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Dynamic quotes 
OFFON

WESTROCK COMPANY

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

08/09/2021 | 02:35pm EDT
The following discussion should be read in conjunction with the condensed
consolidated financial statements and Notes thereto included herein and our
audited Consolidated Financial Statements and Notes thereto for the fiscal year
ended September 30, 2020, as well as the information under the heading "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are part of the Fiscal 2020 Form 10-K. The following discussion
includes certain non-GAAP financial measures. See our reconciliations of
non-GAAP financial measures in the "Non-GAAP Financial Measures" section below.

                                    OVERVIEW

We are a multinational provider of sustainable fiber-based paper and packaging
solutions. We partner with our customers to provide differentiated, sustainable
paper and packaging solutions that help them win in the marketplace. Our team
members support customers around the world from our operating and business
locations in North America, South America, Europe, Asia and Australia.

Presentation


We report our financial results of operations in the following two 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; and Consumer Packaging, which
consists of our consumer mills and food and beverage and partition operations.
Prior to the completion of our monetization program in fiscal 2020, we had a
third reportable segment, Land and Development, which previously sold real
estate, primarily in the Charleston, SC region. Certain income and expenses are
not allocated to our segments and, thus, the information that management uses to
make operating decisions and assess performance does not reflect such amounts.
See "Note 1. Basis of Presentation and Significant Accounting Policies - Basis
of Presentation" for more information.



                               EXECUTIVE SUMMARY



Net sales of $4,816.3 million for the third quarter of fiscal 2021 increased
$580.0 million, or 13.7%, compared to the third quarter of fiscal 2020. This
increase was primarily due to the impact of higher selling price/mix, higher
volumes and favorable foreign currency impacts. Volumes in the third quarter of
fiscal 2020 were negatively impacted by COVID-19.



Earnings per diluted share were $0.93 and $0.69 in the three months ended June
30, 2021 and 2020, respectively. Adjusted Earnings Per Diluted Share were $1.00
and $0.76 in the three months ended June 30, 2021 and 2020, respectively. See
the discussion and tables under "Non-GAAP Financial Measures" below.



Net cash provided by operating activities in the nine months ended June 30, 2021
and 2020 was $1,602.4 million and $1,339.0 million, respectively, primarily due
to $301.5 million of favorable working capital compared to the prior year
period, including the payment of certain fiscal 2020 bonuses and the Company's
401(k) match and annual company contribution (i.e. up to 5% and 2.5%,
respectively) in the form of stock, rather than cash, and deferral of certain
payroll taxes in connection with the WestRock Pandemic Action Plan. During the
nine months ended June 30, 2021, we paid down $758.0 million of debt.



A detailed review of our performance appears below under "Results of Operations".


Ransomware Incident



As previously disclosed, on January 23, 2021 we detected a ransomware incident
impacting certain of our systems. Promptly upon our detection of this incident,
we initiated response and containment protocols and our security teams,
supplemented by leading cyber defense firms, worked to remediate this incident.
These actions included taking preventative measures, 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. We
notified law enforcement and contacted our customers to apprise them of the
situation.



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We undertook extensive efforts to identify, contain and recover from this
incident quickly and securely. Our teams worked to maintain our business
operations and minimize the impact on our customers and teammates. All systems
are back in service. All of our mills and converting locations began producing
and shipping paper and packaging at pre-ransomware levels in March 2021 or
earlier. Our mill system production was approximately 115,000 tons lower than
planned for the quarter ended March 31, 2021 as a result of this incident. While
shipments from some of our facilities initially lagged behind production levels,
this gap closed as systems were restored during the second quarter of fiscal
2021. In locations where technology issues were identified, we used alternative
methods, in many cases manual methods, to process and ship orders. We
systematically brought our information systems back online in a controlled,
phased approach.



We estimate the segment income impact of the lost sales and operational
disruption of this incident on our operations in the second quarter of fiscal
2021 was approximately $50 million, as well as approximately $20 million of
ransomware recovery costs, primarily professional fees. In addition, we incurred
approximately $9 million of ransomware recovery costs in the third quarter of
fiscal 2021. We expect to recover substantially all of the ransomware losses
from cyber and business interruption insurance in future periods. Disputes over
the extent of insurance coverage for claims are not uncommon, and there will be
a time lag between the initial incurrence of costs and the receipt of any
insurance proceeds.



In response to the ransomware event, we accelerated information technology
investments that we had previously planned to make in future periods in order to
further strengthen our information security infrastructure. We engaged a leading
cybersecurity defense firm that completed a forensics investigation of the
ransomware incident and we are taking appropriate actions in response to the
findings. For example, in the short-term, we reset all credentials Company-wide
and strengthened security tooling across our servers and workstations. Longer
term, in collaboration with our strategic partners, we established a roadmap to
advance the maturity and effectiveness of our information security and
resiliency capabilities. This roadmap includes initiatives to further strengthen
our information security posture across the Company, and to enable us to
potentially detect, respond to and recover from security and technical incidents
in a faster and more effective manner. More specifically, we are progressing
projects to bolster our security monitoring capabilities, strengthen our access
controls, reduce risks associated with third-parties, and to enhance the
information security of our mills and plants.



Expectations for the Fourth Quarter of Fiscal 2021




For the fourth quarter of fiscal 2021, we expect higher prices, stronger
volumes, minimal scheduled maintenance downtime and improved productivity to
drive higher sequential earnings. These items are expected to be partially
offset by sequentially higher inflation across recycled fiber, virgin fiber and
energy costs.



                               COVID-19 RESPONSE





Our first priority is the health and safety of our teammates. We have taken, and
continue to take, actions to protect the health and safety of our teammates
during COVID-19. Our business is an essential part of the global supply chain.
Our paper and packaging products enable our customers to package essential food,
beverage, health products, cleaning products and other goods. We are continuing
to operate and meet or exceed our customers' needs in this rapidly evolving
demand environment.



During the three and nine months ended June 30, 2021, we recorded $4.2 million
and $45.0 million of expense related to COVID-19, including $22.0 million of
relief payments to employees in the first quarter of fiscal 2021. The balance
was for increased costs for safety, cleaning and other items related to
COVID-19. We began tracking the impact of costs related to COVID-19 in the third
quarter of fiscal 2020. During the third quarter of fiscal 2020, we provided
one-time recognition awards to our teammates who work in manufacturing and
operations and recognized expense of $31.6 million for those awards. We also
incurred an additional expense of $20.6 million for cleaning, safety supplies
and equipment, screening resources and other items related to COVID-19. We
expect to continue to incur additional costs related to safety, cleaning and
other items related to COVID-19 as needed in the foreseeable future.



We continue to execute our differentiated strategy with financial strength and substantial liquidity, and we




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continue to adapt to changing market conditions as a result of COVID-19. At June
30, 2021, we had approximately $3.9 billion of availability under long-term
committed credit facilities and cash and cash equivalents. We continue to
believe that we have substantial liquidity to navigate the current dynamic
environment, and remain focused on maintaining our investment grade rating and
managing our working capital and taking appropriate actions to ensure our access
to necessary liquidity.



WestRock Pandemic Action Plan



Given the uncertainties associated with the severity and duration of the
pandemic, in May 2020 we announced, and began implementing, the WestRock
Pandemic Action Plan. We have modified the WestRock Pandemic Action Plan as the
impact of COVID-19 has evolved, and we may further modify it in the future. For
example, we increased our dividend during the third quarter of fiscal 2021 and
changed our capital expenditure assumptions, in each case as described below,
and may change future estimates or the duration of the planned items. We expect
that the actions that we have undertaken and will continue to undertake pursuant
to the plan will provide an additional approximately $1 billion in cash through
the end of calendar 2021 that we will be able to use to reduce our outstanding
indebtedness. Pursuant to the WestRock Pandemic Action Plan, as modified, we are
committed to: (i) continue to protect the safety and well-being of our
teammates, (ii) continue to match our supply with our customers' demand, (iii)
reduce discretionary expenses, (iv) use Common Stock to make Company funded
401(k) match and annual contribution (i.e. up to 5% and 2.5%, respectively)
beginning July 1, 2020 through September 30, 2021, (v) target reducing fiscal
2021 capital investments to a range of $800 million to $900 million (up from an
initial range of $600 to $800 million), and (vi) resetting our quarterly
dividend to $0.20 per share for an annual rate of $0.80 per share, which we did
in May 2020. On May 4, 2021, our board of directors declared a quarterly
dividend of $0.24 per share, an increase of $0.04 per share, or 20%, from the
then existing rate and representing a $0.96 per share annualized dividend. The
decision to increase our dividend reflects the confidence we have in our
business and our ability to generate strong cash flow, as well as the progress
we have made in reducing debt since we began implementing the WestRock Pandemic
Action Plan. On July 30, 2021, our board of directors declared a quarterly
dividend of $0.24 per share.

In addition, we followed through on previously disclosed commitments under the
WestRock Pandemic Action Plan, as modified, including that we (i) decreased the
salaries of our senior executive team by up to 25% from May 1, 2020 through
December 31, 2020 and decreased the retainer for members of our board of
directors by 25% for the third and fourth calendar quarters of 2020, (ii) used
Common Stock to pay our annual incentive for fiscal 2020 for nearly all
participants and set the payout level at 50% of the target opportunity subject
to a safety modifier, as well as for Company funded 401(k) match and our annual
contribution as noted above, and (iii) postponed $116.5 million of employment
taxes incurred through the end of calendar year 2020, pursuant to relief offered
under the Coronavirus Aid, Relief and Economic Security ("CARES") Act. We also
reduced fiscal 2020 capital investments to $978.1 million after targeting to
reduce them by approximately $150 million to approximately $950 million.

In fiscal 2020, we achieved more than $350 million of the approximately $1
billion goal set forth in the WestRock Pandemic Action Plan, as modified. As of
June 30, 2021, we had achieved more than $800 million of the approximately $1
billion goal. The ultimate level achieved may be lower than the goal due to
modifications such as increased capital investments and increased dividends as
we modify the WestRock Pandemic Action Plan. We expect that our actions under
the WestRock Pandemic Action Plan will continue to position us both to sustain
our business in a range of economic and market conditions and for long-term
success.



See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - COVID-19 RESPONSE - WestRock Pandemic Action Plan" in
our Fiscal 2020 Form 10-K for additional information.







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                             RESULTS OF OPERATIONS

The following table summarizes our consolidated results for the three and nine months ended June 30, 2021 and June 30, 2020 (in millions):



                                           Three Months Ended             Nine Months Ended
                                                June 30,                      June 30,
                                           2021          2020            2021           2020
Net sales                                $ 4,816.3$ 4,236.3$ 13,655.6$ 13,107.3
Cost of goods sold                         3,886.4       3,466.3        11,223.2       10,723.5
Gross profit                                 929.9         770.0         2,432.4        2,383.8
Selling, general and administrative,
excluding
  intangible amortization                    450.9         390.1         1,327.1        1,234.4
Selling, general and administrative
intangible
  amortization                                88.8          99.6           269.3          301.5
Loss (gain) on disposal of assets              1.0           1.0             3.8           (5.9 )
Multiemployer pension withdrawal
income                                           -          (2.0 )             -           (1.1 )
Restructuring and other costs                  6.9           9.7            19.8           56.2
Operating profit                             382.3         271.6           812.4          798.7
Interest expense, net                       (102.5 )       (92.4 )        (279.8 )       (283.2 )
Loss on extinguishment of debt                   -          (0.6 )          (1.1 )         (1.1 )
Pension and other postretirement
non-service income                            31.5          25.6           101.4           78.4
Other income (expense), net                    6.4          (5.0 )          13.8           (9.6 )
Equity in income of unconsolidated
entities                                      10.7             -            29.4            8.7
Income before income taxes                   328.4         199.2           676.1          591.9
Income tax expense                           (77.4 )       (19.2 )        (158.2 )       (123.5 )
Consolidated net income                      251.0         180.0           517.9          468.4
Less: Net income attributable to
noncontrolling
  interests                                   (0.9 )        (1.5 )          (3.3 )         (3.3 )
Net income attributable to common
stockholders                             $   250.1$   178.5$    514.6$    465.1

Net Sales (Unaffiliated Customers)

(In millions, except percentages) First Second Third

    Nine Months       Fourth         Fiscal
                                     Quarter        Quarter        Quarter       Ended 6/30       Quarter         Year
Fiscal 2020                         $ 4,423.7$ 4,447.3$ 4,236.3$   13,107.3$ 4,471.5$ 17,578.8
Fiscal 2021                         $ 4,401.5$ 4,437.8$ 4,816.3$   13,655.6
% Change                                 (0.5 )%        (0.2 )%        13.7 %            4.2 %




Net sales in the third quarter of fiscal 2021 increased $580.0 million compared
to the third quarter of fiscal 2020. This increase was primarily due to the
impact of higher selling price/mix, higher volumes and favorable foreign
currency impacts. Volumes in the third quarter of fiscal 2020 were negatively
impacted by COVID-19.



Net sales in the nine months ended June 30, 2021 increased $548.3 million
compared to the nine months ended June 30, 2020. We experienced higher selling
price/mix and higher volumes in the period, excluding the lost sales associated
with the ransomware incident and winter weather events in the second quarter of
fiscal 2021 ("the Events") that decreased net sales by $189.1 million. Volumes
in the prior year period were negatively impacted by COVID-19, primarily in the
third quarter. Additionally, we experienced aggregate favorable foreign currency
impacts across our segments. The increase was partially offset by the absence of
$18.9 million of Land and Development net sales due to the completion of the
monetization program in fiscal 2020. The change in net sales by segment is
outlined below in "Results of Operations - Corrugated Packaging Segment" and
"Results of Operations - Consumer Packaging Segment".



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Cost of Goods Sold


(In millions, except percentages) First Second Third

  Nine Months       Fourth         Fiscal
                                     Quarter       Quarter       Quarter       Ended 6/30       Quarter         Year
Fiscal 2020                         $ 3,614.7$ 3,642.5$ 3,466.3$   10,723.5$ 3,658.1$ 14,381.6
(% of Net Sales)                         81.7 %        81.9 %        81.8 %           81.8 %        81.8 %         81.8 %

Fiscal 2021                         $ 3,648.6$ 3,688.2$ 3,886.4$   11,223.2
(% of Net Sales)                         82.9 %        83.1 %        80.7 %           82.2 %




The $420.1 million increase in cost of goods sold in the third quarter of
fiscal 2021 compared to the prior year quarter was primarily due to higher
volumes, increased cost inflation and other items. In the third quarter of
fiscal 2020, we recorded costs of goods sold of $45.0 million associated with
COVID-19, including one-time recognition awards to our teammates who work in
manufacturing and operations, increased costs for safety, cleaning and other
items related to COVID-19 compared to $4.6 million of costs for safety, cleaning
and other items related to COVID-19 in the third quarter of fiscal 2021.



The $499.7 million increase in cost of goods sold in the nine months ended June
30, 2021 compared to the prior year period was primarily due to higher volumes,
increased cost inflation and other items, including operational disruption
associated with the Events and COVID-19 related costs. These items were
partially offset by productivity improvements and other items. In the nine
months ended June 30, 2020, we received Hurricane Michael-related insurance
proceeds of $32.3 million and recorded a reduction of cost of goods sold of
$27.7 million in connection with an indirect tax claim in Brazil, primarily in
the Corrugated Packaging segment. The Hurricane Michael-related insurance
proceeds were for $20.6 million of direct costs and property damage and for
$11.7 million for business interruption recoveries. In the nine months ended
June 30, 2021, we recorded costs of goods sold of $41.1 million related to
COVID-19 primarily for relief payments to employees and increased costs for
safety, cleaning and other items related to COVID-19. We did not track and
report the impact of COVID-19 in the second quarter of fiscal 2020;
therefore, the nine months ended June 30, 2020 includes costs of goods sold of
$45.0 million associated with COVID-19, including one-time recognition awards to
our teammates who work in manufacturing and operations, increased costs for
safety, cleaning and other items related to COVID-19 recorded in the third
quarter. We expect to continue to incur additional costs related to safety,
cleaning and other items related to COVID-19 as needed in the foreseeable
future.



We discuss these items in greater detail below in "Results of Operations - Corrugated Packaging Segment" and "Results of Operations - Consumer Packaging Segment".

Selling, General and Administrative Excluding Intangible Amortization




(In millions, except percentages)    First        Second       Third       Nine Months      Fourth       Fiscal
                                    Quarter      Quarter      Quarter      Ended 6/30      Quarter        Year
Fiscal 2020                         $  425.7$  418.6$  390.1$   1,234.4$  390.0$ 1,624.4
(% of Net Sales)                         9.6 %        9.4 %        9.2 %           9.4 %        8.7 %         9.2 %

Fiscal 2021                         $  417.8$  458.4$  450.9$   1,327.1
(% of Net Sales)                         9.5 %       10.3 %        9.4 %           9.7 %




Selling, general, and administrative expenses ("SG&A") excluding intangible
amortization increased $60.8 million in the third quarter of fiscal 2021
compared to the prior year quarter. The increase was primarily due to a $44.8
million increase in bonus and stock-based compensation expense as a result of
fiscal 2021 payments projected to be higher than fiscal 2020 payments that were
reduced due to the actions we took in fiscal 2020 in connection with the
WestRock Pandemic Action Plan discussed above. The increase was partially offset
by a $20.7 million decrease in bad debt expense compared to the prior year
period.





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SG&A excluding intangible amortization increased $92.7 million in the nine
months ended June 30, 2021 compared to the nine months ended June 30, 2020. The
increase was primarily due to a $107.3 million increase in bonus and stock-based
compensation expense as a result of fiscal 2021 payments projected to be higher
than fiscal 2020 payments, and included a $9.6 million acceleration of
stock-based compensation in connection with our former Chief Executive Officer
in the second quarter of fiscal 2021. In addition, we incurred increased
aggregate costs for consulting, professional and legal fees of $16.7 million
compared to the prior year period, primarily associated with the ransomware
incident. These increases were partially offset by a $30.3 million decrease in
bad debt expense compared to the prior year period, as well as a $23.5 million
reduction in travel and entertainment associated with prolonged shelter-in-place
orders in response to the ongoing effects of COVID-19.



The increased levels of bonus and stock-based compensation expense as compared to fiscal 2020 will likely continue in the fourth quarter of fiscal 2021.

Selling, General and Administrative Intangible Amortization


SG&A intangible amortization was $88.8 million and $99.6 million in the third
quarter of fiscal 2021 and 2020, respectively. SG&A intangible amortization was
$269.3 million and $301.5 million in the nine months ended June 30, 2021 and
June 30, 2020, respectively. The declines were primarily attributable to certain
intangibles from prior acquisitions reaching full amortization.

Loss (Gain) on Disposal of Assets


In the three and nine months ended June 30, 2021, we recorded a loss on disposal
of assets of $1.0 million and $3.8 million. In the three and nine months ended
June 30, 2020, we recorded loss on disposal of assets of $1.0 million and a gain
on disposal of assets of $5.9 million, respectively.

Restructuring and Other Costs


We recorded aggregate pre-tax restructuring and other costs of $6.9 million and
$9.7 million in the third quarter of fiscal 2021 and 2020, respectively, and
$19.8 million and $56.2 million in the nine months ended June 30, 2021 and June
30, 2020, respectively. These amounts are not comparable since the timing and
scope of the individual actions associated with a given restructuring,
acquisition, integration or divestiture vary. We generally expect the
integration of a closed facility's assets and production with other facilities
to enable the receiving facilities to better leverage their fixed costs while
eliminating fixed costs from the closed facility. See "Note 3. Restructuring and
Other Costs" of the Notes to Condensed Consolidated Financial Statements for
additional information.

Interest Expense, net

Interest expense, net for the third quarter of fiscal 2021 was $102.5 million
compared to $92.4 million for the prior year quarter. The increase was primarily
due to a $7.7 million increase in interest expense associated with the
remeasurement of our multiemployer pension liabilities in the third quarter of
fiscal 2021, as well as $6.0 million of interest income recorded in connection
with an indirect tax claim in Brazil in the third quarter of fiscal 2020. These
increases were partially offset by the impact of lower debt levels in the
current year period.

Interest expense, net for the nine months ended June 30, 2021 was $279.8 million
compared to $283.2 million for the prior year period. The decrease is primarily
due to lower levels of debt in fiscal 2021 compared to the prior year period.
Additionally, the prior year period included $17.6 million of interest income
recorded in connection with an indirect tax claim in Brazil.

See "Note 13. Commitments and Contingencies - Indirect Tax Claim" of the Notes to Condensed Consolidated Financial Statements for additional information.

Pension and Other Postretirement Non-Service Income


Pension and other postretirement non-service income for the third quarter of
fiscal 2021 was $31.5 million compared to $25.6 million for the third quarter of
fiscal 2020. Pension and other postretirement non-service income for the nine
months ended June 30, 2021 was $101.4 million compared to $78.4 million for the
nine months ended June 30, 2020. The increase was primarily due to the increase
in plan asset balances used to determine the expected return on plan assets for
fiscal 2021. Customary pension and other postretirement (income) costs are
included in segment income. See "Note 4. Retirement Plans" of the Notes to
Condensed Consolidated Financial Statements for more information.



                                       37

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Other income (expense), net

Other income (expense), net for the third quarter of fiscal 2021 was income of
$6.4 million compared to expense of $5.0 million in the third quarter of fiscal
2020.

Other income (expense), net for the nine months ended June 30, 2021 was income
of $13.8 million compared to expense of $9.6 million in the prior year period.
The nine months ended June 30, 2021 primarily included a $16.5 million gain on
sale of the Summerville, SC sawmill and a $16.0 million gain on sale of a legacy
cost method investment which were partially offset by a $22.5 million charge
associated with not exercising an option to purchase an additional equity
interest in Grupo Gondi.

Provision for Income Taxes


We recorded income tax expense of $77.4 million for the three months ended June
30, 2021 compared to $19.2 million for the three months ended June 30, 2020. The
effective tax rate for the three months ended June 30, 2021 was 23.6%, while the
effective tax rate for the three months ended June 30, 2020 was 9.6%.

We recorded income tax expense of $158.2 million for the nine months ended June
30, 2021 compared to $123.5 million for the nine months ended June 30, 2020. The
effective tax rate for the nine months ended June 30, 2021 was 23.4%, while the
effective tax rate for the nine months ended June 30, 2020 was 20.9%.

See "Note 5. Income Taxes" of the Notes to Condensed Consolidated Financial Statements for the primary factors impacting our effective tax rates.

Corrugated Packaging Segment

Corrugated Packaging Shipments


Corrugated Packaging shipments are expressed as a tons equivalent, which
includes external and intersegment tons shipped from our Corrugated Packaging
mills plus Corrugated Packaging container shipments converted from billion
square feet ("BSF") to tons. We have presented the Corrugated Packaging
shipments in two groups: North American and Brazil / India because we believe
investors, potential investors, securities analysts and others find this
breakout useful when evaluating our operating performance. The table below
reflects shipments in thousands of tons, BSF and millions of square feet
("MMSF") per shipping day. The number of shipping days vary by geographic
location.





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North American Corrugated Packaging Shipments



                                    First        Second         Third       Nine Months      Fourth         Fiscal
                                   Quarter       Quarter       Quarter      Ended 6/30       Quarter         Year
Fiscal 2020
North American Corrugated
Packaging

Shipments - thousands of tons 2,591.2 2,618.8 2,504.4

    7,714.4       2,504.4       10,218.8
North American Corrugated
Containers
  Shipments - BSF                      23.9          23.8          23.2            70.9          24.9           95.8
North American Corrugated
Containers Per
  Shipping Day - MMSF                 385.9         371.2         369.3           375.4         388.0          378.6

Fiscal 2021
North American Corrugated
Packaging

Shipments - thousands of tons 2,519.3 2,485.2 2,582.7

    7,587.2
North American Corrugated
Containers
  Shipment - BSF                       25.4          24.7          25.3            75.4
North American Corrugated
Containers Per
  Shipping Day - MMSF                 416.7         391.5         402.0           403.2



Brazil / India Corrugated Packaging Shipments



                                                                         Nine
                                   First       Second     Third         Months        Fourth      Fiscal
                                  Quarter      Quarter   Quarter      Ended 6/30     Quarter       Year
Fiscal 2020
Brazil / India Corrugated
Packaging
  Shipments - thousands of tons      168.1       182.5      176.4          527.0        185.1       712.1
Brazil / India Corrugated
Containers
  Shipments - BSF                      1.7         1.6        1.6            4.9          1.9         6.8
Brazil / India Corrugated
Containers Per
  Shipping Day - MMSF                 22.9        21.3       21.0           21.7         24.3        22.4

Fiscal 2021
Brazil / India Corrugated
Packaging
  Shipments - thousands of tons      156.8       183.9      194.9          535.6
Brazil / India Corrugated
Containers
  Shipments - BSF                      1.8         1.9        1.9            5.6
Brazil / India Corrugated
Containers Per
  Shipping Day - MMSF                 23.5        24.5       26.0           24.6






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Corrugated Packaging Segment - Net Sales and Income




(In millions, except percentages)                        Segment        Return
                                     Net Sales (1)       Income        on Sales

Fiscal 2020
First Quarter                       $       2,909.5$   283.4            9.7 %
Second Quarter                              2,882.5         244.5            8.5
Third Quarter                               2,728.8         227.9            8.4
Nine Months Ended June 30, 2020             8,520.8         755.8            8.9
Fourth Quarter                              2,898.4         281.9            9.7
Total                               $      11,419.2$ 1,037.7            9.1 %

Fiscal 2021
First Quarter                       $       2,864.5$   215.0            7.5 %
Second Quarter                              2,913.4         205.3            7.0
Third Quarter                               3,167.1         321.7           10.2

Nine Months Ended June 30, 2021$ 8,945.0$ 742.0

 8.3 %



(1) Net sales before intersegment eliminations.

Net Sales (Aggregate) - Corrugated Packaging Segment


Net sales of the Corrugated Packaging segment increased $438.3 million in the
third quarter of fiscal 2021 compared to the prior year quarter. The increase
primarily consisted of $257.5 million of higher selling price/mix, $175.3
million of higher volumes and $13.9 million of favorable foreign currency
impacts. Volumes in the third quarter of fiscal 2020 were negatively impacted by
COVID-19. Record third quarter North American per day box shipments during the
third quarter of fiscal 2021 increased 8.9% compared to the prior year period.

Net sales of the Corrugated Packaging segment increased $424.2 million in the
nine months ended June 30, 2021 compared to the prior year period. The increase
primarily consisted of $312.1 million of higher selling price/mix and $143.8
million of higher volumes that was partially offset by $35.2 million of
unfavorable foreign currency impacts. Volumes were negatively impacted by $77.0
million and $39.9 million due to the ransomware incident and winter weather,
respectively, in the second quarter of fiscal 2021. Volumes in the prior year
period were negatively impacted by COVID-19, primarily in the third quarter.
Record North American per day box shipments during the nine month period ended
June 30, 2021 increased 6.5% compared to the prior year period.

Segment Income - Corrugated Packaging Segment




Segment income attributable to the Corrugated Packaging segment in the third
quarter of fiscal 2021 increased $93.8 million primarily due to $257.5 million
of margin impact from higher selling price/mix and $40.1 million of higher
volumes that were partially offset by an estimated $124.3 million of net cost
inflation and a $33.3 million reduction in productivity compared to the prior
year period and other items. Net cost inflation consisted primarily of higher
freight, energy, recovered fiber, chemical, virgin fiber and wage and other
costs. The third quarter of fiscal 2020 included approximately $27.5 million in
one-time recognition awards to our manufacturing and operations teammates
and increased costs for safety, cleaning and other items related to COVID-19
compared to $2.6 million of increased costs for safety, cleaning and other items
related to COVID-19 in the third quarter of fiscal 2021.



Segment income attributable to the Corrugated Packaging segment in the nine
months ended June 30, 2021 decreased $13.8 million compared to the prior year
period, primarily due to an estimated $282.4 million of net cost inflation,
$42.6 million of estimated impact from the ransomware incident, $27.8 million of
Hurricane Michael insurance recoveries net of direct costs and $25.1 million of
decreased indirect tax claims in Brazil both in the prior year period, $15.9
million of estimated impact from winter weather in the second quarter of fiscal
2021 and other items. These decreases were partially offset by $322.9 million of
margin impact from higher selling price/mix



                                       40

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on sales, $54.1 million of higher volumes excluding the Events, $22.0 million of
lower depreciation and amortization, primarily due to accelerated depreciation
incurred in the prior year period associated with the Florence, SC paper machine
project and the North Charleston, SC reconfiguration project and other items,
including higher segment income related to our North Charleston, SC mill and the
Florence, SC mill following last year's reconfiguration and paper machine
projects. Net cost inflation consisted primarily of higher recovered fiber,
energy, freight, chemical and wage and other costs that were partially offset by
lower virgin fiber compared to the prior year period. The impact of COVID-19
recognition awards to our manufacturing and operations teammates and increased
costs for safety, cleaning and other items related to COVID-19 for the nine
months ended June 30, 2020 was $27.5 million compared to $24.0 million in the
current year period.


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 BSF to tons. The shipment
data table excludes gypsum paperboard liner tons produced by Seven Hills
Paperboard LLC our joint venture in Lynchburg, VA since it is not consolidated.



                                     First        Second       Third       Nine Months      Fourth       Fiscal
                                    Quarter      Quarter      Quarter      Ended 6/30      Quarter        Year
Fiscal 2020
Consumer Packaging Shipments -
thousands
  of tons                              922.4        987.7        984.5         2,894.6        976.8       3,871.4

Fiscal 2021
Consumer Packaging Shipments -
thousands
  of tons                              940.4        913.0        987.4         2,840.8



Consumer Packaging Segment - Net Sales and Income






(In millions, except percentages)                       Segment       Return
                                     Net Sales (1)       Income      on Sales

Fiscal 2020
First Quarter                       $       1,536.9$   46.2           3.0 %
Second Quarter                              1,616.3         90.8           5.6
Third Quarter                               1,552.6         95.3           6.1
Nine Months Ended June 30, 2020             4,705.8        232.3           4.9
Fourth Quarter                              1,627.2         91.4           5.6
Total                               $       6,333.0$  323.7           5.1 %

Fiscal 2021
First Quarter                       $       1,595.1$   92.5           5.8 %
Second Quarter                              1,589.9         81.2           5.1
Third Quarter                               1,734.7        132.0           7.6

Nine Months Ended June 30, 2021$ 4,919.7$ 305.7 6.2 %

(1) Net sales before intersegment eliminations.

                                       41

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Net Sales (Aggregate) - Consumer Packaging Segment

The $182.1 million increase in net sales for the Consumer Packaging segment for the third quarter of fiscal 2021 compared to the prior year quarter was primarily due to $71.2 million of higher volumes, $71.2 million of higher selling price/mix and $39.7 million of favorable foreign currency impacts. Volumes in the third quarter of fiscal 2020 were negatively impacted by COVID-19.


The $213.9 million increase in net sales for the Consumer Packaging segment for
the nine months ended June 30, 2021 compared to the prior year period was
primarily due to $105.3 million of higher selling price/mix, $33.8 million of
higher volumes and $74.6 million of favorable foreign currency impacts. Volumes
were negatively impacted by $40.5 million and $31.7 million due to the
ransomware incident and winter weather, respectively, in the second quarter of
fiscal 2021. The prior year period was negatively impacted by COVID-19,
primarily in the third quarter.

Segment Income - Consumer Packaging Segment


Segment income attributable to the Consumer Packaging segment in the third
quarter of fiscal 2021 increased $36.7 million compared to the prior year
quarter primarily due to $59.7 million of margin impact from higher selling
price/mix, an estimated $48.0 million of productivity improvements and $17.9
million of higher volumes. These items were partially offset by an estimated
$76.0 million of net cost inflation and other items. Net cost inflation
consisted primarily of higher wage and other costs and higher chemical, freight,
energy, recovered fiber and virgin fiber costs. The third quarter of fiscal
2020 included approximately $20.5 million of one-time recognition awards to our
manufacturing and operations teammates and increased costs for safety, cleaning
and other items related to COVID-19 compared to $1.6 million of increased costs
for safety, cleaning and other items related to COVID-19 in the third quarter of
fiscal 2021.

Segment income attributable to the Consumer Packaging segment for the nine
months ended June 30, 2021 increased $73.4 million compared to the prior year
period primarily due to an estimated $105.3 million of productivity
improvements, $95.6 million of margin impact from higher selling price/mix,
$26.0 million of higher volumes, which excludes the impact of the Events, and
other items. These items were partially offset by an estimated $107.6 million of
net cost inflation, an estimated $14.1 million impact of winter weather, an
estimated $13.3 million impact of the ransomware incident, and other items. Net
cost inflation consisted primarily of higher wage and other costs and higher
chemical, freight, recovered fiber and energy costs, which were partially offset
by lower virgin fiber costs. The impact of COVID-19 recognition awards to our
manufacturing and operations teammates and increased costs for safety, cleaning
and other items related to COVID-19 for the nine months ended June 30, 2020 was
$20.5 million compared to $19.2 million in the current year period.

                        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 the sale of receivables under our accounts
receivable sales agreements, 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 11. Debt" of the Notes to
Condensed Consolidated Financial Statements and "Note 13. Debt" of the Notes to
Consolidated Financial Statements section in the Fiscal 2020 Form 10-K for more
information regarding our debt. Funding for our domestic operations in the
foreseeable future is expected to come from sources of liquidity within our
domestic operations, including cash and cash equivalents, and available
borrowings under our credit facilities. As such, our foreign cash and cash
equivalents are not expected to be a key source of liquidity to our domestic
operations.



Cash and cash equivalents were $549.8 million at June 30, 2021 and $251.1
million at September 30, 2020. Approximately two-fifths of the cash and cash
equivalents at June 30, 2021 was held outside of the U.S. The proportion of cash
and cash equivalents held outside of the U.S. generally varies from period to
period. At June 30, 2021 and September 30, 2020, total debt was $8,672.6 million
and $9,430.6 million, respectively, $565.7 million and $222.9 million of which
was short-term at June 30, 2021 and September 30, 2020, respectively. Included
in our total debt at June 30, 2021 was $196.6 million of non-cash
acquisition-related step-up. Total debt at June 30, 2021 decreased $758.0
million compared to September 30, 2020. Total debt was primarily impacted by net
cash provided by operating activities exceeding aggregate capital expenditures
and dividends.





                                       42
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At June 30, 2021, we had approximately $3.9 billion of availability under our
long-term committed credit facilities and cash and cash equivalents. Our primary
availability is under our revolving credit facilities and Receivables
Securitization Facility, the majority of which matures on November 21, 2024.
This liquidity may be used to provide for ongoing working capital needs and for
other general corporate purposes, including acquisitions, dividends and stock
repurchases. We have limited debt maturities prior to March 2022. However, on
August 2, 2021, we issued a notice of redemption pursuant to the indenture
governing $400 million of 4.9% bonds due March 2022 with a redemption date of
September 10, 2021. We expect to use cash and cash equivalents to redeem the
bonds and record a loss on extinguishment of debt of approximately $9 million.

Certain restrictive covenants govern our maximum availability under our credit
facilities. We test and report our compliance with these covenants as required
by these facilities and were in compliance with these covenants at June 30,
2021.

At June 30, 2021, we had $64.4 million of outstanding letters of credit not drawn upon.




We use a variety of working capital management strategies, including supply
chain financing ("SCF") programs, vendor financing and commercial card programs,
a monetization facility where we sell short-term receivables to a group of
third-party financial institutions and a receivables securitization facility. We
describe these programs below.

We engage in certain customer-based SCF programs to accelerate the receipt of
payment for outstanding accounts receivable from certain customers. Certain
costs of these programs are borne by the customer or us. Receivables transferred
under these customer-based supply chain financing programs generally meet the
requirements to be accounted for as sales in accordance with guidance under ASC
860, "Transfers and Servicing" resulting in derecognition of such receivables
from our consolidated balance sheets. Receivables involved with these
customer-based supply chain finance programs constitute less than 3% of our
annual net sales. In addition, we have monetization facilities that sell to
third-party financial institutions all of the short-term receivables generated
from certain customer trade accounts. See "Note 10. Fair Value - Accounts
Receivable Sales Agreements" for a discussion of our monetization facilities.

Our working capital management strategy includes working with our suppliers to
revisit terms and conditions, including the extension of payment terms. Our
current payment terms with the majority of our suppliers generally range from
payable upon receipt to 120 days and vary for items such as the availability of
cash discounts. We do not believe our payment terms will be shortened
significantly in the near future, and we do not expect our net cash provided by
operating activities to be significantly impacted by additional extensions of
payment terms. Certain financial institutions offer voluntary SCF programs that
enable our suppliers, at their sole discretion, to sell their receivables from
us to the financial institutions on a non-recourse basis at a rate that
leverages our credit rating and thus might be more beneficial to our suppliers.
We and our suppliers agree on commercial terms for the goods and services we
procure, including prices, quantities and payment terms, regardless of whether
the supplier elects to participate in SCF programs. The suppliers sell us goods
or services and issue the associated invoices to us based on the agreed-upon
contractual terms. The due dates of the invoices are not extended due to the
supplier's participation in SCF programs. Our suppliers, at their sole
discretion if they choose to participate in a SCF program, determine which
invoices, if any, they want to sell to the financial institutions. No guarantees
are provided by us under SCF programs and we have no economic interest in a
supplier's decision to participate in the SCF program. Therefore, amounts due to
our suppliers that elect to participate in SCF programs are included in the line
item accounts payable and accrued expenses in our consolidated balance sheet and
the activity is reflected in net cash provided by operating activities in our
consolidated statements of cash flows. Based on correspondence with the
financial institutions that are involved with our two primary SCF programs,
while the amount suppliers elect to sell to the financial institutions varies
from period to period, the amount generally averages approximately 15% of our
accounts payable balance.

We also participate in certain vendor financing and commercial card programs to
support our travel and entertainment expenses and smaller vendor purchases.
Amounts outstanding under these programs are classified as debt primarily
because we receive the benefit of extended payment terms and a rebate from the
financial institution that we would not have otherwise received without the
financial institutions' involvement. We also have a receivables securitization
facility (as defined herein) that allows for borrowing availability based on the
eligible underlying accounts receivable and compliance with certain covenants.
See "Note 11. Debt" for additional information for a discussion of our
receivables securitization facility and the amount outstanding under our vendor
financing and commercial card programs.



                                       43

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Cash Flow Activity



                                               Nine Months Ended
(In millions)                                      June 30,
                                              2021          2020

Net cash provided by operating activities $ 1,602.4$ 1,339.0 Net cash used for investing activities $ (385.5 )$ (825.4 ) Net cash used for financing activities $ (941.3 )$ (352.1 )





Net cash provided by operating activities during the nine months ended June 30,
2021 increased $263.4 million compared to the nine months ended June 30, 2020,
primarily due to $301.5 million of favorable working capital compared to the
prior year period, including the payment of certain fiscal 2020 bonuses and the
Company's 401(k) match and annual company contribution (i.e. up to 5% and 2.5%,
respectively) in the form of stock, rather than cash, and deferral of certain
payroll taxes in connection with the WestRock Pandemic Action Plan.

Net cash used for investing activities of $385.5 million in the nine months
ended June 30, 2021 consisted primarily of $505.4 million for capital
expenditures that were partially offset by $58.5 million of proceeds from the
sale of the Summerville, SC sawmill and $29.5 million of proceeds from the sale
of investments. Net cash used for investing activities of $825.4 million in the
nine months ended June 30, 2020 consisted primarily of $860.2 million for
capital expenditures that were partially offset by $22.5 million of proceeds
from the sale of property, plant and equipment.

We started up a new paper machine at our Florence, SC mill in October 2020 and
expect to ramp up to full production by the end of fiscal 2021. The Tres Barras
mill upgrade project is complete and we expect to ramp up production by the end
of the calendar year. We expect fiscal 2021 capital investments to be $800
million to $900 million, which is higher than the estimates that we incorporated
into the WestRock Pandemic Action Plan due to investments that we subsequently
identified in specific growth projects. At these capital investment levels, we
are confident that we will continue to invest in the appropriate safety,
environmental and maintenance projects, and complete our strategic mill projects
while also making investments to support productivity and growth in our
business. However, it is possible that our capital expenditure assumptions may
change, project completion dates may change, or we may decide to invest a
different amount depending upon opportunities we identify, or changes in market
conditions, or to comply with environmental or other regulatory changes.

In the nine months ended June 30, 2021, net cash used for financing activities
of $941.3 million consisted primarily of a net decrease in debt of $777.1
million and cash dividends paid to stockholders of $169.8 million. In the nine
months ended June 30, 2020, net cash used for financing activities of $352.1
million consisted primarily of cash dividends paid to stockholders of $292.6
million and a net decrease in debt of $57.8 million.

On July 30, 2021, our board of directors declared a quarterly dividend of $0.24
per share. On May 4, 2021, our board of directors declared a quarterly dividend
of $0.24 per share, an increase of $0.04 per share, or 20%, from the then
existing rate and representing a $0.96 per share annualized dividend. The
decision to increase our dividend reflects the confidence we have in our
business and our ability to generate strong cash flow, as well as the progress
we have made in reducing debt since we began implementing the WestRock Pandemic
Action Plan. In May 2021, February 2021 and November 2020, we paid a quarterly
dividend of $0.24, $0.20 and $0.20 per share, respectively, compared to $0.20,
$0.465 and $0.465 per share in May 2020, February 2020 and November 2019,
respectively. We believe that reducing our dividend in May 2020 was prudent
given the uncertain market conditions at the time driven by COVID-19 and that
the reduction has allowed us to allocate additional cash to pay down our
outstanding debt. Our short-term goal has been to reduce debt and leverage and
return capital to stockholders through a competitive annual dividend. Longer
term, our capital allocation priorities include (i) investing in our business,
(ii) consistently growing our dividend, (iii) maintaining our investment grade
profile, (iv) pursue tuck-in acquisitions that clearly align to our strategy and
generate attractive returns and (v) opportunistic share repurchases.

At June 30, 2021, the U.S. federal, state and foreign net operating losses and
other U.S. federal and state tax credits available to us aggregated
approximately $78 million in future potential reductions of U.S. federal, state
and foreign cash taxes. Based on our current projections, we expect to utilize
nearly all of the remaining U.S.



                                       44

--------------------------------------------------------------------------------


federal net operating losses and other U.S. federal credits during the current
fiscal year. Foreign and state net operating losses and credits will be used
over a longer period of time. Our cash tax rate is highly dependent on our
taxable income, utilization of net operating losses and credits, changes in tax
laws or tax rates, capital expenditures and other factors. Barring significant
changes in our current assumptions, including changes in tax laws or tax rates,
forecasted taxable income, levels of capital expenditures and other items, we
expect our cash tax rate to be slightly higher than our income tax rate in
fiscal 2021 and fiscal 2022 primarily due to the absence of certain nonrecurring
tax credits, the expected release of a non-cash tax reserve and the reduction in
capital investments, including the timing of depreciation on our qualifying
capital investments as allowed under the Tax Cuts and Jobs Act.



Our pension plans in the U.S. are overfunded and we have a pension asset of
approximately $0.5 billion on our condensed consolidated balance sheet as of
June 30, 2021. We made contributions of $15.6 million to our pension and
supplemental retirement plans during the nine months ended June 30, 2021. Based
on current facts and assumptions, we expect to contribute approximately $22
million to our U.S. and non-U.S. pension plans in fiscal 2021. 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
Protection Act of 2006 (the "Pension Act") and other regulations. Our estimates
are based on current factors, such as discount rates and expected return on plan
assets. It is possible that our assumptions may change, actual market
performance may vary or we may decide to contribute different amounts.



In the normal course of business, we evaluate our potential exposure to MEPPs,
including with respect to potential withdrawal liabilities. During fiscal 2018,
we submitted formal notification to withdraw from PIUMPF and Central States, and
recorded estimated withdrawal liabilities for each. We also have liabilities
associated with other MEPPs that we, or legacy companies, have withdrawn.
Currently, we pay approximately $14 million a year in withdrawal liabilities,
excluding accumulated funding deficiency demands. With respect to certain other
MEPPs, in the event we withdraw from one or more of the MEPPs in the future, it
is reasonably possible that we may incur withdrawal liabilities in connection
with such withdrawals. Our estimate of any such withdrawal liabilities, both
individually and in the aggregate, are not material for the remaining plans in
which we participate.



At June 30, 2021 and September 30, 2020, we had withdrawal liabilities recorded
of $250.7 million and $252.0 million, respectively, including liabilities
associated with PIUMPF. See "Note 4. Retirement Plans - MEPPs" of the Notes to
Condensed Consolidated Financial Statements section for more information
regarding these liabilities. See also Item 1A. "Risk Factors - We May Incur
Withdrawal Liability and/or Increased Funding Requirements in Connection with
MEPPs" in our Fiscal 2020 Form 10-K.

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 accounts receivable sales agreements, 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.

Guarantor Summarized Financial Information

WRKCo, Inc. (the "Issuer"), a wholly owned subsidiary of Parent (as defined below), has issued the following debt securities pursuant to offerings registered under the Securities Act of 1933, as amended (collectively for purposes of this subsection, the "Notes"):





                                       45
--------------------------------------------------------------------------------



 Aggregate Principal
       Amount                  Stated
    (in millions)           Coupon Rate           Maturity Date              Referred to as:

$                 500              3.000 %     September 2024           the 2024 Notes
$                 600              3.750 %     March 2025               the 2025 Notes
$                 750              4.650 %     March 2026               the 2026 Notes
$                 500              3.375 %     September 2027           the 2027 Notes
$                 600              4.000 %     March 2028               the 2028 Notes
$                 500              3.900 %     June 2028                the June 2028 Notes
$                 750              4.900 %     March 2029               the 2029 Notes
$                 500              4.200 %     June 2032                the 2032 Notes
$                 600              3.000 %     June 2033                the June 2033 Notes




Upon issuance, the Notes maturing in 2024, 2025, 2027 and March 2028 were fully
and unconditionally guaranteed by the Guarantor Subsidiaries. On November 2,
2018, in connection with the consummation of the KapStone Acquisition, Whiskey
Holdco, Inc. became the direct parent of the Issuer, changed its name to
WestRock Company ("Parent") and fully and unconditionally guaranteed these
Notes. The remaining Notes were issued by the Issuer subsequent to the
consummation of the KapStone Acquisition and were fully and unconditionally
guaranteed at the time of issuance by Parent and the Guarantor Subsidiaries.
Accordingly, each series of the Notes is fully and unconditionally guaranteed on
a joint and several basis by Parent and the Guarantor Subsidiaries (together,
the "Guarantors"). Collectively, the Issuer and the Guarantors are the "Obligor
Group".



Each series of Notes and the related guarantees constitute unsecured
unsubordinated obligations of the applicable obligor. Each series of Notes and
the related guarantees ranks equally in right of payment with all of the
applicable obligor's existing and future unsecured and unsubordinated debt;
ranks senior in right of payment to all of the applicable obligor's existing and
future subordinated debt; is effectively junior to the applicable obligor's
existing and future secured debt to the extent of the value of the assets
securing such debt; and is structurally subordinated to all of the existing and
future liabilities of each subsidiary of the applicable obligor (that is not
itself an obligor) that does not guarantee such Notes.



The indentures governing each series of Notes contain covenants that, among
other things, limit our ability and the ability of our subsidiaries to grant
liens on our assets and enter into sale and leaseback transactions. In addition,
the indentures limit, as applicable, the ability of the Issuer and Guarantors to
merge, consolidate or sell, convey, transfer or lease our or their properties
and assets substantially as an entirety. The covenants contained in the
indentures do not restrict the Company's ability to pay dividends or
distributions to stockholders.



The guarantee obligations of the Guarantors under the Notes are also subject to
certain limitations and terms similar to those applicable to other guarantees of
similar instruments, including that (i) the guarantees are subject to fraudulent
transfer and conveyance laws and (ii) the obligations of each Guarantor under
its guarantee of each series of Notes will be limited to the maximum amount as
will result in the obligations of such Guarantor under its guarantee of such
Notes not to be deemed to constitute a fraudulent conveyance or fraudulent
transfer under federal or state law.



Under each indenture governing one or more series of the Notes, a Guarantor
Subsidiary will be automatically and unconditionally released from its guarantee
upon consummation of any transaction permitted under the applicable indenture
resulting in such Guarantor Subsidiary ceasing to be an obligor (either as
issuer or guarantor). Under the indentures, the guarantee of Parent will be
automatically released and will terminate upon the merger of Parent with or into
the Issuer or another guarantor, the consolidation of Parent with the Issuer or
another guarantor or the transfer of all or substantially all of the assets of
Parent to the Issuer or a guarantor. In addition, if the Issuer exercises its
defeasance or covenant defeasance option with respect to the Notes of a series
in accordance with the terms of the applicable indenture, each guarantor will be
automatically and unconditionally released from its guarantee of the Notes of
such series and all its obligations under the applicable indenture.





                                       46

--------------------------------------------------------------------------------





The Issuer and each Guarantor is a holding company that conducts substantially
all of its business through subsidiaries. Accordingly, repayment of the Issuer's
indebtedness, including the Notes, is dependent on the generation of cash flow
by the Issuer's and each Guarantor's subsidiaries, as applicable, and their
ability to make such cash available to the Issuer and the Guarantors, as
applicable, by dividend, debt repayment or otherwise. The Issuer's and the
Guarantors' subsidiaries may not be able to, or be permitted to, make
distributions to enable them to make payments in respect of their obligations,
including with respect to the Notes in the case of the Issuer and the guarantees
in the case of the Guarantors. Each of the Issuer's and the Guarantors'
subsidiaries is a distinct legal entity and, under certain circumstances, legal
and contractual restrictions may limit the Issuer's and the Guarantors' ability
to obtain cash from their subsidiaries. In the event that the Issuer and the
Guarantors do not receive distributions from their subsidiaries, the Issuer and
the Guarantors may be unable to make required principal and interest payments on
their obligations, including with respect to the Notes and the guarantees.



Pursuant to amended Rule 3-10 of Regulation S-X, the summarized financial
information below is presented for the Obligor Group on a combined basis after
the elimination of intercompany balances and transactions among the Obligor
Group and equity in earnings from and investments in the non-Guarantor
Subsidiaries. The summarized financial information below should be read in
conjunction with the Company's unaudited condensed consolidated financial
statements contained herein, as the summarized financial information may not
necessarily be indicative of results of operations or financial position had the
subsidiaries operated as independent entities.

© Edgar Online, source Glimpses

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