
|
$ | 107.8 | $ | 145.6 | $ | 92.3 | ||||||
|
Multi-wall Bag
|
7.3 | 9.8 | 1.6 | |||||||||
|
Specialty Packaging
|
1.3 | 2.4 | — | |||||||||
|
Corporate
|
13.5 | 25.5 | 2.0 | |||||||||
|
Total
|
$ | 129.9 | $ | 183.3 | $ | 95.9 | ||||||
|
DEPRECIATION AND AMORTIZATION:
|
||||||||||||
|
Paperboard Packaging
|
$ | 252.7 | $ | 224.9 | $ | 180.5 | ||||||
|
Multi-wall Bag
|
26.1 | 15.2 | 1.8 | |||||||||
|
Specialty Packaging
|
14.8 | 10.0 | — | |||||||||
|
Corporate
|
11.8 | 14.2 | 7.3 | |||||||||
|
Total
|
$ | 305.4 | $ | 264.3 | $ | 189.6 | ||||||
75
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GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| December 31, | ||||||||
| In millions | 2009 | 2008 | ||||||
|
ASSETS AT DECEMBER 31:
|
||||||||
|
Paperboard Packaging
|
$ | 3,654.2 | $ | 3,903.3 | ||||
|
Multi-wall Bag
|
585.4 | 598.9 | ||||||
|
Specialty Packaging
|
270.8 | 315.6 | ||||||
|
Corporate
(b)
|
191.4 | 165.3 | ||||||
|
Total
|
$ | 4,701.8 | $ | 4,983.1 | ||||
Business geographic area information is as follows:
| Year Ended December 31, | ||||||||||||
| In millions | 2009 | 2008 | 2007 | |||||||||
|
NET SALES:
|
||||||||||||
|
U.S./Canada
|
$ | 3,871.6 | $ | 3,842.6 | $ | 2,122.9 | ||||||
|
Central/South America
|
69.7 | 55.1 | 29.0 | |||||||||
|
Europe
|
163.5 | 197.6 | 282.1 | |||||||||
|
Asia Pacific
|
121.6 | 112.7 | 136.3 | |||||||||
|
Eliminations
(c)
|
(130.6 | ) | (128.6 | ) | (149.1 | ) | ||||||
|
Total
|
$ | 4,095.8 | $ | 4,079.4 | $ | 2,421.2 | ||||||
| In millions | 2009 | 2008 | ||||||
|
ASSETS AT DECEMBER 31:
|
||||||||
|
U.S./Canada
|
$ | 4,232.7 | $ | 4,550.5 | ||||
|
Central/South America
|
70.1 | 52.2 | ||||||
|
Europe
|
157.6 | 165.0 | ||||||
|
Asia Pacific
|
50.0 | 50.1 | ||||||
|
Corporate
|
191.4 | 165.3 | ||||||
|
Total
|
$ | 4,701.8 | $ | 4,983.1 | ||||
Notes:
| (a) | Primarily consists of unallocated general corporate expenses and costs associated with the combination with Altivity. | |
| (b) | Corporate assets are principally cash and equivalents, other current assets, deferred income tax assets, deferred debt issue costs and a portion of property, plant and equipment. | |
| (c) | Represents primarily the elimination of intergeographic sales between the Company’s U.S., Europe, Asia Pacific and Central/South America operations. |
76
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GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| NOTE 19 — | QUARTERLY FINANCIAL INFORMATION (UNAUDITED) |
Results of operations for the four quarters of 2009 and 2008 are
shown below.
| 2009 | ||||||||||||||||||||
| In millions, except per share amounts | First | Second | Third | Fourth | Total | |||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||
|
Net Sales
|
$ | 1,019.2 | $ | 1,043.8 | $ | 1,054.2 | $ | 978.6 | $ | 4,095.8 | ||||||||||
|
Gross Profit
|
126.3 | 142.1 | 146.4 | 113.8 | 528.6 | |||||||||||||||
|
Restructuring and Other Special (Credits) Charges
|
14.9 | (20.9 | ) | (23.9 | ) | (23.2 | ) | (53.1 | ) | |||||||||||
|
Income from Operations
|
33.1 | 88.0 | 97.5 | 64.1 | 282.7 | |||||||||||||||
|
Net Income (Loss)
|
(28.2 | ) | 19.6 | 33.2 | 31.8 | 56.4 | ||||||||||||||
|
Income (Loss) Per Share — Basic and Diluted
|
(0.08 | ) | 0.06 | 0.10 | 0.09 | 0.16 | ||||||||||||||
| 2008 | ||||||||||||||||||||
| In millions, except per share amounts | First | Second | Third | Fourth | Total | |||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||
|
Net Sales
|
$ | 724.3 | $ | 1,141.7 | $ | 1,165.7 | $ | 1,047.7 | $ | 4,079.4 | ||||||||||
|
Gross Profit
|
86.6 | 143.6 | 150.4 | 111.7 | 492.3 | |||||||||||||||
|
Restructuring and Other Special Charges
|
9.8 | (2.8 | ) | 7.4 | 18.8 | 33.2 | ||||||||||||||
|
Income from Operations
|
25.5 | 61.9 | 52.5 | 10.0 | 149.9 | |||||||||||||||
|
Loss from Continuing Operations
|
(23.3 | ) | (4.3 | ) | (13.5 | ) | (57.7 | ) | (98.8 | ) | ||||||||||
|
Loss from Discontinued Operations, Net of Taxes
|
— | — | (0.9 | ) | — | (0.9 | ) | |||||||||||||
|
Net Loss
|
(23.3 | ) | (4.3 | ) | (14.4 | ) | (57.7 | ) | (99.7 | ) | ||||||||||
|
Loss Per Share — Basic and Diluted:
|
||||||||||||||||||||
|
Continuing Operations
|
(0.10 | ) | (0.01 | ) | (0.04 | ) | (0.17 | ) | (0.31 | ) | ||||||||||
|
Discontinued Operations
|
— | — | (0.00 | ) | — | (0.00 | ) | |||||||||||||
|
Total
|
(0.10 | ) | (0.01 | ) | (0.04 | ) | (0.17 | ) | (0.32 | ) | ||||||||||
| NOTE 20 — | EARNINGS PER SHARE |
| Year Ended December 31, | ||||||||||||
| In millions, except per share data | 2009 | 2008 | 2007 | |||||||||
|
Net Income (Loss)
|
$ | 56.4 | $ | (99.7 | ) | $ | (74.6 | ) | ||||
|
Weighted Average Shares:
|
||||||||||||
|
Basic
|
343.1 | 315.8 | 201.8 | |||||||||
|
Stock Awards
|
1.5 | — | — | |||||||||
|
Diluted
|
344.6 | 315.8 | 201.8 | |||||||||
|
Earnings Per Share — Basic and Diluted
|
$ | 0.16 | $ | (0.32 | ) | $ | (0.37 | ) | ||||
77
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following are the potentially dilutive securities excluded
from the above calculation because the effect would have been
anti-dilutive:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Employee Stock Options
|
6,290,080 | — | — | |||||||||
|
Restricted Stock Awards
|
557,293 | — | — | |||||||||
|
Total
|
6,847,373 | — | — | |||||||||
| NOTE 21 — | GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS |
This disclosure is required because certain subsidiaries of
Altivity became guarantors of GPII debt securities on
March 10, 2008, the date of the closing of the Altivity
Transaction.
These consolidating financial statements reflect GPHC and GPC
(collectively “the Parent”); GPII, the Subsidiary
Issuer; and the Subsidiary Guarantors, which consist of all
material 100% owned subsidiaries of GPII other than its foreign
subsidiaries. The nonguarantor subsidiaries are herein referred
to as “Nonguarantor Subsidiaries.” Separate complete
financial statements of the Subsidiary Guarantors are not
presented because the guarantors are jointly and severally,
fully and unconditionally liable under the guarantees.
| Year Ended December 31, 2009 | ||||||||||||||||||||||||
|
Combined
|
Combined
|
|||||||||||||||||||||||
|
Subsidiary
|
Guarantor
|
Nonguarantor
|
Consolidating
|
|||||||||||||||||||||
| In millions | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
|
Net Sales
|
$ | — | $ | 3,312.4 | $ | 514.8 | $ | 399.2 | $ | (130.6 | ) | $ | 4,095.8 | |||||||||||
|
Cost of Sales
|
— | 2,869.6 | 457.8 | 373.3 | (133.5 | ) | 3,567.2 | |||||||||||||||||
|
Selling, General and Administrative
|
— | 242.4 | 35.8 | 27.1 | — | 305.3 | ||||||||||||||||||
|
Research, Development and Engineering
|
— | 4.6 | 2.4 | 0.2 | — | 7.2 | ||||||||||||||||||
|
Other Income, Net
|
— | (0.1 | ) | (6.0 | ) | (7.4 | ) | — | (13.5 | ) | ||||||||||||||
|
Restructuring and Other Special (Credits) Charges
|
— | (66.1 | ) | — | 13.0 | — | (53.1 | ) | ||||||||||||||||
|
Income (Loss) from Operations
|
— | 262.0 | 24.8 | (7.0 | ) | 2.9 | 282.7 | |||||||||||||||||
|
Interest Expense, Net
|
— | (194.5 | ) | 0.2 | (2.1 | ) | — | (196.4 | ) | |||||||||||||||
|
Loss on Early Extinguishment of Debt
|
— | (7.1 | ) | — | — | — | (7.1 | ) | ||||||||||||||||
|
Income (Loss) before Income Taxes and Equity in Net Earnings of
Affiliates
|
— | 60.4 | 25.0 | (9.1 | ) | 2.9 | 79.2 | |||||||||||||||||
|
Income Tax (Expense) Benefit
|
— | (31.5 | ) | 0.6 | 6.8 | — | (24.1 | ) | ||||||||||||||||
|
Income (Loss) before Equity in Net Earnings of Affiliates
|
— | 28.9 | 25.6 | (2.3 | ) | 2.9 | 55.1 | |||||||||||||||||
|
Equity in Net Earnings of Affiliates
|
— | — | — | 1.3 | — | 1.3 | ||||||||||||||||||
|
Equity in Net Earnings of Subsidiaries
|
56.4 | 27.5 | (1.9 | ) | — | (82.0 | ) | — | ||||||||||||||||
|
Net Income (Loss)
|
$ | 56.4 | $ | 56.4 | $ | 23.7 | $ | (1.0 | ) | $ | (79.1 | ) | $ | 56.4 | ||||||||||
78
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, 2008 | ||||||||||||||||||||||||
|
Combined
|
Combined
|
|||||||||||||||||||||||
|
Subsidiary
|
Guarantor
|
Nonguarantor
|
Consolidating
|
|||||||||||||||||||||
| In millions | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
|
Net Sales
|
$ | — | $ | 2,380.3 | $ | 1,404.6 | $ | 423.1 | $ | (128.6 | ) | $ | 4,079.4 | |||||||||||
|
Cost of Sales
|
— | 2,119.7 | 1,212.9 | 384.1 | (129.6 | ) | 3,587.1 | |||||||||||||||||
|
Selling, General and Administrative
|
— | 164.6 | 105.0 | 29.3 | — | 298.9 | ||||||||||||||||||
|
Research, Development and Engineering
|
— | 7.5 | — | 0.5 | — | 8.0 | ||||||||||||||||||
|
Other (Income) Expense, Net
|
— | (1.4 | ) | 4.2 | (0.5 | ) | — | 2.3 | ||||||||||||||||
|
Restructuring and Other Special Charges (Credits)
|
— | 33.2 | — | — | — | 33.2 | ||||||||||||||||||
|
Income from Operations
|
— | 56.7 | 82.5 | 9.7 | 1.0 | 149.9 | ||||||||||||||||||
|
Interest (Expense) Income, Net
|
— | (212.6 | ) | 1.3 | (4.1 | ) | — | (215.4 | ) | |||||||||||||||
|
(Loss) Income before Income Taxes and Equity in Net Earnings of
Affiliates
|
— | (155.9 | ) | 83.8 | 5.6 | 1.0 | (65.5 | ) | ||||||||||||||||
|
Income Tax Expense
|
— | (27.6 | ) | (2.8 | ) | (4.0 | ) | — | (34.4 | ) | ||||||||||||||
|
(Loss) Income before Equity in Net Earnings of Affiliates
|
— | (183.5 | ) | 81.0 | 1.6 | 1.0 | (99.9 | ) | ||||||||||||||||
|
Equity in Net Earnings of Affiliates
|
— | — | — | 1.1 | — | 1.1 | ||||||||||||||||||
|
Equity in Net Earnings of Subsidiaries
|
(99.7 | ) | 84.7 | 2.2 | — | 12.8 | — | |||||||||||||||||
|
(Loss) Income from Continuing Operations
|
(99.7 | ) | (98.8 | ) | 83.2 | 2.7 | 13.8 | (98.8 | ) | |||||||||||||||
|
Loss from Discontinued Operations, Net of Taxes
|
— | (0.9 | ) | — | — | — | (0.9 | ) | ||||||||||||||||
|
Net (Loss) Income
|
$ | (99.7 | ) | $ | (99.7 | ) | $ | 83.2 | $ | 2.7 | $ | 13.8 | $ | (99.7 | ) | |||||||||
79
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| December 31, 2009 | ||||||||||||||||||||||||
|
Combined
|
Combined
|
|||||||||||||||||||||||
|
Subsidiary
|
Guarantor
|
Nonguarantor
|
Consolidating
|
|||||||||||||||||||||
| In millions | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||
|
Current Assets:
|
||||||||||||||||||||||||
|
Cash and Cash Equivalents
|
$ | — | $ | 124.3 | $ | — | $ | 25.5 | $ | — | $ | 149.8 | ||||||||||||
|
Receivables, Net
|
— | 266.0 | 41.6 | 74.7 | — | 382.3 | ||||||||||||||||||
|
Inventories, Net
|
— | 333.2 | 56.8 | 46.5 | — | 436.5 | ||||||||||||||||||
|
Deferred Income Tax Assets
|
— | 34.4 | — | 0.3 | — | 34.7 | ||||||||||||||||||
|
Intercompany
|
1.8 | 158.7 | (96.1 | ) | (64.4 | ) | — | — | ||||||||||||||||
|
Other Current Assets
|
— | 13.8 | 0.7 | 3.5 | — | 18.0 | ||||||||||||||||||
|
Total Current Assets
|
1.8 | 930.4 | 3.0 | 86.1 | — | 1,021.3 | ||||||||||||||||||
|
Property, Plant and Equipment, Net
|
— | 1,594.9 | 139.1 | 63.6 | (0.2 | ) | 1,797.4 | |||||||||||||||||
|
Investment in Consolidated Subsidiaries
|
727.0 | 184.2 | (0.2 | ) | 123.2 | (1,034.2 | ) | — | ||||||||||||||||
|
Goodwill
|
— | 1,171.9 | — | 32.7 | — | 1,204.6 | ||||||||||||||||||
|
Other Assets
|
— | 649.2 | 0.7 | 28.6 | — | 678.5 | ||||||||||||||||||
|
Total Assets
|
$ | 728.8 | $ | 4,530.6 | $ | 142.6 | $ | 334.2 | $ | (1,034.4 | ) | $ | 4,701.8 | |||||||||||
| LIABILITIES | ||||||||||||||||||||||||
|
Current Liabilities:
|
||||||||||||||||||||||||
|
Short-Term Debt and Current Portion of Long-Term Debt
|
$ | — | $ | 10.0 | $ | — | $ | 7.6 | $ | — | $ | 17.6 | ||||||||||||
|
Accounts Payable
|
— | 274.1 | 37.4 | 39.3 | — | 350.8 | ||||||||||||||||||
|
Other Accrued Liabilities
|
— | 210.9 | 49.5 | 15.5 | — | 275.9 | ||||||||||||||||||
|
Total Current Liabilities
|
— | 495.0 | 86.9 | 62.4 | — | 644.3 | ||||||||||||||||||
|
Long-Term Debt
|
— | 2,782.6 | — | — | — | 2,782.6 | ||||||||||||||||||
|
Deferred Income Tax Liabilities
|
— | 221.7 | 0.9 | 4.3 | — | 226.9 | ||||||||||||||||||
|
Other Noncurrent Liabilities
|
— | 304.3 | — | 14.9 | — | 319.2 | ||||||||||||||||||
|
Total Liabilities
|
— | 3,803.6 | 87.8 | 81.6 | — | 3,973.0 | ||||||||||||||||||
|
SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||
|
Total Shareholders’ Equity
|
728.8 | 727.0 | 54.8 | 252.6 | (1,034.4 | ) | 728.8 | |||||||||||||||||
|
Total Liabilities and Shareholders’ Equity
|
$ | 728.8 | $ | 4,530.6 | $ | 142.6 | $ | 334.2 | $ | (1,034.4 | ) | $ | 4,701.8 | |||||||||||
80
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| December 31, 2008 | ||||||||||||||||||||||||
|
Combined
|
Combined
|
|||||||||||||||||||||||
|
Subsidiary
|
Guarantor
|
Nonguarantor
|
Consolidating
|
|||||||||||||||||||||
| In millions | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||
|
Current Assets:
|
||||||||||||||||||||||||
|
Cash and Cash Equivalents
|
$ | — | $ | 170.8 | $ | (7.5 | ) | $ | 6.8 | $ | — | $ | 170.1 | |||||||||||
|
Receivables, Net
|
— | 233.4 | 56.1 | 80.1 | — | 369.6 | ||||||||||||||||||
|
Inventories, Net
|
— | 397.0 | 82.8 | 55.2 | (3.0 | ) | 532.0 | |||||||||||||||||
|
Intercompany
|
(1.0 | ) | 292.5 | (178.3 | ) | (113.2 | ) | — | — | |||||||||||||||
|
Other Current Assets
|
— | 50.7 | 1.1 | 5.1 | — | 56.9 | ||||||||||||||||||
|
Total Current Assets
|
(1.0 | ) | 1,144.4 | (45.8 | ) | 34.0 | (3.0 | ) | 1,128.6 | |||||||||||||||
|
Property, Plant and Equipment, Net
|
— | 1,699.4 | 157.8 | 78.1 | (0.2 | ) | 1,935.1 | |||||||||||||||||
|
Investment in Consolidated Subsidiaries
|
526.2 | 68.7 | 4.1 | 107.9 | (706.9 | ) | — | |||||||||||||||||
|
Goodwill
|
— | 1,230.6 | (25.4 | ) | (1.1 | ) | 0.7 | 1,204.8 | ||||||||||||||||
|
Other Assets
|
— | 705.8 | 1.4 | 7.4 | — | 714.6 | ||||||||||||||||||
|
Total Assets
|
$ | 525.2 | $ | 4,848.9 | $ | 92.1 | $ | 226.3 | $ | (709.4 | ) | $ | 4,983.1 | |||||||||||
| LIABILITIES | ||||||||||||||||||||||||
|
Current Liabilities:
|
||||||||||||||||||||||||
|
Short-Term Debt and Current Portion of Long-Term Debt
|
$ | — | $ | 11.9 | $ | — | $ | 6.7 | $ | — | $ | 18.6 | ||||||||||||
|
Accounts Payable
|
— | 250.0 | 47.8 | 35.6 | — | 333.4 | ||||||||||||||||||
|
Other Accrued Liabilities
|
— | 302.6 | 17.2 | 13.7 | 0.1 | 333.6 | ||||||||||||||||||
|
Total Current Liabilities
|
— | 564.5 | 65.0 | 56.0 | 0.1 | 685.6 | ||||||||||||||||||
|
Long-Term Debt
|
— | 3,165.2 | — | — | — | 3,165.2 | ||||||||||||||||||
|
Deferred Income Tax Liabilities
|
— | 184.3 | 0.9 | 2.6 | — | 187.8 | ||||||||||||||||||
|
Other Noncurrent Liabilities
|
— | 408.7 | 0.1 | 10.6 | (0.1 | ) | 419.3 | |||||||||||||||||
|
Total Liabilities
|
— | 4,322.7 | 66.0 | 69.2 | — | 4,457.9 | ||||||||||||||||||
|
SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||
|
Total Shareholders’ Equity
|
525.2 | 526.2 | 26.1 | 157.1 | (709.4 | ) | 525.2 | |||||||||||||||||
|
Total Liabilities and Shareholders’ Equity
|
$ | 525.2 | $ | 4,848.9 | $ | 92.1 | $ | 226.3 | $ | (709.4 | ) | $ | 4,983.1 | |||||||||||
81
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, 2009 | ||||||||||||||||||||||||
|
Combined
|
Combined
|
|||||||||||||||||||||||
|
Subsidiary
|
Guarantor
|
Nonguarantor
|
Consolidating
|
|||||||||||||||||||||
| In millions | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||||||
|
Net Income (Loss)
|
$ | 56.4 | $ | 56.4 | $ | 23.7 | $ | (1.0 | ) | $ | (79.1 | ) | $ | 56.4 | ||||||||||
|
Noncash Items Included in Net Income (Loss):
|
||||||||||||||||||||||||
|
Depreciation and Amortization
|
— | 271.5 | 23.1 | 10.8 | — | 305.4 | ||||||||||||||||||
|
Amortization of Deferred Debt Issuance Costs
|
— | 8.5 | — | — | — | 8.5 | ||||||||||||||||||
|
Deferred Income Taxes
|
— | 31.4 | — | (11.8 | ) | — | 19.6 | |||||||||||||||||
|
Amount of Postemployment
|
||||||||||||||||||||||||
|
Expense Greater (Less) Than Funding
|
— | 10.0 | — | (5.3 | ) | — | 4.7 | |||||||||||||||||
|
Impairment Charges/ Asset Write-Offs
|
— | 3.1 | 2.7 | 11.8 | — | 17.6 | ||||||||||||||||||
|
Equity in Subsidiaries
|
(56.4 | ) | (27.5 | ) | 1.9 | — | 82.0 | — | ||||||||||||||||
|
Other, Net
|
— | (7.4 | ) | — | — | — | (7.4 | ) | ||||||||||||||||
|
Changes in Operating Assets and Liabilities
|
— | 126.4 | (44.9 | ) | 19.5 | (2.9 | ) | 98.1 | ||||||||||||||||
|
Net Cash Provided by Operating Activities
|
— | 472.4 | 6.5 | 24.0 | — | 502.9 | ||||||||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||||||
|
Capital Spending
|
— | (115.5 | ) | (8.2 | ) | (6.2 | ) | — | (129.9 | ) | ||||||||||||||
|
Proceeds from Sales of Assets, Net of
|
||||||||||||||||||||||||
|
Selling Costs
|
— | — | 9.8 | — | — | 9.8 | ||||||||||||||||||
|
Other, Net
|
— | (3.4 | ) | (0.6 | ) | — | — | (4.0 | ) | |||||||||||||||
|
Net Cash (Used in) Provided by Investing Activities
|
— | (118.9 | ) | 1.0 | (6.2 | ) | — | (124.1 | ) | |||||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||||||
|
Proceeds from Issuance of Debt
|
— | 423.8 | — | — | — | 423.8 | ||||||||||||||||||
|
Payments on Debt
|
— | (664.5 | ) | — | — | — | (664.5 | ) | ||||||||||||||||
|
Borrowings under Revolving Credit Facilities
|
— | 105.9 | — | — | — | 105.9 | ||||||||||||||||||
|
Payments on Revolving Credit Facilities
|
— | (249.1 | ) | — | — | — | (249.1 | ) | ||||||||||||||||
|
Debt Issuance Costs and Early Tender Premiums
|
— | (16.1 | ) | — | — | — | (16.1 | ) | ||||||||||||||||
|
Other, Net
|
— | — | — | 0.8 | — | 0.8 | ||||||||||||||||||
|
Net Cash (Used in) Provided by Financing Activities
|
— | (400.0 | ) | — | 0.8 | — | (399.2 | ) | ||||||||||||||||
|
Effect of Exchange Rate Changes on Cash
|
— | — | — | 0.1 | — | 0.1 | ||||||||||||||||||
|
Net (Decrease) Increase in Cash and Cash Equivalents
|
— | (46.5 | ) | 7.5 | 18.7 | — | (20.3 | ) | ||||||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
— | 170.8 | (7.5 | ) | 6.8 | — | 170.1 | |||||||||||||||||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | — | $ | 124.3 | $ | — | $ | 25.5 | $ | — | $ | 149.8 | ||||||||||||
82
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, 2008 | ||||||||||||||||||||||||
|
Combined
|
Combined
|
|||||||||||||||||||||||
|
Subsidiary
|
Guarantor
|
Nonguarantor
|
Consolidating
|
|||||||||||||||||||||
| In millions | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||||||
|
Net (Loss) Income
|
$ | (99.7 | ) | $ | (99.7 | ) | $ | 83.2 | $ | 2.7 | $ | 13.8 | $ | (99.7 | ) | |||||||||
|
Noncash Items Included in Net (Loss) Income:
|
||||||||||||||||||||||||
|
Depreciation and Amortization
|
— | 208.4 | 46.7 | 9.2 | — | 264.3 | ||||||||||||||||||
|
Deferred Income Taxes
|
— | 19.4 | 8.1 | 0.5 | — | 28.0 | ||||||||||||||||||
|
Amount of Postemployment Expense Less Than Funding
|
— | (33.4 | ) | — | (5.0 | ) | — | (38.4 | ) | |||||||||||||||
|
Amortization of Deferred Debt Issuance Costs
|
— | 7.9 | — | — | — | 7.9 | ||||||||||||||||||
|
Inventory Step Up Related to Altivity
|
— | — | 24.4 | — | — | 24.4 | ||||||||||||||||||
|
Impairment Charges/Asset Write-offs
|
— | 15.0 | (0.2 | ) | 0.1 | — | 14.9 | |||||||||||||||||
|
Equity in Net Loss (Earnings) of Subsidiaries, Net of Dividends
|
99.7 | (84.7 | ) | (2.2 | ) | — | (12.8 | ) | — | |||||||||||||||
|
Other, Net
|
— | 2.3 | (0.9 | ) | 0.4 | — | 1.8 | |||||||||||||||||
|
Changes in Operating Assets and Liabilities
|
— | 117.2 | (135.0 | ) | (0.2 | ) | (1.0 | ) | (19.0 | ) | ||||||||||||||
|
Net Cash Provided by Operating Activities
|
— | 152.4 | 24.1 | 7.7 | — | 184.2 | ||||||||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||||||
|
Capital Spending
|
— | (141.4 | ) | (31.6 | ) | (10.3 | ) | — | (183.3 | ) | ||||||||||||||
|
Acquisition Costs Related to Altivity
|
— | (30.3 | ) | — | — | — | (30.3 | ) | ||||||||||||||||
|
Cash Acquired Related to Altivity
|
— | 60.2 | — | — | — | 60.2 | ||||||||||||||||||
|
Proceeds from Sales of Assets, Net of Selling Costs
|
— | 20.3 | — | — | — | 20.3 | ||||||||||||||||||
|
Other, Net
|
— | (10.7 | ) | — | — | — | (10.7 | ) | ||||||||||||||||
|
Net Cash Used in Investing Activities
|
— | (101.9 | ) | (31.6 | ) | (10.3 | ) | — | (143.8 | ) | ||||||||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||||||
|
Proceeds from Issuance of Debt
|
— | 1,200.0 | — | — | — | 1,200.0 | ||||||||||||||||||
|
Payments on Debt
|
— | (1,195.9 | ) | — | — | — | (1,195.9 | ) | ||||||||||||||||
|
Borrowings under Revolving Credit Facilities
|
— | 985.8 | — | — | — | 985.8 | ||||||||||||||||||
|
Payments on Revolving Credit Facilities
|
— | (853.4 | ) | — | — | — | (853.4 | ) | ||||||||||||||||
|
Debt Issuance Costs
|
— | (16.3 | ) | — | — | — | (16.3 | ) | ||||||||||||||||
|
Other, Net
|
— | — | — | (0.4 | ) | — | (0.4 | ) | ||||||||||||||||
|
Net Cash Provided by (Used in) Financing Activities
|
— | 120.2 | — | (0.4 | ) | — | 119.8 | |||||||||||||||||
|
Effect of Exchange Rate Changes on Cash
|
— | — | — | 0.6 | — | 0.6 | ||||||||||||||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
— | 170.7 | (7.5 | ) | (2.4 | ) | — | 160.8 | ||||||||||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
— | 0.1 | — | 9.2 | — | 9.3 | ||||||||||||||||||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | — | $ | 170.8 | $ | (7.5 | ) | $ | 6.8 | $ | — | $ | 170.1 | |||||||||||
83
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Graphic Packaging
Holding Company
We have audited the accompanying Consolidated Balance Sheets of
Graphic Packaging Holding Company as of December 31, 2009
and 2008, and the related Consolidated Statements of Operations,
Shareholders’ Equity and Cash Flows for each of the two
years in the period ended December 31, 2009. Our audit also
included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Graphic Packaging Holding Company at
December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the two years in
the period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Notes 1 and 11 to the financial statements,
in 2008 the Company changed its method of accounting for fair
value for all financial assets and liabilities and non-financial
assets and liabilities measured at fair value on a recurring
basis.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Graphic Packaging Holding Company’s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 23,
2010 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Atlanta, Georgia
February 23, 2010
84
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Graphic Packaging
Holding Company
We have audited Graphic Packaging Holding Company’s
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Graphic Packaging Holding Company’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Graphic Packaging Holding Company maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2009, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Consolidated Balance Sheets as of December 31, 2009 and
2008 and the related Consolidated Statements of Operations,
Shareholders’ Equity and Cash Flows for each of the two
years in the period ended December 31, 2009 of Graphic
Packaging Holding Company, and our report dated
February 23, 2010 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
Atlanta, Georgia
February 23, 2010
85
Table of Contents
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Graphic Packaging
Holding Company:
In our opinion, the accompanying consolidated statements of
operations, shareholders’ equity and cash flows for the
year ended December 31, 2007 present fairly, in all
material respects, the results of operations and cash flows of
Graphic Packaging Holding Company (formerly known as Graphic
Packaging Corporation) and its subsidiaries, in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule for the year ended December 31, 2007 listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audit. We conducted our audit of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/
PRICEWATERHOUSECOOPERS
LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
February 28, 2008, except for the change in the composition
of reportable segments discussed in Note 18 as to which the
date is March 4, 2009
86
Table of Contents
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| Item 9A. | CONTROLS AND PROCEDURES |
Evaluation
of Disclosure Controls and Procedures
The Company’s management has established disclosure
controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) is recorded, processed,
summarized and reported within time periods specified in the
Securities and Exchange Commission rules and forms. Such
disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and
communicated to the Company’s management to allow timely
decisions regarding required disclosure.
Based on management’s evaluation as of the end of the
period covered by this Annual Report on
Form 10-K,
the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that the Company’s disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act) were effective as of the end
of the period covered by this Annual Report on
Form 10-K.
Management’s
Report on Internal Control Over Financial
Reporting
The Company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting for the Company, as such term is defined in Exchange
Act
Rule 13a-15(f).
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the Company’s assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of the financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures are being made only with proper authorizations; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The Company’s management, under the supervision of and with
the participation of the Chief Executive Officer and the Chief
Financial Officer, assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2009 based on criteria for effective control
over financial reporting described in
Internal
Control — Integrated Framework
issued by the COSO.
Based on this assessment, the Company’s management
concluded that its internal control over financial reporting was
effective as of December 31, 2009.
87
Table of Contents
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009 has been
audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
Changes
in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over
financial reporting that occurred during the quarter ended
December 31, 2009 that has materially affected, or is
likely to materially affect, the Company’s internal control
over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
None.
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Table of Contents
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Pursuant to Instruction G(3) to
Form 10-K,
the information relating to Directors of the Registrant,
compliance with Section 16(a) of the Exchange Act and
compliance with the Company’s Code of Ethics required by
Item 10 is incorporated by reference to the
Registrant’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 20, 2010, which
is to be filed pursuant to Regulation 14A within
120 days after the end of the Registrant’s fiscal year
ended December 31, 2009.
| ITEM 11. | EXECUTIVE COMPENSATION |
Pursuant to Instruction G (3) to
Form 10-K,
the information required by Item 11 is incorporated by
reference to the Registrant’s definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
May 20, 2010, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the
Registrant’s fiscal year ended December 31, 2009.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Pursuant to Instruction G (3) to
Form 10-K,
the information required by Item 12 is incorporated by
reference to the Registrant’s definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
May 20, 2010, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the
Registrant’s fiscal year ended December 31, 2009.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Pursuant to Instruction G (3) to
Form 10-K,
the information required by Item 13 is incorporated by
reference to the Registrant’s definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
May 20, 2010, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the
Registrant’s fiscal year ended December 31, 2009.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Pursuant to Instruction G (3) to
Form 10-K,
the information required by Item 14 is incorporated by
reference to the Registrant’s definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
May 20, 2010, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the
Registrant’s fiscal year ended December 31, 2009.
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Table of Contents
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
a.) Financial statements, financial statement schedule and
exhibits filed as part of this report:
| 1. | Consolidated Statements of Operations for each of the three years in the period ended December 31, 2009 |
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Shareholders’ Equity for each of
the three years in the period ended December 31, 2009
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2009
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
| 2. | Schedule II — Valuation and Qualifying Accounts. |
All other schedules are omitted as the information required is
either included elsewhere in the consolidated financial
statements herein or is not applicable.
| 3. | Exhibits to Annual Report on Form 10-K for Year Ended December 31, 2009. |
|
Exhibit
|
||||
| Number | Description | |||
| 2 | .3 | Transaction Agreement and Agreement and Plan of Merger dated as of July 9, 2007, by and among the Company, Bluegrass Container Holdings, LLC, TPG Bluegrass IV, L.P., TPG Bluegrass IV — AIV 2, L.P., TPG Bluegrass V, L.P., TPG Bluegrass V — AIV 2, L.P., TPG FOF V — A, L.P., TPG FOF V — B, L.P., BCH Management, LLC, Field Holdings, Inc., New Giant Corporation and Giant Merger Sub, Inc. Filed as Exhibit 2.1 to Graphic Packaging Corporation’s Current Report on Form 8-K filed on July 11, 2007 and incorporated herein by reference. | ||
| 3 | .1 | Restated Certificate of Incorporation of New Giant Corporation. Filed as Exhibit 3.1 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference. | ||
| 3 | .2 | Amended and Restated Bylaws of Graphic Packaging Holding Company. Filed as Exhibit 3.2 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference. | ||
| 3 | .3 | Certificate of Designation Preferences and Rights of Series A Junior Participating Preferred Stock. Filed as Exhibit 3.3 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference. | ||
| 4 | .1 | Stockholders Agreement dated as of July 9, 2007, by and among New Giant Corporation, the persons listed on the signature pages thereto as Family Stockholders, Clayton, Dubilier & Rice Fund V Limited Partnership, EXOR Group S.A., TPG Bluegrass IV, L.P., TPG Bluegrass IV, Inc., TPG Bluegrass IV — AIV 2, L.P., TPG Bluegrass V, L.P., TPG Bluegrass V, Inc., TPG Bluegrass V — AIV 2, L.P., TPG FOF V — A, L.P. and TPG FOF V — B, L.P., and Field Holdings, Inc. Filed as Annex E to New Giant Corporation’s Registration Statement on Form S-4 filed on August 31, 2007, as amended and incorporated herein by reference. | ||
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|
Exhibit
|
||||
| Number | Description | |||
| 4 | .2 | Registration Rights Agreement dated as of July 9, 2007, by and among New Giant Corporation, the persons listed on Schedule I thereto as Family Stockholders, any of the persons listed on Schedule I thereto as “Astros Stockholders,” Clayton, Dubilier & Rice Fund V Limited Partnership, EXOR Group S.A., TPG Bluegrass IV, L.P., TPG Bluegrass IV, Inc., TPG Bluegrass IV — AIV 2, L.P., TPG Bluegrass V. L.P., TPG Bluegrass V, Inc., TPB Bluegrass V — AIV 2, L.P., BCH Management, LLC, TPG FOF V — A, L.P., TPG FOF V — B., L.P. Filed as Annex F to New Giant Corporation’s Registration Statement on Form S-4 filed on August 31, 2007, as amended and incorporated herein by reference. | ||
| 4 | .3 | Rights Agreement entered into between Graphic Packaging Holding Company and Wells Fargo Bank, National Association. Filed as Exhibit 4.3 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference. | ||
| 4 | .4 | Indenture, dated as of June 16, 2009, among Graphic Packaging International, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 9.5% Senior Notes due 2017 of Graphic Packaging International, Inc. Filed as Exhibit 4.1 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on June 18, 2009 and incorporated herein by reference. | ||
| 4 | .5 | Registration Rights Agreement entered into between Graphic Packaging Holding Company and Banc of America Securities LLC, J.P. Morgan Securities and Goldman, Sachs & Co. Filed as Exhibit 4.2 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on June 18, 2009 and incorporated herein by reference. | ||
| 4 | .6 | Supplemental Indenture, dated as of August 20, 2009, among Graphic Packaging International, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 9.5% Senior Notes due 2017 of Graphic Packaging International, Inc. Filed as Exhibit 4.1 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on August 26, 2009 and incorporated herein by reference. | ||
| 4 | .7 | Registration Rights Agreement entered into between Graphic Packaging Holding Company and Banc of America Securities LLC. Filed as Exhibit 4.2 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on August 26, 2009 and incorporated herein by reference. | ||
| 4 | .8 | Indenture, dated as of August 8, 2003, among Graphic Packaging International, Inc., as Issuer, Graphic Packaging Corporation and GPI Holding, Inc., as Note Guarantors, and Wells Fargo Bank Minnesota, National Association, as Trustee, relating to the 9.5% Senior Subordinated Notes due 2013 of Graphic Packaging International, Inc. Filed as Exhibit 4.5 to Graphic Packaging Corporation’s Current Report on Form 8-K filed on August 13, 2003 and incorporated herein by reference. | ||
| 4 | .9 | Form of 9.5% Senior Subordinated Notes due 2013 of Graphic Packaging International, Inc. (included in Exhibit 4.6). Filed as Exhibit A to the Indenture, dated as of August 8, 2003, among Graphic Packaging International, Inc., as Issuer, Registrant and GPI Holding, Inc., as Note Guarantors, and Wells Fargo Bank Minnesota, National Association, as Trustee, relating to the 9.5% Senior Subordinated Notes due 2013 of Graphic Packaging International, Inc. filed as Exhibit 4.5 to Registrant’s Current Report on Form 8-K filed on August 13, 2003 and incorporated herein by reference. | ||
| 4 | .10 | Supplemental Indenture in Respect of Note Guarantee (9.5% Senior Subordinated Notes due 2013) dated as of March 10, 2008 among Bluegrass Container Holding, LLC and its subsidiaries, Graphic Packaging Holding Company, Graphic Packaging International, Inc., Graphic Packaging Corporation and Wells Fargo Bank, National Association, successor by merger to Wells Fargo Bank Minnesota, National Association. Filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference. | ||
| 4 | .11 | Voting Agreement dated as of July 9, 2007, by and among Bluegrass Container Holdings, LLC, the persons listed on the signature pages thereto as a Family Stockholder, Clayton, Dubilier & Rice Fund V Limited Partnership, EXOR Group S.A., and, solely for the purposes of Section 5.2 thereof, New Giant Corporation. Filed as Exhibit 10.1 to New Giant Corporation’s Current Report on Form 8-K filed on July 11, 2007 and incorporated herein by reference. | ||
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|
Exhibit
|
||||
| Number | Description | |||
| 10 | .1 | $1,355,000,000 Credit Agreement dated as of May 16, 2007 among Graphic Packaging International, Inc., Bank of America, N.A., as Administrative Agent, L/C Issuer, Swing Line Lender and Alternative Currency Funding Fronting Lender, Deutsche Bank Securities Inc., as Syndication Agent, Goldman Sachs Credit Partners L.P., LaSalle Bank National Association and Morgan Stanley Senior Funding, Inc., as Co-Documentation Agents, and the several lenders from time to time party thereto. Filed as Exhibit 10.1 to Graphic Packaging Corporation’s Current Report on Form 8-K filed on May 21, 2007 and incorporated herein by reference. | ||
| 10 | .2 | Amendment No. 1 to Credit Agreement dated as of March 10, 2007 by and among Graphic Packaging International, Inc., Graphic Packaging Corporation, Bank of America, N.A., as Administrative Agent, and the Lenders signatory thereto. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference. | ||
| 10 | .3 | Amendment No. 2 to Credit Agreement dated as of March 10, 2007 by and among Graphic Packaging International, Inc., Graphic Packaging Corporation, Bank of America, N.A. as Administrative Agent; and the Lenders signatory thereto. Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 10, 2008 and incorporated herein by reference. | ||
| 10 | .4 | Amendment No. 3 to Credit Agreement dated as of December 3, 2009 by and among Graphic Packaging International, Inc., Graphic Packaging Corporation, Bank of America, N.A. as Administrative Agent, the Lenders signatory thereto, and each of the Subsidiary Guarantors signatory thereto. | ||
| 10 | .5* | Employment Agreement, dated as of November 13, 2009, by and among Graphic Packaging International, Inc., Registrant and David W. Scheible. Filed as Exhibit 10.8 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .6* | Employment Agreement, dated as of November 5, 2009, by and among Graphic Packaging International, Inc., Registrant and Daniel J. Blount. Filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .7* | Employment Agreement, dated as of September 15, 2009, by and among Graphic Packaging International, Inc., Registrant and Stephen A. Hellrung. Filed as Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .8* | Employment Agreement, dated as of November 9, 2009, by and among Graphic Packaging International, Inc., Registrant and Michael R. Schmal. Filed as Exhibit 10.9 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .9* | Employment Agreement, dated as of October 6, 2009, by and among Graphic Packaging International, Inc., Registrant and Michael P. Doss. Filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .10* | Employment Agreement, dated as of October 13, 2009, by and among Graphic Packaging International, Inc., Registrant and Cynthia A. Baerman. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .11* | Employment Agreement, dated as of October 13, 2009, by and among Graphic Packaging International, Inc., Registrant and John C. Best. Filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .12* | Employment Agreement, dated as of September 25, 2009, by and among Graphic Packaging International, Inc., Registrant and Kristopher L. Dover. Filed as Exhibit 10.5 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .13* | Employment Agreement, dated as of October 26, 2009, by and among Graphic Packaging International, Inc., Registrant and Alan Nichols. Filed as Exhibit 10.7 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .14* | Employment Agreement, dated as of October 19, 2009, by and among Graphic Packaging International, Inc., Registrant and Joseph P. Yost. Filed as Exhibit 10.10 to Registrant’s Current Report on Form 8-K filed on January 22, 2010 and incorporated herein by reference. | ||
| 10 | .15* | 2003 Riverwood Holding, Inc. Long-Term Incentive Plan. Filed as Exhibit 10.15 to Registration Statement on Form S-4 (Registration Statement No. 333-104928) filed on May 2, 2003 and incorporated herein by reference. | ||
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Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .16* | Riverwood Holding, Inc. 2002 Stock Incentive Plan. Filed as Exhibit 10.19 to Registrant’s Annual Report on Form 10-K filed April 15, 2003 and incorporated herein by reference. | ||
| 10 | .17* | Amendment No. 1 to Riverwood Holding, Inc. Stock Incentive Plan, Riverwood Holding, Inc. Supplemental Long-Term Incentive Plan and Riverwood Holding, Inc. 2002 Stock Incentive Plan. Filed as Exhibit 10.11 to Registrant’s Quarterly Report on Form 10-Q filed on November 14, 2003 and incorporated herein by reference. | ||
| 10 | .18* | Form of Management Stock Option Agreement entered into by and between Registrant and each of Michael R. Schmal, Daniel J. Blount and Stephen A. Hellrung. Filed as Exhibit 10.13 to Registrant’s Quarterly Report on Form 10-Q filed on November 14, 2003 and incorporated herein by reference. | ||
| 10 | .19* | Form of Option Cancellation Acknowledgement of Wayne E. Juby and Michael R. Schmal. Filed as Exhibit 10.15 to Registrant’s Quarterly Report on Form 10-Q filed on November 14, 2003 and incorporated herein by reference. | ||
| 10 | .20* | Graphic Packaging Equity Incentive Plan, as amended and restated, effective as of March 1, 2001. Filed as Exhibit 10.9 to Graphic Packaging International Corporation’s Annual Report on Form 10-K filed on March 23, 2001 and incorporated herein by reference. | ||
| 10 | .21* | Graphic Packaging Equity Compensation Plan for Non-Employee Directors, as amended and restated. Filed as Exhibit 10.10 to Graphic Packaging International Corporation’s Annual Report on Form 10-K filed on March 23, 2001 and incorporated herein by reference. | ||
| 10 | .22* | Graphic Packaging Excess Benefit Plan, as amended and restated, effective as of January 1, 2009. | ||
| 10 | .23* | Graphic Packaging Supplemental Retirement Plan, as amended and restated, effective as of January 1, 2009. | ||
| 10 | .24* | ACX Technologies, Inc. Deferred Compensation Plan, as amended. Filed as Exhibit 10.15 to Graphic Packaging International Corporation’s Annual Report on Form 10-K filed on March 7, 1996 and incorporated herein by reference. | ||
| 10 | .25* | First Amendment to the Graphic Packaging Deferred Compensation Plan. Filed as Exhibit 10.16 to Graphic Packaging International Corporation’s Annual Report on Form 10-K filed on March 23, 2001 and incorporated herein by reference. | ||
| 10 | .26 | Form of Indemnification Agreement, dated as of September 10, 2003, entered into by and among Registrant, GPI Holding, Inc., Graphic Packaging International, Inc. and each of Jeffrey H. Coors, Stephen M. Humphrey, Kevin J. Conway, G. Andrea Botta, John D. Beckett, Harold R. Logan, Jr., John R. Miller, Robert W. Tieken, B. Charles Ames (as emeritus director) and William K. Coors (as emeritus director). Filed as Exhibit 10.30 to Graphic Packaging Corporation’s Annual Report on Form 10-K filed on March 16, 2004 and incorporated herein by reference. | ||
| 10 | .27* | Amended and Restated 2004 Stock and Incentive Compensation Plan effective May 13, 2009. Filed as Appendix A of the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 23, 2009 and incorporated herein by reference. | ||
| 10 | .28* | Amended and Restated Riverwood Holding, Inc. Stock Incentive Plan effective May 17, 2005. Filed as Exhibit 10.38 to Registrant’s Annual Report on Form 10-K filed on March 2, 2007 and incorporated herein by reference. | ||
| 10 | .29* | Form of Service Restricted Stock Unit Award Agreement granted on March 16, 2005 under the 2004 Stock and Incentive Compensation Plan. Filed as Exhibit 10.32 to Registrant’s Annual Report on Form 10-K filed on March 3, 2006 and incorporated herein by reference. | ||
| 10 | .30* | Form of Service-Based Restricted Stock Unit Award Agreement granted on March 4, 2009. | ||
| 10 | .31* | Form of Performance-Based Restricted Stock Unit Award Agreement granted on March 4, 2009. | ||
| 10 | .32* | Graphic Packaging International, Inc. Management Incentive Plan. Filed as Exhibit 10.2 to Graphic Packaging Corporation’s Quarterly Report on Form 10-Q filed on May 3, 2007 and incorporated herein by reference. | ||
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|
Exhibit
|
||||
| Number | Description | |||
| 10 | .33 | Sale and Purchase Agreement dated October 16, 2007 between Graphic Packaging International Holding Sweden AB and Lagrummet December NR 1031 Aktiebolag (under change of name to Fiskeby International Holding AB) regarding Graphic Packaging International Sweden AB. Filed as Exhibit 10.1 to Graphic Packaging Corporation’s Current Report on Form 8-K filed on October 17, 2007 and incorporated herein by reference. | ||
| 10 | .34 | Master Services Agreement dated November 29, 2007 by and between Graphic Packaging International, Inc. and Perot Systems Corporation. Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on December 5, 2007 and incorporated herein by reference. | ||
| 10 | .35 | Purchase Agreement dated August 13, 2009, among Graphic Packaging International, Inc., the Company, Graphic Packaging Corporation, the other Guarantors party thereto, and Banc of America Securities LLC. Filed as Exhibit 10.1 to Graphic Packaging Holding Company’s Current Report on Form 8-K filed on August 17, 2009 and incorporated herein by reference. | ||
| 10 | .36* | Graphic Packaging International, Inc. Supplemental Plan for Participants in the Riverwood International Employees Retirement Plan, as amended and restated, effective as of January 1, 2009. | ||
| 10 | .37* | Riverwood International Change in Control Supplemental Retirement Plan, as amended and restated, effective as of January 1, 2008. | ||
| 14 | .1 | Code of Business Conduct and Ethics. Filed as Exhibit 14.1 to Graphic Packaging Corporation’s Annual Report on Form 10-K filed on March 16, 2004 (Commission File No. 001-13182) and incorporated herein by reference. | ||
| 21 | .1 | List of Subsidiaries. | ||
| 23 | .1 | Consents of Ernst & Young LLP and PricewaterhouseCoopers LLP. | ||
| 31 | .1 | Certification required by Rule 13a-14(a). | ||
| 31 | .2 | Certification required by Rule 13a-14(a). | ||
| 32 | .1 | Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code. | ||
| 32 | .2 | Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code | ||
| * | Executive compensation plan or agreement. |
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Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GRAPHIC PACKAGING HOLDING COMPANY
(Registrant)
(Registrant)
|
/s/ DAVID
W. SCHEIBLE
|
President and Chief Executive Officer (Principal Executive Officer) | February 23, 2010 | ||||
|
/s/ DANIEL
J. BLOUNT
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer) | February 23, 2010 | ||||
|
/s/ DEBORAH
R. FRANK
|
Vice President and Chief Accounting Officer (Principal Accounting Officer) | February 23, 2010 | ||||
POWER OF
ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of
1934, this report on
Form 10-K
has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Each of the directors of the Registrant whose signature appears
below hereby appoints Daniel J. Blount and Stephen A. Hellrung,
and each of them severally, as his or her attorney-in-fact to
sign in his or her name and behalf, in any and all capacities
stated below, and to file with the Securities and Exchange
Commission any and all amendments to this report on
Form 10-K,
making such changes in this report on
Form 10-K
as appropriate, and generally to do all such things on their
behalf in their capacities as directors
and/or
officers to enable the Registrant to comply with the provisions
of the Securities Exchange Act of 1934, and all requirements of
the Securities and Exchange Commission.
|
Signatures
|
Title
|
Date
|
||||
|
/s/ JOHN
R. MILLER
|
Non-Executive Chairman and Director | February 23, 2010 | ||||
|
/s/ GEORGE
V. BAYLY
|
Director | February 23, 2010 | ||||
|
/s/ G.
ANDREA BOTTA
|
Director | February 23, 2010 | ||||
|
/s/ KEVIN
R. BURNS
|
Director | February 23, 2010 | ||||
|
|
Director | |||||
|
/s/ JEFFREY
H. COORS
|
Director | February 23, 2010 | ||||
|
|
Director | |||||
|
/s/ JEFFREY
LIAW
|
Director | February 23, 2010 | ||||
|
|
Director | |||||
|
/s/ MICHAEL
G. MACDOUGALL
|
Director | February 23, 2010 | ||||
95
Table of Contents
|
Signatures
|
Title
|
Date
|
||||
|
/s/ DAVID
W. SCHEIBLE
|
Director | February 23, 2010 | ||||
|
/s/ ROBERT
W. TIEKEN
|
Director | February 23, 2010 | ||||
|
/s/ LYNN
A. WENTWORTH
|
Director | February 23, 2010 | ||||
96
Table of Contents
GRAPHIC
PACKAGING HOLDING COMPANY
SCHEDULE II —
VALUATION AND QUALIFYING ACCOUNTS
|
Balance
|
Increase due to
|
Charges
|
Balance
|
|||||||||||||||||
|
Beginning
|
Altivity
|
to Costs and
|
at End
|
|||||||||||||||||
| In millions | of Period | Transaction | Expenses | Deductions | of Period | |||||||||||||||
| (Classification) | ||||||||||||||||||||
|
Year ended December 31, 2009
|
||||||||||||||||||||
|
Allowances Reducing the Assets in the Balance Sheet:
|
||||||||||||||||||||
|
Inventories
|
9.7 | — | 17.3 | (2.5 | ) | 24.5 | ||||||||||||||
|
Deferred income tax assets
|
304.3 | — | (24.2 | ) | (24.6 | ) | 255.5 | |||||||||||||
|
Total
|
314.0 | — | (6.9 | ) | (27.1 | ) | 280.0 | |||||||||||||
|
Year ended December 31, 2008
|
||||||||||||||||||||
|
Allowances Reducing the Assets in the Balance Sheet:
|
||||||||||||||||||||
|
Inventories
|
5.8 | 5.5 | 1.2 | (2.8 | ) | 9.7 | ||||||||||||||
|
Deferred income tax assets
|
356.9 | — | (28.3 | ) | (24.3 | ) | 304.3 | |||||||||||||
|
Total
|
362.7 | 5.5 | (27.1 | ) | (27.1 | ) | 314.0 | |||||||||||||
|
Year ended December 31, 2007
|
||||||||||||||||||||
|
Allowances Reducing the Assets in the Balance Sheet:
|
||||||||||||||||||||
|
Inventories
|
8.9 | — | 0.4 | (3.5 | ) | 5.8 | ||||||||||||||
|
Deferred income tax assets
|
342.5 | — | 18.7 | (4.3 | ) | 356.9 | ||||||||||||||
|
Total
|
351.4 | — | 19.1 | (7.8 | ) | 362.7 | ||||||||||||||
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosure About Market RiskprintItem 8. Financial Statements and Supplementary DataprintNote 1 Nature Of Business and Summary Of Significant Accounting PoliciesprintNote 2 Supplemental Balance Sheet DataprintNote 3 Supplemental Cash Flow InformationprintNote 4 Altivity TransactionprintNote 5 Restructuring ReservesprintNote 6 DebtprintNote 7 Stock Incentive PlansprintNote 8 Postretirement and Other BenefitsprintNote 9 Income TaxesprintNote 10 Financial Instruments, Derivatives and Hedging ActivitiesprintNote 11 Fair Value MeasurementprintNote 12 Accumulated Other Comprehensive Income (loss)printNote 13 ImpairmentprintNote 14 Discontinued OperationsprintNote 15 Environmental and Legal MattersprintNote 16 Commitments and ContingenciesprintNote 17 Related Party TransactionsprintNote 18 Business Segment and Geographic Area InformationprintNote 19 Quarterly Financial Information (unaudited)printNote 20 Earnings Per ShareprintNote 21 Guarantor Consolidating Financial StatementsprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint