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WestRock Co - Quarter Report: 2023 March (Form 10-Q)

10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023

or

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 001-38736

WestRock Company

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

37-1880617

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1000 Abernathy Road NE, Atlanta, Georgia

30328

(Address of Principal Executive Offices)

(Zip Code)

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:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

WRK

New York Stock Exchange

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.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

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

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

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

 

Class

Outstanding as of April 21, 2023

Common Stock, $0.01 par value

256,130,237

 

 

 


 

WESTROCK COMPANY

INDEX

 

Page

PART I

FINANCIAL INFORMATION

3

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Statements of Operations for the three and six months ended March 31, 2023 and 2022

3

 

Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended March 31, 2023 and 2022

4

 

Consolidated Balance Sheets at March 31, 2023 and September 30, 2022

5

 

Consolidated Statements of Equity for the three and six months ended March 31, 2023 and 2022

6

 

Consolidated Statements of Cash Flows for the six months ended March 31, 2023 and 2022

7

 

Notes to Consolidated Financial Statements

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58

 

Item 4.

Controls and Procedures

58

 

PART II

OTHER INFORMATION

59

 

Item 1.

Legal Proceedings

59

 

 

 

Item 1A.

Risk Factors

59

 

Item 6.

Exhibits

59

 

Index to Exhibits

60

 

2


 

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

WESTROCK COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

(In millions, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

5,277.6

 

 

$

5,382.1

 

 

$

10,200.7

 

 

$

10,334.3

 

Cost of goods sold

 

 

4,357.3

 

 

 

4,378.4

 

 

 

8,515.2

 

 

 

8,534.0

 

Gross profit

 

 

920.3

 

 

 

1,003.7

 

 

 

1,685.5

 

 

 

1,800.3

 

Selling, general and administrative expense excluding
   intangible amortization

 

 

498.9

 

 

 

493.1

 

 

 

978.0

 

 

 

946.0

 

Selling, general and administrative intangible
   amortization expense

 

 

86.2

 

 

 

88.1

 

 

 

172.8

 

 

 

176.1

 

(Gain) loss on disposal of assets

 

 

(8.6

)

 

 

2.5

 

 

 

(10.3

)

 

 

(11.4

)

Multiemployer pension withdrawal income

 

 

 

 

 

 

 

 

 

 

 

(3.3

)

Restructuring and other costs

 

 

444.7

 

 

 

363.4

 

 

 

477.7

 

 

 

365.7

 

Goodwill impairment

 

 

1,893.0

 

 

 

 

 

 

1,893.0

 

 

 

 

Operating (loss) profit

 

 

(1,993.9

)

 

 

56.6

 

 

 

(1,825.7

)

 

 

327.2

 

Interest expense, net

 

 

(108.4

)

 

 

(72.5

)

 

 

(205.7

)

 

 

(159.2

)

Loss on extinguishment of debt

 

 

 

 

 

(8.2

)

 

 

 

 

 

(8.2

)

Pension and other postretirement non-service
   (cost) income

 

 

(6.0

)

 

 

39.7

 

 

 

(11.0

)

 

 

79.6

 

Other (expense) income, net

 

 

(17.8

)

 

 

6.3

 

 

 

7.4

 

 

 

6.5

 

Equity in income (loss) of unconsolidated entities

 

 

4.5

 

 

 

20.6

 

 

 

(31.5

)

 

 

39.0

 

(Loss) income before income taxes

 

 

(2,121.6

)

 

 

42.5

 

 

 

(2,066.5

)

 

 

284.9

 

Income tax benefit (expense)

 

 

116.8

 

 

 

(1.8

)

 

 

108.5

 

 

 

(60.4

)

Consolidated net (loss) income

 

 

(2,004.8

)

 

 

40.7

 

 

 

(1,958.0

)

 

 

224.5

 

Less: Net income attributable to noncontrolling
   interests

 

 

(1.3

)

 

 

(0.8

)

 

 

(2.8

)

 

 

(2.3

)

Net (loss) income attributable to common stockholders

 

$

(2,006.1

)

 

$

39.9

 

 

$

(1,960.8

)

 

$

222.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share attributable to common
   stockholders

 

$

(7.85

)

 

$

0.15

 

 

$

(7.68

)

 

$

0.84

 

Diluted (loss) earnings per share attributable to
   common stockholders

 

$

(7.85

)

 

$

0.15

 

 

$

(7.68

)

 

$

0.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

255.6

 

 

 

263.4

 

 

 

255.2

 

 

 

264.0

 

Diluted weighted average shares outstanding

 

 

255.6

 

 

 

265.3

 

 

 

255.2

 

 

 

266.1

 

 

See Accompanying Notes to Consolidated Financial Statements

3


 

WESTROCK COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

(In millions)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net (loss) income

 

$

(2,004.8

)

 

$

40.7

 

 

$

(1,958.0

)

 

$

224.5

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

182.8

 

 

 

129.7

 

 

 

300.3

 

 

 

113.4

 

Recognition of previously unrealized foreign
   currency losses on consolidation of equity
   investment

 

 

 

 

 

 

 

 

29.0

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred loss on cash flow hedges

 

 

(23.5

)

 

 

 

 

 

(45.3

)

 

 

 

Reclassification adjustment of net loss on
   cash flow hedges included in earnings

 

 

20.1

 

 

 

 

 

 

30.0

 

 

 

 

Defined benefit pension and other postretirement
   benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial gain arising during period

 

 

 

 

 

0.1

 

 

 

 

 

 

0.1

 

Amortization and settlement recognition of net
   actuarial loss, included in pension cost

 

 

10.1

 

 

 

1.5

 

 

 

19.8

 

 

 

2.8

 

Amortization and settlement recognition of prior
   service cost, included in pension cost

 

 

1.4

 

 

 

1.5

 

 

 

2.8

 

 

 

2.9

 

Other comprehensive income, net of tax

 

 

190.9

 

 

 

132.8

 

 

 

336.6

 

 

 

119.2

 

Comprehensive (loss) income

 

 

(1,813.9

)

 

 

173.5

 

 

 

(1,621.4

)

 

 

343.7

 

Less: Comprehensive income attributable to
   noncontrolling interests

 

 

(1.8

)

 

 

(1.1

)

 

 

(3.6

)

 

 

(2.6

)

Comprehensive (loss) income attributable to common
   stockholders

 

$

(1,815.7

)

 

$

172.4

 

 

$

(1,625.0

)

 

$

341.1

 

 

See Accompanying Notes to Consolidated Financial Statements

 

4


 

 

WESTROCK COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In millions, except per share data)

 

March 31,
2023

 

 

September 30,
2022

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

363.4

 

 

$

260.2

 

Accounts receivable (net of allowances of $67.0 and $66.3)

 

 

2,814.9

 

 

 

2,683.9

 

Inventories

 

 

2,550.3

 

 

 

2,317.1

 

Other current assets

 

 

1,700.5

 

 

 

689.8

 

Assets held for sale

 

 

169.2

 

 

 

34.4

 

Total current assets

 

 

7,598.3

 

 

 

5,985.4

 

Property, plant and equipment, net

 

 

11,163.0

 

 

 

10,081.4

 

Goodwill

 

 

4,253.0

 

 

 

5,895.2

 

Intangibles, net

 

 

2,759.1

 

 

 

2,920.6

 

Prepaid pension asset

 

 

463.4

 

 

 

440.3

 

Other noncurrent assets

 

 

1,973.6

 

 

 

3,082.6

 

Total Assets

 

$

28,210.4

 

 

$

28,405.5

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of debt

 

$

501.6

 

 

$

212.2

 

Accounts payable

 

 

2,176.8

 

 

 

2,252.1

 

Accrued compensation and benefits

 

 

433.6

 

 

 

627.9

 

Other current liabilities

 

 

1,789.7

 

 

 

810.6

 

Liabilities held for sale

 

 

65.8

 

 

 

 

Total current liabilities

 

 

4,967.5

 

 

 

3,902.8

 

Long-term debt due after one year

 

 

9,004.0

 

 

 

7,575.0

 

Pension liabilities, net of current portion

 

 

212.7

 

 

 

189.4

 

Postretirement benefit liabilities, net of current portion

 

 

107.4

 

 

 

105.4

 

Deferred income taxes

 

 

2,605.7

 

 

 

2,761.9

 

Other noncurrent liabilities

 

 

1,644.1

 

 

 

2,445.8

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

7.9

 

 

 

5.5

 

Equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value; 30.0 million shares authorized; no
   shares outstanding

 

 

 

 

 

 

Common Stock, $0.01 par value; 600.0 million shares authorized;
   
256.1 million and 254.4 million shares outstanding at March 31,
   2023 and September 30, 2022, respectively

 

 

2.6

 

 

 

2.5

 

Capital in excess of par value

 

 

10,649.3

 

 

 

10,639.4

 

Retained earnings

 

 

110.0

 

 

 

2,214.4

 

Accumulated other comprehensive loss

 

 

(1,118.5

)

 

 

(1,454.3

)

Total stockholders’ equity

 

 

9,643.4

 

 

 

11,402.0

 

Noncontrolling interests

 

 

17.7

 

 

 

17.7

 

Total equity

 

 

9,661.1

 

 

 

11,419.7

 

Total Liabilities and Equity

 

$

28,210.4

 

 

$

28,405.5

 

 

See Accompanying Notes to Consolidated Financial Statements

5


 

WESTROCK COMPANY

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

(In millions, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Number of Shares of Common Stock Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

254.6

 

 

 

263.2

 

 

 

254.4

 

 

 

265.0

 

Issuance of common stock, net of stock received for
   tax withholdings

 

 

1.5

 

 

 

1.2

 

 

 

1.7

 

 

 

1.5

 

Purchases of common stock

 

 

 

 

 

(5.1

)

 

 

 

 

 

(7.2

)

Balance at end of period

 

 

256.1

 

 

 

259.3

 

 

 

256.1

 

 

 

259.3

 

Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2.5

 

 

$

2.6

 

 

$

2.5

 

 

$

2.7

 

Issuance of common stock, net of stock received for
   tax withholdings

 

 

0.1

 

 

 

 

 

 

0.1

 

 

 

 

Purchases of common stock

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

Balance at end of period

 

 

2.6

 

 

 

2.6

 

 

 

2.6

 

 

 

2.6

 

Capital in Excess of Par Value:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

10,652.6

 

 

 

10,996.1

 

 

 

10,639.4

 

 

 

11,058.8

 

Compensation expense under share-based plans

 

 

13.5

 

 

 

24.5

 

 

 

23.1

 

 

 

39.7

 

Issuance of common stock, net of stock received for
   tax withholdings

 

 

(16.8

)

 

 

(13.2

)

 

 

(13.2

)

 

 

(4.5

)

Purchases of common stock

 

 

 

 

 

(213.9

)

 

 

 

 

 

(300.1

)

Other

 

 

 

 

 

 

 

 

 

 

 

(0.4

)

Balance at end of period

 

 

10,649.3

 

 

 

10,793.5

 

 

 

10,649.3

 

 

 

10,793.5

 

Retained Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

2,188.3

 

 

 

1,711.2

 

 

 

2,214.4

 

 

 

1,607.9

 

Net (loss) income attributable to common stockholders

 

 

(2,006.1

)

 

 

39.9

 

 

 

(1,960.8

)

 

 

222.2

 

Dividends declared (per share - $0.275, $0.25, $0.55 
   and $
0.50) (1)

 

 

(72.2

)

 

 

(66.1

)

 

 

(143.6

)

 

 

(133.7

)

Issuance of common stock, net of stock received for
   tax withholdings

 

 

 

 

 

(1.8

)

 

 

 

 

 

(2.0

)

Purchases of common stock

 

 

 

 

 

(20.7

)

 

 

 

 

 

(31.9

)

Balance at end of period

 

 

110.0

 

 

 

1,662.5

 

 

 

110.0

 

 

 

1,662.5

 

Accumulated Other Comprehensive Loss:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(1,308.9

)

 

 

(1,012.7

)

 

 

(1,454.3

)

 

 

(999.1

)

Other comprehensive income, net of tax

 

 

190.4

 

 

 

132.5

 

 

 

335.8

 

 

 

118.9

 

Balance at end of period

 

 

(1,118.5

)

 

 

(880.2

)

 

 

(1,118.5

)

 

 

(880.2

)

Total Stockholders’ equity

 

 

9,643.4

 

 

 

11,578.4

 

 

 

9,643.4

 

 

 

11,578.4

 

Noncontrolling Interests: (2)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

17.8

 

 

 

20.1

 

 

 

17.7

 

 

 

19.7

 

Net loss

 

 

(0.1

)

 

 

(0.9

)

 

 

 

 

 

(0.5

)

Distributions and adjustments to noncontrolling interests

 

 

 

 

 

(0.5

)

 

 

 

 

 

(0.5

)

Balance at end of period

 

 

17.7

 

 

 

18.7

 

 

 

17.7

 

 

 

18.7

 

Total equity

 

$

9,661.1

 

 

$

11,597.1

 

 

$

9,661.1

 

 

$

11,597.1

 

 

(1)
Includes cash dividends and dividend equivalent units on certain equity awards.
(2)
Excludes amounts related to contingently redeemable noncontrolling interests, which are separately classified outside of permanent equity on the consolidated balance sheets.

 

See Accompanying Notes to Consolidated Financial Statements

 

6


 

 

WESTROCK COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Six Months Ended

 

 

 

March 31,

 

(In millions)

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

Consolidated net (loss) income

 

$

(1,958.0

)

 

$

224.5

 

Adjustments to reconcile consolidated net income to net cash provided
   by operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

769.0

 

 

 

740.1

 

Deferred income tax benefit

 

 

(239.6

)

 

 

(100.0

)

Share-based compensation expense

 

 

23.1

 

 

 

39.7

 

401(k) match and company contribution in common stock

 

 

 

 

 

2.5

 

Pension and other postretirement funding more than cost (income)

 

 

8.2

 

 

 

(67.3

)

Cash surrender value increase in excess of premiums paid

 

 

(25.4

)

 

 

(15.0

)

Equity in loss (income) of unconsolidated entities

 

 

31.5

 

 

 

(39.0

)

Gain on sale of businesses

 

 

(11.1

)

 

 

 

Goodwill impairment

 

 

1,893.0

 

 

 

 

Other impairment adjustments

 

 

387.7

 

 

 

322.1

 

Gain on disposal of plant and equipment and other, net

 

 

(9.6

)

 

 

(11.5

)

Other, net

 

 

(14.3

)

 

 

5.3

 

Change in operating assets and liabilities, net of acquisitions and
   divestitures:

 

 

 

 

 

 

Accounts receivable

 

 

170.3

 

 

 

(229.1

)

Inventories

 

 

(44.8

)

 

 

(133.4

)

Other assets

 

 

(49.7

)

 

 

(152.4

)

Accounts payable

 

 

(214.3

)

 

 

64.3

 

Income taxes

 

 

46.7

 

 

 

103.0

 

Accrued liabilities and other

 

 

(212.7

)

 

 

(111.1

)

Net cash provided by operating activities

 

 

550.0

 

 

 

642.7

 

Investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(563.7

)

 

 

(354.1

)

Cash paid for purchase of businesses, net of cash received

 

 

(853.5

)

 

 

(7.0

)

Proceeds from corporate owned life insurance

 

 

6.7

 

 

 

27.7

 

Proceeds from sale of businesses

 

 

25.9

 

 

 

 

Proceeds from currency forward contracts

 

 

23.2

 

 

 

 

Proceeds from sale of property, plant and equipment

 

 

18.7

 

 

 

23.0

 

Proceeds from property, plant and equipment insurance settlement

 

 

 

 

 

1.7

 

Other, net

 

 

(0.8

)

 

 

2.1

 

Net cash used for investing activities

 

 

(1,343.5

)

 

 

(306.6

)

Financing activities:

 

 

 

 

 

 

Additions to revolving credit facilities

 

 

42.3

 

 

 

 

Repayments of revolving credit facilities

 

 

(116.3

)

 

 

(40.0

)

Additions to debt

 

 

1,379.1

 

 

 

375.1

 

Repayments of debt

 

 

(516.7

)

 

 

(416.2

)

Changes in commercial paper, net

 

 

291.4

 

 

 

224.6

 

Other debt (repayments) additions, net

 

 

(16.1

)

 

 

4.8

 

Issuances of common stock, net of related tax withholdings

 

 

(16.3

)

 

 

(9.2

)

Purchases of common stock

 

 

 

 

 

(310.2

)

Cash dividends paid to stockholders

 

 

(140.3

)

 

 

(132.1

)

Other, net

 

 

0.5

 

 

 

15.4

 

Net cash provided by (used for) financing activities

 

 

907.6

 

 

 

(287.8

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(2.0

)

 

 

21.0

 

Changes in cash, cash equivalents and restricted cash in assets held-for-sale

 

 

(8.9

)

 

 

 

Increase in cash, cash equivalents and restricted cash

 

 

103.2

 

 

 

69.3

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

260.2

 

 

 

290.9

 

Cash, cash equivalents and restricted cash at end of period

 

$

363.4

 

 

$

360.2

 

 

 

See Accompanying Notes to Consolidated Financial Statements

7


 

WESTROCK COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

We are a multinational provider of sustainable fiber-based paper and packaging solutions. We partner with our customers to provide differentiated, sustainable 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.

 

Note 1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

 

Our independent registered public accounting firm has not audited the accompanying interim financial statements. We derived the consolidated balance sheet at September 30, 2022 from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the “Fiscal 2022 Form 10-K”). In the opinion of management, all normal recurring adjustments necessary for the fair presentation of the consolidated financial statements have been included for the interim periods reported.

 

The interim financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they omit 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 the Fiscal 2022 Form 10-K. The results for the three and six months ended March 31, 2023 are not necessarily indicative of results that may be expected for the full year.

 

On December 1, 2022, we completed our previously announced acquisition of the remaining 67.7% interest in Gondi, S.A. de C.V. (“Grupo Gondi”) for $969.8 million in cash and the assumption of debt (“Grupo Gondi Acquisition”). We have accounted for this acquisition as a business combination resulting in the consolidation of Grupo Gondi. See “Note 3. Acquisitions” for additional information.

 

On December 1, 2022, we sold our Eaton, IN, and Aurora, IL uncoated recycled paperboard mills for $50 million, subject to a working capital adjustment. We received proceeds of $25 million, a preliminary working capital settlement of $0.9 million and are financing the remaining $25 million. Pursuant to the terms of the sale agreement, we transferred the control of these mills to the buyer and recorded a pre-tax gain on sale of $11.1 million recorded in Other (expense) income, net in our consolidated statements of operations.

 

In November 2022, we announced our entry into a definitive agreement to divest our interior partitions converting operations (our ownership interest in RTS Packaging, LLC) and to sell our Chattanooga, TN uncoated recycled paperboard mill to our joint venture partner for $330 million, subject to a working capital adjustment. The transaction is expected to close in fiscal 2023, subject to the satisfaction of closing conditions, including the receipt of regulatory approval. Accordingly, the related assets and liabilities have been reported in the consolidated balance sheet as of March 31, 2023 as assets and liabilities held for sale. See “Note 4. Held for Sale” for additional information.

Reclassifications and Adjustments

Certain amounts in prior periods have been reclassified to conform with the current year presentation.

 

COVID-19 Pandemic

 

The global impact of the COVID-19 pandemic ("COVID") has affected our operational and financial performance to varying degrees. The extent of the effects of future public health crises, including a resurgence of COVID, or related containment measures and government responses are highly uncertain and cannot be predicted.

 

8


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

Ransomware Incident

 

As previously disclosed, on January 23, 2021 we detected a ransomware incident impacting certain of our systems. Promptly upon our detection of this incident, we initiated response and containment protocols and our security teams, supplemented by leading cyber defense firms, worked to remediate this incident. These actions included taking preventative measures, such as shutting down certain systems out of an abundance of caution, as well as taking steps to supplement existing security monitoring, scanning and protective measures. In our Form 10-Q for the second quarter of fiscal 2021, we announced that all systems were back in service.

In the first and second quarters of fiscal 2022, we received additional business interruption recoveries of $5 million and $5 million, respectively, related to the ransomware incident, which we recorded as a reduction of Cost of goods sold and presented in net cash provided by operating activities on our consolidated statements of cash flows.

See “Note 1. Description of Business and Summary of Significant Accounting Policies — Ransomware Incident” of the Notes to Consolidated Financial Statements section in the Fiscal 2022 Form 10-K for additional information, including recoveries ($15 million in fiscal 2021 and $57.2 million in fiscal 2022) and resiliency efforts and objectives.

Significant Accounting Policies

 

See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section in the Fiscal 2022 Form 10-K for a summary of our significant accounting policies.

 

Recent Accounting Developments

 

New Accounting Standards — Recently Adopted

 

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance”. This ASU aims to increase the transparency of government assistance through the annual disclosure of the types of assistance, an entity’s accounting for the assistance and the effect of the assistance on an entity’s financial statements. This ASU is effective for annual periods beginning after December 15, 2021 (fiscal 2023 for us), with early adoption permitted. We adopted the provisions of ASU 2021-10 beginning October 1, 2022. The adoption of this ASU did not have a material impact on our consolidated financial statements.

 

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. This ASU requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 “Revenue from Contracts with Customers” (“ASC 606”). This ASU aims to reduce diversity in practice and increase comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. This ASU is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for us), including interim periods therein, with early adoption permitted. We early adopted the provisions of ASU 2021-08 beginning October 1, 2022. The adoption of this ASU did not have a material impact on our consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This ASU provides temporary optional expedients and exceptions for applying GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. In January 2021, the FASB issued ASU 2021-01, which adds implementation guidance to clarify certain optional expedients in Topic 848. The ASUs could be adopted after their respective issuance dates through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024. We are in the process of reviewing and updating our contracts to a new reference rate. We have been addressing the LIBOR transition in our applicable debt facilities and have completed the transition on all

9


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

of our significant facilities. See “Note 13. Debt” of the Notes to Consolidated Financial Statements section in the Fiscal 2022 Form 10-K for additional information on our recent credit facility changes. We adopted the provisions of this optional guidance beginning October 1, 2022. The adoption of these ASUs did not have a material impact on our consolidated financial statements.

 

New Accounting Standards — Recently Issued

 

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements”. This ASU requires all lessees to amortize leasehold improvements associated with common control leases over their useful life to the common control group and account for them as a transfer of assets between entities under common control at the end of the lease. This update is effective for fiscal years beginning after December 15, 2023 (fiscal 2025 for us), including interim periods therein, with early adoption permitted in any annual or interim period as of the beginning of the related fiscal year. We are evaluating the impact of this ASU.

 

In September 2022, the FASB issued ASU 2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. This ASU requires that all entities that use supplier finance programs in connection with the purchase of goods and services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. This ASU is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for us), except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023 (fiscal 2025 for us), each with early adoption permitted. We are evaluating the impact of this ASU.

 

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. This ASU clarifies that contractual sale restrictions should not be considered in measuring the fair value of equity securities. This ASU is effective for fiscal years beginning after December 15, 2023 (fiscal 2025 for us), including interim periods therein, with early adoption permitted. We are evaluating the impact of this ASU.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”. This ASU expands and clarifies the portfolio layer method for fair value hedges of interest rate risk. This ASU is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for us), including interim periods therein, with early adoption permitted. We are evaluating the impact of this ASU.

 

Note 2. Revenue Recognition

 

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). Net sales are attributed to geographical markets based on our selling location. See “Note 8. Segment Information” for additional information.

 

The following tables summarize our disaggregated revenue by primary geographical markets (in millions):

 

 

 

Three Months Ended March 31, 2023

 

 

 

Corrugated Packaging

 

 

Consumer Packaging

 

 

Global Paper

 

 

Distribution

 

 

Intersegment
 Sales

 

 

Total

 

U.S.

 

$

2,001.6

 

 

$

741.7

 

 

$

1,056.3

 

 

$

260.3

 

 

$

(84.6

)

 

$

3,975.3

 

Canada

 

 

138.0

 

 

 

134.5

 

 

 

54.4

 

 

 

2.8

 

 

 

(1.8

)

 

 

327.9

 

Latin America

 

 

485.0

 

 

 

12.5

 

 

 

35.1

 

 

 

44.2

 

 

 

(3.8

)

 

 

573.0

 

EMEA (1)

 

 

2.8

 

 

 

304.5

 

 

 

11.4

 

 

 

 

 

 

(0.2

)

 

 

318.5

 

Asia Pacific

 

 

 

 

 

71.9

 

 

 

11.0

 

 

 

 

 

 

 

 

 

82.9

 

Total

 

$

2,627.4

 

 

$

1,265.1

 

 

$

1,168.2

 

 

$

307.3

 

 

$

(90.4

)

 

$

5,277.6

 

 

(1)
Europe, Middle East and Africa ("EMEA")

 

10


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

 

 

Six Months Ended March 31, 2023

 

 

 

Corrugated Packaging

 

 

Consumer Packaging

 

 

Global Paper

 

 

Distribution

 

 

Intersegment Sales

 

 

Total

 

U.S.

 

$

3,975.1

 

 

$

1,444.7

 

 

$

2,079.0

 

 

$

537.0

 

 

$

(156.1

)

 

$

7,879.7

 

Canada

 

 

275.1

 

 

 

258.2

 

 

 

99.9

 

 

 

6.2

 

 

 

(3.3

)

 

 

636.1

 

Latin America

 

 

710.5

 

 

 

64.2

 

 

 

68.7

 

 

 

85.6

 

 

 

(5.1

)

 

 

923.9

 

EMEA

 

 

4.1

 

 

 

564.4

 

 

 

22.5

 

 

 

 

 

 

(0.3

)

 

 

590.7

 

Asia Pacific

 

 

 

 

 

148.6

 

 

 

21.7

 

 

 

 

 

 

 

 

 

170.3

 

Total

 

$

4,964.8

 

 

$

2,480.1

 

 

$

2,291.8

 

 

$

628.8

 

 

$

(164.8

)

 

$

10,200.7

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

Corrugated Packaging

 

 

Consumer Packaging

 

 

Global Paper

 

 

Distribution

 

 

Intersegment
 Sales

 

 

Total

 

U.S.

 

$

2,068.1

 

 

$

720.0

 

 

$

1,376.3

 

 

$

319.1

 

 

$

(85.8

)

 

$

4,397.7

 

Canada

 

 

145.9

 

 

 

128.4

 

 

 

62.2

 

 

 

3.8

 

 

 

(2.0

)

 

 

338.3

 

Latin America

 

 

104.7

 

 

 

48.3

 

 

 

65.0

 

 

 

39.4

 

 

 

(0.1

)

 

 

257.3

 

EMEA

 

 

0.3

 

 

 

277.0

 

 

 

17.6

 

 

 

 

 

 

 

 

 

294.9

 

Asia Pacific

 

 

 

 

 

76.9

 

 

 

17.0

 

 

 

 

 

 

 

 

 

93.9

 

Total

 

$

2,319.0

 

 

$

1,250.6

 

 

$

1,538.1

 

 

$

362.3

 

 

$

(87.9

)

 

$

5,382.1

 

 

 

 

Six Months Ended March 31, 2022

 

 

 

Corrugated Packaging

 

 

Consumer Packaging

 

 

Global Paper

 

 

Distribution

 

 

Intersegment Sales

 

 

Total

 

U.S.

 

$

4,037.1

 

 

$

1,368.3

 

 

$

2,589.4

 

 

$

603.7

 

 

$

(168.2

)

 

$

8,430.3

 

Canada

 

 

286.3

 

 

 

242.7

 

 

 

120.1

 

 

 

7.3

 

 

 

(3.3

)

 

 

653.1

 

Latin America

 

 

212.3

 

 

 

93.8

 

 

 

113.3

 

 

 

76.1

 

 

 

(0.2

)

 

 

495.3

 

EMEA

 

 

3.3

 

 

 

529.1

 

 

 

33.5

 

 

 

 

 

 

(0.1

)

 

 

565.8

 

Asia Pacific

 

 

 

 

 

155.4

 

 

 

34.4

 

 

 

 

 

 

 

 

 

189.8

 

Total

 

$

4,539.0

 

 

$

2,389.3

 

 

$

2,890.7

 

 

$

687.1

 

 

$

(171.8

)

 

$

10,334.3

 

 

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 the control of the goods 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 reported within Other current assets and Other current liabilities, respectively, on the consolidated balance sheets (in millions).

 

 

 

Contract Assets
(Short-Term)

 

 

Contract Liabilities
(Short-Term)

 

Beginning balance - October 1, 2022

 

$

244.0

 

 

$

13.9

 

Increase (decrease)

 

 

13.9

 

 

 

(1.6

)

Ending balance - March 31, 2023

 

$

257.9

 

 

$

12.3

 

 

Note 3. Acquisitions

 

When we obtain control of a business by acquiring its net assets, or some or all of its equity interest, we account for those 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.

 

Grupo Gondi Acquisition

On December 1, 2022, we completed our previously announced acquisition of the remaining 67.7% interest in Grupo Gondi. Grupo Gondi is a leading integrated producer of fiber-based sustainable packaging solutions that

11


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

operates four paper mills, nine corrugated packaging plants and six high graphic plants throughout Mexico, producing sustainable packaging for a wide range of end markets in the region. This tuck-in acquisition is expected to provide us with further geographic and end market diversification as well as position us to continue to grow in the attractive Latin American market.

 

See below for a summary of the purchase consideration transferred as defined under ASC 805 (in millions):

 

 

 

Purchase
Consideration

 

Cash consideration transferred for 67.7% interest

 

$

969.8

 

Fair value of the previously held interest

 

 

403.7

 

Settlement of preexisting relationships (net receivable
   from Grupo Gondi)

 

 

40.2

 

Purchase consideration transferred

 

$

1,413.7

 

 

In connection with the transaction, in the first quarter of fiscal 2023 we recognized a $46.8 million non-cash, pre-tax loss (or $24.6 million after release of a related deferred tax liability) on our original 32.3% investment. The loss is reflected in the Equity in income (loss) of unconsolidated entities line item in our consolidated statements of operations and included the write-off of historical foreign currency translation adjustments previously recorded in Accumulated other comprehensive loss in our consolidated balance sheet, as well as the difference between the fair value of the consideration paid and the carrying value of our prior ownership interest. The fair value of our previously held interest in Grupo Gondi was estimated to be $403.7 million at the acquisition date based on the cash consideration exchanged for acquiring the 67.7% of equity interest adjusted for the deemed payment of a control premium. This step-acquisition provided us with 100% control of Grupo Gondi and we met the other requirements under ASC 805 to be accounted for using the acquisition method of accounting. We have included the financial results of the acquired operations in our Corrugated Packaging segment. Post acquisition, sales to Grupo Gondi are eliminated from Global Paper results.

 

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed in the Grupo Gondi Acquisition by major class of assets and liabilities as of the acquisition date, as well as adjustments made during fiscal 2023 (referred to as “measurement period adjustments”) (in millions):

 

 

 

Amounts Recognized as of the Acquisition Date

 

 

Measurement Period Adjustments (1)

 

 

Amounts Recognized as of Acquisition Date (as Adjusted) (2)

 

Cash and cash equivalents

 

$

116.3

 

 

$

 

 

$

116.3

 

Current assets, excluding cash and cash equivalents

 

 

697.0

 

 

 

(1.6

)

 

 

695.4

 

Property, plant and equipment

 

 

1,380.3

 

 

 

15.2

 

 

 

1,395.5

 

Goodwill

 

 

231.2

 

 

 

2.1

 

 

 

233.3

 

Other noncurrent assets

 

 

101.4

 

 

 

(0.1

)

 

 

101.3

 

Total assets acquired

 

 

2,526.2

 

 

 

15.6

 

 

 

2,541.8

 

 

 

 

 

 

 

 

 

 

 

Current portion of debt (3)

 

 

13.2

 

 

 

0.5

 

 

 

13.7

 

Current liabilities, excluding debt

 

 

384.8

 

 

 

0.4

 

 

 

385.2

 

Long-term debt due after one year (3)

 

 

591.4

 

 

 

14.7

 

 

 

606.1

 

Pension liabilities, net of current portion

 

 

35.2

 

 

 

 

 

 

35.2

 

Deferred income taxes

 

 

69.8

 

 

 

 

 

 

69.8

 

Other noncurrent liabilities

 

 

18.1

 

 

 

 

 

 

18.1

 

Total liabilities assumed

 

 

1,112.5

 

 

 

15.6

 

 

 

1,128.1

 

Net assets acquired

 

$

1,413.7

 

 

$

 

 

$

1,413.7

 

 

(1)
The measurement period adjustments recorded in fiscal 2023 did not have a significant impact on our consolidated statements of operations for the three and six months ended March 31, 2023.
(2)
The measurement period adjustments were primarily due to refinements to the carrying amounts of certain assets and liabilities. The net impact of the measurement period adjustments resulted in a net increase in goodwill.
(3)
Includes $494.8 million of Grupo Gondi debt that we assumed and repaid in connection with the closing of the Grupo Gondi Acquisition. The remaining balance relates to current and long-term portions of finance leases.

 

12


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

We continue to analyze the estimated values of all assets acquired and liabilities assumed including, among other things, finalizing third-party valuations; therefore, the allocation of the purchase price remains preliminary and subject to revision.

 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The fair value assigned to goodwill is primarily attributable to buyer-specific synergies expected to arise after the acquisition (e.g., enhanced reach of the combined organization and other synergies), the assembled work force, as well as due to establishing deferred tax liabilities for the difference between book and tax basis of the assets and liabilities acquired. The goodwill is not amortizable for income tax purposes.

 

Transaction costs to acquire Grupo Gondi are expensed as incurred and recorded within Restructuring and other costs. See “Note 5. Restructuring and Other Costs” for additional information.

 

Note 4. Held For Sale

 

In November 2022, we announced our entry into a definitive agreement to divest our interior partitions converting operations (our ownership interest in RTS Packaging, LLC) and to sell our Chattanooga, TN uncoated recycled paperboard mill to our joint venture partner for $330 million, subject to a working capital adjustment. The transaction is expected to close in fiscal 2023, subject to the satisfaction of closing conditions, including the receipt of regulatory approval. Accordingly, the related assets and liabilities have been reported in the consolidated balance sheet as of March 31, 2023 as assets and liabilities held for sale. We discontinued recording depreciation and amortization while the assets are held for sale. We have also measured the disposal groups classified as held for sale at the lower of their carrying amount or fair value less cost to sale, noting no impairment. We determined that the disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations.

 

Net assets and liabilities held for sale at March 31, 2023 and September 30, 2022 were $103.4 million and $34.4 million, respectively. Net assets held for sale at March 31, 2023, include $71.1 million for the divestiture outlined above and $32.3 million related to closed facilities. The net assets held for sale at March 31, 2023 associated with the divestiture consisted primarily of $42.0 million of property, plant and equipment, net and $24.9 million of goodwill. Net assets held for sale of $34.4 million at September 30, 2022 were related to closed facilities.

 

Note 5. Restructuring and Other Costs

Summary of Restructuring and Other Initiatives

We recorded pre-tax restructuring and other costs of $444.7 million and $477.7 million for the three and six months ended March 31, 2023, respectively, and $363.4 million and $365.7 million for the three and six months ended March 31, 2022, respectively. Of these costs, $346.5 million and $322.1 million for the six months ended March 31, 2023 and 2022, respectively were non-cash. These amounts are not comparable since the timing and scope of the individual actions associated with each restructuring, acquisition, integration or divestiture can vary. We present our restructuring and other costs in more detail below.

The following table summarizes our Restructuring and other costs (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Restructuring

 

$

441.2

 

 

$

362.9

 

 

$

457.5

 

 

$

365.0

 

Other

 

 

3.5

 

 

 

0.5

 

 

 

20.2

 

 

 

0.7

 

Restructuring and other costs

 

$

444.7

 

 

$

363.4

 

 

$

477.7

 

 

$

365.7

 

 

13


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

Restructuring

Our restructuring charges are primarily associated with restructuring portions of our operations (i.e., partial or complete facility closures). A partial facility closure may consist of shutting down a machine and/or a workforce reduction. We have previously incurred reduction in workforce actions, facility closure activities, impairment costs and certain lease or other contract terminations.

We are committed to improving our return on invested capital as well as maximizing the performance of our assets. In the second quarter of fiscal 2023, we recorded charges of $415.3 million associated with our decision to permanently cease operations at our North Charleston, SC containerboard mill. We expect to cease operations on August 31, 2023. These charges are included in the table below in the Global Paper segment. We expect to record future restructuring charges, primarily associated with carrying costs and contract terminations. The mill’s annual production capacity was 550,000 tons, approximately two-thirds of which was shipped to external customers of the Global Paper segment. The remaining one-third of the mill’s production was utilized internally at our converting plants in our Corrugated Packaging segment. The mill’s operations were expected to require significant capital investment to maintain and improve going forward. By closing this mill, significant capital that would have been required to keep the mill competitive in the future is expected to be deployed to improve key assets.

The table below also includes various impairments and other charges, including $355.1 million associated with our second quarter of fiscal 2022 decision to permanently cease operations at our Panama City, FL mill. In addition, the table reflects the fourth quarter of fiscal 2022 decision to permanently close the corrugated medium manufacturing operations at the St. Paul, MN mill. In the second quarter of fiscal 2022, we cancelled our plans to shut down a bleached paperboard machine at our Evadale, TX mill and reversed certain employee and other accrued restructuring charges. See “Note 4. Restructuring and Other Costs” of the Notes to Consolidated Financial Statements section in the Fiscal 2022 Form 10-K for additional information.

While restructuring costs are not charged to our segments and, therefore, do not reduce each segment's Adjusted EBITDA (as hereinafter defined), we highlight the segment to which the charges relate. Since we do not allocate restructuring costs to our segments, charges incurred in the Global Paper segment will represent all charges associated with our vertically integrated mills and recycling operations. These operations manufacture for the benefit of each reportable segment that ultimately sells the associated paper and packaging products to our external customers.

14


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

The following table presents a summary of restructuring charges related to active restructuring initiatives that we incurred during the three and six months ended March 31, 2023 and 2022, the cumulative recorded amount since we started the initiatives and our estimate of the total we expect to incur, which is subject to a number of assumptions and actual results may differ (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

March 31,

 

 

March 31,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Cumulative

 

 

Total
Expected

 

Corrugated Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PP&E and related costs

 

$

4.3

 

 

$

 

 

$

4.3

 

 

$

 

 

$

8.0

 

 

$

8.0

 

Severance and other employee costs

 

 

3.6

 

 

 

4.4

 

 

 

5.3

 

 

 

4.0

 

 

 

15.0

 

 

 

15.0

 

Other restructuring costs

 

 

0.1

 

 

 

0.1

 

 

 

0.2

 

 

 

0.4

 

 

 

6.3

 

 

 

12.2

 

Restructuring total

 

$

8.0

 

 

$

4.5

 

 

$

9.8

 

 

$

4.4

 

 

$

29.3

 

 

$

35.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PP&E and related costs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

2.2

 

 

$

2.2

 

Severance and other employee costs

 

 

2.2

 

 

 

1.3

 

 

 

8.6

 

 

 

3.1

 

 

 

33.5

 

 

 

33.5

 

Other restructuring costs

 

 

(0.2

)

 

 

0.1

 

 

 

(0.5

)

 

 

0.1

 

 

 

9.8

 

 

 

9.8

 

Restructuring total

 

$

2.0

 

 

$

1.4

 

 

$

8.1

 

 

$

3.2

 

 

$

45.5

 

 

$

45.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PP&E and related costs

 

$

344.0

 

 

$

344.4

 

 

$

342.9

 

 

$

344.4

 

 

$

715.3

 

 

$

715.3

 

Severance and other employee costs

 

 

19.3

 

 

 

10.7

 

 

 

19.1

 

 

 

10.7

 

 

 

30.5

 

 

 

39.8

 

Other restructuring costs

 

 

63.0

 

 

 

 

 

 

69.0

 

 

 

 

 

 

85.2

 

 

 

232.1

 

Restructuring total

 

$

426.3

 

 

$

355.1

 

 

$

431.0

 

 

$

355.1

 

 

$

831.0

 

 

$

987.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and other employee costs

 

$

1.0

 

 

$

 

 

$

1.0

 

 

$

 

 

$

1.1

 

 

$

1.1

 

Other restructuring costs

 

 

0.1

 

 

 

 

 

 

0.1

 

 

 

 

 

 

1.1

 

 

 

1.1

 

Restructuring total

 

$

1.1

 

 

$

 

 

$

1.1

 

 

$

 

 

$

2.2

 

 

$

2.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PP&E and related costs

 

$

0.2

 

 

$

0.3

 

 

$

0.6

 

 

$

1.2

 

 

$

11.4

 

 

$

11.4

 

Severance and other employee costs

 

 

1.7

 

 

 

 

 

 

3.9

 

 

 

 

 

 

7.8

 

 

 

7.8

 

Other restructuring costs

 

 

1.9

 

 

 

1.6

 

 

 

3.0

 

 

 

1.1

 

 

 

7.5

 

 

 

7.5

 

Restructuring total

 

$

3.8

 

 

$

1.9

 

 

$

7.5

 

 

$

2.3

 

 

$

26.7

 

 

$

26.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PP&E and related costs

 

$

348.5

 

 

$

344.7

 

 

$

347.8

 

 

$

345.6

 

 

$

736.9

 

 

$

736.9

 

Severance and other employee costs

 

 

27.8

 

 

 

16.4

 

 

 

37.9

 

 

 

17.8

 

 

 

87.9

 

 

 

97.2

 

Other restructuring costs

 

 

64.9

 

 

 

1.8

 

 

 

71.8

 

 

 

1.6

 

 

 

109.9

 

 

 

262.7

 

Restructuring total

 

$

441.2

 

 

$

362.9

 

 

$

457.5

 

 

$

365.0

 

 

$

934.7

 

 

$

1,096.8

 

 

We define PP&E and related costs” as used in this Note 5 primarily as property, plant and equipment write-downs, subsequent adjustments to fair value for assets classified as held for sale, subsequent (gains) or losses on sales of property, plant and equipment, related parts and supplies on such assets, and deferred major maintenance costs, if any. We define "Other restructuring costs" as facility carrying costs, equipment and inventory relocation costs, lease or other contract termination costs, and other items, including impaired intangibles attributable to our restructuring actions.

Other Costs

Our other costs consist of acquisition, integration and divestiture costs. We incur costs when we acquire or divest businesses. Acquisition costs include costs associated with transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees, as well as litigation costs associated with those activities. We incur integration costs pre- and post-acquisition that reflect work performed to facilitate merger and acquisition integration, such as work associated with information systems and other projects including spending to support future acquisitions, and such costs primarily consist of professional services and

15


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

labor. Divestiture costs consist primarily of similar professional fees. We consider acquisition, integration and divestiture costs to be corporate costs regardless of the segment or segments involved in the transaction.

The following table presents our acquisition, integration and divestiture costs (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Acquisition costs

 

$

1.2

 

 

$

0.2

 

 

$

12.2

 

 

$

0.4

 

Integration costs

 

 

1.8

 

 

 

0.2

 

 

 

6.1

 

 

 

0.2

 

Divestiture costs

 

 

0.5

 

 

 

0.1

 

 

 

1.9

 

 

 

0.1

 

Other total

 

$

3.5

 

 

$

0.5

 

 

$

20.2

 

 

$

0.7

 

 

Acquisition costs in the table above include transaction costs related to the acquisition of the remaining interest in Grupo Gondi, as well as other matters.

Accruals

The following table summarizes the changes in the restructuring accrual, which is primarily composed of accrued severance and other employee costs, and a reconciliation of the restructuring accrual charges to the line item “Restructuring and other costs” on our consolidated statements of operations (in millions):

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Accrual at beginning of fiscal year

 

$

25.2

 

 

$

13.4

 

Additional accruals

 

 

40.2

 

 

 

17.6

 

Payments

 

 

(18.9

)

 

 

(4.0

)

Adjustment to accruals

 

 

(2.5

)

 

 

(0.3

)

Accrual at March 31

 

$

44.0

 

 

$

26.7

 

 

Reconciliation of accruals and charges to restructuring and other costs (in millions):

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Additional accruals and adjustments to accruals
   (see table above)

 

$

37.7

 

 

$

17.3

 

PP&E and related costs

 

 

347.8

 

 

 

345.6

 

Severance and other employee costs

 

 

0.2

 

 

 

0.5

 

Acquisition costs

 

 

12.2

 

 

 

0.4

 

Integration costs

 

 

6.1

 

 

 

0.2

 

Divestiture costs

 

 

1.9

 

 

 

0.1

 

Other restructuring costs

 

 

71.8

 

 

 

1.6

 

Total restructuring and other costs

 

$

477.7

 

 

$

365.7

 

 

Note 6. Retirement Plans

We have defined benefit pension plans and other postretirement benefit plans for certain U.S. and non-U.S. employees. Certain plans were frozen for salaried and non-union hourly employees at various times in the past, and nearly all of our remaining U.S. salaried and U.S. non-union hourly employees accruing benefits ceased accruing benefits as of December 31, 2020. In addition, we participate in several multiemployer pension plans (“MEPP or MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements and have participated in other MEPPs in the past. We also have supplemental executive retirement plans and other non-qualified defined benefit pension plans that provide unfunded supplemental retirement benefits to certain of our current and former executives. See “Note 5. Retirement Plans

16


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

of the Notes to Consolidated Financial Statements section in the Fiscal 2022 Form 10-K for more information regarding our involvement with retirement plans.

MEPPs

 

In the normal course of business, we evaluate our potential exposure to MEPPs, including potential withdrawal liabilities. In fiscal 2018, we submitted formal notification to withdraw from the Pace Industry Union-Management Pension Fund (“PIUMPF”) and recorded a withdrawal liability and a liability for our proportionate share of PIUMPF’s accumulated funding deficiency. Subsequently, in fiscal 2019 and 2020, we received demand letters from PIUMPF, including a demand for withdrawal liabilities and for our proportionate share of PIUMPF's accumulated funding deficiency. In July 2021, PIUMPF filed suit against us in the U.S. District Court for the Northern District of Georgia claiming the right to recover our pro rata share of the pension fund’s accumulated funding deficiency along with interest, liquidated damages and attorney's fees. We believe we are adequately reserved for this matter. See “Note 5. Retirement Plans — Multiemployer Plans” of the Notes to Consolidated Financial Statements section in the Fiscal 2022 Form 10-K for additional information on our MEPPs and see “Note 17. Commitments and Contingencies — Other Litigation” for additional information on the litigation.

 

At March 31, 2023 and September 30, 2022, we had recorded withdrawal liabilities of $213.1 million and $214.7 million, respectively, including liabilities associated with PIUMPF's accumulated funding deficiency demands.

Pension and Postretirement Cost (Income)

The following table presents a summary of the components of net pension cost (income) (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Service cost

 

$

7.9

 

 

$

12.7

 

 

$

15.4

 

 

$

25.2

 

Interest cost

 

 

64.4

 

 

 

47.3

 

 

 

128.1

 

 

 

94.7

 

Expected return on plan assets

 

 

(75.5

)

 

 

(92.5

)

 

 

(151.3

)

 

 

(185.0

)

Amortization of net actuarial loss

 

 

14.7

 

 

 

2.2

 

 

 

29.2

 

 

 

4.4

 

Amortization of prior service cost

 

 

1.9

 

 

 

2.1

 

 

 

4.0

 

 

 

4.2

 

Settlement loss

 

 

 

 

 

0.2

 

 

 

 

 

 

0.2

 

Company defined benefit plan cost (income)

 

 

13.4

 

 

 

(28.0

)

 

 

25.4

 

 

 

(56.3

)

Multiemployer and other plans

 

 

0.4

 

 

 

0.4

 

 

 

0.7

 

 

 

0.7

 

Net pension cost (income)

 

$

13.8

 

 

$

(27.6

)

 

$

26.1

 

 

$

(55.6

)

 

The non-service elements of our pension and postretirement cost set forth in this Note 6 are reflected in the consolidated statements of operations line item “Pension and other postretirement non-service (cost) income”. The service cost components are reflected in “Cost of goods sold” and “Selling, general and administrative expense excluding intangible amortization” line items.

 

We maintain other postretirement benefit plans that provide certain health care and life insurance benefits for certain salaried and hourly employees who meet specified age and service requirements as defined by the plans. The following table presents a summary of the components of the net postretirement cost (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Service cost

 

$

0.2

 

 

$

0.2

 

 

$

0.4

 

 

$

0.5

 

Interest cost

 

 

1.8

 

 

 

1.6

 

 

 

3.6

 

 

 

3.1

 

Amortization of net actuarial gain

 

 

(1.2

)

 

 

(0.4

)

 

 

(2.3

)

 

 

(0.8

)

Amortization of prior service credit

 

 

(0.1

)

 

 

(0.2

)

 

 

(0.3

)

 

 

(0.4

)

Net postretirement cost

 

$

0.7

 

 

$

1.2

 

 

$

1.4

 

 

$

2.4

 

 

17


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

 

Employer Contributions

 

During the three and six months ended March 31, 2023, we made contributions to our qualified and supplemental defined benefit pension plans of $7.4 million and $15.0 million, respectively, and for the three and six months ended March 31, 2022 we made contributions of $6.2 million and $10.3 million, respectively.

 

During the three and six months ended March 31, 2023, we funded an aggregate of $2.1 million and $3.6 million, respectively, to our other postretirement benefit plans and for the three and six months ended March 31, 2022 we funded an aggregate of $1.9 million and $3.1 million, respectively.

Note 7. Income Taxes

 

The effective tax rate for the three and six months ended March 31, 2023 was 5.5% and 5.3%, respectively. The effective tax rates were impacted by (i) the tax effects of the goodwill impairment, (ii) the tax effects related to the Grupo Gondi Acquisition (iii) research and development and other tax credits (iv) the inclusion of state taxes, (v) income derived from certain foreign jurisdictions subject to higher tax rates and (vi) the exclusion of tax benefits related to losses recorded by certain foreign operations.

 

The effective tax rate for the three and six months ended March 31, 2022 was 4.2% and 21.2%, respectively. The effective tax rates were impacted by (i) research and development tax credits, partially offset by (ii) the inclusion of state taxes, (iii) income derived from certain foreign jurisdictions subject to higher tax rates and (iv) the exclusion of tax benefits related to losses recorded by certain foreign operations. The lower tax rate in the three months ended March 31, 2022 was primarily due to the disproportionate impact of research and development tax credits due to reduced pre-tax income as a result of restructuring and other costs in the period.

 

During the six months ended March 31, 2023 and March 31, 2022, cash paid for income taxes, net of refunds, was $86.2 million and $55.8 million, respectively.

 

Note 8. Segment Information

 

We report our financial results of operations in the following four reportable segments:

 

Corrugated Packaging, which substantially consists of our integrated corrugated converting operations and generates its revenues primarily from the sale of corrugated containers and other corrugated products, including the acquired Grupo Gondi operations;
Consumer Packaging, which consists of our integrated consumer converting operations and generates its revenues primarily from the sale of consumer packaging products such as folding cartons, interior partitions and other consumer products;
Global Paper, which consists of our commercial paper operations and generates its revenues primarily from the sale of containerboard and paperboard to external customers; and
Distribution, which consists of our distribution and display assembly operations and generates its revenues primarily from the distribution of packaging products and assembly of display products.

Due to the timing of the Grupo Gondi Acquisition, it was not practicable to allocate the results of Grupo Gondi to our operating segments for the first quarter of fiscal 2023. As a result, we included the results for December 2022 in "Other unallocated".

 

In the second quarter of fiscal 2023, we finalized our segment reporting assessment and included the results of the Grupo Gondi operations in our Corrugated Packaging segment, which is consistent with our internal operational structure and how the Company’s chief operating decision maker ("CODM") allocates resources and assesses financial performance. See “Note 3. Acquisitions” for additional information. As part of this assessment, we also moved certain existing consumer converting operations in Latin America into our Corrugated Packaging segment in line with how we are managing the business effective January 1, 2023. We did not recast prior year results related to these operations as they were not material. Grupo Gondi results for the month of December have been recast and are reflected in the Corrugated Packaging segment.

18


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

 

We determined our operating segments based on the products and services we offer. Our operating segments are consistent with our internal management structure, and we do not aggregate operating segments. We report the benefit of vertical integration with our mills in each reportable segment that ultimately sells the associated paper and packaging products to our external customers. We account for intersegment sales at prices that approximate market prices.

 

Adjusted EBITDA is our measure of segment profitability in accordance with ASC 280, “Segment Reporting” because it is used by our CODM to make decisions regarding allocation of resources and to assess segment performance. Certain items are not allocated to our operating segments and, thus, the information that our CODM uses to make operating decisions and assess performance does not reflect such amounts. Adjusted EBITDA is defined as pre-tax earnings of a reportable segment before depreciation, depletion and amortization, and excludes the following items our CODM does not consider part of our segment performance: gain on sale of certain closed facilities, multiemployer pension withdrawal income, restructuring and other costs, goodwill impairment, non-allocated expenses, interest expense, net, loss on extinguishment of debt, other (expense) income, net, and other adjustments - each as outlined in the table below ("Adjusted EBITDA"). Management believes excluding these items is useful in the evaluation of operating performance from period to period because these items are not representative of our ongoing operations or are items our CODM does not consider part of our reportable segments.

19


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

The tables in this Note 8 show selected financial data for our reportable segments (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales (aggregate):

 

 

 

 

 

 

 

 

 

 

 

 

Corrugated Packaging

 

$

2,627.4

 

 

$

2,319.0

 

 

$

4,964.8

 

 

$

4,539.0

 

Consumer Packaging

 

 

1,265.1

 

 

 

1,250.6

 

 

 

2,480.1

 

 

 

2,389.3

 

Global Paper

 

 

1,168.2

 

 

 

1,538.1

 

 

 

2,291.8

 

 

 

2,890.7

 

Distribution

 

 

307.3

 

 

 

362.3

 

 

 

628.8

 

 

 

687.1

 

Total

 

$

5,368.0

 

 

$

5,470.0

 

 

$

10,365.5

 

 

$

10,506.1

 

Less net sales (intersegment):

 

 

 

 

 

 

 

 

 

 

 

 

Corrugated Packaging

 

$

81.6

 

 

$

78.5

 

 

$

150.0

 

 

$

152.7

 

Consumer Packaging

 

 

7.5

 

 

 

6.9

 

 

 

12.2

 

 

 

12.9

 

Distribution

 

 

1.3

 

 

 

2.5

 

 

 

2.6

 

 

 

6.2

 

Total

 

$

90.4

 

 

$

87.9

 

 

$

164.8

 

 

$

171.8

 

Net sales (unaffiliated customers):

 

 

 

 

 

 

 

 

 

 

 

 

Corrugated Packaging

 

$

2,545.8

 

 

$

2,240.5

 

 

$

4,814.8

 

 

$

4,386.3

 

Consumer Packaging

 

 

1,257.6

 

 

 

1,243.7

 

 

 

2,467.9

 

 

 

2,376.4

 

Global Paper

 

 

1,168.2

 

 

 

1,538.1

 

 

 

2,291.8

 

 

 

2,890.7

 

Distribution

 

 

306.0

 

 

 

359.8

 

 

 

626.2

 

 

 

680.9

 

Total

 

$

5,277.6

 

 

$

5,382.1

 

 

$

10,200.7

 

 

$

10,334.3

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Corrugated Packaging

 

$

407.5

 

 

$

328.7

 

 

$

736.9

 

 

$

617.6

 

Consumer Packaging

 

 

218.6

 

 

 

205.8

 

 

 

401.9

 

 

 

375.1

 

Global Paper

 

 

187.1

 

 

 

308.6

 

 

 

344.4

 

 

 

541.0

 

Distribution

 

 

9.3

 

 

 

28.0

 

 

 

20.1

 

 

 

34.5

 

Total

 

 

822.5

 

 

 

871.1

 

 

 

1,503.3

 

 

 

1,568.2

 

Depreciation, depletion and amortization

 

 

(395.8

)

 

 

(373.6

)

 

 

(769.0

)

 

 

(740.1

)

Gain on sale of certain closed facilities

 

 

8.9

 

 

 

 

 

 

9.8

 

 

 

14.4

 

Multiemployer pension withdrawal income

 

 

 

 

 

 

 

 

 

 

 

3.3

 

Restructuring and other costs

 

 

(444.7

)

 

 

(363.4

)

 

 

(477.7

)

 

 

(365.7

)

Goodwill impairment

 

 

(1,893.0

)

 

 

 

 

 

(1,893.0

)

 

 

 

Non-allocated expenses

 

 

(33.9

)

 

 

(17.2

)

 

 

(62.6

)

 

 

(34.0

)

Interest expense, net

 

 

(108.4

)

 

 

(72.5

)

 

 

(205.7

)

 

 

(159.2

)

Loss on extinguishment of debt

 

 

 

 

 

(8.2

)

 

 

 

 

 

(8.2

)

Other (expense) income, net

 

 

(17.8

)

 

 

6.3

 

 

 

7.4

 

 

 

6.5

 

Other adjustments

 

 

(59.4

)

 

 

 

 

 

(179.0

)

 

 

(0.3

)

(Loss) income before income taxes

 

$

(2,121.6

)

 

$

42.5

 

 

$

(2,066.5

)

 

$

284.9

 

 

 

 

20


 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

Additional selected financial data (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Depreciation, depletion and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Corrugated Packaging

 

$

211.2

 

 

$

166.9

 

 

$

403.4

 

 

$

333.9

 

Consumer Packaging

 

 

85.5

 

 

 

90.1

 

 

 

169.6

 

 

 

176.4

 

Global Paper

 

 

91.2

 

 

 

109.8

 

 

 

180.3

 

 

 

216.0

 

Distribution

 

 

6.9

 

 

 

5.8

 

 

 

13.8

 

 

 

11.6

 

Corporate

 

 

1.0

 

 

 

1.0

 

 

 

1.9

 

 

 

2.2

 

Total

 

$

395.8

 

 

$

373.6

 

 

$

769.0

 

 

$

740.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Corrugated Packaging

 

$

4.7

 

 

$

(6.4

)

 

$

54.5

 

 

$

(6.4

)

Consumer Packaging

 

 

28.0

 

 

 

7.5

 

 

 

59.6

 

 

 

7.7

 

Global Paper

 

 

9.1

 

 

 

(1.1

)

 

 

26.6

 

 

 

(1.0

)

Corporate

 

 

17.6

 

 

 

 

 

 

38.3

 

 

 

 

Total

 

$

59.4

 

 

$

 

 

$

179.0