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 June 30, 2019
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.) |
|
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|
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 |
☐ |
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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 July 19, 2019 |
|
Common Stock, $0.01 par value |
|
257,341,556 |
WESTROCK COMPANY
INDEX
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Page |
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PART I |
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Item 1. |
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3 |
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4 |
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Condensed Consolidated Balance Sheets at June 30, 2019 and September 30, 2018 |
5 |
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6 |
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Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2019 and 2018 |
8 |
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10 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
50 |
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Item 3. |
69 |
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Item 4. |
69 |
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PART II |
70 |
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Item 1. |
70 |
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Item 1A. |
70 |
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Item 6. |
70 |
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71 |
2
PART I: FINANCIAL INFORMATION
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Item 1. |
FINANCIAL STATEMENTS (UNAUDITED) |
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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||||||||||
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(In millions, except per share data) |
|
2019 |
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2018 |
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2019 |
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2018 |
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Net sales |
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$ |
4,690.0 |
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$ |
4,137.5 |
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$ |
13,637.4 |
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$ |
12,048.5 |
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Cost of goods sold |
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3,701.1 |
|
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3,270.4 |
|
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10,967.1 |
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9,618.5 |
|
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Selling, general and administrative, excluding intangible amortization |
|
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442.4 |
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380.7 |
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1,287.4 |
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1,157.3 |
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Selling, general and administrative intangible amortization |
|
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102.4 |
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75.6 |
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297.7 |
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223.3 |
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Loss (gain) on disposal of assets |
|
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6.5 |
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2.7 |
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(37.3 |
) |
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6.6 |
|
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Multiemployer pension withdrawals |
|
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(1.7 |
) |
|
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4.2 |
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(1.7 |
) |
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184.2 |
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Land and Development impairments |
|
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— |
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1.7 |
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13.0 |
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29.3 |
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Restructuring and other costs |
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17.9 |
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17.1 |
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107.1 |
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65.1 |
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Operating profit |
|
|
421.4 |
|
|
|
385.1 |
|
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1,004.1 |
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764.2 |
|
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Interest expense, net |
|
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(111.1 |
) |
|
|
(76.7 |
) |
|
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(317.3 |
) |
|
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(219.8 |
) |
|
(Loss) gain on extinguishment of debt |
|
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(3.2 |
) |
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0.9 |
|
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(4.7 |
) |
|
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— |
|
|
Pension and other postretirement non-service income |
|
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18.9 |
|
|
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21.3 |
|
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54.9 |
|
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70.5 |
|
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Other income (expense), net |
|
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3.7 |
|
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|
9.7 |
|
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(2.3 |
) |
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13.3 |
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Equity in income of unconsolidated entities |
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1.7 |
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15.5 |
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8.3 |
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31.2 |
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Income before income taxes |
|
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331.4 |
|
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355.8 |
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743.0 |
|
|
|
659.4 |
|
|
Income tax (expense) benefit |
|
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(77.6 |
) |
|
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(84.5 |
) |
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(187.5 |
) |
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969.9 |
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Consolidated net income |
|
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253.8 |
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271.3 |
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555.5 |
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1,629.3 |
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Less: Net income attributable to noncontrolling interests |
|
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(1.2 |
) |
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(3.1 |
) |
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(3.4 |
) |
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(2.8 |
) |
|
Net income attributable to common stockholders |
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$ |
252.6 |
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$ |
268.2 |
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$ |
552.1 |
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$ |
1,626.5 |
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Basic earnings per share attributable to common stockholders |
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$ |
0.98 |
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$ |
1.05 |
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$ |
2.15 |
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$ |
6.36 |
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Diluted earnings per share attributable to common stockholders |
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$ |
0.98 |
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$ |
1.03 |
|
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$ |
2.13 |
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$ |
6.25 |
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Basic weighted average shares outstanding |
|
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257.3 |
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256.1 |
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256.2 |
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255.7 |
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Diluted weighted average shares outstanding |
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258.6 |
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260.6 |
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259.1 |
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260.0 |
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Cash dividends paid per common share |
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$ |
0.455 |
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$ |
0.43 |
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$ |
1.365 |
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$ |
1.29 |
|
See Accompanying Notes to Condensed Consolidated Financial Statements
3
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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||||||||||
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(In millions) |
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2019 |
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2018 |
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2019 |
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2018 |
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Consolidated net income |
|
$ |
253.8 |
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$ |
271.3 |
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$ |
555.5 |
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$ |
1,629.3 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation gain (loss) |
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25.4 |
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(237.6 |
) |
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(14.3 |
) |
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(225.3 |
) |
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Derivatives: |
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Reclassification adjustment of net loss on cash flow hedges included in earnings |
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— |
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— |
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— |
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0.5 |
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Unrealized gain on available for sale security |
|
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— |
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— |
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— |
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0.8 |
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Reclassification adjustment of gain on available for sale security included in earnings |
|
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— |
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— |
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— |
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(1.5 |
) |
|
Defined benefit pension and other postretirement benefit plans: |
|
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Amortization and settlement recognition of net actuarial loss, included in pension cost |
|
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4.5 |
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5.2 |
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12.6 |
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11.8 |
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Prior service cost arising during the period |
|
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— |
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(0.4 |
) |
|
|
— |
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(3.1 |
) |
|
Amortization and settlement recognition of prior service cost, included in pension cost |
|
|
0.4 |
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0.2 |
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1.3 |
|
|
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0.2 |
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Other comprehensive income (loss), net of tax |
|
|
30.3 |
|
|
|
(232.6 |
) |
|
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(0.4 |
) |
|
|
(216.6 |
) |
|
Comprehensive income |
|
|
284.1 |
|
|
|
38.7 |
|
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|
555.1 |
|
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|
1,412.7 |
|
|
Less: Comprehensive income attributable to noncontrolling interests |
|
|
(1.4 |
) |
|
|
(3.1 |
) |
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(3.1 |
) |
|
|
(3.2 |
) |
|
Comprehensive income attributable to common stockholders |
|
$ |
282.7 |
|
|
$ |
35.6 |
|
|
$ |
552.0 |
|
|
$ |
1,409.5 |
|
See Accompanying Notes to Condensed Consolidated Financial Statements
4
WESTROCK COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
(In millions, except per share data) |
|
June 30, 2019 |
|
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September 30, 2018 |
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ASSETS |
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Current assets: |
|
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Cash and cash equivalents |
|
$ |
179.1 |
|
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$ |
636.8 |
|
|
Accounts receivable (net of allowances of $50.5 and $49.7) |
|
|
2,398.1 |
|
|
|
2,010.7 |
|
|
Inventories |
|
|
2,074.2 |
|
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|
1,829.6 |
|
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Other current assets |
|
|
515.7 |
|
|
|
248.5 |
|
|
Assets held for sale |
|
|
26.6 |
|
|
|
59.5 |
|
|
Total current assets |
|
|
5,193.7 |
|
|
|
4,785.1 |
|
|
Property, plant and equipment, net |
|
|
11,169.3 |
|
|
|
9,082.5 |
|
|
Goodwill |
|
|
7,321.9 |
|
|
|
5,577.6 |
|
|
Intangibles, net |
|
|
4,174.8 |
|
|
|
3,122.0 |
|
|
Restricted assets held by special purpose entities |
|
|
1,276.0 |
|
|
|
1,281.0 |
|
|
Prepaid pension asset |
|
|
463.3 |
|
|
|
420.0 |
|
|
Other assets |
|
|
1,213.1 |
|
|
|
1,092.3 |
|
|
Total Assets |
|
$ |
30,812.1 |
|
|
$ |
25,360.5 |
|
|
|
|
|
|
|
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|
LIABILITIES AND EQUITY |
|
|
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Current liabilities: |
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
$ |
779.1 |
|
|
$ |
740.7 |
|
|
Accounts payable |
|
|
1,706.8 |
|
|
|
1,716.8 |
|
|
Accrued compensation and benefits |
|
|
427.8 |
|
|
|
399.3 |
|
|
Other current liabilities |
|
|
676.8 |
|
|
|
476.5 |
|
|
Total current liabilities |
|
|
3,590.5 |
|
|
|
3,333.3 |
|
|
Long-term debt due after one year |
|
|
9,759.1 |
|
|
|
5,674.5 |
|
|
Pension liabilities, net of current portion |
|
|
246.0 |
|
|
|
261.3 |
|
|
Postretirement benefit liabilities, net of current portion |
|
|
142.5 |
|
|
|
134.8 |
|
|
Non-recourse liabilities held by special purpose entities |
|
|
1,147.4 |
|
|
|
1,153.7 |
|
|
Deferred income taxes |
|
|
2,965.8 |
|
|
|
2,321.5 |
|
|
Other long-term liabilities |
|
|
1,116.2 |
|
|
|
994.8 |
|
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
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Redeemable noncontrolling interests |
|
|
3.3 |
|
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|
4.2 |
|
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Equity: |
|
|
|
|
|
|
|
|
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Preferred stock, $0.01 par value; 30.0 million shares authorized; no shares outstanding |
|
|
— |
|
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|
— |
|
|
Common Stock, $0.01 par value; 600.0 million shares authorized; 257.3 million and 253.5 million shares outstanding at June 30, 2019 and September 30, 2018, respectively |
|
|
2.6 |
|
|
|
2.5 |
|
|
Capital in excess of par value |
|
|
10,715.4 |
|
|
|
10,588.9 |
|
|
Retained earnings |
|
|
1,805.1 |
|
|
|
1,573.3 |
|
|
Accumulated other comprehensive loss |
|
|
(695.4 |
) |
|
|
(695.3 |
) |
|
Total stockholders’ equity |
|
|
11,827.7 |
|
|
|
11,469.4 |
|
|
Noncontrolling interests |
|
|
13.6 |
|
|
|
13.0 |
|
|
Total equity |
|
|
11,841.3 |
|
|
|
11,482.4 |
|
|
Total Liabilities and Equity |
|
$ |
30,812.1 |
|
|
$ |
25,360.5 |
|
See Accompanying Notes to Condensed Consolidated Financial Statements
5
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
|||||||||||
|
(In millions, except per share data) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||||
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|
|
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|
|||||||||||
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Number of Shares of Common Stock Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
256.9 |
|
|
|
256.4 |
|
|
|
253.5 |
|
|
|
254.5 |
|
|
|
Shares issued under restricted stock plan |
|
|
— |
|
|
|
— |
|
|
|
3.0 |
|
|
|
0.7 |
|
|
|
Issuance of common stock, net of stock received for minimum tax withholdings (1) |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
2.9 |
|
|
|
1.6 |
|
|
|
Purchases of common stock |
|
|
— |
|
|
|
(1.7 |
) |
|
|
(2.1 |
) |
|
|
(1.7 |
) |
|
|
Balance at end of period |
|
|
257.3 |
|
|
|
255.1 |
|
|
|
257.3 |
|
|
|
255.1 |
|
|
|
Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
2.6 |
|
|
$ |
2.6 |
|
|
$ |
2.5 |
|
|
$ |
2.5 |
|
|
|
Issuance of common stock, net of stock received for minimum tax withholdings (1) |
|
|
— |
|
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
— |
|
|
|
Purchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Balance at end of period |
|
|
2.6 |
|
|
|
2.5 |
|
|
|
2.6 |
|
|
|
2.5 |
|
|
|
Capital in Excess of Par Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
10,692.5 |
|
|
|
10,684.6 |
|
|
|
10,588.9 |
|
|
|
10,624.9 |
|
|
|
Compensation expense under share-based plans |
|
|
15.9 |
|
|
|
15.5 |
|
|
|
52.0 |
|
|
|
49.2 |
|
|
|
Issuance of common stock, net of stock received for minimum tax withholdings (1) |
|
|
7.0 |
|
|
|
7.7 |
|
|
|
89.9 |
|
|
|
33.7 |
|
|
|
Fair value of share-based awards issued in business combinations |
|
|
— |
|
|
|
— |
|
|
|
70.8 |
|
|
|
— |
|
|
|
Purchases of common stock |
|
|
— |
|
|
|
(70.3 |
) |
|
|
(86.2 |
) |
|
|
(70.3 |
) |
|
|
Balance at end of period |
|
|
10,715.4 |
|
|
|
10,637.5 |
|
|
|
10,715.4 |
|
|
|
10,637.5 |
|
|
|
Retained Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
1,671.2 |
|
|
|
1,302.4 |
|
|
|
1,573.3 |
|
|
|
172.4 |
|
|
|
Adoption of revenue from contracts with customers standard |
|
|
— |
|
|
|
— |
|
|
|
43.5 |
|
|
|
— |
|
|
|
Net income attributable to common stockholders |
|
|
252.6 |
|
|
|
268.2 |
|
|
|
552.1 |
|
|
|
1,626.5 |
|
|
|
Dividends declared (per share - $0.455, $0.43, $1.365 and $1.29) (2) |
|
|
(118.7 |
) |
|
|
(112.1 |
) |
|
|
(361.0 |
) |
|
|
(334.0 |
) |
|
|
Issuance of common stock, net of stock received for minimum tax withholdings |
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.4 |
) |
|
|
(6.5 |
) |
|
|
Purchases of common stock |
|
|
— |
|
|
|
(30.5 |
) |
|
|
(2.4 |
) |
|
|
(30.5 |
) |
|
|
Balance at end of period |
|
|
1,805.1 |
|
|
|
1,427.9 |
|
|
|
1,805.1 |
|
|
|
1,427.9 |
|
|
|
Accumulated Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
(725.5 |
) |
|
|
(441.7 |
) |
|
|
(695.3 |
) |
|
|
(457.3 |
) |
|
|
Other comprehensive income (loss), net of tax |
|
|
30.1 |
|
|
|
(232.6 |
) |
|
|
(0.1 |
) |
|
|
(217.0 |
) |
|
|
Balance at end of period |
|
|
(695.4 |
) |
|
|
(674.3 |
) |
|
|
(695.4 |
) |
|
|
(674.3 |
) |
|
|
Total Stockholders’ equity |
|
|
11,827.7 |
|
|
|
11,393.6 |
|
|
|
11,827.7 |
|
|
|
11,393.6 |
|
|
|
Noncontrolling Interests: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
12.8 |
|
|
|
34.3 |
|
|
|
13.0 |
|
|
|
43.6 |
|
|
|
Net income |
|
|
0.9 |
|
|
|
2.6 |
|
|
|
2.3 |
|
|
|
2.6 |
|
|
|
Contributions |
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
Distributions and adjustments to noncontrolling interests |
|
|
(0.1 |
) |
|
|
(17.7 |
) |
|
|
(1.9 |
) |
|
|
(27.0 |
) |
|
|
Balance at end of period |
|
|
13.6 |
|
|
|
19.2 |
|
|
|
13.6 |
|
|
|
19.2 |
|
|
|
Total equity |
|
$ |
11,841.3 |
|
|
$ |
11,412.8 |
|
|
$ |
11,841.3 |
|
|
$ |
11,412.8 |
|
|
|
|
(1) |
Included in the issuance of common stock in the nine months ended June 30, 2019 is the issuance of approximately 1.6 million shares of Common Stock (as hereinafter defined) valued at $70.1 million in connection with the KapStone Acquisition (as hereinafter defined). |
6
|
|
(2) |
Includes cash dividends paid, dividend equivalent units on certain restricted stock awards and dividends declared but unpaid related to the shares reserved but unissued at the time of the acquisition of Smurfit-Stone Container Corporation (“Smurfit-Stone”) for the resolution of Smurfit Stone bankruptcy claims. |
|
|
(3) |
Excludes amounts related to contingently redeemable noncontrolling interests, which are separately classified outside of permanent equity on the Condensed Consolidated Balance Sheets. |
See Accompanying Notes to Condensed Consolidated Financial Statements
7
WESTROCK COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Nine Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
555.5 |
|
|
$ |
1,629.3 |
|
|
Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
1,128.1 |
|
|
|
937.9 |
|
|
Cost of real estate sold |
|
|
17.3 |
|
|
|
83.8 |
|
|
Deferred income tax expense (benefit) |
|
|
36.4 |
|
|
|
(1,162.7 |
) |
|
Share-based compensation expense |
|
|
51.3 |
|
|
|
49.2 |
|
|
Pension and other postretirement funding (more) than expense (income) |
|
|
(44.3 |
) |
|
|
(74.4 |
) |
|
Multiemployer pension withdrawals |
|
|
(1.7 |
) |
|
|
184.2 |
|
|
Land and Development impairments |
|
|
13.0 |
|
|
|
29.3 |
|
|
Other impairment adjustments |
|
|
10.5 |
|
|
|
11.9 |
|
|
(Gain) loss on disposal of plant and equipment and other, net |
|
|
(39.2 |
) |
|
|
0.8 |
|
|
Other |
|
|
(61.5 |
) |
|
|
(47.2 |
) |
|
Change in operating assets and liabilities, net of acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
93.9 |
|
|
|
(447.4 |
) |
|
Inventories |
|
|
(39.5 |
) |
|
|
(40.8 |
) |
|
Other assets |
|
|
(171.7 |
) |
|
|
(119.9 |
) |
|
Accounts payable |
|
|
(126.3 |
) |
|
|
(11.0 |
) |
|
Income taxes |
|
|
(29.5 |
) |
|
|
83.2 |
|
|
Accrued liabilities and other |
|
|
7.3 |
|
|
|
29.4 |
|
|
Net cash provided by operating activities |
|
|
1,399.6 |
|
|
|
1,135.6 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(976.8 |
) |
|
|
(665.5 |
) |
|
Cash paid related to business combinations, net of cash acquired |
|
|
(3,368.3 |
) |
|
|
(188.2 |
) |
|
Cash receipts on sold trade receivables |
|
|
— |
|
|
|
346.1 |
|
|
Investment in unconsolidated entities |
|
|
(10.4 |
) |
|
|
(111.1 |
) |
|
Proceeds from sale of property, plant and equipment |
|
|
108.3 |
|
|
|
22.4 |
|
|
Proceeds from property, plant and equipment insurance settlement |
|
|
16.5 |
|
|
|
6.2 |
|
|
Other |
|
|
30.0 |
|
|
|
46.3 |
|
|
Net cash used for investing activities |
|
|
(4,200.7 |
) |
|
|
(543.8 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes |
|
|
2,498.2 |
|
|
|
1,197.3 |
|
|
Additions to revolving credit facilities |
|
|
47.7 |
|
|
|
0.3 |
|
|
Additions to debt |
|
|
4,441.0 |
|
|
|
854.1 |
|
|
Repayments of debt |
|
|
(4,665.0 |
) |
|
|
(2,022.7 |
) |
|
Changes in commercial paper, net |
|
|
445.6 |
|
|
|
— |
|
|
Other financing additions (repayments), net |
|
|
13.2 |
|
|
|
(20.3 |
) |
|
Issuances of common stock, net of related minimum tax withholdings |
|
|
8.6 |
|
|
|
23.2 |
|
|
Purchases of common stock |
|
|
(88.6 |
) |
|
|
(100.8 |
) |
|
Cash dividends paid to stockholders |
|
|
(350.7 |
) |
|
|
(329.7 |
) |
|
Cash distributions paid to noncontrolling interests |
|
|
(3.4 |
) |
|
|
(26.6 |
) |
|
Other |
|
|
(7.1 |
) |
|
|
6.0 |
|
|
Net cash provided by (used for) financing activities |
|
|
2,339.5 |
|
|
|
(419.2 |
) |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
3.9 |
|
|
|
(24.0 |
) |
|
(Decrease) increase in cash, cash equivalents and restricted cash |
|
|
(457.7 |
) |
|
|
148.6 |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
636.8 |
|
|
|
304.0 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
179.1 |
|
|
$ |
452.6 |
|
8
|
|
|
Nine Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds |
|
$ |
178.1 |
|
|
$ |
108.8 |
|
|
Interest, net of amounts capitalized |
|
$ |
249.9 |
|
|
$ |
151.2 |
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
Nine Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
Deferred purchase price of trade receivables sold |
|
$ |
— |
|
|
$ |
333.1 |
|
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).
|
|
|
Nine Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|||||
|
Fair value of assets acquired, including goodwill |
|
$ |
5,943.9 |
|
|
$ |
230.2 |
|
|
Cash consideration for the purchase of businesses, net of cash acquired |
|
|
(3,369.2 |
) |
|
|
(190.4 |
) |
|
Stock issued for the purchase of a business |
|
|
(70.1 |
) |
|
|
— |
|
|
Fair value of share-based awards issued in the purchase of a business |
|
|
(70.8 |
) |
|
|
— |
|
|
Deferred payments and unpaid working capital |
|
|
16.6 |
|
|
|
(25.2 |
) |
|
Liabilities assumed |
|
$ |
2,450.4 |
|
|
$ |
14.6 |
|
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.
|
Note 1. |
Basis of Presentation and Significant Accounting Policies |
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.
10
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
11
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
12
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
13
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.
|
Note 2. |
Revenue Recognition |
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
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||
|
(In millions) |
|
As Reported |
|
|
Balances Without Adoption of ASC 606 |
|
|
Impact of Adoption Increase/(Decrease) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
4,690.0 |
|
|
$ |
4,690.1 |
|
|
$ |
(0.1 |
) |
|
Cost of goods sold |
|
$ |
3,701.1 |
|
|
$ |
3,702.1 |
|
|
$ |
(1.0 |
) |
|
Income tax expense |
|
$ |
(77.6 |
) |
|
$ |
(77.3 |
) |
|
$ |
(0.3 |
) |
|
Consolidated net income |
|
$ |
253.8 |
|
|
$ |
253.2 |
|
|
$ |
0.6 |
|
|
|
|
Nine Months Ended June 30, 2019 |
|
|||||||||
|
(In millions) |
|
As Reported |
|
|
Balances Without Adoption of ASC 606 |
|
|
Impact of Adoption Increase/(Decrease) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
13,637.4 |
|
|
$ |
13,640.2 |
|
|
$ |
(2.8 |
) |
|
Cost of goods sold |
|
$ |
10,967.1 |
|
|
$ |
10,972.2 |
|
|
$ |
(5.1 |
) |
|
Income tax expense |
|
$ |
(187.5 |
) |
|
$ |
(186.9 |
) |
|
$ |
(0.6 |
) |
|
Consolidated net income |
|
$ |
555.5 |
|
|
$ |
553.8 |
|
|
$ |
1.7 |
|
Condensed Consolidated Balance Sheet
|
|
|
June 30, 2019 |
|
|||||||||
|
(In millions) |
|
As Reported |
|
|
Balances Without Adoption of ASC 606 |
|
|
Impact of Adoption Increase/(Decrease) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
2,074.2 |
|
|
$ |
2,214.3 |
|
|
$ |
(140.1 |
) |
|
Other current assets |
|
$ |
515.7 |
|
|
$ |
321.8 |
|
|
$ |
193.9 |
|
|
Other current liabilities |
|
$ |
676.8 |
|
|
$ |
676.2 |
|
|
$ |
0.6 |
|
|
Retained earnings |
|
$ |
1,805.1 |
|
|
$ |
1,759.9 |
|
|
$ |
45.2 |
|
14
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Condensed Consolidated Statement of Cash Flows
|
|
|
Nine Months Ended June 30, 2019 |
|
|||||||||
|
(In millions) |
|
As Reported |
|
|
Balances Without Adoption of ASC 606 |
|
|
Impact of Adoption Increase/(Decrease) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
555.5 |
|
|
$ |
553.8 |
|
|
$ |
1.7 |
|
|
Other assets |
|
$ |
(171.7 |
) |
|
$ |
(174.5 |
) |
|
$ |
2.8 |
|
|
Inventories |
|
$ |
(39.5 |
) |
|
$ |
(34.4 |
) |
|
$ |
(5.1 |
) |
|
Income taxes |
|
$ |
(29.5 |
) |
|
$ |
(30.1 |
) |
|
$ |
0.6 |
|
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).
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||||||||||
|
(In millions) |
|
Corrugated Packaging |
|
|
Consumer Packaging |
|
|
Land and Development |
|
|
Intersegment Sales |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
2,954.6 |
|
|
$ |
1,306.0 |
|
|
$ |
8.6 |
|
|
$ |
(41.3 |
) |
|
$ |
4,227.9 |
|
|
South America |
|
|
102.8 |
|
|
|
14.8 |
|
|
|
— |
|
|
|
— |
|
|
|
117.6 |
|
|
Europe |
|
|
0.7 |
|
|
|
259.3 |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
259.9 |
|
|
Asia Pacific |
|
|
14.7 |
|
|
|
70.0 |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
84.6 |
|
|
Total (1) |
|
$ |
3,072.8 |
|
|
$ |
1,650.1 |
|
|
$ |
8.6 |
|
|
$ |
(41.5 |
) |
|
$ |
4,690.0 |
|
|
(1) |
Net sales are attributed to geographical markets based on the location of the seller. |
|
|
|
Nine Months Ended June 30, 2019 |
|
|||||||||||||||||
|
(In millions) |
|
Corrugated Packaging |
|
|
Consumer Packaging |
|
|
Land and Development |
|
|
Intersegment Sales |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
8,426.3 |
|
|
$ |
3,870.7 |
|
|
$ |
23.3 |
|
|
$ |
(119.0 |
) |
|
$ |
12,201.3 |
|
|
South America |
|
|
321.2 |
|
|
|
52.2 |
|
|
|
— |
|
|
|
— |
|
|
|
373.4 |
|
|
Europe |
|
|
0.7 |
|
|
|
789.4 |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
790.0 |
|
|
Asia Pacific |
|
|
49.1 |
|
|
|
224.9 |
|
|
|
— |
|
|
|
(1.3 |
) |
|
|
272.7 |
|
|
Total (1) |
|
$ |
8,797.3 |
|
|
$ |
4,937.2 |
|
|
$ |
23.3 |
|
|
$ |
(120.4 |
) |
|
$ |
13,637.4 |
|
|
(1) |
Net sales are attributed to geographical markets based on the location of the seller. |
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.
15
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
(In millions) |
|
Contract Assets (Short-Term) |
|
|
Contract Liabilities (Short-Term) |
|
||
|
|
|
|
|
|
|
|
|
|
|
Beginning balance - October 1, 2018 |
|
$ |
183.7 |
|
|
$ |
7.9 |
|
|
Impact of acquisition |
|
|
13.0 |
|
|
|
— |
|
|
Ending balance - June 30, 2019 |
|
|
193.9 |
|
|
|
11.4 |
|
|
(Decrease) / increase |
|
$ |
(2.8 |
) |
|
$ |
3.5 |
|
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.
|
Note 3. |
Acquisitions |
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
16
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):
|
|
|
Amounts Recognized as of the Acquisition Date |
|
|
Measurement Period Adjustments (1) |
|
|
Amounts Recognized as of Acquisition Date (as Adjusted) (2) |
|
|||
|
Cash and cash equivalents |
|
$ |
8.6 |
|
|
$ |
— |
|
|
$ |
8.6 |
|
|
Current assets, excluding cash and cash equivalents |
|
|
878.9 |
|
|
|
(22.4 |
) |
|
|
856.5 |
|
|
Property, plant and equipment, net |
|
|
1,910.3 |
|
|
|
11.7 |
|
|
|
1,922.0 |
|
|
Goodwill |
|
|
1,755.0 |
|
|
|
(14.9 |
) |
|
|
1,740.1 |
|
|
Intangible assets |
|
|
1,336.1 |
|
|
|
30.3 |
|
|
|
1,366.4 |
|
|
Other long-term assets |
|
|
27.9 |
|
|
|
(0.6 |
) |
|
|
27.3 |
|
|
Total assets acquired |
|
|
5,916.8 |
|
|
|
4.1 |
|
|
|
5,920.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
|
33.3 |
|
|
|
— |
|
|
|
33.3 |
|
|
Current liabilities |
|
|
337.5 |
|
|
|
1.1 |
|
|
|
338.6 |
|
|
Long-term debt due after one year |
|
|
1,333.4 |
|
|
|
— |
|
|
|
1,333.4 |
|
|
Accrued pension and other long-term benefits |
|
|
9.8 |
|
|
|
1.5 |
|
|
|
11.3 |
|
|
Deferred income taxes |
|
|
609.7 |
|
|
|
(1.3 |
) |
|
|
608.4 |
|
|
Other long-term liabilities |
|
|
118.4 |
|
|
|
2.8 |
|
|
|
121.2 |
|
|
Total liabilities assumed |
|
|
2,442.1 |
|
|
|
4.1 |
|
|
|
2,446.2 |
|
|
Net assets acquired |
|
$ |
3,474.7 |
|
|
$ |
— |
|
|
$ |
3,474.7 |
|
17
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
(1) |
The measurement period adjustments recorded in fiscal 2019 did not have a significant impact on our condensed consolidated statements of income for the three and nine months ended June 30, 2019. |
|
(2) |
The measurement period adjustments were primarily due to refinements to third party appraisals and carrying amounts of certain assets and liabilities, as well as adjustments to certain tax accounts based on, among other things, adjustments to deferred tax liabilities. The net impact of the measurement period adjustments resulted in a net decrease to goodwill. |
We are in the process of analyzing the estimated values of all assets acquired and liabilities assumed including, among other things, finalizing third-party valuations of certain tangible and intangible assets, as well as the fair value of certain contracts and the determination of certain tax balances; therefore, the allocation of the purchase price is preliminary and subject to material revision.
The fair value assigned to goodwill is primarily attributable to buyer-specific synergies expected to arise after the acquisition (e.g., enhanced geographic reach of the combined organization, increased vertical integration and other synergistic opportunities) and the assembled work force of KapStone, as well as from establishing deferred tax liabilities for the assets and liabilities acquired. The goodwill and intangible assets resulting from the acquisition will not be amortizable for tax purposes.
The following table summarizes the weighted average life and the fair value of intangible assets recognized in the KapStone Acquisition, excluding goodwill (in millions):
|
|
|
Weighted Avg. Life |
|
|
Gross Carrying Amount |
|
||
|
Customer relationships |
|
|
11.7 |
|
|
$ |
1,303.0 |
|
|
Trademarks and tradenames |
|
|
16.9 |
|
|
|
54.2 |
|
|
Favorable contracts |
|
|
6.0 |
|
|
|
9.2 |
|
|
Total |
|
|
11.9 |
|
|
$ |
1,366.4 |
|
None of the intangible assets have significant residual value. The intangible assets are expected to be amortized over estimated useful lives ranging from one to 20 years based on the approximate pattern in which the economic benefits are consumed or straight-line if the pattern was not reliably determinable.
|
Note 4. |
Restructuring and Other Costs |
Summary of Restructuring and Other Initiatives
We recorded pre-tax restructuring and other costs of $17.9 million and $107.1 million for the three and nine months ended June 30, 2019, respectively, and $17.1 million and $65.1 million for the three and nine months ended June 30, 2018, respectively. These amounts are not comparable since the timing and scope of the individual actions associated with a given restructuring, acquisition, divestiture or integration 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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Restructuring |
|
$ |
6.4 |
|
|
$ |
6.9 |
|
|
$ |
56.4 |
|
|
$ |
32.5 |
|
|
Other |
|
|
11.5 |
|
|
|
10.2 |
|
|
|
50.7 |
|
|
|
32.6 |
|
|
Restructuring and other costs |
|
$ |
17.9 |
|
|
$ |
17.1 |
|
|
$ |
107.1 |
|
|
$ |
65.1 |
|
Restructuring
Our restructuring charges are primarily associated with plant closures and employee costs due to merger and acquisition-related workforce reductions. When we close a facility, if necessary, we recognize a write-down to reduce the carrying value of equipment or other property to their estimated fair value less cost to sell and record charges for severance and other employee-related costs. Any subsequent change in fair value less cost to sell prior to disposition is recognized as it is identified; however, no gain is recognized in excess of the cumulative loss
18
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
previously recorded unless the actual selling price exceeds the original carrying value. At the time of each announced closure, we generally expect to record future period costs for equipment relocation, facility carrying costs, costs to terminate a lease or contract before the end of its term and employee-related costs.
Although specific circumstances vary, our strategy has generally been to consolidate our sales and operations into large well-equipped plants that operate at high utilization rates and take advantage of available capacity created by operational excellence initiatives and/or further optimize our system following mergers and acquisitions or a changing business environment. Therefore, we have transferred a substantial portion of each closed plant’s assets and production to our other plants. We believe these actions have allowed us to more effectively manage our business.
19
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
While restructuring costs are not charged to our segments and, therefore, do not reduce segment income, we highlight the segment to which the charges relate. The following table presents a summary of restructuring charges related to active restructuring initiatives that we incurred during the three and nine months ended June 30, 2019 and 2018, the cumulative recorded amount since we started the initiatives and our estimate of the total costs we expect to incur (in millions):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
Cumulative |
|
|
Total Expected |
|
||||||
|
Corrugated Packaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
|
$ |
(1.9 |
) |
|
$ |
0.4 |
|
|
$ |
5.2 |
|
|
$ |
1.3 |
|
|
$ |
203.3 |
|
|
$ |
203.3 |
|
|
Severance and other employee costs |
|
|
1.6 |
|
|
|
(0.2 |
) |
|
|
12.3 |
|
|
|
2.2 |
|
|
|
54.7 |
|
|
|
54.9 |
|
|
Equipment and inventory relocation costs |
|
|
1.6 |
|
|
|
0.3 |
|
|
|
3.0 |
|
|
|
3.4 |
|
|
|
10.7 |
|
|
|
12.2 |
|
|
Facility carrying costs |
|
|
0.6 |
|
|
|
0.8 |
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
31.4 |
|
|
|
32.6 |
|
|
Other costs |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
13.4 |
|
|
|
16.3 |
|
|
Restructuring total |
|
$ |
1.8 |
|
|
$ |
1.4 |
|
|
$ |
23.3 |
|
|
$ |
9.4 |
|
|
$ |
313.5 |
|
|
$ |
319.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
|
$ |
0.2 |
|
|
$ |
1.8 |
|
|
$ |
— |
|
|
$ |
6.2 |
|
|
$ |
38.1 |
|
|
$ |
38.1 |
|
|
Severance and other employee costs |
|
|
1.2 |
|
|
|
1.7 |
|
|
|
4.0 |
|
|
|
5.1 |
|
|
|
39.2 |
|
|
|
39.2 |
|
|
Equipment and inventory relocation costs |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
1.8 |
|
|
|
6.2 |
|
|
|
6.2 |
|
|
Facility carrying costs |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.7 |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
Other costs |
|
|
0.3 |
|
|
|
0.7 |
|
|
|
3.5 |
|
|
|
2.8 |
|
|
|
25.6 |
|
|
|
25.9 |
|
|
Restructuring total |
|
$ |
2.1 |
|
|
$ |
4.6 |
|
|
$ |
8.6 |
|
|
$ |
16.6 |
|
|
$ |
111.3 |
|
|
$ |
111.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1.8 |
|
|
$ |
1.8 |
|
|
Severance and other employee costs |
|
|
— |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
13.8 |
|
|
|
13.8 |
|
|
Other costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.0 |
|
|
|
3.0 |
|
|
Restructuring total |
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.7 |
|
|
$ |
18.6 |
|
|
$ |
18.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1.4 |
|
|
$ |
1.4 |
|
|
Severance and other employee costs |
|
|
2.4 |
|
|
|
0.9 |
|
|
|
22.2 |
|
|
|
1.0 |
|
|
|
122.9 |
|
|
|
122.9 |
|
|
Other costs |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
2.2 |
|
|
|
4.8 |
|
|
|
17.7 |
|
|
|
17.7 |
|
|
Restructuring total |
|
$ |
2.5 |
|
|
$ |
0.8 |
|
|
$ |
24.4 |
|
|
$ |
5.8 |
|
|
$ |
142.0 |
|
|
$ |
142.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment costs |
|
$ |
(1.7 |
) |
|
$ |
2.2 |
|
|
$ |
5.2 |
|
|
$ |
7.5 |
|
|
$ |
244.6 |
|
|
$ |
244.6 |
|
|
Severance and other employee costs |
|
|
5.2 |
|
|
|
2.5 |
|
|
|
38.6 |
|
|
|
9.0 |
|
|
|
230.6 |
|
|
|
230.8 |
|
|
Equipment and inventory relocation costs |
|
|
1.8 |
|
|
|
0.6 |
|
|
|
3.9 |
|
|
|
5.2 |
|
|
|
16.9 |
|
|
|
18.4 |
|
|
Facility carrying costs |
|
|
0.8 |
|
|
|
0.9 |
|
|
|
2.8 |
|
|
|
3.3 |
|
|
|
33.6 |
|
|
|
34.8 |
|
|
Other costs |
|
|
0.3 |
|
|
|
0.7 |
|
|
|
5.9 |
|
|
|
7.5 |
|
|
|
59.7 |
|
|
|
62.9 |
|
|
Restructuring total |
|
$ |
6.4 |
|
|
$ |
6.9 |
|
|
$ |
56.4 |
|
|
$ |
32.5 |
|
|
$ |
585.4 |
|
|
$ |
591.5 |
|
20
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
We have defined “Net property, plant and equipment costs” as used in this Note 4 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 and related parts and supplies on such assets, if any.
Other Costs
Our other costs consist of acquisition, divestiture and integration 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 and other professional or consulting fees, as well as potential litigation costs associated with those activities. We incur integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as work associated with information systems and other projects including spending to support future acquisitions, and primarily consist of professional services and labor. Divestiture costs consist primarily of similar professional fees. We consider acquisition, divestiture and integration costs to be Corporate costs regardless of the segment or segments involved in the transaction.
The following table presents our acquisition, divestiture and integration costs (in millions):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Acquisition costs |
|
$ |
0.9 |
|
|
$ |
3.4 |
|
|
$ |
27.9 |
|
|
$ |
11.0 |
|
|
Divestiture costs |
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
Integration costs |
|
|
10.6 |
|
|
|
6.8 |
|
|
|
22.6 |
|
|
|
21.4 |
|
|
Other total |
|
$ |
11.5 |
|
|
$ |
10.2 |
|
|
$ |
50.7 |
|
|
$ |
32.6 |
|
The following table summarizes the changes in the restructuring accrual, which is primarily composed of lease commitments, accrued severance and other employee costs, and presents a reconciliation of the restructuring accrual charges to the line item “Restructuring and other costs” on our Condensed Consolidated Statements of Income (in millions):
|
|
|
Nine Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Accrual at beginning of fiscal year |
|
$ |
31.6 |
|
|
$ |
47.4 |
|
|
Additional accruals |
|
|
37.5 |
|
|
|
11.2 |
|
|
Payments |
|
|
(32.9 |
) |
|
|
(24.3 |
) |
|
Adjustment to accruals |
|
|
(3.1 |
) |
|
|
0.3 |
|
|
Foreign currency rate changes |
|
|
0.1 |
|
|
|
(1.3 |
) |
|
Accrual at June 30 |
|
$ |
33.2 |
|
|
$ |
33.3 |
|
21
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Reconciliation of accruals and charges to restructuring and other costs (in millions):
|
|
|
Nine Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Additional accruals and adjustments to accruals (see table above) |
|
$ |
34.4 |
|
|
$ |
11.5 |
|
|
Acquisition costs |
|
|
27.9 |
|
|
|
11.0 |
|
|
Integration costs |
|
|
22.6 |
|
|
|
21.4 |
|
|
Divestiture costs |
|
|
0.2 |
|
|
|
0.2 |
|
|
Net property, plant and equipment |
|
|
5.2 |
|
|
|
7.5 |
|
|
Severance and other employee costs |
|
|
6.9 |
|
|
|
1.4 |
|
|
Equipment and inventory relocation costs |
|
|
3.9 |
|
|
|
5.2 |
|
|
Facility carrying costs |
|
|
2.8 |
|
|
|
3.3 |
|
|
Other costs |
|
|
3.2 |
|
|
|
3.6 |
|
|
Total restructuring and other costs |
|
$ |
107.1 |
|
|
$ |
65.1 |
|
|
Note 5. |
Retirement Plans |
We have defined benefit pension plans and other postretirement benefit plans for certain U.S. and non-U.S. employees. Certain plans have been frozen for salaried and non-union hourly employees at various times in the past, although some employees meeting certain criteria are still accruing benefits. 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. 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 4. Retirement Plans” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for more information regarding our involvement with retirement plans.
In connection with the KapStone Acquisition, the KapStone Paper and Packaging Corporation Defined Benefit Retirement Plan assigned the role of plan sponsor to WestRock. On December 31, 2018, WestRock merged the KapStone Paper and Packaging Corporation Defined Benefit Retirement Plan into the WestRock Company Consolidated Pension Plan. Upon the merger, the terms and provisions of the legacy KapStone plan were incorporated into the WestRock Company Consolidated Pension Plan.
MEPPs
In the normal course of business, we evaluate our potential exposure to MEPPs, including with respect to potential withdrawal liabilities. During the three months ended December 31, 2017, we submitted formal notification to withdraw from the Pace Industry Union-Management Pension Fund (“PIUMPF”) and recorded an estimated withdrawal liability of $180.0 million at that time. The estimated withdrawal liability assumed payments over 20 years, discounted at a credit adjusted risk-free rate. We expect that PIUMPF’s demand related to the withdrawal will include both a payment for withdrawal liability and for our proportionate share of PIUMPF’s accumulated funding deficiency. We reserve the right to challenge any portion of the demand, including any portion related to the accumulated funding deficiency. The estimated withdrawal liability noted above excludes the potential impact of a future mass withdrawal of other employers from PIUMPF, which is not considered probable or reasonably estimable at this time. Due to the absence of specific information regarding matters such as PIUMPF’s current financial situation, our estimate is subject to revision. In addition, in the third quarter of fiscal 2018, we submitted formal notification to withdraw from the Central States, Southeast and Southwest Areas Pension Plan and recorded an estimated withdrawal liability of $4.2 million on a discounted basis. In the third quarter of fiscal 2019, in a separate matter, we recorded a $1.7 million reduction to a previously recorded MEPP withdrawal liability. It is reasonably possible that we may incur withdrawal liabilities with respect to certain other MEPPs in connection with such withdrawals. Our estimate of any such withdrawal liability, both individually and in the aggregate, is not material for the remaining plans in which we participate. At June 30, 2019 and September 30, 2018, we had withdrawal liabilities recorded of $240.5 million and $247.8 million, respectively.
22
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
See “Note 4. Retirement Plans — Multiemployer Plans” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for more information regarding our involvement with MEPPs.
The following table presents a summary of the components of net pension (income) cost (in millions):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Service cost |
|
$ |
10.2 |
|
|
$ |
9.4 |
|
|
$ |
32.5 |
|
|
$ |
33.5 |
|
|
Interest cost |
|
|
58.8 |
|
|
|
51.5 |
|
|
|
174.0 |
|
|
|
153.7 |
|
|
Expected return on plan assets |
|
|
(85.9 |
) |
|
|
(82.1 |
) |
|
|
(254.7 |
) |
|
|
(246.7 |
) |
|
Amortization of net actuarial loss |
|
|
6.3 |
|
|
|
6.7 |
|
|
|
18.7 |
|
|
|
15.9 |
|
|
Amortization of prior service cost |
|
|
1.3 |
|
|
|
1.3 |
|
|
|
3.9 |
|
|
|
3.5 |
|
|
Curtailment loss |
|
|
0.1 |
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
|
Company defined benefit plan income |
|
|
(9.2 |
) |
|
|
(13.2 |
) |
|
|
(24.6 |
) |
|
|
(40.1 |
) |
|
Multiemployer pension withdrawals |
|
|
(1.7 |
) |
|
|
4.2 |
|
|
|
(1.7 |
) |
|
|
184.2 |
|
|
Multiemployer and other plans |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
1.3 |
|
|
Net pension (income) cost |
|
$ |
(10.7 |
) |
|
$ |
(8.8 |
) |
|
$ |
(25.8 |
) |
|
$ |
145.4 |
|
The Condensed Consolidated Statements of Income line item “Pension and other postretirement non-service income” is equal to the non-service elements of our “Company defined benefit plan income” and our “Net postretirement cost” set forth in this Note 5. Retirement Plans.
During the three and nine months ended June 30, 2019, we made contributions to our qualified and supplemental defined benefit pension plans of $6.6 million and $16.1 million, respectively, and for the three and nine months ended June 30, 2018, we made contributions of $10.8 million and $31.5 million, respectively.
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Service cost |
|
$ |
0.2 |
|
|
$ |
0.4 |
|
|
$ |
0.8 |
|
|
$ |
1.2 |
|
|
Interest cost |
|
|
1.9 |
|
|
|
2.1 |
|
|
|
5.8 |
|
|
|
6.1 |
|
|
Amortization of net actuarial (gain) loss |
|
|
(0.7 |
) |
|
|
0.3 |
|
|
|
(1.5 |
) |
|
|
0.2 |
|
|
Amortization of prior service credit |
|
|
(0.7 |
) |
|
|
(1.1 |
) |
|
|
(2.1 |
) |
|
|
(3.2 |
) |
|
Net postretirement cost |
|
$ |
0.7 |
|
|
$ |
1.7 |
|
|
$ |
3.0 |
|
|
$ |
4.3 |
|
During the three and nine months ended June 30, 2019, we funded an aggregate of $2.2 million and $6.6 million, respectively, and for the three and nine months ended June 30, 2018, we funded an aggregate of $2.3 million and $7.1 million, respectively, to our other postretirement benefit plans.
|
Note 6. |
Income Taxes |
The effective tax rate for the three and nine months ended June 30, 2019 was an expense of 23.4% and 25.2%, respectively. The effective tax rate for the three months ended June 30, 2019 was higher than the statutory federal rate primarily due to (i) the inclusion of state taxes, (ii) income derived from certain foreign jurisdictions subject to higher tax rates, (iii) the exclusion of tax benefits related to losses recorded by certain foreign operations, partially offset by (iv) the inclusion of tax benefits related to state tax law changes and (v) research and development tax credits. The effective tax rate for the nine months ended June 30, 2019 was higher than the statutory federal rate primarily due to (i) the inclusion of state taxes, (ii) income derived from certain foreign jurisdictions subject to higher tax rates, (iii) the exclusion of tax benefits related to losses recorded by certain foreign operations, (iv) the limitation
23
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
of certain transaction costs and (v) the increase of deferred tax liabilities in certain state jurisdictions, partially offset by (vi) the inclusion of tax benefits related to share-based compensation and state tax law changes, (vii) research and development tax credits and (viii) an adjustment of the valuation allowance against net operating losses of foreign subsidiaries.
The effective tax rate for the three and nine months ended June 30, 2018 was an expense of 23.7% and a benefit of 147.1%, respectively. The effective tax rate for the three months ended June 30, 2018 was lower than the statutory federal rate primarily due to (i) favorable tax items, such as the domestic production deduction, the tax benefit of share-based compensation and cash tax planning that resulted in reduced deferred tax liabilities (ii) the true up of certain deferred taxes and foreign tax returns, partially offset by (iii) the inclusion of state taxes, (iv) the provisional amounts related to the enactment of the Tax Act (discussed below) and (v) the exclusion of tax benefits related to losses recorded by certain foreign operations. The effective tax rate for the nine months ended June 30, 2018 was lower than the statutory federal rate primarily due to (i) the provisional amounts related to the enactment of the Tax Act (discussed below), (ii) favorable tax items, such as the domestic production deduction, the tax benefit of share-based compensation and cash tax planning that resulted in reduced deferred tax liabilities (iii) the true up of certain deferred taxes and foreign tax returns, partially offset by (iv) the inclusion of state taxes and (v) the exclusion of tax benefits related to losses recorded by certain foreign operations.
Impacts of the Tax Act
On December 22, 2017, the Tax Act was signed into law. The Tax Act contains significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing for certain business assets, (iii) the one-time transition tax related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) the repeal of the domestic production deduction, (v) additional limitations on the deductibility of interest expense and (vi) expanded limitations on executive compensation.
In order to calculate the effects of the new corporate tax rate on our deferred tax balances, ASC 740 “Income Taxes” required the remeasurement of our deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances were expected to reverse in the future. The provisional amounts determined, and recorded, for the remeasurement of our deferred tax balances resulted in a net reduction in deferred liabilities of $1,174.0 million in the three months ended December 31, 2017. During the three months ended March 31, 2018 and June 30, 2018, we recorded a tax benefit of $31.5 million and a tax expense of $4.1 million, respectively, for additional remeasurement of deferred tax liabilities.
In December 2017, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance to registrants on the accounting for income taxes related to the Tax Act. SAB 118 provided for a one-year measurement period to complete the accounting for the tax effects of the Tax Act, which ended on December 22, 2018. As such, we recorded provisional amounts related to the deemed repatriation tax and remeasurement of deferred tax assets and liabilities during fiscal 2018. During the first quarter of fiscal 2019, we completed the accounting for the income tax effect related to the Tax Act. We made the following adjustments to the provisional amounts: (i) a $0.4 million tax expense from the true up and revaluation of deferred tax assets and liabilities to reflect the new tax rate and (ii) an additional $3.7 million tax expense, as a result of the refinement to the transition tax provisional liability. We have reclassified the transition tax liability for financial statement purposes to a reserve for uncertain tax position due to uncertainty in the realizability of certain foreign earnings and profits deficits. See “Note 5. Income Taxes” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for additional information regarding the Tax Act.
24
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table sets forth the changes in the reserve for uncertain tax positions during the nine months ended June 30, 2019 (in millions):
|
Balance at beginning of fiscal year |
|
$ |
127.1 |
|
|
Additions related to purchase accounting (1) |
|
|
1.0 |
|
|
Additions for tax positions taken in current year (2) |
|
|
103.8 |
|
|
Additions for tax positions taken in prior fiscal years |
|
|
1.0 |
|
|
Additions for currency translation adjustments |
|
|
1.4 |
|
|
Reductions as a result of a lapse of the applicable statute of limitations |
|
|
(3.0 |
) |
|
Balance at June 30, 2019 |
|
$ |
231.3 |
|
|
(1) |
Adjustment in fiscal 2019 relates to the KapStone Acquisition. |
|
(2) |
Additions for tax positions taken in current fiscal year include primarily positions taken related to foreign subsidiaries. |
Resolution of the uncertain tax positions could have a material adverse effect on our cash flows or materially benefit our results of operations in future periods depending upon their ultimate resolution.
Beginning in fiscal 2019, the Tax Act imposed a provision for the Global Intangible Low-taxed Income (“GILTI”) that imposes a tax on certain foreign subsidiaries’ earnings. We have elected to treat GILTI taxes as a current period expense, if and when incurred.
|
Note 7. |
Segment Information |
We report our financial results of operations in the following three reportable segments: Corrugated Packaging, which consists of our containerboard mill, corrugated packaging and distribution operations, as well as our merchandising displays and recycling procurement operations; Consumer Packaging, which consists of our consumer mills, food and beverage and partition operations; and Land and Development, which sells real estate primarily in the Charleston, SC region. Effective in the first quarter of fiscal 2019, we aligned our financial results for all periods presented 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 to our reportable segments. Separately, in the first quarter of fiscal 2019, we began conducting our recycling operations primarily as a procurement function. Since then, recycling net sales have not been recorded and the margin from the operations has reduced cost of goods sold. Certain income and expenses are not allocated to our segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect these amounts. Items not allocated are reported as non-allocated expenses or in other line items in the table below after segment income.
25
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table shows selected operating data for our segments (in millions):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Net sales (aggregate): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
|
$ |
3,072.8 |
|
|
$ |
2,444.6 |
|
|
$ |
8,797.3 |
|
|
$ |
7,155.6 |
|
|
Consumer Packaging |
|
|
1,650.1 |
|
|
|
1,669.6 |
|
|
|
4,937.2 |
|
|
|
4,908.2 |
|
|
Land and Development |
|
|
8.6 |
|
|
|
64.8 |
|
|
|
23.3 |
|
|
|
102.9 |
|
|
Total |
|
$ |
4,731.5 |
|
|
$ |
4,179.0 |
|
|
$ |
13,757.8 |
|
|
$ |
12,166.7 |
|
|
Less net sales (intersegment): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
|
$ |
19.7 |
|
|
$ |
21.6 |
|
|
$ |
57.1 |
|
|
$ |
63.0 |
|
|
Consumer Packaging |
|
|
21.8 |
|
|
|
19.9 |
|
|
|
63.3 |
|
|
|
55.2 |
|
|
Total |
|
$ |
41.5 |
|
|
$ |
41.5 |
|
|
$ |
120.4 |
|
|
$ |
118.2 |
|
|
Net sales (unaffiliated customers): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
|
$ |
3,053.1 |
|
|
$ |
2,423.0 |
|
|
$ |
8,740.2 |
|
|
$ |
7,092.6 |
|
|
Consumer Packaging |
|
|
1,628.3 |
|
|
|
1,649.7 |
|
|
|
4,873.9 |
|
|
|
4,853.0 |
|
|
Land and Development |
|
|
8.6 |
|
|
|
64.8 |
|
|
|
23.3 |
|
|
|
102.9 |
|
|
Total |
|
$ |
4,690.0 |
|
|
$ |
4,137.5 |
|
|
$ |
13,637.4 |
|
|
$ |
12,048.5 |
|
|
Segment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
|
$ |
392.7 |
|
|
$ |
321.9 |
|
|
$ |
949.8 |
|
|
$ |
854.6 |
|
|
Consumer Packaging |
|
|
91.0 |
|
|
|
126.1 |
|
|
|
253.1 |
|
|
|
314.9 |
|
|
Land and Development |
|
|
1.6 |
|
|
|
9.9 |
|
|
|
2.8 |
|
|
|
25.3 |
|
|
Segment income |
|
|
485.3 |
|
|
|
457.9 |
|
|
|
1,205.7 |
|
|
|
1,194.8 |
|
|
(Loss) gain on sale of certain closed facilities |
|
|
(2.7 |
) |
|
|
— |
|
|
|
47.8 |
|
|
|
— |
|
|
Multiemployer pension withdrawals |
|
|
1.7 |
|
|
|
(4.2 |
) |
|
|
1.7 |
|
|
|
(184.2 |
) |
|
Land and Development impairments |
|
|
— |
|
|
|
(1.7 |
) |
|
|
(13.0 |
) |
|
|
(29.3 |
) |
|
Restructuring and other costs |
|
|
(17.9 |
) |
|
|
(17.1 |
) |
|
|
(107.1 |
) |
|
|
(65.1 |
) |
|
Non-allocated expenses |
|
|
(24.4 |
) |
|
|
(13.0 |
) |
|
|
(67.8 |
) |
|
|
(50.3 |
) |
|
Interest expense, net |
|
|
(111.1 |
) |
|
|
(76.7 |
) |
|
|
(317.3 |
) |
|
|
(219.8 |
) |
|
(Loss) gain on extinguishment of debt |
|
|
(3.2 |
) |
|
|
0.9 |
|
|
|
(4.7 |
) |
|
|
— |
|
|
Other income (expense), net |
|
|
3.7 |
|
|
|
9.7 |
|
|
|
(2.3 |
) |
|
|
13.3 |
|
|
Income before income taxes |
|
$ |
331.4 |
|
|
$ |
355.8 |
|
|
$ |
743.0 |
|
|
$ |
659.4 |
|
In October 2018, our containerboard and pulp mill located in Panama City, FL sustained extensive damage from Hurricane Michael. In the three and nine months ended June 30, 2019, we received $30.0 million and $110.0 million of insurance proceeds, respectively, in our Corrugated Packaging segment related primarily to the Panama City mill. The proceeds received were recorded in the condensed consolidated statements of income as a reduction to cost of goods sold.
26
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table shows selected data for our segments (in millions):
|
|
|
June 30, 2019 |
|
|
September 30, 2018 |
|
||
|
Intangibles, net: |
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
|
$ |
1,711.5 |
|
|
$ |
506.2 |
|
|
Consumer Packaging |
|
|
2,463.3 |
|
|
|
2,615.8 |
|
|
Total |
|
$ |
4,174.8 |
|
|
$ |
3,122.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets: |
|
|
|
|
|
|
|
|
|
Corrugated Packaging |
|
$ |
16,893.5 |
|
|
$ |
11,069.6 |
|
|
Consumer Packaging |
|
|
11,216.9 |
|
|
|
11,511.1 |
|
|
Land and Development |
|
|
27.4 |
|
|
|
49.1 |
|
|
Assets held for sale |
|
|
26.6 |
|
|
|
59.5 |
|
|
Corporate |
|
|
2,647.7 |
|
|
|
2,671.2 |
|
|
Total |
|
$ |
30,812.1 |
|
|
$ |
25,360.5 |
|
The changes in the carrying amount of goodwill during the nine months ended June 30, 2019 is as follows (in millions):
|
|
|
Corrugated Packaging |
|
|
Consumer Packaging |
|
|
Total |
|
|||
|
Balance as of September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
1,966.8 |
|
|
$ |
3,653.6 |
|
|
$ |
5,620.4 |
|
|
Accumulated impairment losses |
|
|
(0.1 |
) |
|
|
(42.7 |
) |
|
|
(42.8 |
) |
|
|
|
|
1,966.7 |
|
|
|
3,610.9 |
|
|
|
5,577.6 |
|
|
Goodwill acquired |
|
|
1,745.1 |
|
|
|
6.8 |
|
|
|
1,751.9 |
|
|
Purchase price allocation adjustments |
|
|
0.9 |
|
|
|
(2.0 |
) |
|
|
(1.1 |
) |
|
Translation and other adjustments |
|
|
(6.9 |
) |
|
|
0.4 |
|
|
|
(6.5 |
) |
|
Balance as of June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
3,705.9 |
|
|
|
3,658.8 |
|
|
|
7,364.7 |
|
|
Accumulated impairment losses |
|
|
(0.1 |
) |
|
|
(42.7 |
) |
|
|
(42.8 |
) |
|
|
|
$ |
3,705.8 |
|
|
$ |
3,616.1 |
|
|
$ |
7,321.9 |
|
We review the carrying value of our goodwill annually at the beginning of the fourth quarter of each fiscal year, or more often if events or changes in circumstances indicate that the carrying amount may exceed fair value. We determine recoverability by comparing the estimated fair value of the reporting unit to which the goodwill applies to the carrying value (including goodwill) of that reporting unit. We determine the fair value of each reporting unit using the discounted cash flow method or, as appropriate, a combination of the discounted cash flow method and the guideline public company method. See “Note 1. Description of Business and Summary of Significant Accounting Policies — Goodwill and Long-Lived Assets” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for more information regarding our accounting policy for goodwill.
During the third quarter of fiscal 2019, we tested our goodwill for potential impairment on an interim basis due to changing market conditions, including the impact on the trading price of our Common Stock. All reporting units that have goodwill were noted to have a fair value that exceeded their carrying values as of the interim impairment test date. The discount rate used for each reporting unit ranged from 8.5% to 14.0%. We used perpetual growth rates in the reporting units that have goodwill ranging from 0.0% to 1.0%. Our Consumer Packaging reporting unit had a fair value that exceeded its carrying value by less than 10%. Additionally, Victory Packaging, a new reporting unit acquired as part of the KapStone Acquisition, had a fair value that exceeded its carrying value by less than 10% primarily due its recent acquisition. If we had concluded that it was appropriate to increase the discount rate we used by 100 basis points to estimate the fair value of each reporting unit that has goodwill, the fair value of each
27
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
of our reporting units would have continued to exceed its carrying value, except for the Consumer Packaging reporting unit. The Consumer Packaging reporting unit had $3,616.1 million of goodwill at June 30, 2019. We will continue to monitor industry economic trends until the end of our fiscal year to determine if additional testing for goodwill impairment is warranted. We have not made any material changes to our impairment loss assessment methodology during the past three fiscal years. Currently, we do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use to calculate impairment losses. However, if actual results are not consistent with our assumptions and estimates, we may be exposed to impairment losses that could be material. See “We Have a Significant Amount of Goodwill and Other Intangible Assets and a Write-Down Would Adversely Impact Our Operating Results and Shareholders’ Equity” in the “Risk Factors” section of our Fiscal 2018 Form 10-K.
|
Note 8. |
Inventories |
We value substantially all of our U.S. inventories at the lower of cost or market, with cost determined on a last-in first-out (“LIFO”) basis. We value all other inventories at the lower of cost and net realizable value, with cost determined using methods that approximate cost computed on a first-in first-out (“FIFO”) basis. These other inventories represent primarily foreign inventories, distribution business inventories, spare parts inventories and certain inventoried supplies.
The components of inventories were as follows (in millions):
|
|
|
June 30, 2019 |
|
|
September 30, 2018 |
|
||
|
Finished goods and work in process |
|
$ |
930.4 |
|
|
$ |
867.0 |
|
|
Raw materials |
|
|
808.5 |
|
|
|
730.0 |
|
|
Spare parts and supplies |
|
|
485.7 |
|
|
|
368.2 |
|
|
Inventories at FIFO cost |
|
|
2,224.6 |
|
|
|
1,965.2 |
|
|
LIFO reserve |
|
|
(150.4 |
) |
|
|
(135.6 |
) |
|
Net inventories |
|
$ |
2,074.2 |
|
|
$ |
1,829.6 |
|
|
Note 9. |
Assets Held For Sale |
Due to our accelerated monetization strategy, our Land and Development portfolio has met the held for sale criteria and is classified as assets held for sale. Assets held for sale at June 30, 2019 and September 30, 2018 of $26.6 million and $59.5 million, respectively, include $16.0 million and $33.5 million, respectively, of Land and Development portfolio assets. The remainder is primarily related to closed facilities.
|
Note 10. |
Property, Plant and Equipment |
The components of property, plant and equipment were as follows (in millions):
|
|
|
June 30, 2019 |
|
|
September 30, 2018 |
|
||
|
Property, plant and equipment at cost: |
|
|
|
|
|
|
|
|
|
Land and buildings |
|
$ |
2,439.6 |
|
|
$ |
2,078.9 |
|
|
Machinery and equipment |
|
|
14,487.8 |
|
|
|
12,064.0 |
|
|
Forestlands and mineral rights |
|
|
152.9 |
|
|
|
158.0 |
|
|
Transportation equipment |
|
|
31.8 |
|
|
|
30.1 |
|
|
Leasehold improvements |
|
|
99.1 |
|
|
|
88.9 |
|
|
|
|
|
17,211.2 |
|
|
|
14,419.9 |
|
|
Less: accumulated depreciation, depletion and amortization |
|
|
(6,041.9 |
) |
|
|
(5,337.4 |
) |
|
Property, plant and equipment, net |
|
$ |
11,169.3 |
|
|
$ |
9,082.5 |
|
28
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
Note 11. |
Fair Value |
Assets and Liabilities Measured or Disclosed at Fair Value
We estimate fair values in accordance with ASC 820, “Fair Value Measurement”. See “Note 12. Fair Value” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for more information. We disclose the fair value of our long-term debt in “Note 12. Debt” of the Notes to Condensed Consolidated Financial Statements. We disclose the fair value of our pension and postretirement assets and liabilities in “Note 4. Retirement Plans” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K.
Financial Instruments Not Recognized at Fair Value
Financial instruments not recognized at fair value on a recurring or nonrecurring basis include cash and cash equivalents, accounts receivable, certain other current assets, short-term debt, accounts payable, certain other current liabilities and long-term debt. With the exception of long-term debt, the carrying amounts of these financial instruments approximate their fair values due to their short maturities.
Fair Value of Nonfinancial Assets and Nonfinancial Liabilities
We measure certain nonfinancial assets and nonfinancial liabilities at fair value on a nonrecurring basis. These assets and liabilities include cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During the three and nine months ended June 30, 2019 and 2018, we did not have any significant nonfinancial assets or nonfinancial liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition other than in the second quarter of fiscal 2019 when we recorded a $13.0 million pre-tax non-cash impairment of certain mineral rights, a $1.7 million pre-tax non-cash real estate impairment in the third quarter of fiscal 2018 and a $27.6 million pre-tax non-cash impairment of certain mineral rights and real estate in the first quarter of fiscal 2018. The $27.6 million included a $23.6 million impairment of mineral rights that was driven by the non-renewal of a lease and associated with declining oil and gas prices, and the other $4.0 million was recorded in connection with the write-down of the carrying value of real estate projects where the projected sales proceeds were less than the carrying value.
Accounts Receivable Sales Agreement
Until September 25, 2018, we had been a party to an accounts receivable sales agreement (the “Prior A/R Sales Agreement”), which had been amended periodically, to sell to a third party financial institution all of the short-term receivables generated from certain customer trade accounts, on a revolving basis, until the agreement was terminated by either party. On September 29, 2017, the Prior A/R Sales Agreement was amended to, among other things, increase the maximum outstanding balance of receivables available to be sold to $490.0 million. On September 25, 2018, we terminated the Prior A/R Sales Agreement and entered into an agreement for the purchasing and servicing of receivables (the “A/R Sales Agreement”) to sell to a third party financial institution all of the short-term receivables generated from certain customer trade accounts up to $550.0 million. The A/R Sales Agreement has a one year term and may be terminated early by either party. The terms of the A/R Sales Agreement limit the balance of receivables sold to the amount available to fund such receivables sold and eliminated the receivable for proceeds from the financial institution at any transfer date. Transfers under the A/R Sales Agreement meet the requirements to be accounted for as sales in accordance with guidance in ASC 860, “Transfers and Servicing”.
29
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table presents a summary of the activity under the A/R Sales Agreement and the Prior A/R Sales Agreement for the nine months ended June 30, 2019 and June 30, 2018 (in millions):
|
|
|
Nine Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Receivable from financial institution at beginning of fiscal year |
|
$ |
— |
|
|
$ |
24.9 |
|
|
Receivables sold to the financial institution and derecognized |
|
|
1,453.5 |
|
|
|
1,194.2 |
|
|
Receivables collected by financial institution |
|
|
(1,441.6 |
) |
|
|
(1,183.2 |
) |
|
Cash paid to (proceeds from) financial institution |
|
|
(11.9 |
) |
|
|
(24.0 |
) |
|
Receivable from financial institution at June 30 |
|
$ |
— |
|
|
$ |
11.9 |
|
The October 1, 2018 adoption of ASU 2016-15 resulted in a change in classification of proceeds received for beneficial interests obtained from transferring trade receivables in securitization transactions as cash provided by investing activities instead of cash provided by operating activities in the statement of cash flows. Although this aspect of the ASU does 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 the A/R Sales Agreement effective September 25, 2018, we have applied the provisions of this ASU retrospectively to prior years. As a result, cash provided by operating activities for the nine months ended June 30, 2018 decreased by $346.1 million with a corresponding increase to cash provided by investing activities. Based on current rates and levels of receivables sold, the expense recorded in connection with the sale is approximately $4 million per quarter and is recorded in “other (expense) income, net”. The future amount may fluctuate based on the level of activity and other factors. Although the sales are made without recourse, we maintain continuing involvement with the sold receivables as we provide collections services related to the transferred assets. The associated servicing liability is not material given the high quality of the customers underlying the receivables and the anticipated short collection period.
|
Note 12. |
Debt |
See “Note 13. Debt” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for additional information on our debt and interest rates on that debt.
The following table shows the carrying value of the individual components of our debt (in millions):
|
|
|
June 30, 2019 |
|
|
September 30, 2018 |
|
||
|
Public bonds due fiscal 2019 to 2022 |
|
$ |
509.1 |
|
|
$ |
1,470.9 |
|
|
Public bonds due fiscal 2023 to 2028 |
|
|
3,768.0 |
|
|
|
2,534.4 |
|
|
Public bonds due fiscal 2029 to 2033 |
|
|
2,200.6 |
|
|
|
964.1 |
|
|
Public bonds due fiscal 2037 to 2047 |
|
|
179.0 |
|
|
|
178.5 |
|
|
Term loan facilities |
|
|
2,506.9 |
|
|
|
599.4 |
|
|
Revolving credit and swing facilities |
|
|
405.3 |
|
|
|
355.0 |
|
|
Receivables-backed financing facility |
|
|
150.0 |
|
|
|
— |
|
|
Commercial paper |
|
|
445.6 |
|
|
|
— |
|
|
Capital lease obligations |
|
|
188.5 |
|
|
|
171.0 |
|
|
Supplier financing and commercial card programs |
|
|
126.8 |
|
|
|
105.1 |
|
|
International and other debt |
|
|
58.4 |
|
|
|
36.8 |
|
|
Total debt |
|
|
10,538.2 |
|
|
|
6,415.2 |
|
|
Less: current portion of debt |
|
|
779.1 |
|
|
|
740.7 |
|
|
Long-term debt due after one year |
|
$ |
9,759.1 |
|
|
$ |
5,674.5 |
|
30
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
A portion of the debt classified as long-term may be paid down earlier than scheduled at our discretion without penalty. Certain customary restrictive covenants govern the maximum availability under our credit facilities. We test and report our compliance with these covenants as required and were in compliance with all of our covenants at June 30, 2019.
The estimated fair value of our debt was approximately $11.0 billion as of June 30, 2019 and $6.4 billion at September 30, 2018. The fair value of our long-term debt is categorized as level 2 within the fair value hierarchy and is primarily either based on quoted prices for those or similar instruments or approximates the carrying amount as the variable interest rates reprice frequently at observable current market rates.
Notes Issued
On May 16, 2019, WRKCo issued $500.0 million aggregate principal amount of its 3.90% Senior Notes due 2028 (the “June 2028 Notes”) and $500.0 million aggregate principal amount of its 4.20% Senior Notes due 2032 (the “2032 Notes” and, together with the June 2028 Notes, the “May 2019 Notes”) in a registered offering pursuant to the Company’s automatic shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, (the “Securities Act”), at a discount of approximately $0.1 million and $0.2 million, respectively. In connection with issuing the May 2019 Notes, we recorded debt issuance costs of $4.1 million and $4.1 million, respectively, which are being amortized over the respective terms of the May 2019 Notes. Giving effect to the amortization of the original issue discount and the debt issuance costs, the effective interest rates of the May 9, 2019 Notes were 4.01% and 4.29%, respectively, at June 30, 2019. The Company, WestRock MWV, LLC (“MWV”) and WestRock RKT, LLC (“RKT” and, together with MWV, the “Subsidiary Guarantors”) have guaranteed WRKCo’s obligations under the May 2019 Notes. We may redeem the May 2019 Notes, in whole or in part, at any time at specified redemption prices, plus accrued and unpaid interest, if any. The proceeds from the issuance of the May 2019 Notes were used primarily to repay $600.0 million principal amount of outstanding notes coming due in the next several quarters and reduce outstanding indebtedness under our 3-year delayed draw term loan.
On December 3, 2018, WRKCo issued $750.0 million aggregate principal amount of its 4.65% Senior Notes due 2026 (the “2026 Notes”) and $750.0 million aggregate principal amount of its 4.90% Senior Notes due 2029 (the “2029 Notes” and, together with the 2026 Notes, the “December 2018 Notes”) in an unregistered offering pursuant to Rule 144A and Regulation S under the Securities Act, at a discount of approximately $1.1 million and $0.4 million, respectively. In connection with issuing the December 2018 Notes, we recorded debt issuance costs of $6.0 million and $6.1 million, respectively, which are being amortized over the respective terms of the December 2018 Notes. Giving effect to the amortization of the original issue discount and the debt issuance costs, the effective interest rates of the December 2018 Notes were 4.80% and 5.01%, respectively, at June 30, 2019. The Company and the Subsidiary Guarantors have guaranteed WRKCo’s obligations under the December 2018 Notes. We may redeem the 2026 Notes and the 2029 Notes, in whole or in part, at any time at specified redemption prices, plus accrued and unpaid interest, if any. The proceeds from the issuance of the December 2018 Notes were used primarily to prepay a portion of the amounts outstanding under our Delayed Draw Credit Facilities (as hereinafter defined).
Exchanged Notes
During the quarter ended March 31, 2019, we conducted offers to exchange WRKCo’s $500.0 million aggregate principal amount of 3.00% Senior Notes due 2024 (the “2024 Notes”), $600.0 million aggregate principal amount of 3.75% Senior Notes due 2025 (the “2025 Notes”), 2026 Notes, $500.0 million aggregate principal amount of 3.375% Senior Notes due 2027 (the “2027 Notes”), $600.0 million aggregate principal amount of 4.00% Senior Notes due 2028 (the “2028 Notes”) and 2029 Notes for new notes of the applicable series with terms substantially identical with the notes of such series that are registered under the Securities Act. As a result of the exchange offer, $490.0 million in aggregate principal amount of the 2024 Notes, $600.0 million in aggregate principal amount of the 2025 Notes, $749.3 million in aggregate principal amount of the 2026 Notes, $491.0 million in aggregate principal amount of the 2027 Notes, $590.0 million in aggregate principal amount of the 2028 Notes and $750.0 million in aggregate principal amount of the 2029 Notes were validly tendered and subsequently exchanged.
31
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Delayed Draw Credit Facilities
On March 7, 2018, we entered into a credit agreement that provided for $3.8 billion of senior unsecured term loans, consisting of a 364-day $300.0 million term loan, a 3-year $1.75 billion term loan and a 5-year $1.75 billion term loan (collectively, the “Delayed Draw Credit Facilities”). On November 2, 2018, in connection with the closing of the KapStone Acquisition, we drew upon the facility in full. The proceeds of the Delayed Draw Credit Facilities and other sources of cash were used to pay the consideration for the KapStone Acquisition, to repay certain existing indebtedness of KapStone and to pay fees and expenses incurred in connection with the KapStone Acquisition. The Delayed Draw Credit Facilities are senior unsecured obligations of WRKCo, as borrower, and each of the Company and the Subsidiary Guarantors, respectively, as guarantors. Loans under the Delayed Draw Credit Facilities may be prepaid at any time without premium. We recorded debt issuance costs of $7.5 million, which are being amortized over the respective terms of the Delayed Draw Credit Facilities, subject to early prepayment adjustments.
On December 3, 2018, in connection with the issuance of the December 2018 Notes, we repaid the $300.0 million 364-day term loan under the Delayed Draw Credit Facilities, and prepaid $926.5 million of the 3-year term loan and $262.5 million of the 5-year term loan. In the third quarter of fiscal 2019, we prepaid $700.0 million of the 3-year term loan primarily using proceeds from the issuance of the May 2019 Notes. At June 30, 2019, there was $123.4 million outstanding on the 3-year term loan and $1,484.1 million outstanding on the 5-year term loan. On July 30, 2019, we fully repaid all amounts due on the 3-year term loan using proceeds from the issuance of commercial paper.
At our option, loans issued under the Delayed Draw Credit Facilities will bear interest at a floating rate based on either LIBOR or an alternate base rate, in each case plus an applicable interest rate margin. The applicable interest rate margin was initially 1.125% to 2.000% per annum for LIBOR rate loans and 0.125% to 1.000% per annum for alternate base rate loans, in each case depending on the Leverage Ratio (as defined in the credit agreement) or our corporate credit ratings, whichever yields a lower applicable interest rate margin, at such time. On February 26, 2019, we amended the Delayed Draw Credit Facilities agreement. The applicable interest rate margin for the 3-year term loan is now 1.000% to 1.875% for LIBOR rate loans and 0.000% to 0.875% for alternate base rate loans. The applicable interest rate margin for the 5-year term loan is now 1.000% to 1.950% for LIBOR rate loans and 0.000% to 0.950% for alternate base rate loans.
Receivables-Backed Financing Facility
On May 2, 2019, we amended our $700.0 million receivables securitization agreement (the “Receivables Securitization Facility”) to, among other things, extend its maturity date from July 22, 2019 to May 2, 2022. At June 30, 2019 and September 30, 2018, maximum available borrowings, excluding amounts outstanding under the Receivables Securitization Facility, were $621.8 million and $571.0 million, respectively. The carrying amount of accounts receivable collateralizing the maximum available borrowings at June 30, 2019 and September 30, 2018 were approximately $1,011.7 million and $887.0 million, respectively. We have continuing involvement with the underlying receivables as we provide credit and collections services pursuant to the Receivables Securitization Facility agreement. At June 30, 2019, there was $150.0 million outstanding.
European Revolving Credit Facility
On April 27, 2018, we entered into a €500.0 million revolving credit facility with an incremental €100.0 million accordion feature with Coöperatieve Rabobank U.A., New York Branch as the administrative agent for the syndicate of banks. This facility provides for a 3-year unsecured U.S. dollar, Euro and Sterling denominated borrowing of not more than €500.0 million and matures on April 27, 2021. At June 30, 2019, we had borrowed $370.0 million under this facility and entered into foreign currency exchange contracts of $371.1 million as an economic hedge for the U.S dollar denominated borrowing plus interest by a non-U.S. dollar functional currency entity. The net of gains or losses from these foreign currency exchange contracts and the changes in the remeasurement of the U.S. dollar denominated borrowing in our foreign subsidiaries have been immaterial to our condensed consolidated statements of income.
Commercial Paper Program
On October 31, 2017, we established an unsecured commercial paper program, pursuant to which we were able to issue short-term, unsecured commercial paper notes in an aggregate principal amount at any time not to exceed $1.0 billion with up to 397-day maturities. On December 7, 2018, we terminated the commercial paper
32
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
program and established a new unsecured commercial paper program with WRKCo as the issuer. Under the new program, we may issue short-term unsecured commercial paper notes in an aggregate principal amount at any time not to exceed $1.0 billion with up to 397-day maturities. The commercial paper program has no expiration date and can be terminated by either the agent or us with not less than 30 days’ notice. Our $2.0 billion unsecured revolving credit facility is intended to backstop the commercial paper program. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The net proceeds from issuances of notes under the program were used to repay amounts outstanding under the KapStone securitization facility that were assumed in the KapStone Acquisition and subsequently terminated, and have been, and are expected to continue to be, used for general corporate purposes. At June 30, 2019, there was $445.6 million outstanding and the average borrowing rate was 2.61%. As of June 30, 2019, $250.0 million of the total amount outstanding was classified as long-term debt.
Term Loan
On June 7, 2019, we entered into a $300.0 million credit agreement providing for a 5-year unsecured term loan with Bank of America, N.A., as administrative agent. The facility is scheduled to mature on June 7, 2024. The proceeds from the facility were used to prepay a portion of the amounts outstanding under our 3-year term loan and repay amounts outstanding under our commercial paper program. The applicable interest rate margin was initially 0.825% to 1.750% per annum for LIBOR rate loans and 0.000% to 0.750% per annum for alternate base rate loans, in each case depending on the Leverage Ratio (as defined in the credit agreement) or our corporate credit ratings, whichever yields a lower applicable interest rate margin, at such time. The debt issuance costs, which are being amortized over the term of the credit agreement, were insignificant. At June 30, 2019, there was $300.0 million outstanding.
Brazil Delayed Draw Credit Facilities
On April 10, 2019, we entered into a credit agreement to provide for BRL 750.0 million of senior unsecured term loans with an incremental BRL 250.0 million accordion feature (the “Brazil Delayed Draw Credit Facilities”). The principal can be drawn at any time over the initial 18 months in up to 10 drawdowns of at least BRL 50.0 million each and will be repaid in equal, semiannual installments beginning on April 10, 2021 until the facility matures on April 10, 2024. The proceeds of the Brazil Delayed Draw Credit Facilities are to be used to support the production of goods or acquisition of inputs that are essential or ancillary to export activities. The Brazil Delayed Draw Credit Facilities are senior unsecured obligations of Rigesa Celulose, Papel E Embalagens Ltda. (a subsidiary of the Company), as borrower, and the Company, as guarantor. Loans issued under the Brazil Delayed Draw Credit Facilities will bear interest at a floating rate based on Brazil’s Certificate of Interbank Deposit rate plus a spread of 1.50%. In addition, we will be required to pay fees of 0.45% on the unused amount of the facility. The debt issuance costs are being amortized over the term of the Brazil Delayed Draw Credit Facilities. At June 30, 2019, there was BRL 125.0 million outstanding.
As of June 30, 2019, the aggregate maturities of debt, excluding capital lease obligations, for the remainder of the current fiscal year and the succeeding four fiscal years and thereafter were as follows (in millions):
|
Remaining fiscal 2019 |
|
$ |
532.7 |
|
|
Fiscal 2020 |
|
|
117.8 |
|
|
Fiscal 2021 |
|
|
357.4 |
|
|
Fiscal 2022 |
|
|
1,561.4 |
|
|
Fiscal 2023 |
|
|
537.6 |
|
|
Thereafter |
|
|
7,076.0 |
|
|
Fair value of debt step-up, deferred financing costs and unamortized bond discounts |
|
|
166.8 |
|
|
Total |
|
$ |
10,349.7 |
|
33
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
As of June 30, 2019, the aggregate maturities of capital lease obligations for the remainder of the current fiscal year and the succeeding four fiscal years and thereafter were as follows (in millions):
|
Remaining fiscal 2019 |
|
$ |
1.8 |
|
|
Fiscal 2020 |
|
|
6.6 |
|
|
Fiscal 2021 |
|
|
4.9 |
|
|
Fiscal 2022 |
|
|
3.9 |
|
|
Fiscal 2023 |
|
|
2.0 |
|
|
Thereafter |
|
|
151.9 |
|
|
Fair value step-up |
|
|
17.4 |
|
|
Total |
|
$ |
188.5 |
|
|
Note 13. |
Selected Condensed Consolidating Financial Statements of Parent, Issuer, Guarantors and Non-Guarantors |
The 2024 Notes, the 2025 Notes, the 2026 Notes, the 2027 Notes, the 2028 Notes, the June 2028 Notes, the 2029 Notes and the 2032 Notes (the “Notes”) were issued by WRKCo (the “Issuer”). Upon issuance, the 2024 Notes, the 2025 Notes, the 2027 Notes and the 2028 Notes were fully and unconditionally guaranteed by the Subsidiary Guarantors. On November 2, 2018, in connection with the consummation of the KapStone Acquisition, Whiskey Holdco, Inc. became the direct parent of the Issuer, changed its name to WestRock Company (“Parent”) and fully and unconditionally guaranteed the 2024 Notes, the 2025 Notes, the 2027 Notes and the 2028 Notes. The 2026 Notes, the June 2028 Notes, the 2029 Notes and the 2032 Notes were issued by the Issuer subsequent to the consummation of the KapStone Acquisition and were fully and unconditionally guaranteed at the time of issuance by Parent and the Subsidiary Guarantors. Accordingly, each series of the Notes is fully and unconditionally guaranteed on a joint and several basis by Parent and the Subsidiary Guarantors.
In accordance with GAAP, we retrospectively account for changes in our legal structure that constitute transfers of businesses between issuers, guarantors and non-guarantors. As such, our prior period financials may vary from those previously reported. The information in the tables reflect such revisions, as well as revisions to correct immaterial errors in the prior presentation of our financial statements.
In accordance with Rule 3-10 of Regulation S-X, the following tables present condensed consolidating financial data of the Parent, the Issuer, the Subsidiary Guarantors, the non-guarantor subsidiaries and eliminations. Such financial data include the related Condensed Consolidating Statements of Income for the three and nine months ended June 30, 2019 and June 30, 2018, Condensed Consolidating Balance Sheets as of June 30, 2019 and September 30, 2018 and Condensed Consolidating Statements of Cash Flows for the nine months ended June 30, 2019 and June 30, 2018.
34
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|||||||||||||||||||||
|
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
643.0 |
|
|
$ |
4,676.3 |
|
|
$ |
(629.3 |
) |
|
$ |
4,690.0 |
|
|
Cost of goods sold |
|
|
— |
|
|
|
— |
|
|
|
475.6 |
|
|
|
3,844.9 |
|
|
|
(619.4 |
) |
|
|
3,701.1 |
|
|
Selling, general and administrative, excluding intangible amortization |
|
|
— |
|
|
|
(0.4 |
) |
|
|
26.0 |
|
|
|
416.8 |
|
|
|
— |
|
|
|
442.4 |
|
|
Selling, general and administrative intangible amortization |
|
|
— |
|
|
|
— |
|
|
|
26.1 |
|
|
|
76.3 |
|
|
|
— |
|
|
|
102.4 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
6.4 |
|
|
|
— |
|
|
|
6.5 |
|
|
Multiemployer pension withdrawals |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
(1.7 |
) |
|
Restructuring and other costs |
|
|
— |
|
|
|
1.4 |
|
|
|
0.1 |
|
|
|
16.4 |
|
|
|
— |
|
|
|
17.9 |
|
|
Operating profit (loss) |
|
|
— |
|
|
|
(1.0 |
) |
|
|
115.1 |
|
|
|
317.2 |
|
|
|
(9.9 |
) |
|
|
421.4 |
|
|
Interest expense, net |
|
|
— |
|
|
|
(66.5 |
) |
|
|
(36.9 |
) |
|
|
(7.7 |
) |
|
|
— |
|
|
|
(111.1 |
) |
|
Intercompany interest (expense) income, net |
|
|
— |
|
|
|
(2.5 |
) |
|
|
(33.3 |
) |
|
|
25.9 |
|
|
|
9.9 |
|
|
|
— |
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
(0.8 |
) |
|
|
(2.3 |
) |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(3.2 |
) |
|
Pension and other postretirement non- service (expense) income |
|
|
— |
|
|
|
— |
|
|
|
(1.4 |
) |
|
|
20.3 |
|
|
|
— |
|
|
|
18.9 |
|
|
Other (expense) income, net |
|
|
— |
|
|
|
— |
|
|
|
(35.2 |
) |
|
|
38.9 |
|
|
|
— |
|
|
|
3.7 |
|
|
Equity in income of unconsolidated entities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
— |
|
|
|
1.7 |
|
|
Equity in income (loss) of consolidated entities |
|
|
252.6 |
|
|
|
268.2 |
|
|
|
(19.5 |
) |
|
|
— |
|
|
|
(501.3 |
) |
|
|
— |
|
|
Income before income taxes |
|
|
252.6 |
|
|
|
197.4 |
|
|
|
(13.5 |
) |
|
|
396.2 |
|
|
|
(501.3 |
) |
|
|
331.4 |
|
|
Income tax benefit (expense) |
|
|
— |
|
|
|
17.9 |
|
|
|
(1.9 |
) |
|
|
(93.6 |
) |
|
|
— |
|
|
|
(77.6 |
) |
|
Consolidated net income (loss) |
|
|
252.6 |
|
|
|
215.3 |
|
|
|
(15.4 |
) |
|
|
302.6 |
|
|
|
(501.3 |
) |
|
|
253.8 |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.2 |
) |
|
|
— |
|
|
|
(1.2 |
) |
|
Net income (loss) attributable to common stockholders |
|
$ |
252.6 |
|
|
$ |
215.3 |
|
|
$ |
(15.4 |
) |
|
$ |
301.4 |
|
|
$ |
(501.3 |
) |
|
$ |
252.6 |
|
|
Comprehensive income attributable to common stockholders |
|
$ |
282.7 |
|
|
$ |
244.9 |
|
|
$ |
12.0 |
|
|
$ |
332.2 |
|
|
$ |
(589.1 |
) |
|
$ |
282.7 |
|
35
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2019 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|||||||||||||||||||||
|
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,906.0 |
|
|
$ |
13,648.2 |
|
|
$ |
(1,916.8 |
) |
|
$ |
13,637.4 |
|
|
Cost of goods sold |
|
|
— |
|
|
|
— |
|
|
|
1,503.3 |
|
|
|
11,370.7 |
|
|
|
(1,906.9 |
) |
|
|
10,967.1 |
|
|
Selling, general and administrative, excluding intangible amortization |
|
|
— |
|
|
|
— |
|
|
|
53.3 |
|
|
|
1,234.1 |
|
|
|
— |
|
|
|
1,287.4 |
|
|
Selling, general and administrative intangible amortization |
|
|
— |
|
|
|
— |
|
|
|
78.4 |
|
|
|
219.3 |
|
|
|
— |
|
|
|
297.7 |
|
|
Loss (gain) on disposal of assets |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
(37.4 |
) |
|
|
— |
|
|
|
(37.3 |
) |
|
Multiemployer pension withdrawals |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
(1.7 |
) |
|
Land and Development impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.0 |
|
|
|
— |
|
|
|
13.0 |
|
|
Restructuring and other costs |
|
|
— |
|
|
|
5.3 |
|
|
|
0.2 |
|
|
|
101.6 |
|
|
|
— |
|
|
|
107.1 |
|
|
Operating profit (loss) |
|
|
— |
|
|
|
(5.3 |
) |
|
|
270.7 |
|
|
|
748.6 |
|
|
|
(9.9 |
) |
|
|
1,004.1 |
|
|
Interest expense, net |
|
|
— |
|
|
|
(178.5 |
) |
|
|
(128.8 |
) |
|
|
(10.0 |
) |
|
|
— |
|
|
|
(317.3 |
) |
|
Intercompany interest income (expense), net |
|
|
— |
|
|
|
1.0 |
|
|
|
(87.9 |
) |
|
|
77.0 |
|
|
|
9.9 |
|
|
|
— |
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
(2.6 |
) |
|
|
(1.9 |
) |
|
|
(0.2 |
) |
|
|
— |
|
|
|
(4.7 |
) |
|
Pension and other postretirement non- service (expense) income |
|
|
— |
|
|
|
— |
|
|
|
(4.8 |
) |
|
|
59.7 |
|
|
|
— |
|
|
|
54.9 |
|
|
Other (expense) income, net |
|
|
— |
|
|
|
(4.0 |
) |
|
|
(35.6 |
) |
|
|
37.3 |
|
|
|
— |
|
|
|
(2.3 |
) |
|
Equity in income of unconsolidated entities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.3 |
|
|
|
— |
|
|
|
8.3 |
|
|
Equity in income of consolidated entities |
|
|
552.1 |
|
|
|
664.9 |
|
|
|
397.8 |
|
|
|
— |
|
|
|
(1,614.8 |
) |
|
|
— |
|
|
Income before income taxes |
|
|
552.1 |
|
|
|
475.5 |
|
|
|
409.5 |
|
|
|
920.7 |
|
|
|
(1,614.8 |
) |
|
|
743.0 |
|
|
Income tax benefit (expense) |
|
|
— |
|
|
|
46.9 |
|
|
|
(3.2 |
) |
|
|
(231.2 |
) |
|
|
— |
|
|
|
(187.5 |
) |
|
Consolidated net income |
|
|
552.1 |
|
|
|
522.4 |
|
|
|
406.3 |
|
|
|
689.5 |
|
|
|
(1,614.8 |
) |
|
|
555.5 |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.4 |
) |
|
|
— |
|
|
|
(3.4 |
) |
|
Net income attributable to common stockholders |
|
$ |
552.1 |
|
|
$ |
522.4 |
|
|
$ |
406.3 |
|
|
$ |
686.1 |
|
|
$ |
(1,614.8 |
) |
|
$ |
552.1 |
|
|
Comprehensive income attributable to common stockholders |
|
$ |
552.0 |
|
|
$ |
522.0 |
|
|
$ |
406.5 |
|
|
$ |
686.9 |
|
|
$ |
(1,615.4 |
) |
|
$ |
552.0 |
|
36
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|||||||||||||||||||||
|
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
673.1 |
|
|
$ |
4,138.2 |
|
|
$ |
(673.8 |
) |
|
$ |
4,137.5 |
|
|
Cost of goods sold |
|
|
— |
|
|
|
— |
|
|
|
529.7 |
|
|
|
3,414.5 |
|
|
|
(673.8 |
) |
|
|
3,270.4 |
|
|
Selling, general and administrative, excluding intangible amortization |
|
|
— |
|
|
|
— |
|
|
|
20.9 |
|
|
|
359.8 |
|
|
|
— |
|
|
|
380.7 |
|
|
Selling, general and administrative intangible amortization |
|
|
— |
|
|
|
— |
|
|
|
26.1 |
|
|
|
49.5 |
|
|
|
— |
|
|
|
75.6 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.7 |
|
|
|
— |
|
|
|
2.7 |
|
|
Multiemployer pension withdrawal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.2 |
|
|
|
— |
|
|
|
4.2 |
|
|
Land and Development impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
— |
|
|
|
1.7 |
|
|
Restructuring and other costs |
|
|
— |
|
|
|
3.0 |
|
|
|
0.1 |
|
|
|
14.0 |
|
|
|
— |
|
|
|
17.1 |
|
|
Operating profit (loss) |
|
|
— |
|
|
|
(3.0 |
) |
|
|
96.3 |
|
|
|
291.8 |
|
|
|
— |
|
|
|
385.1 |
|
|
Interest expense, net |
|
|
(0.6 |
) |
|
|
(21.6 |
) |
|
|
(43.0 |
) |
|
|
(11.5 |
) |
|
|
— |
|
|
|
(76.7 |
) |
|
Intercompany interest income (expense), net |
|
|
— |
|
|
|
8.5 |
|
|
|
(19.7 |
) |
|
|
11.2 |
|
|
|
— |
|
|
|
— |
|
|
Gain (loss) on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
0.9 |
|
|
Pension and other postretirement non- service income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21.3 |
|
|
|
— |
|
|
|
21.3 |
|
|
Other (expense) income, net |
|
|
— |
|
|
|
(0.3 |
) |
|
|
(8.9 |
) |
|
|
18.9 |
|
|
|
— |
|
|
|
9.7 |
|
|
Equity in income of unconsolidated entities |
|
|
— |
|
|
|
— |
|
|
|
5.0 |
|
|
|
10.5 |
|
|
|
— |
|
|
|
15.5 |
|
|
Equity in income of consolidated entities |
|
|
— |
|
|
|
281.7 |
|
|
|
159.3 |
|
|
|
— |
|
|
|
(441.0 |
) |
|
|
— |
|
|
Income (loss) before income taxes |
|
|
(0.6 |
) |
|
|
265.3 |
|
|
|
190.0 |
|
|
|
342.1 |
|
|
|
(441.0 |
) |
|
|
355.8 |
|
|
Income tax benefit (expense) |
|
|
— |
|
|
|
3.5 |
|
|
|
(4.9 |
) |
|
|
(83.1 |
) |
|
|
— |
|
|
|
(84.5 |
) |
|
Consolidated net income (loss) |
|
|
(0.6 |
) |
|
|
268.8 |
|
|
|
185.1 |
|
|
|
259.0 |
|
|
|
(441.0 |
) |
|
|
271.3 |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.1 |
) |
|
|
— |
|
|
|
(3.1 |
) |
|
Net income (loss) attributable to common stockholders |
|
$ |
(0.6 |
) |
|
$ |
268.8 |
|
|
$ |
185.1 |
|
|
$ |
255.9 |
|
|
$ |
(441.0 |
) |
|
$ |
268.2 |
|
|
Comprehensive income (loss) attributable to common stockholders |
|
$ |
(0.6 |
) |
|
$ |
36.2 |
|
|
$ |
(38.2 |
) |
|
$ |
23.1 |
|
|
$ |
15.1 |
|
|
$ |
35.6 |
|
37
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING STATEMENTS OF INCOME |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2018 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|||||||||||||||||||||
|
Net sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,916.9 |
|
|
$ |
12,096.2 |
|
|
$ |
(1,964.6 |
) |
|
$ |
12,048.5 |
|
|
Cost of goods sold |
|
|
— |
|
|
|
— |
|
|
|
1,489.3 |
|
|
|
10,093.8 |
|
|
|
(1,964.6 |
) |
|
|
9,618.5 |
|
|
Selling, general and administrative, excluding intangible amortization |
|
|
— |
|
|
|
0.4 |
|
|
|
70.2 |
|
|
|
1,086.7 |
|
|
|
— |
|
|
|
1,157.3 |
|
|
Selling, general and administrative intangible amortization |
|
|
— |
|
|
|
— |
|
|
|
78.2 |
|
|
|
145.1 |
|
|
|
— |
|
|
|
223.3 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
6.5 |
|
|
|
— |
|
|
|
6.6 |
|
|
Multiemployer pension withdrawal |
|
|
— |
|
|
|
6.5 |
|
|
|
12.5 |
|
|
|
165.2 |
|
|
|
— |
|
|
|
184.2 |
|
|
Land and Development impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29.3 |
|
|
|
— |
|
|
|
29.3 |
|
|
Restructuring and other costs |
|
|
— |
|
|
|
6.3 |
|
|
|
5.4 |
|
|
|
53.4 |
|
|
|
— |
|
|
|
65.1 |
|
|
Operating profit (loss) |
|
|
— |
|
|
|
(13.2 |
) |
|
|
261.2 |
|
|
|
516.2 |
|
|
|
— |
|
|
|
764.2 |
|
|
Interest expense, net |
|
|
(0.7 |
) |
|
|
(65.5 |
) |
|
|
(130.7 |
) |
|
|
(22.9 |
) |
|
|
— |
|
|
|
(219.8 |
) |
|
Intercompany interest income (expense), net |
|
|
— |
|
|
|
20.3 |
|
|
|
(52.0 |
) |
|
|
31.7 |
|
|
|
— |
|
|
|
— |
|
|
(Loss) gain on extinguishment of debt |
|
|
— |
|
|
|
(1.6 |
) |
|
|
1.9 |
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
— |
|
|
Pension and other postretirement non- service (expense) income |
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
70.8 |
|
|
|
— |
|
|
|
70.5 |
|
|
Other income (expense), net |
|
|
— |
|
|
|
0.7 |
|
|
|
(4.6 |
) |
|
|
17.2 |
|
|
|
— |
|
|
|
13.3 |
|
|
Equity in income of unconsolidated entities |
|
|
— |
|
|
|
— |
|
|
|
7.5 |
|
|
|
23.7 |
|
|
|
— |
|
|
|
31.2 |
|
|
Equity in income of consolidated entities |
|
|
— |
|
|
|
1,676.1 |
|
|
|
1,182.4 |
|
|
|
— |
|
|
|
(2,858.5 |
) |
|
|
— |
|
|
Income (loss) before income taxes |
|
|
(0.7 |
) |
|
|
1,616.8 |
|
|
|
1,265.4 |
|
|
|
636.4 |
|
|
|
(2,858.5 |
) |
|
|
659.4 |
|
|
Income tax benefit |
|
|
— |
|
|
|
10.4 |
|
|
|
119.5 |
|
|
|
840.0 |
|
|
|
— |
|
|
|
969.9 |
|
|
Consolidated net income (loss) |
|
|
(0.7 |
) |
|
|
1,627.2 |
|
|
|
1,384.9 |
|
|
|
1,476.4 |
|
|
|
(2,858.5 |
) |
|
|
1,629.3 |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.8 |
) |
|
|
— |
|
|
|
(2.8 |
) |
|
Net income (loss) attributable to common stockholders |
|
$ |
(0.7 |
) |
|
$ |
1,627.2 |
|
|
$ |
1,384.9 |
|
|
$ |
1,473.6 |
|
|
$ |
(2,858.5 |
) |
|
$ |
1,626.5 |
|
|
Comprehensive income (loss) attributable to common stockholders |
|
$ |
(0.7 |
) |
|
$ |
1,410.2 |
|
|
$ |
1,191.3 |
|
|
$ |
1,256.7 |
|
|
$ |
(2,448.0 |
) |
|
$ |
1,409.5 |
|
38
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING BALANCE SHEETS |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|||||||||||||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12.5 |
|
|
$ |
166.6 |
|
|
$ |
— |
|
|
$ |
179.1 |
|
|
Accounts receivable |
|
|
— |
|
|
|
— |
|
|
|
25.8 |
|
|
|
2,404.8 |
|
|
|
(32.5 |
) |
|
|
2,398.1 |
|
|
Inventories |
|
|
— |
|
|
|
— |
|
|
|
241.6 |
|
|
|
1,832.6 |
|
|
|
— |
|
|
|
2,074.2 |
|
|
Other current assets |
|
|
0.1 |
|
|
|
0.7 |
|
|
|
6.7 |
|
|
|
508.2 |
|
|
|
— |
|
|
|
515.7 |
|
|
Intercompany receivables |
|
|
— |
|
|
|
654.7 |
|
|
|
— |
|
|
|
592.8 |
|
|
|
(1,247.5 |
) |
|
|
— |
|
|
Assets held for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26.6 |
|
|
|
— |
|
|
|
26.6 |
|
|
Total current assets |
|
|
0.1 |
|
|
|
655.4 |
|
|
|
286.6 |
|
|
|
5,531.6 |
|
|
|
(1,280.0 |
) |
|
|
5,193.7 |
|
|
Property, plant and equipment, net |
|
|
— |
|
|
|
— |
|
|
|
19.2 |
|
|
|
11,150.1 |
|
|
|
— |
|
|
|
11,169.3 |
|
|
Goodwill |
|
|
— |
|
|
|
— |
|
|
|
1,151.4 |
|
|
|
6,170.5 |
|
|
|
— |
|
|
|
7,321.9 |
|
|
Intangibles, net |
|
|
— |
|
|
|
— |
|
|
|
1,511.0 |
|
|
|
2,663.8 |
|
|
|
— |
|
|
|
4,174.8 |
|
|
Restricted assets held by special purpose entities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,276.0 |
|
|
|
— |
|
|
|
1,276.0 |
|
|
Prepaid pension asset |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
463.3 |
|
|
|
— |
|
|
|
463.3 |
|
|
Intercompany notes receivable |
|
|
— |
|
|
|
155.0 |
|
|
|
175.5 |
|
|
|
3,026.8 |
|
|
|
(3,357.3 |
) |
|
|
— |
|
|
Investments in consolidated subsidiaries |
|
|
12,036.8 |
|
|
|
18,366.0 |
|
|
|
20,055.3 |
|
|
|
— |
|
|
|
(50,458.1 |
) |
|
|
— |
|
|
Other assets |
|
|
— |
|
|
|
15.0 |
|
|
|
190.4 |
|
|
|
1,018.5 |
|
|
|
(10.8 |
) |
|
|
1,213.1 |
|
|
Total Assets |
|
$ |
12,036.9 |
|
|
$ |
19,191.4 |
|
|
$ |
23,389.4 |
|
|
$ |
31,300.6 |
|
|
$ |
(55,106.2 |
) |
|
$ |
30,812.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
$ |
— |
|
|
$ |
354.3 |
|
|
$ |
110.3 |
|
|
$ |
314.5 |
|
|
$ |
— |
|
|
$ |
779.1 |
|
|
Accounts payable |
|
|
— |
|
|
|
1.0 |
|
|
|
32.9 |
|
|
|
1,705.4 |
|
|
|
(32.5 |
) |
|
|
1,706.8 |
|
|
Accrued compensation and benefits |
|
|
0.1 |
|
|
|
— |
|
|
|
10.1 |
|
|
|
417.6 |
|
|
|
— |
|
|
|
427.8 |
|
|
Other current liabilities |
|
|
— |
|
|
|
47.3 |
|
|
|
129.0 |
|
|
|
500.5 |
|
|
|
— |
|
|
|
676.8 |
|
|
Intercompany payables |
|
|
209.1 |
|
|
|
— |
|
|
|
1,038.4 |
|
|
|
— |
|
|
|
(1,247.5 |
) |
|
|
— |
|
|
Total current liabilities |
|
|
209.2 |
|
|
|
402.6 |
|
|
|
1,320.7 |
|
|
|
2,938.0 |
|
|
|
(1,280.0 |
) |
|
|
3,590.5 |
|
|
Long-term debt due after one year |
|
|
— |
|
|
|
6,694.1 |
|
|
|
1,986.5 |
|
|
|
1,078.5 |
|
|
|
— |
|
|
|
9,759.1 |
|
|
Intercompany notes payable |
|
|
— |
|
|
|
636.3 |
|
|
|
2,390.5 |
|
|
|
330.5 |
|
|
|
(3,357.3 |
) |
|
|
— |
|
|
Pension liabilities, net of current portion |
|
|
— |
|
|
|
— |
|
|
|
135.1 |
|
|
|
110.9 |
|
|
|
— |
|
|
|
246.0 |
|
|
Postretirement benefit liabilities, net of current portion |
|
|
— |
|
|
|
— |
|
|
|
27.8 |
|
|
|
114.7 |
|
|
|
— |
|
|
|
142.5 |
|
|
Non-recourse liabilities held by special purpose entities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,147.4 |
|
|
|
— |
|
|
|
1,147.4 |
|
|
Deferred income taxes |
|
|
— |
|
|
|
— |
|
|
|
255.5 |
|
|
|
2,721.1 |
|
|
|
(10.8 |
) |
|
|
2,965.8 |
|
|
Other long-term liabilities |
|
|
— |
|
|
|
14.6 |
|
|
|
133.4 |
|
|
|
968.2 |
|
|
|
— |
|
|
|
1,116.2 |
|
|
Redeemable noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.3 |
|
|
|
— |
|
|
|
3.3 |
|
|
Total stockholders’ equity |
|
|
11,827.7 |
|
|
|
11,443.8 |
|
|
|
17,139.9 |
|
|
|
21,874.4 |
|
|
|
(50,458.1 |
) |
|
|
11,827.7 |
|
|
Noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.6 |
|
|
|
— |
|
|
|
13.6 |
|
|
Total equity |
|
|
11,827.7 |
|
|
|
11,443.8 |
|
|
|
17,139.9 |
|
|
|
21,888.0 |
|
|
|
(50,458.1 |
) |
|
|
11,841.3 |
|
|
Total Liabilities and Equity |
|
$ |
12,036.9 |
|
|
$ |
19,191.4 |
|
|
$ |
23,389.4 |
|
|
$ |
31,300.6 |
|
|
$ |
(55,106.2 |
) |
|
$ |
30,812.1 |
|
39
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING BALANCE SHEETS |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|||||||||||||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
0.2 |
|
|
$ |
490.8 |
|
|
$ |
145.8 |
|
|
$ |
— |
|
|
$ |
636.8 |
|
|
Accounts receivable |
|
|
— |
|
|
|
0.1 |
|
|
|
196.5 |
|
|
|
1,840.2 |
|
|
|
(26.1 |
) |
|
|
2,010.7 |
|
|
Inventories |
|
|
— |
|
|
|
— |
|
|
|
233.4 |
|
|
|
1,596.2 |
|
|
|
— |
|
|
|
1,829.6 |
|
|
Other current assets |
|
|
— |
|
|
|
0.4 |
|
|
|
17.2 |
|
|
|
230.9 |
|
|
|
— |
|
|
|
248.5 |
|
|
Intercompany receivables |
|
|
— |
|
|
|
27.7 |
|
|
|
269.8 |
|
|
|
792.8 |
|
|
|
(1,090.3 |
) |
|
|
— |
|
|
Assets held for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
59.5 |
|
|
|
— |
|
|
|
59.5 |
|
|
Total current assets |
|
|
— |
|
|
|
28.4 |
|
|
|
1,207.7 |
|
|
|
4,665.4 |
|
|
|
(1,116.4 |
) |
|
|
4,785.1 |
|
|
Property, plant and equipment, net |
|
|
— |
|
|
|
— |
|
|
|
21.3 |
|
|
|
9,061.2 |
|
|
|
— |
|
|
|
9,082.5 |
|
|
Goodwill |
|
|
— |
|
|
|
— |
|
|
|
1,151.3 |
|
|
|
4,426.3 |
|
|
|
— |
|
|
|
5,577.6 |
|
|
Intangibles, net |
|
|
— |
|
|
|
— |
|
|
|
1,589.4 |
|
|
|
1,532.6 |
|
|
|
— |
|
|
|
3,122.0 |
|
|
Restricted assets held by special purpose entities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,281.0 |
|
|
|
— |
|
|
|
1,281.0 |
|
|
Prepaid pension asset |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
420.0 |
|
|
|
— |
|
|
|
420.0 |
|
|
Intercompany notes receivable |
|
|
— |
|
|
|
884.2 |
|
|
|
33.1 |
|
|
|
2,865.4 |
|
|
|
(3,782.7 |
) |
|
|
— |
|
|
Investments in consolidated subsidiaries |
|
|
— |
|
|
|
13,260.3 |
|
|
|
15,066.3 |
|
|
|
— |
|
|
|
(28,326.6 |
) |
|
|
— |
|
|
Other assets |
|
|
3.4 |
|
|
|
12.4 |
|
|
|
172.8 |
|
|
|
910.8 |
|
|
|
(7.1 |
) |
|
|
1,092.3 |
|
|
Total Assets |
|
$ |
3.4 |
|
|
$ |
14,185.3 |
|
|
$ |
19,241.9 |
|
|
$ |
25,162.7 |
|
|
$ |
(33,232.8 |
) |
|
$ |
25,360.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
609.5 |
|
|
$ |
131.2 |
|
|
$ |
— |
|
|
$ |
740.7 |
|
|
Accounts payable |
|
|
— |
|
|
|
0.8 |
|
|
|
40.3 |
|
|
|
1,701.8 |
|
|
|
(26.1 |
) |
|
|
1,716.8 |
|
|
Accrued compensation and benefits |
|
|
— |
|
|
|
0.2 |
|
|
|
10.7 |
|
|
|
388.4 |
|
|
|
— |
|
|
|
399.3 |
|
|
Other current liabilities |
|
|
— |
|
|
|
3.2 |
|
|
|
77.7 |
|
|
|
395.6 |
|
|
|
— |
|
|
|
476.5 |
|
|
Intercompany payables |
|
|
13.0 |
|
|
|
506.6 |
|
|
|
570.4 |
|
|
|
0.3 |
|
|
|
(1,090.3 |
) |
|
|
— |
|
|
Total current liabilities |
|
|
13.0 |
|
|
|
510.8 |
|
|
|
1,308.6 |
|
|
|
2,617.3 |
|
|
|
(1,116.4 |
) |
|
|
3,333.3 |
|
|
Long-term debt due after one year |
|
|
— |
|
|
|
2,179.4 |
|
|
|
2,460.1 |
|
|
|
1,035.0 |
|
|
|
— |
|
|
|
5,674.5 |
|
|
Intercompany notes payable |
|
|
— |
|
|
|
— |
|
|
|
2,865.4 |
|
|
|
917.3 |
|
|
|
(3,782.7 |
) |
|
|
— |
|
|
Pension liabilities, net of current portion |
|
|
— |
|
|
|
— |
|
|
|
135.9 |
|
|
|
125.4 |
|
|
|
— |
|
|
|
261.3 |
|
|
Postretirement benefit liabilities, net of current portion |
|
|
— |
|
|
|
— |
|
|
|
28.1 |
|
|
|
106.7 |
|
|
|
— |
|
|
|
134.8 |
|
|
Non-recourse liabilities held by special purpose entities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,153.7 |
|
|
|
— |
|
|
|
1,153.7 |
|
|
Deferred income taxes |
|
|
— |
|
|
|
— |
|
|
|
291.0 |
|
|
|
2,037.6 |
|
|
|
(7.1 |
) |
|
|
2,321.5 |
|
|
Other long-term liabilities |
|
|
— |
|
|
|
16.1 |
|
|
|
106.2 |
|
|
|
872.5 |
|
|
|
— |
|
|
|
994.8 |
|
|
Redeemable noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.2 |
|
|
|
— |
|
|
|
4.2 |
|
|
Total stockholders’ equity |
|
|
(9.6 |
) |
|
|
11,479.0 |
|
|
|
12,046.6 |
|
|
|
16,280.0 |
|
|
|
(28,326.6 |
) |
|
|
11,469.4 |
|
|
Noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.0 |
|
|
|
— |
|
|
|
13.0 |
|
|
Total equity |
|
|
(9.6 |
) |
|
|
11,479.0 |
|
|
|
12,046.6 |
|
|
|
16,293.0 |
|
|
|
(28,326.6 |
) |
|
|
11,482.4 |
|
|
Total Liabilities and Equity |
|
$ |
3.4 |
|
|
$ |
14,185.3 |
|
|
$ |
19,241.9 |
|
|
$ |
25,162.7 |
|
|
$ |
(33,232.8 |
) |
|
$ |
25,360.5 |
|
40
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2019 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
$ |
430.7 |
|
|
$ |
(512.4 |
) |
|
$ |
445.9 |
|
|
$ |
1,035.4 |
|
|
$ |
— |
|
|
$ |
1,399.6 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
— |
|
|
|
— |
|
|
|
(2.5 |
) |
|
|
(974.3 |
) |
|
|
— |
|
|
|
(976.8 |
) |
|
Cash paid related to business combinations, net of cash acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,368.3 |
) |
|
|
— |
|
|
|
(3,368.3 |
) |
|
Investment in unconsolidated entities equipment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10.4 |
) |
|
|
— |
|
|
|
(10.4 |
) |
|
Proceeds from sale of property, plant and equipment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
108.3 |
|
|
|
— |
|
|
|
108.3 |
|
|
Proceeds from property, plant and equipment insurance settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16.5 |
|
|
|
— |
|
|
|
16.5 |
|
|
Intercompany notes issued |
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(75.7 |
) |
|
|
75.8 |
|
|
|
— |
|
|
Intercompany notes proceeds |
|
|
— |
|
|
|
9.2 |
|
|
|
4.3 |
|
|
|
3,870.2 |
|
|
|
(3,883.7 |
) |
|
|
— |
|
|
Intercompany capital investment |
|
|
(563.0 |
) |
|
|
(563.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,126.0 |
|
|
|
— |
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
28.2 |
|
|
|
1.8 |
|
|
|
— |
|
|
|
30.0 |
|
|
Net cash (used for) provided by investing activities |
|
|
(563.0 |
) |
|
|
(553.8 |
) |
|
|
29.9 |
|
|
|
(431.9 |
) |
|
|
(2,681.9 |
) |
|
|
(4,200.7 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes |
|
|
— |
|
|
|
2,498.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,498.2 |
|
|
Additions to revolving credit facilities |
|
|
— |
|
|
|
35.3 |
|
|
|
— |
|
|
|
12.4 |
|
|
|
— |
|
|
|
47.7 |
|
|
Additions to debt |
|
|
— |
|
|
|
4,101.8 |
|
|
|
(1.0 |
) |
|
|
340.2 |
|
|
|
— |
|
|
|
4,441.0 |
|
|
Repayments of debt |
|
|
— |
|
|
|
(2,187.1 |
) |
|
|
(958.6 |
) |
|
|
(1,519.3 |
) |
|
|
— |
|
|
|
(4,665.0 |
) |
|
Changes in commercial paper, net |
|
|
— |
|
|
|
445.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
445.6 |
|
|
Other financing additions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.2 |
|
|
|
— |
|
|
|
13.2 |
|
|
Issuances of common stock, net of related minimum tax withholdings |
|
|
8.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.6 |
|
|
Purchases of common stock |
|
|
(88.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(88.6 |
) |
|
Cash dividends paid to stockholders |
|
|
(350.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(350.7 |
) |
|
Cash distributions paid to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.4 |
) |
|
|
— |
|
|
|
(3.4 |
) |
|
Intercompany notes borrowing |
|
|
— |
|
|
|
— |
|
|
|
75.7 |
|
|
|
0.1 |
|
|
|
(75.8 |
) |
|
|
— |
|
|
Intercompany notes payments |
|
|
— |
|
|
|
(3,800.0 |
) |
|
|
(70.2 |
) |
|
|
(13.5 |
) |
|
|
3,883.7 |
|
|
|
— |
|
|
Intercompany capital receipt |
|
|
563.0 |
|
|
|
— |
|
|
|
— |
|
|
|
563.0 |
|
|
|
(1,126.0 |
) |
|
|
— |
|
|
Other |
|
|
— |
|
|
|
(27.8 |
) |
|
|
— |
|
|
|
20.7 |
|
|
|
— |
|
|
|
(7.1 |
) |
|
Net cash provided by (used for) financing activities |
|
|
132.3 |
|
|
|
1,066.0 |
|
|
|
(954.1 |
) |
|
|
(586.6 |
) |
|
|
2,681.9 |
|
|
|
2,339.5 |
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.9 |
|
|
|
— |
|
|
|
3.9 |
|
|
(Decrease) increase in cash, cash equivalents and restricted cash |
|
|
— |
|
|
|
(0.2 |
) |
|
|
(478.3 |
) |
|
|
20.8 |
|
|
|
— |
|
|
|
(457.7 |
) |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
— |
|
|
|
0.2 |
|
|
|
490.8 |
|
|
|
145.8 |
|
|
|
— |
|
|
|
636.8 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
— |
|
|
$ |
0.0 |
|
|
$ |
12.5 |
|
|
$ |
166.6 |
|
|
$ |
— |
|
|
$ |
179.1 |
|
41
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The condensed consolidating statements of cash flows for the nine months ended June 30, 2019 do not include non-cash transactions between Parent, Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries. From time to time, we may enter into non-cash transactions for simplicity of execution of intercompany transactions. These may include intercompany non-cash capitalizations, intercompany non-cash returns of capital, intercompany debt-to-equity conversions or other transactions of a similar nature. The table below summarizes these non-cash transactions.
|
|
|
Nine Months Ended June 30, 2019 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables |
|
$ |
(140.9 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
140.9 |
|
|
$ |
— |
|
|
Intercompany payables |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
140.9 |
|
|
$ |
(140.9 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany capital investment |
|
$ |
(10,396.2 |
) |
|
$ |
(5,895.5 |
) |
|
$ |
(6,880.5 |
) |
|
$ |
— |
|
|
$ |
23,172.2 |
|
|
$ |
— |
|
|
Intercompany return of capital |
|
$ |
606.7 |
|
|
$ |
1,479.6 |
|
|
$ |
1,021.4 |
|
|
$ |
— |
|
|
$ |
(3,107.7 |
) |
|
$ |
— |
|
|
Intercompany notes issued |
|
$ |
— |
|
|
$ |
(3,800.0 |
) |
|
$ |
(4,666.4 |
) |
|
$ |
(8,715.4 |
) |
|
$ |
17,181.8 |
|
|
$ |
— |
|
|
Intercompany notes proceeds |
|
$ |
— |
|
|
$ |
4,519.8 |
|
|
$ |
4,519.8 |
|
|
$ |
4,759.6 |
|
|
$ |
(13,799.2 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany capital receipt |
|
$ |
— |
|
|
$ |
10,396.2 |
|
|
$ |
5,413.7 |
|
|
$ |
7,362.3 |
|
|
$ |
(23,172.2 |
) |
|
$ |
— |
|
|
Intercompany capital distribution |
|
$ |
(563.0 |
) |
|
$ |
(606.7 |
) |
|
$ |
(457.5 |
) |
|
$ |
(1,480.5 |
) |
|
$ |
3,107.7 |
|
|
$ |
— |
|
|
Intercompany notes borrowing |
|
$ |
— |
|
|
$ |
4,436.3 |
|
|
$ |
479.1 |
|
|
$ |
12,266.4 |
|
|
$ |
(17,181.8 |
) |
|
$ |
— |
|
|
Intercompany notes payments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(959.6 |
) |
|
$ |
(12,839.6 |
) |
|
$ |
13,799.2 |
|
|
$ |
— |
|
|
Intercompany dividends paid |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(302.2 |
) |
|
$ |
(1,419.6 |
) |
|
$ |
1,721.8 |
|
|
$ |
— |
|
42
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2018 |
|
|||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
Issuer |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
4.0 |
|
|
$ |
359.2 |
|
|
$ |
67.2 |
|
|
$ |
733.5 |
|
|
$ |
(28.3 |
) |
|
$ |
1,135.6 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
— |
|
|
|
— |
|
|
|
(4.4 |
) |
|
|
(661.1 |
) |
|
|
— |
|
|
|
(665.5 |
) |
|
Cash paid related to business combinations, net of cash acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(188.2 |
) |
|
|
— |
|
|
|
(188.2 |
) |
|
Cash receipts on sold trade receivables |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
346.1 |
|
|
|
— |
|
|
|
346.1 |
|
|
Investment in unconsolidated entities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(111.1 |
) |
|
|
— |
|
|
|
(111.1 |
) |
|
Proceeds from sale of property, plant and equipment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22.4 |
|
|
|
— |
|
|
|
22.4 |
|
|
Proceeds from property, plant and equipment insurance settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.2 |
|
|
|
— |
|
|
|
6.2 |
|
|
Intercompany notes issued |
|
|
— |
|
|
|
— |
|
|
|
(1.4 |
) |
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
Intercompany notes proceeds |
|
|
— |
|
|
|
— |
|
|
|
3.9 |
|
|
|
— |
|
|
|
(3.9 |
) |
|
|
— |
|
|
Intercompany return of capital |
|
|
— |
|
|
|
— |
|
|
|
82.6 |
|
|
|
— |
|
|
|
(82.6 |
) |
|
|
— |
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
32.3 |
|
|
|
14.0 |
|
|
|
— |
|
|
|
46.3 |
|
|
Net cash provided by (used for) investing activities |
|
|
— |
|
|
|
— |
|
|
|
113.0 |
|
|
|
(571.7 |
) |
|
|
(85.1 |
) |
|
|
(543.8 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes |
|
|
— |
|
|
|
1,197.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,197.3 |
|
|
(Repayments) additions to revolving credit facilities |
|
|
— |
|
|
|
(106.7 |
) |
|
|
— |
|
|
|
107.0 |
|
|
|
— |
|
|
|
0.3 |
|
|
Additions to debt |
|
|
— |
|
|
|
2.7 |
|
|
|
— |
|
|
|
851.4 |
|
|
|
— |
|
|
|
854.1 |
|
|
Repayments of debt |
|
|
— |
|
|
|
(1,025.2 |
) |
|
|
(22.5 |
) |
|
|
(975.0 |
) |
|
|
— |
|
|
|
(2,022.7 |
) |
|
Other financing repayments |
|
|
— |
|
|
|
— |
|
|
|
(7.3 |
) |
|
|
(13.0 |
) |
|
|
— |
|
|
|
(20.3 |
) |
|
Issuances of common stock, net of related minimum tax withholdings |
|
|
— |
|
|
|
23.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23.2 |
|
|
Purchases of common stock |
|
|
— |
|
|
|
(100.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(100.8 |
) |
|
Cash dividends paid to stockholders |
|
|
— |
|
|
|
(329.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(329.7 |
) |
|
Cash distributions paid to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(26.6 |
) |
|
|
— |
|
|
|
(26.6 |
) |
|
Intercompany notes borrowing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
|
|
(1.4 |
) |
|
|
— |
|
|
Intercompany notes payments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.9 |
) |
|
|
3.9 |
|
|
|
— |
|
|
Intercompany capital distribution |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(82.6 |
) |
|
|
82.6 |
|
|
|
— |
|
|
Intercompany dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(28.3 |
) |
|
|
28.3 |
|
|
|
— |
|
|
Other |
|
|
(4.0 |
) |
|
|
(20.0 |
) |
|
|
— |
|
|
|
30.0 |
|
|
|
— |
|
|
|
6.0 |
|
|
Net cash used for financing activities |
|
|
(4.0 |
) |
|
|
(359.2 |
) |
|
|
(29.8 |
) |
|
|
(139.6 |
) |
|
|
113.4 |
|
|
|
(419.2 |
) |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(23.9 |
) |
|
|
— |
|
|
|
(24.0 |
) |
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
— |
|
|
|
— |
|
|
|
150.3 |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
148.6 |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
— |
|
|
|
— |
|
|
|
43.3 |
|
|
|
260.7 |
|
|
|
— |
|
|
|
304.0 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
193.6 |
|
|
$ |
259.0 |
|
|
$ |
— |
|
|
$ |
452.6 |
|
43
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The condensed consolidating statements of cash flows for the nine months ended June 30, 2018 do not include non-cash transactions between Parent, Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries. From time to time, we may enter into non-cash transactions for simplicity of execution of intercompany transactions. These may include intercompany non-cash capitalizations, intercompany non-cash returns of capital, intercompany debt-to-equity conversions or other transactions of a similar nature. The table below summarizes these non-cash transactions.
|
|
|
Nine Months Ended June 30, 2018 |
|
|||||||||||||||||||||||||||||
|
(In millions) |
|
Parent |
|
|
|
|
Issuer |
|
|
|
|
Guarantor Subsidiaries |
|
|
|
|
Non-Guarantor Subsidiaries |
|
|
|
|
Eliminations |
|
|
Consolidated Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany capital investment |
|
$ |
— |
|
|
|
|
$ |
(755.3 |
) |
|
|
|
$ |
(335.3 |
) |
|
|
|
$ |
— |
|
|
|
|
$ |
1,090.6 |
|
|
$ |
— |
|
|
Intercompany return of capital |
|
$ |
— |
|
|
|
|
$ |
1,356.3 |
|
|
|
|
$ |
766.0 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
(2,122.3 |
) |
|
$ |
— |
|
|
Intercompany notes issued |
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
(392.1 |
) |
|
|
|
$ |
392.1 |
|
|
$ |
— |
|
|
Intercompany notes proceeds |
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
83.0 |
|
|
|
|
$ |
(83.0 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany capital receipt |
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
736.9 |
|
|
|
|
$ |
353.7 |
|
|
|
|
$ |
(1,090.6 |
) |
|
$ |
— |
|
|
Intercompany capital distribution |
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
(1,356.3 |
) |
|
|
|
$ |
(766.0 |
) |
|
|
|
$ |
2,122.3 |
|
|
$ |
— |
|
|
Intercompany notes borrowing |
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
392.1 |
|
|
|
|
$ |
— |
|
|
|
|
$ |
(392.1 |
) |
|
$ |
— |
|
|
Intercompany notes payments |
|
$ |
— |
|
|
|
|
$ |
(69.0 |
) |
|
|
|
$ |
(14.0 |
) |
|
|
|
$ |
— |
|
|
|
|
$ |
83.0 |
|
|
$ |
— |
|
|
Intercompany dividends paid |
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
(285.9 |
) |
|
|
|
$ |
285.9 |
|
|
$ |
— |
|
44
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
Note 14. |
Commitments and Contingencies |
Environmental
We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those governing discharges to air, soil and water, the management, treatment and disposal of hazardous substances, solid waste and hazardous wastes, the investigation and remediation of contamination resulting from historical site operations and releases of hazardous substances, and the health and safety of employees. Our compliance initiatives related to these laws and regulations could result in significant costs, which could negatively impact our results of operations, financial condition and cash flows. Any failure to comply with environmental or health and safety laws and regulations, or any permits and authorizations required thereunder, could subject us to fines, corrective action or other sanctions.
We have been named as a potentially responsible party (“PRP”) in environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). Many of these proceedings involve the cleanup of hazardous substances at landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, liability for CERCLA cleanups is typically shared with other PRPs, and costs are commonly allocated according to relative amounts of waste deposited and other factors. There are other remediation costs typically associated with the cleanup of hazardous substances at our current, closed or formerly-owned facilities, and recorded as liabilities in our balance sheet. Remediation costs are recorded in our financial statements when they become probable and reasonably estimable.
On January 26, 2009, Smurfit-Stone and certain of its subsidiaries filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Smurfit-Stone’s Canadian subsidiaries also filed to reorganize in Canada. We believe that matters relating to previously identified third-party PRP sites and certain facilities formerly owned or operated by Smurfit-Stone have been satisfied by claims in the Smurfit-Stone bankruptcy proceedings. However, we may face additional liability for cleanup activity at sites that are not subject to the bankruptcy discharge, but are not currently identified. The final bankruptcy distributions were made in fiscal 2018.
See “Note 17. Commitments and Contingencies” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for information related to environmental matters.
As of June 30, 2019, we had $10.7 million reserved for environmental liabilities on an undiscounted basis, of which $6.5 million is included in other long-term liabilities and $4.2 million is included in other current liabilities, including amounts accrued in connection with environmental obligations relating to manufacturing facilities that we have closed. We believe the liability for these matters was adequately reserved at June 30, 2019.
Litigation
A lawsuit filed in the U.S. District Court of the Northern District of Illinois in 2010 alleges that certain named defendants violated the Sherman Act by conspiring to limit the supply and fix the prices of containerboard and products containing containerboard from February 15, 2004 through November 8, 2010. WestRock CP, LLC, as the successor to Smurfit-Stone, is a named defendant with respect to the period after Smurfit-Stone’s discharge from bankruptcy on June 30, 2010 through November 8, 2010. The complaint seeks treble damages and costs, including attorney’s fees. In March 2015, the court granted the plaintiffs’ motion for class certification. On January 9, 2017, the defendants filed individual and joint Motions for Summary Judgment in the District Court. On August 3, 2017, the District Court granted our Motion for Summary Judgment and entered a judgment in our favor with respect to all claims against us. The U.S. Court of Appeals for the Seventh Circuit affirmed the District Court’s decision on December 7, 2018. Plaintiff’s time to appeal this affirmation expired on March 7, 2019. Accordingly, the Order of the District Court granting summary judgment and our complete dismissal became final. Additionally, the District Court ordered entry of the stipulation of the parties requiring the plaintiffs to reimburse us for costs of approximately $0.1 million.
We have been named a defendant in asbestos-related personal injury litigation. To date, the costs resulting from the litigation, including settlement costs, have not been significant. As of June 30, 2019, there were approximately 800 such lawsuits. We believe that we have substantial insurance coverage, subject to applicable deductibles and policy limits, with respect to asbestos claims. We also have valid defenses to these asbestos-
45
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
related personal injury claims and intend to continue to defend them vigorously. Should the volume of litigation grow substantially, it is possible that we could incur significant costs resolving these cases. We do not expect the resolution of pending asbestos litigation and proceedings to have a material adverse effect on our results of operations, financial condition or cash flows. In any given period or periods, however, it is possible such proceedings or matters could have a material adverse effect on our results of operations, financial condition or cash flows.
We are a defendant in a number of other lawsuits and claims arising out of the conduct of our business. While the ultimate results of such suits or other proceedings against us cannot be predicted with certainty, we believe the resolution of these other matters will not have a material adverse effect on our results of operations, financial condition or cash flows.
Guarantees
We make certain guarantees in the normal course of conducting our operations, for compliance with certain laws and regulations, or in connection with certain business dispositions. The guarantees include items such as funding of net losses in proportion to our ownership share of certain joint ventures, debt guarantees related to certain unconsolidated entities acquired in acquisitions, indemnifications of lessors in certain facilities and equipment operating leases for items such as additional taxes being assessed due to a change in tax law, and certain other agreements. We estimate our exposure to these matters could be approximately $50 million. As of June 30, 2019, we had recorded $11.8 million for the estimated fair value of these guarantees. We are unable to estimate our maximum exposure under operating leases because it is dependent on potential changes in the tax laws; however, we believe our exposure related to guarantees would not have a material impact on our results of operations, financial condition or cash flows.
|
Note 15. |
Equity and Other Comprehensive Income (Loss) |
Equity
Stock Repurchase Program
In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of our common stock, par value $0.01 per share (“Common Stock”), representing approximately 15% of our outstanding Common Stock as of July 1, 2015. The shares of Common Stock may be repurchased over an indefinite period of time at the discretion of management. Pursuant to the program, in the nine months ended June 30, 2019, we repurchased approximately 2.1 million shares of Common Stock for an aggregate cost of $88.6 million. In the nine months ended June 30, 2018, we repurchased approximately 1.7 million shares of Common Stock for an aggregate cost of $100.8 million. As of June 30, 2019, we had approximately 19.1 million shares of Common Stock available for repurchase under the program.
Accumulated Other Comprehensive Loss
The tables below summarize the changes in accumulated other comprehensive loss, net of tax, by component for the nine months ended June 30, 2019 and June 30, 2018 (in millions):
|
|
|
Cash Flow Hedges |
|
|
Defined Benefit Pension and Postretirement Plans |
|
|
Foreign Currency Items |
|
|
Total (1) |
|
||||
|
Balance at September 30, 2018 |
|
$ |
(0.2 |
) |
|
$ |
(465.9 |
) |
|
$ |
(229.2 |
) |
|
$ |
(695.3 |
) |
|
Other comprehensive loss before reclassifications |
|
|
— |
|
|
|
— |
|
|
|
(13.7 |
) |
|
|
(13.7 |
) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
|
13.6 |
|
|
|
— |
|
|
|
13.6 |
|
|
Net current period other comprehensive income (loss) |
|
|
— |
|
|
|
13.6 |
|
|
|
(13.7 |
) |
|
|
(0.1 |
) |
|
Balance at June 30, 2019 |
|
$ |
(0.2 |
) |
|
$ |
(452.3 |
) |
|
$ |
(242.9 |
) |
|
$ |
(695.4 |
) |
46
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(1) All amounts are net of tax and noncontrolling interests.
|
|
|
Cash Flow Hedges |
|
|
Defined Benefit Pension and Postretirement Plans |
|
|
Foreign Currency Items |
|
|
Available for Sale Security |
|
|
Total (1) |
|
|||||
|
Balance at September 30, 2017 |
|
$ |
(0.7 |
) |
|
$ |
(462.5 |
) |
|
$ |
5.2 |
|
|
$ |
0.7 |
|
|
$ |
(457.3 |
) |
|
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
|
(3.1 |
) |
|
|
(225.3 |
) |
|
|
0.8 |
|
|
|
(227.6 |
) |
|
Amounts reclassified from accumulated other comprehensive loss (income) |
|
|
0.5 |
|
|
|
11.6 |
|
|
|
— |
|
|
|
(1.5 |
) |
|
|
10.6 |
|
|
Net current period other comprehensive income (loss) |
|
|
0.5 |
|
|
|
8.5 |
|
|
|
(225.3 |
) |
|
|
(0.7 |
) |
|
|
(217.0 |
) |
|
Balance at June 30, 2018 |
|
$ |
(0.2 |
) |
|
$ |
(454.0 |
) |
|
$ |
(220.1 |
) |
|
$ |
— |
|
|
$ |
(674.3 |
) |
(1) All amounts are net of tax and noncontrolling interests.
The net of tax amounts were determined using the jurisdictional statutory rates, and reflect effective tax rates averaging 25% to 26% for the nine months ended June 30, 2019 and 28% to 29% for the nine months ended June 30, 2018. Although we are impacted by the exchange rates of a number of currencies, foreign currency translation losses recorded in accumulated other comprehensive loss for the nine months ended June 30, 2019 were primarily due to losses in the Canadian dollar, Mexican Peso, British Pound and Euro, partially offset by changes in the Brazilian Real exchange rate, each against the U.S. dollar. Foreign currency translation losses recorded in accumulated other comprehensive loss for the nine months ended June 30, 2018 were primarily due to losses in the Brazilian Real, Canadian dollar, Mexican Peso, Euro, British Pound and Australian dollar, each against the U.S. dollar.
The following table summarizes the reclassifications out of accumulated other comprehensive loss by component (in millions):
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||||||||||
|
|
|
June 30, 2019 |
|
|
June 30, 2018 |
|
||||||||||||||||||
|
|
|
Pretax |
|
|
Tax |
|
|
Net of Tax |
|
|
Pretax |
|
|
Tax |
|
|
Net of Tax |
|
||||||
|
Amortization of defined benefit pension and postretirement items: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (2) |
|
$ |
(5.9 |
) |
|
$ |
1.5 |
|
|
$ |
(4.4 |
) |
|
$ |
(6.8 |
) |
|
$ |
1.9 |
|
|
$ |
(4.9 |
) |
|
Prior service costs (2) |
|
|
(0.5 |
) |
|
|
0.1 |
|
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
Subtotal defined benefit plans |
|
|
(6.4 |
) |
|
|
1.6 |
|
|
|
(4.8 |
) |
|
|
(7.1 |
) |
|
|
2.0 |
|
|
|
(5.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period |
|
$ |
(6.4 |
) |
|
$ |
1.6 |
|
|
$ |
(4.8 |
) |
|
$ |
(7.1 |
) |
|
$ |
2.0 |
|
|
$ |
(5.1 |
) |
(1) Amounts in parentheses indicate charges to earnings. Amounts pertaining to noncontrolling interests are excluded.
(2) Included in the computation of net periodic pension cost. See “Note 5. Retirement Plans” for additional details.
47
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
|
June 30, 2019 |
|
|
June 30, 2018 |
|
||||||||||||||||||
|
|
|
Pretax |
|
|
Tax |
|
|
Net of Tax |
|
|
Pretax |
|
|
Tax |
|
|
Net of Tax |
|
||||||
|
Amortization of defined benefit pension and postretirement items: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (2) |
|
$ |
(16.6 |
) |
|
$ |
4.3 |
|
|
$ |
(12.3 |
) |
|
$ |
(15.7 |
) |
|
$ |
4.3 |
|
|
$ |
(11.4 |
) |
|
Prior service costs (2) |
|
|
(1.7 |
) |
|
|
0.4 |
|
|
|
(1.3 |
) |
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
Subtotal defined benefit plans |
|
|
(18.3 |
) |
|
|
4.7 |
|
|
|
(13.6 |
) |
|
|
(16.0 |
) |
|
|
4.4 |
|
|
|
(11.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale security (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
1.5 |
|
|
|
— |
|
|
1.5 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency cash flow hedges (4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.7 |
) |
|
|
0.2 |
|
|
|
(0.5 |
) |
|
Total reclassifications for the period |
|
$ |
(18.3 |
) |
|
$ |
4.7 |
|
|
$ |
(13.6 |
) |
|
$ |
(15.2 |
) |
|
$ |
4.6 |
|
|
$ |
(10.6 |
) |
(1) Amounts in parentheses indicate charges to earnings. Amounts pertaining to noncontrolling interests are excluded.
(2) Included in the computation of net periodic pension cost. See “Note 5. Retirement Plans” for additional details.
(3) Included in other income (expense), net.
(4) Included in net sales.
|
Note 16. |
Earnings Per Share |
The restricted stock awards that we grant to non-employee directors are considered participating securities as they receive non-forfeitable rights to dividends at the same rate as our Common Stock. As participating securities, we include these instruments in the earnings allocation in computing earnings per share under the two-class method described in ASC 260 “Earnings per Share.” The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in millions, except per share data):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
252.6 |
|
|
$ |
268.2 |
|
|
$ |
552.1 |
|
|
$ |
1,626.5 |
|
|
Less: Distributed and undistributed income available to participating securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.2 |
) |
|
Distributed and undistributed income available to common stockholders |
|
$ |
252.6 |
|
|
$ |
268.2 |
|
|
$ |
552.1 |
|
|
$ |
1,626.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
257.3 |
|
|
|
256.1 |
|
|
|
256.2 |
|
|
|
255.7 |
|
|
Effect of dilutive stock options and non- participating securities |
|
|
1.3 |
|
|
|
4.5 |
|
|
|
2.9 |
|
|
|
4.3 |
|
|
Diluted weighted average shares outstanding |
|
|
258.6 |
|
|
|
260.6 |
|
|
|
259.1 |
|
|
|
260.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to common stockholders |
|
$ |
0.98 |
|
|
$ |
1.05 |
|
|
$ |
2.15 |
|
|
$ |
6.36 |
|
|
Diluted earnings per share attributable to common stockholders |
|
$ |
0.98 |
|
|
$ |
1.03 |
|
|
$ |
2.13 |
|
|
$ |
6.25 |
|
Approximately 1.4 million and 0.1 million awards in the three months ended June 30, 2019 and June 30, 2018, respectively, were not included in computing diluted earnings per share because the effect would have been
48
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
antidilutive. Approximately 1.3 million and 0.1 million awards in the nine months ended June 30, 2019 and June 30, 2018, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive.
49
|
Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included herein and our audited Consolidated Financial Statements and Notes thereto for the fiscal year ended September 30, 2018, as well as the information under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are part of Exhibit 99.1 our May 9, 2019 Form 8-K. The following discussion includes certain non-GAAP financial measures. See our reconciliations of non-GAAP financial measures in the “Non-GAAP Financial Measures” section below.
Overview
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.
Presentation
We report our financial results of operations in the following three reportable segments: Corrugated Packaging, which consists of our containerboard mill, corrugated packaging and distribution operations, as well as our merchandising displays and recycling procurement operations; Consumer Packaging, which consists of our consumer mills, food and beverage and partition operations; and Land and Development, which sells real estate primarily in the Charleston, SC region. Effective in the first quarter of fiscal 2019, we aligned our financial results for all periods presented 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 to our reportable segments. Separately, in the first quarter of fiscal 2019, we began conducting our recycling operations primarily as a procurement function. Since then, recycling net sales have not been recorded and the margin from the operations has reduced cost of goods sold. Certain income and expenses are not allocated to our segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect these amounts. Items not allocated are reported as non-allocated expenses or in other line items in the table below after segment income. In addition, see “Note 1. Basis of Presentation and Significant Accounting Policies—Basis of Presentation” for more information.
WRKCo was the accounting acquirer in the KapStone Acquisition; therefore, the historical consolidated financial statements of WRKCo for periods prior to November 2, 2018 (including the nine months ended June 30, 2018) are also considered to be the historical financial statements of the Company.
Acquisitions
On November 2, 2018, we completed the KapStone Acquisition. 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 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.
On September 4, 2018, we completed the acquisition of Schlüter Print Pharma Packaging (“Schlüter”). Schlüter is a leading provider of differentiated paper and packaging solutions and a German-based supplier of a full range of leaflets and booklets. The acquisition has further enhanced our pharmaceutical and automotive platform and expanded our geographical footprint in Europe to better serve our customers. We have included the financial results of the acquired operations in our Consumer Packaging segment since the date of the acquisition.
On January 5, 2018, we completed the acquisition (the “Plymouth Acquisition”) of substantially all of the assets of Plymouth Packaging, Inc. (“Plymouth”). The assets we acquired included Plymouth’s “Box on Demand” systems, which are manufactured by Panotec, an Italian manufacturer of packaging machines. The Box on Demand systems have enhanced our platform and driven our differentiation and innovation. As part of the transaction, we acquired Plymouth’s equity interest in Panotec and Plymouth’s exclusive right from Panotec to distribute Panotec’s equipment in the U.S. and Canada. We have fully integrated the approximately 60,000 tons of
50
containerboard used by Plymouth annually. We have included the financial results of Plymouth in our Corrugated Packaging segment since the date of the acquisition.
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 and “Note 3. Acquisitions” of the Notes to Condensed Consolidated Financial Statements for more information.
Executive Summary
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
|
|
|||||||||||||
|
Net sales |
|
$ |
4,690.0 |
|
|
$ |
4,137.5 |
|
|
$ |
13,637.4 |
|
|
$ |
12,048.5 |
|
|
Segment income |
|
$ |
485.3 |
|
|
$ |
457.9 |
|
|
$ |
1,205.7 |
|
|
$ |
1,194.8 |
|
Net sales of $4,690.0 million for the third quarter of fiscal 2019 increased $552.5 million, or 13.4%, compared to the third quarter of fiscal 2018. The increase was primarily due to the KapStone Acquisition and higher selling price/mix in our Corrugated Packaging and Consumer Packaging segments. These increases were partially offset by the absence of recycling net sales in fiscal 2019 as a result of conducting the operations primarily as a procurement function beginning in the first quarter of fiscal 2019, lower volumes and unfavorable foreign currency impacts across our segments compared to the prior year quarter.
Segment income increased $27.4 million in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018, primarily due to increased Corrugated Packaging segment income partially offset by lower Consumer Packaging and Land and Development segment income. The impact of the contribution from the acquired KapStone operations, higher selling price/mix across our segments and productivity improvements was largely offset by lower volumes across our segments, economic downtime, cost inflation, increased maintenance and scheduled strategic outage expense (including the project at our Covington, VA mill) and lower Land and Development segment income due to sales winding down. We experienced higher levels of cost inflation in both our Corrugated Packaging and Consumer Packaging segments during the third quarter of fiscal 2019 as compared to the third quarter of fiscal 2018 that were partially offset by recovered fiber, chemical and energy deflation. The primary inflationary items were virgin fiber, freight, and wage and other costs. A detailed review of our performance appears below under “Results of Operations (Consolidated)” and “Results of Operations (Segment Data)”.
We believe that we are performing well as we proactively respond to a changing industry landscape characterized by the challenges of additional new paper capacity combined with softer demand in some markets.
In our Corrugated Packaging segment, during the third quarter of fiscal 2019, we reduced containerboard and kraft paper production by taking approximately 259,000 tons of downtime including 94,000 tons attributable to planned maintenance and 165,000 tons of economic downtime. Our inventories are now in a range that will allow us to efficiently operate our system. We expect to continue to match our production to our customers’ demand. The integration rate within our Corrugated Packaging segment was 80% during the third quarter of fiscal 2019 and we are now targeting a 90% integration rate over the next several years. We continue to invest in strategic capital projects within the Corrugated Packaging segment – for example, the new paper machine at our Florence, SC mill is scheduled to start up during the first half of calendar 2020 and the upgrade of our mill located in Tres Barras, Brazil is expected to be completed in the first half of calendar 2021.
We believe that we have made significant progress integrating KapStone’s operations into our management and operating structures, and we expect to realize more than $200 million in run-rate synergies and performance improvements by the end of fiscal 2021.
In our Consumer Packaging segment, during the third quarter of fiscal 2019, we completed strategic capital and maintenance outages at our mills located in Cottonton, AL (Mahrt), Demopolis, AL and Covington, VA. With the completion of these projects, we expect our supply chain to stabilize and to see earnings improvement within the Consumer Packaging segment during the fourth quarter of fiscal 2019. Sustainable packaging and plastic replacements are generating significant market demand and interest. Our Consumer Packaging segment has projects with customers to replace plastics with fiber-based packaging and we expect to reach a $100 million annualized run rate related to these projects by the end of fiscal 2019.
51
For the fourth quarter of fiscal 2019, we expect:
|
|
• |
higher sequential seasonal volumes across both segments to be more than offset by the flow through of previously published containerboard and kraft paper price declines and lower containerboard export prices; |
|
|
• |
to benefit from sequential cost deflation driven by declines in virgin fiber costs, freight costs, recycled fiber and seasonally lower energy costs; and |
|
|
• |
to benefit from lower scheduled mill outages and seasonal productivity improvements. |
Non-GAAP Financial Measures
We report our financial results in accordance with GAAP. However, we have included financial measures that were not prepared in accordance with GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures of other companies.
We use the non-GAAP financial measures “Adjusted Net Income” and “Adjusted Earnings Per Diluted Share”. Management believes these non-GAAP financial measures provide our board of directors, investors, potential investors, securities analysts and others with useful information to evaluate our performance because the measures exclude restructuring and other costs and other specific items that management believes are not indicative of the ongoing operating results of the business. We and our board of directors use this information to evaluate our performance relative to other periods. We believe that the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Earnings Per Diluted Share are Net income attributable to common stockholders, represented in the table below as the GAAP Results for Consolidated net income (i.e. Net of Tax) plus Noncontrolling interests, and Earnings per diluted share, respectively. The GAAP results in the tables below for Pre-Tax, Tax and Net of Tax are equivalent to the line items “Income before income taxes”, “Income tax (expense) benefit” and “Consolidated net income”, respectively, as reported on the statements of income.
Earnings per diluted share were $0.98 in the third quarter of fiscal 2019 compared to $1.03 in the third quarter of fiscal 2018. Adjusted Earnings Per Diluted Share were $1.11 and $1.09 in the third quarter of fiscal 2019 and 2018, respectively.
52
Set forth below is a reconciliation of the non-GAAP financial measure Adjusted Earnings Per Diluted Share to Earnings per diluted share, the most directly comparable GAAP measure (in dollars per share) for the periods indicated.
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Earnings per diluted share |
|
$ |
0.98 |
|
|
$ |
1.03 |
|
|
$ |
2.13 |
|
|
$ |
6.25 |
|
|
Restructuring and other items |
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.36 |
|
|
|
0.19 |
|
|
Multiemployer pension withdrawals |
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.52 |
|
|
Direct expenses from Hurricane Michael, net of related proceeds |
|
|
0.01 |
|
|
|
— |
|
|
|
0.13 |
|
|
|
— |
|
|
Inventory stepped-up in purchase accounting, net of LIFO |
|
|
— |
|
|
|
— |
|
|
|
0.07 |
|
|
|
— |
|
|
Loss (gain) on sale of certain closed facilities |
|
|
0.01 |
|
|
|
— |
|
|
|
(0.14 |
) |
|
|
— |
|
|
Accelerated depreciation on major capital projects and certain plant closures |
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.08 |
|
|
|
0.05 |
|
|
Interest accretion and other |
|
|
— |
|
|
|
— |
|
|
|
(0.02 |
) |
|
|
— |
|
|
Losses at closed plants, transition and start-up costs |
|
|
0.03 |
|
|
|
— |
|
|
|
0.04 |
|
|
|
0.05 |
|
|
Land and Development impairment and operating results (1) |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
0.03 |
|
|
|
0.01 |
|
|
Loss on extinguishment of debt |
|
|
0.01 |
|
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
|
Impact of Tax Cuts and Jobs Act |
|
|
— |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
(4.29 |
) |
|
Consumer Packaging segment acquisition reserve adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.03 |
) |
|
Acquisition bridge and other financing fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.03 |
|
|
Gain on sale of waste services |
|
|
— |
|
|
|
(0.03 |
) |
|
|
— |
|
|
|
(0.03 |
) |
|
Other |
|
|
— |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.04 |
|
|
Adjusted Earnings Per Diluted Share |
|
$ |
1.11 |
|
|
$ |
1.09 |
|
|
$ |
2.74 |
|
|
$ |
2.79 |
|
|
(1) |
Includes a $13.0 million and $23.6 million impairment of mineral rights in the nine months ended June 30, 2019 and 2018, respectively. |
The GAAP results in the tables below for Pre-Tax, Tax and Net of Tax are equivalent to the line items “Income before income taxes”, “Income tax (expense) benefit” and “Consolidated net income”, respectively, as reported on the statements of income. Set forth below are reconciliations of Adjusted Net Income to the most directly comparable GAAP measure, Net income attributable to common stockholders (represented in the table below as the GAAP Results for Consolidated net income (i.e. Net of Tax) plus Noncontrolling interests), for the periods indicated (in millions):
53
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||
|
|
|
Pre-Tax |
|
|
Tax |
|
|
Net of Tax |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
|
$ |
331.4 |
|
|
$ |
(77.6 |
) |
|
$ |
253.8 |
|
|
Restructuring and other items |
|
|
17.9 |
|
|
|
(4.0 |
) |
|
|
13.9 |
|
|
Direct expenses from Hurricane Michael, net of related proceeds |
|
|
3.6 |
|
|
|
(0.9 |
) |
|
|
2.7 |
|
|
Loss on sale of certain closed facilities |
|
|
2.7 |
|
|
|
(0.7 |
) |
|
|
2.0 |
|
|
Accelerated depreciation on major capital projects and certain plant closures |
|
|
9.4 |
|
|
|
(2.3 |
) |
|
|
7.1 |
|
|
Losses at closed plants, transition and start-up costs |
|
|
8.6 |
|
|
|
(2.7 |
) |
|
|
5.9 |
|
|
Gain on extinguishment of debt |
|
|
3.2 |
|
|
|
(0.7 |
) |
|
|
2.5 |
|
|
Land and Development impairment and operating results |
|
|
(1.6 |
) |
|
|
0.4 |
|
|
|
(1.2 |
) |
|
Other |
|
|
1.5 |
|
|
|
(0.4 |
) |
|
|
1.1 |
|
|
Adjusted Results |
|
$ |
376.7 |
|
|
$ |
(88.9 |
) |
|
$ |
287.8 |
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(1.2 |
) |
|
Adjusted Net Income |
|
|
|
|
|
|
|
|
|
$ |
286.6 |
|
|
|
|
Nine Months Ended June 30, 2019 |
|
|||||||||
|
|
|
Pre-Tax |
|
|
Tax |
|
|
Net of Tax |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
|
$ |
743.0 |
|
|
$ |
(187.5 |
) |
|
$ |
555.5 |
|
|
Restructuring and other items |
|
|
107.1 |
|
|
|
(12.9 |
) |
|
|
94.2 |
|
|
Direct expenses from Hurricane Michael, net of related proceeds |
|
|
42.3 |
|
|
|
(10.4 |
) |
|
|
31.9 |
|
|
Inventory stepped-up in purchase accounting, net of LIFO |
|
|
24.7 |
|
|
|
(6.0 |
) |
|
|
18.7 |
|
|
Gain on sale of certain closed facilities |
|
|
(47.8 |
) |
|
|
11.7 |
|
|
|
(36.1 |
) |
|
Accelerated depreciation on major capital projects and certain plant closures |
|
|
27.0 |
|
|
|
(6.8 |
) |
|
|
20.2 |
|
|
Interest accretion and other |
|
|
(5.5 |
) |
|
|
1.3 |
|
|
|
(4.2 |
) |
|
Losses at closed plants, transition and start-up costs |
|
|
15.4 |
|
|
|
(4.6 |
) |
|
|
10.8 |
|
|
Loss on extinguishment of debt |
|
|
4.7 |
|
|
|
(1.1 |
) |
|
|
3.6 |
|
|
Land and Development impairment and operating results (1) |
|
|
10.2 |
|
|
|
(2.5 |
) |
|
|
7.7 |
|
|
Impact of Tax Cuts and Jobs Act |
|
|
— |
|
|
|
4.1 |
|
|
|
4.1 |
|
|
Other |
|
|
8.0 |
|
|
|
(1.9 |
) |
|
|
6.1 |
|
|
Adjusted Results |
|
$ |
929.1 |
|
|
$ |
(216.6 |
) |
|
$ |
712.5 |
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(3.4 |
) |
|
Adjusted Net Income |
|
|
|
|
|
|
|
|
|
$ |
709.1 |
|
(1)Includes a $13.0 million impairment of mineral rights in the nine months ended
June 30, 2019.
54
|
|
|
Three Months Ended June 30, 2018 |
|
|||||||||
|
|
|
Pre-Tax |
|
|
Tax |
|
|
Net of Tax |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
|
$ |
355.8 |
|
|
$ |
(84.5 |
) |
|
$ |
271.3 |
|
|
Impact of Tax Cuts and Jobs Act |
|
|
— |
|
|
|
4.1 |
|
|
|
4.1 |
|
|
Multiemployer pension withdrawal |
|
|
4.2 |
|
|
|
(1.1 |
) |
|
|
3.1 |
|
|
Restructuring and other items |
|
|
17.1 |
|
|
|
(4.4 |
) |
|
|
12.7 |
|
|
Land and Development impairment and operating results |
|
|
(5.8 |
) |
|
|
1.6 |
|
|
|
(4.2 |
) |
|
Losses at closed plants and transition costs |
|
|
0.8 |
|
|
|
(0.2 |
) |
|
|
0.6 |
|
|
Accelerated depreciation on major capital projects |
|
|
6.8 |
|
|
|
(1.9 |
) |
|
|
4.9 |
|
|
Gain on extinguishment of debt |
|
|
(0.9 |
) |
|
|
0.2 |
|
|
|
(0.7 |
) |
|
Gain on sale of waste services |
|
|
(12.3 |
) |
|
|
3.7 |
|
|
|
(8.6 |
) |
|
Other |
|
|
5.2 |
|
|
|
(0.8 |
) |
|
|
4.4 |
|
|
Adjusted Results |
|
$ |
370.9 |
|
|
$ |
(83.3 |
) |
|
$ |
287.6 |
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(3.1 |
) |
|
Adjusted Net Income |
|
|
|
|
|
|
|
|
|
$ |
284.5 |
|
|
|
|
Nine Months Ended June 30, 2018 |
|
|||||||||
|
|
|
Pre-Tax |
|
|
Tax |
|
|
Net of Tax |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Results |
|
$ |
659.4 |
|
|
$ |
969.9 |
|
|
$ |
1,629.3 |
|
|
Impact of Tax Cuts and Jobs Act |
|
|
— |
|
|
|
(1,114.3 |
) |
|
|
(1,114.3 |
) |
|
Multiemployer pension withdrawals |
|
|
183.3 |
|
|
|
(47.7 |
) |
|
|
135.6 |
|
|
Restructuring and other items |
|
|
65.1 |
|
|
|
(16.6 |
) |
|
|
48.5 |
|
|
Inventory stepped-up in purchase accounting, net of LIFO |
|
|
1.0 |
|
|
|
(0.3 |
) |
|
|
0.7 |
|
|
Land and Development impairments and operating results (1) |
|
|
3.5 |
|
|
|
(0.6 |
) |
|
|
2.9 |
|
|
Losses at closed plants and transition costs |
|
|
18.1 |
|
|
|
(4.7 |
) |
|
|
13.4 |
|
|
Accelerated depreciation on major capital projects |
|
|
19.2 |
|
|
|
(5.3 |
) |
|
|
13.9 |
|
|
Consumer Packaging segment acquisition reserve adjustment |
|
|
(10.0 |
) |
|
|
2.6 |
|
|
|
(7.4 |
) |
|
Acquisition bridge and other financing fees |
|
|
10.1 |
|
|
|
(2.6 |
) |
|
|
7.5 |
|
|
Gain on sale of waste services |
|
|
(12.3 |
) |
|
|
3.7 |
|
|
|
(8.6 |
) |
|
Other |
|
|
9.3 |
|
|
|
(1.7 |
) |
|
|
7.6 |
|
|
Adjusted Results |
|
$ |
946.7 |
|
|
$ |
(217.6 |
) |
|
$ |
729.1 |
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(2.8 |
) |
|
Adjusted Net Income |
|
|
|
|
|
|
|
|
|
$ |
726.3 |
|
(1)Includes a $23.6 million impairment of mineral rights in the nine months ended
June 30, 2018.
We discuss certain of these charges in more detail in “Note 4. Restructuring and Other Costs”, “Note 5. Retirement Plans” and “Note 6. Income Taxes” of the Notes to Condensed Consolidated Financial Statements.
55
Results of Operations (Consolidated)
The following table summarizes our consolidated results for the three and nine months ended June 30, 2019 and June 30, 2018 (in millions):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Net sales |
|
$ |
4,690.0 |
|
|
$ |
4,137.5 |
|
|
$ |
13,637.4 |
|
|
$ |
12,048.5 |
|
|
Cost of goods sold |
|
|
3,701.1 |
|
|
|
3,270.4 |
|
|
|
10,967.1 |
|
|
|
9,618.5 |
|
|
Selling, general and administrative expenses, excluding intangible amortization |
|
|
442.4 |
|
|
|
380.7 |
|
|
|
1,287.4 |
|
|
|
1,157.3 |
|
|
Selling, general and administrative intangible amortization |
|
|
102.4 |
|
|
|
75.6 |
|
|
|
297.7 |
|
|
|
223.3 |
|
|
Loss (gain) on disposal of assets |
|
|
6.5 |
|
|
|
2.7 |
|
|
|
(37.3 |
) |
|
|
6.6 |
|
|
Multiemployer pension withdrawals |
|
|
(1.7 |
) |
|
|
4.2 |
|
|
|
(1.7 |
) |
|
|
184.2 |
|
|
Land and Development impairments |
|
|
— |
|
|
|
1.7 |
|
|
|
13.0 |
|
|
|
29.3 |
|
|
Restructuring and other costs |
|
|
17.9 |
|
|
|
17.1 |
|
|
|
107.1 |
|
|
|
65.1 |
|
|
Operating profit |
|
|
421.4 |
|
|
|
385.1 |
|
|
|
1,004.1 |
|
|
|
764.2 |
|
|
Interest expense, net |
|
|
(111.1 |
) |
|
|
(76.7 |
) |
|
|
(317.3 |
) |
|
|
(219.8 |
) |
|
(Loss) gain on extinguishment of debt |
|
|
(3.2 |
) |
|
|
0.9 |
|
|
|
(4.7 |
) |
|
|
— |
|
|
Pension and other postretirement non-service income |
|
|
18.9 |
|
|
|
21.3 |
|
|
|
54.9 |
|
|
|
70.5 |
|
|
Other income (expense), net |
|
|
3.7 |
|
|
|
9.7 |
|
|
|
(2.3 |
) |
|
|
13.3 |
|
|
Equity in income of unconsolidated entities |
|
|
1.7 |
|
|
|
15.5 |
|
|
|
8.3 |
|
|
|
31.2 |
|
|
Income before income taxes |
|
|
331.4 |
|
|
|
355.8 |
|
|
|
743.0 |
|
|
|
659.4 |
|
|
Income tax (expense) benefit |
|
|
(77.6 |
) |
|
|
(84.5 |
) |
|
|
(187.5 |
) |
|
|
969.9 |
|
|
Consolidated net income |
|
|
253.8 |
|
|
|
271.3 |
|
|
|
555.5 |
|
|
|
1,629.3 |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
(1.2 |
) |
|
|
(3.1 |
) |
|
|
(3.4 |
) |
|
|
(2.8 |
) |
|
Net income attributable to common stockholders |
|
$ |
252.6 |
|
|
$ |
268.2 |
|
|
$ |
552.1 |
|
|
$ |
1,626.5 |
|
Net Sales (Unaffiliated Customers)
|
(In millions, except percentages) |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Nine Months Ended 6/30 |
|
|
Fourth Quarter |
|
|
Fiscal Year |
|
||||||
|
Fiscal 2018 |
|
$ |
3,894.0 |
|
|
$ |
4,017.0 |
|
|
$ |
4,137.5 |
|
|
$ |
12,048.5 |
|
|
$ |
4,236.6 |
|
|
$ |
16,285.1 |
|
|
Fiscal 2019 |
|
$ |
4,327.4 |
|
|
$ |
4,620.0 |
|
|
$ |
4,690.0 |
|
|
$ |
13,637.4 |
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
11.1 |
% |
|
|
15.0 |
% |
|
|
13.4 |
% |
|
|
13.2 |
% |
|
|
|
|
|
|
|
|
Net sales in the third quarter of fiscal 2019 increased $552.5 million compared to the third quarter of fiscal 2018. The increase was primarily due to the KapStone Acquisition and higher selling price/mix in our Corrugated Packaging and Consumer Packaging segments. These increases were partially offset by the absence of recycling net sales in fiscal 2019 as a result of conducting the operations primarily as a procurement function beginning in the first quarter of fiscal 2019, lower volumes and unfavorable foreign currency impacts across our segments compared to the prior year quarter.
Similarly, net sales in the nine months ended June 30, 2019 increased $1,588.9 million compared to the nine months ended June 30, 2018. We discuss our segment sales in greater detail below in “Results of Operations (Segment Data)”.
56
Cost of Goods Sold
|
(In millions, except percentages) |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Nine Months Ended 6/30 |
|
|
Fourth Quarter |
|
|
Fiscal Year |
|
||||||
|
Fiscal 2018 |
|
$ |
3,120.5 |
|
|
$ |
3,227.6 |
|
|
$ |
3,270.4 |
|
|
$ |
9,618.5 |
|
|
$ |
3,304.6 |
|
|
$ |
12,923.1 |
|
|
(% of Net Sales) |
|
|
80.1 |
% |
|
|
80.3 |
% |
|
|
79.0 |
% |
|
|
79.8 |
% |
|
|
78.0 |
% |
|
|
79.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
$ |
3,545.6 |
|
|
$ |
3,720.4 |
|
|
$ |
3,701.1 |
|
|
$ |
10,967.1 |
|
|
|
|
|
|
|
|
|
|
(% of Net Sales) |
|
|
81.9 |
% |
|
|
80.5 |
% |
|
|
78.9 |
% |
|
|
80.4 |
% |
|
|
|
|
|
|
|
|
The increase in cost of goods sold in the third quarter of fiscal 2019 and the nine months ended June 30, 2019 compared to the prior year periods was primarily due to increased net sales associated with the impact of acquisitions (primarily the KapStone Acquisition), higher levels of cost inflation and other items. These factors were partially offset by lower recovered fiber costs and productivity improvements. We discuss these items in greater detail below in “Results of Operations (Segment Data)”. In the three and nine months ended June 30, 2019, we received $30.0 million and $110.0 million of insurance proceeds related primarily to the Panama City mill that were recorded as a reduction of cost of goods sold. See “Hurricane Michael” below for additional information.
Selling, General and Administrative Excluding Intangible Amortization
|
(In millions, except percentages) |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Nine Months Ended 6/30 |
|
|
Fourth Quarter |
|
|
Fiscal Year |
|
||||||
|
Fiscal 2018 |
|
$ |
380.8 |
|
|
$ |
395.8 |
|
|
$ |
380.7 |
|
|
$ |
1,157.3 |
|
|
$ |
389.3 |
|
|
$ |
1,546.6 |
|
|
(% of Net Sales) |
|
|
9.8 |
% |
|
|
9.9 |
% |
|
|
9.2 |
% |
|
|
9.6 |
% |
|
|
9.2 |
% |
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
$ |
400.9 |
|
|
$ |
444.1 |
|
|
$ |
442.4 |
|
|
$ |
1,287.4 |
|
|
|
|
|
|
|
|
|
|
(% of Net Sales) |
|
|
9.3 |
% |
|
|
9.6 |
% |
|
|
9.4 |
% |
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses (“SG&A”) excluding intangible amortization increased $61.7 million in the third quarter of fiscal 2019 compared to the prior year quarter. SG&A excluding intangible amortization increased $130.1 million in the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018. The increases were primarily due to the KapStone Acquisition.
Selling, General and Administrative Intangible Amortization
SG&A intangible amortization was $102.4 million and $75.6 million in the third quarter of fiscal 2019 and 2018, respectively. SG&A intangible amortization was $297.7 million and $223.3 million in the nine months ended June 30, 2019 and June 30, 2018, respectively. The increases were primarily due to the KapStone Acquisition.
Loss (Gain) on Disposal of Assets
In the third quarter of fiscal 2019, we recorded a loss on disposal of assets of $6.5 million. In the nine months ended June 30, 2019, we recorded a gain on disposal of assets of $37.3 primarily due to a $48.5 million gain on sale of our former Atlanta beverage facility in the first quarter of fiscal 2019. In the three and nine months ended June 30, 2018, we recorded a loss on disposal of $2.7 million and $6.6, respectively.
MEPPs
In the third quarter of fiscal 2019, we recorded a $1.7 million reduction to a previously recorded MEPP withdrawal liability. In the third quarter of fiscal 2018, we submitted formal notification to withdraw from the Central States, Southeast and Southwest Areas Pension Fund and recorded an estimated withdrawal liability of $4.2 million. In the first quarter of fiscal 2018, we submitted formal notification to withdraw from PIUMPF and recorded an estimated withdrawal liability of $180.0 million, which includes an estimate of our portion of PIUMPF’s accumulated funding deficiency. Since these withdrawal liabilities assume payment over 20 years, the liabilities were discounted
57
at a credit adjusted risk-free rate; therefore, we will accrete the liability over time with a charge to interest expense. See “Note 5. Retirement Plans” of the Notes to Condensed Consolidated Financial Statements for additional information.
Land and Development Impairments
We recorded aggregate pre-tax non-cash land and development impairment charges of $13.0 million in the nine months ended June 30, 2019 and $1.7 million and $29.3 million in the three and nine months ended June 30, 2018, respectively. In the second quarter of fiscal 2019, we recorded a $13.0 million impairment of certain mineral rights. In the third quarter of fiscal 2018, we recorded a $1.7 million impairment of real estate for projects where the projected sales proceeds were less than the carrying value. In the first quarter of fiscal 2018, we recorded a $27.6 million impairment of certain mineral rights and real estate, $23.6 million of which was related to the impairment of mineral rights driven by the non-renewal of a lease and associated with declining oil and gas prices and $4.0 million of which was related to the carrying value on real estate projects where the projected sales proceeds were less than the carrying value. These charges are not reflected in segment income.
Restructuring and Other Costs
We recorded aggregate pre-tax restructuring and other costs of $17.9 million and $17.1 million in the third quarter of fiscal 2019 and 2018, respectively, and $107.1 and $65.1 in the nine months ended June 30, 2019 and June 30, 2018, respectively. These amounts are not comparable since the timing and scope of the individual actions associated with a given restructuring, acquisition, divestiture or integration vary. We generally expect the integration of a closed facility’s assets and production with other facilities to enable the receiving facilities to better leverage their fixed costs while eliminating fixed costs from the closed facility. See “Note 4. Restructuring and Other Costs” of the Notes to Condensed Consolidated Financial Statements for additional information.
Interest Expense, net
Interest expense, net for the third quarter of fiscal 2019 was $111.1 million compared to $76.7 million for the prior year quarter. Interest expense, net for the nine months ended June 30, 2019 was $317.3 million compared to $219.8 million for the prior year period. Interest expense, net in the three and nine months ended June 30, 2019 increased primarily due to debt incurred as a result of the KapStone Acquisition and higher interest rates.
Pension and Other Postretirement Non-Service Income
Pension and other postretirement non-service income for the third quarter of fiscal 2019 was $18.9 million compared to $21.3 million for the third quarter of fiscal 2018. Pension and other postretirement non-service income for the nine months ended June 30, 2019 was $54.9 million compared to $70.5 million for the nine months ended June 30, 2018. The decreases were primarily due to the decline in plan asset balances used to determine the expected return on plan assets for fiscal 2019.
Other income (expense), net
Other income (expense), net for the third quarter of fiscal 2019 was $3.7 million of income compared to $9.7 million of income in the third quarter of fiscal 2018. Other income (expense), net for the nine months ended June 30, 2019 was an expense of $2.3 million compared to income of $13.3 million for the nine months ended June 30, 2018. The income in the three and nine months ended June 30, 2018 was primarily due to a $12.3 million gain on the sale of our solid waste management brokerage services business.
Provision for Income Taxes
We recorded income tax expense of $77.6 million for the three months ended June 30, 2019 compared to an income tax expense of $84.5 million for the three months ended June 30, 2018. The effective tax rate for the three months ended June 30, 2019 was 23.4%, while the effective tax rate for the three months ended June 30, 2018 was 23.7%.
58
We recorded income tax expense of $187.5 million for the nine months ended June 30, 2019 compared to an income tax benefit of $969.9 million for the nine months ended June 30, 2018. The effective tax rate for the nine months ended June 30, 2019 was 25.2%, while the effective tax rate for the nine months ended June 30, 2018 was a benefit of 147.1%. The income tax benefit in the nine months ended June 30, 2018 was due to the impact of the Tax Act.
See “Note 6. Income Taxes” of the Notes to Condensed Consolidated Financial Statements for the primary factors impacting our effective tax rates, including the impact of the Tax Act.
Hurricane Michael
In October 2018, our containerboard and pulp mill located in Panama City, FL sustained extensive damage from Hurricane Michael. We shut down the mill’s operations in advance of the hurricane’s landfall. Repair work was completed during June 2019 on the two paper machines and related infrastructure and these paper machines are now producing at normal production levels. Other repairs at the mill are continuing and all remaining repair work is expected to be completed during fiscal 2020. While we are still identifying the full cost associated with the damage from Hurricane Michael, we anticipate the total of our property damage and business interruption claim will likely exceed $200 million. In the nine months ended June 30, 2019, we received $110.0 million of insurance proceeds ($20.0 million, $60.0 million and $30.0 million in the first, second and third quarter of fiscal 2019, respectively) related primarily to the Panama City mill, $93.5 million and $16.5 million of which were included in operating and investing activities, respectively. We expect to recover the majority of the additional amount of direct costs and lost production and sales, excluding our $15 million deductible, in future periods through insurance reimbursements. We discuss the financial impact of Hurricane Michael in greater detail below in “Results of Operations (Segment Data) — Segment Income (Corrugated Packaging Segment)”.
Results of Operations (Segment Data)
North American Corrugated Packaging Shipments
Corrugated Packaging shipments are expressed as a tons equivalent, which includes external and intersegment tons shipped from our Corrugated Packaging mills plus Corrugated Packaging container shipments converted from billion square feet (“BSF”) to tons. We have presented the Corrugated Packaging shipments in two groups: North American and Brazil / India because we believe investors, potential investors, securities analysts and others find this breakout useful when evaluating our operating performance. We have included the impact of the KapStone Acquisition beginning the first quarter of fiscal 2019. The shipment data table excludes merchandising displays since there is not a common unit of measure. The table below reflects shipments in thousands of tons, BSF and millions of square feet (“MMSF”).
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Nine Months Ended 6/30 |
|
|
Fourth Quarter |
|
|
Fiscal Year |
|
||||||
|
Fiscal 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Corrugated Packaging Shipments - thousands of tons |
|
|
2,045.6 |
|
|
|
2,112.1 |
|
|
|
2,096.4 |
|
|
|
6,254.1 |
|
|
|
2,163.8 |
|
|
|
8,417.9 |
|
|
North American Corrugated Containers Shipments - BSF |
|
|
19.8 |
|
|
|
19.7 |
|
|
|
20.5 |
|
|
|
60.0 |
|
|
|
20.3 |
|
|
|
80.3 |
|
|
North American Corrugated Containers Per Shipping Day - MMSF |
|
|
325.4 |
|
|
|
311.7 |
|
|
|
320.5 |
|
|
|
319.1 |
|
|
|
321.9 |
|
|
|
319.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Corrugated Packaging Shipments - thousands of tons |
|
|
2,346.7 |
|
|
|
2,520.8 |
|
|
|
2,644.2 |
|
|
|
7,511.7 |
|
|
|
|
|
|
|
|
|
|
North American Corrugated Containers Shipment - BSF |
|
|
22.5 |
|
|
|
23.6 |
|
|
|
24.3 |
|
|
|
70.4 |
|
|
|
|
|
|
|
|
|
|
North American Corrugated Containers Per Shipping Day - MMSF |
|
|
369.4 |
|
|
|
374.8 |
|
|
|
384.7 |
|
|
|
376.4 |
|
|
|
|
|
|
|
|
|
59
Brazil / India Corrugated Packaging Shipments
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Nine Months Ended 6/30 |
|
|
Fourth Quarter |
|
|
Fiscal Year |
|
||||||
|
Fiscal 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil / India Corrugated Packaging Shipments - thousands of tons |
|
|
170.5 |
|
|
|
174.6 |
|
|
|
178.6 |
|
|
|
523.7 |
|
|
|
196.7 |
|
|
|
720.4 |
|
|
Brazil / India Corrugated Containers Shipments - BSF |
|
|
1.6 |
|
|
|
1.5 |
|
|
|
1.6 |
|
|
|
4.7 |
|
|
|
1.6 |
|
|
|
6.3 |
|
|
Brazil / India Corrugated Containers Per Shipping Day - MMSF |
|
|
21.7 |
|
|
|
20.6 |
|
|
|
20.2 |
|
|
|
20.8 |
|
|
|
21.0 |
|
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil / India Corrugated Packaging Shipments - thousands of tons |
|
|
185.6 |
|
|
176.5 |
|
|
|
171.0 |
|
|
|
533.1 |
|
|
|
|
|
|
|
|
|
|
|
Brazil / India Corrugated Containers Shipments - BSF |
|
|
1.6 |
|
|
1.5 |
|
|
1.6 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
||
|
Brazil / India Corrugated Containers Per Shipping Day - MMSF |
|
|
20.7 |
|
|
20.6 |
|
|
|
21.0 |
|
|
20.7 |
|
|
|
|
|
|
|
|
|
||
Corrugated Packaging Segment
|
(In millions, except percentages) |
|
Net Sales (1) |
|
|
Segment Income |
|
|
Return on Sales |
|
|||
|
|
|
|
|
|||||||||
|
Fiscal 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
2,319.7 |
|
|
$ |
269.9 |
|
|
|
11.6 |
% |
|
Second Quarter |
|
|
2,391.3 |
|
|
|
262.8 |
|
|
|
11.0 |
|
|
Third Quarter |
|
|
2,444.6 |
|
|
|
321.9 |
|
|
|
13.2 |
|
|
Nine Months Ended June 30, 2018 |
|
|
7,155.6 |
|
|
|
854.6 |
|
|
|
11.9 |
|
|
Fourth Quarter |
|
|
2,537.4 |
|
|
|
385.4 |
|
|
|
15.2 |
|
|
Total |
|
$ |
9,693.0 |
|
|
$ |
1,240.0 |
|
|
|
12.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
2,733.8 |
|
|
$ |
246.8 |
|
|
|
9.0 |
% |
|
Second Quarter |
|
|
2,990.7 |
|
|
|
310.3 |
|
|
|
10.4 |
|
|
Third Quarter |
|
|
3,072.8 |
|
|
|
392.7 |
|
|
|
12.8 |
|
|
Nine Months Ended June 30, 2019 |
|
$ |
8,797.3 |
|
|
$ |
949.8 |
|
|
|
10.8 |
% |
(1) Net sales before intersegment eliminations.
Net Sales (Corrugated Packaging Segment)
Net sales of the Corrugated Packaging segment increased $628.2 million in the third quarter of fiscal 2019 compared to the prior year quarter. The increase in net sales was primarily due to $797.2 million from acquisitions, notably the KapStone Acquisition, and $32.6 million from higher corrugated selling price/mix as we had higher selling prices for domestic containerboard and corrugated containers that were partially offset by declining export prices. These increases were partially offset by $81.4 million of lower volumes as lower containerboard volumes were partially offset by increased corrugated container shipments, the absence of $111.4 million of recycling net sales in the third quarter of fiscal 2019 as a result of conducting the operations primarily as a procurement function beginning in the first quarter of fiscal 2019 and $14.1 million related to the impact of unfavorable foreign currency.
60
Net sales of the Corrugated Packaging segment increased $1,641.7 million in the nine months ended June 30, 2019 compared to the prior year period. The increase in net sales was primarily due to $2,096.2 million from acquisitions, notably the KapStone Acquisition, and $273.8 million from higher corrugated selling price/mix as we had higher selling prices for domestic containerboard and corrugated containers that were partially offset by declining export prices. These increases were partially offset by the absence of $348.9 million of recycling net sales in the nine months ended June 30, 2019, $310.3 million of lower volumes as lower containerboard volumes were partially offset by increased corrugated container shipments and $63.9 million related to the impact of unfavorable foreign currency.
Segment Income (Corrugated Packaging Segment)
Segment income attributable to the Corrugated Packaging segment in the third quarter of fiscal 2019 increased $70.8 million compared to the prior year quarter, primarily due to a $88.2 million of contribution from the acquired KapStone operations before an estimated $10.8 million of economic downtime, $18.5 million of higher corrugated selling price/mix and an estimated $38.8 million of productivity improvements. These increases were partially offset by an estimated $23.3 million of economic downtime (including KapStone), $21.1 million related to lower volumes, unfavorable cost inflation of $16.6 million, and other costs. While the net impact of cost inflation was unfavorable compared to the prior year quarter, recovered fiber, chemical and energy costs were lower than the prior year quarter but were more than offset by higher virgin fiber costs, freight costs and wage and other costs. The estimated impact of Hurricane Michael on the third quarter of fiscal 2019 was income of $0.8 million as the income from the receipt of $30.0 million of hurricane proceeds during the quarter ($15.0 million of which was for business interruption recoveries and $15.0 million of which was for recovery of direct costs) was largely offset by $18.6 million of direct expenses and an estimated $10.6 million of lost production and sales. The three months ended June 30, 2018 results were negatively affected by an estimated $10.7 million of start-up issues following a major maintenance outage at our Panama City, FL mill.
Segment income attributable to the Corrugated Packaging segment in the nine months ended June 30, 2019 increased $95.2 million compared to the prior year period, primarily due to $186.4 million of contribution from the acquired KapStone operations before an estimated $18.1 of economic downtime and net of a $24.7 million acquisition inventory step-up charge, $186.8 million of higher corrugated selling price/mix and an estimated $82.0 million of productivity improvements. These increases were partially offset by unfavorable cost inflation of $123.2 million, $87.5 million related to lower volumes, an estimated $51.2 million of economic downtime (including KapStone), $42.3 million of direct expenses from Hurricane Michael (net of $65.0 million of insurance proceeds), an estimated $23.7 million of lost production and sales related to hurricanes (net of $45.0 million of insurance proceeds), $13.5 million of unfavorable foreign currency impacts, and other costs. While the net impact of cost inflation was unfavorable compared to the prior year period, recovered fiber costs were lower than the prior year period but were more than offset by higher virgin fiber costs, freight costs, energy costs, chemical costs and wage and other costs. The nine months ended June 30, 2018 results were negatively affected by an estimated $12.7 million due to the impact of winter weather and $19.0 million of start-up issues following a major maintenance outage at our Panama City, FL mill and our Tacoma, WA mill.
We discuss the impact of Hurricane Michael on our Panama City mill in more detail above under “Results of Operations (Consolidated) — Hurricane Michael”.
Consumer Packaging Shipments
Consumer Packaging shipments are expressed as a tons equivalent, which includes external and intersegment tons shipped from our Consumer Packaging mills plus Consumer Packaging converting shipments converted from BSF to tons. The fiscal 2018 shipment numbers below have been revised by an immaterial amount. The shipment
61
data table excludes gypsum paperboard liner tons produced by Seven Hills Paperboard LLC since it is not consolidated.
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Nine Months Ended 6/30 |
|
|
Fourth Quarter |
|
|
Fiscal Year |
|
||||||
|
Fiscal 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging Shipments - thousands of tons |
|
|
977.0 |
|
|
986.1 |
|
|
|
1,017.9 |
|
|
|
2,981.0 |
|
|
|
1,024.1 |
|
|
|
4,005.1 |
|
|
|
Consumer Packaging Converting Shipments - BSF |
|
|
10.6 |
|
|
10.6 |
|
|
10.9 |
|
|
|
32.1 |
|
|
|
11.1 |
|
|
|
43.2 |
|
||
|
Consumer Packaging Converting Per Shipping Day - MMSF |
|
|
174.2 |
|
|
167.2 |
|
|
171.6 |
|
|
|
171.0 |
|
|
|
174.8 |
|
|
|
171.9 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging Shipments - thousands of tons |
|
|
969.6 |
|
|
985.5 |
|
|
|
980.1 |
|
|
|
2,935.2 |
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging Converting Shipments - BSF |
|
|
10.5 |
|
|
|
11.0 |
|
|
11.1 |
|
|
|
32.6 |
|
|
|
|
|
|
|
|
|
|
|
Consumer Packaging Converting Per Shipping Day - MMSF |
|
|
172.7 |
|
|
174.3 |
|
|
|
176.0 |
|
|
174.4 |
|
|
|
|
|
|
|
|
|
||
Consumer Packaging Segment
|
(In millions, except percentages) |
|
Net Sales (1) |
|
|
Segment Income |
|
|
Return on Sales |
|
|||
|
|
|
|
|
|||||||||
|
Fiscal 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
1,601.3 |
|
|
$ |
94.2 |
|
|
|
5.9 |
% |
|
Second Quarter |
|
|
1,637.3 |
|
|
|
94.6 |
|
|
|
5.8 |
|
|
Third Quarter |
|
|
1,669.6 |
|
|
|
126.1 |
|
|
|
7.6 |
|
|
Nine Months Ended June 30, 2018 |
|
|
4,908.2 |
|
|
|
314.9 |
|
|
|
6.4 |
|
|
Fourth Quarter |
|
|
1,709.3 |
|
|
|
130.2 |
|
|
|
7.6 |
|
|
Total |
|
$ |
6,617.5 |
|
|
$ |
445.1 |
|
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
1,618.8 |
|
|
$ |
76.9 |
|
|
|
4.8 |
% |
|
Second Quarter |
|
|
1,668.3 |
|
|
|
85.2 |
|
|
|
5.1 |
|
|
Third Quarter |
|
|
1,650.1 |
|
|
|
91.0 |
|
|
|
5.5 |
|
|
Nine Months Ended June 30, 2019 |
|
$ |
4,937.2 |
|
|
$ |
253.1 |
|
|
|
5.1 |
% |
(1) Net sales before intersegment eliminations.
Net Sales (Consumer Packaging Segment)
The $19.5 million decrease in net sales for the Consumer Packaging segment for the third quarter of fiscal 2019 compared to the prior year quarter was primarily due to $30.8 million of lower volumes and $26.2 million of unfavorable foreign currency which were partially offset by $28.6 million of higher selling price/mix and $8.7 million from acquisitions.
The $29.0 million increase in net sales for the Consumer Packaging segment for the nine months ended June 30, 2019 compared to the prior year period was primarily due to $128.1 million of higher selling price/mix and $25.5
62
million from acquisitions, which were partially offset by $69.7 million of unfavorable foreign currency impacts and $54.8 million of lower volumes.
Segment Income (Consumer Packaging Segment)
Segment income of the Consumer Packaging segment for the quarter ended June 30, 2019 decreased $35.1 million compared to the prior year quarter. Segment income in the quarter was primarily reduced by an estimated $27.2 million due to the net impact of cost inflation compared to the prior year quarter, an estimated $21.6 million of increased maintenance and scheduled strategic outage expense (including the project at the Covington, VA mill), $16.1 million of lower volumes, $4.6 million of higher depreciation and amortization, $2.6 million of unfavorable foreign currency impacts, and other items. These items were partially offset by an estimated $32.8 million of higher selling price/mix and an estimated $9.4 million of productivity improvements. While the net impact of cost inflation was unfavorable compared to the prior year quarter, recovered fiber costs, chemical costs and energy costs were lower than the prior year quarter but were more than offset by higher virgin fiber costs, freight costs and wage and other costs.
Segment income of the Consumer Packaging segment for the nine months ended June 30, 2019 decreased $61.8 million compared to the prior year period. Segment income in the period was reduced by an estimated $118.2 million due to the net impact of cost inflation compared to the prior year period, an estimated $35.1 million of increased maintenance and scheduled strategic outage expense (including the projects at the Mahrt, AL and Covington, VA mills), $26.7 million due to the impact of lower volumes, $12.8 million of unfavorable foreign currency impacts, $8.9 million of higher depreciation and amortization, and other items. These items were partially offset by an estimated $104.6 million of higher selling price/mix and an estimated $62.6 million of productivity improvements. While the net impact of cost inflation was unfavorable compared to the prior year period, recovered fiber costs and chemical costs were lower than the prior year period but were more than offset by higher virgin fiber costs, freight costs, energy costs and wage and other costs. The nine months ended June 30, 2018 results were negatively affected by an estimated $15.6 million due to the impact of winter weather that was largely offset by a favorable $10.0 million acquisition reserve adjustment.
Land and Development
|
(In millions, except percentages) |
|
Net Sales (1) |
|
|
Segment Income (Loss) |
|
|
Return on Sales |
|
|||
|
|
|
|
|
|||||||||
|
Fiscal 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
11.4 |
|
|
$ |
(0.7 |
) |
|
|
(6.1 |
)% |
|
Second Quarter |
|
|
26.7 |
|
|
|
16.1 |
|
|
|
60.3 |
|
|
Third Quarter |
|
|
64.8 |
|
|
|
9.9 |
|
|
|
15.3 |
|
|
Nine Months Ended June 30, 2018 |
|
|
102.9 |
|
|
|
25.3 |
|
|
|
24.6 |
|
|
Fourth Quarter |
|
|
39.5 |
|
|
|
(2.8 |
) |
|
|
(7.1 |
) |
|
Total |
|
$ |
142.4 |
|
|
$ |
22.5 |
|
|
|
15.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
13.9 |
|
|
$ |
0.7 |
|
|
|
5.0 |
% |
|
Second Quarter |
|
|
0.8 |
|
|
|
0.5 |
|
|
|
62.5 |
|
|
Third Quarter |
|
|
8.6 |
|
|
|
1.6 |
|
|
|
18.6 |
|
|
Nine Months Ended June 30, 2019 |
|
$ |
23.3 |
|
|
$ |
2.8 |
|
|
|
12.0 |
% |
(1) Net Sales before intersegment eliminations.
Net Sales (Land and Development Segment)
Land and Development’s net sales for the third quarter of fiscal 2019 were $8.6 million compared to $64.8 million in the third quarter of fiscal 2018. Net sales for the nine months ended June 30, 2019 were $23.3 million compared to $102.9 million in the nine months ended June 30, 2018. The decreases in net sales in both periods were due to the winding down of sales. The remainder of the real estate holdings are included in assets held for
63
sale because we have met the held for sale criteria. After we complete the monetization, the segment will cease to exist.
Segment Income (Land and Development Segment)
Segment income attributable to the Land and Development segment was $1.6 million in the third quarter of fiscal 2019 compared to $9.9 million in the third quarter of fiscal 2018. Segment income attributable to the Land and Development segment was $2.8 million in the nine months ended June 30, 2019 compared to $25.3 million in the nine months ended June 30, 2018. The segment’s assets were stepped-up to fair value in fiscal 2015 as a result of purchase accounting, which resulted in substantially lower margins on the properties sold compared to earlier levels. The pre-tax non-cash impairments of certain mineral rights and real estate discussed above under the caption “Land and Development Impairments” are not included in segment income.
Liquidity and Capital Resources
We fund our working capital requirements, capital expenditures, mergers and acquisitions and investments, restructuring activities, dividends and stock repurchases from net cash provided by operating activities, borrowings under our credit facilities, proceeds from the sale of receivables under our A/R Sales Agreement, proceeds from the sale of property, plant and equipment removed from service and proceeds received in connection with the issuance of debt and equity securities. See “Note 12. Debt” of the Notes to Condensed Consolidated Financial Statements and “Note 13. Debt” of the Notes to Consolidated Financial Statements section in Exhibit 99.1 of the May 9, 2019 Form 8-K for more information regarding our debt. Funding for our domestic operations in the foreseeable future is expected to come from sources of liquidity within our domestic operations, including cash and cash equivalents, and available borrowings under our credit facilities. As such, our foreign cash and cash equivalents are not expected to be a key source of liquidity to our domestic operations.
At June 30, 2019, we had approximately $2.7 billion of availability under our committed credit facilities, primarily under our revolving credit facilities and Receivables Securitization Facility, the majority of which matures on July 1, 2022. This liquidity may be used to provide for ongoing working capital needs and for other general corporate purposes, including acquisitions, dividends and stock repurchases.
Certain restrictive covenants govern our maximum availability under our credit facilities. We test and report our compliance with these covenants as required by these facilities and were in compliance with these covenants at June 30, 2019. At June 30, 2019, we had $123.7 million of outstanding letters of credit not drawn upon.
Cash and cash equivalents were $179.1 million at June 30, 2019 and $636.8 million at September 30, 2018. We used a significant portion of the cash and cash equivalents on hand at September 30, 2018 in connection with the closing of the KapStone Acquisition. Approximately 80% of the cash and cash equivalents at June 30, 2019 were held outside of the U.S. At June 30, 2019 and September 30, 2018, total debt was $10,538.2 million and $6,415.2 million, respectively, $779.1 million and $740.7 million of which was short-term at June 30, 2019 and September 30, 2018, respectively. Included in our total debt at June 30, 2019 was $233.6 million of non-cash acquisition related step-up.
Cash Flow Activity
|
|
|
Nine Months Ended |
|
|||||
|
(In millions) |
|
June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|||||
|
Net cash provided by operating activities |
|
$ |
1,399.6 |
|
|
$ |
1,135.6 |
|
|
Net cash used for investing activities |
|
$ |
(4,200.7 |
) |
|
$ |
(543.8 |
) |
|
Net cash provided by (used for) financing activities |
|
$ |
2,339.5 |
|
|
$ |
(419.2 |
) |
Net cash provided by operating activities during the nine months ended June 30, 2019 increased $264.0 million compared to the nine months ended June 30, 2018, primarily due to higher cash earnings and a $240.7 million net decrease in the use of working capital compared to the prior year period. As a result of the retrospective adoption of ASU 2016-15 as discussed in “Note 1. Basis of Presentation and Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements, net cash provided by operating activities for the nine months ended June 30, 2018 was reduced by $365.2 million with a corresponding increase to cash provided by
64
investing activities primarily for the change in classification of proceeds received for beneficial interests obtained for transferring trade receivables in securitization transactions.
Net cash used for investing activities of $4,200.7 million in the nine months ended June 30, 2019 consisted primarily of $3,368.3 million for cash paid for the purchase of businesses, net of cash acquired, primarily related to the KapStone Acquisition, and $976.8 million for capital expenditures that were partially offset by $108.3 million of proceeds from the sale of property, plant and equipment primarily related to the sale of our Atlanta beverage facility and $16.5 million of proceeds from property, plant and equipment insurance proceeds related to the Panama City, FL mill. Net cash used for investing activities of $543.8 million in the nine months ended June 30, 2018 consisted primarily of $665.5 million for capital expenditures, $188.2 million for cash paid for the purchase of businesses, net of cash acquired, primarily related to the Plymouth Acquisition, and $108.0 million for an additional investment in the joint venture with Gondi, S.A. de C.V., which were partially offset by $346.1 million of cash receipts on sold trade receivables following the adoption of ASU 2016-15.
We expect fiscal 2019 capital expenditures to be approximately $1.4 billion, including expenditures related to KapStone and to restore operations at our Panama City, FL mill following Hurricane Michael. In fiscal 2019, we expect to invest approximately $0.5 billion in strategic projects. The strategic projects include: (i) installation of a 330” state-of-the-art kraft linerboard machine at our Florence, SC mill, (ii) an upgrade of the Tres Barras mill in the Brazilian state of Santa Catarina that will add additional virgin pulping capacity, a biomass power boiler, a turbine generator and other equipment, (iii) completion of our new world-class Porto Feliz corrugated box plant in the Brazilian state of Sao Paulo, (iv) installation of a curtain coater at our Mahrt, AL mill and (v) installation of a headbox and upgrade of other areas of a paper machine at our Covington, VA mill. Our base capital expenditures in fiscal 2019 should be approximately $850 million to $900 million. We generally expect roughly half of our base capital to be invested in maintenance and half invested in high return generating projects, although this percentage may vary from year to year.
We expect fiscal 2020 capital expenditures will decline to approximately $1.1 billion. With the completion of certain of our strategic capital projects in fiscal 2019 and fiscal 2020, we expect to transition to our long-range capital expenditure run rate of approximately $900 million to $1.0 billion a year in fiscal 2021. However, it is possible that our capital expenditure assumptions may change, project completion dates may change, or we may decide to invest a different amount depending upon opportunities we identify, or changes in market conditions, or to comply with environmental or other regulatory changes.
In the nine months ended June 30, 2019, net cash provided by financing activities of $2,339.5 million consisted primarily of a net increase in debt of $2,780.7 million, primarily related to the KapStone Acquisition and partially offset by cash dividends paid to stockholders of $350.7 million and purchases of common stock of $88.6 million. In the nine months ended June 30, 2018, net cash used for financing activities of $419.2 million consisted primarily of cash dividends paid to stockholders of $329.7 million and purchases of common stock of $100.8 million partially offset by a net increase in debt of $8.7 million. In October 2018, our board of directors declared a quarterly dividend of $0.455 per share, representing a 5.8% increase from the prior $0.43 per share quarterly dividend and an annual dividend of $1.82 per share. On July 26, 2019, April 26, 2019 and February 1, 2019, our board of directors approved our respective August 2019, May 2019 and February 2019 quarterly dividends of $0.455 per share. In fiscal 2018, we paid four quarterly dividends of $0.43 per share for an annual dividend of $1.72 per share.
At June 30, 2019, the U.S. federal, state and foreign net operating losses, alternative minimum tax credits and other U.S. federal and state tax credits available to us aggregated approximately $114 million in future potential reductions of U.S. federal, state and foreign cash taxes. Based on our current projections, we expect to utilize the remaining U.S. federal net operating losses and other U.S. federal credits primarily over the next two years. Foreign and state net operating losses and credits will be used over a longer period of time. It is possible that our utilization of these net operating losses and credits may change due to changes in taxable income, tax laws or tax rates, capital expenditures or other factors. We expect our cash tax rate to move closer to our income tax rate in fiscal 2019 and 2020.
We made contributions of $16.1 million to our pension and supplemental retirement plans during the nine months ended June 30, 2019. Based on current facts and assumptions, we expect to contribute approximately $22 million to our U.S. and non-U.S. pension plans in fiscal 2019. We have made contributions and expect to continue to make contributions in the coming years to our pension plans to ensure that our funding levels remain adequate in light of projected liabilities and to meet the requirements of the Pension Protection Act of 2006 (the “Pension Act”) and other regulations. Our estimates are based on current factors, such as discount rates and expected return
65
on plan assets. It is possible that our assumptions may change, actual market performance may vary or we may decide to contribute different amounts.
In the normal course of business, we evaluate our potential exposure to MEPPs, including with respect to potential withdrawal liabilities. During fiscal 2018, we withdrew from two MEPPs and recorded an aggregate estimated withdrawal liability of $184.2 million. See “Note 5. Retirement Plans” of the Notes to Condensed Consolidated Financial Statements for additional information.
We anticipate that we will be able to fund our capital expenditures, interest payments, dividends and stock repurchases, pension payments, working capital needs, note repurchases, restructuring activities, repayments of current portion of long-term debt and other corporate actions for the foreseeable future from cash generated from operations, borrowings under our credit facilities, proceeds from our A/R Sales Agreement, proceeds from the issuance of debt or equity securities or other additional long-term debt financing, including new or amended facilities. In addition, we continually review our capital structure and conditions in the private and public debt markets in order to optimize our mix of indebtedness and may seek to refinance existing indebtedness to extend maturities, reduce borrowing costs or otherwise improve the terms and composition of our indebtedness.
Contractual Obligation
We summarize our incremental enforceable and legally binding contractual obligations as a result of the KapStone Acquisition at December 31, 2018 (the end of the quarter during which the closing occurred), and the effect these obligations are expected to have on our liquidity and cash flow in future periods in the following table. Certain amounts in this table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are subjective, the enforceable and legally binding obligations we actually pay in future periods may vary from those presented in the table.
|
|
|
Payments Due by Period |
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|||||||||||||||||
|
(In millions) |
|
Total |
|
|
Remainder of Fiscal 2019 |
|
|
Fiscal 2020 and 2021 |
|
|
Fiscal 2022 and 2023 |
|
|
Thereafter |
|
|||||
|
|
|
|
|
|||||||||||||||||
|
Operating lease obligations |
|
$ |
248.6 |
|
|
$ |
34.7 |
|
|
$ |
78.4 |
|
|
$ |
54.8 |
|
|
$ |
80.7 |
|
|
Purchase obligations and other (1) |
|
|
386.3 |
|
|
|
36.6 |
|
|
|
75.9 |
|
|
|
63.0 |
|
|
|
210.8 |
|
|
Total |
|
$ |
634.9 |
|
|
$ |
71.3 |
|
|
$ |
154.3 |
|
|
$ |
117.8 |
|
|
$ |
291.5 |
|
|
(1) |
Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provision; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. |
The maturities of debt and capital lease obligations related to WestRock for the remainder of the current year and succeeding four fiscal years and thereafter have been included in our disclosure of future aggregate maturities of debt and capital lease obligations in “Note 12. Debt” of the Notes to Condensed Consolidated Financial Statements.
In addition to the enforceable and legally binding obligations presented in the table above, we have other incremental obligations for goods and services and raw materials entered into in the normal course of business resulting from the KapStone Acquisition. These contracts, however, are subject to change based on our business decisions.
New Accounting Standards
See “Note 1. Basis of Presentation and Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements for a description of recent accounting pronouncements.
66
Forward-Looking Statements
Statements in this report that do not relate strictly to historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations, beliefs, plans or forecasts and use words such as “may”, “will”, “could”, “would”, “anticipate”, “intend”, “estimate”, “project”, “plan”, “believe”, “expect”, “target” and “potential”, or refer to future time periods, and include statements made in this report regarding, among other things: our expectation that the adoption of (a) certain ASUs will not have a material impact on our consolidated financial statements and (b) 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 will not have a material impact on the recognition, measurement or presentation of lease expenses within the consolidated statements of income or the consolidated statement of cash flows; our belief that, as permitted by ASC 606, the election of certain practical expedients in connection with our implementation of ASC 606, results in accounting treatments that 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; that we do not anticipate future changes to the provisional fair value estimates of assets and liabilities assumed in acquisitions to be significant; that, at the time of each announced plant closure, we generally expect to record future period costs for equipment relocation, facility carrying costs, costs to terminate a lease or contract before the end of its term and employee-related costs; that we believe that our actions to consolidate our sales and operations into large well-equipped plants have allowed us to more effectively manage our business; resolution of uncertain tax positions could have a material adverse effect on our cash flows or materially benefit our results of operations in future periods depending upon their ultimate resolution; that we will continue to monitor industry economic trends until the end of our fiscal year to determine if additional testing for goodwill impairment is warranted and that while we do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use to calculate impairment losses, if actual results are not consistent with our assumptions and estimates, we may be exposed to impairment losses that could be material; that we expect PIUMPF’s demand related to the withdrawal will include both a payment for withdrawal liability and for our proportionate share of PIUMPF’s accumulated funding deficiency; that it is reasonably possible that we may incur withdrawal liabilities with respect to certain other MEPPs in connection with withdrawals and that our estimate for any such withdrawal liability, both individually and in the aggregate, is not material for the remaining plans in which we participate; that the future expense in connection with the sale of receivables may fluctuate based on the level of activity and other factors; that we expect the net proceeds from issuances of notes under the commercial paper program to continue to be used for general corporate purposes; that our compliance initiatives related to environmental, health and safety laws and regulations could result in significant costs, which could negatively impact our results of operations, financial condition and cash flows; that any failure to comply with environmental or health and safety laws and regulations, or any permits and authorizations required thereunder, could subject us to fines, corrective action or other sanctions; our belief that matters relating to previously identified third-party PRP sites and certain facilities formerly owned or operated by Smurfit-Stone have been satisfied by claims in the Smurfit-Stone bankruptcy proceedings; that we may face additional liability for cleanup activity at sites that are not subject to the bankruptcy discharge, but are not currently identified; that we believe the liability for the environmental matters was adequately reserved as of June 30, 2019; our belief that we have substantial insurance coverage, subject to applicable deductibles and policy limits, with respect to asbestos claims; that we have valid defenses to asbestos-related personal injury claims and intend to continue to defend them vigorously; that it is possible that we could incur significant costs resolving these cases should the volume of litigation grow substantially; that we do not expect the resolution of pending asbestos litigation and proceedings to have a material adverse effect on our results of operations, financial condition or cash flows but that, in any given period or periods, it is possible such proceedings or matters could have a material adverse effect on our results of operations, financial condition or cash flows; our belief that the resolution of certain other lawsuits and claims arising out of the conduct of our business will not have a material adverse effect on our results of operations, financial condition or cash flows; that we estimate our exposure to certain guarantees could be approximately $50 million; that we believe our exposure related to guarantees would not have a material impact on our results of operations, financial condition or cash flows; that we believe that we are performing well as we proactively respond to a changing industry landscape characterized by the challenges of additional new paper capacity combined with softer demand in some markets; that inventories within our Corrugated Packaging segment are now in a range that will allow us to efficiently operate our system; that we expect to continue to match our production to our customers’ demand; that we are now targeting a 90% integration rate in our Corrugated Packaging segment over the next several years; that the new paper machine at our Florence, SC mill is scheduled to start up during the first half of calendar 2020 and the upgrade of our mill located in Tres Barras, Brazil is expected to be completed in the first half of calendar 2021; that we believe that we have made significant progress integrating KapStone’s operations into our management and operating structures, and we expect to realize more than $200
67
million in run-rate synergies and performance improvements by the end of fiscal 2021; that we expect our Consumer Packaging segment supply chain to stabilize with the completion of certain strategic capital projects and to see earnings improvement during the fourth quarter of fiscal 2019; that we expect to reach a $100 million annualized run rate related to plastic replacement projects by the end of fiscal 2019; that, for the fourth quarter of fiscal 2019, we expect (a) higher sequential seasonal volumes across both segments to be more than offset by the flow through of previously published containerboard and kraft paper price declines and lower containerboard export prices; (b) to benefit from sequential cost deflation driven by declines in virgin fiber costs, freight costs, recycled fiber and seasonally lower energy costs; and (c) to benefit from lower scheduled mill outages and seasonal productivity improvements; that we generally expect the integration of a closed facility’s assets and production with other facilities to enable the receiving facilities to better leverage their fixed costs while eliminating fixed costs from the closed facility; that we anticipate the total of our property damage and business interruption claim with respect to Hurricane Michael will likely exceed $200 million; that we expect to recover the majority of the additional amount of direct costs and lost production and sales, excluding our $15 million deductible, in future periods through insurance reimbursements; that we expect all remaining repair work at the Panama City, FL mill to be completed during fiscal 2020; that funding for our domestic operations in the foreseeable future is expected to come from sources of liquidity within our domestic operations, including cash and cash equivalents, and available borrowings under our credit facilities; that our foreign cash and cash equivalents are not expected to be a key source of liquidity to our domestic operations; that we expect fiscal 2019 capital expenditures to be approximately $1.4 billion, including expenditures related to KapStone and to restore operations at our Panama City, FL mill following Hurricane Michael; that our base capital expenditures in fiscal 2019 should be approximately $850 million to $900 million, with roughly half invested in maintenance and half invested in high return generating projects, although this percentage may vary from year to year; that, in fiscal 2019, we expect to invest approximately $0.5 billion in strategic projects; that we expect fiscal 2020 capital expenditures will decline to approximately $1.1 billion; that, with the completion of certain of our strategic capital projects in fiscal 2019 and 2020, we expect to transition to our long-range capital expenditure run rate of approximately $900 million to $1.0 billion a year in fiscal 2021; that we expect to utilize the remaining U.S. federal net operating losses and other U.S. federal credits primarily over the next two years and that foreign and state net operating losses and credits will be used over a longer period of time; that we expect our cash tax rate to move closer to our income tax rate in fiscal 2019 and 2020; that we expect to contribute approximately $22 million to our U.S. and non-U.S. pension plans in fiscal 2019; that we expect to continue to make contributions in the coming years to our pension plans to ensure that our funding levels remain adequate in light of projected liabilities and to meet the requirements of the Pension Act and other regulations; that we anticipate that we will be able to fund our capital expenditures, interest payments, dividends and stock repurchases, pension payments, working capital needs, note repurchases, restructuring activities, repayments of current portion of long-term debt and other corporate actions for the foreseeable future from cash generated from operations, borrowings under our credit facilities, proceeds from our A/R Sales Agreement, proceeds from the issuance of debt or equity securities or other additional long-term debt financing, including new or amended facilities; that we may seek to refinance existing indebtedness to extend maturities, reduce borrowing costs or otherwise improve the terms and composition of our indebtedness; the effect our incremental enforceable and legally binding contractual obligations as a result of the KapStone Acquisition at December 31, 2018 are expected to have on our liquidity and cash flow in future periods; and that, with respect to KapStone, we plan to avail ourselves of the limited carveout offered by the SEC staff in its published Frequently Asked Questions on Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (revised September 24, 2007) and thus exclude KapStone from our assessment of our internal control over financial reporting as of the end of our current fiscal year (year ending September 30, 2019.
With respect to these statements, we have made assumptions regarding, among other things, our ability to effectively integrate the operations of KapStone; the results and impact of the KapStone Acquisition; economic, competitive and market conditions generally; volumes and price levels of purchases by customers; competitive conditions in our businesses; possible adverse actions of our customers, competitors and suppliers; labor costs; the amount and timing of capital expenditures, including installation costs, project development and implementation costs, severance and other shutdown costs; restructuring costs; utilization of real property that is subject to the restructurings due to realizable values from the sale of such property; credit availability; and raw material and energy costs.
You should not place undue reliance on any forward-looking statements as these statements involve risks, uncertainties, assumptions and other factors that could cause actual results to differ materially, including the following: the level of demand for our products; our ability to successfully identify and make performance and productivity improvements; anticipated returns on our capital investments; our ability to achieve benefits from
68
acquisitions, including the KapStone Acquisition, and the timing thereof, including synergies and performance improvements; our ability to successfully implement capital projects; the possibility of and uncertainties related to planned mill outages or production disruptions; market risk from changes in interest rates and commodity prices; increases in energy, raw materials, shipping and capital equipment costs; fluctuations in selling prices and volumes; intense competition; the potential loss of key customers; the impact of the Tax Act; the impact of operational restructuring activities; the impact of economic conditions, including expected price changes, competitive pricing pressures and cost increases; our desire or ability to continue to repurchase Common Stock; environmental liabilities; the cost and other effects of complying with governmental laws and regulations; the scope, timing and outcome of litigation; future debt repayment; our ability to fund our capital expenditures, interest payments, dividends and stock repurchases, pension payments, working capital needs, debt repurchases, restructuring activities, repayments of current portion of long-term debt and other corporate actions; the expected impact of implementing new accounting standards; the impact of changes in assumptions and estimates on which we based the design of our system of disclosure controls and procedures; the occurrence of severe weather or a natural disaster, or other unanticipated problems, such as labor difficulties, equipment failure or unscheduled maintenance and repair, which could result in operational disruptions; adverse changes in general market and industry conditions; and other risks, uncertainties and factors discussed in Item 1A “Risk Factors” of our Fiscal 2018 Form 10-K. The information contained herein speaks as of the date hereof and we do not have or undertake any obligation to update such information as future events unfold.
|
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See the “Quantitative and Qualitative Disclosures About Market Risk” section in our Fiscal 2018 Form 10-K for a discussion of certain of the market risks to which we are exposed. The majority of our risks are associated with our mill operations: sales of containerboard and paperboard, energy costs, recycled fiber costs, virgin fiber costs and freight costs. The KapStone Acquisition added approximately 3.0 million tons of capacity to our pre-acquisition capacity level of approximately 13.5 million tons. Our market risk therefore increased fairly proportionally. In addition, we are exposed to changes in interest rates. Based on the amounts and mix of our fixed and floating rate debt at June 30, 2019, if market interest rates increased by an average of 100 basis points, our annual interest expense would increase by approximately $35 million.
|
Item 4. |
CONTROLS AND PROCEDURES |
Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019 to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as described below. During fiscal 2019, we completed the KapStone Acquisition. Subsequent to the KapStone Acquisition, we have begun integration and controls assessment activities. See “Note 3. Acquisitions” of the Notes to Condensed Consolidated Financial Statements for more information. KapStone represented approximately $2.1 billion of our net sales for the nine months ended June 30, 2019, and approximately $5.8 billion of our total assets, at June 30, 2019. In accordance with the SEC’s published guidance, because we acquired these operations during the current fiscal year, we plan to exclude these operations from our efforts to comply with Section 404 of the Sarbanes-Oxley Act for fiscal 2019. SEC rules require that we complete our assessment of the internal control over financial reporting of the acquisition within one year after the date of the acquisition.
69
PART II: OTHER INFORMATION
|
Item 1. |
LEGAL PROCEEDINGS |
See “Note 14. Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements for more information.
|
Item 1A. |
RISK FACTORS |
Certain risks and events that could adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock, are described in the “Risk Factors” section of our Fiscal 2018 Form 10-K. There have been no material changes in our risk factors from those disclosed in the “Risk Factors” section of our Fiscal 2018 Form 10-K.
Item 6.EXHIBITS
See separate Exhibit Index attached hereto and hereby incorporated by reference.
70
WESTROCK COMPANY
INDEX TO EXHIBITS
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Exhibit 4.1 |
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Exhibit 10.1$ |
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Exhibit 10.2* |
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Exhibit 10.3* |
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Exhibit 31.1* |
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Exhibit 31.2* |
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Exhibit 32.1# |
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Exhibit 101.INS* |
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XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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Exhibit 101.SCH* |
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XBRL Taxonomy Extension Schema. |
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Exhibit 101.CAL* |
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XBRL Taxonomy Extension Calculation Linkbase. |
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Exhibit 101.DEF* |
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XBRL Taxonomy Extension Definition Label Linkbase. |
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Exhibit 101.LAB* |
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XBRL Taxonomy Extension Label Linkbase. |
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Exhibit 101.PRE* |
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XBRL Taxonomy Extension Presentation Linkbase. |
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*Filed as part of this quarterly report.
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||
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$Management contract or compensatory plan or arrangement.
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#In accordance with SEC Release No. 33-8238, Exhibit 32.1 is to be treated as “accompanying” this report rather than “filed” as part of the report. |
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71
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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WESTROCK COMPANY |
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(Registrant) |
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Date: |
August 2, 2019 |
By: |
/s/ Ward H. Dickson |
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Ward H. Dickson |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer and duly authorized officer) |
72
EXHIBIT 10.2
AMENDMENT NO. 1 TO
SIXTH AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
This AMENDMENT NO. 1, dated as of May 2, 2019 (this “Amendment”) is by and among is by and among WestRock Company (“Parent”), the originators listed on Schedule I hereto (the “Existing Originators”), the originators listed on Schedule II hereto (the “Joining Originators” and together with the Existing Originators, the “Originators”) and WestRock Financial, Inc., as buyer (the “Buyer”). Each of the Buyer, the Originators and the Parent may be referred to herein as a “Party” or collectively as the “Parties.” Unless otherwise indicated, capitalized terms used in this Amendment are used with the meanings attributed thereto in the Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Originators and the Borrower are party to the Sixth Amended and Restated Receivables Sale Agreement, dated as of July 22, 2016 (as amended, modified or supplemented from time to time, the “Agreement”), by and among the Existing Originators and the Buyer;
WHEREAS, the Parties hereto desire to amend the Agreement in order to, among other things, add the Joining Originators as parties to the Agreement and allow for new Originators to join in the agreement from time to time; and
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows:
|
1. |
Amendments. |
2.1The Agreement is hereby amended as set forth in Exhibit A to this Amendment, with text marked in underline indicating additions to the Agreement and with text marked in strikethrough indicating deletions to the Agreement.
|
3. |
Representations and Agreements. |
|
3.1. |
Each of the Loan Parties represents and warrants to the Buyer, Agents and Lenders that it has duly authorized, executed and delivered this Amendment and that this Amendment constitutes, a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability). |
|
3.2. |
Each of the Loan Parties further represents and warrants to the Buyer, Agents and the Lenders that, as of the date hereof and as of the Effective Date (as defined below), each of its representations and warranties set forth in Section 2.1 of the Agreement is true and correct as though made on and as of such date and that no event has occurred and is continuing that will constitute an Amortization Event or Unmatured Amortization Event. |
|
4. |
Conditions Precedent. This Amendment shall become effective as of May 2, 2019 (the “Effective Date”) upon satisfaction of the following conditions precedent: |
|
4.1 |
the Administrative Agent shall have received a counterpart hereof duly executed by the Buyer, the Parent and the Originators. |
|
4.2 |
the Administrative Agent shall have received those documents listed on Schedule III to this Amendment, in form and substance reasonably acceptable to the Administrative Agent. |
|
5. |
Miscellaneous. |
|
5.1. |
Except as expressly amended hereby, the Agreements shall remain unaltered and in full force and effect, and each of the parties hereto hereby ratifies and confirms the Agreements to which it is a party. |
|
5.2. |
THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). |
|
5.3. |
EACH OF THE PARTIES TO THIS AMENDMENT HEREBY ACKNOWLEDGES AND AGREES THAT IT IRREVOCABLY SUBMITS TO THE NON EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS AMENDMENT AND IT HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF ANY AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY OF ORIGINAL PARENT, THE ORIGINATORS AND THE LOAN PARTIES IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY OF ORIGINAL PARENT, THE ORIGINATORS AND THE LOAN PARTIES AGAINST ANY AGENT OR ANY LENDER OR ANY AFFILIATE OF ANY AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT OR ANY DOCUMENT EXECUTED BY SUCH PARTY PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN THE STATE OF NEW YORK. |
2
|
5.5 |
The Buyer agrees to pay to the Administrative Agent’s counsel the reasonable fees and disbursements incurred by such counsel in connection with this Amendment not later than five (5) Business Days following receipt of the related invoice. |
<Balance of page intentionally left blank>
3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.
WESTROCK FINANCIAL, INC.,
as Buyer
By: /s/ Mikal B. Haislip
Name: Mikal B. Haislip
Title: Treasurer
WESTROCK COMPANY,
as Parent
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK CONVERTING, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK MILL COMPANY, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK - SOUTHERN CONTAINER, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK COMPANY OF TEXAS,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK CONVERTING COMPANY,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK MINNESOTA CORPORATION,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK CALIFORNIA, LLC.,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK CP, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK – SOLVAY, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK-REX, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK-GRAPHICS, INC.
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK COMMERCIAL, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK PACKAGING, INC.,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK CONSUMER PACKAGING GROUP, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK PACKAGING SYSTEMS, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK MWV, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK USC INC.,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK SOUTHEAST, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK BOX ON DEMAND,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK COATED BOARD, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK TEXAS, L.P.,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
WESTROCK VIRGINIA, LLC,
as Originator
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
Dechert Draft 4/18/19EXECUTION COPY
SIXTH AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
Dated as of July 22, 2016
AMONG
WESTROCK COMPANY OF TEXAS, WESTROCK CONVERTING COMPANY, LLC,
WESTROCK MILL COMPANY, LLC,
WESTROCK – SOUTHERN CONTAINER, LLC,
WESTROCK CALIFORNIA, INC.LLC, WESTROCK MINNESOTA CORPORATION,
WESTROCK CP, LLC, WESTROCK - SOLVAY, LLC, WESTROCK – REX, LLC,
WESTROCK – GRAPHICS, INC., WESTROCK COMMERCIAL, LLC,
WESTROCK PACKAGING, INC., WESTROCK CONSUMER PACKAGING GROUP, LLC, WESTROCK PACKAGING SYSTEMS, LLC and the other Originators from time to time party hereto,
As Originators,
AND
WESTROCK FINANCIAL. INC.,
as Buyer
Table of Contents
Page
ARTICLE IAMOUNTS AND TERMS OF THE PURCHASE2
Section 1.1Initial Dividend and Contribution of Receivables2
Section 1.2Purchase of Receivables 3
Section 1.3Payment for the Purchases5
Section 1.4Purchase Price Credit Adjustments6
Section 1.5Payments and Computations, Etc7
Section 1.6License of Software7
Section 1.7Characterization8
Section 1.8Excluded Receivables8
ARTICLE IIREPRESENTATIONS AND WARRANTIES8
Section 2.1Representations and Warranties8
ARTICLE IIICONDITIONS OF PURCHASE12
Section 3.1Conditions Precedent to Purchase12
Section 3.2Conditions Precedent to Subsequent Payments12
ARTICLE IVCOVENANTS13
Section 4.1Affirmative Covenants of Transferors13
Section 4.2Negative Covenants of Transferors17
ARTICLE VTERMINATION EVENTS18
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Table of Contents
(continued)
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Section 5.1Termination Events18
Section 5.2Remedies21
ARTICLE VIINDEMNIFICATION21
Section 6.1Indemnities by Transferors21
Section 6.2Other Costs and Expenses24
ARTICLE VIIMISCELLANEOUS24
Section 7.1Waivers and Amendments24
Section 7.2Notices24
Section 7.3Protection of Ownership Interests of Buyer24
Section 7.4Confidentiality26
Section 7.5Bankruptcy Petition26
Section 7.6Limitation of Liability26
Section 7.7Joinder to Receivables Sale Agreement26
Section 7.8CHOICE OF LAW27
Section 7.8CONSENT TO JURISDICTION27
Section 7.10WAIVER OF JURY TRIAL27
Section 7.11Integration; Binding Effect; Survival of Terms27
Section 7.12Counterparts; Severability; Section References28
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Table of Contents
(continued)
Page
Exhibits and Schedules
Schedule B - List of Excluded Receivable Obligors
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SIXTH AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
THIS SIXTH AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT, dated as of July 22, 2016, is by and among:
(a) WestRock Company of Texas, a Georgia corporation, WestRock Converting Company, LLC, a Georgia corporationlimited liability company, WestRock Mill Company, LLC, a Georgia limited liability company, WestRock – Southern Container, LLC, a Delaware limited liability company, WestRock California, Inc.LLC, a California corporation,limited liability company, WestRock Minnesota Corporation, a Delaware corporation, WestRock CP, LLC, a Delaware limited liability company, and WestRock – Solvay, LLC, a Delaware limited liability company, WestRock – Rex, LLC, a Florida limited liability company, WestRock – Graphics, Inc., a North Carolina corporation, WestRock Commercial, LLC, a Colorado limited liability company, WestRock Packaging, Inc., a Delaware corporation, WestRock Consumer Packaging Group, LLC, an Illinois limited liability company, WestRock Packaging Systems, LLC, a Delaware limited liability company, WestRock MWV, LLC, a []Delaware limited liability company, WestRock USC Inc., a []Pennsylvania corporation, WestRock Southeast, LLC, a []Delaware limited liability company, WestRock Box on Demand, LLC a [],Delaware limited liability company, WestRock Coated Board, LLC, a []Delaware limited liability company, WestRock Texas, L.P., a []Delaware limited partnership, and WestRock Virginia, LLC, a []Delaware limited liability company (each of the foregoing, an “Originator” and collectively, the “Originators”), and
(b) WestRock Financial, Inc., a Delaware corporation (“Buyer”),
and amends and restates in its entirety that certain Fifth Amended and Restated Receivables Sale Agreement dated as of September 15, 2014, by and among WestRock RKT Company, a Georgia corporation (the “Original Parent”), the Originators and Buyer (as amended from time to time prior to the date hereof, the “2014 Agreement”), which amended and restated that certain Fourth Amended and Restated Receivables Sale Agreement dated as of December 21, 2012, by and among Original Parent, certain of the Originators (or their predecessors) and Buyer (as amended from time to time prior to the date or the 2014 Agreement, the “2012 Agreement”), which amended and restated that certain Third Amended and Restated Receivables Sale Agreement dated as of May 27, 2011, by and among Original Parent, certain of the Originators (or their predecessors) and Buyer (as amended from time to time prior to the date of the 2012 Agreement, the “2011 Agreement”), which amended and restated that certain Second Amended and Restated Receivables Sale Agreement dated as of September 2, 2008 by and among Original Parent, certain of the Originators (or their predecessors), certain other originators and Buyer (as
amended from time to time prior to the date of the 2011 Agreement, the “2008 Agreement”), which amended and restated that certain Amended and Restated Receivables Sale Agreement dated as of October 26, 2005 by and among Original Parent, certain of the Originators (or their predecessors), certain other originators and Buyer (as amended from time to time prior to the date of the 2008 Agreement, the “2005 Agreement”), which amended and restated that certain Receivables Sale Agreement dated as of November 1, 2000 by and among Original Parent, certain of the Originators (or their predecessors), certain other originators and Buyer (as amended from time to time prior to the date of the 2005 Agreement, the “2000 Agreement”).
Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I hereto.
PRELIMINARY STATEMENTS
Each of the Originators now owns, and from time to time hereafter will own, Receivables.
Each of the Originators wishes to continue to sell and assign to Buyer, and Buyer wishes to continue to purchase from each Originator, all of such Originator’s right, title and interest in and to its existing and future Receivables together with the Related Security and Collections with respect thereto.
Each of the Originators and Buyer intend the transactions contemplated hereby to be true sales to Buyer by such Originator of the Receivables originated by it, providing Buyer with the full benefits of ownership of such Receivables, and none of the Originators nor Buyer intends these transactions to be, or for any purpose to be characterized as, loans from Buyer to such Originator.
Buyer intends to finance its purchase of Receivables from the Originators, in part, by borrowing pursuant to that certain Eighth Amended and Restated Credit and Security Agreement, dated as of the date hereof (as amended, restated and/or otherwise modified from time to time in accordance with the terms thereof, the “Credit and Security Agreement”), among Buyer, WestRock Converting Company, LLC, as initial Servicer, each of the lenders and co-agents from time to time party thereto and Coöperatieve Rabobank, U.A., New York Branch , as administrative agent (in such last capacity, together with its successors and permitted assigns in such capacity, the “Administrative Agent”) and as funding agent.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
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ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASE
Section 1.1[Reserved].
Section 1.2Purchase of Receivables.
(a)In consideration for the Purchase Price paid to each Originator and upon the terms and subject to the conditions set forth herein, each Originator does hereby sell, assign, transfer, set-over and otherwise convey to Buyer, without recourse (except to the extent expressly provided herein), and Buyer does hereby purchase from such Originator, all of such Originator’s right, title and interest in and to all Receivables originated by such Originator and existing as of the close of business on the Initial Cutoff Date applicable to such Originator and all Receivables thereafter originated by such Originator through and including the applicable Termination Date, together, in each case, with all Related Security relating thereto and all Collections thereof. In accordance with the preceding sentence, Buyer shall acquire all of such Originator’s right, title and interest in and to all Receivables existing as of the Initial Cutoff Date applicable to such Originator and thereafter arising through and including the applicable Termination Date, together with all Related Security relating thereto and all Collections thereof. Buyer shall be obligated to pay the Purchase Price for the Receivables purchased hereunder from each Originator in accordance with Section 1.3.
(b)On the 25th day of each month hereafter (or if any such day is not a Business Day, on the next succeeding Business Day thereafter), each Originator shall (or shall require the Servicer to) deliver to Buyer a report in substantially the form of Exhibit VII hereto (each such report being herein called a “Purchase Report”) with respect to the Receivables sold by such Originator to Buyer during the Settlement Period then most recently ended. In addition to, and not in limitation of, the foregoing, in connection with the payment of the Purchase Price for any Receivables purchased hereunder, Buyer may request that the applicable Originator deliver, and such Originator shall deliver, such approvals, opinions, information or documents as Buyer (or the Administrative Agent, as Buyer’s assignee) may reasonably request.
(c)It is the intention of the parties hereto that the Purchase of Receivables from each Originator made under the 2000 Agreement, 2005 Agreement, 2008 Agreement, 2011 Agreement, the 2014 Agreement or hereunder, as applicable, shall constitute a sale, which sale is absolute and irrevocable and provides Buyer with the full benefits of ownership of the Receivables originated by such Originator. Except for the Purchase Price Credits owed by such Originator pursuant to Section 1.4, the sale of Receivables hereunder by each Originator is made without recourse to such Originator; provided, however, that (i) such Originator shall be liable to Buyer for all representations, warranties, covenants and indemnities made by such Originator
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pursuant to the terms of the Transaction Documents to which such Originator is a party, and (ii) such sale does not constitute and is not intended to result in an assumption by Buyer or any assignee thereof of any obligation of such Originator or any other Person arising in connection with such Receivables, the related Contracts and/or other Related Security or any other obligations of such Originator. In view of the intention of the parties hereto that the sale of Receivables by each Originator hereunder shall constitute a sale of such Receivables rather than loans secured thereby, each Originator agrees that it has marked (or will, on or prior to the date hereof and in accordance with Section 4.1(e)(ii), mark) its master data processing records relating to the Receivables originated by it with a legend acceptable to Buyer and to the Administrative Agent (as Buyer’s assignee), evidencing that Buyer has purchased such Receivables and to note in its financial statements that its Receivables have been sold to Buyer. Upon the request of Buyer or the Administrative Agent (as Buyer’s assignee), each Originator will execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate to perfect and maintain the perfection of Buyer’s ownership interest in the Receivables originated by such Originator and the Related Security and Collections with respect thereto, or as Buyer or the Administrative Agent (as Buyer’s assignee) may reasonably request.
Section 1.3Payment for the Purchases. (a) The Purchase Price for the Purchase from each Originator of its Receivables in existence as of the close of business on the Initial Cutoff Date applicable to such Originator shall be payable in full by Buyer to such Originator on the Purchase Date applicable to such Originator, and shall be paid to such Originator in the following manner:
(i)by delivery of immediately available funds, to the extent of funds made available to Buyer in connection with its subsequent pledge of such Receivables to the Lenders under the Credit and Security Agreement, and/or
(ii)by delivery of the proceeds of a subordinated revolving loan from such Originator to Buyer (a “Subordinated Loan”) in an amount not to exceed the least of (A) the remaining unpaid portion of such Purchase Price and (B) the maximum Subordinated Loan that could be borrowed without rendering Buyer’s Net Worth less than the Required Capital Amount. Each Originator is hereby authorized by Buyer to endorse on the schedule attached to its Subordinated Note an appropriate notation evidencing the date and amount of each advance thereunder, as well as the date of each payment with respect thereto, provided that the failure to make such notation shall not affect any obligation of Buyer thereunder.
The Purchase Price for each Receivable coming into existence after the Initial Cutoff Date shall be due and owing in full by Buyer to the applicable Originator or its designee on the date each
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such Receivable came into existence (except that Buyer may, with respect to any such Purchase Price, offset against such Purchase Price any amounts owed by such Originator to Buyer hereunder and which have become due but remain unpaid) and shall be paid to such Originator in the manner provided in the following paragraphs (b), (c) and (d).
(b)With respect to any Receivables coming into existence on or after the Purchase Date applicable to an Originator, on each Settlement Date, Buyer shall pay such Originator the Purchase Price therefor in accordance with Section 1.3(d) and in the following manner:
first, by delivery to such Originator or its designee of immediately available funds; and/or
second, by delivery to such Originator or its designee of the proceeds of a Subordinated Loan, provided that the making of any such Subordinated Loan shall be subject to the provisions set forth in Section 1.3(a)(ii).
Subject to the limitations set forth in Section 1.3(a)(ii), each Originator irrevocably agrees to advance each Subordinated Loan requested by Buyer on or prior to the applicable Termination Date. The Subordinated Loans owing to each Originator shall be evidenced by, and shall be payable in accordance with the terms and provisions of its Subordinated Note and shall be payable solely from cash available to Buyer after payment of all amounts due in respect of the Senior Claim (as defined in the Subordinated Note) or to become due in respect of the Senior Claim within 30 days of the date of proposed payment on the Subordinated Note.
(c)From and after the applicable Termination Date, no Originator shall be obligated to (but may, at its option) sell Receivables to Buyer.
(d)Although the Purchase Price for each Receivable coming into existence after the Initial Cutoff Date shall be due and payable in full by Buyer to the applicable Originator on the date such Receivable came into existence, settlement of the Purchase Price between Buyer and such Originator shall be effected on a monthly basis on Settlement Dates with respect to all Receivables originated by such Originator during the same Calculation Period and based on the information contained in the Purchase Report delivered by such Originator for the Calculation Period then most recently ended. Although settlement shall be effected on Settlement Dates, increases or decreases in the amount owing under the Subordinated Note made pursuant to Section 1.3 shall be deemed to have occurred and shall be effective as of the last Business Day of the Calculation Period to which such settlement relates.
Section 1.4Purchase Price Credit Adjustments. If on any day:
(a)the Outstanding Balance of a Receivable purchased from any Originator is:
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(i)reduced as a result of any defective or rejected or returned goods or services, any cash discounts, any volume discounts or any adjustment or otherwise by such Originator or any Affiliate thereof (other than as a result of a charge-off of such Receivable or cash Collections applied to such Receivable),
(ii)reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction),
(iii)reduced on account of the obligation of such Originator or any Affiliate thereof to pay to the related Obligor any rebate or refund, or
(iv)less on the date of its sale then the amount reflected in the applicable Purchase Report, or
(b)any of the representations and warranties set forth in Sections 2.1(i), (j), (l), (r), (s), (t), (u) and the second sentence of Section 2.1(q) hereof is not true when made or deemed made with respect to any such Receivable,
then, in such event, Buyer shall be entitled to a credit (each, a “Purchase Price Credit”) against the Purchase Price otherwise payable to the applicable Originator hereunder equal to (x) in the case of clauses (a)(i) – (iv) above, the amount of such reduction or cancellation or the difference between the actual Outstanding Balance and the amount reflected in the applicable Purchase Report, as applicable, and (y) in the case of clause (b) above, the amount of the Outstanding Balance of such Receivable, which shall be reconveyed by the Buyer to the applicable Originator following receipt of such amount. If such Purchase Price Credit exceeds the Original Balance of the Receivables originated by the applicable Originator on any day, such Originator shall pay the remaining amount of such Purchase Price Credit in cash immediately, provided that if the applicable Termination Date has not occurred, such Originator shall be allowed to deduct the remaining amount of such Purchase Price Credit from any indebtedness owed to it under its Subordinated Note.
Section 1.5Payments and Computations, Etc. All amounts to be paid or deposited by Buyer hereunder shall be paid or deposited in accordance with the terms hereof on the day when due in immediately available funds to the account of the applicable Originator designated from time to time by such Originator or as otherwise directed by such Originator. In the event that any payment owed by any Person hereunder becomes due on a day that is not a Business Day, then such payment shall be made on the next succeeding Business Day. If any Person fails to pay any amount hereunder when due, such Person agrees to pay, on demand, the Default Rate in respect thereof until paid in full; provided, however, that such Default Rate shall not at any time exceed the maximum rate permitted by applicable law. All computations of interest payable hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed.
Section 1.6License of Software.
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(a)To the extent that any software used by any Originator to account for the Receivables originated by it is non-transferable, such Originator hereby grants to each of Buyer, the Administrative Agent and the Servicer an irrevocable, non-exclusive license to use, without royalty or payment of any kind, all such software used by such Originator to account for such Receivables, to the extent necessary to administer such Receivables, whether such software is owned by such Originator or is owned by others and used by such Originator under license agreements with respect thereto; provided that should the consent of any licensor of such software be required for the grant of the license described herein, to be effective, such Originator hereby agrees that upon the request of Buyer (or Buyer’s assignee), such Originator will use its reasonable efforts to obtain the consent of such third-party licensor. If any software used by any Originator to account for the Receivables originated by it prohibits such Originator from granting the license to use described herein, or if, after reasonable efforts, consent of any licensor of such software for the grant of the license described herein is not obtained, there shall be no transfer of such software hereunder or any grant by such Originator of the license to use described herein. The license granted hereby shall be irrevocable until the later to occur of (i) indefeasible payment in full of the Obligations (as defined in the Credit and Security Agreement), and (ii) the date each of this Agreement and the Credit and Security Agreement terminates in accordance with its terms.
(b)Each Originator (i) shall take such action requested by Buyer and/or the Administrative Agent (as Buyer’s assignee), from time to time hereafter, that may be necessary or appropriate to ensure that Buyer and its assigns have an enforceable ownership interest in the Records relating to the Receivables purchased from such Originator hereunder, and (ii) shall use its reasonable efforts to ensure that Buyer, the Administrative Agent and the Servicer each has an enforceable right (whether by license or sublicense or otherwise) to use all of the computer software used to account for such Receivables and/or to recreate such Records.
Section 1.7Characterization. If, notwithstanding the intention of the parties expressed in Section 1.2(c), any sale or contribution by an Originator to Buyer of Receivables hereunder shall be characterized as a secured loan and not a sale or contribution or such transfer shall for any reason be ineffective or unenforceable, then this Agreement shall be deemed to constitute a security agreement under the UCC and other applicable law. For this purpose and without being in derogation of the parties’ intention that each conveyance of Receivables by an Originator hereunder shall constitute a true sale or other absolute assignment thereof, such Originator hereby grants to Buyer a duly perfected security interest in all of such Originator’s right, title and interest in, to and under all Receivables of such Originator which are now existing or hereafter arising, all Collections and Related Security with respect thereto, each Lock-Box and Collection Account, all other rights and payments relating to such Receivables and all proceeds of the foregoing to secure the prompt and complete payment of a loan deemed to have been made in an amount equal to the Purchase Price owing to such Originator. Buyer and its assigns shall have, in addition to the rights and remedies which they may have under this Agreement, all
7
other rights and remedies provided to a secured creditor under the UCC and other applicable law, which rights and remedies shall be cumulative.
Section 1.8Excluded Receivables.
(a)Upon ten (10) days’ advance written notice to the Buyer and Administrative Agent (as Buyer’s assignee), a Transferor may designate as Excluded Receivables all Originated Receivables (whether outstanding or arising on or after the effectiveness of such designation) relating to any designated Obligor; provided that immediately after giving effect to such designation (i) the Excluded Receivable Compliance Condition shall be satisfied and (ii) no Termination Event or Unmatured Termination Event shall exist; provided, further, that no such designation may be undertaken by a Transferor for reasons relating to the credit quality of the related Originated Receivables or in order to manipulate the pool characteristics of the Receivables; and provided, further that, with respect to the Obligors designated in the Notice of Excluded Receivables, dated as of November 15, 2013, no additional notice shall be required to designate as Excluded Receivables all Originated Receivables in respect of such Obligors, including those arising prior to the Cut-off Date immediately preceding the date of such notice.
The written notice contemplated by the preceding sentence shall be accompanied by an updated Monthly Report reflecting the exclusion of the Excluded Receivables for such newly designated Obligor outstanding as of the immediately preceding Cut-off Date.
If such designation includes Originated Receivables outstanding prior to the immediately preceding Cut-off Date (and therefore owned by the Buyer), then the Buyer may dispose of any such outstanding Excluded Receivables by sale or dividend to the related Transferor; provided, that any such sale shall be made without representations, warranties, covenants or indemnity. Upon any such disposition, Buyer agrees to execute such instruments of release and authorize the execution of such financing statements and amendments or terminations of existing financing statements as necessary to fully accomplish such release and disposition. For the avoidance of doubt, no Excluded Receivables that arise on or after the Cut-off Date prior to the date of such notice shall be deemed to have been sold to the Buyer under this Agreement.
(b)Upon ten (10) days’ advance written notice to the Buyer and Administrative Agent (as Buyer’s assignee), a Transferor may reverse the designation of an Obligor’s Excluded Receivables and upon the effective date of such notice, Originated Receivables relating to such Obligor shall no longer be Excluded Receivables; provided, however, that, without the written consent of Required Committed Lenders, the outstanding balance of such Obligor’s Excluded Receivables may not exceed 2.5% of the aggregate outstanding balance of all Eligible Receivables immediately prior to the effective date of such notice.
(c)Schedule B shall be updated to reflect the current list of Obligors whose Originated Receivables are Excluded Receivables pursuant to this Section 1.8.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1Representations and Warranties. Each Originator hereby represents and warrants to Parent, Buyer and Buyer’s assigns, on the date hereof and on each date that any Receivable is originated by such Originator on or after the date hereof, that:
(a)Existence and Power. Such Transferor is a corporation or limited liability company, as applicable, duly organized under the laws of the state set forth after its name in the preamble to this Agreement (the “Applicable State”), and no other state or jurisdiction, and as to which such Applicable State must maintain a public record showing such corporation to have been organized. Such Transferor is validly existing and in good standing under the laws of its Applicable State and is duly qualified to do business and is in good standing as a foreign entity, and has and holds all power and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is conducted except where the failure to so qualify or so hold could not reasonably be expected to have a Material Adverse Effect.
(b)Power and Authority; Due Authorization, Execution and Delivery. The execution and delivery by such Person of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder, and, in the case of any Originator, such Originator’s use of the proceeds of the Purchase made from it hereunder, are within its organizational powers and authority and have been duly authorized by all necessary organizational action on its part. This Agreement and each other Transaction Document to which such Transferor is a party has been duly executed and delivered by such Transferor.
(c)No Conflict. The execution and delivery by such Transferor of this Agreement and each other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder do not result in the creation or imposition of any Adverse Claim on the assets of such Transferor, or contravene or violate (i) its Organizational Documents, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to which it is a party or by which it or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property (except as created under the Transaction Documents) except, in any case, where such contravention or violation could not reasonably be expected to have a Material Adverse Effect; and no transaction contemplated hereby requires compliance with any bulk sales act or similar law.
(d)Governmental Authorization. Other than the filing of the financing statements required hereunder, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution and delivery by such Transferor of this Agreement and each other Transaction Document to which it is a party and the performance of its obligations hereunder and thereunder.
(e)Actions, Suits. There are no actions, suits or proceedings pending, or to the best of such Transferor’s knowledge, threatened, against or affecting such Transferor, or
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any of its properties, in or before any court, arbitrator or other body, that could reasonably be expected to have a Material Adverse Effect.
(f)Binding Effect. Each of the Transaction Documents to which such Transferor is a party constitutes the legal, valid and binding obligation of such Transferor enforceable against such Transferor in accordance with its respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
(g)Accuracy of Information. All information heretofore furnished by such Transferor or any of its Affiliates to Buyer (or its assigns) for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by such Transferor or any of its Affiliates to Buyer (or its assigns) will be, true and accurate in every material respect on the date such information is stated or certified and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein, taken as a whole, not misleading.
(h)Use of Proceeds. No portion of any Purchase Price payment hereunder will be used (i) for a purpose that violates, or would be inconsistent with, any law, rule or regulation applicable to such Transferor or (ii) to acquire any security in any transaction which is subject to Section 12, 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i)Good Title. Upon the creation of each Receivable originated by an Originator after the Initial Cut-Off Date applicable to such Originator, such Originator (i) is the legal and beneficial owner of such Receivables and (ii) is the legal and beneficial owner of the Related Security with respect thereto or possesses a valid and perfected security interest therein, in each case, free and clear of any Adverse Claim, except as created by the Transaction Documents.
(j)Perfection. This Agreement, together with the filing of the financing statements and assignments contemplated hereby, is effective to transfer to Buyer (and Buyer shall acquire from such Transferor, directly or indirectly): (i) legal and equitable title to, with the right to sell and encumber each Receivable originated by such Originator, whether now existing and hereafter arising, together with the Collections with respect thereto, and (ii) all of such Originator’s right, title and interest in the Related Security associated with each such Receivable, in each case, free and clear of any Adverse Claim, except as created by the Transaction Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Buyer’s ownership interest in such Receivables, the Related Security and the Collections. Such Transferor’s jurisdiction of organization is a jurisdiction whose law generally requires information concerning the existence of a nonpossessory security interest to be made generally available in a filing, record or registration system as a condition or result of such a security interest’s obtaining priority over the rights of a lien creditor which respect to collateral.
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(k)Places of Business and Locations of Records. The principal place of business and chief executive office of such Transferor and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit II or such other locations of which Buyer has been notified in accordance with Section 4.2(a) in jurisdictions where all action required by Section 4.2(a) has been taken and completed. Such Transferor’s Federal Employer Identification Number is correctly set forth on Exhibit II.
(l)Collections. The conditions and requirements set forth in Section 4.1(h) have at all times been satisfied and duly performed. The names and addresses of all Collection Banks, together with the account numbers of the Collection Accounts of such Transferor at each Collection Bank and the post office box number of each Lock-Box, are listed on Exhibit III as such exhibit may be updated from time to time by written notice to the Administrative Agent. Such Originator has not granted any Person, other than Buyer (and its assigns) dominion and control of any Lock-Box or Collection Account, or the right to take dominion and control of any such Lock-Box or Collection Account at a future time or upon the occurrence of a future event.
(m)Material Adverse Effect. Since June 30, 2014, no event has occurred that would have a Material Adverse Effect.
(n)Names. The name in which such Transferor has executed this Agreement is identical to the name of such Transferor as indicated on the public record of its state of organization which shows such Transferor to have been organized. In the past five (5) years, such Transferor has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement and as listed on Exhibit II.
(o)Ownership of Originators and Buyer. Parent owns, directly or indirectly, 100% of the issued and outstanding Equity Interests of each Originator and Buyer. Such Equity Interests are validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of Buyer or any Originator.
(p)Not an Investment Company. Such Transferor is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or any successor statute.
(q)Compliance with Law. Such Transferor has complied in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Receivable, together with the Contract related thereto, does not contravene any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation, except where such contravention or violation could not reasonably be expected to have a Material Adverse Effect.
(r)Compliance with Credit and Collection Policy. Such Transferor has complied in all material respects with the Credit and Collection Policy with regard to each
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Receivable originated or contributed by it that was reflected in any Purchase Report as an Eligible Receivable and was an Eligible Receivable on the date of its acquisition by Buyer hereunder, and with regard to each Contract with respect to such Receivable, and has not made any change to such Credit and Collection Policy, except such material change as to which Buyer (and its assigns) have been notified in accordance with Section 4.1(a)(vii).
(s)Payments to such Originator. With respect to each Receivable originated by such Originator and sold to Buyer hereunder, the Purchase Price received by such Originator constitutes reasonably equivalent value in consideration therefor. No transfer hereunder by such Originator of any Receivable originated by such Originator is or may be voidable under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C. §§ 101 et seq.), as amended.
(t)Enforceability of Contracts. Each Contract with respect to each Receivable that was reflected in any Purchase Report as an Eligible Receivable and was an Eligible Receivable on the date of its acquisition by Buyer hereunder is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
(u)Eligible Receivables. Each Receivable reflected in any Purchase Report as an Eligible Receivable was an Eligible Receivable on the date of its acquisition by Buyer hereunder.
(v)Accounting. The manner in which such Originator accounts for the transactions contemplated by this Agreement in its financial statements does not jeopardize the characterization of the transactions contemplated herein as being true sales.
(w)ERISA. (i) Identification of Plans. Except as disclosed on Exhibit III-B of the Credit and Security Agreement, as of the closing date or as of the last date Exhibit III-B of the Credit and Security Agreement was updated to reflect the establishment of a new plan, none of such Originator, its Restricted Subsidiaries or any of its ERISA Affiliates maintains or contributes to, or has during the past seven (7) years maintained or contributed to, any material Plan that is subject to Title IV of ERISA.
(i)Compliance. Each Plan maintained by such Originator and its Restricted Subsidiaries has at all times been maintained, by its terms and in operation, in compliance with all applicable laws, and such Originator and its Restricted Subsidiaries are subject to no tax or penalty with respect to any Plan of such Person or any ERISA Affiliate thereof, including, without limitation, any tax or penalty under Title I or Title IV of ERISA or under Chapter 43 of the Tax Code, or any tax or penalty resulting from a loss of deduction under Sections 162, 404, or 419 of the Tax Code, where the failure to comply with such laws, and such taxes and penalties, together with all other liabilities referred to in this Section 2.1(w) (taken as a whole), would in the aggregate have a Material Adverse Effect.
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(ii)Liabilities. Neither such Originator nor its Restricted Subsidiaries is subject to any liabilities (including withdrawal liabilities) with respect to any Plans of such Originator, its Restricted Subsidiaries and its ERISA Affiliates, including, without limitation, any liabilities arising from Titles I or IV of ERISA, other than obligations to fund benefits under an ongoing Plan and to pay current contributions, expenses and premiums with respect to such Plans, where such liabilities, together with all other liabilities referred to in this Section 2.1(w) (taken as a whole), would in the aggregate have a Material Adverse Effect.
(iii)Funding. Each of such Originator and its Restricted Subsidiaries and, with respect to any Plan which is subject to Title IV of ERISA, each of its ERISA Affiliates, have made full and timely payment of all amounts (A) required to be contributed under the terms of each Plan and applicable law, and (B) required to be paid as expenses (including PBGC or other premiums) of each Plan, where the failure to pay such amounts (when taken as a whole, including any penalties attributable to such amounts) would have a Material Adverse Effect. Such Originator is not subject to any liabilities with respect to post-retirement medical benefits in any amounts which, together with all other liabilities referred to in this Section 2.1(w) (taken as a whole), would have a Material Adverse Effect if such amounts were then due and payable.
(iv)ERISA Event. No ERISA Event has occurred or is reasonably expected to occur, except for such ERISA Events that individually or in the aggregate would not have a Material Adverse Effect.
(x)OFAC. Neither such Originator nor any Subsidiary or Affiliate of the foregoing (i) is a Sanctioned Person, (ii) does business in a Sanctioned Country or with a Sanctioned Person in violation of the economic sanctions of the United States administered by OFAC or (iii) does business in such country or with any such agency, organization or person, in violation of the economic sanctions of the United States administered by OFAC.
ARTICLE III
CONDITIONS OF PURCHASE
Section 3.1Conditions Precedent to Purchase. The Purchase from each Originator under this Agreement is subject to the conditions precedent that (a) Buyer (and its assigns) shall have received on or before the closing date of the Credit and Security Agreement those documents listed on Schedule A and (b) all of the conditions to effectiveness of the Credit and Security Agreement shall have been satisfied on or before the closing date thereof or waived in accordance with the terms thereof.
Section 3.2Conditions Precedent to Subsequent Payments. Buyer’s obligation to pay for Receivables coming into existence on or after the applicable Purchase Date shall be subject to the further conditions precedent that: (a) the Facility Termination Date shall not have occurred under the Credit and Security Agreement; (b) Buyer (or its assigns) shall have received such other approvals, opinions or documents as it may reasonably request, and (c) on the date such Receivable came into existence, the following statements shall be true (and acceptance of the proceeds of any payment for such Receivable shall be deemed a representation and warranty by such Originator that such statements are then true):
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(i)the representations and warranties set forth in Article II are true and correct on and as of the date such Receivable came into existence as though made on and as of such date; and
(ii)no event has occurred and is continuing that will constitute a Termination Event or an Unmatured Termination Event.
Notwithstanding the foregoing conditions precedent, upon payment of the Purchase Price for any Receivable originated by any Originator (whether by payment of cash or through an increase in the amounts outstanding under such Originator’s Subordinated Note), title to such Receivable and the Related Security and Collections with respect thereto shall vest in Buyer, whether or not the conditions precedent to Buyer’s obligation to pay for such Receivable were in fact satisfied. The failure of such Originator to satisfy any of the foregoing conditions precedent, however, shall give rise to a right of Buyer to rescind the related purchase and direct such Originator to pay to Buyer an amount equal to the Purchase Price payment that shall have been made with respect to any Receivables related thereto.
ARTICLE IV
COVENANTS
Section 4.1Affirmative Covenants of Transferors. Until the date on which this Agreement terminates in accordance with its terms:
(a)Other Notices and Information. Each Transferor will deliver to Buyer and its assigns:
(i)Reportable Events. As soon as possible and in any event within thirty (30) days after such Transferor or any Restricted Subsidiary knows or has reason to know that any “Reportable Event” (as defined in Section 4043(b) of ERISA) with respect to any Plan has occurred (other than such a Reportable Event for which the PBGC has waived the 30-day notice requirement under Section 4043(a) of ERISA) and such Reportable Event involves a matter that has had, or is reasonably likely to have, a Material Adverse Effect, a statement of a Financial Officer of such Transferor or such Restricted Subsidiary setting forth details as to such Reportable Event and the action which the Parent or such Restricted Subsidiary proposes to take with respect thereto, together with a copy of the notice of such Reportable Event given to the PBGC if a copy of such notice is available to the Parent or such Restricted Subsidiary;
(ii)Change in Credit and Collection Policy. At least thirty (30) days prior to the effectiveness of any material change in or material amendment to the Credit and Collection Policy, a copy of the Credit and Collection Policy then in effect and a notice (A) indicating such proposed change or amendment ,and (B) if such proposed change or amendment would be reasonably likely to materially adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables, requesting Buyer’s (and the Administrative Agent’s, as Buyer’s assignee) consent thereto.
(iii)Other Information. Promptly, from time to time, such other information, documents, records or reports relating to the Receivables originated or contributed by such Transferor or the condition or operations, financial or otherwise, of such Originator as
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Buyer (or its assigns) may from time to time reasonably request in order to protect the interests of Buyer (and its assigns) under or as contemplated by this Agreement.
(iv)Termination Events or Unmatured Termination Events. The occurrence of each Termination Event and each Unmatured Termination Event, by a statement of a Financial Officer of such Transferor.
(v)Downgrade of Parent. Promptly after the occurrence thereof, any downgrade in the rating of any rated Debt of any Transferor by S&P or by Moody’s, setting forth the Debt affected and the nature of such change.
(vi)Material Adverse Effect. Promptly upon learning thereof, the occurrence of any event or condition that has had, or could reasonably be expected to have, a Material Adverse Effect.
(b)Compliance with Laws and Preservation of Existence. Each Transferor will comply in all respects with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Transferor will preserve and maintain its legal existence, rights, franchises and privileges in the jurisdiction of its organization, and qualify and remain qualified in good standing as a foreign entity in each jurisdiction where its business is conducted, except where the failure to so qualify or remain in good standing could not reasonably be expected to have a Material Adverse Effect.
(c)Audits. Each Transferor will furnish to Buyer (as its assigns) such information with respect to it and the Receivables sold or contributed by it as may be reasonably requested by Buyer from time to time. Each Transferor will, from time to time during regular business hours as requested by Buyer (or its assigns) upon reasonable notice and at the sole cost of such Transferor, permit Buyer (or its assigns), or its agents or representatives: (i) to examine and make copies of and abstracts from all Records in the possession or under the control of such Transferor relating to the Receivables and Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of such Transferor for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to such Transferor’s financial condition or the Receivables and the Related Security or such Transferor’s performance under any of the Transaction Documents or any Person’s performance under the Contracts and, in each case, with any of the officers or employees of such Transferor having knowledge of such matters (each of the foregoing examinations and visits, a “Review”); provided, however, that, so long as no Amortization Event (under and as defined in the Credit and Security Agreement) has occurred and is continuing, (A) the Transferors shall only be responsible for the costs and expenses of the first Review conducted in each calendar year, and (B) the Agents, collectively, will not request more than three (3) Reviews in any one calendar year. The first review in each calendar year shall be conducted solely at the request of the Administrative Agent. Each Review (other than the first Review occurring during any calendar year) shall be conducted solely at the request of the Required Committed Lenders.
(d)Keeping and Marking of Records and Books.
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(i)Such Transferor will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable). Such Transferor will give Buyer (or its assigns) notice of any material change in the administrative and operating procedures referred to in the previous sentence.
(ii)Such Transferor will (A) on or prior to the date hereof, mark its master data processing records and other books and records relating to the Receivables with a legend, acceptable to Buyer (or its assigns), describing Buyer’s ownership interests in the Receivables and further describing the interest of the Administrative Agent (on behalf of the Lenders) under the Credit and Security Agreement and (B) upon the request of Buyer (or its assigns): (x) mark each Contract with a legend describing Buyer’s ownership interests in the Receivables originated by such Transferor and further describing the interest of the Administrative Agent (on behalf of the Lenders) and (y) after the occurrence of a Termination Event, deliver to Buyer (or its assigns) all Contracts (including, without limitation, all multiple originals of any such Contract) relating to such Receivables.
(e)Compliance with Contracts and Credit and Collection Policy. Such Transferor will timely and fully (i) perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables originated by it, and (ii) comply in all respects with the Credit and Collection Policy in regard to each such Receivable and the related Contract.
(f)Ownership. Such Transferor, as applicable, will take all necessary action to establish and maintain, irrevocably in Buyer, (A) legal and equitable title to the Receivables originated by such Transferor and the Collections and (B) all of such Transferor’s right, title and interest in the Related Security associated with the Receivables originated by such Transferor, in each case, free and clear of any Adverse Claims other than Adverse Claims in favor of Buyer (and its assigns) (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Buyer’s interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the interest of Buyer as Buyer (or its assigns) may reasonably request).
(g)Lenders’ Reliance. Such Transferor acknowledges that the Administrative Agent and the Lenders are entering into the transactions contemplated by the Credit and Security Agreement in reliance upon Buyer’s identity as a legal entity that is separate from such Transferor and any Affiliates thereof. Therefore, from and after the date of execution
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and delivery of this Agreement, such Transferor will take all reasonable steps including, without limitation, all steps that Buyer or any assignee of Buyer may from time to time reasonably request to maintain Buyer’s identity as a separate legal entity and to make it manifest to third parties that Buyer is an entity with assets and liabilities distinct from those of such Transferor and any Affiliates thereof and not just a division of such Transferor or any such Affiliate. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, such Transferor (i) will not hold itself out to third parties as liable for the debts of Buyer nor purport to own any of the Receivables and other assets acquired by Buyer, (ii) will take all other actions necessary on its part to ensure that Buyer is at all times in compliance with the “separateness covenants” set forth in Section 7.1(i) of the Credit and Security Agreement and (iii) will cause all tax liabilities arising in connection with the transactions contemplated herein or otherwise to be allocated between such Transferor and Buyer on an arm’s-length basis and in a manner consistent with the procedures set forth in U.S. Treasury Regulations §§1.1502-33(d) and 1.1552-1.
(h)Collections. Such Transferor will cause (1) all proceeds from all Lock-Boxes to be directly deposited by a Collection Bank into a Collection Account and (2) each Lock-Box and Collection Account to be subject at all times to a Collection Account Agreement that is in full force and effect. In the event any payments relating to Receivables are remitted directly to such Transferor or any Affiliate of such Transferor, such Transferor will remit (or will cause all such payments to be remitted) directly to a Collection Bank and deposit into a Collection Account within two (2) Business Days following receipt thereof and, at all times prior to such remittance, such Transferor will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of Buyer and its assigns. Such Transferor will transfer exclusive ownership, dominion and control of each Lock-Box and Collection Account to Buyer and, will not grant the right to take dominion and control of any Lock-Box or Collection Account at a future time or upon the occurrence of a future event to any Person, except to Buyer (or its assigns) as contemplated by this Agreement and the Credit and Security Agreement.
(i)Taxes. Such Transferor will file all tax returns and reports required by law to be filed by it and promptly pay all taxes and governmental charges at any time owing, except any such taxes which are not yet delinquent or are being contested in good faith by appropriate and timely proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. Such Transferor will pay when due any and all present and future stamp, documentary, and other similar taxes and governmental charges payable in connection with the Receivables originated by it, and hold Buyer and its assigns harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes and governmental charges.
Section 4.2Negative Covenants of Transferors. Until the date on which this Agreement terminates in accordance with its terms, each Transferor hereby covenants that:
(a)Name Change, Offices and Records. Such Transferor will not change its (i) jurisdiction of organization, (ii) name, (iii) identity or structure (within the meaning of Article 9 of any applicable enactment of the UCC), unless it shall have: (i) given the Buyer (and the Administrative Agent, as its assignee) at least forty-five (45) days’ prior written notice thereof and (ii) delivered to the Administrative Agent (as Buyer’s assignee) all financing
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statements, instruments and other documents requested by the Administrative Agent in connection with such change or relocation.
(b)Change in Payment Instructions to Obligors. Such Transferor will not add or terminate any bank as a Collection Bank, or make any change in the instructions to Obligors regarding payments to be made to any Lock-Box or Collection Account, unless Buyer (or its assigns) shall have received, at least ten (10) days before the proposed effective date therefor, (i) written notice of such addition, termination or change and (ii) with respect to the addition of a Collection Bank or a Collection Account or Lock-Box, an executed Collection Account Agreement with respect to the new Collection Account or Lock-Box; provided, however, that such Transferor may make changes in instructions to Obligors regarding payments if such new instructions require such Obligor to make payments to another existing Collection Account; provided further, however, each Transferor agrees to direct its Obligors of Excluded Receivables to make payment to a lock-box or account that is not a Lock-Box or Collection Account and to use commercially reasonable efforts to ensure that no collections in respect of Excluded Receivables are deposited to, or commingled with amounts on deposit in, any Lock-Box or Collection Account commencing no later than the date that is thirty (30) days after the designation of such Excluded Receivables pursuant to Section 1.8.
(c)Modifications to Contracts and Credit and Collection Policy. Such Transferor will not make any change to the Credit and Collection Policy that could reasonably be expected to adversely affect the collectibility of the Receivables originated by it or decrease the credit quality of any of its newly created Receivables. Except as otherwise permitted in its capacity as Servicer pursuant to the Credit and Security Agreement, such Transferor will not extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto other than in accordance with the Credit and Collection Policy.
(d)Sales, Liens. Such Transferor will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable, Related Security or Collections, or upon or with respect to any Contract under which any Receivable arises, or any Lock-Box or Collection Account, or assign any right to receive income with respect thereto (other than, in each case, the creation of the interests therein in favor of Buyer provided for herein), and such Transferor will defend the right, title and interest of Buyer in, to and under any of the foregoing property, against all claims of third parties claiming through or under such Transferor. For the avoidance of doubt, the limitations of this Section 4.2(d) relating to sales, assignments, other dispositions and Adverse Claims shall continue to apply to any Receivable that is reconveyed pursuant to Section 1.4.
(e)Accounting for Purchase. Such Transferor will not, and will not permit any Affiliate to, financially account (whether in financial statements or otherwise) for the transactions contemplated hereby in any manner other than the sale or other outright conveyance by such Transferor to Buyer of the Receivables originated by such Transferor and the associated Related Security or in any other respect account for or treat the transactions contemplated hereby in any manner other than as a sale of such Receivables and Related Security by such Transferor
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to Buyer except to the extent that such transactions are not recognized on account of consolidated financial reporting in accordance with generally accepted accounting principles.
(f)ERISA Compliance. Such Transferor will not, and will not permit any Subsidiary of such Transferor to, fail to satisfy the minimum funding standard under Section 412 of the Tax Code or Section 302 of ERISA, whether or not waived, or incur any liability under Section 4062 of ERISA to PBGC established thereunder in connection with any Plan except as would not have a Material Adverse Effect.
ARTICLE V
TERMINATION EVENTS
Section 5.1Termination Events. The occurrence of any one or more of the following events shall constitute a Termination Event:
(a)Any Transferor shall fail to make any payment or deposit required hereunder when due and such failure shall continue for three (3) Business Days.
(b)Any Transferor shall fail to observe or perform any covenant or agreement contained in Section 4.1(b)(iv) or 4.2.
(c)Any Transferor shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those referred to in Sections 5.1(a) and (b)), and such failure shall remain unremedied for 30 days after the earlier of (i) an Executive Officer of any of the Transferors obtaining knowledge thereof, or (ii) written notice thereof shall have been given to Any of the Transferors by Buyer or any of its assigns.
(d)Any representation, warranty, certification or statement made by such Transferor in this Agreement, any other Transaction Document or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made; provided that the materiality threshold in the preceding clause shall not be applicable with respect to any representation or warranty which itself contains a materiality threshold and provided further, that any misrepresentation or certification for which Buyer has actually received a Purchase Price Credit shall not constitute a Termination Event hereunder.
(e)Any of the Transferors or any of its Restricted Subsidiaries shall fail to make when due (whether at stated maturity, by acceleration, on demand or otherwise, and after giving effect to any applicable grace period) any payment of principal of or interest on any Debt (other than the Obligations) exceeding $25,000,000 individually or in the aggregate, or any of the Transferors or any of its Restricted Subsidiaries shall fail to observe or perform within any applicable grace period any covenants or agreements contained in any agreements or instruments relating to any of its Debt exceeding $25,000,000 individually or in the aggregate, or any other event shall occur if the effect of such failure or other event is to accelerate, or to permit the holder of such Debt or any other Person to accelerate, the maturity of such Debt; or any such Debt shall be required to be prepaid (other than by a regularly scheduled required prepayment) in whole or in part prior to its stated maturity.
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(f)Any of the Transferors or any Restricted Subsidiary shall commence a voluntary case concerning itself under the Bankruptcy Code or applicable foreign bankruptcy laws; or an involuntary case for bankruptcy is commenced against any of the Transferors or any of its Restricted Subsidiaries and the petition is not controverted within 30 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) or similar official under applicable foreign bankruptcy laws is appointed for, or takes charge of, all or any substantial part of the property of any of the Transferors or any of its Restricted Subsidiaries; or any of the Transferors or any of its Restricted Subsidiaries commences proceedings of its own bankruptcy or to be granted a suspension of payments or any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction, whether now or hereafter in effect, relating to any of the Transferors or any of its Restricted Subsidiaries or there is commenced against any of the Transferors or any of its Restricted Subsidiaries any such proceeding which remains undismissed for a period of 60 days; or any of the Transferors or any of its Restricted Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or any of the Transferors or any of its Restricted Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or any of the Transferors or any of its Restricted Subsidiaries makes a general assignment for the benefit of creditors; or any of the Transferors or any of its Restricted Subsidiaries shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or any of the Transferors or any of its Restricted Subsidiaries shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or any of the Transferors or any of its Restricted Subsidiaries shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate action is taken by any of the Transferors or any of its Restricted Subsidiaries for the purpose of effecting any of the foregoing.
(g)A Change of Control shall occur.
(h)A Plan of any of the Transferors or any Restricted Subsidiary or a Plan subject to Title IV of ERISA of any of its ERISA Affiliates: (i) shall fail to be funded in accordance with the minimum funding standard required by applicable law, the terms of such Plan, Section 412 of the Tax Code or Section 302 of ERISA for any plan year or a waiver of such standard is sought or granted with respect to such Plan under applicable law, the terms of such Plan or Section 412 of the Tax Code or Section 303 of ERISA; or (ii) is being, or has been, terminated or the subject of termination proceedings under applicable law or the terms of such Plan; or (iii) shall require any of the Transferors or any Restricted Subsidiary to provide security under applicable law, the terms of such Plan, Section 401 or 412 of the Tax Code or Section 306 or 307 of ERISA; or (iv) results in a liability to any of the Transferors or any Restricted Subsidiary under applicable law, the terms of such Plan, or Title IV of ERISA; and there shall result from any such failure, waiver, termination or other event a liability to the PBGC or a Plan that would have a Material Adverse Effect.
(i)Judgments or orders for the payment of money in excess of $25,000,000 individually or in the aggregate or otherwise having a Material Adverse Effect shall be rendered against any of the Transferors or any Restricted Subsidiary and such judgment or
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order shall continue unsatisfied (in the case of a money judgment) and in effect for a period of 30 days during which execution shall not be effectively stayed or deferred (whether by action of a court, by agreement or otherwise).
(j)Any Transaction Document ceases to be in full force and effect or the validity or enforceability thereof is disaffirmed by or on behalf of any Transferor or any Restricted Subsidiary, or at any time it is or becomes unlawful for any Transferor or any Restricted Subsidiary to perform or comply with its obligations under any Transaction Document, or the obligations of Any of the Transferors or any Restricted Subsidiary under any Transaction Document are not or cease to be legal, valid and binding on any of the Transferors or any Restricted Subsidiary.
(k)There shall occur any loss, termination, cancellation or other material impairment of any governmental license, certificate, or permit by any Transferor or any Restricted Subsidiary which is reasonably likely to have a Material Adverse Effect.
Section 5.2Remedies. Upon the occurrence and during the continuation of a Termination Event, Buyer may take any of the following actions: (i) declare the applicable Termination Date to have occurred, whereupon the applicable Termination Date shall forthwith occur, without demand, protest or further notice of any kind, all of which are hereby expressly waived by each Transferor; provided, however, that upon the occurrence of a Termination Event described in Section 5.1(f) with respect to any Transferor, or of an actual or deemed entry of an order for relief with respect to any Transferor under the Bankruptcy Code, the applicable Termination Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by each Transferor and (ii) to the fullest extent permitted by applicable law, declare that the Default Rate shall accrue with respect to any amounts then due and owing by such Transferor to Buyer. The aforementioned rights and remedies shall be without limitation and shall be in addition to all other rights and remedies of Buyer and its assigns otherwise available under any other provision of this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative.
ARTICLE VI
INDEMNIFICATION
Section 6.1Indemnities by Transferors. Without limiting any other rights that Buyer may have hereunder or under applicable law, each Transferor hereby agrees to indemnify (and pay upon demand to) Buyer and its assigns, officers, directors, agents and employees (each an “Indemnified Party”) from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys’ fees (which attorneys may be employees of Buyer or any such assign) and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or incurred by any of them arising out of or as a result of this Agreement or the acquisition, either directly or indirectly, by Buyer of an interest in the Receivables originated by such Transferor, excluding, however:
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(a)Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification;
(b)Indemnified Amounts to the extent the same includes losses in respect of Receivables originated by such Transferor that are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor; or
(c)taxes imposed on or measured by such Indemnified Party’s net income, and franchise taxes and branch profit taxes imposed on it, by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof, and taxes imposed on or measured by such Indemnified Party’s net income, and franchise taxes and branch profit taxes imposed on it, by the jurisdiction in which such Indemnified Party’s principal executive office is located or any political subdivision thereof;
provided, however, that nothing contained in this sentence shall limit the liability of such Transferor or limit the recourse of each Indemnified Party to such Transferor for amounts otherwise specifically provided to be paid by such Transferor under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, but subject in each case to clauses (a), (b) and (c) above, each Transferor shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from:
(i)any representation or warranty made by such Transferor (or any officer of such Transferor) under or in connection with any Purchase Report, this Agreement, any other Transaction Document or any other information or report delivered by such Transferor pursuant hereto or thereto for which Buyer has not received a Purchase Price Credit that shall have been false or incorrect when made or deemed made;
(ii)the failure by such Transferor, to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto, or the nonconformity of any Receivable or Contract included therein with any such applicable law, rule or regulation or any failure of such Transferor to keep or perform any of its obligations, express or implied, with respect to any Contract;
(iii)any failure of such Transferor to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other Transaction Document;
(iv)any products liability, personal injury or damage, suit or other similar claim arising out of or in connection with merchandise, insurance or services that are the subject of any Contract or any Receivable;
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(v)any dispute, claim, offset or defense (other than a defense related to the financial condition, or discharge in bankruptcy, of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or service related to such Receivable or the furnishing or failure to furnish such merchandise or services;
(vi)the commingling of Collections of Receivables at any time with other funds;
(vii)any investigation, litigation or proceeding related to or arising from this Agreement or any other Transaction Document, the transactions contemplated hereby, such Transferor’s use of the proceeds of the Purchase from it hereunder, the ownership of the Receivables originated by such Transferor or any other investigation, litigation or proceeding relating to such Transferor in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby;
(viii)any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;
(ix)any Termination Event;
(x)any failure to vest and maintain vested in Buyer, or to transfer to Buyer, legal and equitable title to, and ownership of, the Receivables originated by such Transferor and the associated Collections, and all of such Transferor’s right, title and interest in the Related Security associated with such Receivables, in each case, free and clear of any Adverse Claim;
(xi)the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivable originated by such Transferor, the Related Security and Collections with respect thereto, and the proceeds thereof, whether at the time of the Purchase from such Transferor hereunder or at any subsequent time;
(xii)any action or omission by such Transferor which reduces or impairs the rights of Buyer with respect to any Receivable or the value of any such Receivable;
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(xiii)any attempt by any Person to void the Purchase from such Transferor hereunder under statutory provisions or common law or equitable action;
(xiv)any civil penalty or fine assessed by OFAC against, and all reasonable costs and expenses (including counsel fees and disbursements) incurred in connection with defense thereof by the Buyer as a result of any action of such Transferor; and
(xv)the failure of any Receivable reflected as an Eligible Receivable on any Purchase Report prepared by such Transferor to be an Eligible Receivable at the time acquired by Buyer.
Notwithstanding the foregoing, (i) the foregoing indemnification is not intended to, and shall not, constitute a guarantee of the collectibility or payment of the Receivables conveyed hereunder; and (ii) nothing in the Section 6.1 shall require a Transferor to indemnify any Indemnified Party for Receivables which are not collected, not paid or otherwise uncollectible on account of the insolvency, bankruptcy, creditworthiness or financial inability to pay of the applicable Obligor.
Section 6.2Other Costs and Expenses. Each Transferor shall pay to Buyer on demand all costs and out-of-pocket expenses in connection with the preparation, execution, delivery and administration of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder. Each Transferor shall pay to Buyer on demand any and all costs and expenses of Buyer, if any, including reasonable counsel fees and expenses actually incurred in connection with the enforcement of this Agreement and the other documents delivered hereunder and in connection with any restructuring or workout of this Agreement or such documents, or the administration of this Agreement following a Termination Event.
ARTICLE VII
MISCELLANEOUS
Section 7.1Waivers and Amendments.
(a)No failure or delay on the part of Buyer (or its assigns) in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.
(b)No provision of this Agreement may be amended, supplemented, modified or waived except in writing signed by each Transferor and Buyer and, to the extent required under the Credit and Security Agreement, the Administrative Agent and the Committed Lenders or the Required Committed Lenders. Any material amendment, supplement, modification or waiver will require satisfaction of the Rating Agency Condition.
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Section 7.2Notices. All communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or telecopy numbers set forth on the signature pages hereof or at such other address or telecopy number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective (a) if given by telecopy, upon the receipt thereof, (b) if given by mail, five (5) Business Days after the time such communication is deposited in the mail with first class postage prepaid or (c) if given by any other means, when received at the address specified in this Section 7.2.
Section 7.3Protection of Ownership Interests of Buyer.
(a)Each Transferor agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that Buyer (or its assigns) may request, to perfect, protect or more fully evidence the interest of Buyer hereunder and the interest of the Administrative Agent (on behalf of the Lenders) under the Credit and Security Agreement, or to enable Buyer (or its assigns) to exercise and enforce their rights and remedies hereunder. At any time, Buyer (or its assigns) may, at such Transferor’s sole cost and expense, direct such Transferor to notify the Obligors of Receivables of the ownership interests of Buyer under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to Buyer or its designee.
(b)If any Transferor fails to perform any of its obligations hereunder, Buyer (or its assigns) may (but shall not be required to) perform, or cause performance of, such obligations, and Buyer’s (or such assigns’) costs and expenses incurred in connection therewith shall be payable by such Transferor as provided in Section 6.2. Each Transferor irrevocably authorizes Buyer (and its assigns) at any time and from time to time in the sole discretion of Buyer (or its assigns), and appoints Buyer (and its assigns) as its attorney(ies)-in-fact, to act on behalf of such Transferor (i) to execute on behalf of such Transferor as debtor and to file financing statements necessary or desirable in Buyer’s (or its assigns’) sole discretion to perfect and to maintain the perfection and priority of the interest of Buyer in the Receivables originated by such Transferor and the associated Related Security and Collections and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Receivables as a financing statement in such offices as Buyer (or its assigns) in their sole discretion deem necessary or desirable to perfect and to maintain the perfection and priority of Buyer’s interests in such Receivables. This appointment is coupled with an interest and is irrevocable. From and after July 1, 2001, if any Transferor fails to perform any of its obligations hereunder: (A) such Transferor hereby authorizes Buyer (or its assigns) to file financing statements and other filing or recording documents with respect to the Receivables and Related Security (including any amendments thereto, or continuation or termination statements thereof), without the signature or other authorization of such Transferor, in such form and in such offices as Buyer (or any of its assigns)
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reasonably determines appropriate to perfect or maintain the perfection of the ownership or security interests of Buyer (or its assigns) hereunder, (B) such Transferor acknowledges and agrees that it is not authorized to, and will not, file financing statements or other filing or recording documents with respect to the Receivables or Related Security (including any amendments thereto, or continuation or termination statements thereof), without the express prior written approval by the Administrative Agent (as Buyer’s assignee), consenting to the form and substance of such filing or recording document, and (C) such Transferor approves, authorizes and ratifies any filings or recordings made by or on behalf of the Administrative Agent (as Buyer’s assign) in connection with the perfection of the ownership or security interests in favor of Buyer or the Administrative Agent (as Buyer’s assign), respectively.
Section 7.4Confidentiality.
(a)Each Transferor and Buyer shall maintain and shall cause each of its employees and officers to maintain the confidentiality of the Fee Letter and the other confidential or proprietary information with respect to the Administrative Agent and the Lenders and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that such Transferor and its officers and employees may disclose such information to such Transferor’s external accountants, attorneys and other advisors and as required by any applicable law or order of any judicial or administrative proceeding.
(b)Each Transferor hereby consents to the disclosure of any nonpublic information with respect to it (i) to Buyer, the Agents, any Co-Agent or the Lenders by each other, (ii) to any prospective or actual assignee or participant of any of the Persons described in clause (i), and (iii) to any rating agency, Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to a Lender or any entity organized for the purpose of purchasing, or making loans secured by, financial assets for which any Co-Agent or one of its Affiliates acts as the administrative agent and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, provided each such Person described in the foregoing clauses (ii) and (iii) is informed of the confidential nature of such information. In addition, the Lenders and the Administrative Agent may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law).
Section 7.5Bankruptcy Petition.
(a)Each Transferor and Buyer each hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of a Lender, it will not institute against, or join any other Person in instituting against, such Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation
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proceedings or other similar proceeding under the laws of the United States or any state of the United States.
(b)Each Transferor covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding obligations of Buyer under the Credit and Security Agreement, it will not institute against, or join any other Person in instituting against, Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States.
Section 7.6Limitation of Liability. Except with respect to any claim arising out of the willful misconduct or gross negligence of any Transferor, Buyer, any Lender or any Agent, no claim may be made by any such Person (or its Affiliates, directors, officers, employees, attorneys or agents) against any such other Person (or its Affiliates, directors, officers, employees, attorneys or agents) for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and each of the parties hereto, on behalf of itself and its Affiliates, directors, officers, employees, attorneys, agents, successors and assigns, hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
Section 7.7Joinder to Receivables Sale Agreement.
(a)At any time, at the sole discretion of the Administrative Agent and the Committed Lenders, the Buyer, the Administrative Agent and the Committed Lenders may enter into a Joinder Agreement with any Subsidiary of the Parent (such Subsidiary, a “Joining Originator”).
(b)On or before the date that any Joinder Agreement becomes effective, the Administrative Agent shall have received:
(i)(A) a general corporate and enforceability opinion or opinions of outside counsel of the Joining Originator; (B) a security interest opinion covering the perfection of the Buyer in such Joining Originator’s interest in the Receivables together with the Related Security and Collections with respect thereto; (C) a true sale opinion with respect to such Joining Originator and (C) a non-consolidation opinion with respect to such Joining Originator;
(ii)an officer’s certificate of such Joining Originator;
(iii)UCC and tax lien search reports with respect to such Joining Originator;
(iv)a UCC-1 Financing Statement;
(v)a Subordinated Note;
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(vi)a Collection Account Agreement or confirmation that all Obligors with respect to such Joining Originator have been directed to remit payments to an account governed by a Collection Account Agreement;
(vii)a pro forma Monthly Report, together with a compliance certificate signed by the Servicer, in substantially the form of Exhibit IV to the Credit and Security Agreement, confirming that, following the joinder of such Joining Originator, no condition or event which constitutes an Amortization Event or Unmatured Amortization Event, as each such term is defined under the Credit Agreement, shall exist; and
(viii) the Organizational Documents of such Joining Originator, the IRS Form W-9 (or any successor form) of such Joining Originator and any other documentation that the Administrative Agent shall reasonably request.
(c)At the request of any of the Committed Lenders, on or before the date that any Joinder Agreement becomes effective, upon reasonable notice and at the sole cost of the Joining Originator, such Joining Originator shall permit a third party reasonably acceptable to the Committed Lenders to perform a Review, which review is satisfactory to the Committed Lenders. For the avoidance of doubt, such Review shall not be one of the three (3) Reviews permitted in any one calendar year.
Section 7.8CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF (EXCEPT IN THE CASE OF THE OTHER TRANSACTION DOCUMENTS, TO THE EXTENT OTHERWISE EXPRESSLY STATED THEREIN) AND EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE OWNERSHIP INTEREST OF ANY TRANSFEROR OR THE BUYER, IN ANY OF THE COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 7.9CONSENT TO JURISDICTION. EACH TRANSFEROR HEREBY IRREVOCABLY SUBMITS TO THE NON EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH TRANSFEROR PURSUANT TO THIS AGREEMENT AND SUCH TRANSFEROR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF BUYER (OR ITS ASSIGNS) TO BRING PROCEEDINGS AGAINST SUCH TRANSFEROR IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY SUCH TRANSFEROR AGAINST BUYER (OR ITS ASSIGNS) OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH
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TRANSFEROR PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN THE STATE OF NEW YORK.
Section 7.10WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY SUCH TRANSFEROR PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
Section 7.11Integration; Binding Effect; Survival of Terms.
(a)This Agreement and each other Transaction Document contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.
(b)This Agreement shall be binding upon and inure to the benefit of the Transferors, Buyer and their respective successors and permitted assigns (including any trustee in bankruptcy). No Transferor may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of Buyer. Buyer may assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of any Transferor. Without limiting the foregoing, each Transferor acknowledges that Buyer, pursuant to the Credit and Security Agreement, may assign to the Administrative Agent, for the benefit of the Lenders, its rights, remedies, powers and privileges hereunder and that the Administrative Agent may further assign such rights, remedies, powers and privileges to the extent permitted in the Credit and Security Agreement. Each Transferor agrees that the Administrative Agent, as the assignee of Buyer, shall, subject to the terms of the Credit and Security Agreement, have the right to enforce this Agreement and to exercise directly all of Buyer’s rights and remedies under this Agreement (including, without limitation, the right to give or withhold any consents or approvals of Buyer to be given or withheld hereunder) and each Transferor agrees to cooperate fully with the Administrative Agent in the exercise of such rights and remedies. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to (i) any breach of any representation and warranty made by any Transferor pursuant to Article II; (ii) the indemnification and payment provisions of Article VI; and (iii) Section 7.5 shall be continuing and shall survive any termination of this Agreement.
Section 7.12Counterparts; Severability; Section References. This Agreement may be executed in any number of counterparts and by different parties hereto in separate
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counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” shall mean articles and sections of, and schedules and exhibits to, this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
WESTROCK MILL COMPANY, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK – SOUTHERN CONTAINER, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
[Third Amended and Restated Receivables Sale Agreement]
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Address: |
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WESTROCK COMPANY OF TEXAS,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK CONVERTING COMPANY, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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[Sixth Amended and Restated Receivables Sale Agreement]
All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK MINNESOTA CORPORATION,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK CALIFORNIA, INC.LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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[Sixth Amended and Restated Receivables Sale Agreement]
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Telephone: (678) 291-7901
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK CP, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK – SOLVAY, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
[Sixth Amended and Restated Receivables Sale Agreement]
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK-REX, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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[Sixth Amended and Restated Receivables Sale Agreement]
WESTROCK-GRAPHICS, INC.,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK COMMERCIAL, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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[Sixth Amended and Restated Receivables Sale Agreement]
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Telephone: (678) 291-7456
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WESTROCK PACKAGING, INC.,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK CONSUMER PACKAGING GROUP, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
[Sixth Amended and Restated Receivables Sale Agreement]
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Address: |
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WESTROCK PACKAGING SYSTEMS, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK MWV, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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[Sixth Amended and Restated Receivables Sale Agreement]
All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK USC INC.,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK SOUTHEAST, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
[Sixth Amended and Restated Receivables Sale Agreement]
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Attn: John D. Stakel
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK BOX ON DEMAND, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK COATED BOARD, LLC,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
[Sixth Amended and Restated Receivables Sale Agreement]
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK TEXAS, L.P.,
as Originator
By:
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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WESTROCK VIRGINIA, LLC,
as Originator
[Sixth Amended and Restated Receivables Sale Agreement]
Name: John D. Stakel
Title: Senior Vice President and Treasurer
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Address: |
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All notices delivered pursuant to Section 5.2 or Section 6.2 shall also be sent to:
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Address: |
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[Sixth Amended and Restated Receivables Sale Agreement]
WESTROCK FINANCIAL. INC.,
as Buyer
By:
Name: Bradley A. Hasten
Title: Assistant Secretary
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Address: |
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[Sixth Amended and Restated Receivables Sale Agreement]
Definitions
This is Exhibit I to the Agreement (as hereinafter defined).
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(a) |
Capitalized terms used and not otherwise defined in the Agreement or this Exhibit are used with the meanings attributed thereto in the Credit and Security Agreement. |
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(c) |
As used in the Agreement and the Exhibits and Schedules thereto, capitalized terms have the meanings set forth in this Exhibit I (such meanings to be equally applicable to the singular and plural forms thereof). |
“2000 Agreement” has the meaning set forth in the preamble to the Agreement.
“2005 Agreement” has the meaning set forth in the preamble to the Agreement.
“2008 Agreement” has the meaning set forth in the preamble to the Agreement.
“2011 Agreement” has the meaning set forth in the preamble to the Agreement.
“2012 Agreement” has the meaning set forth in the preamble to the Agreement.
“2014 Agreement” has the meaning set forth in the preamble to the Agreement.
“Adverse Claim” means a Lien.
“Affiliates” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person or any Subsidiary of such Person. A Person shall be deemed to control another Person if the controlling Person owns 10-50% of any class of voting securities of the controlled Person only if it also possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise, or (b) if the controlling Person owns more than 50% of any class of voting securities of the controlled Person.
“Administrative Agent” has the meaning set forth in the Preliminary Statements to the Agreement.
“Aggregate Average Eligible Receivables Balance” means, as of any date of determination, the average outstanding balance of Eligible Receivables as of the end of each month for the 12-month period ending on the Cut-off Date prior to the date of such determination.
“Aggregate Average Receivables Balance” means, as of any date of determination, the average outstanding balance of Receivables as of the end of each month for the 12-month period ending on the Cut-off Date prior to the date of such determination.
“Agreement” means the Sixth Amended and Restated Receivables Sale Agreement, dated as of July 22, 2016, among Originators and Buyer, as the same may be amended, restated and/or otherwise modified from time to time in accordance with the terms thereof.
“Applicable State” has the meaning set forth in Section 2.1(a).
“Average Eligible Receivables Balance” means, for an Obligor effectively designated pursuant to Section 1.8, the average outstanding balance of Eligible Receivables for such Obligor as of the end of each month for the 12-month period ending on the Cut-off Date prior to the date of such designation.
“Average Receivables Balance” means, for an Obligor effectively designated pursuant to Section 1.8, the average outstanding balance of Receivables for such Obligor as of the end of each month for the 12-month period ending on the Cut-off Date prior to the date of such designation.
“Bankruptcy Code” means the Bankruptcy Code of 1978, as amended and in effect from time to time (11 U.S.C. § 101 et seq.) and any successor statute thereto.
“Business Day” means any day on which banks are not authorized or required to close in New York, New York or Atlanta, Georgia.
“Buyer” has the meaning set forth in the preamble to the Agreement.
“Calculation Period” means each calendar month or portion thereof which elapses during the term of the Agreement. The first Calculation Period shall commence on the date of the Purchases hereunder and the final Calculation Period shall terminate on the applicable Termination Date.
“Capitalized Lease” means any lease the obligation for rentals with respect to which is required to be capitalized on a balance sheet of the lessee in accordance with GAAP.
“Change of Control” means (a) as applied to Parent, that, during any period of twelve consecutive calendar months, any Person or “Group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, but excluding (A) any employee benefit or stock ownership plans of Parent, and (B) members of the Board of Directors and executive officers of Parent as of the date of the most recent amendment hereto, members of the immediate families of such members and executive officers, and family trusts and partnerships established by or for the benefit of any of the foregoing individuals) shall have acquired more than 50% of the outstanding voting Equity Interests of Parent, except that Parent’s purchase of its common stock outstanding on the date hereof which results in one or more of Parent’s shareholders of record as of the date of this Agreement controlling more than 50% of the outstanding voting Equity Interests of Parent shall not constitute an acquisition hereunder, (b) Parent ceases to own, directly or indirectly, a majority of the outstanding voting Equity Interests of any Originator, or (c) Parent ceases to own a majority of the outstanding voting Equity Interests of Buyer; provided, however, that a Change of Control that would otherwise occur pursuant to clause (a) of this definition as the result of an acquisition of more than 50% of the outstanding voting Equity
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Interests of Parent shall not be deemed to occur until the date that is 120 days following such acquisition in the event that the long term unsecured senior debt ratings assigned to the surviving entity by S&P and Moody’s are at least “BB” and “Ba2”, respectively; and provided further, however, that a Change of Control that would otherwise occur solely as a result of the transactions contemplated by (i) that Amended and Restated Business Combination Agreement, dated as of March 9, 2015, between Rock-Tenn Company, MeadWestvaco Corporation, Rome-Milan Holdings, Inc., Rome Merger Sub, Inc., and Milan Merger Sub, LLC, and (ii) that certain Agreement and Plan of Merger, dated as of January 28, 2018 among WRKCO Inc. (f/k/a WestRock Company), WestRock Company (f/k/a Whiskey Holdco, Inc.), Whiskey Merger Sub, Inc., Kola Merger Sub, Inc. and KapStone Paper and Packaging Corporation and effective as of November 2, 2018, shall be deemed not to occur.
“Collection Account” means each concentration account, depository account, lock-box account or similar account in which any Collections are collected or deposited and which is (i) listed on Exhibit III hereto, as such exhibit may be updated from time to time by notice to the Administrative Agent and (ii) subject to a Collection Account Agreement.
“Collection Account Agreement” means an agreement in form reasonably acceptable to the Administrative Agent among Buyer, the Administrative Agent and a Collection Bank.
“Collection Bank” means, at any time, any of the banks holding one or more Collection Accounts.
“Collections” means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable; provided, however, that the term “Collections” shall not include any payment made for the account of a third-party service provider or sub-contractor whose services were not included in the amount invoiced for the applicable Receivable.
“Commercial Paper” means promissory notes issued by a Conduit in the commercial paper market.
“Contract” means, with respect to any Receivable, any and all instruments, agreements, invoices or other writings pursuant to which such Receivable arises or which evidences such Receivable.
“Credit and Collection Policy” means (i) with respect to WestRock CP, LLC, the credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit V-1, as modified from time to time in accordance with the Agreement and (ii) with respect to an Originator other than WestRock CP, LLC, the credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit V-2, as modified from time to time in accordance with the Agreement; provided, that the parties hereto acknowledge that it the intent of the parties hereto that the two credit and collection policies and practices referenced in this definition of
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“Credit and Collection Policy” be consolidated and amended over time such that a single set of credit and collection policies and practices shall apply to all Originators at a future date.
“Credit and Security Agreement” has the meaning set forth in the Preliminary Statements to the Agreement.
“Debt” means, with respect to any Person at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under Capitalized Leases, (v) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities or property, (vi) all obligations of such Person to reimburse any bank or other person in respect of amounts paid under a letter of credit or similar instrument, (vii) all Debt of others secured by a lien on any asset of such Person to the extent of the fair market value of such asset, whether or not such Debt is assumed by such Person, (viii) all Synthetic Lease Liabilities of such Person, and (ix) all Debt of others guaranteed by such Person to the extent such Debt represents a liability of such Person; provided that liabilities resulting from the recognition of other post-retirement benefits required by Financial Accounting Standard No. 106 shall not constitute “Debt.”
“Default Rate” means a rate per annum equal to the sum of (i) the Prime Rate, plus (ii) 2.00%, changing when and as the Prime Rate changes.
“Default Ratio” has the meaning set forth in the Credit and Security Agreement.
“Discount Factor” means a percentage calculated to provide Buyer with a reasonable return on its investment in the Receivables purchased from each Originator after taking account of (i) the time value of money based upon the anticipated dates of collection of such Receivables and the cost to Buyer of financing its investment in such Receivables during such period, (ii) the risk of nonpayment by the Obligors, (iii) servicing costs, and (iv) factoring expenses. Each Originator and Buyer may agree from time to time to change the Discount Factor based on changes in one or more of the items affecting the calculation thereof, provided that any change to the Discount Factor shall take effect as of the commencement of a Calculation Period, shall apply only prospectively and shall not affect the Purchase Price payment made prior to the Calculation Period during which such Originator and Buyer agree to make such change. As of the date hereof, the Discount Factor in respect of Eligible Receivables is 2.0% and the Discount Factor in respect of all other Receivables is 2.0%.
“Equity Interests” means, with respect to any Person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or non-voting), of capital of such Person, including, if such Person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership, whether outstanding on the date hereof or issued after the date of this Agreement.
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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder.
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with any Originator or the Parent within the meaning of Section 414(b) or (c) of the Tax Code (and Sections 414(m) and (o) of the Tax Code for purposes of provisions relating to Section 412 of the Tax Code).
“ERISA Event” has the meaning provided in the Parent Credit Agreement.
“Excluded Receivable” means any Originated Receivable (i) in respect of an obligor identified on Schedule B hereto (as such schedule may be updated from time to time by the Transferors in accordance with Section 1.8 hereof) and (ii) subject to a third-party financing arrangement.
“Excluded Receivable Compliance Condition” means a condition that is satisfied as of any date of determination if (i) the Excluded Receivable Ratio does not exceed 7.5% and (ii) the Excluded Receivable Obligor Ratio does not exceed 2.5%.
“Excluded Receivable Obligor Ratio” means, as of the date of determination with respect to an Obligor pursuant to Section 1.8, the ratio (expressed as a percentage) computed by dividing (x) the Average Eligible Receivables Balance for such Obligor and its Affiliates (if any), by (y) the Aggregate Average Eligible Receivables Balance.
“Excluded Receivable Ratio” means, as of any date of determination, the ratio (expressed as a percentage) computed by dividing (x) the sum of the Average Receivables Balances for the Obligors designated pursuant to Section 1.8 since the beginning of the current calendar year, by (y) the Aggregate Average Receivables Balance as of such date.
“Executive Officer” shall mean with respect to any Person, the Chief Executive Officer, President, Vice Presidents (if elected by the Board of Directors of such Person), Chief Financial Officer, Treasurer, Secretary and any Person holding comparable offices or duties (if elected by the Board of Directors of such Person).
“Finance Charges” means, with respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract.
“Financial Officer” means with respect to the Parent, any of the Chief Financial Officer, Vice President of Finance, and Treasurer.
“GAAP” means generally accepted accounting principles in effect in the United States of America as of the date of this Agreement.
“Indemnified Amounts” has the meaning set forth in Section 6.1.
“Indemnified Party” has the meaning set forth in Section 6.1.
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“Initial Cutoff Date” means (a) for each Originator party to the 2000 Agreement, the close of business on the Business Day immediately preceding the date of the 2000 Agreement, (b) for each Originator party to the 2005 Agreement that was not also a party to the 2000 Agreement, the close of business on the Business Day immediately preceding the date of the 2005 Agreement, (c) for each Originator party to the 2008 Agreement that was not also a party to the 2000 Agreement or the 2005 Agreement, the close of business on the Business Day immediately preceding the date of the 2008 Agreement, (d) for WestRock – Solvay, LLC and WestRock CP, LLC, the close of business on the Business Day immediately preceding the date of the 2011 Agreement, (e) for WestRock – Rex, LLC, WestRock – Graphics, Inc., WestRock Commercial, LLC, WestRock Packaging, Inc., WestRock Consumer Packaging Group, LLC and WestRock Packaging Systems, LLC, the close of business on July 21, 2016, (f) for WestRock MWV, LLC, WestRock USC Inc., WestRock Southeast, LLC , WestRock Box on Demand, LLC, WestRock Coated Board, LLC, WestRock Texas, L.P. and WestRock Virginia, LLC, April [ ]May 2, 2019 and (g) for each Joining Originator, the close of business on the Business Day immediately preceding the effective date of the applicable Joinder Agreement or such other date as is identified in the applicable Joinder Agreement.
“Joinder Agreement” shall mean an agreement substantially in the form of Exhibit IV attached hereto pursuant to which an entity is designated as a “Joining Originator” under this Agreement.
“Joining Originator” has the meaning set forth in Section 7.7.
“Lien” means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement).
“Lock-Box” means each locked postal box with respect to which a bank who has executed a Collection Account Agreement has been granted exclusive access for the purpose of retrieving and processing payments made on the Receivables and which is listed on Exhibit III hereto.
“Material Adverse Effect” means (i) any material adverse effect on the business, operations, financial condition or assets of the Parent and its Restricted Subsidiaries, taken as a whole, (ii) any material adverse effect on the ability of any Transferor to perform its obligations under the Transaction Documents to which it is a party, (iii) any material adverse effect on the legality, validity or enforceability of the Agreement or any other Transaction Document, (iv) any material adverse effect on any Transferor’s, Buyer’s, the Administrative Agent’s or any Lender’s interest in the Receivables generally or in any significant portion of the Receivables, the Related Security or Collections with respect thereto, or (v) any material adverse effect on the collectibility of the Receivables generally or of any material portion of the Receivables.
“Moody’s” means Moody’s Investors Service, Inc.
“Net Worth” means as of the last Business Day of each Calculation Period preceding any date of determination, the excess, if any, of (a) the aggregate Outstanding Balance
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of the Receivables at such time plus cash-on-hand, over (b) the sum of (i) the Aggregate Principal outstanding at such time, plus (ii) the aggregate outstanding principal balance of the Subordinated Loans (including any Subordinated Loan proposed to be made on the date of determination).
“Obligor” means a Person obligated to make payments pursuant to a Contract.
“Organizational Documents” means, for any Person, the documents for its formation and organization, which, for example, (a) for a corporation are its corporate charter and bylaws, (b) for a partnership are its certificate of partnership (if applicable) and partnership agreement, (c) for a limited liability company are its certificate of formation or organization and its operating agreement, regulations or the like and (d) for a trust is the trust agreement, declaration of trust, indenture or bylaws under which it is created.
“Original Balance” means, with respect to any Receivable coming into existence after the Initial Cutoff Date, the Outstanding Balance of such Receivable on the date it was created.
“Originated Receivable” means all indebtedness and other obligations owed to an Originator (at the times it arises, and before giving effect to any transfer or conveyance under this Agreement) (including, without limitation, any indebtedness, obligation or interest constituting an account, chattel paper, instrument or general intangible) arising in connection with the sale of goods or the rendering of services by such Originator and further includes, without limitation, the obligation to pay any sales tax or Finance Charges with respect thereto; provided, however, that the term “Originated Receivable” shall exclude any indebtedness or other obligations owed to an Originator by an Affiliate that is 100% owned, directly or indirectly, by an Originator or the Buyer. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute an Originated Receivable separate from an Originated Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided, further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be an Originated Receivable regardless or whether the account debtor or such Originator treats such indebtedness, rights or obligations as a separate payment obligation.
“Originator” has the meaning set forth in the Preliminary Statements; provided, however, that in the event that any such Originator is merged into, or sells or distributes substantially all its assets to, another direct or indirect wholly-owned subsidiary of the Parent, it shall no longer be an Originator, but the surviving or transferee entity shall succeed to the rights and obligations of such Originator and be deemed an Originator hereunder; further provided, however, that any entity that joins this Agreement pursuant to Section 7.7 hereof shall be deemed an Originator hereunder.
“Outstanding Balance” of any Receivable at any time means the then outstanding principal balance thereof, including, for the avoidance of doubt, any amount allocable to sales tax.
“Parent” means WestRock Company, a Delaware corporation.
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“Parent Credit Agreement” means that certain Credit Agreement, dated May 27, 2011, by and among WestRock Company, WestRock Company of Canada, the guarantors from time to time party thereto, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent and as Collateral Agent, and Bank of America, N.A., as Canadian Agent, as the same may be amended from time to time in accordance with the terms thereof.
“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.
“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.
“Plan” means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which the Parent, any Originator or any of their respective ERISA Affiliates is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by Rabobank (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.
“Purchase” means the purchase by Buyer from an Originator pursuant to Sections 1.2(a) of the Agreement of the Receivables originated by such Originator and the Related Security and Collections related thereto, together with all related rights in connection therewith.
“Purchase Date” means (a) as to each Originator party to the 2000 Agreement, the date of the 2000 Agreement, (b) as to each Originator party to the 2005 Agreement that was not also a party to the 2000 Agreement, the date of the 2005 Agreement, (c) as to each Originator party to the 2008 Agreement that was not also a party to the 2005 Agreement, the date of the 2008 Agreement, (d) as to WestRock – Solvay, LLC and WestRock CP, LLC, the date of the 2011 Agreement and (e) as to WestRock – Rex, LLC, WestRock – Graphics, Inc., WestRock Commercial, LLC, WestRock Packaging, Inc., WestRock Consumer Packaging Group, LLC and WestRock Packaging Systems, LLC, July 22, 2016, (f) for WestRock MWV, LLC, WestRock USC Inc., WestRock Southeast, LLC , WestRock Box on Demand, LLC, WestRock Coated Board, LLC, WestRock Texas, L.P. and WestRock Virginia, LLC, April [ ]May 2, 2019 and (g) for each Joining Originator, the date of the applicable Joinder Agreement.
“Purchase Price” means, with respect to the Purchase from each Originator, the aggregate price to be paid by Buyer to such Originator for such Purchase in accordance with Section 1.3 of the Agreement for the Receivables originated by such Originator and the associated Collections and Related Security being sold to Buyer, which price shall equal on any date (i) the product of (x) the Outstanding Balance of such Receivables on such date, multiplied by (y) one minus the Discount Factor in effect on such date, minus (ii) any Purchase Price
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Credits to be credited against the Purchase Price otherwise payable in accordance with Section 1.4 of the Agreement.
“Purchase Price Credit” has the meaning set forth in Section 1.4 of the Agreement.
“Purchase Report” has the meaning set forth in Section 1.2(b) of the Agreement.
“Rabobank” means Coöperatieve Rabobank, U.A., New York Branch .
“Receivable” means any Originated Receivable other than an Excluded Receivable.
“Records” means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Security therefor and the related Obligor.
“Related Security” means, with respect to any Receivable:
(i)all of the applicable Originator’s interest in the inventory and goods (including returned or repossessed inventory or goods), if any, the sale, financing or lease of which by such Originator gave rise to such Receivable, and all insurance contracts with respect thereto,
(ii)all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable,
(iii)all guaranties, letters of credit, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise,
(iv)all service contracts and other contracts and agreements associated with such Receivable,
(v)all Records related to such Receivable,
(vi)all of the applicable Originator’s right, title and interest in each Lock-Box and each Collection Account, and
(vii)all proceeds of any of the foregoing.
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“Reportable Event” has the meaning set forth in Section 403(b) of ERISA.
“Required Capital Amount” means, as of any date of determination, an amount equal to the greater of (a) 3% of the Aggregate Commitment under the Credit and Security Agreement, and (b) the product of (i) 1.5 times the product of the Default Ratio times the Default Horizon Ratio, each as determined from the most recent Monthly Report received from the Servicer under the Credit and Security Agreement, and (ii) the Outstanding Balance of all Receivables as of such date, as determined from the most recent Monthly Report received from the Servicer under the Credit and Security Agreement.
“Required Committed Lenders” has the meaning set forth in the Credit and Security Agreement.
“Restricted Subsidiary” has the meaning provided in the Parent Credit Agreement.
“Review” has the meaning set forth in Section 4.1(d).
“S&P” means Standard and Poor’s Ratings Services, a Standard and Poor’s Financial Services LLC business.
“Sanctioned Country” has the meaning set forth in the Credit and Security Agreement.
“Sanctioned Person” has the meaning set forth in the Credit and Security Agreement.
“Servicer” means at any time the Person (which may be the Administrative Agent) then authorized pursuant to the Credit and Security Agreement to service administer and collect Receivables.
“Settlement Date” means, with respect to each Calculation Period, the date that is the 25th calendar day of the month following such Calculation Period (or if any such day is not a Business Day, on the next succeeding Business Day).
“SSCC Acquisition” means the acquisition by the Parent and/or one of its Subsidiaries of Smurfit-Stone Container Corporation, a Delaware corporation (the “Acquired Company”), pursuant to the SSCC Merger Agreement.
“SSCC Merger Agreement” means the Agreement and Plan of Merger, dated as of January 23, 2011, by and among Parent, Sam Acquisition, LLC and the Acquired Company.
“Subordinated Loan” has the meaning set forth in Section 1.3(a) of the Agreement.
“Subordinated Note” means a promissory note in substantially the form of Exhibit VI hereto as more fully described in Section 1.3 of the Agreement, as the same may be
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amended, restated, supplemented or otherwise modified from time to time, and shall include any Subordinated Note issued pursuant to the 2005 Agreement and the 2008 Agreement.
“Subsidiary” of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, limited liability company, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled.
“Synthetic Lease Liabilities” of a Person means any liability under any tax retention operating lease or so-called “synthetic” lease transaction, or any obligations arising with respect to any other similar transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries (other than leases which do not have an attributable interest component that are not Capitalized Leases).
“Tax Code” means the Internal Revenue Code of 1986, as the same may be amended from time to time.
“Termination Date” means, as to each Originator, the earliest to occur of (i) the Business Day immediately prior to the occurrence of a Termination Event set forth in Section 5.1(f) with respect to such Originator, (ii) the Business Day specified in a written notice from Buyer to such Originator following the occurrence of any other Termination Event, and (iii) the date which is 10 Business Days after Buyer’s receipt of written notice from such Originator that it wishes to terminate the facility evidenced by this Agreement.
“Termination Event” has the meaning set forth in Section 5.1 of the Agreement.
“Transaction Documents” means, collectively, this Agreement, each Collection Account Agreement, the Subordinated Note, and all other instruments, documents and agreements executed and delivered in connection herewith.
“Transferor” means as to all Receivables, together with the associated Related Security and Collections, the applicable Originator.
“UCC” means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction.
“Unmatured Termination Event” means an event which, with the passage of time or the giving of notice, or both, would constitute a Termination Event.
All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.
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Principal Places of Business; Location(s) of Records;
Federal Employer Identification Number; Other Names
Exhibit III
Lock-boxes; Collection Accounts; Collection Banks
Exhibit II - 2
FORM OF JOINDER TO RECEIVABLES SALE AGREEMENT
This JOINDER TO RECEIVABLES SALE AGREEMENT (this “Joinder”), dated as of [_____], 20[__], is made by [__________________] (the “Joining Originator”), for the benefit of WestRock Financial, Inc., as Buyer (the “Buyer”), and Coöperatieve Rabobank U.A., New York Branch, in its capacity as administrative agent for the Lenders thereunder (together with its successors and assigns thereunder, the “Administrative Agent”).
RECITALS
WHEREAS, the Originators, and the Buyer are parties to that certain Sixth Amended and Restated Receivables Sale Agreement, dated as of July 22, 2016 (as amended, restated, supplemented or otherwise modified, the “Agreement”). Unless otherwise defined herein, capitalized terms used in this Joinder shall have the meaning set forth in the Agreement.
WHEREAS, the Joining Originator desires to join in the Agreement, the Buyer desires to permit the Joining Originator to join in the Agreement and the Administrative Agent acknowledge such joinder pursuant to the terms herein;
NOW, THEREFORE, in consideration of the foregoing and for other valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Joining Originator, intending to be legally bound, hereto agrees as follows:
1.Joinder. The Joining Originator hereby joins in the Agreement as a party thereto and (i) makes all covenants and agreements of the Originators therein, with respect to the Joining Originator, (ii) is entitled to the benefit of and to enforce all rights, representations, warranties, covenants, agreements and obligations owed to the Originators under the Agreement and (iii) agrees to be bound by the Agreement as if it was a party thereto on the date the same was executed. The obligations of the Originators and the Joining Originator under the Agreement are not joint, but are several, as to its own Receivables.
2.Notices. All notices to the Joining Originator required to be given pursuant to Section 7.2 of the Agreement shall be sent to [___________], [ADDRESS], Attention: [____________].
3.Severability. In case any provision of this Joinder shall be invalid, illegal, or unenforceable, such provision shall be deemed to have been modified to the extent necessary to make it valid, legal, and enforceable. The validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
4.No Modification Except in Writing. None of the terms of this Joinder may be modified, waived, altered, amended, supplemented, extended, consolidated, replaced, exchanged or otherwise changed except by an instrument in writing duly executed by all of the parties hereto.
5.MISCELLANEOUS.
Exhibit IV
Subsection 5.01.This Joinder shall inure to the benefit of and be binding upon the Joining Originator and its successors and assigns.
Subsection 5.02.The Joining Originator confirms and ratifies the terms and provisions of the Agreement and agrees that the Agreement remains in full force and effect as of the date hereof.
Subsection 5.03.This Joinder shall be construed in accordance with the laws of the State of New York, without regard to conflicts of law principles, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.
Subsection 5.04.Any reference to the Agreement in any other documents shall hereafter mean the Agreement, collectively, as modified by this Joinder as the same may be subsequently amended, modified, altered, supplemented, extended, consolidated, replaced, exchanged or otherwise changed.
Subsection 5.05.This Joinder may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. The parties agree that this Joinder, any documents to be delivered pursuant to this Joinder and any notices hereunder may be transmitted between them by email and/or by facsimile. The parties intend that faxed signatures and electronically imaged signatures such as .pdf files shall constitute original signatures and are binding on all parties. The original documents shall be promptly delivered, if requested.
[Signature Pages Follow]
IN WITNESS WHEREOF, the undersigned has caused this JOINDER TO RECEIVABLES SALE AGREEMENT to be duly executed by its duly authorized representative, all as of the day and year first above written.
[________________], Joining Originator
By:
Name:
Title:
WESTROCK FINANCIAL, INC., Buyer
By:
Name:
Title:
Acknowledged and Agreed to by:
COÖPERATIEVE RABOBANK U.A., NEW YORK BRANCH, Administrative Agent
By:
Name:
Title:
By:
Name:
Title:
Credit and Collection Policies
See attached.
Exhibit V
Form of Subordinated Note
SUBORDINATED NOTE
[____], 2016
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1. |
Note. FOR VALUE RECEIVED, the undersigned, WestRock Financial. Inc., a Delaware corporation (“SPV”), hereby unconditionally promises to pay to the order of [ORIGINATOR NAME], a(n) __________ ***[corporation] [limited liability company] [partnership]*** (“Originator”), in lawful money of the United States of America and in immediately available funds, on or before the date following the applicable Termination Date which is one year and one day after the date on which (i) the Outstanding Balance of all Receivables sold by Originator under the “Sale Agreement” referred to below has been reduced to zero and (ii) Originator has paid to Buyer all indemnities, adjustments and other amounts which may be owed thereunder in connection with the Purchase thereunder (the “Collection Date”), the aggregate unpaid principal sum outstanding of all “Subordinated Loans” made from time to time by Originator to SPV pursuant to and in accordance with the terms of that certain Sixth Amended and Restated Receivables Sale Agreement dated as of July 22, 2016 among Originator and certain of its affiliates, as Sellers, and SPV, as Buyer (as amended, restated, supplemented or otherwise modified from time to time, the “Sale Agreement”). Reference to Section 1.3 of the Sale Agreement is hereby made for a statement of the terms and conditions under which the loans evidenced hereby have been and will be made. All terms which are capitalized and used herein and which are not otherwise specifically defined herein shall have the meanings ascribed to such terms in the Sale Agreement. |
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2. |
Interest. SPV further promises to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full hereof at a rate equal to the 1-month LIBOR rate published in The Wall Street Journal on the first Business Day of each month (or portion thereof) during the term of this Subordinated Note, computed for actual days elapsed on the basis of a year consisting of 360 days and changing on the first business day of each month hereafter (“LIBOR”); provided, however, that if SPV shall default in the payment of any principal hereof, SPV promises to pay, on demand, interest at the rate equal to LIBOR plus 2.00% per annum on any such unpaid amounts, from the date such payment is due to the date of actual payment. Interest shall be payable on the first Business Day of each month in arrears; provided, however, that SPV may elect on the date any interest payment is due hereunder to defer such payment and upon such election the amount of interest due but unpaid on such date shall constitute principal under this Subordinated Note. The outstanding principal of any loan made under this Subordinated Note shall be due and payable on the Collection Date and may be repaid or prepaid at any time without premium or penalty. |
Exhibit VI - 1
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evidence of the accuracy of the information so entered; provided that neither the failure of Originator to make any such entry or any error therein shall expand, limit or affect the obligations of SPV hereunder. |
Exhibit VI - 2
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collateral for the payment of, the Senior Claim until such Senior Claim shall have been paid in full and satisfied. |
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6. |
Amendments. This Subordinated Note shall not be amended or modified except in accordance with Section 7.1 of the Sale Agreement. The terms of this Subordinated Note may not be amended or otherwise modified without the prior written consent of the Administrative Agent for the benefit of the Lenders. |
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7. |
GOVERNING LAW. THIS SUBORDINATED NOTE HAS BEEN MADE AND DELIVERED IN THE STATE OF NEW YORK, AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF NEW YORK. WHEREVER POSSIBLE EACH PROVISION OF THIS SUBORDINATED NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS SUBORDINATED NOTE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS SUBORDINATED NOTE. |
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8. |
Waivers. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. Originator additionally expressly waives all notice of the acceptance by any Senior Claimant of the subordination and other provisions of this Subordinated Note and expressly waives reliance by any Senior Claimant upon the subordination and other provisions herein provided. |
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9. |
Assignment. This Subordinated Note may not be assigned, pledged or otherwise transferred to any party other than Originator without the prior written consent of the Administrative Agent, and any such attempted transfer shall be void. |
WESTROCK FINANCIAL. INC.
By:
Name:
Title:
Exhibit VI - 3
Schedule
to
SUBORDINATED NOTE
SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL
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Date |
Amount of Subordinated Loan |
Amount of Principal Paid |
Unpaid Principal Balance |
Notation Made by (initials) |
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Exhibit VI - 4
Form of Purchase Report
For the Calculation Period beginning [date] and ending [date]
-------
TO: BUYER AND THE ADMINISTRATIVE AGENT (AS BUYER’S ASSIGNEE)
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Aggregate Outstanding Balance of all Receivables sold during the period: |
$_____________ |
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A |
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Less: Aggregate Outstanding Balance of all Receivables sold during such period which were not Eligible Receivables on the date when sold: |
($____________) |
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(B) |
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Equals: Aggregate Outstanding Balance of all Eligible Receivables sold during the period (A - B): |
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$___________ |
=C |
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Less: Purchase Price discount during the Period: |
($____________) |
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(D) |
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Equals: Gross Purchase Price Payable during the period (C – D) |
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$____________ |
=E |
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Less: Total Purchase Price Credits arising during the Period: |
($____________) |
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(F) |
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Equals: Net Purchase Price payable during the Period (E - F): |
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$____________ |
=G |
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Cash Purchase Price Paid to Originator during the Period: |
$_____________ |
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H |
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Subordinated Loans made during the Period: |
$_____________ |
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I |
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Less: Repayments of Subordinated Loans received during the Period: |
($____________) |
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(J) |
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Equals: Purchase Price paid in Cash or Subordinated Loans during the period
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$____________ |
=K |
Exhibit VII
[To Be Attached]
Schedule A - 1
LIST OF EXCLUDED RECEIVABLE OBLIGORS
Schedule B - 1
EXHIBIT 10.3
AMENDMENT NO. 1 TO
EIGHTH AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
This AMENDMENT NO. 1, dated as of May 2, 2019 (this “Amendment”) is by and among WestRock Financial, Inc., as borrower (the “Borrower”), WestRock Converting, LLC, as initial servicer (the “Servicer” and together with the Borrower, the “Loan Parties” and each, a “Loan Party”), Coöperatieve Rabobank U.A., New York Branch (“Rabobank”), in its capacity as administrative agent for the Lenders thereunder (together with its successors and assigns thereunder, the “Administrative Agent”) and the committed lenders party thereto (each a “Committed Lender” and collectively, the “Committed Lenders”). Each of the Borrower, the Servicer, the Administrative Agent and the Committed Lenders may be referred to herein as a “Party” or collectively as the “Parties.” Unless otherwise indicated, capitalized terms used in this Amendment are used with the meanings attributed thereto in the Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Borrower, the Servicer, the Administrative Agent and the Committed Lenders are party to the Eighth Amended and Restated Credit and Security Agreement, dated as of July 22, 2016 (as amended, modified or supplemented from time to time, the “Agreement”), by and among the Borrower, the Servicer, Rabobank, as Administrative Agent and in its capacity as funding agent for the Co-Agents and the Lenders or any successor funding agent thereunder (together with its successors and assigns thereunder, the “Funding Agent” collectively with the Administrative Agent and the Co-Agents, the “Agents”), and the Lenders and the Co-Agents from time to time party thereto;
WHEREAS, pursuant to that certain Assignment Agreement, dated as of the date hereof, by and between Coöperatieve Rabobank, U.A. (in such capacity, the “Assignor Committed Lender”), Rabobank (in such capacity, the “Assignee Committed Lender”) and acknowledged and agreed to by Nieuw Amsterdam Receivables Corporation, B.V., the Assignor Committed Lender sold and assigned to the Assignee Committed Lender all of the Assignor Committed Lenders rights and obligations under the Transaction Documents;
WHEREAS, the Parties hereto desire to amend the Agreement to, among other things, amend certain defined terms; and
WHEREAS, pursuant to Section 14.1(b)(i) of the Agreement, the unanimous consent of the Committed Lenders is required for such amendment.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows:
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1. |
Amendments. |
1.1Section 4.5 of the Agreement shall be hereby amended by inserting the following subsection (c) at the end of such section:
(c) If at any time (i) the Administrative Agent determines (which determination shall be conclusive absent manifest error) or the Borrower or the Required Committed Lenders notify the Administrative Agent that adequate and reasonable means do not exist for ascertaining the LIBO Rate and such circumstances are unlikely to be temporary, (ii) the supervisor for the administrator of the LIBO Rate or a Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which the LIBO Rate shall no longer be used for determining interest rates for loans, or (iii) any applicable interest rate specified herein is no longer a widely recognized benchmark rate for newly originated loans in the United States syndicated loan market in the applicable currency, then the Administrative Agent and the Borrower shall endeavor to establish an alternate rate of interest (the “Replacement Rate”) to the LIBO Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable. Notwithstanding anything to the contrary in Section 14.1, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five (5) Business Days of the date notice of the Replacement Rate is provided to the Co-Agents, a written notice from the Required Committed Lenders stating that such Required Committed Lenders object to such amendment. Until the Replacement Rate is determined (but, in the case of the circumstances described in clause (ii) of the first sentence of this Section 4.5(c), only to the extent the LIBO Rate for such Interest Period is not available or published at such time on a current basis), (x) any Borrowing Notice that requests the conversion of any Loan to, or continuation of any Loan as, a LIBO Rate Loan shall be ineffective and such Loan shall be converted to, or continued as on the last day of the Interest Period applicable thereto, an Alternate Base Rate Loan, and (y) if the Borrowing Notice requests a LIBO Rate Loan, such Loan shall be made as an Alternate Base Rate Loan. Notwithstanding anything else herein, any definition of Replacement Rate shall provide that in no event shall such Replacement Rate be less than zero for the purposes of this Agreement. To the extent the Replacement Rate is approved by the Administrative Agent and the Borrower in connection with this clause, the Replacement Rate shall be applied in a manner consistent with then-prevailing market practice; provided, that, in each case, to the extent such market practice is not administratively feasible for the Administrative Agent, the Replacement Rate shall be applied as otherwise reasonably determined by the Administrative Agent (it being understood that any such modification by the Administrative Agent shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five (5) Business Days of the date notice of such modification is provided to the Co-Agents , written notice from the Required Committed Lenders, stating that such Required Committed Lenders reasonably object to such amendment).
2
1.2Section 9.1(h)(i) of the Agreement shall be hereby amended by deleting “5.75%” where it appears in such section and replacing it with “8.75%”.
1.3 Section 7.1(p) of the Agreement shall be hereby amended by replacing “Risk Retention Requirements” where it appears in such section and replacing it with “EU Securitization Rules”.
1.4Exhibit I to the Agreement shall be hereby amended as follows:
(a)The definition of “AIFMD” shall be hereby deleted in its entirety.
(b)The definition of “AIFMD Level 2 Regulation” shall be hereby deleted in its entirety.
(c)The definition of “AIFMD Retention Requirements” shall be hereby deleted in its entirety.
(d)The definition of “Canadian Receivable Excess” shall be hereby amended by deleting “2.5%” where it appears in in such definition and replacing it with “4.0%”.
(e)The definition of “CRR Retention Requirements” shall be hereby deleted in its entirety.
(f)The definition of “Defaulted Receivable shall be hereby amended and restated in its entirety as follows:
“Defaulted Receivable” means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for 91 days or more from the original due date for such payment, (ii) the Obligor thereof has suffered an Event of Bankruptcy, or (iii) which, consistent with the Credit and Collection Policy, would be written off Borrower’s books as uncollectible.
(g)The definition of “Delinquent Receivable” shall be hereby amended by deleting “60” where it appears in such definition and replacing it with “90”.
(h)The definition of “Dilution Reserve” shall be hereby amended by deleting “2.00” where it appears in such definition and replacing it with “2.25”.
(i)The definition of “Excess Terms Allowance” shall be hereby amended by deleting “5.0%” where it appears in such definition and replacing it with “25.0%”.
(j)The definition of “Facility Account” is hereby amended and restated in its entirety as follows:
“Facility Account” means Borrower’s account no. 2000040978718 at Wells Fargo Bank, N.A.
3
(k)The definition of “Fee Letter” shall be hereby amended and restated in its entirety as follows:
“Fee Letter” means that certain sixth amended and restated fee letter dated as of May 2, 2019, among Borrower and the Agents, as it may be amended or modified and in effect from time to time.
(l)The definition of “Foreign Receivable” shall be hereby amended by deleting “or Canada (or any political subdivision thereof)” where it appears in such definition.
(m)The definition of “Foreign Receivable Excess” shall be hereby amended by deleting “5.0%” where it appears in such definition and replacing it with “10.0%”.
(n)The definition of “Loss Reserve” shall be hereby amended by deleting “2.00” where it appears in such definition and replacing it with “2.25”.
(o)The definition of “Net Pool Balance” shall be hereby amended by deleting “Canadian Receivables Excess” where it appears in such definition and replacing it with “Canadian Receivable Excess”.
(p)The definition of “Obligor Concentration Limit” shall be hereby amended by deleting “4.0%” where it appears in such definition and replacing it with “3.25%”, by deleting “2.5%” where it appears in such definition and replacing it with “2.0%” and by deleting the last sentence of such definition.
(q)The definition of “Originator” shall be hereby amended and restated in its entirety as follows:
“Originator” has the meaning provided in the Receivables Sale Agreement.
(r)The definition of “Performance Undertaking” shall be hereby amended and restated in its entirety as follows:
“Performance Undertaking” means that certain Eighth Amended and Restated Performance Undertaking, dated as of May 2, 2019, by Performance Guarantor in favor of Borrower, substantially in the form of Exhibit VII, as the same may be amended, restated or otherwise modified from time to time.
(s)The definition of “Required Reserve Factor Floor” shall be hereby amended by deleting “12.5%” where it appears in such definition and replacing it with “10.0%”.
(t)The definition of “Retained Interest” shall hereby be amended and restated in its entirety as follows:
“Retained Interest” shall have the meaning given to it in the Side Letter to the Receivables Sale Agreement.
(u)The definition of “Risk Retention Letter” shall be deleted in its entirety.
4
(v)The definition of “Risk Retention Requirements” shall be hereby deleted in its entirety.
(w)The definition of “Scheduled Termination Date” shall be hereby amended by deleting “July 22, 2019” where it appears in such definition and replacing it with “May 2, 2022”.
(x)The definition of “Side Letter to the Receivables Sale Agreement” shall be hereby amended and restated in its entirety as follows:
“Side Letter to the Receivables Sale Agreement” means that Second Amended and Restated Side Letter to the Receivables Sale Agreement, dated as of May 2, 2019, addressed to the Administrative Agent and signed by the Borrower, the Servicer and each Originator.
(y)The definition of “Solvency II” shall be hereby deleted in its entirety.
(z)The definition of “Solvency II Retention Requirements” shall be hereby deleted in its entirety.
(aa)The definition of “Solvency II Level 2 Regulation” shall be hereby deleted in its entirety.
(bb)The definition of “Transaction Documents” shall be hereby amended by replacing “Risk Retention Letter” where it appears in such definition and replacing it with “Side Letter to the Receivables Sale Agreement”.
(cc)The following definitions shall be inserted in their proper alphabetical order:
(i)“Article 7 Transparency and Reporting Requirements” means the reporting requirements set out in Article 7(1) of the EU Securitization Regulation, together with any relevant technical standards adopted by the European Commission in relation thereto, any relevant regulations and technical standards applicable in relation thereto pursuant to any transitional arrangements made pursuant to the EU Securitization Regulation, and, in each case relevant guidance published in relation thereto as may be effective from time to time.
(ii)“EBA” means European Banking Authority (including any successor or replacement organization thereto).
(iii)“EIOPA” means The European Insurance and Occupational Pensions Authority (including any successor or replacement organization thereto).
(iv)“EU Securitization Regulation” means Regulation (EU) 2017/2402.
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(v)“EU Securitization Rules” means: (a) the EU Securitization Regulation; (b) together with any relevant technical standards adopted by the European Commission in relation thereto, any relevant regulations and technical standards applicable in relation thereto pursuant to any transitional arrangements made pursuant to the EU Securitization Regulation, and, in each case relevant guidance published in relation thereto by the European Supervisory Authorities as may be effective from time to time.
(vi)“ESMA” means The European Securities and Markets Authority (including any successor or replacement organization thereto).
(vii)“European Supervisory Authorities” means, together, the EBA, ESMA and EIOPA.
1.5Exhibit VII of the Agreement is hereby deleted in its entirety and replaced with Exhibit I hereto.
1.6The information set forth on Schedule C of the Agreement with respect to the Coöperatieve Rabobank U.A. Lender Group is hereby deleted its entirety and replaced with the information set forth on Schedule I to this Amendment.
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2. |
Representations and Agreements. |
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2.1. |
Each of the Loan Parties represents and warrants to the Buyer, Agents and Lenders that it has duly authorized, executed and delivered this Amendment and that this Amendment constitutes, a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability). |
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2.2. |
Each of the Loan Parties further represents and warrants to the Buyer, Agents and the Lenders that, as of the date hereof and as of the Effective Date (as defined below), each of its representations and warranties set forth in Section 5.1 of the Agreement is true and correct as though made on and as of such date and that no event has occurred and is continuing that will constitute an Amortization Event or Unmatured Amortization Event. |
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2.3. |
Each of the Loan Parties further represents and warrants to the Agents and the Lenders that (i) the Amendment is not being entered into for reasons relating to the credit quality of the Receivables or in order to manipulate the pool characteristics of the Receivables and (ii) such Loan Party does not reasonably expect that the such action will have a material adverse effect on the credit quality of the Receivables or the pool characteristics of the Receivables. |
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3. |
Conditions Precedent. This Amendment shall become effective as of May 2, 2019 (the “Effective Date”) upon satisfaction of the following conditions precedent: |
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3.1 |
the Administrative Agent shall have received a counterpart hereof duly executed by the Borrower, the Servicer, the Originators, the Administrative Agent and each of the Committed Lenders. |
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3.2 |
the Administrative Agent shall have received those documents listed on Schedule II to this Amendment, in form and substance reasonably acceptable to the Administrative Agent. |
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4. |
Miscellaneous. |
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4.1. |
Except as expressly amended hereby, the Agreement shall remain unaltered and in full force and effect, and each of the parties hereto hereby ratifies and confirms the Agreement to which it is a party. |
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4.2. |
The Administrative Agent and each of the Committed Lenders hereby consents to that certain Amendment No. 1 to Sixth Amended and Restated Receivables Sale Agreement, dated as of the date hereof, by and among the Borrower, as Buyer, the Originators (as defined therein) and the Parent. |
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4.3. |
Solely with respect to Amcor Business Services, the Administrative Agent and each of the Committed Lenders hereby waives the requirements of Section 1.8 of the Receivables Sale Agreement and consents to the inclusion of Amcor Business Services and its Affiliates on Schedule B thereto. |
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4.4 |
THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). |
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4.5. |
EACH OF THE PARTIES TO THIS AMENDMENT HEREBY ACKNOWLEDGES AND AGREES THAT IT IRREVOCABLY SUBMITS TO THE NON EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS AMENDMENT AND IT HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF ANY AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY OF ORIGINAL PARENT, THE ORIGINATORS AND THE LOAN PARTIES IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY OF ORIGINAL PARENT, THE ORIGINATORS AND THE LOAN PARTIES AGAINST ANY AGENT OR ANY LENDER OR ANY AFFILIATE OF ANY AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT OR ANY DOCUMENT EXECUTED BY SUCH PARTY PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN THE STATE OF NEW YORK. |
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4.7. |
The Borrower agrees to pay to the Administrative Agent’s counsel the reasonable fees and disbursements incurred by such counsel in connection with this Amendment not later than five (5) Business Days following receipt of the related invoice. |
<Balance of page intentionally left blank>
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.
WESTROCK FINANCIAL, INC.,
as Borrower
By: /s/ Mikal B. Haislip
Name: Mikal B. Haislip
Title: Treasurer
WESTROCK CONVERTING, LLC,
as Servicer
By: /s/ John D. Stakel
Name: John D. Stakel
Title: Senior Vice President and Treasurer
COÖPERATIEVE RABOBANK, U.A., New York Branch, as Administrative Agent and as a Committed Lender
By: /s/ Sylvia van Laarhoven
Name: Sylvia van Laarhoven
Title: Transaction Manager, Vice President
By: /s/ Stephen G. Adams
Name: Stephen G. Adams
Title: Managing Director
as a Committed Lender
By: /s/ David Perlman
Name: David Perlman
Title: SVP
MUFG BANK, LTD., as a Committed Lender
By: /s/ Eric Williams
Name: Eric Williams
Title: Managing Director
Sumitomo Mitsui Banking Corporation,
as a Committed Lender
By: /s/ Katsuyuki Kubo
Name: Katsuyuki Kubo
Title: Managing Director
WELLS FARGO BANK, N.A., as a Committed Lender
By: /s/ Michael J. Landry
Name: Michael J. Landry
Title: Director
as a Committed Lender
By: /s/ Paula Czach
Name: Paula Czach
Title: MD/Co-Head
Mizuho bank, ltd., as a Committed Lender
By: /s/ Richard A. Burke
Name: Richard A. Burke
Title: Managing Director
CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Steven C. Voorhees, Chief Executive Officer and President, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of WestRock Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: |
August 2, 2019 |
/s/ Steven C. Voorhees |
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Steven C. Voorhees |
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Chief Executive Officer and President |
A signed original of this written statement required by Section 302, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 302, has been provided to WestRock Company and will be retained by WestRock Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Ward H. Dickson, Executive Vice President and Chief Financial Officer, certify that:
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1.I have reviewed this Quarterly Report on Form 10-Q of WestRock Company;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: |
August 2, 2019 |
/s/ Ward H. Dickson |
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Ward H. Dickson |
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Executive Vice President and Chief Financial Officer |
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A signed original of this written statement required by Section 302, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 302, has been provided to WestRock Company and will be retained by WestRock Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of WestRock Company (the “ Corporation ”), for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “ Report ”), the undersigned, Steven C. Voorhees, Chief Executive Officer and President of the Corporation, and Ward H. Dickson, Executive Vice President and Chief Financial Officer of the Corporation, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
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/s/ Steven C. Voorhees |
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Steven C. Voorhees |
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Chief Executive Officer and President |
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August 2, 2019 |
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/s/ Ward H. Dickson |
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Ward H. Dickson |
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Executive Vice President and Chief Financial Officer |
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August 2, 2019 |