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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, 2014
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.)
 
 
1500 Riveredge Parkway, Suite 100
 
Atlanta, Georgia
30328
(Address of principal executive offices)
(Zip Code)

(770) 240-7200
(Registrant’s telephone number, including area code)

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 17, 2014, there were 326,943,150 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, debt reduction, synergies from acquisitions, 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, 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, the Company’s debt level, currency movements and other risks of conducting business internationally, and the impact of regulatory and litigation matters, including those that could impact the Company’s ability to utilize its 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 2013 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
2014
 
2013
Net Sales
$
1,072.7

 
$
1,100.5

Cost of Sales
885.7

 
917.6

Selling, General and Administrative
100.9

 
99.2

Other Income, Net
(1.4
)
 
(2.9
)
Restructuring and Other Special Charges
7.8

 
1.4

Income from Operations
79.7

 
85.2

Interest Expense, Net
(20.4
)
 
(27.2
)
Income before Income Taxes and Equity Income of Unconsolidated Entities
59.3

 
58.0

Income Tax Expense
(24.8
)
 
(23.7
)
Income before Equity Income of Unconsolidated Entities
34.5

 
34.3

Equity Income of Unconsolidated Entities
0.3

 
0.3

Net Income
34.8

 
34.6

Net Loss Attributable to Noncontrolling Interests
0.4

 
0.3

Net Income Attributable to Graphic Packaging Holding Company
$
35.2

 
$
34.9

 
 
 
 
Net Income Per Share Attributable to Graphic Packaging Holding Company — Basic
$
0.11

 
$
0.10

Net Income Per Share Attributable to Graphic Packaging Holding Company — Diluted
$
0.11

 
$
0.10


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
2014
2013
Net Income
$
34.8

$
34.6

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

2.3

Currency Translation Adjustment
4.4

(15.1
)
Pension Benefit Plans
2.1

6.0

Postretirement Benefit Plans
(2.4
)
(0.2
)
Total Other Comprehensive Income (Loss), Net of Tax
4.1

(7.0
)
Total Comprehensive Income
38.9

27.6

Comprehensive Loss Attributable to Noncontrolling Interests
0.3

0.3

Comprehensive Income Attributable to Graphic Packaging Holding Company
$
39.2

$
27.9


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,
2014
 
December 31,
2013
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
34.7

 
$
52.2

Receivables, Net
470.9

 
412.8

Inventories, Net
578.1

 
557.1

Deferred Income Tax Assets
171.4

 
171.3

Other Current Assets
32.4

 
32.2

Assets Held for Sale
6.7

 
6.6

Total Current Assets
1,294.2

 
1,232.2

Property, Plant and Equipment, Net
1,669.5

 
1,678.9

Goodwill
1,078.0

 
1,125.4

Intangible Assets, Net
438.6

 
467.0

Other Assets
62.6

 
55.8

Total Assets
$
4,542.9

 
$
4,559.3

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
Short-Term Debt and Current Portion of Long-Term Debt
$
79.0

 
$
77.4

Accounts Payable
419.2

 
428.3

Other Accrued Liabilities
188.7

 
205.5

Total Current Liabilities
686.9

 
711.2

Long-Term Debt
2,132.2

 
2,176.2

Deferred Income Tax Liabilities
351.5

 
329.9

Other Noncurrent Liabilities
268.4

 
268.4

 
 
 
 
Redeemable Noncontrolling Interests (Note 7)
11.0

 
11.3

 
 
 
 
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; 326,943,150 and 324,746,642 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively
3.3

 
3.2

Capital in Excess of Par Value
1,781.2

 
1,789.9

Accumulated Deficit
(507.4
)
 
(542.6
)
Accumulated Other Comprehensive Loss
(184.2
)
 
(188.2
)
Total Equity
1,092.9

 
1,062.3

Total Liabilities and Equity
$
4,542.9

 
$
4,559.3


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
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
34.8

 
$
34.6

Non-cash Items Included in Net Income:
 
 
 
Depreciation and Amortization
67.0

 
65.4

Deferred Income Taxes
23.2

 
19.5

Amount of Postretirement Expense Greater (Less) Than Funding
0.5

 
(0.7
)
Loss on the Sale of Assets
5.9

 

Other, Net
13.2

 
5.5

Changes in Operating Assets and Liabilities
(114.7
)
 
(136.2
)
Net Cash Provided by (Used in) Operating Activities
29.9

 
(11.9
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital Spending
(59.3
)
 
(32.9
)
Proceeds Received from the Sale of Assets, Net of Selling Costs
70.7

 

Other, Net
(0.5
)
 
(0.8
)
Net Cash Provided by (Used in) Investing Activities
10.9

 
(33.7
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Payments on Debt
(15.4
)
 
(13.0
)
Borrowings under Revolving Credit Facilities
267.3

 
409.7

Payments on Revolving Credit Facilities
(294.2
)
 
(355.5
)
Repurchase of Common Stock related to Share-Based Payments
(15.8
)
 
(10.9
)
Other, Net
(0.5
)
 
4.1

Net Cash (Used in) Provided by Financing Activities
(58.6
)
 
34.4

 
 
 
 
Effect of Exchange Rate Changes on Cash
0.3

 
(1.5
)
 
 
 
 
Net Decrease in Cash and Cash Equivalents
(17.5
)
 
(12.7
)
Cash and Cash Equivalents at Beginning of Period
52.2

 
51.5

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
34.7

 
$
38.8


Supplemental non-cash investing activities:
Total Consideration Received from the Sale of Assets, Net of Selling Costs
$
78.8

$

Cash Proceeds Received from the Sale of Assets, Net of Selling Costs
70.7


Non-cash Consideration Received from the Sale of Assets, Net of Selling Costs
$
8.1

$


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 multi-wall bags. The Company’s customers include many of the most widely recognized companies and brands with prominent market positions in beverage, food, and other consumer products. 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 quality and 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 Form 10-K for the year ended December 31, 2013. In addition, the preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates and changes in these estimates are recorded when known.

For a summary of the Company’s significant accounting policies, please refer to GPHC’s Form 10-K for the year ended December 31, 2013.

Accounts Receivable and Allowances

The Company has entered into various factoring and supply chain financing arrangements, principally at the request of customers, which qualify for sale accounting in accordance with the Transfers and Servicing topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("the Codification"). For the periods ended March 31, 2014 and December 31, 2013, the Company had received incremental proceeds of approximately $19 million and $41 million, respectively, from the factoring arrangements. Amounts transferred subject to continuing involvement at March 31, 2014 and December 31, 2013 were approximately $2 million and $20 million, respectively.

Equity Secondary Offerings

During the first quarter of 2014, certain shareholders of the Company sold 30 million shares of common stock in a secondary public offering at $9.85 per share. The shares were sold by certain affiliates of TPG Capital, L.P. (the "TPG Entities"), Clayton, Dubilier & Rice Fund V Limited Partnership (the "CD&R Fund") and Old Town, S.A. ("Old Town"). As a result of these actions, the CD&R Fund and Old Town no longer hold shares of the Company. The TPG Entities and certain Coors family trusts and the Adolph Coors Foundation now hold approximately 13% of shares outstanding.


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Restructuring and Other Special Charges

The following table summarizes the transactions recorded in Restructuring and Other Special Charges in the Consolidated Statements of Operations:
 
Three Months Ended
 
March 31,
In millions
2014
 
2013
Loss on Sale of Assets
$
5.9

 
$

Charges Associated with Business Combinations
1.6

 
0.8

Other Special Charges
0.3

 
0.6

Total
$
7.8

 
$
1.4


On February 3, 2014, the Company completed the sale of its labels business. The financial impact of this transaction is reflected in Loss on Sale of Assets in the above table. Approximately $47 million of goodwill and $17 million of intangible assets were written off relating to the sale. The labels business was part of the Paperboard Packaging segment and accounted for approximately 1% of Consolidated Net Sales.

Adoption of New Accounting Standards

Effective January 1, 2014, the Company adopted revised guidance on the Income Taxes topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("the FASB Codification") which requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to the deferred tax asset for a net operating loss carryforward, or similar tax loss, or a tax credit carryforward. The adoption did not have any impact on the Company's financial position, results of operations or cash flows.

Effective January 1, 2014, the Company adopted Accounting Standards Update (ASU) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations and requires new disclosures for discontinued operations and for significant disposals of components of an entity that do not qualify for discontinued operations reporting. The adoption did not have an 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,
2014
 
December 31,
2013
Finished Goods
$
299.7

 
$
288.3

Work in Progress
53.2

 
49.2

Raw Materials
153.7

 
149.7

Supplies
71.5

 
69.9

Total
$
578.1

 
$
557.1




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



NOTE 3 — DEBT

For more information regarding the Company’s debt, see “Note 5 Debt” of the Notes to Consolidated Financial Statements of the Company’s 2013 Form 10-K.

Long-Term Debt is composed of the following:
In millions
March 31,
2014
 
December 31,
2013
Senior Notes with interest payable semi-annually at 7.875%, payable in 2018 ($250.0 million face amount)
$
247.4

 
$
247.3

Senior Notes with interest payable semi-annually at 4.75%, payable in 2021
425.0

 
425.0

Senior Secured Term Loan Facility with interest payable at various dates at floating rates (1.90% at March 31, 2014) payable through 2018
1,199.3

 
1,214.6

Senior Secured Revolving Facility with interest payable at floating rates (1.97% at March 31, 2014) payable in 2018
316.8

 
344.3

Capital Lease Obligations
5.1

 
5.6

Other
17.6

 
16.8

Total Debt
2,211.2

 
2,253.6

Less: Short-Term Debt and Current Portion of Long-Term Debt
79.0

 
77.4

Total Long-Term Debt
$
2,132.2

 
$
2,176.2



At March 31, 2014, the Company and its U.S. and international subsidiaries had the following commitments, amounts outstanding and amounts available under revolving credit facilities:
In millions
Total
Commitments
 
Total
Outstanding
 
Total Available
Domestic Revolving Credit Facility (a)
$
1,000.0

 
$
259.5

 
$
714.1

International Facilities
164.4

 
74.9

 
89.5

Total
$
1,164.4

 
$
334.4

 
$
803.6



(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 $26.4 million as of March 31, 2014. 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 2015 unless extended.

The Credit Agreement and the indenture governing the 7.875% Senior Notes due 2018 and the 4.75% Senior Notes due 2021 (the “Indenture”) limit the Company’s ability to incur additional indebtedness. Additional covenants contained in the Credit Agreement and the Indenture, 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 Indenture, 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.

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.

As of March 31, 2014, the Company was in compliance with the covenants in the Credit Agreement and the Indenture.


NOTE 4 — STOCK INCENTIVE PLANS

The Company has one active equity compensation plan from which new grants are made, the Graphic Packaging Holding Company Amended and Restated 2004 Stock and Incentive Compensation Plan (the “2004 Plan”). Awards granted under the 2004 Plan generally vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the 2004 Plan 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.

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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”). Generally, all RSUs vest and become payable in three 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 shares of common stock. Stock awards granted to non-employee directors as part of their compensation for service on the Board are unrestricted on the grant date.

Data concerning RSUs granted in the first three months of 2014 is as follows:
Shares in thousands
Shares
 
Weighted Average
Grant Date Fair
Value Per Share
RSUs — Employees
2,095

 
$
10.27


During the three months ended March 31, 2014 and 2013, $4.1 million and $6.8 million, respectively, were charged to compensation expense for stock incentive plans.

During the three months ended March 31, 2014 and 2013, approximately 2.2 million and 3.0 million shares were issued, respectively. The shares issued were primarily related to RSUs granted during 2011 and 2010, respectively.

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.

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
2014
 
2013
 
2014
2013
Components of Net Periodic Cost:
 
 
 
 
 
 
Service Cost
$
3.7

 
$
4.0

 
$
0.3

$
0.4

Interest Cost
14.5

 
13.1

 
0.6

0.5

Administrative Expenses
0.2

 
0.2

 


Expected Return on Plan Assets
(20.0
)
 
(17.0
)
 


Amortization:
 
 
 
 
 
 
 Prior Service Cost (Credit)
0.1

 
0.2

 
(0.1
)

Actuarial Loss (Gain)
3.0

 
9.4

 
(0.3
)
(0.3
)
Net Periodic Cost
$
1.5

 
$
9.9

 
$
0.5

$
0.6


Employer Contributions

The Company made contributions of $0.8 million and $10.7 million to its pension plans during the first three months of 2014 and 2013, respectively. The Company expects to make contributions of $40 to $60 million for the full year 2014. During 2013, the Company made $51.5 million of contributions to its pension plans.

The Company made postretirement health care benefit payments of $0.7 million and $0.5 million during the first three months of 2014 and 2013, respectively. The Company estimates its postretirement health care benefit payments for the full year 2014 to be approximately $3 million. During 2013, the Company made postretirement health care benefit payments of $1.8 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

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



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 Income. These changes in fair value will subsequently be reclassified to earnings.

For more information regarding the Company’s financial instruments and fair value measurement, see “Note 9 — Financial Instruments, Derivatives and Hedging Activities” and Note 10 — Fair Value Measurement” of the Notes to Consolidated Financial Statements of the Company’s 2013 Form 10-K.

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, 2014 and December 31, 2013, the Company had interest rate swap agreements outstanding with a notional amount of $560 million. The swap agreements, under which the Company will pay fixed rates of 0.45% to 0.82% and receive one-month LIBOR rates, expire in April 2016.

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.

During the first three months of 2014 and 2013, there were minimal amounts of ineffectiveness related to changes in the fair value of interest rate swap agreements. 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 a designated percentage of its expected natural gas usage. 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. The Company has hedged 53% of its expected natural gas usage for 2014.

During the first three months of 2014 and 2013, 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. 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, Net when the anticipated transaction affects income.

At March 31, 2014, multiple forward exchange contracts existed that expire on various dates through 2014. Those purchased forward exchange contracts outstanding at March 31, 2014 and December 31, 2013, when aggregated and measured in U.S. dollars at contractual rates at March 31, 2014 and December 31, 2013 had notional amounts totaling $48.4 million and $65.3 million, respectively.

No amounts were reclassified to earnings during the first three months of 2014 or during 2013 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, 2014 and December 31, 2013, multiple foreign currency forward exchange contracts existed, with maturities ranging up to three months. Those foreign currency exchange contracts outstanding at March 31, 2014 and December 31, 2013, when aggregated and measured in U.S. dollars at exchange rates at March 31, 2014 and December 31, 2013, had net notional amounts totaling $27.8 million and $32.5 million, respectively. Unrealized gains and losses resulting from these contracts are recognized in Other Income, 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,

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



which reflect the terms of the derivatives and use observable market-based inputs, including forward rates and use market price quotations obtained from independent derivatives brokers, corroborated with information obtained from independent pricing service providers.

As of March 31, 2014 and December 31, 2013, the Company had a net derivative liability of $1.6 million and $2.2 million, respectively, primarily related to interest rate, foreign currency and commodity contracts.

As of March 31, 2014, 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 March 31, 2014 and December 31, 2013 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 (excluding capital leases) was $2,224.1 million and $2,267.6 million as compared to the carrying amounts of $2,206.1 million and $2,248.0 million as of March 31, 2014 and December 31, 2013, respectively. The fair value of the Company’s Long-Term Debt, including the Senior Notes, are based on quoted market prices (Level 2 inputs).

The fair value of the Company's assets held for sale at March 31, 2014 and December 31, 2013 was $6.7 million and $6.6 million, respectively. The value is recorded at the lower of book value or fair value, less costs to sell. Fair value was determined using the market approach based on the value of similar assets (Level 3 inputs).

Accumulated Derivative Instruments (Loss) Income

The following is a rollforward of pre-tax Accumulated Derivative Instruments (Loss) Income which is included in the Company’s Condensed Consolidated Balance Sheets:
In millions
 
Balance at December 31, 2013
$
(1.3
)
Reclassification to Earnings
(1.0
)
Current Period Change in Fair Value
0.9

Balance at March 31, 2014
$
(1.4
)

At March 31, 2014, the Company expects to reclassify approximately $1.2 million of loss 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.


13

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





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. 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.

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 is determined after attribution of comprehensive income of the redeemable noncontrolling interests. The adjustment to the carrying amount does not impact net income or comprehensive income in the Company’s Condensed Consolidated Financial Statements and does 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 comprehensive income of the noncontrolling interest. At March 31, 2014, the book value of the redeemable noncontrolling interests was determined as follows:

In millions
 
Balance at December 31, 2013
$
11.3

Net Loss Attributable to Redeemable Noncontrolling Interests
(0.4
)
Other Comprehensive Income, Net of Tax
0.1

Change in Fair Value of Redeemable Securities

Balance at March 31, 2014
$
11.0


The calculation of fair value (a Level 3 measurement) of the redeemable noncontrolling interest is determined by using a discounted cash flow analysis based on the Company's forecasts discounted using a weighed average cost of capital and market indicators of terminal year cash flows based upon a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”).



14

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



NOTE 8 — INCOME TAXES

During the three months ended March 31, 2014, the Company recognized Income Tax Expense of $24.8 million on Income before Income Taxes and Equity Income of Unconsolidated Entities of $59.3 million. The effective tax rate for the three months ended March 31, 2014 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 impact of the writeoff of nondeductible goodwill in connection with the sale of the labels business and other discrete items. During the three months ended March 31, 2013, the Company recognized Income Tax Expense of $23.7 million on Income before Income Taxes and Equity Income of Unconsolidated Entities of $58.0 million. The effective tax rate for the three months ended March 31, 2013 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. The Company has approximately $830 million of Net Operating Losses for U.S. federal income tax purposes, which are 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 a 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. Currently, the Company expects to spend less than $10 million, in aggregate, during 2014 and 2015 to achieve compliance with the National Emission Standards for Hazardous Air Pollutants for units at major sources (known as "Boiler MACT"). 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 — 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. The accounting policies of the reportable segments are the same as those described in GPHC’s Form 10-K for the year ended December 31, 2013.

The paperboard packaging segment is highly integrated and includes a system of mills and plants that produce 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. As previously disclosed, the Company sold its labels business as of February 3, 2014 which was part of the paperboard packaging segment.

The flexible packaging segment produces kraft paper and converts kraft and specialty paper into products which include multi-wall bags, such as pasted valve, pinched bottom, sewn open mouth and woven polypropylene and coated paper. Coated paper products include institutional french fry packaging, barrier punch rollstock and freeze paper. Key end-markets include food and agriculture, building and industrial materials, chemicals, minerals and pet food. Flexible package paper is used in a wide range of consumer applications.


15

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



Segment information is as follows:
 
Three Months Ended
 
March 31,
In millions
2014
 
2013
NET SALES:
 
 
 
Paperboard Packaging
$
941.8

 
$
936.1

Flexible Packaging
130.9

 
164.4

Total
$
1,072.7

 
$
1,100.5

 
 
 
 
INCOME (LOSS) FROM OPERATIONS:
 
 
 
Paperboard Packaging
$
100.2

 
$
102.7

Flexible Packaging
(4.5
)
 
(3.8
)
Corporate
(16.0
)
 
(13.7
)
Total
$
79.7

 
$
85.2

 
 
 
 
DEPRECIATION AND AMORTIZATION:
 
 
 
Paperboard Packaging
$
61.0

 
$
58.4

Flexible Packaging
5.4

 
6.4

Corporate
0.6

 
0.6

Total
$
67.0

 
$
65.4


For more information regarding the Company’s business segments, see “Note 16 — Business Segment and Geographic Area Information” of the Notes to Consolidated Financial Statements of the Company’s 2013 Form 10-K.


16

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





NOTE 11 — EARNINGS PER SHARE
 
Three Months Ended
 
March 31,
In millions, except per share data
2014
 
2013
Net Income Attributable to Graphic Packaging Holding Company
$
35.2

 
$
34.9

Weighted Average Shares:
 
 
 
Basic
327.6

 
348.1

Dilutive Effect of RSUs and Stock Awards
2.7

 
2.3

Diluted
330.3

 
350.4

Earnings Per Share — Basic
$
0.11

 
$
0.10

 Earnings Per Share — Diluted
$
0.11

 
$
0.10


For the three months ended March 31, 2013, the potentially dilutive stock options excluded from the above calculation because the effect would have been anti-dilutive were 1,824,098.


NOTE 12 — EQUITY

The following is a summary of the changes in total equity for the three months ended March 31, 2014:
In millions
Graphic Packaging Holding Company Shareholders Equity (a)
Balance at December 31, 2013
$
1,062.3

Net Income
35.2

Other Comprehensive Income, Net of Tax
4.0

Compensation Expense Under Share-Based Plans
4.1

Issuance of Common Stock, Net of Stock Repurchased for Tax Withholdings
(12.7
)
Balance at March 31, 2014
$
1,092.9


(a) Excludes amounts related to contingently redeemable noncontrolling interests which are separately classified outside of permanent equity in the mezzanine section of the Condensed Consolidated Balance Sheets.


17

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



NOTE 13 — OTHER COMPREHENSIVE (LOSS) INCOME
The following represents changes in Accumulated Other Comprehensive (Loss) Income by each component of other comprehensive income for the three months ended March 31, 2014 (a):
In millions
Derivatives Instruments
Pension Benefit Plans
Postretirement Benefit Plans
Postemployment Benefit Plans
Currency Translation Adjustment
Total
Balance at December 31, 2013
$
(10.8
)
$
(174.1
)
$
12.8

$
0.5

$
(16.6
)
$
(188.2
)
Other Comprehensive Income (Loss) before Reclassifications
0.6

(0.7
)
(2.0
)

4.4

2.3

Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income (b)
(0.6
)
2.7

(0.4
)


1.7

Net Current-period Other Comprehensive Income (Loss)

2.0

(2.4
)

4.4

4.0

Balance at March 31, 2014
$
(10.8
)
$
(172.1
)
$
10.4

$
0.5

$
(12.2
)
$
(184.2
)

(a) 
All amounts are net-of-tax.
(b) See following table for details about these reclassifications.














18

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



The following represents reclassifications out of Accumulated Other Comprehensive Income for the three months ended March 31, 2014:

In millions
 
 
 
 
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
Affected Line Item in the Statement Where Net Income is Presented
Derivatives Instruments:
 
 
 
 
Commodity Contracts
 
$
(1.6
)
 
Cost of Sales
Foreign Currency Contracts
 
(0.2
)
 
Other Income, Net
Interest Rate Swap Agreements
 
0.8

 
Interest Expense, Net
 
 
(1.0
)
 
Total before Tax
 
 
0.4

 
Tax Benefit
 
 
$
(0.6
)
 
Net of Tax
 
 
 
 
 
Amortization of Defined Benefit Pension Plans:
 
 
 
 
Prior Service Costs
 
$
0.1

(c) 
 
Actuarial Losses
 
3.0

(c) 
 
 
 
3.1

 
Total before Tax
 
 
(0.4
)
 
Tax Expense
 
 
$
2.7

 
Net of Tax
 
 
 
 
 
Amortization of Postretirement Benefit Plans:
 
 
 
 
Prior Service Credits
 
$
(0.1
)
(c) 
 
Actuarial Gains
 
(0.3
)
(c) 
 
 
 
(0.4
)
 
Total before Tax
 
 

 
Tax Expense
 
 
$
(0.4
)
 
Net of Tax
 
 
 
 
 
Total Reclassifications for the Period
 
$
1.7

 
 
 

(c) 
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see “Note 6 — Pensions and Other Postretirement Benefits").

NOTE 14 — GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
This disclosure is required because certain subsidiaries are guarantors of GPII's debt securities. 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; and the nonguarantor subsidiaries (herein referred to as “Nonguarantor Subsidiaries”). The Nonguarantor Subsidiaries include all of GPII's foreign subsidiaries and the subsidiaries of GFP. 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.


19

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



 
Three Months Ended March 31, 2014
In millions
Parent
 
Subsidiary Issuer
 
Combined Guarantor Subsidiaries
 
Combined Nonguarantor Subsidiaries
 
Consolidating Eliminations
 
Consolidated
Net Sales
$

 
$
818.1

 
$
0.4

 
$
300.2

 
$
(46.0
)
 
$
1,072.7

Cost of Sales

 
659.5

 
(0.3
)
 
272.5

 
(46.0
)
 
885.7

Selling, General and Administrative

 
73.6

 
0.1

 
27.2

 

 
100.9

Other Income, Net

 
(0.7
)
 

 
(0.7
)
 

 
(1.4
)
Restructuring and Other Special Charges

 
0.3

 
5.9

 
1.6

 

 
7.8

Income (Loss) from Operations

 
85.4

 
(5.3
)
 
(0.4
)
 

 
79.7

Interest Expense, Net

 
(18.2
)
 

 
(2.2
)
 

 
(20.4
)
Income (Loss) before Income Taxes and Equity Income of Unconsolidated Entities

 
67.2

 
(5.3
)
 
(2.6
)
 

 
59.3

Income Tax Expense (Benefit)

 
(28.0
)
 
2.0

 
1.2

 

 
(24.8
)
Income (Loss) before Equity Income of Unconsolidated Entities

 
39.2

 
(3.3
)
 
(1.4
)
 

 
34.5

Equity Income of Unconsolidated Entities

 

 

 
0.3

 

 
0.3

Equity in Net Earnings of Subsidiaries
34.8

 
(4.4
)
 
(0.6
)
 

 
(29.8
)
 

Net Income (Loss)
34.8

 
34.8

 
(3.9
)
 
(1.1
)
 
(29.8
)
 
34.8

Net Loss Attributable to Noncontrolling Interests
0.4

 
0.4

 

 

 
(0.4
)
 
0.4

Net Income (Loss) Attributable to Graphic Packaging Holding Company
$
35.2

 
$
35.2

 
$
(3.9
)
 
$
(1.1
)
 
$
(30.2
)
 
$
35.2

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss) Attributable to Graphic Packaging Holding Company
$
39.2

 
$
39.2

 
$
(3.8
)
 
$
4.0

 
$
(39.4
)
 
$
39.2




20

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



 
Three Months Ended March 31, 2013
In millions
Parent
 
Subsidiary Issuer
 
Combined Guarantor Subsidiaries
 
Combined Nonguarantor Subsidiaries
 
Consolidating Eliminations
 
Consolidated
Net Sales
$

 
$
820.6

 
$
15.3

 
$
318.9

 
$
(54.3
)
 
$
1,100.5

Cost of Sales

 
664.8

 
11.2

 
295.9

 
(54.3
)
 
917.6

Selling, General and Administrative

 
70.4

 
1.8

 
27.0

 

 
99.2

Other Income, Net

 
(1.0
)
 

 
(1.9
)
 

 
(2.9
)
Restructuring and Other Special Charges

 
0.6

 

 
0.8

 

 
1.4

Income (Loss) from Operations

 
85.8

 
2.3

 
(2.9
)
 

 
85.2

Interest Expense, Net

 
(24.8
)
 

 
(2.4
)
 

 
(27.2
)
Income (Loss) before Income Taxes and Equity Income of Unconsolidated Entities

 
61.0

 
2.3

 
(5.3
)
 

 
58.0

Income Tax Expense

 
(20.4
)
 
(0.9
)
 
(2.4
)
 

 
(23.7
)
Income (Loss) before Equity Income of Unconsolidated Entities

 
40.6

 
1.4

 
(7.7
)
 

 
34.3

Equity Income of Unconsolidated Entities

 

 

 
0.3

 

 
0.3

Equity in Net Earnings of Subsidiaries
34.6

 
(6.0
)
 
(1.6
)
 

 
(27.0
)
 

Net Income (Loss)
34.6

 
34.6

 
(0.2
)
 
(7.4
)
 
(27.0
)
 
34.6

Net Loss Attributable to Noncontrolling Interests
0.3

 
0.3

 

 

 
(0.3
)
 
0.3

Net Income (Loss) Attributable to Graphic Packaging Holding Company
$
34.9

 
$
34.9

 
$
(0.2
)
 
$
(7.4
)
 
$
(27.3
)
 
$
34.9

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss) Attributable to Graphic Packaging Holding Company
$
27.9

 
$
27.9

 
$
1.6

 
$
(19.6
)
 
$
(9.9
)
 
$
27.9





21

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



 
March 31, 2014
In millions
Parent
 
Subsidiary
Issuer
 
Combined
Guarantor
Subsidiaries
 
Combined
Nonguarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$

 
$

 
$
34.7

 
$

 
$
34.7

Receivables, Net

 
282.1

 

 
188.8

 

 
470.9

Inventories, Net

 
384.0

 

 
194.1

 

 
578.1

Intercompany
50.0

 
522.5

 
70.7

 

 
(643.2
)
 

Deferred Income Tax Assets

 
171.9

 



 
(0.5
)
 
171.4

Other Current Assets

 
18.4

 

 
14.0

 

 
32.4

Assets Held for Sale

 
6.7

 

 

 

 
6.7

Total Current Assets
50.0

 
1,385.6

 
70.7

 
431.6

 
(643.7
)
 
1,294.2

Property, Plant and Equipment, Net

 
1,403.6

 
0.5

 
265.5

 
(0.1
)
 
1,669.5

Investment in Consolidated Subsidiaries
1,053.7

 

 
23.7

 

 
(1,077.4
)
 

Goodwill

 
1,043.2

 

 
34.8

 

 
1,078.0

Other Assets

 
395.3

 

 
105.9

 

 
501.2

Total Assets
$
1,103.7

 
$
4,227.7

 
$
94.9

 
$
837.8

 
$
(1,721.2
)
 
$
4,542.9

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

 
$
62.6

 
$

 
$
16.4

 
$

 
$
79.0

Accounts Payable

 
302.4

 

 
116.8

 

 
419.2

Interest Payable

 
22.1

 

 
0.1

 

 
22.2

Intercompany

 
0.2

 
38.3

 
645.2

 
(683.7
)
 

Other Accrued Liabilities

 
127.9

 
0.3

 
38.3

 

 
166.5

Total Current Liabilities

 
515.2

 
38.6

 
816.8

 
(683.7
)
 
686.9

Long-Term Debt

 
2,071.6

 

 
60.6

 

 
2,132.2

Deferred Income Tax Liabilities

 
342.4

 

 
9.1

 

 
351.5

Other Noncurrent Liabilities

 
233.8

 

 
34.6

 

 
268.4

 
 
 
 
 
 
 
 
 
 
 
 
Redeemable Noncontrolling Interests
11.0

 
11.0

 

 

 
(11.0
)
 
11.0

 
 
 
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
 
 
 
 
 
 
 
Total Graphic Packaging Holding Company Shareholders’ Equity
1,092.7

 
1,053.7

 
56.3

 
(83.3
)
 
(1,026.5
)
 
1,092.9

Total Equity
1,092.7

 
1,053.7

 
56.3

 
(83.3
)
 
(1,026.5
)
 
1,092.9

Total Liabilities and Equity
$
1,103.7

 
$
4,227.7

 
$
94.9

 
$
837.8

 
$
(1,721.2
)
 
$
4,542.9




22

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



 
December 31, 2013
In millions
Parent
 
Subsidiary
Issuer
 
Combined
Guarantor
Subsidiaries
 
Combined
Nonguarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
1.3

 
$

 
$
50.9

 
$

 
$
52.2

Receivables, Net

 
218.0

 
7.0

 
187.8

 

 
412.8

Inventories, Net

 
368.0

 
4.4

 
184.7

 

 
557.1

Deferred Income Tax Assets

 
171.9

 

 

 
(0.6
)
 
171.3

Intercompany
59.0

 
595.5

 

 

 
(654.5
)
 

Other Current Assets

 
16.6

 

 
15.6

 

 
32.2

Assets Held for Sale

 
6.6

 

 

 

 
6.6

Total Current Assets
59.0

 
1,377.9

 
11.4

 
439.0

 
(655.1
)
 
1,232.2

Property, Plant and Equipment, Net

 
1,410.7

 
14.2

 
254.1

 
(0.1
)
 
1,678.9

Investment in Consolidated Subsidiaries
1,014.5

 

 
24.2

 

 
(1,038.7
)
 

Goodwill

 
1,043.2

 
47.2

 
35.0

 

 
1,125.4

Other Assets

 
395.6

 
16.9

 
110.3

 

 
522.8

Total Assets
$
1,073.5

 
$
4,227.4

 
$
113.9

 
$
838.4

 
$
(1,693.9
)
 
$
4,559.3

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

 
$
62.7

 
$

 
$
14.7

 
$

 
$
77.4

Accounts Payable

 
303.1

 
5.6

 
119.6

 

 
428.3

Intercompany

 

 
41.7

 
645.7

 
(687.4
)
 

Other Accrued Liabilities

 
157.5

 
0.9

 
47.1

 

 
205.5

Total Current Liabilities

 
523.3

 
48.2

 
827.1

 
(687.4
)
 
711.2

Long-Term Debt

 
2,123.7

 

 
52.5

 

 
2,176.2

Deferred Income Tax Liabilities

 
321.5

 

 
8.4

 

 
329.9

Other Noncurrent Liabilities

 
233.1

 

 
35.3

 

 
268.4

 


 


 


 


 


 


Redeemable Noncontrolling Interests
11.3

 
11.3

 

 

 
(11.3
)
 
11.3

 
 
 
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
 
 
 
 
 
 
 
Total Graphic Packaging Holding Company Shareholders’ Equity
1,062.2

 
1,014.5

 
65.7

 
(84.9
)
 
(995.2
)
 
1,062.3

Total Liabilities and Equity
$
1,073.5

 
$
4,227.4

 
$
113.9

 
$
838.4

 
$
(1,693.9
)
 
$
4,559.3


23

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



 
Three Months Ended March 31, 2014
In millions
Parent
 
Subsidiary
Issuer
 
Combined
Guarantor
Subsidiaries
 
Combined
Nonguarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
$
34.8

 
$
34.8

 
$
(3.9
)
 
$
(1.1
)
 
$
(29.8
)
 
$
34.8

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

 
57.5

 

 
9.5

 

 
67.0

Deferred Income Taxes

 
25.8

 

 
(2.6
)
 

 
23.2

Amount of Postretirement Expense Greater Than Funding

 
0.3

 

 
0.2

 

 
0.5

Equity in Net Earnings of Subsidiaries
(34.8
)
 
4.4

 
0.6

 

 
29.8

 

Loss on the Sale of Assets

 

 
5.9

 

 

 
5.9

Other, Net

 
10.8

 
1.3

 
1.1

 

 
13.2

Changes in Operating Assets and Liabilities

 
(41.3
)
 
(74.6
)
 
(14.6
)
 
15.8

 
(114.7
)
Net Cash Provided by (Used in) Operating Activities

 
92.3

 
(70.7
)
 
(7.5
)
 
15.8

 
29.9

 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Capital Spending

 
(41.2
)
 

 
(18.1
)
 

 
(59.3
)
Proceeds Received from the Sale of Assets, Net of Selling Costs

 

 
70.7

 

 

 
70.7

Other, Net
15.8

 
(0.5
)
 

 

 
(15.8
)
 
(0.5
)
Net Cash Provided by (Used in) Investing Activities
15.8

 
(41.7
)
 
70.7

 
(18.1
)
 
(15.8
)
 
10.9

 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Payments on Debt

 
(15.4
)
 

 

 

 
(15.4
)
Borrowings under Revolving Credit Facilities

 
236.6

 

 
30.7

 

 
267.3

Payments on Revolving Credit Facilities

 
(273.1
)
 

 
(21.1
)
 

 
(294.2
)
Repurchase of Common Stock related to Share-Based Payments
(15.8
)
 

 

 

 

 
(15.8
)
Other, Net

 

 

 
(0.5
)
 

 
(0.5
)
Net Cash (Used in) Provided by Financing Activities
(15.8
)
 
(51.9
)
 

 
9.1

 

 
(58.6
)
 
 
 
 
 
 
 
 
 
 
 
 
Effect of Exchange Rate Changes on Cash

 

 

 
0.3

 

 
0.3

 
 
 
 
 
 
 
 
 
 
 
 
Net Decrease in Cash and Cash Equivalents

 
(1.3
)
 

 
(16.2
)
 

 
(17.5
)
Cash and Cash Equivalents at Beginning of Period