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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended December 31, 2020

or

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

For the transition period from               to             

Commission File Number 001-38736

WestRock Company

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

37-1880617

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1000 Abernathy Road NE, Atlanta, Georgia

 

30328

(Address of Principal Executive Offices)

 

(Zip Code)

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

N/A

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

WRK

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

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

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

Emerging growth company

 

 

 

 

 

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

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

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

 

Class

 

Outstanding as of January 22, 2021

Common Stock, $0.01 par value

 

263,516,869

 

 

 

 

 


 

 

 

WESTROCK COMPANY

INDEX

 

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended December 31, 2020 and 2019

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Balance Sheets at December 31, 2020 and September 30, 2020

5

 

 

 

 

Condensed Consolidated Statements of Equity for the three months ended December 31, 2020 and 2019

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2020 and 2019

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

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

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

 

 

 

Item 4.

Controls and Procedures

47

 

 

 

PART II

OTHER INFORMATION

48

 

 

 

Item 1.

Legal Proceedings

48

 

 

 

Item 1A.

Risk Factors

48

 

 

 

Item 6.

Exhibits

48

 

 

 

 

Index to Exhibits

49

 

 

2


PART I: FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

(In millions, except per share data)

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

4,401.5

 

 

$

4,423.7

 

Cost of goods sold

 

 

3,648.6

 

 

 

3,614.7

 

Gross profit

 

 

752.9

 

 

 

809.0

 

Selling, general and administrative, excluding

   intangible amortization

 

 

417.8

 

 

 

425.7

 

Selling, general and administrative intangible

   amortization

 

 

91.9

 

 

 

101.8

 

Loss (gain) on disposal of assets

 

 

2.5

 

 

 

(1.3

)

Restructuring and other costs

 

 

7.7

 

 

 

30.1

 

Operating profit

 

 

233.0

 

 

 

252.7

 

Interest expense, net

 

 

(93.8

)

 

 

(93.5

)

Loss on extinguishment of debt

 

 

(1.1

)

 

 

 

Pension and other postretirement non-service income

 

 

34.9

 

 

 

26.7

 

Other income (expense), net

 

 

20.8

 

 

 

(3.7

)

Equity in income of unconsolidated entities

 

 

9.0

 

 

 

3.8

 

Income before income taxes

 

 

202.8

 

 

 

186.0

 

Income tax expense

 

 

(50.3

)

 

 

(46.5

)

Consolidated net income

 

 

152.5

 

 

 

139.5

 

Less: Net income attributable to noncontrolling

   interests

 

 

(0.5

)

 

 

(1.0

)

Net income attributable to common stockholders

 

$

152.0

 

 

$

138.5

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common

   stockholders

 

$

0.58

 

 

$

0.54

 

Diluted earnings per share attributable to common

   stockholders

 

$

0.57

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

262.7

 

 

 

258.2

 

Diluted weighted average shares outstanding

 

 

264.8

 

 

 

259.9

 

 

 

 

 

 

 

 

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

3


WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

(In millions)

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

Consolidated net income

 

$

152.5

 

 

$

139.5

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

196.9

 

 

 

100.4

 

Derivatives:

 

 

 

 

 

 

 

 

Deferred loss on cash flow hedges

 

 

(0.1

)

 

 

(0.5

)

Reclassification adjustment of net loss (gain) on

  cash flow hedges included in earnings

 

 

1.5

 

 

 

(1.3

)

Defined benefit pension and other postretirement

   benefit plans:

 

 

 

 

 

 

 

 

Amortization and settlement recognition of net

   actuarial loss, included in pension cost

 

 

5.6

 

 

 

8.7

 

Amortization and settlement recognition of prior

   service cost, included in pension cost

 

 

1.1

 

 

 

0.5

 

Other comprehensive income, net of tax

 

 

205.0

 

 

 

107.8

 

Comprehensive income

 

 

357.5

 

 

 

247.3

 

Less: Comprehensive income attributable to

   noncontrolling interests

 

 

(0.9

)

 

 

(1.1

)

Comprehensive income attributable to common

   stockholders

 

$

356.6

 

 

$

246.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

4


WESTROCK COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In millions, except per share data)

 

December 31,

2020

 

 

September 30,

2020

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

253.8

 

 

$

251.1

 

Accounts receivable (net of allowances of $68.9 and $66.3)

 

 

2,023.4

 

 

 

2,142.7

 

Inventories

 

 

2,084.6

 

 

 

2,023.4

 

Other current assets

 

 

492.6

 

 

 

520.5

 

Assets held for sale

 

 

9.4

 

 

 

7.0

 

Total current assets

 

 

4,863.8

 

 

 

4,944.7

 

Property, plant and equipment, net

 

 

10,784.3

 

 

 

10,778.9

 

Goodwill

 

 

5,997.0

 

 

 

5,962.2

 

Intangibles, net

 

 

3,598.1

 

 

 

3,667.2

 

Restricted assets held by special purpose entities

 

 

1,265.8

 

 

 

1,267.5

 

Prepaid pension asset

 

 

404.7

 

 

 

368.7

 

Other assets

 

 

1,922.7

 

 

 

1,790.5

 

Total Assets

 

$

28,836.4

 

 

$

28,779.7

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

168.7

 

 

$

222.9

 

Accounts payable

 

 

1,672.2

 

 

 

1,674.2

 

Accrued compensation and benefits

 

 

453.6

 

 

 

386.7

 

Other current liabilities

 

 

754.6

 

 

 

645.1

 

Total current liabilities

 

 

3,049.1

 

 

 

2,928.9

 

Long-term debt due after one year

 

 

8,771.1

 

 

 

9,207.7

 

Pension liabilities, net of current portion

 

 

305.3

 

 

 

305.2

 

Postretirement benefit liabilities, net of current portion

 

 

150.0

 

 

 

145.4

 

Non-recourse liabilities held by special purpose entities

 

 

1,134.2

 

 

 

1,136.5

 

Deferred income taxes

 

 

2,910.8

 

 

 

2,916.9

 

Other long-term liabilities

 

 

1,534.1

 

 

 

1,490.3

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

1.7

 

 

 

1.3

 

Equity:

 

 

 

 

 

 

 

 

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

   shares outstanding

 

 

 

 

 

 

Common Stock, $0.01 par value; 600.0 million shares authorized;

   263.3 million and 260.4 million shares outstanding at December 31,

   2020 and September 30, 2020, respectively

 

 

2.6

 

 

 

2.6

 

Capital in excess of par value

 

 

10,949.4

 

 

 

10,916.3

 

Retained earnings

 

 

1,126.3

 

 

 

1,031.6

 

Accumulated other comprehensive loss

 

 

(1,115.3

)

 

 

(1,319.9

)

Total stockholders’ equity

 

 

10,963.0

 

 

 

10,630.6

 

Noncontrolling interests

 

 

17.1

 

 

 

16.9

 

Total equity

 

 

10,980.1

 

 

 

10,647.5

 

Total Liabilities and Equity

 

$

28,836.4

 

 

$

28,779.7

 

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

5


WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

(In millions, except per share data)

 

2020

 

 

2019

 

 

 

 

 

Number of Shares of Common Stock Outstanding:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

260.4

 

 

 

257.8

 

Shares issued under restricted stock plan

 

 

2.3

 

 

 

 

Issuance of common stock, net of stock received for

   minimum tax withholdings

 

 

0.6

 

 

 

0.6

 

Balance at end of period

 

 

263.3

 

 

 

258.4

 

Common Stock:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2.6

 

 

$

2.6

 

Issuance of common stock, net of stock received for

   minimum tax withholdings

 

 

 

 

 

 

Balance at end of period

 

 

2.6

 

 

 

2.6

 

Capital in Excess of Par Value:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

10,916.3

 

 

 

10,739.4

 

Compensation expense under share-based plans

 

 

19.9

 

 

 

13.5

 

Issuance of common stock, net of stock received for

   minimum tax withholdings

 

 

13.2

 

 

 

17.1

 

Balance at end of period

 

 

10,949.4

 

 

 

10,770.0

 

Retained Earnings:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

1,031.6

 

 

 

1,997.1

 

Adoption of accounting standards (1)

 

 

(3.8

)

 

 

73.5

 

Net income attributable to common stockholders

 

 

152.0

 

 

 

138.5

 

Dividends declared (per share - $0.20

  and $0.465 (2)

 

 

(53.5

)

 

 

(121.6

)

Balance at end of period

 

 

1,126.3

 

 

 

2,087.5

 

Accumulated Other Comprehensive Loss:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(1,319.9

)

 

 

(1,069.2

)

Adoption of accounting standards (1)

 

 

 

 

 

(73.4

)

Other comprehensive income (loss), net of tax

 

 

204.6

 

 

 

107.7

 

Balance at end of period

 

 

(1,115.3

)

 

 

(1,034.9

)

Total Stockholders’ equity

 

 

10,963.0

 

 

 

11,825.2

 

Noncontrolling Interests: (3)

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

16.9

 

 

 

14.3

 

Net income

 

 

0.2

 

 

 

1.0

 

Balance at end of period

 

 

17.1

 

 

 

15.3

 

Total equity

 

$

10,980.1

 

 

$

11,840.5

 

 

 

(1)

For fiscal 2021, the amount relates to the adoption of ASU 2016-13 (as hereinafter defined). For fiscal 2020, the amount relates primarily to the adoption of ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

 

(2)

Includes cash dividends paid and dividend equivalent units on certain restricted stock awards.

 

(3)

Excludes amounts related to contingently redeemable noncontrolling interests, which are separately classified outside of permanent equity on the Condensed Consolidated Balance Sheets.

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

6


WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended

 

 

 

December 31,

 

(In millions)

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

 

Consolidated net income

 

$

152.5

 

 

$

139.5

 

Adjustments to reconcile consolidated net income to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

364.5

 

 

 

381.2

 

Cost of real estate sold

 

 

 

 

 

16.1

 

Deferred income tax (benefit) expense

 

 

(19.6

)

 

 

3.1

 

Share-based compensation expense

 

 

20.0

 

 

 

13.8

 

401(k) match in common stock

 

 

24.9

 

 

 

 

Pension and other postretirement funding more than expense (income)

 

 

(28.0

)

 

 

(23.7

)

Gain on sale of investment

 

 

(14.7

)

 

 

 

Other impairment adjustments

 

 

 

 

 

2.2

 

Loss (gain) on disposal of plant and equipment and other, net

 

 

2.6

 

 

 

(0.9

)

Other, net

 

 

(31.5

)

 

 

(13.2

)

Change in operating assets and liabilities, net of acquisitions and

   divestitures:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

150.2

 

 

 

153.9

 

Inventories

 

 

(44.3

)

 

 

(83.9

)

Other assets

 

 

(19.3

)

 

 

(71.1

)

Accounts payable

 

 

(5.4

)

 

 

(47.5

)

Income taxes

 

 

50.6

 

 

 

(2.8

)

Accrued liabilities and other

 

 

116.9

 

 

 

(35.5

)

Net cash provided by operating activities

 

 

719.4

 

 

 

431.2

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(170.7

)

 

 

(374.8

)

Investment in unconsolidated entities

 

 

(0.1

)

 

 

(0.3

)

Proceeds from sale of investment

 

 

23.3

 

 

 

 

Proceeds from sale of property, plant and equipment

 

 

2.0

 

 

 

7.9

 

Proceeds from property, plant and equipment insurance settlement

 

 

 

 

 

1.4

 

Other, net

 

 

5.1

 

 

 

4.9

 

Net cash used for investing activities

 

 

(140.4

)

 

 

(360.9

)

Financing activities:

 

 

 

 

 

 

 

 

Additions to revolving credit facilities

 

 

180.0

 

 

 

 

Repayments of revolving credit facilities

 

 

(10.0

)

 

 

(20.0

)

Additions to debt

 

 

10.8

 

 

 

101.4

 

Repayments of debt

 

 

(704.5

)

 

 

(4.0

)

Additions to commercial paper, net

 

 

 

 

 

10.9

 

Other debt additions (repayments), net

 

 

21.6

 

 

 

(36.3

)

Issuances of common stock, net of related minimum tax withholdings

 

 

(12.4

)

 

 

15.5

 

Cash dividends paid to stockholders

 

 

(52.6

)

 

 

(120.0

)

Cash distributions paid to noncontrolling interests

 

 

(0.4

)

 

 

(0.3

)

Other, net

 

 

(16.6

)

 

 

(8.5

)

Net cash used for financing activities

 

 

(584.1

)

 

 

(61.3

)

Effect of exchange rate changes on cash, cash equivalents

   and restricted cash

 

 

7.8

 

 

 

(4.2

)

Increase in cash, cash equivalents and restricted cash

 

 

2.7

 

 

 

4.8

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

251.1

 

 

 

151.6

 

Cash, cash equivalents and restricted cash at end of period

 

$

253.8

 

 

$

156.4

 

 

7


 

 

 

 

Three Months Ended

 

 

 

December 31,

 

(In millions)

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Income taxes, net of refunds

 

$

18.8

 

 

$

45.1

 

Interest, net of amounts capitalized

 

$

42.0

 

 

$

53.1

 

 

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 


 

 

8


 

 

 

WESTROCK COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Month Period Ended December 31, 2020

(Unaudited)

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

We are a multinational provider of sustainable fiber-based paper and packaging solutions. 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.

 

Note 1.

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

 

Our independent registered public accounting firm has not audited the accompanying interim financial statements. We derived the condensed consolidated balance sheet at September 30, 2020 from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (the “Fiscal 2020 Form 10-K”). In the opinion of our management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of income for the three months ended December 31, 2020 and December 31, 2019, our statements of comprehensive income for the three months ended December 31, 2020 and December 31, 2019, our balance sheets at December 31, 2020 and September 30, 2020, our statements of cash flows for the three months ended December 31, 2020 and December 31, 2019, and our statements of equity for the three months ended December 31, 2020 and December 31, 2019.

 

We have condensed or omitted certain notes and other information from the interim financial statements presented in this report. Therefore, these interim financial statements should be read in conjunction with the Fiscal 2020 Form 10-K. The results for the three months ended December 31, 2020 are not necessarily indicative of results that may be expected for the full year.

 

Reclassifications and Adjustments

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

COVID-19 Pandemic

 

The global impact of the COVID-19 pandemic (“COVID-19”) continues to evolve. The pandemic has affected our operational and financial performance and the extent of its effect on our operational and financial performance will continue to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact (including the distribution and effectiveness of vaccines), and the direct and indirect economic effects of the pandemic and related containment measures, among others.

 

At December 31, 2020, we evaluated the then current economic environment, including our current assessment of the impact of COVID-19, and there were no indicators of impairment of our long-lived assets, including goodwill, that required a quantitative test to be performed. Our estimates involve numerous assumptions about the future growth and potential volatility in revenues and costs, capital expenditures, industry and global economic factors, interest rate environment and future business strategy. Accordingly, our accounting estimates may materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances and the potential impact thereof, including performing interim goodwill impairment assessments, as warranted. If actual results are not consistent with our assumptions and estimates, we may be exposed to impairment losses that could be material. See “Note 1. Description of Business and Summary of Significant Accounting Policies — Goodwill and Long-Lived Assets” in the Fiscal 2020 Form 10-K for additional information regarding the results of, and our methods and assumptions applied to perform, our goodwill impairment testing in fiscal 2020.

 

9


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

 

 

Ransomware Incident

 

On January 25, 2021, we announced that on January 23, 2021, we detected a ransomware incident impacting certain of our operational and information technology systems. Promptly upon our detection of the incident, we initiated response and containment protocols. These actions included taking preventative measures, including shutting down certain systems out of an abundance of caution, as well as taking steps to supplement existing security monitoring, scanning and protective measures. Our security teams, supplemented by leading cyber defense firms, are working to remediate this incident. We have notified law enforcement and contacted our customers to apprise them of the situation. See “Note 16. Subsequent Events” for more information on the ransomware incident.

 

Significant Accounting Policies

 

See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section in the Fiscal 2020 Form 10-K for a summary of our significant accounting policies.

 

Recent Accounting Developments

 

New Accounting Standards — Recently Adopted

 

In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606”, which provides targeted amendments to Accounting Standards Codification (“ASC”) 808, “Collaborative arrangements” and ASC 606 “Revenues from Contracts with Customers” (“ASC 606”). The amendments in this ASU require transactions between participants in a collaborative arrangement to be accounted for under ASC 606 only when the counterparty is a customer. We adopted the provisions of ASU 2018-18 on October 1, 2020. The adoption did not have a material impact on our consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17 “Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities.” This ASU changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety, as currently required under generally accepted accounting principles in the U.S. (“GAAP”). We adopted the provisions of ASU 2018-17 on October 1, 2020. The adoption did not have a material impact on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. We adopted the provisions of ASU 2018-15 prospectively on October 1, 2020. The adoption did not have a material impact on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-14 “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans”. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. We adopted the provisions of ASU 2018-14 retrospectively on October 1, 2020.

 

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326)” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments and replaces the incurred loss model with a model that reflects expected credit losses. In April 2019, the FASB issued ASU 2019-04 “Codification Improvements to Topic 326,

 

10


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

 

 

Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”), which addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” (“ASU 2019-05”), which provides targeted transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option. In November 2019, the FASB issued ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses(“ASU 2019-11”), which makes certain narrow-scope amendments to Topic 326, including allowing entities to exclude accrued interest amounts from various required disclosures under Topic 326. In February 2020, the FASB issued ASU 2020-02 “Financial Instruments Credit Losses (Topic 326) and Leases (Topic 842)” (“ASU 2020-02”), which adds and amends paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119 primarily related to the new credit losses standard. The provisions of ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 related to Topic 326 are effective concurrent with the adoption of ASU 2016-13. We adopted ASU 2016-13 and its subsequent revisions using the modified retrospective transition approach on October 1, 2020. The adoption of ASU 2016-13 and its subsequent revisions resulted in us recognizing a cumulative effect adjustment of $3.8 million (net of tax) decrease to opening balance of retained earnings related to our allowance for doubtful accounts primarily for our trade accounts receivables balance.

 

New Accounting Standards — Recently Issued

 

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. This ASU provides temporary optional expedients and exceptions for applying GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. The ASU can be adopted after its issuance date through December 31, 2022. We are evaluating the impact of this ASU.

 

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 under GAAP. This ASU also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 (fiscal 2022 for us) and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of this ASU.

 

Note 2.

Revenue Recognition

 

Disaggregated Revenue

 

ASC 606 requires that we disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The tables below disaggregate our revenue by geographical market and product type (segment). Net sales are attributed to geographical markets based on our selling location. In fiscal 2020, we completed our real estate monetization, therefore, we will not have any Land and Development sales in fiscal 2021.

 

 

 

Three Months Ended December 31, 2020

 

(In millions)

 

Corrugated Packaging

 

 

Consumer Packaging

 

 

Intersegment Sales

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Primary Geographical Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

2,770.2

 

 

$

1,254.0

 

 

$

(57.9

)

 

$

3,966.3

 

South America

 

 

81.0

 

 

 

22.2

 

 

 

 

 

 

103.2

 

Europe

 

 

0.9

 

 

 

249.3

 

 

 

(0.1

)

 

 

250.1

 

Asia Pacific

 

 

12.4

 

 

 

69.6

 

 

 

(0.1

)

 

 

81.9

 

Total

 

$

2,864.5

 

 

$

1,595.1

 

 

$

(58.1

)

 

$

4,401.5

 

 

 

11


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

 

 

 

 

 

Three Months Ended December 31, 2019

 

(In millions)

 

Corrugated Packaging

 

 

Consumer Packaging

 

 

Land and Development

 

 

Intersegment Sales

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Primary Geographical Markets