Graphic Packaging Holding Co: Form 10-Q for the period ended Sep 30, 2025

INTRODUCTION

This management's discussion and analysis of financial conditions and results of operations is intended to assist you in understanding the Company's past performance, financial condition and prospects. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 along with the Condensed Consolidated Financial Statements and related notes included in and referred to within this report.

OVERVIEW OF BUSINESS

Graphic Packaging is a leading global producer of consumer goods packaging made from renewable or recycled materials. The Company designs and manufactures sustainable packaging solutions including cartons, multipack cartons, trays, carriers and paperboard canisters, as well as cups and bowls, made primarily from unbleached paperboard, recycled paperboard and bleached paperboard. Paperboard used in its packaging solutions comes from wood fiber, a renewable resource, and from recovered (reused) fiber. Graphic Packaging's consumer packaging is designed to be recycled, and the Company works across the value chain to make it easier for people to recycle. With this focus, the Company plays an active role in support of the move to a more circular economy and a sustainable future for generations to come. Graphic Packaging's commitment to reducing the environmental impact of everyday consumer packaging is fundamental to the Company's strategy, goals and business purpose.

The Company serves a wide variety of consumer markets, from food and beverage, to foodservice, household products, beauty and health care. Graphic Packaging produces packaging solutions at over 100 locations in over 20 countries around the world, serving customers and brands ranging from local to multinational consumer products companies and retailers. The Company offers one of the most comprehensive ranges of packaging design, manufacturing and execution capabilities available. Graphic Packaging manufactures a significant amount of the paperboard that it uses to produce packaging solutions, primarily where it believes that self-manufacture provides it with a competitive advantage and allows the Company to deliver better, more consistent results for customers. The Company currently manufactures most of the paperboard it consumes in the Americas and purchases the majority of the paperboard it consumes in its International Paperboard Packaging operations from third parties.

Graphic Packaging works closely with its customers to understand their needs and goals and to create new and innovative designs customized to their specific needs. The Company's approach serves to build and strengthen long-term relationships with purchasing, brand management, marketing and other key customer functions. The Company is organized to bring the full resources of its global and local innovation, design, and manufacturing capabilities to all of its customers with the goal of delivering packaging solutions that are more circular, more functional and more convenient.

The Company competes with a wide range of packaging companies whose primary raw materials are paperboard, plastic, multi-layer laminates, shrink film, paper, corrugated board, bio-based materials and other packaging materials. While circularity and sustainability are increasingly important to customers' purchase decisions, the Company also competes on the basis of product innovation, price and execution capabilities. Many of the Company's multi-year supply contracts include terms which provide for the pass through of certain costs including raw materials, energy, labor and other manufacturing costs with the intention of reducing exposure to the volatility of these costs, many of which are outside of the Company's control.

The Company is implementing strategies to (i) develop and market innovative packaging products and applications that benefit from consumer-led sustainability trends; (ii) expand market share in its current markets and to identify and penetrate new markets; (iii) capitalize on the Company's customer relationships, business competencies and manufacturing facilities; and (iv) continue to reduce costs and drive productivity through operational improvements. The Company's ability to fully implement its strategies and achieve its objectives may be influenced by a variety of factors, many of which are beyond its control. Graphic Packaging cannot predict with any certainty the impact that rising interest rates, a global or regional recession or higher inflation may have on its customers or suppliers. Additionally, it is unable to predict the potential effects that any future pandemic or other global health emergency, widespread military and geopolitical conflicts, or other social and political unrest or change, including in Eastern Europe, Africa and the Middle East and related sanctions or market disruptions, may have on its business.

Acquisitions and Dispositions

• The Company closed its Middletown, Ohio, recycled paperboard manufacturing facility in May 2025.
• On May 1, 2024, the Company completed the sale of its Augusta, Georgia bleached paperboard manufacturing facility (the "Augusta Divestiture") to Clearwater Paper Corporation for a total consideration of $711 million.
• During 2024, the Company decided to close multiple packaging facilities by the end of 2024 and early 2025. These are in addition to the multiple packaging facilities that the Company closed by the end of 2023 and early 2024. Production from these facilities has been consolidated into other existing packaging facilities. Current Assets on the Condensed Consolidated Balance Sheet include $12 million relating to multiple packaging facilities that met the held for sale criteria as of September 30, 2025.

RESULTS OF OPERATIONS

In millions

THIRD QUARTER 2025 COMPARED TO THIRD QUARTER 2024

Net Sales

The components of the change in Net Sales are as follows:

In millions

The Company's Net Sales for the three months ended September 30, 2025 decreased by $26 million, or 1%, to $2,190 million from $2,216 million for the three months ended September 30, 2024, due to lower pricing and volumes in the Americas, partially offset by modestly positive volumes in International, and a favorable foreign currency exchange of $24 million. Innovation sales growth was $52 million, driven by sales of the Company's sustainable consumer packaging solutions. Lower packaging sales in the beverage and foodservice markets were partially offset by higher packaging sales in the health and beauty market, while packaging sales in the food and household markets were relatively flat.

Income from Operations

Income from Operations for the three months ended September 30, 2025 decreased $44 million, or 16%, to $234 million from $278 million for the three months ended September 30, 2024, due to lower packaging price, modestly lower packaging volumes and commodity inflation (including energy, chemicals, purchased materials and logistics, partially offset by secondary fiber and wood) of $9 million. Other costs, including labor and benefits inflation, were more than offset by savings from continuous improvement and other programs and productivity improvements. The impact of foreign currency exchange was relatively flat. Income from Operations was also favorably impacted by the weather and power issues in 2024 that did not recur in 2025.

Interest Expense, Net

Interest Expense, Net was $53 million and $58 million for the three months ended September 30, 2025 and 2024, respectively. Interest Expense, Net decreased primarily due to an increase in capitalized interest because of the Waco project. We capitalized interest of $17 million and $9 million for the three months ended September 30, 2025 and 2024, respectively. As of September 30, 2025, approximately 33% of the Company's total debt was subject to floating interest rates.

Income Tax Expense

During the three months ended September 30, 2025, the Company recognized Income Tax Expense of $40 million on Income before Income Taxes of $181 million. The effective tax rate for the three months ended September 30, 2025 is different from the statutory rate primarily due to a discrete tax benefit of $6 million related to the remeasurement of the Company's German net deferred tax liabilities as a result of a statutory tax rate reduction enacted during the period. In addition, the Company's effective tax rate is impacted by the mix of earnings between foreign and domestic jurisdictions, including those with and without valuation allowances.

During the three months ended September 30, 2024, the Company recognized Income Tax Expense of $55 million on Income before Income Taxes of $219 million. The effective tax rate for the three months ended September 30, 2024 is different from the statutory rate primarily due to the benefit from purchased tax credits in addition to the mix of earnings between foreign and domestic jurisdictions, including those with and without valuation allowances.

FIRST NINE MONTHS OF 2025 COMPARED TO FIRST NINE MONTHS OF 2024

Net Sales

The components of the change in Net Sales are as follows:

In millions

The Company's Net Sales for the nine months ended September 30, 2025 decreased by $198 million, or 3%, to $6,514 million from $6,712 million for the nine months ended September 30, 2024 due to the Augusta Divestiture in 2024, and reduced open market paperboard volumes and pricing of bleached paperboard and lower pricing, partially offset by favorable foreign currency exchange of $17 million. Packaging volumes were flat. Innovation sales growth was $157 million, driven by conversions to our sustainable consumer packaging solutions. Lower packaging sales in the beverage market were offset by higher packaging sales in the health and beauty market, while packaging sales in the food, foodservice and household markets were relatively flat.

Income from Operations

Income from Operations for the nine months ended September 30, 2025 decreased $232 million, or 26%, to $648 million from $880 million for the nine months ended September 30, 2024, due to the Augusta Divestiture in 2024 (which included a gain of $75 million), reduced open market paperboard volumes and pricing of bleached paperboard, lower packaging price, and commodity inflation (including purchased materials, energy, and logistics, partially offset by secondary fiber and wood) of $39 million. Other costs, including labor and benefits inflation, were more than offset by savings from continuous improvement and other programs and productivity improvements. Income from Operations was also favorably impacted by a reduction in accelerated depreciation of $8 million related to the closures of several packaging and paperboard facilities (refer to "Note 12 - Exit Activities" in the Notes to Condensed Consolidated Financial Statements for additional information), favorable foreign currency exchange ($4 million), and by the weather and power issues in 2024 that did not recur in 2025. Excluding the gain from the Augusta Divestiture in 2024, Income from Operations was favorably impacted by a reduction in charges for Business Combinations, Exit Activities and Other Special Items of $5 million. See "Note 1 - General Information" in the Notes to Condensed Consolidated Financial Statements for further information.

Interest Expense, Net

Interest Expense, Net was $157 million and $177 million for the nine months ended September 30, 2025 and 2024, respectively. Interest Expense, Net decreased primarily due to an increase in capitalized interest primarily due to the Waco project. We capitalized interest of $46 million and $21 million for the nine months ended September 30, 2025 and 2024, respectively.

Income Tax Expense

During the nine months ended September 30, 2025, the Company recognized Income Tax Expense of $118 million on Income before Income Taxes of $490 million. The effective tax rate for the nine months ended September 30, 2025 is different from the statutory tax rate primarily due to a discrete tax benefit of $6 million related to the remeasurement of the Company's German net deferred tax liabilities as a result of a statutory rate reduction enacted during the period as well as a tax benefit of $2 million related to excess tax benefits on restricted stock units that vested during the period. In addition, the Company's effective tax rate is impacted by the mix of earnings between foreign and domestic jurisdictions, including those with and without valuation allowances.

During the nine months ended September 30, 2024, the Company recognized Income Tax Expense of $182 million on Income before Income Taxes of $701 million. The effective tax rate for the nine months ended September 30, 2024 is different from the statutory rate primarily due to the write-off of non-deductible book goodwill associated with the Augusta Divestiture and a benefit from purchased tax credits as well as discrete tax adjustments, including a tax benefit of $3 million related to excess tax benefits on restricted stock units that vested during the period, and the mix of earnings between foreign and domestic jurisdictions, including those with and without valuation allowances.

Segment Reporting

During the first quarter of 2025, the Company realigned its financial reporting structure under two reportable segments, Americas Paperboard Packaging and International Paperboard Packaging. This structure aligns with how the Chief Operating Decision Maker ("CODM") measures segment operating results, allocates resources among the segments and assesses segment performance.

The Company's reportable segments are as follows:

Americas Paperboard Packaging includes paperboard packaging sold primarily to consumer packaged goods ("CPG") companies serving the food, beverage, and consumer product markets and cups, lids and food containers sold primarily to foodservice companies and quick-service restaurants ("QSR") in the Americas.

International Paperboard Packaging includes paperboard packaging sold primarily to CPG companies serving the food, beverage and consumer product markets, including healthcare and beauty, outside of the Americas.

The Company allocates internally sourced paperboard margin and corporate costs to the reportable segments to appropriately represent the economics of these segments. The Corporate and Other caption, which does not meet the criteria of a reportable segment, includes the unallocated corporate costs and the Paperboard Manufacturing operating segment. The effect of intercompany transfers to the paperboard packaging segments has been eliminated from the Corporate and Other caption to reflect the economics of the integration of these segments.

The Company's CODM evaluates each segment based primarily on Income from Operations. The accounting policies of the reportable segments are the same as those described in "Note 1 - General Information" in the Notes to Condensed Consolidated Financial Statements.

In millions

(a) Includes revenue from the sale of paperboard to third parties.

(b) Includes accelerated depreciation related to exit activities in 2025 and 2024. See "Note 12 - Exit Activities" in the Notes to Condensed Consolidated Financial Statements for further information.

(c) Includes expenses related to business combinations, exit activities and other special items. See "Note 1 - General Information" in the Notes to Condensed Consolidated Financial Statements for further information.

(d) Includes gain from Augusta Divestiture in 2024. See "Note 13 - Divestitures" in the Notes to Condensed Consolidated Financial Statements for further information.

2025 COMPARED TO 2024

Third Quarter 2025 Compared to Third Quarter 2024

Americas Paperboard Packaging

Net Sales decreased due to lower pricing and lower packaging sales in the food, beverage, foodservice and household markets, partially offset by innovation sales growth driven by conversions to our sustainable consumer packaging solutions. The impact of foreign currency exchange was relatively flat.

Income from Operations decreased due to lower pricing and higher commodity cost and other inflation (primarily labor and benefits) offset by net performance, including cost savings from continuous improvement and other programs and productivity improvements. Income from Operations was also favorably impacted by reductions in accelerated depreciation and charges related to the closures of several packaging facilities (refer to "Note 12 - Exit Activities" in the Notes to Condensed Consolidated Financial Statements for additional information) and by the weather and power issues in 2024 that did not recur in 2025.

International Paperboard Packaging

Net Sales increased due to innovation sales growth driven by conversions to our sustainable consumer packaging solutions and higher packaging volumes and favorable foreign currency exchange, partially offset by lower pricing and mix. Higher packaging sales were in the food, beverage, foodservice, household and health and beauty markets.

Income from Operations decreased due to lower pricing and higher commodity cost and other inflation (primarily labor and benefits), partially offset by higher packaging volumes and cost savings from continuous improvement and other programs, including benefits from capital projects, and productivity improvements. The impact of foreign currency exchange was relatively flat.

First Nine Months of 2025 Compared to First Nine Months of 2024

Americas Paperboard Packaging

Net Sales decreased due to lower pricing, lower packaging volumes, and unfavorable foreign currency exchange, partially offset by innovation sales growth driven by conversions to our sustainable consumer packaging solutions. Lower packaging sales were in the food, beverage and household markets, while foodservice market was relatively flat.

Income from Operations decreased due to lower pricing , lower packaging volumes, and higher commodity cost and other inflation (primarily labor and benefits), offset by net performance, including cost savings from continuous improvement and other programs and productivity improvements. Income from Operations was also favorably impacted by reductions in accelerated depreciation and charges related to the closures of several packaging facilities (refer to "Note 12 - Exit Activities" in the Notes to Condensed Consolidated Financial Statements for additional information) and by the weather and power issues in 2024 that did not recur in 2025.

International Paperboard Packaging

Net Sales increased due to innovation sales growth driven by conversions to our sustainable consumer packaging solutions, higher packaging volumes and favorable foreign currency exchange, partially offset by lower pricing and mix. Higher packaging sales were in the food, foodservice, household and health and beauty markets, while the beverage market was relatively flat.

Income from Operations decreased due to lower pricing and commodity inflation and other inflation (primarily labor and benefits) offset by higher packaging volumes and cost savings from continuous improvement and other programs, including benefits from capital projects, and productivity improvements. The impact of foreign currency exchange was relatively flat.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company broadly defines liquidity as its ability to generate sufficient funds from both internal and external sources to meet its obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

Cash Flows

In millions

31

Net cash provided by operating activities for the first nine months of 2025 totaled $320 million compared to $351 million for the same period in 2024. The decrease was mainly due to lower income from operations and a higher use of cash to fund working capital in 2025 as compared to 2024. Pension contributions for the first nine months of 2025 and 2024 were $9 million and $11 million, respectively.

Net cash used in investing activities for the first nine months of 2025 totaled $736 million compared to $102 million for the same period in 2024. The Company had capital spending of $808 million ($669 million was capitalized, of which $628 million was for adding capacity and improving process capabilities, $12 million for capital spares and $29 million for manufacturing packaging machinery) and $893 million ($840 million was capitalized) in 2025 and 2024, respectively. The elevated levels of capital spending were driven by the construction of the Company's new recycled paperboard manufacturing facility in Waco, Texas. For more information on the construction of the new recycled paperboard manufacturing facility in Waco, Texas, and continued investments made as part of the integration of acquisitions, see "Note 12 - Exit Activities" in the Notes to Condensed Consolidated Financial Statements. Net cash receipts related to the accounts receivable securitization and sale programs were $91 million and $83 million in 2025 and 2024, respectively. In the prior year, the Company completed the sale to Clearwater Paper Corporation of the Augusta Paperboard Manufacturing Facility on May 1, 2024 for total cash consideration of $711 million. For further discussion of the Augusta Divestiture, see "Note 13 - Divestitures" in the Notes to Condensed Consolidated Financial Statements.

Net cash provided by financing activities for the first nine months of 2025 totaled $366 million compared to $280 million used in the same period in 2024. On May 29, 2025, the Company completed a $100 million tax-exempt green bond transaction through Mission Economic Development Corporation's Private Activity Bond Program (the "Green Bonds"). The net proceeds of $99 million were used to fund a portion of the construction of the Company's new recycled paperboard manufacturing facility in Waco, Texas. For more information on the Green Bonds, see "Note 3 - Debt" in the Notes to Condensed Consolidated Financial Statements. Current year activities also include borrowings under revolving credit facilities primarily for capital spending, repurchase of common stock of $150 million and payments on debt of $9 million. The Company also paid dividends of $96 million and withheld $34 million of restricted stock units to satisfy tax withholding obligations related to the payout of restricted stock units. Prior year financing activities included new incremental term facilities consisting of a $50 million Incremental Term A-5 Facility and a $200 million Incremental Term A-6 Facility, and an offering of $500 million aggregate principal amount of 6.375% Senior Unsecured Notes due 2032. The net proceeds were used by the Company to repay a portion of the outstanding borrowings under its senior secured revolving credit facility. The Company also drew $400 million and $300 million from the senior secured domestic revolving credit facilities and used the proceeds, together with cash on hand, to redeem it's 0.821% Senior Notes and its 4.125% Senior Notes due in 2024. For further discussion of the Company's debt and redemptions, see "Note 3 - Debt" in the Notes to Condensed Consolidated Financial Statements. In the prior year, the Company also made borrowings under revolving credit facilities primarily for capital spending, repurchase of common stock of $200 million and payments on debt of $19 million. The Company also paid dividends and distributions of $91 million and withheld $24 million of restricted stock units to satisfy tax withholding payments related to the payout of restricted stock units.

Supplemental Guarantor Financial Information

As discussed in "Note 3 - Debt" in the Notes to Consolidated Financial Statements, the Senior Notes issued by Graphic Packaging International, LLC ("GPIL" or the "Issuer") are guaranteed by Graphic Packaging International Partners, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("GPIP") and certain domestic subsidiaries (the "Subsidiary Guarantors"), which consist of all material 100% owned subsidiaries of the issuer other than its foreign subsidiaries and foreign subsidiary holding companies (collectively "the Guarantors"). GPIL's remaining subsidiaries (the "Nonguarantor Subsidiaries") include all of GPIL's foreign subsidiaries and immaterial domestic subsidiaries. The Subsidiary Guarantors are jointly and severally, fully and unconditionally liable under the guarantees.

The results of operations, assets and liabilities for GPHC and GPIL are substantially the same. The summarized financial information below is presented on a combined basis, consisting of the Issuer and Subsidiary Guarantors (collectively, the "Obligor Group"), and is presented after the elimination of: (i) intercompany transactions and balances among the Issuer and Subsidiary Guarantors, and (ii) equity in earnings from and investments in the Nonguarantor Subsidiaries.

In millions

(a) Includes Net Sales to Nonguarantor Subsidiaries of $499 million.

In millions

Liquidity and Capital Resources

The Company expects its material cash requirements for the next three months will be for: capital spending, periodic required income tax payments, periodic interest and debt service payments on associated debt, as discussed in "Note 5 - Debt" of the Notes to Consolidated Financial Statements of the Company's 2024 Annual Report on Form 10-K, lease agreements which have fixed lease payment obligations, as discussed in "Note 6 - Leases" of the Notes to Consolidated Financial Statements of the Company's 2024 Annual Report on Form 10-K, and minimum purchase commitments as discussed in "Note 13 - Commitments" of the Notes to Consolidated Financial Statements of the Company's 2024 Annual Report on Form 10-K along with ongoing operating costs, working capital, share repurchases and dividend payments. The Company expects its primary sources of liquidity to be cash flows from sales and operating activities in the normal course of operations and availability from its revolving credit facilities, as needed. The Company expects that these sources will be sufficient to fund ongoing cash requirements for the foreseeable future, including at least the next twelve months.

Principal and interest payments under the term loan facilities and the revolving credit facilities, together with principal and interest payments on the Company's 4.00% Green Bonds due 2026, 5.00% Green Bonds due 2030, 1.512% Senior Notes due 2026, 4.75% Senior Notes due 2027, 3.50% Senior Notes due 2028, 3.50% Senior Notes due 2029, 2.625% Senior Notes due 2029, 3.75% Senior Notes due 2030 and 6.375% Notes due 2032 (the "Notes"), represent liquidity requirements for the Company. Based upon current levels of operations, anticipated cost savings and expectations as to future growth, the Company believes that cash generated from operations, together with amounts available under its revolving credit facilities and other available financing sources, will be adequate to permit the Company to meet its debt service obligations, necessary capital spending program requirements and ongoing operating costs and working capital needs, although no assurance can be given in this regard. The Company's future financial and operating performance, ability to service or refinance its debt and ability to comply with the covenants and restrictions contained in its debt agreements (see "Covenant Restrictions" below) will be subject to future economic conditions, including conditions in the credit markets, and to financial, business and other factors, many of which are beyond the Company's control, and will be substantially dependent on the selling prices and demand for the Company's products, raw material and energy costs and the Company's ability to successfully implement its overall business and profitability strategies.

Accounts receivable are stated at the amount owed by the customer, net of an allowance for estimated uncollectible accounts, returns and allowances, and cash discounts. The allowance for doubtful accounts is estimated based on historical experience, current economic conditions and the creditworthiness of customers. Receivables are charged to the allowance when determined to be no longer collectible.

The Company engages with third-party financial institutions to sell certain trade accounts receivable from customers. Transfers under these agreements meet the requirements to be accounted for as sales of receivables in accordance with the Transfers and Servicing topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification"). The receivables sold are reflected as a reduction of accounts receivable on the Condensed Consolidated Balance Sheets at the time of sale. The corresponding proceeds are reflected in Cash Flows from Operating Activities within the Condensed Consolidated Statements of Cash Flows. Receivables related to the Company's European program are sold in exchange for cash and a Beneficial Interest, therefore, a portion of the proceeds are reflected as "Beneficial Interest on Sold Receivables" and "Beneficial Interest Obtained in Exchange for Proceeds" in Cash Flows from Investing Activities within the Condensed Consolidated Statements of Cash Flows. The loss on sale for all programs is included in Other Expense, Net in the Condensed Consolidated Statements of Operations.

The following table summarizes the activity under these programs for the nine months ended September 30, 2025 and 2024, respectively:

In millions

(a) Included in Other Current Assets on the Condensed Consolidated Balance Sheets and represents a beneficial interest in the receivables sold to the financial institutions, which is a Level 3 fair value measure.

Receivables sold under all programs subject to continuing involvement, which consists principally of collection services, were $809 million and $778 million as of September 30, 2025 and December 31, 2024, respectively.

The Company also participates in supply chain financing arrangements offered by certain customers that qualify for sale accounting in accordance with the Transfers and Servicing topic of the FASB Codification. For the nine months ended September 30, 2025 and 2024, the Company sold receivables of $828 million and $793 million, respectively, related to these arrangements.

The fees associated with the sale of receivables for all programs were $14 million and $43 million for the three and nine months ended September 30, 2025, respectively, and $16 million and $49 million for the three and nine months ended September 30, 2024, respectively, and are included in Other Expense, Net in the Condensed Consolidated Statements of Operations.

The Company has arranged a supplier finance program ("SFP") with a financial intermediary, which provides certain suppliers the option to be paid by the financial intermediary earlier than the due date on the applicable invoice. The transactions are at the sole discretion of both the suppliers and financial institution, and the Company is not a party to the agreements and has no economic interest in the supplier's decision to sell a receivable. The range of payment terms negotiated by the Company with its suppliers is consistent, irrespective of whether a supplier participates in the program. The agreement with the financial intermediary does not require the Company to provide assets pledged as security or other forms of guarantees for the SFP. Amounts due to the Company's suppliers that elected to participate in the SFP program are included in Accounts Payable on the Company's Condensed Consolidated Balance Sheets and payments made under the SFP program are reflected in Cash Flows from Operating Activities in the Company's Condensed Consolidated Statements of Cash Flows. Accounts Payable included $32 million and $30 million to suppliers who elected to participate in the SFP program as of September 30, 2025 and December 31, 2024, respectively.

Covenant Restrictions

Covenants contained in the Current Credit Agreement and the Indentures may, among other things, limit the Company's ability to incur additional indebtedness, dispose of assets, incur guarantee obligations, prepay other indebtedness, repurchase shares, pay dividends and make other restricted payments, create liens, make equity or debt investments, make acquisitions, modify terms of the Indentures under which the Notes are issued, engage in mergers or consolidations, change the business conducted by the Company and its subsidiaries and engage in certain transactions with affiliates. Such restrictions, as well as disruptions in the credit markets, could limit the Company's ability to respond to changing market conditions, fund its capital spending program, provide for unexpected capital investments or take advantage of business opportunities.

Under the terms of the Current Credit Agreement, the Company must comply with a maximum Consolidated Total Leverage Ratio covenant and a minimum Consolidated Interest Expense Ratio covenant.

The Current Credit Agreement requires that the Company maintain a maximum Consolidated Total Leverage Ratio of less than 4.25 to 1.00. At September 30, 2025, the Company was in compliance with such covenant and the ratio was 3.76 to 1.00.

The Company must also comply with a minimum Consolidated Interest Expense Ratio of 3.00 to 1.00. At September 30, 2025, the Company was in compliance with such covenant and the ratio was 6.93 to 1.00.

As of September 30, 2025, the Company's credit was rated BB+ by Standard & Poor's and Ba1 by Moody's Investor Services. Standard & Poor's and Moody's Investor Services' ratings on the Company included a stable outlook.

Environmental Matters

Some of the Company's current and former facilities are the subject of environmental investigations and remediations resulting from historical operations and the release of hazardous substances or other constituents. Some current and former facilities have a history of industrial usage for which investigation and remediation obligations may be imposed in the future or for which indemnification claims may be asserted against the Company. Also, closures or sales of facilities may necessitate further investigation and may result in remediation at those facilities. The Company has established reserves for those facilities or issues where a liability is probable and the costs are reasonably estimable. The Company believes that the amounts accrued for its loss contingencies, and the reasonably possible loss beyond the amounts accrued, are not material to the Company's consolidated financial position, results of operations or cash flows.

For further discussion of the Company's environmental matters, see "Note 8 - Environmental and Legal Matters" in the Notes to Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates, and changes in these estimates are recorded when known. The critical accounting policies used by management in the preparation of the Company's Condensed Consolidated Financial Statements are those that are important both to the presentation of the Company's financial condition and results of operations and require significant judgments by management with regard to estimates used.

The Company's most critical accounting policies, which require significant judgment or involve complex estimations, are described in the Company's 2024 Annual Report on Form 10-K for the year ended December 31, 2024.

The Company performed its annual goodwill impairment tests as of October 1, 2024. The Company concluded that all reporting units with goodwill have a fair value that exceeds their carrying value, and thus goodwill was not impaired. The Europe reporting unit had a fair value that exceeded its respective carrying value by 24%, whereas all other reporting units exceeded by more than 69%. The Europe reporting unit had goodwill totaling $534 million at September 30, 2025.

NEW ACCOUNTING STANDARDS

For a discussion of recent accounting pronouncements impacting the Company, see "Note 1 - General Information" in the Notes to Condensed Consolidated Financial Statements.

For a discussion of certain market risks related to the Company, see Part II, "Item 7A, Quantitative and Qualitative Disclosure about Market Risk", in the Company's 2024 Annual Report on Form 10-K for the year ended December 31, 2024.

The Company is exposed to changes in interest rates, primarily as a result of its short-term and long-term debt, which include both fixed and floating rate debt. The Company uses interest rate swap agreements effectively to fix the SOFR rate on certain variable rate borrowings. At September 30, 2025, the Company had active interest rate swap agreements with a combined notional amount of $500 million, expiring on May 1, 2027.

Evaluation of Disclosure Controls and Procedures

The Company's management has carried out an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended. Based upon such evaluation, management has concluded that the Company's disclosure controls and procedures were effective as of September 30, 2025.

Changes in Internal Control over Financial Reporting

There was no change in the Company's internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2025 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

There have been no material changes from the risk factors previously disclosed in the Company's 2024 Annual Report on Form 10-K for the year ended December 31, 2024.