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MarketScreener Homepage  >  Equities  >  Nyse  >  WestRock Company    WRK

WESTROCK COMPANY

(WRK)
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WESTROCK : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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11/18/2019 | 06:05am EST

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.

Organization

WestRock was formed on March 6, 2015 for the purpose of effecting the
Combination and, prior to the Combination, did not conduct any activities other
than those incidental to its formation and the matters contemplated by the
Business Combination Agreement. On July 1, 2015, pursuant to the Business
Combination Agreement, RockTenn and MWV completed a strategic combination of
their respective businesses and RockTenn and MWV each became wholly-owned
subsidiaries of WestRock. RockTenn was the accounting acquirer in the
Combination.

On April 6, 2017, we completed the HH&B Sale. We used the proceeds from the HH&B
Sale in connection with the MPS Acquisition. We recorded a pre-tax gain on sale
of HH&B of $192.8 million in fiscal 2017. See "Note 1. Description of Business
and Summary of Significant Accounting Policies - Description of Business" of the
Notes to Consolidated Financial Statements for additional information. On June
6, 2017, we completed the MPS Acquisition. MPS is reported in our Consumer
Packaging segment. On November 2, 2018, we completed the KapStone Acquisition.
As a result, among other things, the Company became the ultimate parent of
WRKCo, KapStone and their respective subsidiaries, and the Company changed its
name to "WestRock Company" and WRKCo changed its name to "WRKCo Inc.". See "Note
3. Acquisitions and Investment" of the Notes to Consolidated Financial
Statements for additional information.

Presentation


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 (expense) 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 these operations has
reduced cost of goods sold. Following the realignment, we report our financial
results of operations in the following three reportable segments: Corrugated
Packaging, which consists of our containerboard mills, 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. Prior to the
HH&B Sale, our Consumer Packaging segment included HH&B.

A detailed discussion of the fiscal 2019 year-over-year changes can be found
below and a detailed discussion of fiscal 2018 year-over-year changes can be
found in "Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Exhibit 99.1 of 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"), which was, as disclosed therein, filed to provide revisions to
the Company's consolidated financial statements, and the notes thereto for the
three years ended September 30, 2018 and other related disclosures.

Acquisitions and Investments


During fiscal 2019 and 2018, we completed acquisitions that expanded our product
and geographic scope, allowed us to increase our integration levels and impacted
our comparative financials. We expect to continue to evaluate similar potential
acquisitions in the future, although the size of individual acquisitions may
vary. Below we summarize certain of these 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

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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 (the "Schlüter 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 Schlüter Acquisition allowed us to
further enhance our pharmaceutical and automotive platform and expand 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 Packaging
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 addition of the Box on Demand systems enhanced our platform,
differentiation and innovation. These systems, which are located on customers'
sites under multi-year exclusive agreements, use fanfold corrugated to produce
custom, on-demand corrugated packaging that is accurately sized for any product
type according to the customer's specifications. Fanfold corrugated is
continuous corrugated board, folded periodically to form an accordion-like stack
of corrugated material. As part of the transaction, WestRock 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 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 3. Acquisitions and Investment" of the Notes to Consolidated Financial
Statements for additional information. See also Item 1A. "Risk Factors - We May
Be Unsuccessful in Making and Integrating Mergers, Acquisitions and Investments,
and Completing Divestitures".

Business



                   Year Ended September 30,
(In millions)        2019              2018

Net sales        $    18,289.0$ 16,285.1
Segment income   $     1,790.2$  1,707.6






In fiscal 2019, we continued to pursue our strategy of offering differentiated
paper and packaging solutions that help our customers win. We successfully
executed this strategy in fiscal 2019 in a rapidly changing cost and price
environment. Net sales of $18,289.0 million for fiscal 2019 increased $2,003.9
million, or 12.3%, compared to 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, unfavorable foreign currency impacts
across our segments compared to the prior year and decreased Land and
Development net sales.



Segment income increased $82.6 million in fiscal 2019 compared to fiscal 2018,
primarily due to increased Corrugated Packaging segment income that was
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 projects at our Mahrt, AL and Covington, VA mills) and lower Land and
Development segment income due to the wind-down of sales. With respect to
segment income, we experienced higher levels of cost inflation in both our
Corrugated Packaging and Consumer Packaging segments during fiscal 2019 as
compared to fiscal 2018 that were partially offset by recovered fiber deflation.
The primary inflationary items were virgin fiber, freight, energy and wage and
other costs.



We generated $2,310.2 million of net cash provided by operating activities in
fiscal 2019, compared to $1,931.2 million in fiscal 2018. We remained committed
to our disciplined capital allocation strategy during fiscal 2019 by investing
$1,369.1 million in capital expenditures, deployed $3,374.2 million to strategic
acquisitions (excluding the

                                       34
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assumption of debt) while returning $467.9 million in dividends and $88.6
million to our stockholders in share repurchases. In the nine months following
December 2018, the quarter that included the KapStone Acquisition, we reduced
total debt $757.4 million. We believe our strong balance sheet and cash flow
provide us the flexibility to continue to invest to sustain and improve our
operating performance. In fiscal 2020, we expect capital expenditures to be
approximately $1.1 billion. See "Liquidity and Capital Resources" for more
information.

A detailed review of our fiscal 2019 and 2018 performance appears below under "Results of Operations (Consolidated)" and "Results of Operations - Segment Data".


For fiscal 2020, we expect to generate net sales of between $18.0 billion and
$18.5 billion. Our expectations reflect the anticipated impact of the flow
through of previously published price declines in North America containerboard
and kraft paper index pricing, as well as the full year impact of market pricing
declines that we have experienced in export containerboard and kraft paper, and
market pulp. We expect that these declines will be partially offset by the
impact of an additional month of KapStone sales and growth in our corrugated box
volumes in North America and Brazil, as well as increased volumes in our
Consumer Packaging segment.

We expect our earnings in fiscal 2020 to be impacted by the pricing declines
noted above, as well as cost inflation related to wages, benefits and other
non-commodity categories. We expect to experience commodity cost deflation,
particularly related to recycled fiber. Similar to past years, we expect that
slightly more of our earnings will be generated in the second half of the fiscal
year than in the first half of the fiscal year due to seasonality, the timing of
scheduled mill maintenance outages and our strategic capital projects.

In fiscal 2019, we announced plans to reconfigure our North Charleston, SC mill.
The project, which we expect to begin in the second quarter of fiscal 2020, is
expected to reduce our linerboard capacity by approximately 288,000 tons and our
annual costs by approximately $40 million, including a workforce reduction over
a five-month period.

We expect to invest approximately $1.1 billion in capital expenditures in fiscal
2020, including approximately $275 million for our strategic capital projects at
our Florence, SC and Tres Barras, Brazil mills. We expect to start up the
project at our Florence, SC mill in the spring of 2020 and to incur maintenance
downtime during the first quarter of fiscal 2020 in connection with this
project.



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Results of Operations (Consolidated)


The following table summarizes our consolidated results for the two years ended
September 30, 2019:



                                                           Year Ended September 30,
(In millions)                                               2019               2018

Net sales                                               $    18,289.0$   16,285.1
Cost of goods sold                                           14,540.0          12,923.1
Selling, general and administrative, excluding
intangible
  amortization                                                1,715.2       

1,546.6

Selling, general and administrative intangible
amortization                                                    400.2       

296.6

(Gain) loss on disposal of assets                               (41.2 )     

10.1

Multiemployer pension withdrawal (income) expense                (6.3 )     

184.2

Land and Development impairments                                 13.0       

31.9

Restructuring and other costs                                   173.7             105.4
Operating profit                                              1,494.4           1,187.2
Interest expense, net                                          (431.3 )          (293.8 )
Loss on extinguishment of debt                                   (5.1 )            (0.1 )
Pension and other postretirement non-service income              74.2       

95.3

Other income, net                                                 2.4       

12.7

Equity in income of unconsolidated entities                      10.1       

33.5

Income before income taxes                                    1,144.7       

1,034.8

Income tax (expense) benefit                                   (276.8 )     

874.5

Consolidated net income                                         867.9       

1,909.3

Less: Net income attributable to noncontrolling
interests                                                        (5.0 )     

(3.2 ) Net income attributable to common stockholders $ 862.9$ 1,906.1





Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting
principles in the U.S. ("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 and Earnings per diluted share, respectively.

Diluted earnings per share were $3.33 in fiscal 2019 compared to $7.34 in fiscal
2018. Adjusted Earnings Per Diluted Share were $3.98 and $4.09 in fiscal 2019
and 2018, respectively.

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.

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                                                                Years Ended September 30,
                                                                 2019               2018
Earnings per diluted share                                   $       3.33$       7.34
Restructuring and other items                                        0.56               0.30

Accelerated depreciation on major capital projects and

  certain plant closures                                             0.12               0.08
Inventory stepped-up in purchase accounting, net of LIFO             0.07                  -
Losses at closed plants, transition and start-up costs               0.05               0.06
Land and Development impairment and operating results (1)            0.03               0.02
Impact of Tax Act, net of related tax planning                       0.02              (4.22 )
Loss on extinguishment of debt                                       0.02                  -
Gain on sale of certain closed facilities                           (0.15 )                -

Direct expenses from Hurricane Michael, net of related

  proceeds                                                          (0.03 )                -
Interest accretion and other                                        (0.02 )                -
Brazil indirect tax                                                 (0.02 )                -
Multiemployer pension withdrawal (income) expense                   (0.01 )             0.52
Acquisition bridge and other financing fees                             -               0.03
Consumer Packaging segment acquisition reserve adjustments              -              (0.06 )
Gain on sale of waste services                                          -              (0.03 )
Other                                                                0.01               0.05
Adjusted Earnings Per Diluted Share                          $       3.98$       4.09

(1) Includes a $13.0 million and $23.6 million impairment of mineral rights in

    fiscal 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):



                                                       Year ended September 30, 2019
                                                  Pre-Tax          Tax          Net of Tax
GAAP Results                                    $   1,144.7$   (276.8 )$      867.9
Restructuring and other items                         173.7          (28.1 )          145.6
Accelerated depreciation on major capital
projects and certain
  plant closures                                       42.1          (10.5 )           31.6
Inventory stepped-up in purchase accounting,
net of LIFO                                            24.7           (6.0 )           18.7
Losses at closed plants, transition and
start-up costs                                         19.7           (5.6 )           14.1
Land and Development impairment and operating
results (1)                                            10.5           (2.6 )            7.9
Impact of Tax Act                                         -            4.1              4.1
Loss on extinguishment of debt                          5.1           (1.3 )            3.8
Gain on sale of certain closed facilities             (52.6 )         12.9            (39.7 )
Direct expenses from Hurricane Michael, net
of related
  proceeds                                            (10.8 )          2.6             (8.2 )
Interest accretion and other                           (5.5 )          1.3             (4.2 )
Brazil indirect tax                                    (7.3 )          2.1             (5.2 )
Multiemployer pension withdrawal (income)
expense                                                (4.6 )          1.2             (3.4 )
Other                                                   3.9           (1.0 )            2.9
Adjusted Results                                $   1,343.6$   (307.7 )$    1,035.9
Noncontrolling interests                                                               (5.0 )
Adjusted Net Income                                                            $    1,030.9


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(1) Includes a $13.0 million impairment of mineral rights in fiscal 2019.




                                                      Year ended September 30, 2018
                                                 Pre-Tax          Tax         Net of Tax
GAAP Results                                    $  1,034.8$    874.5$   1,909.3
Restructuring and other items                        105.4          (26.3 )          79.1
Accelerated depreciation on major capital
projects                                              27.0           (7.4 ) 

19.6

Inventory stepped-up in purchase accounting,
net of LIFO                                            1.0           (0.3 ) 

0.7

Losses at closed plants and transition costs          19.4           (5.0 ) 

14.4

Land and Development impairment and operating
results (1)                                            6.9           (1.6 ) 

5.3

Impact of Tax Act                                        -       (1,096.9 )      (1,096.9 )
Loss on extinguishment of debt                         0.1              -   

0.1

Multiemployer pension withdrawal expense             183.3          (47.7 ) 

135.6

Acquisition bridge and other financing fees           12.0           (3.1 ) 

8.9

Consumer Packaging segment acquisition
reserve adjustments                                  (20.1 )          5.2           (14.9 )
Gain on sale of waste services                       (12.3 )          4.4            (7.9 )
Other                                                 13.7           (1.9 )          11.8
Adjusted Results                                $  1,371.2$   (306.1 )$   1,065.1
Noncontrolling interests                                                             (3.2 )
Adjusted Net Income                                                           $   1,061.9

(1) Includes a $23.6 million impairment of mineral rights in fiscal 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".

Net Sales (Unaffiliated Customers)


Net sales in fiscal 2019 increased $2,003.9 million, or 12.3%, compared to
fiscal 2018. The increase was primarily attributable 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. The change in net sales by segment is outlined below in "Results
of Operations - Segment Data".

Cost of Goods Sold


Cost of goods sold increased to $14,540.0 million in fiscal 2019 compared to
$12,923.1 million in fiscal 2018. Cost of goods sold as a percentage of net
sales was 79.5% in fiscal 2019 compared to 79.4% in fiscal 2018. The increase in
cost of goods sold in fiscal 2019 compared to fiscal 2018 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 fiscal 2019, we
received $180.0 million of insurance proceeds related to Hurricane Michael,
primarily associated with our Panama City, FL mill that were recorded as a
reduction of cost of goods sold. See "Hurricane Michael" below for additional
information. We discuss these items in greater detail below in "Results of
Operations - Segment Data".

Selling, General and Administrative Excluding Intangible Amortization

Selling, general, and administrative expenses ("SG&A") excluding intangible amortization increased $168.6 million to $1,715.2 million in fiscal 2019 compared to fiscal 2018 primarily due to the KapStone Acquisition. SG&A excluding intangible amortization as a percentage of net sales declined in fiscal 2019 to 9.4% from 9.5% in fiscal 2018.

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Selling, General and Administrative Intangible Amortization


SG&A intangible amortization was $400.2 million and $296.6 million in fiscal
2019 and 2018, respectively. The increase in fiscal 2019 compared to fiscal 2018
was primarily due to the KapStone Acquisition.

(Gain) Loss on Disposal of Assets


The gain on disposal of assets in fiscal 2019 was $41.2 million and the loss on
disposal of assets in fiscal 2018 was $10.1 million. The gain on disposal of
assets in fiscal 2019 was primarily due to the $48.5 million gain on sale of our
former Atlanta beverage facility recorded in the first quarter of fiscal 2019.

Multiemployer Pension Withdrawal (Income) Expense


In the fiscal 2019, we recorded a $6.3 million reduction to a previously
recorded MEPP withdrawal liabilities. In fiscal 2018, we submitted formal
notification to withdraw from PIUMPF and Central States and recorded aggregate
estimated withdrawal liabilities of $184.2 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 at a credit adjusted risk-free rate and, therefore, we will accrete
the liability over time with a charge to interest expense. See "Note 5.
Retirement Plans - Multiemployer Plans" of the Notes to Consolidated Financial
Statements for additional information, including the receipt of demand letters
from PIUMPF. See also Item 1A. "Risk Factors - We May Incur Withdrawal Liability
and/or Increased Funding Requirements in Connection with MEPPs".

Land and Development Impairments


In fiscal 2019, we recorded $13.0 million of pre-tax non-cash impairments of
certain mineral rights following the termination of a third party leasing
relationship. In fiscal 2018, we recorded $31.9 million of pre-tax non-cash
impairments of certain mineral rights and real estate. The $23.6 million
impairment of mineral rights in fiscal 2018 was driven by the non-renewal of a
lease and associated with declining oil and gas prices, and the other $8.3
million was recorded to write-down the carrying value of certain 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 $173.7 million
and $105.4 million for fiscal 2019 and 2018, respectively. 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. Costs recorded in
each period are not comparable since the timing and scope of the individual
actions associated with each restructuring, acquisition, divestiture or
integration vary. See "Note 4. Restructuring and Other Costs" of the Notes to
Consolidated Financial Statements for additional information, including a
description of the type of costs incurred. We have restructured portions of our
operations from time to time and it is likely that we will engage in additional
restructuring opportunities in the future. See also Item 1A. "Risk Factors - We
May Incur Additional Restructuring Costs and May Not Realize Expected Benefits
from Restructuring".

Interest Expense, net

Interest expense, net was $431.3 million and $293.8 million for fiscal 2019 and
2018, respectively. Interest expense, net in fiscal 2019 increased primarily due
to debt incurred as a result of the KapStone Acquisition and higher interest
rates. Interest expense, net in fiscal 2019 and 2018 was reduced by $27.8
million and $31.0 million, respectively, related to the amortization of the fair
value of debt stepped-up in purchase accounting. See Item 1A. "Risk Factors -
The Level of Our Indebtedness Could Adversely Affect Our Financial Condition and
Impair Our Ability to Operate Our Business".

Pension and Other Postretirement Non-Service Income


Pension and other postretirement non-service income was $74.2 million and $95.3
million in fiscal 2019 and 2018, respectively. Subsequent to the adoption of ASU
2017-07 (as hereinafter defined) we began presenting the non-service components
of our pension and other postretirement income (expense) separately from the
service

                                       39
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cost components and outside the subtotal of operating profit. The decrease in fiscal 2019 was primarily due to the decline in plan asset balances used to determine the expected return on plan assets.

Other Income, net


Other income, net was $2.4 million and $12.7 million in fiscal 2019 and 2018,
respectively. Other income, net in fiscal 2018 included 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 $276.8 million for fiscal 2019 at an effective
tax rate of 24.2% compared to an income tax benefit of $874.5 million at an
effective tax rate benefit of 84.5% in fiscal 2018, including a $1,128.8 million
provisional benefit from the Tax Act.



The effective tax rate for fiscal 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 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 benefit for fiscal 2018 was lower than the statutory
federal rate primarily due to (i) the provisional amounts related to the
enactment of the Tax Act, (ii) favorable tax items, such as the domestic
production deduction, 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, and (iv) a change in valuation
allowance, partially offset by (v) the inclusion of state taxes and (vi) the
exclusion of tax benefits related to losses recorded by certain foreign
operations.

See "Note 6. Income Taxes" of the Notes to Consolidated Financial Statements for additional information, 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 and 2021. 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 exceed $200 million.



In fiscal 2019, we received $180.0 million of insurance proceeds (net of our $15
million deductible) that were recorded as a reduction of cost of goods sold in
our Corrugated Packaging segment related primarily to the Panama City mill. The
insurance proceeds consisted of $55.3 million for business interruption
recoveries and $124.7 million for direct costs and property damage. Our
consolidated statements of cash flow in fiscal 2019 included $154.5 million in
net cash provided by operating activities and $25.5 million net cash used for
investing activities. We expect to recover the majority of the additional amount
of direct costs and lost production and sales in future periods through
insurance reimbursements.

Results of Operations - Segment Data

Corrugated Packaging Segment

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

                                       40

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others find this breakout useful when evaluating our operating performance. We
have included the impact of the KapStone Acquisition beginning in 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        Second         Third        Fourth         Fiscal
                                            Quarter       Quarter       Quarter       Quarter         Year
Fiscal 2018
North American Corrugated Packaging
  Shipments - thousands of tons              2,045.6       2,112.1       2,096.4       2,163.8        8,417.9
North American Corrugated Containers
  Shipments - BSF                               19.8          19.7          20.5          20.3           80.3

North American Corrugated Containers Per

  Shipping Day - MMSF                          325.4         311.7         

320.5 321.9 319.8


Fiscal 2019
North American Corrugated Packaging
  Shipments - thousands of tons              2,346.7       2,520.8       2,644.2       2,616.4       10,128.1
North American Corrugated Containers
  Shipments - BSF                               22.5          23.6          24.3          24.1           94.5

North American Corrugated Containers Per

  Shipping Day - MMSF                          369.4         374.8         384.7         382.7          378.0



Brazil / India Corrugated Packaging Shipments



                                        First        Second         Third        Fourth        Fiscal
                                       Quarter       Quarter       Quarter       Quarter        Year
Fiscal 2018
Brazil / India Corrugated Packaging
Shipments -
  thousands of tons                       170.5         174.6         178.6         196.7        720.4
Brazil / India Corrugated
Containers Shipments
  - BSF                                     1.6           1.5           1.6           1.6          6.3
Brazil / India Corrugated
Containers Per Shipping
  Day - MMSF                               21.7          20.6          20.2          21.0         20.9

Fiscal 2019
Brazil / India Corrugated Packaging
Shipments
  - thousands of tons                     185.6         176.5         171.0         194.6        727.7
Brazil / India Corrugated
Containers Shipments
  - BSF                                     1.6           1.5           1.6           1.7          6.4
Brazil / India Corrugated
Containers Per
  Shipping Day - MMSF                      20.7          20.6          21.0          21.8         21.0




                                       41
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Corrugated Packaging Segment



                                                         Segment        Return
(In millions, except percentages)    Net Sales (1)       Income        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
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
Fourth Quarter                              3,019.4         449.8           14.9
Total                               $      11,816.7$ 1,399.6           11.8 %



(1) Net Sales before intersegment eliminations

Net Sales (Aggregate) - Corrugated Packaging Segment


Net sales before intersegment elimination for the Corrugated Packaging segment
increased $2,123.7 million in the fiscal 2019 compared to fiscal 2018. The
increase in net sales was primarily due to $2,851.5 million from acquisitions,
notably the KapStone Acquisition, and $203.5 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 $461.6 million 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, $417.7 million of lower volumes as lower containerboard volumes were
partially offset by increased corrugated container shipments and $65.4 million
related to the impact of unfavorable foreign currency.

Segment Income - Corrugated Packaging Segment


Segment income attributable to the Corrugated Packaging segment in fiscal 2019
increased $159.6 million compared to fiscal 2018, primarily due to a $231.0
million of contribution from the acquired KapStone operations before an
estimated $23.1 million of economic downtime and net of a $24.7 million
acquisition inventory step-up charge, an estimated $122.8 million of
productivity improvements and $118.8 million of higher corrugated selling
price/mix. These increases were partially offset by $126.5 million of lower
volumes, unfavorable cost inflation of $90.9 million, an estimated $66.4 million
of economic downtime (including KapStone), $12.4 million of unfavorable foreign
currency impacts, and other costs. The net impact of cost inflation was
unfavorable compared to the prior year as lower recovered fiber costs were more
than offset by higher wage and other costs, virgin fiber costs, freight costs,
energy costs and chemical costs. In fiscal 2019, Corrugated Packaging segment
income included $11.3 million for a receivable established for the recovery of
indirect taxes in Brazil. See "Note 18. Commitments and Contingencies - Indirect
Tax Claim" of the Notes to Consolidated Financial Statements for additional
information. Fiscal 2018 results were negatively affected by an estimated $20.7
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 and Tacoma, WA
mills. Fiscal 2019 results included an estimated $7.7 million and $5.9 million
of expense due to the impact of Hurricane Dorian and start-up issues following a
major maintenance outage, respectively. The full year impact of Hurricane
Michael, net of recoveries on Corrugated Packaging segment income was not
significant.

Consumer Packaging Segment

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

                                       42

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BSF to tons. The fiscal 2018 shipment numbers below have been revised by an immaterial amount. The shipment data table excludes gypsum paperboard liner tons produced by Seven Hills since it is not consolidated.



                                        First        Second         Third        Fourth        Fiscal
                                       Quarter       Quarter       Quarter       Quarter        Year
Fiscal 2018
Consumer Packaging Shipments -
thousands
  of tons                                 977.0         986.1       1,017.9       1,024.1       4,005.1
Consumer Packaging Converting
Shipments
  - BSF                                    10.6          10.6          10.9          11.1          43.2
Consumer Packaging Converting Per
Shipping
  Day - MMSF                              174.2         167.2         171.6         174.8         171.9

Fiscal 2019
Consumer Packaging Shipments -
thousands
  of tons                                 969.6         985.5         980.1         974.0       3,909.2
Consumer Packaging Converting
Shipments
  - BSF                                    10.5          11.0          11.1          11.1          43.7
Consumer Packaging Converting Per
Shipping
  Day - MMSF                              172.7         174.3         176.0         175.9         174.7




Consumer Packaging Segment



                                                        Segment       Return
(In millions, except percentages)    Net Sales (1)       Income      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
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
Fourth Quarter                              1,668.8        135.0           8.1
Total                               $       6,606.0$  388.1           5.9 %



(1) Net Sales before intersegment eliminations

Net Sales (Aggregate) - Consumer Packaging Segment


Net sales before intersegment eliminations for the Consumer Packaging segment
decreased $11.5 million in fiscal 2019 compared to the prior year primarily due
to $128.3 million of higher selling price/mix and $32.0 million from
acquisitions, which were more than offset by $88.0 million of unfavorable
foreign currency impacts and $83.7 million of lower volumes. Lower volumes were
primarily driven by a decline in mill volumes that were partially offset by a
3.7% increase in North American food and beverage tons shipped.

Segment Income - Consumer Packaging Segment




Segment income attributable to the Consumer Packaging segment in fiscal 2019
decreased $57.0 million compared to the prior year. Segment income in the period
was reduced by an estimated $112.5 million due to the net impact of cost
inflation compared to the prior year, an estimated $35.1 million of increased
maintenance and scheduled strategic outage expense (including the projects at
the Mahrt, AL and Covington, VA mills), $44.5 million due to the impact of lower
volumes, $14.5 million of unfavorable foreign currency impacts, $5.6 million of
higher

                                       43
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depreciation and amortization, and other items. These items were partially
offset by an estimated $107.9 million of higher selling price/mix and an
estimated $84.9 million of productivity improvements. While the net impact of
cost inflation was unfavorable compared to the prior year, recovered fiber costs
and chemical costs were lower than the prior year but were more than offset by
higher virgin fiber costs, freight costs and wage and other costs. Fiscal 2018
results were negatively affected by an estimated $17.2 million due to the impact
of winter weather that was more than offset by $20.1 million of favorable
acquisition reserve adjustments.

Land and Development Segment



                                         Segment
(In millions)     Net Sales (1)       Income (Loss)

Fiscal 2018
First Quarter    $          11.4     $          (0.7 )
Second Quarter              26.7                16.1
Third Quarter               64.8                 9.9
Fourth Quarter              39.5                (2.8 )
Total            $         142.4     $          22.5

Fiscal 2019
First Quarter    $          13.9     $           0.7
Second Quarter               0.8                 0.5
Third Quarter                8.6                 1.6
Fourth Quarter               0.1                (0.3 )
Total            $          23.4     $           2.5



(1) Net sales before intersegment eliminations

Net Sales (Aggregate) - Land and Development Segment

Net sales for the Land and Development segment in fiscal 2019 and 2018 were $23.4 million and $142.4 million, respectively. The decrease in fiscal 2019 was due to the wind-down of sales. We include the remainder of the real estate holdings in assets held for sale because we have met the held for sale criteria.

Segment Income (Loss) - Land and Development Segment


Segment income attributable to the Land and Development segment was $2.5 million
and $22.5 million in fiscal 2019 and 2018, respectively. 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,
acquisitions and investments, restructuring activities, dividends and stock
repurchases from net cash provided by operating activities, borrowings under our
credit facilities, proceeds from our A/R Sales Agreement (as hereinafter
defined), 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 13. Debt" of the Notes to Consolidated Financial
Statements for additional information. 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.

                                       44
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At September 30, 2019, we had approximately $2.9 billion of availability under
our committed credit facilities, primarily under our revolving credit 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 the credit
facilities. We test and report our compliance with these covenants as required
and we were in compliance with all of these covenants at September 30, 2019. At
September 30, 2019, we had $129.8 million of outstanding letters of credit not
drawn upon.

Cash and cash equivalents were $151.6 million at September 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. Primarily all of the cash and cash equivalents at
September 30, 2019 were held outside of the U.S. At September 30, 2019, total
debt was $10,063.4 million, $561.1 million of which was current. At
September 30, 2018, total debt was $6,415.2 million, $740.7 million of which was
current. The increase in debt was primarily related to the KapStone Acquisition.

Cash Flow Activity



                                                         Year Ended September 30,
(In millions)                                               2019             2018

Net cash provided by operating activities              $      2,310.2$ 1,931.2
Net cash used for investing activities                 $     (4,579.6 )

$ (815.1 ) Net cash provided by (used for) financing activities $ 1,780.2$ (755.1 )



Net cash provided by operating activities during fiscal 2019 increased $379.0
million from fiscal 2018 primarily due to higher cash earnings and a $340.3
million net decrease in the use of working capital compared to the prior year.
As a result of the retrospective adoption of ASU 2016-15 and ASU 2016-18 (each
as hereinafter defined) as discussed in "Note 1. Description of Business and
Summary of Significant Accounting Policies" of the Notes to Consolidated
Financial Statements, net cash provided by operating activities for fiscal 2018
was reduced by $489.7 million and cash provided by investing activities
increased $483.8 million, 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 $4,579.6 million in fiscal 2019
consisted primarily of $3,374.2 million for cash paid for the purchase of
businesses, net of cash acquired (excluding the assumption of debt), primarily
related to the KapStone Acquisition, and $1,369.1 million for capital
expenditures that were partially offset by $119.1 million of proceeds from the
sale of property, plant and equipment primarily related to the sale of our
Atlanta beverage facility, $33.2 million of proceeds from corporate owned life
insurance benefits and $25.5 million of proceeds from property, plant and
equipment insurance proceeds related to the Panama City, FL mill. Net cash used
for investing activities of $815.1 million in fiscal 2018 consisted primarily of
$999.9 million for capital expenditures, $239.9 million for cash paid for the
purchase of businesses, net of cash acquired primarily related to the Plymouth
Acquisition and the Schlüter Acquisition, and $108.0 million for an investment
in Grupo Gondi. These investments were partially offset by $461.6 million of
cash receipts on sold trade receivables as a result of the adoption of ASU
2016-15, $24.0 million of proceeds from the sale of certain affiliates as well
as our solid waste management brokerage services business and $23.3 million of
proceeds from the sale of property, plant and equipment.

In fiscal 2019, net cash provided by financing activities of $1,780.2 million
consisted primarily of a net increase in debt of $2,314.6 million, primarily
related to the KapStone Acquisition and partially offset by cash dividends paid
to stockholders of $467.9 million and purchases of Common Stock of $88.6
million. In fiscal 2018, net cash used for financing activities of $755.1
million consisted primarily of cash dividends paid to stockholders of $440.9
million and purchases of Common Stock of $195.1 million and net repayments of
debt of $120.1 million.

Our capital expenditures aggregated $1,369.1 million in fiscal 2019. We expect
fiscal 2020 capital expenditures to be approximately $1.1 billion, including
approximately $275 million for our strategic capital projects at our Florence,
SC and Tres Barras, Brazil mills. We expect to start up the project at our
Florence mill in the spring of 2020 and the Tres Barras project in the first
half of calendar 2021. 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

                                       45

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approximately $900 million to $1.0 billion a year in fiscal 2021. We generally
expect our base capital expenditures to be roughly half invested in maintenance
and half invested in high return generating projects. 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.

We estimate that we will invest approximately $15 million for capital
expenditures during fiscal 2020 in connection with matters relating to
environmental compliance. We were obligated to purchase approximately $623
million of fixed assets at September 30, 2019 for various capital projects. See
Item 1A. "Risk Factors - Our Capital Expenditures May Not Achieve the Desired
Outcomes or May Be Achieved at a Higher Cost than Anticipated".

At September 30, 2019, the U.S. federal, state and foreign net operating losses
and state tax credits available to us aggregated approximately $83 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 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.
Including the estimated impact of book and tax differences, subject to changes
in tax laws, we expect our cash tax rate to move closer to our income tax rate
in fiscal 2020, 2021 and 2022.

During fiscal 2019 and 2018, we made contributions of $25.0 million and $37.7
million, respectively, to our U.S. and non-U.S. pension plans. Based on current
facts and assumptions, we expect to contribute approximately $27 million to our
U.S. and non-U.S. pension plans in fiscal 2020. We have made contributions and
expect to continue to make contributions in the coming years to our pension
plans in order 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. The net underfunded status of our U.S. and non-U.S. pension plans
at September 30, 2019 was $85.8 million. Based on current assumptions, including
future interest rates, we estimate that minimum pension contributions to our
U.S. and non-U.S. pension plans will be in the range of approximately $24
million to $28 million annually in fiscal 2021 through 2024. See "Note 5.
Retirement Plans" of the Notes to Consolidated Financial Statements. See also
Item 1A. "Risk Factors -Our Pension Plans Will Likely Require Additional Cash
Contributions".

In the normal course of business, we evaluate our potential exposure to MEPPs,
including with respect to potential withdrawal liabilities. In fiscal 2018, we
submitted formal notification to withdraw from two plans and recorded an
aggregate estimated withdrawal liability of $184.2 million, nearly all of which
was for PIUMPF. In September 2019, we received a demand from PIUMPF asserting
that we owe $170.3 million on an undiscounted basis (approximately $0.7 million
per month for the next 20 years) with respect to our withdrawal liability. The
demand did not address any assertion of liability for PIUMPF's accumulated
funding deficiency. In October 2019, we received two additional demand letters
from PIUMPF related to a subsidiary asserting that we owe $2.3 million on an
undiscounted basis to be paid over 20 years with respect to the subsidiary's
withdrawal liability and $2.0 million for its accumulated funding deficiency. We
are evaluating each of these demands. We expect to challenge the accumulated
funding deficiency. We expect to begin making monthly payments for these
withdrawal liabilities in fiscal 2020. See "Note 5. Retirement Plans -
Multiemployer Plans" of the Notes to Consolidated Financial Statements for
additional information. See also Item 1A. "Risk Factors - We May Incur
Withdrawal Liability and/or Increased Funding Requirements in Connection with
MEPPs".

In November 2019, our board of directors declared a quarterly dividend of $0.465
per share, representing a 2.2% increase from the prior $0.455 per share
quarterly dividend and an annual dividend of $1.86 per share. During fiscal 2019
and 2018, we paid an annual dividend of $1.82 per share and $1.72 per share,
respectively.

In July 2015, our board of directors authorized a repurchase program of up to
40.0 million shares of our Common Stock, representing approximately 15% of our
outstanding Common Stock as of July 1, 2015. Shares of our Common Stock may be
purchased from time to time in open market or privately negotiated transactions.
The timing, manner, price and amount of repurchases will be determined by
management at its discretion based on factors, including the market price of our
Common Stock, general economic and market conditions and applicable legal
requirements. The repurchase program may be commenced, suspended or discontinued
at any time. In fiscal 2019, we repurchased approximately 2.1 million shares of
our Common Stock for an aggregate cost of $88.6 million. In fiscal 2018, we
repurchased approximately 3.4 million shares of our Common Stock for an
aggregate cost

                                       46

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of $195.1 million. As of September 30, 2019, we had approximately 19.1 million shares of Common Stock available for repurchase under the program.


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. In connection with these reviews, we may seek to refinance
existing indebtedness to extend maturities, reduce borrowing costs or otherwise
improve the terms and composition of our indebtedness.

Contractual Obligations


We summarize our enforceable and legally binding contractual obligations at
September 30, 2019, 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, including estimated
minimum pension plan contributions and estimated benefit payments related to
postretirement obligations, supplemental retirement plans and deferred
compensation plans. 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
                                                                        Fiscal 2021       Fiscal 2023
(In millions)                           Total         Fiscal 2020        and 2022          and 2024         Thereafter

Long-Term Debt, including current
portion,
  excluding capital lease
obligations (1)                       $  9,714.1$       550.8$       939.8$     2,494.3$    5,729.2
Operating lease obligations (2)            930.4             214.3             316.4             193.6            206.1
Capital lease obligations (3)              168.9               6.4               8.7               2.9            150.9
Purchase obligations and other (4)
(5) (6)                                  2,293.5           1,607.0             292.5             206.7            187.3
Total                                 $ 13,106.9$     2,378.5$     1,557.4$     2,897.5$    6,273.5

(1) Includes only principal payments owed on our debt assuming that all of our

long-term debt will be held to maturity, excluding scheduled payments. We

have excluded $163.5 million of fair value of debt step-up, deferred

financing costs and unamortized bond discounts from the table to arrive at

actual debt obligations. See "Note 13. Debt" of the Notes to Consolidated

Financial Statements for information on the interest rates that apply to our

    various debt instruments.



(2) See "Note 15. Operating Leases" of the Notes to Consolidated Financial

    Statements for additional information.



(3) The fair value step-up of $16.9 million is excluded. See "Note 13. Debt -

Capital Lease and Other Indebtedness" of the Notes to Consolidated Financial

    Statements for additional information.



(4) 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.

(5) We have included in the table future estimated minimum pension plan

contributions and estimated benefit payments related to postretirement

obligations, supplemental retirement plans and deferred compensation plans.

Our estimates are based on factors, such as discount rates and expected

returns on plan assets. Future contributions are subject to changes in our

underfunded status based on factors such as investment performance, discount

rates, returns on plan assets and changes in legislation. It is possible that

our assumptions may change, actual market performance may vary or we may

decide to contribute different amounts. We have excluded $237.2 million of

multiemployer pension plan withdrawal liabilities recorded as of September

30, 2019, including our estimate of the accumulated funding deficiency, due

to lack of definite payout terms for certain of the obligations. See "Note 5.

    Retirement Plans - Multiemployer Plans" of the Notes to Consolidated
    Financial Statements for additional information.



(6) We have not included the following items in the table:

                                       47

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• An item labeled "other long-term liabilities" reflected on our consolidated

balance sheet because these liabilities do not have a definite pay-out

scheme.

$284.7 million for certain provisions of the Financial Accounting Standards

Board's ("FASB") Accounting Standards Codification ("ASC") 740, "Income

      Taxes" associated with liabilities for uncertain tax positions due to the
      uncertainty as to the amount and timing of payment, if any.


In addition to the enforceable and legally binding obligations presented in the
table above, we have other obligations for goods and services and raw materials
entered into in the normal course of business. These contracts, however, are
subject to change based on our business decisions.

Expenditures for Environmental Compliance

See Item 1. "Business - Governmental Regulation - Environmental and Other Matters", "Business - Governmental Regulation - CERCLA and Other Remediation Costs", and "Business - Governmental Regulation - Climate Change" for a discussion of our expenditures for environmental compliance.

Critical Accounting Policies and Estimates

We have prepared our accompanying consolidated financial statements in conformity with GAAP, which requires management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. Certain significant accounting policies are described in "Note 1. Description of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements. See also Item 7A. "Quantitative and Qualitative Disclosures About Market Risk".


These critical accounting policies are both important to the portrayal of our
financial condition and results of operations and require some of management's
most subjective and complex judgments. The accounting for these matters involves
the making of estimates based on current facts, circumstances and assumptions
that, in management's judgment, could change in a manner that would materially
affect management's future estimates with respect to such matters and,
accordingly, could cause our future reported financial condition and results of
operations to differ materially from those that we are currently reporting based
on management's current estimates.

Goodwill


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. Our
discounted cash flow analysis is based on the sum of two components, the present
value of our projected cash flows and the present value of a terminal value. The
cash flow estimates are derived from our current forecast and our long-term
forecasts prepared for each reporting unit considering historical results and
anticipated future performance and capital expenditures, and require
considerable judgment. The discount rates used to determine the present value of
future cash flows are derived from a weighted average cost of capital analysis
utilizing a beta derived from peer companies. In addition, we give consideration
in the calculation of the weighted average cost of capital for equity risks,
including size risk, industry risk and country specific risk, as appropriate,
for each of our reporting units. The guideline public company method involves
comparing the reporting unit to similar companies whose stock is freely traded
on an organized exchange. The fair values determined by the discounted cash flow
and guideline public company methods were weighted to arrive at the concluded
fair value of the reporting unit. However, in instances where comparisons to our
peers was less meaningful, no weight was placed on the guideline public company
method to arrive at the concluded fair value of the reporting unit.

Estimating the fair value of the reporting unit involves uncertainties because
it requires management to develop numerous assumptions, including assumptions
about the future growth and potential volatility in revenues and costs, capital
expenditures, industry economic factors and future business strategy. The
variability of the factors that management uses to perform the goodwill
impairment test depends on a number of conditions, including uncertainty about
future events and cash flows, including anticipated changes in revenues and
costs and synergies and productivity improvements resulting from the
acquisitions, capital expenditures and continuous improvement projects. These
factors are interdependent and, therefore, do not change in isolation.
Accordingly, our accounting estimates may materially change from period to
period due to changing market factors. If we had used other

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assumptions and estimates or if conditions change in future periods, our
operating results could be materially impacted. Any significant adverse changes
in key assumptions about these reporting units and their prospects, such as
changes in our strategy or products, the loss of key customers, regulatory
changes or adverse changes in economic and market conditions may cause a change
in the estimated fair values of our reporting units and could result in an
impairment charge that could be material to our financial statements.

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 and
Victory Packaging reporting units had fair values that exceeded their respective
carrying values by less than 10% each, primarily due to the fair value
accounting related to the Combination and the MPS Acquisition (for Consumer
Packaging) and the KapStone Acquisition (for Victory Packaging). 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 of our reporting units would have continued to
exceed its carrying value, except for the Consumer Packaging reporting unit. The
Consumer Packaging and Victory Packaging reporting units had $3,590.6 million
and $40.2 million of goodwill, respectively, at September 30, 2019. We reviewed
the carrying value of our goodwill at the beginning of the fourth quarter and
continually monitored industry economic trends until the end of our fiscal year
and determined no additional testing for goodwill impairment was 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 Item 1A. "Risk Factors - We Have a Significant Amount of Goodwill and Other
Intangible Assets and a Write-Down Would Adversely Impact Our Operating Results
and Shareholders' Equity".

Accounting for Income Taxes

Our income tax expense, deferred tax assets and liabilities, and liabilities for
unrecognized tax benefits, reflect management's best assessment of estimated
current and future taxes to be paid. Significant judgments and estimates are
required in determining the consolidated income tax expense. In evaluating our
ability to recover our deferred tax assets within the jurisdiction from which
they arise we consider all available positive and negative evidence, including
future reversals of existing taxable temporary differences, projected future
taxable income, tax planning strategies, recent financial operations and their
associated valuation allowances, if any. We use significant judgment in (i)
determining whether a tax position, based solely on its technical merits, is
more likely than not to be sustained upon examination, and (ii) measuring the
tax benefit as the largest amount of benefit that is more likely than not to be
realized upon ultimate settlement. We do not record any benefit for the tax
positions where we do not meet the more likely than not initial recognition
threshold. Income tax positions must meet a more likely than not recognition
threshold at the effective date to be recognized. We generally recognize
interest and penalties related to unrecognized tax benefits in income tax
expense in the consolidated statements of income. 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. A 1% change in our effective tax rate would increase
or decrease tax expense by approximately $11.4 million for fiscal 2019. A 1%
change in our effective tax rate used to compute deferred tax liabilities and
assets, as recorded on the September 30, 2019 consolidated balance sheet, would
increase or decrease tax expense by approximately $121.3 million for fiscal
2019.

Business Combinations


From time to time, we may enter into business combinations. In accordance with
ASC 805, "Business Combinations", we generally recognize the identifiable assets
acquired, the liabilities assumed and any noncontrolling interests in an
acquiree at their fair values as of the date of acquisition. We measure goodwill
as the excess of consideration transferred, which we also measure at fair value,
over the net of the acquisition date fair values of the identifiable assets
acquired and liabilities assumed. The acquisition method of accounting requires
us to make significant estimates and assumptions regarding the fair values of
the elements of a business combination as of the date of acquisition, including
the fair values of identifiable intangible assets, deferred tax asset valuation
allowances, liabilities including those related to debt, pensions and other
postretirement plans, uncertain tax positions, contingent consideration and
contingencies. Significant estimates and assumptions include subjective

                                       49

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and/or complex judgements regarding items such as discount rates, customer attrition rates, economic lives and other factors, including estimating future cash flows that we expect to generate from the acquired assets.


The acquisition method of accounting also requires us to refine these estimates
over a measurement period not to exceed one year to reflect new information
obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have affected the measurement of the amounts recognized as
of that date. If we are required to adjust provisional amounts that we have
recorded for the fair values of assets and liabilities in connection with
acquisitions, these adjustments could have a material impact on our financial
condition and results of operations. No changes in fiscal 2019 to our fiscal
2018 provisional fair value estimates of assets and liabilities assumed in
acquisitions have been significant. If the subsequent actual results and updated
projections of the underlying business activity change compared with the
assumptions and projections used to develop these values, we could record future
impairment charges. In addition, we have estimated the economic lives of certain
acquired assets and these lives are used to calculate depreciation and
amortization expense. If our estimates of the economic lives change,
depreciation or amortization expenses could be increased or decreased, or the
acquired asset could be impaired.

Pension


The funded status of our qualified and non-qualified U.S. and non-U.S. pension
plans decreased $233.5 million in fiscal 2019. Our U.S. qualified and
non-qualified pension plans and non-U.S. pension plans were under funded by
$43.6 million and $42.2 million, respectively, as of September 30, 2019. Our
U.S. pension plan benefit obligations were negatively impacted in fiscal 2019
primarily by a 115-basis point decrease in the discount rate compared to the
prior measurement date. The non-U.S. pension plan obligations were negatively
impacted in fiscal 2019 by a 100-basis point decrease in the discount rate
compared to the prior measurement date. A 25-basis point change in the discount
rate, compensation level and expected long-term rate of return on plan assets,
factoring in our corridor as appropriate, would have had the following effect on
fiscal 2019 pension expense (amounts in the table in parentheses reflect
additional income, in millions):



                                                         Pension Plans
                                                    25 Basis       25 Basis
                                                     Point          Point
                                                    Increase       Decrease
Discount rate                                      $    (10.2 )$     10.4
Compensation level                                 $      0.3     $    

(0.3 ) Expected long-term rate of return on plan assets $ (14.2 )$ 14.2





New Accounting Standards

See "Note 1. Description of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the respective expected dates of adoption and expected effects on our results of operations and financial condition.

© Edgar Online, source Glimpses

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