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

FORM 10-Q

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

For the quarterly period ended March 31, 2012
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from to

COMMISSION FILE NUMBER: 001-33988

Graphic Packaging Holding Company

(Exact name of registrant as specified in its charter)

Delaware
26-0405422
(State or other jurisdiction of
(I.R.S. employer
incorporation or organization)
identification no.)
 
 
814 Livingston Court
 
Marietta, Georgia
30067
(Address of principal executive offices)
(Zip Code)

(770) 644-3000
(Registrant’s telephone number, including area code)

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 R 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No 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 R
Accelerated filer o
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 Exchange Act). Yes o No R

As of April 20, 2012, there were 393,130,042 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

 



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Information Concerning Forward-Looking Statements

Certain statements regarding the expectations of Graphic Packaging Holding Company (“GPHC” and, together with its subsidiaries, the “Company”), including, but not limited to, statements regarding cost savings from its continuous improvement programs, capital investment, depreciation and amortization, interest expense, net debt reduction, the availability of net operating losses to offset future taxable income, pension plan contributions and postretirement health care benefit payments, in this report constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations. These risks and uncertainties include, but are not limited to, the Company’s 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 impact 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 in Part I, “Item 1A., Risk Factors” of the Company’s 2011 Annual Report on Form 10-K and in other filings with the Securities and Exchange Commission.


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TABLE OF CONTENTS

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



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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended
 
March 31,
In millions, except per share amounts
2012
 
2011
Net Sales
$
1,067.2

 
$
1,000.6

Cost of Sales
897.6

 
842.4

Selling, General and Administrative
96.3

 
89.5

Other (Income) Expense, Net
(1.2
)
 
0.1

Restructuring and Other Special Charges
3.5

 

Income from Operations
71.0

 
68.6

Interest Expense, Net
(32.1
)
 
(39.3
)
Loss on Modification or Extinguishment of Debt
(8.9
)
 

Income before Income Taxes and Equity Income of Unconsolidated Entities
30.0

 
29.3

Income Tax Expense
(13.0
)
 
(2.9
)
Income before Equity Income of Unconsolidated Entities
17.0

 
26.4

Equity Income of Unconsolidated Entities
0.3

 
0.3

Net Income
17.3

 
26.7

Net Income Attributable to Noncontrolling Interests
(0.1
)
 

Net Income Attributable Graphic Packaging Holding Company
$
17.2

 
$
26.7

 
 
 
 
Net Income Per Share Attributable Graphic Packaging Holding Company— Basic
$
0.04

 
$
0.08

Net Income Per Share Attributable Graphic Packaging Holding Company— Diluted
$
0.04

 
$
0.08


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


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GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)


 
Three Months Ended
 
March 31,
In millions
2012
2011
Net Income
$
17.3

$
26.7

Other Comprehensive Income (Loss), Net of Tax:
 
 
Derivative Instruments
3.0

7.4

Currency Translation Adjustment
1.0

5.5

Pension Benefit Plans
4.8

3.1

Postretirement Benefit Plans
(0.2
)
(0.2
)
Total Other Comprehensive Income, Net of Tax
8.6

15.8

Total Comprehensive Income
25.9

42.5

Comprehensive Income Attributable to Noncontrolling Interests
(0.1
)

Comprehensive Income Attributable to Graphic Packaging Holding Company
$
25.8

$
42.5


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

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GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

In millions, except share and per share amounts
March 31,
2012
 
December 31,
2011
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
30.2

 
$
271.8

Receivables, Net
449.5

 
401.9

Inventories, Net
515.9

 
479.1

Other Current Assets
142.5

 
161.3

Total Current Assets
1,138.1

 
1,314.1

Property, Plant and Equipment, Net
1,611.8

 
1,622.1

Goodwill
1,134.1

 
1,135.7

Intangible Assets, Net
526.5

 
535.9

Other Assets
49.1

 
41.9

Total Assets
$
4,459.6

 
$
4,649.7

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
Short-Term Debt and Current Portion of Long-Term Debt
$
49.8

 
$
30.1

Accounts Payable
409.9

 
411.4

Interest Payable
26.7

 
23.0

Other Accrued Liabilities
179.5

 
181.0

Total Current Liabilities
665.9

 
645.5

Long-Term Debt
2,102.7

 
2,335.7

Deferred Income Tax Liabilities
63.3

 
63.0

Other Noncurrent Liabilities
426.1

 
424.0

 
 
 
 
Redeemable Noncontrolling Interests (Note 7)
14.7

 
14.8

 
 
 
 
SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred Stock, par value $.01 per share; 100,000,000 shares authorized; no shares issued or outstanding

 

Common Stock, par value $.01 per share; 1,000,000,000 shares authorized; 392,828,943 and 389,474,786 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
3.9

 
3.9

Capital in Excess of Par Value
2,172.1

 
2,177.5

Accumulated Deficit
(714.2
)
 
(731.4
)
Accumulated Other Comprehensive Loss
(273.5
)
 
(282.1
)
Total Graphic Packaging Holding Company Shareholders’ Equity
1,188.3

 
1,167.9

Noncontrolling Interests
(1.4
)
 
(1.2
)
Total Equity
1,186.9

 
1,166.7

Total Liabilities and Equity
$
4,459.6

 
$
4,649.7


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


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GRAPHIC PACKAGING HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three Months Ended
 
March 31,
In millions
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
17.3

 
$
26.7

Non-cash Items Included in Net Income:
 
 
 
Depreciation and Amortization
67.9

 
71.0

Deferred Income Taxes
10.9

 
2.8

Amount of Postretirement Expense Greater (Less) Than Funding
3.7

 
(3.0
)
Other, Net
21.6

 
7.7

Changes in Operating Assets and Liabilities
(88.9
)
 
(99.1
)
Net Cash Provided by Operating Activities
32.5

 
6.1

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital Spending
(41.7
)
 
(36.8
)
Proceeds from Sale of Assets
2.8

 

Other, Net
(0.7
)
 
(0.8
)
Net Cash Used in Investing Activities
(39.6
)
 
(37.6
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from Issuance or Modification of Debt
1,000.0

 

Payments on Debt
(1,678.4
)
 

Borrowings under Revolving Credit Facilities
536.3

 
11.2

Payments on Revolving Credit Facilities
(70.3
)
 
(10.6
)
Redemption and Debt Issuance Costs
(22.8
)
 

Repurchase of Common Stock related to Share-Based Payments
(9.2
)
 

Other, Net
8.9

 
0.1

Net Cash (Used in) Provided by Financing Activities
(235.5
)
 
0.7

 
 
 
 
Effect of Exchange Rate Changes on Cash
1.0

 
1.2

 
 
 
 
Net Decrease in Cash and Cash Equivalents
(241.6
)
 
(29.6
)
Cash and Cash Equivalents at Beginning of Period
271.8

 
138.7

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
30.2

 
$
109.1


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

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GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




NOTE 1 — GENERAL INFORMATION

Nature of Business and Basis of Presentation

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 U.S. producer of folding cartons and holds a leading market position in coated unbleached kraft paperboard, coated-recycled boxboard and flexible packaging. 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, its proprietary carton and packaging designs, and its commitment to customer service.

GPHC and Graphic Packaging Corporation (“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 the outstanding common stock of Graphic Packaging International, Inc. (“GPII”).

The Company’s Condensed Consolidated Financial Statements include all subsidiaries in which the Company has the ability to exercise direct or indirect control over operating and financial policies. Intercompany transactions and balances are eliminated in consolidation.

In the Company’s opinion, the accompanying Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods. The Company’s year end Condensed Consolidated Balance Sheet data was derived from audited financial statements. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all the information required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with GPHC’s Annual Report on Form 10-K for the year ended December 31, 2011. In addition, the preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates and changes in these statements are recorded as known.

For a summary of the Company’s significant accounting policies, please refer to GPHC’s Annual Report on Form 10-K for the year ended December 31, 2011.

Adoption of New Accounting Standards

Effective January 1, 2012, the Company adopted revised guidance as required by the Intangibles – Goodwill and Other topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“the FASB Codification”) which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment test. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

Effective January 1, 2012, the Company adopted revised guidance as required by the Fair Value Measurement topic of the FASB Codification. This amendment represents the converged guidance of the FASB and the International Accounting Standard Board on fair value measurement, resulting in common requirements for measuring fair value and for disclosing information about fair value measurements. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 2 — INVENTORIES, NET

Inventories, Net by major class:

In millions    
March 31,
2012

 
December 31,
2011

Finished Goods

$267.4

 

$243.5

Work in Progress
47.0

 
41.1

Raw Materials
146.9

 
140.7

Supplies
54.6

 
53.8

Total

$515.9

 

$479.1



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GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



NOTE 3 — DEBT

On March 16, 2012, the Company entered into a $2.0 billion amended and restated credit agreement with a syndicate of lenders consisting primarily of commercial banks (the “Credit Agreement”). The Credit Agreement provides for a $1.0 billion revolving credit facility and a $1.0 billion amortizing term loan facility, both due on March 16, 2017. The revolving credit facility and the term loan facility bear interest at an initial rate equal to the London Interbank Offered Rate (LIBOR) plus 225 basis points. The interest rate margin over LIBOR will vary between 175 basis points and 275 basis points depending upon the Company's current consolidated total leverage ratio. Approximately $1.53 billion was drawn at closing which, when combined with cash on hand, was used to repay the approximate $1.68 billion of outstanding term loans due in May 2014, leaving approximately $475 million undrawn under the new revolving credit facility. This transaction was treated primarily as an extinguishment of debt, and a charge of $8.9 million was recorded as Loss on Modification or Extinguishment of Debt in the Company's Condensed Consolidated Statements of Operations.

Under the terms of the Credit Agreement, the Company must comply with a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. The Company's obligations under the Credit Agreement are secured by substantially all of the Company's domestic assets.

For more information regarding the Company’s debt, see “Note 5 Debt” of the Notes to Consolidated Financial Statements of the Company’s 2011 Annual Report on Form 10-K.

Long-Term Debt is composed of the following:
In millions
March 31,
2012
 
December 31,
2011

Senior Notes with interest payable semi-annually at 7.875%, payable in 2018 ($250.0 million face amount)

$246.5

 

$246.4

Senior Notes with interest payable semi-annually at 9.5%, payable in 2017 ($425.0 million face amount)
423.2

 
423.2

Senior Secured Term Loan Facility with interest payable at various dates at floating rates payable through 2014

 
769.0

Senior Secured Term Loan Facility with interest payable at various dates at floating rates payable through 2014

 
908.7

Senior Secured Term Loan Facility with interest payable at various dates at floating rates (2.49% at March 31, 2012) payable through 2017
1,000.0

 

Senior Secured Revolving Facility with interest payable at floating rates (2.48% at March 31, 2012) payable in 2017
465.0

 

Capital Lease Obligations
6.7

 
7.3

Other
11.1

 
11.2

 
2,152.5

 
2,365.8

Less: current portion
49.8

 
30.1

Total

$2,102.7

 

$2,335.7


Long-Term Debt maturities are as follows:
In millions
 
Remainder of 2012
$
32.8

2013
52.4

2014
63.1

2015
87.8

2016
100.0

2017
1,563.2

After 2017
246.5

Total
$
2,145.8


At March 31, 2012, the Company and its U.S. and international subsidiaries had the following commitments, amounts outstanding and amounts available under revolving credit facilities:


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GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



In millions
Total
Commitments
 
Total
Outstanding
 
Total
Available (a)
Revolving Credit Facility

$1,000.0

 

$465.0

 

$503.1

International Facilities
16.8

 
9.7

 
7.1

Total

$1,016.8

 

$474.7

 

$510.2


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 $31.9 million as of March 31, 2012. These letters of credit are used primarily as security against its self-insurance obligations and workers’ compensation obligations. These letters of credit expire at various dates through 2013 unless extended.

The Credit Agreement and the indentures governing the 9.5% Senior Notes due 2017 and the 7.875% Senior Notes due 2018 (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 dividend and other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indentures, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries, and engage in certain transactions with affiliates. Such restrictions, 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 March 31, 2012, the Company was in compliance with the covenants in the Credit Agreement and the Indentures.

NOTE 4 — STOCK INCENTIVE PLANS

The Company has four 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 (the “2004 Plan”). Stock options and other awards granted under all of the Company’s plans 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 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. RSUs granted to employees generally contain performance conditions based on various financial targets and service requirements that must be met for the shares to vest. Upon vesting, RSUs are payable in cash and shares of common stock, based on the proportion set forth in the grant agreements. Stock awards granted to non-employee directors are unrestricted on the grant date.

Data concerning RSUs and stock awards granted in the first three months of 2012 is as follows:
Shares in thousands
Shares
 
Weighted Average
Grant Date Fair
Value Per Share
RSUs — Employees
3,519

 
$5.42

During the three months ended March 31, 2012 and 2011, $9.8 million and $8.6 million, respectively, were charged to compensation expense for stock incentive plans.

During the three months ended March 31, 2012, 4.9 million shares which had a fair value of $26.4 million were issued upon vesting of the RSUs granted during 2009.

NOTE 5 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS

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

Currently, the North American defined benefit plans are closed to newly-hired salaried and non-union hourly employees. Effective July 1, 2011, the North American defined benefit plans were frozen for most salaried and non-union hourly employees and replaced with a defined contribution plan. The U.K. and Canada defined benefit plans were frozen effective March 31, 2001 and December 31, 2009, respectively, and replaced with defined contribution plans.


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GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Pension and Postretirement Expense

The pension and postretirement expenses related to the Company’s plans consisted of the following:

 
Pension Benefits
Postretirement Health
Care Benefits
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
In millions
2012
 
2011
 
2012
 
2011
Components of Net Periodic Cost:
 
 
 
 
 
 
 
Service Cost
$
4.6

 
$
4.8

 
$
0.3

 
$
0.3

Interest Cost
12.7

 
13.1

 
0.6

 
0.7

Expected Return on Plan Assets
(14.5
)
 
(14.3
)
 

 

Amortization:
 
 
 
 
 
 
 
 Prior Service Cost
0.1

 
0.1

 

 

Actuarial Loss (Gain)
7.5

 
3.0

 
(0.3
)
 
(0.2
)
Net Periodic Cost
$
10.4

 
$
6.7

 
$
0.6

 
$
0.8


Employer Contributions

The Company made contributions of $6.9 million and $10.2 million to its pension plans during the first three months of 2012 and 2011, respectively. The Company expects to make contributions of $40 to $70 million for the full year 2012. During 2011, the Company made $64.5 million of contributions to its pension plans.

The Company made postretirement health care benefit payments of $0.5 million and $0.3 million during the first three months of 2012 and 2011, respectively. The Company estimates its postretirement health care benefit payments for the full year 2012 to be approximately $3 million. During 2011, the Company made postretirement health care benefit payments of $2.6 million.

NOTE 6 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT

The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging topic of the FASB Codification and those not designated as hedging instruments under this guidance. The Company uses interest rate swaps, natural gas swap contracts, and forward exchange contracts. These derivative instruments are designated as cash flow hedges and, to the extent they are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in Accumulated Other Comprehensive Loss. These changes in fair value will subsequently be reclassified to earnings.

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 debt. At March 31, 2012, the Company had interest rate swap agreements with a notional amount of $920 million, including $400 million in forward starting interest rate swaps. At December 31, 2011, the Company had interest rate swap agreements with a notional amount of $920 million. The outstanding swap agreements, under which the Company will pay fixed rates of 0.25% to 3.84% and receive either one-month or three-month LIBOR rates, expire on various dates in 2012.

Changes in fair value will subsequently be reclassified into earnings as a component of Interest Expense, Net as interest is incurred on amounts outstanding under the term loan facility. Ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs.

As of March 16, 2012, in conjunction with the amendment to the Credit Agreement, interest rate swaps with a notional amount of $520 million were de-designated as effective cash flow hedges. The amount included in Accumulated Other Comprehensive Loss will be reclassified into earnings over the remaining life of the swaps, which expire in April 2012. The amount recorded in earnings due to this de-designation was immaterial.

During the first three months of 2012 and 2011, there were no other amounts of ineffectiveness related to changes in the fair value of interest rate swap agreements. Additionally, there were no other 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 a designated percentage of its expected natural gas usage. The Company has

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GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



entered into natural gas swap contracts to hedge pricing for approximately 30% of its expected natural gas usage for the remainder of 2012, with a weighted average contractual rate of $2.90 per one million British Thermal Units (“MMBTUs”). Such contracts are designated as cash flow hedges. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss, and the resulting gain or loss is reclassified into Cost of Sales concurrently with the recognition of the commodity consumed. The ineffective portion of the swap contracts’ change in fair value would be recognized immediately in earnings.

During the first three months of 2012 and 2011, 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. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss, and gains/losses related to these contracts are recognized in Other (Income) Expense, Net when the anticipated transaction affects income. At March 31, 2012, multiple forward exchange contracts existed that expire on various dates through 2012. Those purchased forward exchange contracts outstanding at March 31, 2012 and December 31, 2011, when aggregated and measured in U.S. dollars at contractual rates at March 31, 2012 and December 31, 2011 had notional amounts totaling $59.4 million and $79.8 million, respectively.

No amounts were reclassified to earnings during the first three months of 2012 or during 2011 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.

Derivatives not Designated as Hedges

The Company enters into forward exchange contracts to effectively hedge substantially all of its accounts receivable resulting from sales transactions denominated in foreign currencies in order to manage risks associated with foreign currency transactions adversely affected by changes in exchange rates. At March 31, 2012 and December 31, 2011, multiple foreign currency forward exchange contracts existed, with maturities ranging up to three months. Those foreign currency exchange contracts outstanding at March 31, 2012 and December 31, 2011, when aggregated and measured in U.S. dollars at exchange rates at March 31, 2012 and December 31, 2011, had net notional amounts totaling $17.6 million and $19.5 million, respectively. Unrealized gains and losses resulting from these contracts are recognized in Other (Income) Expense, Net and approximately offset corresponding recognized but unrealized gains and losses on these accounts receivable.

Fair Value of Financial Instruments

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

As of March 31, 2012, 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 value of the Company’s derivative instruments is as follows:


12

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




 
Derivative Assets
 
Derivative Liabilities
In millions
Balance Sheet
Location
 
March 31,
2012
 
December 31,
2011
 
Balance Sheet
Location
 
March 31,
2012
 
December 31,
2011
Derivative Contracts Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
Other Current Assets
 

$—

 

$—

 
Other Accrued Liabilities
 

$1.1

 

$1.3

Foreign Currency Contracts
Other Current Assets
 
1.8

 
1.3

 
Other Accrued Liabilities
 
0.3

 
0.3

Interest Rate Swap Agreements

Other Current Assets

 

 

 
Other Accrued Liabilities and Interest Payable
 
3.0

 
8.3

Derivative Contracts Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
Foreign Currency Contracts
Other Current Assets
 
0.3

 
0.5

 
Other Accrued Liabilities
 

 

Total Derivative Contracts
 
 

$2.1

 

$1.8

 
 
 

$4.4

 

$9.9


The fair values of the Company’s other financial assets and liabilities at March 31, 2012 and December 31, 2011 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 $2,225.4 million and $2,411.1 million as compared to the carrying amounts of $2,145.8 million and $2,358.5 million as of March 31, 2012 and December 31, 2011, respectively. The fair value of the Company's Senior Notes is based on quoted market prices (Level 1 inputs) and the remainder of the Company's Long-Term Debt is based on Level 2 inputs. Level 2 valuation techniques for Long-Term Debt are based on quotations obtained from independent pricing service providers.

Effect of Derivative Instruments

The pre-tax effect of derivative instruments in cash flow hedging relationships on the Company’s Consolidated Statements of Operations is as follows:
 
Amount of Loss (Gain) Recognized in Accumulated Other Comprehensive Loss
 
Location in Statement of Operations (Effective Portion)
 
Amount of Loss Recognized in Statement of Operations (Effective Portion)
 
Location in Statement of Operations (Effective Portion)
 
Amount Recognized in Statement of Operations (Ineffective Portion)
 
 
 
 
 
Three Months Ended
 
 
Three Months Ended
 
 
Three Months Ended
 
March 31,
 
 
March 31,
 
 
March 31,
In millions
2012
 
2011
 
 
2012
 
2011
 
 
2012
 
2011
Commodity Contracts

$1.7

 

$0.9

 
Cost of Sales
 

$2.3

 

$1.7

 
Cost of Sales
 

$—

 

$—

Foreign Currency Contracts
(0.7
)
 
0.7

 
Other (Income) Expense, Net
 
0.4

 
0.4

 
Other (Income) Expense, Net
 

 

Interest Rate Swap Agreements

 
0.8

 
Interest Expense, Net
 
3.1

 
7.7

 
Interest Expense, Net
 

 

Total

$1.0

 

$2.4

 
 
 

$5.8

 

$9.8

 
 
 

$—

 

$—



The effect of derivative instruments not designated as hedging instruments on the Company’s Condensed Consolidated Statements of Operations is as follows:

 
 
Three Months Ended
 
 
March 31,
In millions
 
2012
2011
Foreign Currency Contracts
Other (Income) Expense, Net
$(0.2)
$0.7


13

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Accumulated Derivative Instruments (Loss) Income

The following is a rollforward of Accumulated Derivative Instruments (Loss) Income which is included in the Company’s Condensed Consolidated Balance Sheets:

In millions
 
Balance at December 31, 2011
$(4.7)
Reclassification to earnings
5.8

Current period change in fair value
(1.0
)
Balance at March 31, 2012
$0.1

At March 31, 2012, the Company expects to reclassify approximately $0.1 million of pre-tax income in the next twelve months from Accumulated Other Comprehensive Loss to earnings, contemporaneously with and offsetting changes in the related hedged exposure. The actual amount that will be reclassified to future earnings may vary from this amount as a result of changes in market conditions.

Assets Held for Sale

As of March 31, 2012, the Company has assets held for sale of $9.8 million which are recorded at the lower of book value or fair value less cost to sell. Fair value was determined using a market approach based on values of similar assets. These valuation approaches are based on Level 3 inputs in the fair value hierarchy.

NOTE 7 — REDEEMABLE NONCONTROLLING INTERESTS

On December 8, 2011, the Company combined its multi-wall bag and specialty plastics packaging businesses with the kraft paper and multi-wall bag businesses of Delta Natural Kraft, LLC and Mid-America Packaging, LLC (collectively "DNK"), both wholly owned subsidiaries of Capital Five Investments, LLC ("CVI"). Under the terms of the transaction, the Company formed a new limited liability company, Graphic Flexible Packaging, LLC ("GFP") and contributed its ownership interests in multi-wall bag and specialty plastics packaging subsidiaries to it. CVI concurrently contributed its ownership interests in DNK to GFP. Neither party received cash consideration as part of the transaction. After the combination, the Company owns approximately 87% of GFP and consolidates its results of operations. The remaining 13% of GFP is owned by CVI. CVI's noncontrolling interest in GFP is recorded as Redeemable Noncontrolling Interests in the Company's financial statements. GFP is included in the flexible segment. This transaction is herein referred to as the "DNK Transaction". The purchase consideration was preliminarily allocated to the assets and liabilities based on estimated fair values and the excess of the consideration over the aggregate fair value of identifiable net assets of $12.9 million was allocated to goodwill. The Company is in the process of obtaining an independent third party valuation and anticipates finalizing the allocation during the second quarter of 2012.

CVI has the right, at certain times, to require the Company to acquire their ownership interests in GFP at fair value based on third-party valuations. Since it is probable that the noncontrolling interests will become redeemable in the future, based on the passage of time, the noncontrolling interests subject to the put options are adjusted to their estimated redemption amounts each reporting period with a corresponding adjustment to Capital in Excess of Par Value. The adjustment to the carrying amount will be determined after attribution of net income of the redeemable noncontrolling interests. The adjustment to the carrying amount will not impact net income or comprehensive income in the Company’s Condensed Consolidated Financial Statements and will not impact earnings per share since the shares of the redeemable noncontrolling interests are redeemable at fair value. For accounting purposes, the redemption value at which the redeemable noncontrolling interests is recorded on the Condensed Consolidated Balance Sheets cannot be less than the initial amount plus attribution of net income of the noncontrolling interest. At March 31, 2012, the book value of the redeemable noncontrolling interests was determined as follows:

In millions
 
Balance at December 31, 2011
$
14.8

Initial noncontrolling interests and adjustments related to acquisition
(0.4
)
Net income attributable to redeemable noncontrolling interests
0.3

Change in fair value of redeemable securities (a Level 3 measurement)

Balance at March 31, 2012
$
14.7




14

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



NOTE 8 — INCOME TAXES

During the first three months of 2012, the Company recognized an Income Tax Expense of $13.0 million on Income before Income Taxes and Equity Income of Unconsolidated Entities of $30.0 million. The effective tax rate for the three months ended March 31, 2012 was different than the statutory rate primarily due to the mix and levels between foreign and domestic earnings including losses in jurisdictions with full valuation allowances, as well as the effects of certain discrete tax items. During the first three months of 2011, the Company recognized Income Tax Expense of $2.9 million on Income before Income Taxes and Equity Income of Unconsolidated Entities of $29.3 million. Income Tax Expense for the first three months of 2011 primarily relates to the non-cash expense of $5.6 million associated with the amortization of goodwill for tax purposes. During the fourth quarter of 2011, the Company released its U.S. federal and a substantial portion of its state deferred tax valuation allowance. The Company has approximately $1.1 billion of NOLs for U.S. federal income tax purposes, which is currently being used and may be used to offset future taxable income.

NOTE 9 — 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 consolidated financial position, results of operations or cash flows. Any failure to comply with environmental or health and safety laws and regulations or any permits and authorizations required thereunder could subject the Company to fines, corrective action or other sanctions.

Some of the Company’s current and former facilities are the subject of environmental investigations and remediations resulting from 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. 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 consolidated 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 of resulting in liability are not quantifiable at this time. The Company will continue to monitor environmental issues at each of its facilities, as well as regulatory developments, and will revise its accruals, estimates and disclosures relating to past, present and future operations, as additional information is obtained.

Legal Matters

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

NOTE 10 — RELATED PARTY TRANSACTIONS

On March 23, 2012, the Company completed the disposition of its real property and facility in Golden, Colorado to CoorsTek, Inc. (“CoorsTek”) for $10.0 million. Under the terms of the transaction, the Company will lease certain space in the facility from CoorsTek for a period of three years. CoorsTek is affiliated with Jeffrey H. Coors, a member of the Board of Directors of the Company. The Audit Committee of the Board of Directors has approved and ratified the transaction pursuant to the Company's Policy Regarding Related Party Transactions.

NOTE 11 — SEGMENT INFORMATION

The Company reports its results in two reportable segments: paperboard packaging and flexible packaging. These segments are evaluated by the chief operating decision maker based primarily on Income from Operations as adjusted for depreciation and amortization. The Company’s reportable segments are based upon strategic business units that offer different products. As a result of changes in the Company's internal reporting structure, the Company's Labels business is now a part of the paperboard packaging segment. The Company's 2011 segment results including certain corporate allocations have been reclassified to be consistent with the current year presentation. The accounting policies of the reportable segments are the same as those described in GPHC’s Annual Report on Form 10-K for the year ended December 31, 2011.

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 reportable segment includes the design, manufacture and installation of packaging machinery related to the assembly of cartons, the production and sale of corrugated medium and kraft paper from paperboard mills in the U.S, and produces paper and heat transfer labels.

15

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




The flexible packaging segment produced kraft paper and converts kraft and specialty paper into multi-wall bags, consumer and specialty retail bags and produces flexible packaging and laminations. The multi-wall 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 flexible packaging and laminations are converted from a wide variety of technologically advanced films for use in the food, pharmaceutical and industrial end-markets. Flexible packaging paper is used in a wide range of consumer applications.

Segment information is as follows:

 
Three Months Ended
 
March 31,
In millions
2012
 
2011
NET SALES:
 
 
 
Paperboard Packaging

$883.3

 

$844.5

Flexible Packaging
183.9

 
156.1

Total

$1,067.2

 

$1,000.6

 
 
 
 
INCOME (LOSS) FROM OPERATIONS:
 
 
 
Paperboard Packaging

$88.2

 

$80.5

Flexible Packaging
(1.4
)
 
2.1

Corporate
(15.8
)
 
(14.0
)
Total

$71.0

 

$68.6

 
 
 
 
DEPRECIATION AND AMORTIZATION:
 
 
 
Paperboard Packaging

$60.1

 

$62.6

Flexible Packaging
7.2

 
7.6

Corporate
0.6

 
0.8

Total

$67.9

 

$71.0



NOTE 12 — EARNINGS PER SHARE
 
Three Months Ended
 
March 31,
In millions, except per share data
2012
 
2011
Net Income Attributable to Graphic Packaging Holding Company

$17.2

 

$26.7

Weighted Average Shares:
 
 
 
Basic
392.5

 
344.2

Dilutive Effect of Stock Awards
4.0

 
5.6

Diluted
396.5

 
349.8

Earnings Per Share — Basic

$0.04

 

$0.08

 Earnings Per Share — Diluted

$0.04

 

$0.08


The following are the potentially dilutive securities excluded from the above calculation because the effect would have been anti-dilutive:

 
Three Months Ended
 
March 31,
 
2012
 
2011
Employee Stock Options
4,477,572

 
4,504,572


16

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




NOTE 13 — GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
These consolidating financial statements reflect GPHC and GPC (collectively “the Parent”); GPII, the issuer of the Company's Senior Notes (the "Subsidiary Issuer"); and the Subsidiary Guarantors, which consist of all material 100% owned subsidiaries of GPII other than its foreign subsidiaries; and the nonguarantor subsidiaries are herein referred to as “Nonguarantor Subsidiaries.” The Nonguarantor Subsidiaries include all of GPII's foreign subsidiaries and the subsidiaries of GFP. The consolidating financial statements as of and for the period end March 31, 2011 have been reclassified to include the subsidiaries of GFP contributed by GPII as Nonguarantor Subsidiaries, which were previously included as Subsidiary Guarantors. Separate complete financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly and severally, fully and unconditionally liable under the guarantees.

 
Three Months Ended March 31, 2012
In millions
Parent
 
Subsidiary Issuer
 
Combined Guarantor Subsidiaries
 
Combined Nonguarantor Subsidiaries
 
Consolidating Eliminations
 
Consolidated
Net Sales

$—

 

$830.1

 

$17.3

 

$282.9

 

($63.1
)
 

$1,067.2

Cost of Sales

 
687.4

 
12.6

 
260.7

 
(63.1
)
 
897.6

Selling, General and Administrative

 
73.6

 
1.8

 
20.9

 

 
96.3

Other (Income) Expense, Net

 
(1.6
)
 
(0.1
)
 
0.5

 

 
(1.2
)
Goodwill Impairment, Restructuring and Other Special Charges

 
3.5

 

 

 

 
3.5

Income from Operations

 
67.2

 
3.0

 
0.8

 

 
71.0

Interest Expense, Net

 
(30.0
)
 

 
(2.1
)
 

 
(32.1
)
Loss on Modification or Extinguishment of Debt

 
(8.9
)
 

 

 

 
(8.9
)
Income (Loss) before Income Taxes and Equity Income of Unconsolidated Entities

 
28.3

 
3.0

 
(1.3
)
 

 
30.0

Income Tax Expense

 
(11.9
)
 

 
(1.1
)
 

 
(13.0
)
Income (Loss) before Equity Income of Unconsolidated Entities

 
16.4

 
3.0

 
(2.4
)
 

 
17.0

Equity Income of Unconsolidated Entities

 

 

 
0.3

 

 
0.3

Equity in Net Earnings of Subsidiaries
17.3

 
0.9

 
(1.9
)
 

 
(16.3
)
 

Net Income (Loss)
17.3

 
17.3

 
1.1

 
(2.1
)
 
(16.3
)
 
17.3

Net Loss Attributable to Noncontrolling Interests
(0.1
)
 
(0.1
)
 

 
(0.1
)
 
0.2

 
(0.1
)
Net Income (Loss) Attributable to Graphic Packaging Holding Company

$17.2

 

$17.2

 

$1.1

 

($2.2
)
 

($16.1
)
 

$17.2

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income Attributable to Graphic Packaging Holding Company

$25.8

 

$25.8

 

$4.4

 

$7.6

 

($37.8
)
 

$25.8




17

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Three Months Ended March 31, 2011
In millions
Parent
 
Subsidiary Issuer
 
Combined Guarantor Subsidiaries
 
Combined Nonguarantor Subsidiaries
 
Consolidating Eliminations
 
Consolidated
Net Sales

$—

 

$787.8

 

$14.3

 

$253.6

 

($55.1
)
 

$1,000.6

Cost of Sales

 
660.7

 
10.3

 
226.5

 
(55.1
)
 
842.4

Selling, General and Administrative

 
71.7

 
1.7

 
16.1

 

 
89.5

Other (Income) Expense, Net

 
(0.1
)
 

 
0.2

 

 
0.1

Income from Operations

 
55.5

 
2.3

 
10.8

 

 
68.6

Interest Expense, Net

 
(39.0
)
 

 
(0.3
)
 

 
(39.3
)
Income before Income Taxes and Equity Income of Unconsolidated Entities

 
16.5

 
2.3

 
10.5

 

 
29.3

Income Tax Expense

 
(2.8
)
 

 
(0.1
)
 

 
(2.9
)
Income before Equity Income of Unconsolidated Entities

 
13.7

 
2.3

 
10.4

 

 
26.4

Equity Income of Unconsolidated Entities

 

 

 
0.3

 

 
0.3

Equity in Net Earnings of Subsidiaries
26.7

 
13.0

 
(0.1
)
 

 
(39.6
)
 

Net Income
26.7

 
26.7

 
2.2

 
10.7

 
(39.6
)
 
26.7

Net Loss Attributable to Noncontrolling Interests

 

 

 

 

 

Net Income Attributable to Graphic Packaging Holding Company

$26.7

 

$26.7

 

$2.2

 

$10.7

 

($39.6
)
 

$26.7

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income Attributable to Graphic Packaging Holding Company

$42.5

 

$42.5

 

$4.7

 

$15.6

 

($62.8
)
 

$42.5












18

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
March 31, 2012
In millions
Parent
 
Subsidiary
Issuer
 
Combined
Guarantor
Subsidiaries
 
Combined
Nonguarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents

$—

 

$1.8

 

$—

 

$28.4

 

$—

 

$30.2

Receivables, Net

 
296.4

 
7.8

 
145.3

 

 
449.5

Inventories, Net

 
348.2

 
5.6

 
162.1

 

 
515.9

Intercompany
24.4

 
586.1

 
(62.6
)
 
(547.9
)
 

 

Other Current Assets

 
136.8

 
0.1

 
5.6

 

 
142.5

Total Current Assets
24.4

 
1,369.3

 
(49.1
)
 
(206.5
)
 

 
1,138.1

Property, Plant and Equipment, Net

 
1,417.1

 
16.5

 
178.4

 
(0.2
)
 
1,611.8

Investment in Consolidated Subsidiaries
1,177.2

 
(0.1
)
 
10.7

 

 
(1,187.8
)
 

Goodwill

 
1,046.6

 
47.2

 
40.3

 

 
1,134.1

Other Assets

 
443.9

 
19.7

 
112.0

 

 
575.6

Total Assets

$1,201.6

 

$4,276.8

 

$45.0

 

$124.2

 

($1,188.0
)
 

$4,459.6

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Short-Term Debt and Current Portion of Long-Term Debt

$—

 

$38.3

 

$—

 

$11.5

 

$—

 

$49.8

Accounts Payable

 
296.8

 
6.4

 
106.7

 

 
409.9

Interest Payable

 
26.5

 

 
0.2

 

 
26.7

Other Accrued Liabilities

 
152.4

 
1.6

 
25.5

 

 
179.5

Total Current Liabilities

 
514.0

 
8.0

 
143.9

 

 
665.9

Long-Term Debt

 
2,101.6

 

 
1.1

 

 
2,102.7

Deferred Income Tax Liabilities

 
60.3

 

 
3.0

 

 
63.3

Other Noncurrent Liabilities

 
410.4

 

 
15.7

 

 
426.1

 
 
 
 
 
 
 
 
 
 
 
 
Redeemable Noncontrolling Interests
14.7

 
14.7

 

 
14.7

 
(29.4
)
 
14.7

 
 
 
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
 
 
 
 
 
 
 
Total Graphic Packaging Holding Company Shareholders’ Equity
1,188.3

 
1,177.2

 
37.0

 
(52.8
)
 
(1,161.4
)
 
1,188.3

Noncontrolling Interests
(1.4
)
 
(1.4
)
 

 
(1.4
)
 
2.8

 
(1.4
)
Total Equity
1,186.9

 
1,175.8

 
37.0

 
(54.2
)
 
(1,158.6
)
 
1,186.9

Total Liabilities and Equity

$1,201.6

 

$4,276.8

 

$45.0

 

$124.2

 

($1,188.0
)
 

$4,459.6
















19

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




 
December 31, 2011
In millions
Parent
 
Subsidiary
Issuer
 
Combined
Guarantor
Subsidiaries
 
Combined
Nonguarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents

$—

 

$228.9

 

$—

 

$42.9

 

$—

 

$271.8

Receivables, Net

 
255.4

 
4.9

 
141.6

 

 
401.9

Inventories, Net

 
337.2

 
4.2

 
137.7

 

 
479.1

Intercompany
30.1

 
526.1

 
(43.3
)
 
(512.9
)
 

 

Other Current Assets

 
156.0

 
0.1

 
5.2

 

 
161.3

Total Current Assets
30.1

 
1,503.6

 
(34.1
)
 
(185.5
)
 

 
1,314.1

Property, Plant and Equipment, Net

 
1,425.1

 
17.1

 
180.1

 
(0.2
)
 
1,622.1

Investment in Consolidated Subsidiaries
1,151.4

 
6.3

 
9.4

 

 
(1,167.1
)
 

Goodwill

 
1,048.8

 
47.2

 
39.7

 

 
1,135.7

Other Assets

 
462.6

 
0.1

 
115.1

 

 
577.8

Total Assets

$1,181.5

 

$4,446.4

 

$39.7

 

$149.4

 

($1,167.3
)
 

$4,649.7

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Short-Term Debt and Current Portion of Long-Term Debt

$—

 

$19.3

 

$—

 

$10.8

 

$—

 

$30.1

Accounts Payable

 
288.8

 
5.3

 
117.3

 

 
411.4

Interest Payable

 
23.0

 

 

 

 
23.0

Other Accrued Liabilities

 
148.2

 
1.6

 
31.2

 

 
181.0

Total Current Liabilities

 
479.3

 
6.9

 
159.3

 

 
645.5

Long-Term Debt

 
2,334.2

 

 
1.5

 

 
2,335.7

Deferred Income Tax Liabilities

 
60.3

 

 
2.7

 

 
63.0

Other Noncurrent Liabilities

 
407.6

 

 
16.4

 

 
424.0

 


 


 


 


 


 


Redeemable Noncontrolling Interests
14.8

 
14.8

 

 
14.8

 
(29.6
)
 
14.8

 
 
 
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
 
 
 
 
 
 
 
Total Graphic Packaging Holding Company Shareholders’ Equity
1,167.9

 
1,151.4

 
32.8

 
(44.1
)
 
(1,140.1
)
 
1,167.9

Noncontrolling Interests
(1.2
)
 
(1.2
)
 

 
(1.2
)
 
2.4

 
(1.2
)
Total Equity
1,166.7

 
1,150.2

 
32.8

 
(45.3
)
 
(1,137.7
)
 
1,166.7

Total Liabilities and Equity

$1,181.5

 

$4,446.4

 

$39.7

 

$149.4

 

($1,167.3
)
 

$4,649.7


20

Table of Contents
GRAPHIC PACKAGING HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




 
Three Months Ended March 31, 2012
In millions
Parent
 
Subsidiary
Issuer
 
Combined
Guarantor
Subsidiaries
 
Combined
Nonguarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)

$17.3

 

$17.3

 

$1.1

 

($2.1
)
 

($16.3
)
 

$17.3

Non-cash Items Included in Net Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
Depreciation and Amortization

 
58.5

 
1.0

 
8.4

 

 
67.9

Deferred Income Taxes

 
10.4

 

 
0.5

 

 
10.9

Amount of Postretirement Expense (Less) Greater Than Funding

 
4.0

 
0.1

 
(0.4
)
 

 
3.7

Equity in Net Earnings of Subsidiaries
(17.3
)
 
(0.9
)
 
1.9

 

 
16.3

 

Other, Net

 
20.2

 

 
1.4

 

 
21.6

Changes in Operating Assets and Liabilities

 
(63.8
)
 
(3.5
)
 
(21.6
)
 

 
(88.9
)
Net Cash Provided by (Used in) Operating Activities

 
45.7

 
0.6

 
(13.8
)
 

 
32.5

 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Capital Spending

 
(38.4
)
 
(0.6
)
 
(2.7
)
 

 
(41.7
)
Proceeds from Sale of Assets

 
2.8

 

 

 

 
2.8

Other, Net

 
(0.7
)
 

 

 

 
(0.7
)
Net Cash Used in Investing Activities

 
(36.3
)
 
(0.6
)
 
(2.7
)
 

 
(39.6
)
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Issuance or Modification of Debt

 
1,000.0

 

 

 

 
1,000.0

Payments on Debt

 
(1,678.4
)
 

 

 

 
(1,678.4
)
Borrowings under Revolving Credit Facilities

 
525.0

 

 
11.3

 

 
536.3

Payments on Revolving Credit Facilities

 
(60.0
)
 

 
(10.3
)
 

 
(70.3
)
Redemption and Debt Issuance Costs

 
(22.8
)
 

 

 

 
(22.8
)
Repurchase of Common Stock related to Share-Based Payments

 
(9.2
)
 

 

 

 
(9.2
)
Other, Net

 
8.9

 

 

 

 
8.9

Net Cash Used in Financing Activities

 
(236.5
)
 

 
1.0

 

 
(235.5
)
 
 
 
 
 
 
 
 
 
 
 
 
Effect of Exchange Rate Changes on Cash

 

 

 
1.0

 

 
1.0

 
 
 
 
 
 
 
 
 
 
 
 
Net Decrease in Cash and Cash Equivalents

 
(227.1
)
 

 
(14.5
)
 

 
(241.6
)
Cash and Cash Equivalents at Beginning of Period

 
228.9

 

 
42.9