WestRock Co - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended June 30, 2019

or

For the transition period from               to             

Commission File Number 001-38736

WestRock Company

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (770) 448-2193

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.)

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒   No ☐

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

WESTROCK COMPANY

INDEX

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PART I: FINANCIAL INFORMATION

WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements

3

WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements

4

WESTROCK COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements

5

WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

6

See Accompanying Notes to Condensed Consolidated Financial Statements

7

WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

8

Supplemental schedule of non-cash investing and financing activities:

Liabilities assumed in the nine months ended June 30, 2019 primarily relate to the KapStone Acquisition (as hereinafter defined). See “Note 3. Acquisitions” for more information. Liabilities assumed in the nine months ended June 30, 2018 primarily relate to the Plymouth Acquisition (as hereinafter defined).

See Accompanying Notes to Condensed Consolidated Financial Statements

9

WESTROCK COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Month Periods Ended June 30, 2019

(Unaudited)

Unless the context otherwise requires, “we”, “us”, “our”, “WestRock” and “the Company” refer to the business of WestRock Company, its wholly-owned subsidiaries and its partially-owned consolidated subsidiaries.

We are a multinational provider of paper and packaging solutions for consumer and corrugated packaging markets. We partner with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. Our team members support customers around the world from our operating and business locations in North America, South America, Europe, Asia and Australia. We also sell real estate primarily in the Charleston, SC region.

Basis of Presentation

Our independent registered public accounting firm has not audited our accompanying interim financial statements. We derived the condensed consolidated balance sheet at September 30, 2018 from the audited consolidated financial statements included in our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 9, 2019 (the “May 9, 2019 Form 8-K”). The May 9, 2019 Form 8-K was filed to provide revisions to our consolidated financial statements and the notes thereto for the three years ended September 30, 2018 and other related disclosures in order to (i) reclassify our segment disclosures to reflect the new alignment, which took effect in the first quarter of fiscal 2019, of our reportable segments to move our merchandising displays operations from our Consumer Packaging segment to our Corrugated Packaging segment and to allocate certain previously non-allocated costs and certain pension and other postretirement non-service income (expense) to our reportable segments, (ii) account for the October 1, 2018 retrospective adoption of certain accounting standards for all periods therein, including, but not limited to, Accounting Standard Update (“ASU”) 2017-07 “Compensation: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments” and ASU 2016-18 “Restricted Cash” and (iii) account for changes in our Rule 3-10 of Regulation S-X disclosures as outlined in “Note 24. Selected Condensed Consolidating Financial Statements of Parent, Issuer, Guarantors and Non-Guarantors” in Exhibit 99.1 of the May 9, 2019 Form 8-K. See the May 9, 2019 Form 8-K for the revised consolidated financial statements and the notes thereto, and further discussion of such revisions. In the opinion of our management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of income for the three and nine months ended June 30, 2019 and June 30, 2018, our statements of comprehensive income for the three and nine months ended June 30, 2019 and June 30, 2018, our balance sheets at June 30, 2019 and September 30, 2018, our statements of cash flows for the nine months ended June 30, 2019 and June 30, 2018, and our statements of equity for the three and nine months ended June 30, 2019 and June 30, 2018.

On October 1, 2018, we adopted ASU 2014-09, which is codified in Accounting Standards Codification (“ASC”) 606 “Revenue from Contracts with Customers” (“ASC 606”). See “Note 2. Revenue Recognition” for more information on the impact of our adoption of ASC 606.

We adopted ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” on October 1, 2018 on a retrospective basis, and began presenting the non-service components of our pension and other postretirement income separately from the service cost components and outside the subtotal of operating profit. For the three and nine months ended June 30, 2018, we reclassified $21.3 million and $70.5 million, respectively, to “Pension and other postretirement non-service income”, which was previously reported in “Cost of goods sold” for $8.8 million and $28.8 million, respectively, and “Selling, general and administrative, excluding intangible amortization” for $12.5 million and $41.7 million, respectively, on our condensed consolidated statements of income.

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

We adopted the provisions of ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments” which amends the guidance in ASC 230, “Statement of Cash Flows” on October 1, 2018 on a retrospective basis. The ASU clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows for the following transactions: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, distributions received from equity method investees and beneficial interests in securitization transactions. The ASU also clarifies how the predominance principle should be applied when cash receipts and cash payments include aspects of more than one class of cash flows. The adoption primarily resulted in a change in classification of proceeds received for beneficial interests obtained for transferring trade receivables in securitization transactions as investing activities instead of operating activities. This ASU will not have a material effect on our consolidated financial statements on a prospective basis (from October 1, 2018) because the creation of beneficial interest was eliminated under the terms of our New A/R Sales Agreement effective September 25, 2018.

We adopted the provisions of ASU 2016-18, “Restricted Cash” on October 1, 2018 on a retrospective basis. As a result of the adoption, we began including amounts generally described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the condensed consolidated statements of cash flows. Due to the minimal amount of restricted cash on our condensed consolidated balance sheets, the impact on the condensed consolidated statements of cash flows was not material.

As a result of the adoption of ASU 2016-15 and 2016-18, cash provided by operating activities for the nine months ended June 30, 2018 decreased by $371.1 million with a corresponding increase to cash provided by investing activities of $365.2 million, primarily for the change in classification of proceeds received for beneficial interests obtained for transferring trade receivables in securitization transactions. The difference between the change in the operating and investing amounts reflects the change in cash, cash equivalents and restricted cash for the respective periods associated with the change in restricted cash.

We have condensed or omitted certain notes and other information from the interim financial statements presented in this report. Therefore, these interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 (the “Fiscal 2018 Form 10-K”) as replaced and superseded by the May 9, 2019 Form 8-K. The results for the three and nine months ended June 30, 2019 are not necessarily indicative of results that may be expected for the full year.

Significant Accounting Policies

See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for a summary of our significant accounting policies.

Recent Accounting Developments

New Accounting Standards - Recently Adopted

See “Note 1. Description of Business and Summary of Significant Accounting Policies — New Accounting Standards - Recently Adopted” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for information on new accounting standards adopted on October 1, 2018. Other than as discussed in the Basis of Presentation section above, the adoption of those standards did not have a material effect on our consolidated financial statements.

New Accounting Standards - Recently Issued

See “Note 1. Description of Business and Summary of Significant Accounting Policies — New Accounting Standards - Recently Issued” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for information on new accounting standards issued prior to the beginning of fiscal 2019 but not yet adopted and where we do not expect that the adoption will have a material effect on our

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

consolidated financial statements. Below is a description of new accounting standards for which we (i) are in the process of evaluating the impact on our consolidated financial statements or (ii) have determined that the new standard could have a material impact on our consolidated financial statements. We have not elected to early adopt any of the new accounting standards described below to the extent early adoption is permitted.

In October 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606”, which provides targeted amendments to ASC 808, “Collaborative arrangements” (“ASC 808”) and ASC 606. The amendments in this ASU require transactions between participants in a collaborative arrangement to be accounted for under ASC 606 when the counterparty is a customer. This ASU precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This ASU also amends ASC 808 to refer to the unit-of-account guidance in ASC 606 and requires it to be used only when assessing whether a transaction is in scope of ASC 606. This ASU is effective for fiscal years ending after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this ASU.

In October 2018, the FASB issued ASU 2018-17 “Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities.” This ASU changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety, as currently required under generally accepted accounting principles in the United States (“GAAP”). This ASU is effective for fiscal years ending after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this ASU.

In August 2018, the FASB issued ASU 2018-15 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The provisions may be adopted prospectively or retrospectively. This ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of this ASU.

In August 2018, the FASB issued ASU 2018-14 “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans”. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. These provisions will be applied retrospectively. This ASU is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We are currently evaluating the impact of this ASU.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this update provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in the period of adoption or retrospectively in each period in which the effect of the change in the United States (“U.S.”) federal corporate income tax rate in the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) (or portion thereof) is recorded. This ASU requires financial statement preparers to disclose (i) a description of the accounting policy for releasing income tax effects from accumulated other comprehensive income; (ii) whether they elect to reclassify the stranded income tax effects from the Tax Act; and (iii) information about the other income tax effects that are reclassified. The amendments affect any organization that is required to apply the provisions of ASC 220, “Income Statement – Reporting Comprehensive Income”, and has items of other comprehensive income in which the related tax effects are included as required by GAAP. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of this ASU, but do not expect it to have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Accounting for Hedging Activities” (“ASU 2017-12”). The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this ASU also make certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. In October 2018, the FASB issued ASU 2018-16 “Derivatives and Hedging: Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting” (“ASU 2018-16”), which adds the overnight index rate based on the Secured Overnight Financing Rate to the list of U.S. benchmark interest rates in ASC 815 that are eligible to be hedged. In April 2019, the FASB issued ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”), which addresses targeted issues related to fair value hedges and clarifies certain transition requirements. The provisions of ASU 2017-12, ASU 2018-16 and ASU 2019-04 are concurrently effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and should be applied prospectively. Early adoption is permitted. We are currently evaluating the impact of ASU 2017-12, ASU 2018-16 and ASU 2019-04, but do not expect these provisions to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 “Leases”, which is codified in ASC 842 “Leases” (“ASC 842”) and supersedes current lease guidance in ASC 840 “Leases”. These provisions require lessees to put a right-of-use asset and lease liability on their balance sheet for operating and financing leases that have a term of more than one year. Expense will be recognized in the income statement similar to current accounting guidance. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. Entities will need to disclose qualitative and quantitative information about their leases, including characteristics and amounts recognized in the financial statements. These provisions are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Prior to the FASB issuing ASU 2018-11 “Leases”, entities were required to use a modified retrospective approach upon adoption to recognize and measure leases at the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, which provides entities the option to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the comparative periods presented in the financial statements would continue to be in accordance with current GAAP. In December 2018, the FASB issued ASU 2018-20 “Leases: Narrow-scope Improvements for Lessors” to help lessors apply ASC 842. This ASU allows lessors to make an accounting policy election not to evaluate sales taxes and other similar taxes collected from lessees, requires lessors to exclude from variable payments certain lessor costs paid directly by lessee to third parties on the lessor’s behalf and provides clarification on variable payments allocated to lease and non-lease components. In March 2019, the FASB issued ASU 2019-01 “Leases (Topic 842): Codification Improvements”, which (a) provides guidance on lessors’ accounting for acquisition costs that will now generally be included in the measurement of fair value of the underlying asset, (b) clarifies that lessors in scope of ASC 942, “Financial Services—Depository and Lending” (“ASC 942”), have to follow cash flow presentation guidance under ASC 942 for payments received by lessors and (c) provides an exemption to all companies from interim transition disclosure requirements of ASC 250 “Accounting Changes and Error Corrections” (“ASC 250”), in addition to the already exempted annual disclosure requirement of ASC 250. ASU 2019-01 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years; however, companies are permitted to early adopt ASU 2019-01 concurrent with, or any time after the adoption of, ASC 842. While we have not completed our assessment, we expect that the adoption of ASC 842 as of October 1, 2019 will result in us recording additional assets and liabilities not previously reflected on our consolidated balance sheets, but we do not expect the adoption to have a material impact on the recognition, measurement or presentation of lease expenses within the consolidated statements of income or the consolidated statements of cash flows.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit losses: Measurement of Credit Losses on financial Instruments (Topic 326)” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and will be applied as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period for which the guidance is effective. In April 2019, the FASB issued ASU 2019-04 which addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” (“ASU 2019-05”), which provides targeted

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option. The provisions of ASU 2019-04 related to Topic 326 and ASU 2019-05, are effective concurrent with the adoption of ASU 2016-13. We are currently evaluating the impact of these ASUs, but do not expect these provisions to have a material impact on our consolidated financial statements.

We adopted ASC 606 and all related amendments on October 1, 2018 using the modified retrospective method. We recorded the transition adjustment to the opening balance of retained earnings to account for the cumulative effect of adopting ASC 606. Since we used the modified retrospective method, we have not restated comparative information, which continues to be reported under the accounting standard in effect for those periods.

We manufacture certain customized products that have no alternative use to us (since they are made to specific customer orders), and we believe that for certain customers we have a legally enforceable right to payment for performance completed to date on these products, including a reasonable profit. For manufactured products that meet these two criteria, we now recognize revenue “over time”. This results in revenue recognition prior to the date of shipment or title transfer for these products and increases the contract asset (unbilled receivables) balance with a corresponding reduction in finished goods inventory on our balance sheet. Due to the recurring nature of our sales of these customized products, the impact of ASC 606 is not expected to have a material impact on our condensed consolidated financial statements in future periods.

The transition adjustment resulted in revenue acceleration of $183.7 million with a corresponding acceleration of cost of $133.4 million. The net increase to the opening balance of retained earnings was $43.5 million (net of tax expense of $6.8 million) as of October 1, 2018 due to the cumulative impact of adopting the new revenue standard. The adoption of ASC 606 had the following impact on our condensed consolidated financial statements:

Condensed Consolidated Statements of Income

Condensed Consolidated Balance Sheet

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Condensed Consolidated Statement of Cash Flows

Disaggregated Revenue

ASC 606 requires that we disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The tables below disaggregate our revenue by geographical market and product type (segment).

Revenue Contract Balances

Contract assets are rights to consideration in exchange for goods that we have transferred to a customer when that right is conditional on something other than the passage of time. Contract assets are reduced when title and risk of loss passes to the customer. Contract liabilities represent obligations to transfer goods or services to a customer for which we have received consideration. Contract liabilities are reduced once control of the goods is transferred to the customer.

The opening and closing balances of our contract assets and contract liabilities are as follows. Contract assets and contract liabilities are aggregated within Other current assets and Other current liabilities, respectively, on the condensed consolidated balance sheet.

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Performance Obligations and Significant Judgments

We primarily derive revenue from fixed consideration. Certain contracts may also include variable consideration, typically in the form of cash discounts and volume rebates. If a contract with a customer includes variable consideration, we estimate the expected cash discounts and other customer refunds based on historical experience. We concluded this method is consistent with the most likely amount method under ASC 606 and allows us to make the best estimate of the consideration we will be entitled to from customers.

Contracts or purchase orders with customers could include a single type of product or multiple types and grades of products. Regardless, the contract price with the customer is agreed to at the individual product level outlined in the customer contracts or purchase orders. Management has concluded that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product.

Practical Expedients and Exemptions

As permitted by ASC 606, we elected to use certain practical expedients in connection with our implementation of ASC 606. We treat shipping and handling activities as fulfillment activities. We treat costs associated with obtaining new contracts as expenses when incurred if the amortization period of the asset we would recognize is one year or less. We do not record interest income when the difference in timing of control transfer and customer payment is one year or less. The election of these practical expedients results in accounting treatments that we believe are consistent with our historical accounting policies and, therefore, these elections of practical expedients do not have a material impact on comparability of our financial statements.

We account for acquisitions in accordance with ASC 805, “Business Combinations”. The estimated fair values of all assets acquired and liabilities assumed in acquisitions are provisional and may be revised as a result of additional information obtained during the measurement period of up to one year from the acquisition date. See “Note 2. Mergers, Acquisitions and Investment” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for information about our prior year acquisitions and investments. For the three and nine months ended June 30, 2019, no changes to our fiscal 2018 provisional fair value estimates of assets and liabilities assumed in acquisitions have been significant, and we do not anticipate future changes to these amounts to be significant.

 KapStone Acquisition

On November 2, 2018, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 28, 2018, among WRKCo Inc. (formerly known as WestRock Company), which we refer to as “WRKCo”, KapStone Paper and Packaging Corporation (“KapStone”), the Company (formerly known as Whiskey Holdco, Inc.), Whiskey Merger Sub, Inc. and Kola Merger Sub, Inc., the Company acquired all of the outstanding shares of KapStone through a transaction in which: (i) Whiskey Merger Sub, Inc. merged with and into WRKCo, with WRKCo surviving such merger as a wholly owned subsidiary of Company and (ii) Kola Merger Sub, Inc. merged with and into KapStone, with KapStone surviving such merger as a wholly owned subsidiary of the Company (collectively, the “KapStone Acquisition”). Effective as of the effective time of the KapStone Acquisition (the “Effective Time”), Whiskey Holdco, Inc. changed its name to “WestRock Company” and WRKCo changed its name to “WRKCo Inc.”

KapStone is a leading North American producer and distributor of containerboard, corrugated products and specialty papers, including liner and medium containerboard, kraft papers and saturating kraft. KapStone also owns

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Victory Packaging, a packaging solutions distribution company with facilities in the U.S., Canada and Mexico. We have included the financial results of KapStone in our Corrugated Packaging segment since the date of the acquisition.

Pursuant to the KapStone Acquisition, at the Effective Time, (a) each issued and outstanding share of common stock, par value $0.01 per share, of WRKCo was converted into one share of common stock, par value $0.01 per share, of the Company (“Company common stock”) and (b) each issued and outstanding share of common stock, par value $0.0001 per share, of KapStone (“KapStone common stock”) (other than shares of KapStone common stock owned by (i) KapStone or any of its subsidiaries or (ii) any KapStone stockholder who properly exercised appraisal rights with respect to its shares of KapStone common stock in accordance with Section 262 of the Delaware General Corporation Law) was automatically canceled and converted into the right to receive (1) $35.00 per share in cash, without interest (the “Cash Consideration”), or, at the election of the holder of such share of KapStone common stock, (2) 0.4981 shares of Company common stock (the “Stock Consideration”) and cash in lieu of fractional shares, subject to proration procedures designed to ensure that the Stock Consideration would be received in respect of no more than 25% of the shares of KapStone common stock issued and outstanding immediately prior to the Effective Time (the “Maximum Stock Amount”). Each share of KapStone common stock in respect of which a valid election of Stock Consideration was not made by 5:00 p.m. New York City time on September 5, 2018 was converted into the right to receive the Cash Consideration. KapStone stockholders elected to receive Stock Consideration that was less than the Maximum Stock Amount and no proration was required.

The consideration for the KapStone Acquisition was $4.9 billion including debt assumed, a long-term financing obligation and assumed equity awards. As a result, KapStone stockholders received in the aggregate approximately $3.3 billion in cash and 1.6 million shares of WestRock common stock with a value of $70.1 million, or approximately 0.6% of the issued and outstanding shares of WestRock common stock immediately following the Effective Time. Pursuant to the Merger Agreement, at the Effective Time, the Company assumed any outstanding awards granted under the equity-based incentive plans of WRKCo and KapStone (including the shares underlying such awards), the award agreements evidencing the grants of such awards and, in the case of the WRKCo equity-based incentive plans, the remaining shares available for issuance under the applicable plan, in each case subject to adjustments to such awards in the manner set forth in the Merger Agreement. Included in the consideration was $70.8 million related to outstanding KapStone equity awards that were replaced with WestRock equity awards with identical terms for pre-combination service. The amount related to post-combination service will be expensed over the remaining service period of the awards.

The following table summarizes the fair values of the assets acquired and liabilities assumed by major class of assets and liabilities as of the acquisition date, as well as adjustments made during fiscal 2019 (referred to as “measurement period adjustments”) (in millions):