Graphic Packaging(GPK) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents the company's unaudited condensed consolidated financial statements and accompanying notes Condensed Consolidated Statements of Operations Presents the company's revenues, costs, and resulting net income for recent periods Condensed Consolidated Statements of Operations (Unaudited) | In millions, except per share amounts | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Sales | $ 1,611.0 | $ 1,552.8 | $ 3,210.1 | $ 3,058.7 | | Cost of Sales | 1,348.9 | 1,265.0 | 2,627.2 | 2,504.8 | | Income from Operations | 114.8 | 144.4 | 274.8 | 278.4 | | Net Income Attributable to Graphic Packaging Holding Company | $ 52.1 | $ 63.8 | $ 39.4 | $ 121.7 | | Net Income Per Share — Diluted | $ 0.19 | $ 0.22 | $ 0.14 | $ 0.41 | Condensed Consolidated Statements of Comprehensive Income Details changes in equity from non-owner sources, including other comprehensive income items Total Comprehensive Income (Unaudited) | In millions | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Comprehensive Income | $ 84.1 | $ 78.0 | $ 161.1 | $ 162.1 | Condensed Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (Unaudited) | In millions | June 30, 2020 | December 31, 2019 | | :---------- | :------------ | :---------------- | | Total Assets | $ 7,666.4 | $ 7,289.9 | | Total Current Liabilities | 1,612.8 | 1,198.7 | | Long-Term Debt | 3,028.8 | 2,809.9 | | Total Equity | 2,036.6 | 2,058.0 | Condensed Consolidated Statements of Equity Outlines the changes in the company's equity accounts over the reporting period Total Equity (Unaudited) | In millions, except share amounts | December 31, 2019 | June 30, 2020 | | :-------------------------------- | :---------------- | :------------ | | Total Equity | $ 2,058.0 | $ 2,036.6 | - The company repurchased 12,289,317 shares of common stock during the first six months of 2020 at an average price of $12.82, reducing total equity by $157.4 million[51][159][194] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) | In millions | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $ 143.8 | $ 59.8 | | Net Cash Used in Investing Activities | $ (388.7) | $ (10.0) | | Net Cash Provided by (Used in) Financing Activities | $ 180.4 | $ (56.4) | | Net Decrease in Cash and Cash Equivalents | $ (69.3) | $ (5.8) | | Cash and Cash Equivalents at End of Period | $ 83.6 | $ 64.7 | NOTE 1 — GENERAL INFORMATION Details the company's business, recent transactions, accounting policies, and special charges - Graphic Packaging Holding Company is a leading global provider of paper-based packaging solutions, specializing in folding cartons, coated-recycled paperboard (CRB), coated unbleached kraft paperboard (CUK), and solid bleached sulfate paperboard (SBS)[31] - On January 29, 2020, GPIP purchased 15.1 million partnership units from International Paper (IP) for $250 million cash, reducing IP's ownership interest in GPIP from 21.6% to 18.3%[35] - The Company declared a regular quarterly dividend of $0.075 per share of common stock payable on April 5, 2020 and July 5, 2020[50] - During the first six months of 2020, the Company repurchased 12,289,317 shares of its common stock at an average price of $12.82 under the 2019 share repurchase program, with approximately $305 million remaining available[51] - In 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc (January 31) and the Consumer Packaging Group business from Greif, Inc (April 1), recording a bargain purchase gain of $6.6 million from the Quad acquisition[53][63][64] - The Company decided to close the White Pigeon, Michigan CRB mill and shut down the PM1 containerboard machine in West Monroe, Louisiana in March 2020, and close certain converting facilities acquired from Greif in June 2020[53] - The Company increased its estimated withdrawal liability for multi-employment benefit plans by $12.2 million during Q2 2020 due to facility closures[53] - The Company adopted new accounting standards ASU No 2016-13, ASU No 2018-13, and ASU No 2018-15 effective January 1, 2020, none of which had a material impact on its financial position, results of operations, or cash flows[56][57][58] Revenue from Contracts with Customers | In millions | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $ 1,605.3 | $ 1,548.1 | $ 3,199.9 | $ 3,049.7 | Business Combinations and Shutdown and Other Special Charges, Net | In millions | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Charges Associated with Business Combinations | $ (5.5) | $ 0.5 | $ (4.0) | $ 2.6 | | Shutdown and Other Special Charges | 22.0 | 9.4 | 26.2 | 13.5 | | Exit Activities | 4.0 | — | 17.0 | — | | Total | $ 20.5 | $ 9.9 | $ 39.2 | $ 16.1 | NOTE 2 — INVENTORIES, NET Breaks down inventory into finished goods, work in progress, raw materials, and supplies Inventories, Net by Major Class | In millions | June 30, 2020 | December 31, 2019 | | :-------------- | :------------ | :---------------- | | Finished Goods | $ 481.5 | $ 434.8 | | Work in Progress | 152.3 | 123.4 | | Raw Materials | 389.8 | 370.0 | | Supplies | 173.9 | 167.7 | | Total | $ 1,197.5 | $ 1,095.9 | NOTE 3 — BUSINESS COMBINATIONS Describes recent acquisitions of facilities from Quad/Graphics and Greif, Inc - On January 31, 2020, the Company acquired a folding carton facility from Quad/Graphics, Inc for approximately $41 million, resulting in a bargain purchase gain of $6.6 million[63] - On April 1, 2020, the Company acquired the Consumer Packaging Group business from Greif, Inc, including seven converting facilities, for approximately $80 million[64] NOTE 4 — DEBT Outlines the company's long-term debt structure, recent offerings, and credit facilities - On March 6, 2020, GPIL completed a private offering of $450.0 million aggregate principal amount of 3.50% senior unsecured notes due 2028, using proceeds to repay revolving credit facility borrowings[66] - As of June 30, 2020, the Company was in compliance with all covenants in its Credit Agreement and Indentures[72] Long-Term Debt Composition | In millions | June 30, 2020 | December 31, 2019 | | :------------------------------------------------------------------------------------------------------- | :------------ | :---------------- | | Senior Notes with interest payable semi-annually at 3.50%, effective rate of 3.55%, payable in 2028 | $ 450.0 | $ — | | Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.82%, payable in 2027 | 300.0 | 300.0 | | Senior Notes with interest payable semi-annually at 4.125%, effective rate of 4.16%, payable in 2024 | 300.0 | 300.0 | | Senior Notes with interest payable semi-annually at 4.875%, effective rate of 4.90%, payable in 2022 | 250.0 | 250.0 | | Senior Notes with interest payable semi-annually at 4.75%, effective rate of 4.76%, payable in 2021 | 425.0 | 425.0 | | Senior Secured Term Loan Facilities with interest payable at various dates at floating rates (1.62% at June 30, 2020) payable through 2023 | 1,377.9 | 1,396.1 | | Senior Secured Revolving Facilities with interest payable at floating rates (1.58% at June 30, 2020) payable in 2023 | 281.1 | 52.8 | | Finance Leases | 132.1 | 134.2 | | Other | 5.4 | 5.4 | | Total Long-Term Debt | 3,521.5 | 2,863.5 | | Less: Current Portion | 475.4 | 41.1 | | Less: Unamortized Deferred Debt Issuance Costs | 17.3 | 12.5 | | Total | $ 3,028.8 | $ 2,809.9 | Revolving Credit Facilities at June 30, 2020 | In millions | Total Commitments | Total Outstanding | Total Available | | :------------------------------------------ | :---------------- | :---------------- | :-------------- | | Senior Secured Domestic Revolving Credit Facility | $ 1,450.0 | $ 203.0 | $ 1,229.1 | | Senior Secured International Revolving Credit Facility | 178.3 | 78.1 | 100.2 | | Other International Facilities | 48.4 | 13.1 | 35.3 | | Total | $ 1,676.7 | $ 294.2 | $ 1,364.6 | NOTE 5 — STOCK INCENTIVE PLANS Details compensation expenses and awards granted under the company's stock incentive plans - The Company's 2014 Omnibus Stock and Incentive Compensation Plan allows for grants of stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs), and other awards[73] - Compensation expense for stock incentive plans was $20.4 million for the first six months of 2020, up from $10.8 million in 2019[74] RSUs Granted in First Six Months of 2020 | | RSUs | Weighted Average Grant Date Fair Value Per Share | | :-------------- | :-------- | :----------------------------------------------- | | RSUs — Employees | 1,632,205 | $ 15.42 | | Stock Awards — Board of Directors | 71,160 | $ 13.49 | NOTE 6 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS Discusses pension obligations, costs, contributions, and recent settlement activities - In Q1 2020, the Company purchased a group annuity contract, transferring $713 million of pension obligation from its largest U.S. plan to an insurer, resulting in a $152.5 million non-cash settlement charge[79] - The Company expects to contribute $10 million to $20 million to its pension plans for the full year 2020 and approximately $3 million for postretirement health care benefits[81][82] - The estimated withdrawal liability for multi-employer plans increased by $12.2 million in Q2 2020, totaling $42.5 million as of June 30, 2020[83] Net Periodic Pension and Postretirement Benefit Cost (Unaudited) | In millions | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Periodic Pension Cost (Benefit) | $ 3.5 | $ 4.2 | $ 159.3 | $ 7.8 | | Net Periodic Postretirement Health Care Benefit Cost (Benefit) | $ — | $ (0.3) | $ (0.2) | $ (0.4) | NOTE 7 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT Explains the use of derivatives for hedging interest rate, commodity, and currency risks - The Company uses interest rate swaps, natural gas swap contracts, and forward exchange contracts for risk management, designating them as cash flow hedges where effective[85] - The Company has hedged approximately 59%, 36%, and 10% of its expected natural gas usage for the remainder of 2020, and all of 2021 and 2022, respectively[88] - The fair value of the Company's Long-Term Debt was $3,428.7 million at June 30, 2020, compared to a carrying amount of $3,389.4 million[98] - The Company expects to reclassify $6.3 million of pre-tax losses from Accumulated Other Comprehensive Loss to earnings in the next twelve months[102] Fair Value of Derivative Instruments (Unaudited) | In millions | Derivative Assets (June 30, 2020) | Derivative Assets (December 31, 2019) | Derivative Liabilities (June 30, 2020) | Derivative Liabilities (December 31, 2019) | | :-------------------------------- | :-------------------------------- | :------------------------------------ | :------------------------------------- | :----------------------------------------- | | Interest rate contracts | $ — | $ — | $ 9.9 | $ 6.6 | | Foreign currency contracts | 0.6 | — | 0.1 | 1.5 | | Commodity contracts | — | — | 0.4 | 3.4 | | Total Derivatives | $ 0.6 | $ — | $ 10.4 | $ 11.5 | Effect of Derivative Instruments on Statements of Operations (Pre-Tax, Unaudited) | In millions | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commodity Contracts | $ (2.3) | $ (0.1) | $ (5.4) | $ 0.1 | | Foreign Currency Contracts | (0.2) | — | (0.6) | (0.7) | | Interest Rate Swap Agreements | 2.0 | 0.1 | 2.9 | 0.1 | | Total | $ (0.5) | $ — | $ (3.1) | $ (0.5) | NOTE 8 — INCOME TAXES Reports the company's income tax expense, effective tax rate, and future tax expectations - The effective tax rate is lower than the statutory rate due to the tax effect of noncontrolling interests and the mix of foreign and domestic earnings[104] - The Company does not expect to be a meaningful U.S. federal cash taxpayer until 2024, due to $32 million in Net Operating Losses (NOLs) and other tax attributes[105] Income Tax Expense (Unaudited) | In millions | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------- | :----------------------------- | :----------------------------- | | Income Tax Expense | $ 12.9 | $ 44.0 | | Income before Income Taxes and Equity Income | $ 59.4 | $ 207.8 | NOTE 9 — ENVIRONMENTAL AND LEGAL MATTERS Addresses potential liabilities from environmental regulations and ongoing legal proceedings - The Company is subject to various environmental, health, and safety laws and regulations, and has established reserves for probable and estimable liabilities related to environmental investigations and remediations[108][110] - The Company does not believe that the accrued amounts for loss contingencies or the reasonably possible loss beyond these amounts are material to its consolidated financial position, results of operations, or cash flows[110][111] NOTE 10 — RELATED PARTY TRANSACTIONS Discloses transactions and payments made to related party International Paper Payments to International Paper (IP) for Related Party Transactions | In millions | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :----------------------------- | :----------------------------- | | Fiber Procurement Fees | $ 6.2 | $ 5.6 | | Corrugated Products | 14.6 | 12.7 | | Transition Services | — | 0.1 | | Other Purchases (unrelated) | — | 2.0 | NOTE 11 — SEGMENT INFORMATION Provides a breakdown of net sales and operating income by the company's reportable segments - The Company operates through three reportable segments: Paperboard Mills, Americas Paperboard Packaging, and Europe Paperboard Packaging[113][114][115] Segment Net Sales (Unaudited) | In millions | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Paperboard Mills | $ 234.6 | $ 279.2 | $ 503.1 | $ 554.7 | | Americas Paperboard Packaging | 1,153.7 | 1,062.7 | 2,277.1 | 2,085.5 | | Europe Paperboard Packaging | 183.0 | 177.2 | 359.8 | 351.0 | | Corporate/Other/Eliminations | 39.7 | 33.7 | 70.1 | 67.5 | | Total | $ 1,611.0 | $ 1,552.8 | $ 3,210.1 | $ 3,058.7 | Segment (Loss) Income from Operations (Unaudited) | In millions | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Paperboard Mills | $ (35.3) | $ 12.5 | $ (58.2) | $ 8.5 | | Americas Paperboard Packaging | 157.1 | 125.3 | 351.9 | 250.9 | | Europe Paperboard Packaging | 20.7 | 15.5 | 32.7 | 34.7 | | Corporate and Other | (27.7) | (8.9) | (51.6) | (15.7) | | Total | $ 114.8 | $ 144.4 | $ 274.8 | $ 278.4 | NOTE 12 — EARNINGS PER SHARE Presents the calculation of basic and diluted earnings per share for the reporting periods Earnings Per Share (Unaudited) | In millions, except per share data | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income Attributable to Graphic Packaging Holding Company | $ 52.1 | $ 63.8 | $ 39.4 | $ 121.7 | | Diluted Weighted Average Shares | 280.5 | 295.7 | 285.2 | 297.0 | | Earnings Per Share — Diluted | $ 0.19 | $ 0.22 | $ 0.14 | $ 0.41 | NOTE 13 — REDEEMABLE NONCONTROLLING INTEREST Details changes in the redeemable noncontrolling interest held by International Paper - On January 29, 2020, GPIP purchased 15.1 million partnership units from International Paper (IP) for $250 million cash, reducing IP's ownership interest in GPIP from 21.6% to 18.3%[123] Redeemable Noncontrolling Interest (Unaudited) | In millions | Amount | | :---------------------------------------------- | :----- | | Balance at December 31, 2019 | $ 304.3 | | Net Loss Attributable to Redeemable Noncontrolling Interest | (5.2) | | Other Comprehensive Income, Net of Tax | 8.6 | | Redemption of IP's Ownership Interest | (250.0) | | Redeemable Noncontrolling Interest Redemption Value Adjustment | (12.7) | | Distributions of Membership Interest | (1.2) | | Balance at June 30, 2020 | $ 43.8 | NOTE 14 — ACCUMULATED OTHER COMPREHENSIVE LOSS Shows changes in components of accumulated other comprehensive loss, net of tax Changes in Accumulated Other Comprehensive Loss Attributable to GPHC (Six Months Ended June 30, 2020, Net of Tax) | In millions, net of tax | Derivatives Instruments | Pension and Postretirement Benefit Plans | Currency Translation Adjustments | Total | | :---------------------- | :---------------------- | :--------------------------------------- | :------------------------------- | :---- | | Balance at December 31, 2019 | $ (16.6) | $ (238.5) | $ (110.7) | $ (365.8) | | Net Current-period Other Comprehensive Income (Loss) | 1.6 | 155.5 | (42.9) | 114.2 | | Balance at June 30, 2020 | $ (15.3) | $ (124.9) | $ (145.4) | $ (285.6) | NOTE 15 — EXIT ACTIVITIES Describes costs and plans related to facility closures and restructuring initiatives - The Company plans to invest $600 million in a new CRB paper machine in Kalamazoo, Michigan, and expects to close two smaller CRB mills in 2022 to maintain capacity neutrality[129] - In March 2020, the White Pigeon, Michigan CRB mill was closed, and the PM1 containerboard machine in West Monroe, Louisiana, was shut down[130][131] - For the planned 2022 CRB mill closures, the Company expects to incur $15-20 million in post-employment benefits and $50-60 million in accelerated depreciation and asset write-offs[137] Costs Incurred Related to Restructurings (Unaudited) | In millions | Six Months Ended June 30, 2020 | | :---------------------- | :----------------------------- | | Severance costs and other | $ 7.0 | | Accelerated depreciation | 16.0 | | Inventory and asset write-offs | 10.0 | | Total | $ 33.0 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Provides management's perspective on financial performance, condition, and future outlook INTRODUCTION States the company's objective to be a leading provider of paper-based packaging solutions - The Company aims to strengthen its position as a leading provider of paper-based packaging solutions by offering integrated solutions of paperboard, cartons, cups, lids, foodservice containers, and packaging machines[140] OVERVIEW OF BUSINESS Outlines the company's strategy for market share expansion, innovation, and cost reduction - The Company's strategy includes expanding market share, capitalizing on customer relationships and assets, developing innovative sustainable products, and reducing costs through operational improvements[141] Significant Factors That Impact The Company's Business Discusses key business drivers including COVID-19, cost inputs, competition, and debt - The COVID-19 pandemic has not materially impacted overall business, operations, or financial results to date, but may cause disruptions in supply chains, transportation, and consumer buying habits[142] - Cost of sales decreased by $0.3 million in the first six months of 2020 compared to 2019, driven by lower wood ($17.3 million) and energy ($9.3 million) costs, partially offset by higher labor and benefit costs ($23.1 million) and secondary fiber costs ($6.6 million)[143] - The Company uses natural gas swap contracts to hedge prices for a portion of its expected usage through 2022 to manage volatility in energy costs[144] - The Company implements global continuous improvement initiatives, including Six Sigma and Lean Sigma principles, to reduce variable and fixed manufacturing and administrative costs[145] - Competition from other paperboard manufacturers and substitute products (plastic, shrink film, corrugated containers) and changes in consumer buying habits are significant market factors[149][150] - As of June 30, 2020, the Company had $3,529.3 million in outstanding debt, which requires cash flow for principal and interest payments and imposes restrictive covenants[151] OVERVIEW OF SECOND QUARTER 2020 RESULTS Summarizes key drivers behind changes in net sales and operating income for Q2 2020 - Net Sales for Q2 2020 increased by $58.2 million (3.7%) to $1,611.0 million, driven by acquisitions, higher selling prices, and organic volume growth[154] - Income from Operations for Q2 2020 decreased by $29.6 million (20.5%) to $114.8 million, due to higher labor costs, planned mill maintenance, and exit activity charges[154] RESULTS OF OPERATIONS Provides a detailed comparison of operating results for Q2 and H1 2020 versus prior year SECOND QUARTER 2020 COMPARED WITH SECOND QUARTER 2019 - Net Sales increased by $58.2 million (3.7%) to $1,611.0 million, driven by $85.2 million from acquisitions, higher selling prices, and organic volume growth[158] - Core converting volumes increased in global beverage, dry foods, and cereal, but declined in away-from-home and confections products[158] - Income from Operations decreased by $29.6 million (20.5%) to $114.8 million, primarily due to higher labor and benefit costs ($11.1 million) and secondary fiber costs ($10.4 million)[162] - Interest Expense, Net decreased to $30.7 million from $35.5 million, mainly due to lower interest rates, despite higher debt balances[163] - Income Tax Expense was $18.3 million on $84.7 million income before taxes, compared to $23.0 million on $108.9 million in Q2 2019[164] Consolidated Net Sales (Q2 2020 vs Q2 2019) | In millions | 2019 | Price | Volume/Mix | Exchange | Total Change | 2020 | | :---------- | :-------- | :---- | :--------- | :------- | :----------- | :-------- | | Consolidated | $ 1,552.8 | $ 5.4 | $ 65.9 | $ (13.1) | $ 58.2 | $ 1,611.0 | Consolidated Income from Operations (Q2 2020 vs Q2 2019) | In millions | 2019 | Price | Volume/Mix | Inflation | Exchange | Other (a) | Total Change | 2020 | | :---------- | :-------- | :------- | :--------- | :-------- | :------- | :-------- | :----------- | :-------- | | Consolidated | $ 144.4 | $ (2.5) | $ 5.4 | $ (11.3) | $ 2.3 | $ (23.5) | $ (29.6) | $ 114.8 | FIRST SIX MONTHS 2020 COMPARED WITH FIRST SIX MONTHS 2019 - Net Sales increased by $151.4 million (4.9%) to $3,210.1 million, driven by $114.1 million from acquisitions, higher selling prices, and organic volume growth[167] - Income from Operations decreased by $3.6 million (1.3%) to $274.8 million, primarily due to higher labor and benefit costs ($23.1 million) and secondary fiber costs ($6.6 million)[169] - Nonoperating Pension and Postretirement Benefit expense increased significantly to $151.0 million from $0.1 million, primarily due to a $152.5 million settlement charge[170] - Interest Expense, Net decreased to $64.4 million from $70.5 million, mainly due to lower interest rates, despite higher debt balances[172] - Income Tax Expense was $12.9 million on $59.4 million income before taxes, compared to $44.0 million on $207.8 million in H1 2019[173] Consolidated Net Sales (H1 2020 vs H1 2019) | In millions | 2019 | Price | Volume/Mix | Exchange | Total Change | 2020 | | :---------- | :-------- | :------- | :--------- | :------- | :----------- | :-------- | | Consolidated | $ 3,058.7 | $ 19.5 | $ 154.9 | $ (23.0) | $ 151.4 | $ 3,210.1 | Consolidated Income from Operations (H1 2020 vs H1 2019) | In millions | 2019 | Price | Volume/Mix | Inflation | Exchange | Other (a) | Total Change | 2020 | | :---------- | :-------- | :------- | :--------- | :-------- | :------- | :-------- | :----------- | :-------- | | Consolidated | $ 278.4 | $ 19.5 | $ (5.9) | $ 0.3 | $ (5.9) | $ (11.6) | $ (3.6) | $ 274.8 | Segment Reporting Second Quarter 2020 Compared to Second Quarter 2019 - Paperboard Mills: Net Sales decreased due to lower selling prices and lower open market SBS volume, while Loss from Operations increased due to lower prices, higher maintenance, and increased labor costs[180][181] - Americas Paperboard Packaging: Net Sales and Income from Operations increased due to higher selling prices, acquisitions, and organic volume growth in food and beverage[182][183] - Europe Paperboard Packaging: Net Sales and Income from Operations increased due to higher pricing and volumes, partially offset by higher labor and COVID-19 related costs[184] First Six Months of 2020 Compared to First Six Months of 2019 - Paperboard Mills: Net Sales decreased due to lower selling prices and lower open market SBS volume, while Loss from Operations increased due to lower prices, higher maintenance, and increased labor costs[185][186] - Americas Paperboard Packaging: Net Sales and Income from Operations increased due to higher selling prices, acquisitions, and organic volume growth in food and beverage[187][188] - Europe Paperboard Packaging: Net Sales increased due to higher pricing and volumes, while Income from Operations decreased due to higher inflation and COVID-19 costs[189] FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Analyzes the company's cash flows, debt covenants, and capital investment activities - Net cash provided by operating activities for the first six months of 2020 increased to $143.8 million from $59.8 million in 2019, primarily due to restructuring of accounts receivable sale programs and improved operations[192] - Net cash used in investing activities for the first six months of 2020 increased to $388.7 million from $10.0 million in 2019, driven by higher capital spending and acquisitions[193] - Net cash provided by financing activities for the first six months of 2020 was $180.4 million, compared to $56.4 million used in 2019, including a $450 million debt offering and $157.4 million in stock repurchases[194] - The Company believes cash from operations and credit facilities will be adequate to meet liquidity needs[195] - The Company was in compliance with its debt covenants at June 30, 2020, with a Consolidated Total Leverage Ratio of 3.02 to 1.00 and a Consolidated Interest Expense Ratio of 8.54 to 1.00[201] - Capital investment for the first six months of 2020 was $306.6 million, primarily for planned asset upgrades at U.S. mills[203] CRITICAL ACCOUNTING POLICIES References the 2019 Form 10-K and discusses the latest goodwill impairment assessment - The Company's critical accounting policies involve significant judgments and complex estimations, as detailed in its 2019 Form 10-K[206][207] - Annual goodwill impairment tests as of October 1, 2019, showed no impairment, with Foodservice and Australia reporting units exceeding carrying values by 32% and 17%, respectively[208] NEW ACCOUNTING STANDARDS Refers to Note 1 for information on recently adopted accounting pronouncements - Recent accounting pronouncements impacting the Company are discussed in Note 1 - General Information[209] BUSINESS OUTLOOK Provides forward-looking estimates for capital investment, depreciation, and pension costs - Total capital investment for 2020 is expected to be approximately $625 million[210] - For 2020, the Company expects approximately $460 million in depreciation and amortization expense and $10-20 million in pension plan contributions[211] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Refers to the prior Form 10-K for market risk discussion and notes no significant changes - No significant developments regarding derivatives or exposure to market risk occurred during the first six months of 2020[212] ITEM 4. CONTROLS AND PROCEDURES Confirms the effectiveness of disclosure controls and notes no material changes in internal control - The Company's disclosure controls and procedures were effective as of June 30, 2020[213] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2020[214] PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS States that ongoing lawsuits are not expected to have a material adverse financial effect - The Company does not believe that the disposition of its lawsuits will have a material adverse effect on its consolidated financial position, results of operations, or cash flows[217] ITEM 1A. RISK FACTORS Highlights the potential adverse impacts of the COVID-19 pandemic on the company's business - The COVID-19 pandemic could unpredictably disrupt operations, reduce future revenues, and negatively impact financial condition due to potential supply chain issues, employee impacts, and changes in consumer buying habits[218] - No material changes to risk factors have occurred other than those related to the COVID-19 pandemic, as previously disclosed in the 2019 Form 10-K[219] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Details the company's common stock repurchase activities during the reporting period - The Company has a 2019 share repurchase program authorizing up to $500 million in common stock repurchases[220] Issuer Purchases of Equity Securities (Q2 2020) | Period (2020) | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------------------ | :------------------------------- | :--------------------------- | | April 1, through April 30, | 2,053,671 | $ 12.47 | | May 1, through May 31, | — | $ — | | June 1, through June 30, | 568,612 | $ 13.37 | | Total | 2,622,283 | | ITEM 4. MINE SAFETY DISCLOSURES States that there are no mine safety disclosures to report for the period ITEM 6. EXHIBITS Lists the exhibits filed with the Form 10-Q, including certifications and XBRL content SIGNATURES Contains the required signatures of the registrant's authorized officers