Noncash Item – Goodwill Savannah GA http://goodwillsavannahga.org/ Wed, 24 Nov 2021 06:12:04 +0000 en-US hourly 1 https://wordpress.org/?v=5.8 https://goodwillsavannahga.org/wp-content/uploads/2021/04/cropped-goodwill-32x32.png Noncash Item – Goodwill Savannah GA http://goodwillsavannahga.org/ 32 32 SPECTRUM BRANDS HOLDINGS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K) https://goodwillsavannahga.org/spectrum-brands-holdings-inc-managements-discussion-and-analysis-of-financial-position-and-operating-results-form-10-k/ Tue, 23 Nov 2021 23:14:04 +0000 https://goodwillsavannahga.org/spectrum-brands-holdings-inc-managements-discussion-and-analysis-of-financial-position-and-operating-results-form-10-k/
The following is management's discussion of the financial results, liquidity and
other key items related to our performance and should be read in conjunction
with our Consolidated Financial Statements and related notes included elsewhere
in this Annual Report. The following is a combined report of SBH and SB/RH, and
the following discussion includes SBH and certain matters related to SB/RH as
signified below. Unless the context indicates otherwise, the terms the
"Company," "we," "our" or "us" are used to refer to SBH and its subsidiaries and
SB/RH and its subsidiaries, collectively.
Business Overview
The following section provides a general description of our business as well as
recent developments for the years ended September 30, 2021, 2020, and 2019,
which we believe are important to understanding our results of operations,
financial condition, and understanding anticipated future trends. Refer to Item
1 - Business and Note 1 - Description of Business in Notes to the Consolidated
Financial Statements, included elsewhere in this Annual Report for an overview
of our business.
COVID-19
The COVID-19 pandemic and the resulting regulations and other disruptions to
both demand and supply may have a substantial impact on the commercial
operations of the Company or impairment of the Company's net assets. Such
impacts may include, but are not limited to, volatility of demand for our
products, disruptions and cost implications in manufacturing and supply
arrangements, inability of third parties to meet obligations under existing
arrangements, and significant changes to the political and economic environments
in which we manufacture, sell, and distribute our products.
During the years ended September 30, 2020 and 2021, and as of the date of this
report, we have been and continue to be classified as an essential business in
the jurisdictions that have mandated closures of non-essential businesses, and
therefore have been allowed to remain open and continue to operate to the extent
possible under existing regulations with any limitation in production output
being short-term in nature. Despite the supply implications in the prior year,
the Company has experienced continued customer demand. While demand for our
products generally has not been negatively impacted, our teams continue to
monitor demand disruption and there can be no assurance as to the level of
demand that will prevail following the year ended September 30, 2021. A large
portion of our customers continue to operate and sell our products, with some
customers having experienced reduced operations due to closures or reduced store
hours. There have also been changes in consumer needs and spending during the
COVID-19 pandemic, which have resulted in a limited number of change orders and
reduced spending. Currently, we have not identified, and will continue to
monitor for, any substantive risk attributable to customer credit and have not
experienced a significant impact from store closures or retail bankruptcies. We
believe the severity and duration of the COVID-19 pandemic to be uncertain and
may contribute to retail volatility and consumer purchase behavior changes. The
magnitude of the financial impact on our results is highly dependent on the
duration of the COVID-19 pandemic and how quickly the U.S. and global economies
resume normal operations.
The COVID-19 pandemic has not, as of the date of this report, had a materially
negative impact on the Company's liquidity position. The sweeping nature of
COVID-19 pandemic makes it extremely difficult to predict the long-term
ramifications on our financial condition and results of operations. However, the
likely overall economic impact of the COVID-19 pandemic to the U.S. and global
economies remains uncertain. We continue to generate operating cash flows to
meet our short-term liquidity needs, and we expect to maintain access to the
capital markets, although there can be no assurance of our ability to do so. We
have also not observed any material impairments of our assets due to the
COVID-19 pandemic.
We expect the ultimate significance of the impact on our financial condition,
results of operations, and cash flows will be dictated by the length of time
that such circumstances continue, which will ultimately depend on the
unforeseeable duration and severity of the COVID-19 pandemic and any
governmental and public actions taken in response.
Acquisitions
The Company periodically evaluates strategic transactions that may result in the
acquisition of a business or assets that qualify as recognition of a business
combination. Acquisitions may impact the comparability of the consolidated or
segment financial information with the inclusion of operating results for the
acquired business in periods subsequent to acquisition date, the inclusion of
acquired assets, both tangible and intangible (including goodwill), and the
related amortization or depreciation of acquired assets. Moreover, the
comparability of consolidated or segment financial information may be impacted
by incremental costs to facilitate the transaction and supporting integration
activities of the acquired operations with the consolidated group.
During the year ended September 30, 2021, the Company entered into the following
acquisition activity:
•On May 28, 2021, the Company acquired all ownership interests in FLP for a
purchase price of $301.5 million. FLP is a leading manufacturer of household
cleaning, maintenance, and restoration products sold under the Rejuvenate®
brand. The net assets and operating results of FLP are included in the Company's
Consolidated Statements of Income and reported within the H&G reporting segment
for the year ended September 30, 2021, effective the acquisition date of May 28,
2021.
•On October 26, 2020, the Company completed the acquisition of Armitage for
$187.7 million. Armitage is a premium pet treats and toys business in
Nottingham, United Kingdom including a portfolio of brands that include
Armitage's dog treats brand, Good Boy®, cat treats brand, Meowee!®, and
Wildbird® bird feed products, among others, that are predominantly sold within
the United Kingdom. The net assets and results of operations of Armitage are
included in the Company's Consolidated Statements of Income and reported within
the GPC reporting segment for the year ended September 30, 2021, effective the
acquisition date of October 26, 2020.
During the year ended September 30, 2020, the Company entered into the following
acquisition activity:
•On March 10, 2020, the Company acquired Omega Sea, LLC ("Omega"), a
manufacturer and marketer of premium fish foods and consumable goods for the
home and commercial aquarium markets, primarily consisting of the Omega brand,
for a purchase price of approximately $16.9 million. The net assets and results
of operations of Omega are included in the Company's Consolidated Statements of
Income and reported within GPC reporting segment for the years ended September
30, 2020 and September 30, 2021, effective the acquisition date of March 10,
2020.
There was no acquisition activity during the year ended September 30, 2019. See
Note 4 - Acquisitions in the Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for further discussion pertaining to
the referenced acquisition activity.

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Disposals

The Company periodically evaluates strategic transactions that may result in the
divestiture of a business or assets that may impact the comparability of
consolidated or segment financial information. Certain divestitures may be
classified separately from continuing operations if they are considered a
strategic shift to the consolidated group, which results in the operating
results and any realized gain or loss from the divestiture to be presented as a
component of income from discontinued operations for all comparable periods in
the Consolidated Financial Statements. Divestitures that do not qualify as
discontinued operations result in he gain or loss from the divestiture being
recognized as part of continuing operations. Further, the comparability of
consolidated or segment financial information may be impacted by incremental
costs to facilitate the transaction and related separation activities of the
divested business, including any subsequent restructuring of the consolidated
group.
During the year ended September 30, 2021, the Company entered into the following
divestiture activity:
•On September 8, 2021, the Company entered into the Purchase Agreement with ASSA
to sell its HHI segment for cash proceeds of $4.3 billion, subject to customary
purchase price adjustments. The consummation of the transaction is subject to
customary conditions, including the absence of a material adverse effect of HHI
and certain antitrust conditions or other governmental restrictions, amongst
others, and is anticipated to be consummated during the year ended September 30,
2022. The Company's assets and liabilities associated with HHI have been
classified as held for sale and the HHI operations have been classified as
discontinued operations and are reported separately for all periods presented.
During the year ended September 30, 2020, the Company entered into the following
divestiture activity:
•On March 29, 2020, the Company completed the sale of its DCF production
facility and distribution center in Coevorden, Netherlands with United Petfood
Producers NV ("UPP") for cash proceeds of $29.0 million, resulting in a loss on
assets held for sale of $26.8 million during the year ended September 30, 2020.
The loss was recognized as a component of continuing operations and operating
income within the Company's GPC segment. The Company continues to operate its
commercial DCF business following the divestiture and is supplied by UPP through
a manufacturing agreement and distribution agreement. Additionally, the Company
recognized an impairment on intangible assets of $7.6 million due to the
incremental cash flow risk associated with the commercial DCF business following
the divestiture.
During the year ended September 30, 2019, the Company entered into the following
divestiture activity:
•On January 2, 2019, the Company completed the sale of its GBL business pursuant
to the GBL acquisition agreement with Energizer for cash proceeds of
$1,956.2 million, resulting in the recognition of a pre-tax gain on sale of
$989.8 million during the year ended September 30, 2019. The results of
operations and gain on sale for disposal of the GBL business are recognized as a
component of income from discontinued operations for all comparable periods.
Prior to the completion of the GBL divestiture, the Company changed its plan to
sell its GBA segment, consisting of both the GBL and HPC businesses, and
recognized the net assets of HPC as held for use and included component of
continuing operations as a separate reporting segment for all comparable
periods. As a result, the Company recognized $29.0 million of incremental
depreciation and amortization for cumulative depreciation and amortization on
HPC long-lived assets not previously recognized while held for sale.
•On January 28, 2019, the Company completed the sale of its GAC business
pursuant to the GAC acquisition agreement with Energizer for $1.2 billion,
consisting of $938.7 million in cash proceeds and $242.1 million in stock
consideration of common stock of Energizer, resulting in the loss on sale of
business of $111.0 million. The results of operations and write-down of net
assets held for sale for the disposal of the GAC business were recognized as a
component of discontinued operations. Realized and unrealized gains and losses
on the common stock investment in Energizer was recognized as Other
Non-Operating Expense (Income), net on the Company's Consolidated Statement of
Income.
See Note 3 - Divestitures in Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for further discussion pertaining to
the referenced divestiture activity.
Restructuring Activity
We continually seek to improve our operational efficiency, match our
manufacturing capacity and product costs to market demand and better utilize our
manufacturing resources. We have undertaken various initiatives to reduce
manufacturing and operating costs, which may have a significant impact on the
comparability of financial results on the consolidated financial statements. The
most significant of these initiatives is the Global Productivity Improvement
Program, which began during the year ended September 30, 2019 and is anticipated
to continue through the fiscal year ending September 30, 2022. See Note 5 -
Restructuring and Related Charges in the Notes to the Consolidated Financial
Statements, included elsewhere in this Annual Report, for further discussion
pertaining to restructuring and related activity.
Refinancing Activity
The following recent financing activity has a significant impact on the
comparability of financial results on the consolidated financial statements.
•During the year ended September 30, 2021, the Company completed its offering of
$500.0 million aggregate principal amount of its 3.875% Notes and entered into a
new Term Loan Facility in the aggregate principal amount of $400.0 million on
March 3, 2021. The Company also redeemed $250.0 million of the 6.125% Notes and
$550.0 million of the 5.75% Notes, with a call premium of $23.4 million and
non-cash write-off of unamortized debt issuance costs of $7.9 million recognized
as interest expense.
•During the year ended September 30, 2020, the Company (1) entered into the
Amended and Restated Credit Agreement (the "Credit Agreement"), which refinanced
the Company's previously existing credit facility, extending the maturity,
reducing the revolving facility under the Credit Agreement from $890 million to
$600 million, and changing interest rate margins; (2) issued $300 million of its
5.50% Senior Unsecured Notes; and (3) completed the tender and call of its
6.625% Notes with an outstanding principal of $117.4 million initiated in the
previous year, with a premium of $1.5 million and non-cash write-off of
unamortized debt issue costs of $1.1 million recognized as interest expense.
•During the year ended September 30, 2019, the Company (1) repaid $452.6 million
of its 6.625% Notes with an outstanding principal of $570.0 million, consisting
of a repayment of $285.0 million on March 31, 2019 plus a repayment of $167.6
million on September 24, 2019 using proceeds from the GAC divestitures, with a
premium of $9.2 million and non-cash write-off of unamortized debt issue cost of
$5.0 million recognized as interest expense; (2) issued $300.0 million of 5.00%
Senior Unsecured Notes due September 2029; (3) repaid $890.0 million of its
7.75% Senior Unsecured Notes in full on January 30, 2019 using proceeds received
from the GBL and GAC divestitures with a premium of $17.2 million and non-cash
write-off of unamortized debt issue costs and discounts of $24.0 million
recognized as interest expense; (4) repaid its USD Term Loan in full on January
4, 2019 using proceeds received from the divestiture of GBL with a non-cash
write-off of unamortized debt issue costs of $6.6 million recognized as interest
expense; and (5) repaid its CAD Term Loan in full on October 31, 2018.

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See Note 12 - Debt in the Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for additional detail regarding debt
and refinancing activity.
Salus CLO
During the year ended September 30, 2020, the non-recourse debt under Salus CLO
were effectively discharged resulting in the recognition of a non-cash gain on
extinguishment of debt of $76.2 million. See Note 12 - Debt in Notes to the
Consolidated Financial Statements, included elsewhere in this Annual Report, for
more information.
Non-GAAP Measurements
Our consolidated and segment results contain non-GAAP metrics such as organic
net sales and Adjusted EBITDA (earnings before interest, taxes, depreciation,
amortization). While we believe organic net sales and Adjusted EBITDA are useful
supplemental information, such adjusted results are not intended to replace our
financial results in accordance with Accounting Principles Generally Accepted in
the United States ("GAAP") and should be read in conjunction with those GAAP
results.
Organic Net Sales. We define organic net sales as net sales excluding the effect
of changes in foreign currency exchange rates and/or impact from acquisitions
(where applicable). We believe this non-GAAP measure provides useful information
to investors because it reflects regional and operating segment performance from
our activities without the effect of changes in currency exchange rate and/or
acquisitions. We use organic net sales as one measure to monitor and evaluate
our regional and segment performance. Organic growth is calculated by comparing
organic net sales to net sales in the prior year. The effect of changes in
currency exchange rates is determined by translating the period's net sales
using the currency exchange rates that were in effect during the prior
comparative period. Net sales are attributed to the geographic regions based on
the country of destination. We exclude net sales from acquired businesses in the
current year for which there are no comparable sales in the prior period.
The following is a reconciliation of net sales to organic net sales of SBH and
SB/RH for the year ended September 30, 2021 compared to net sales for the year
ended September 30, 2020:


                                                                            September 30, 2021
                                                                               Net Sales
                                                        Effect of          Excluding Effect                                                      Net Sales
                                                        Changes in           of Changes in             Effect of             Organic           September 30,
(in millions, except %)             Net Sales            Currency              Currency              Acquisitions           Net Sales              2020                    Variance
HPC                                $ 1,260.1          $     (31.1)         $      1,229.0          $            -          $ 1,229.0          $    1,107.6          $ 121.4        11.0  %
GPC                                  1,129.9                (18.4)                1,111.5                   (99.5)           1,012.0                 962.6             49.4         5.1  %
H&G                                    608.1                    -                   608.1                   (23.2)             584.9                 551.9             33.0         6.0  %
Total                              $ 2,998.1          $     (49.5)         $      2,948.6          $       (122.7)         $ 2,825.9          $    2,622.1          $ 203.8         7.8  %



The following is a reconciliation of net sales to organic net sales of SBH and
SB/RH for the year ended September 30, 2020 compared to net sales for the year
ended September 30, 2019:


                                                                           September 30, 2020
                                                                               Net Sales
                                                        Effect of          Excluding Effect                                                      Net Sales
                                                       Changes in            of Changes in             Effect of             Organic           September 30,
(in millions, except %)            Net Sales            Currency               Currency              Acquisitions           Net Sales              2019                   Variance
HPC                               $ 1,107.6          $       18.9          $      1,126.5          $            -          $ 1,126.5          $    1,068.1          $  58.4        5.5  %
GPC                                   962.6                   1.1                   963.7                    (7.5)             956.2                 870.2             86.0        9.9  %
H&G                                   551.9                   0.1                   552.0                       -              552.0                 508.1             43.9        8.6  %
Total                             $ 2,622.1          $       20.1          $      2,642.2          $         (7.5)         $ 2,634.7          $    2,446.4          $ 188.3        7.7  %




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Adjusted EBITDA. Adjusted EBITDA is a non-GAAP metric used by management that we
believe provides useful information to investors because it reflects the ongoing
operating performance and trends of our segments, excluding certain non-cash
based expenses and/or non-recurring items during each of the comparable periods.
It also facilitates comparisons between peer companies since interest, taxes,
depreciation and amortization can differ greatly between organizations as a
result of differing capital structures and tax strategies. Adjusted EBITDA is
also used for determining compliance with the Company's debt covenants. See Note
12 - Debt in the Notes to the Consolidated Financial Statements, included
elsewhere in this Annual Report, for additional detail.
EBITDA is calculated by excluding the Company's income tax expense, interest
expense, depreciation expense and amortization expense (from intangible assets)
from net income. Adjusted EBITDA further excludes:
•Stock based and other incentive compensation costs that consist of costs
associated with long-term compensation arrangements and other equity based
compensation based upon achievement of long-term performance metrics under the
Company's Long-Term Incentive Plan ("LTIP"); and generally consist of non-cash,
stock-based compensation. During the years ended September 30, 2021, 2020, and
2019, other incentive compensation also includes incentive bridge awards issued
due to changes in the Company's LTIP that allowed for cash based payment upon
employee election but does not qualify for share-based compensation. All bridge
awards fully vested in November 2020. See Note 19 - Share Based Compensation in
Notes to the Consolidated Financial Statements, included elsewhere in this
Annual Report, for further details;
•Restructuring and related charges, which consist of project costs associated
with the restructuring initiatives across the Company's segments. See Note 5 -
Restructuring and Related Charges in Notes to the Consolidated Financial
Statements, included elsewhere in this Annual Report, for further details;
•Transaction related charges that consist of (1) transaction costs from
acquisitions or subsequent project costs directly associated with integration of
an acquired business with the consolidated group; and (2) transaction costs from
divestitures and subsequent project costs to facilitate separation of shared
operations, including development of transferred shared service operations,
platforms and personnel transferred, and exiting of transition service
arrangements (TSAs) and reverse TSAs. See Note 2 - Significant Accounting
Policies and Practices in Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for further details;
•Unallocated shared costs associated with discontinued operations from certain
shared and center-led administrative functions supporting the Company's business
units excluded from income from discontinued operations as they are not a direct
cost of the discontinued business but a result of indirect allocations,
including but not limited to, information technology, human resources, finance
and accounting, supply chain, and commercial operations. Amounts attributable to
unallocated shared costs would be mitigated through subsequent strategic or
restructuring initiatives, TSAs, elimination of extraneous costs or
re-allocation or absorption by existing continuing operations following the
completed sale of the discontinued operations. See Note 3 - Divestitures in
Notes to the Consolidated Financial Statements, included elsewhere in this
Annual Report for further details;
•Gains and losses attributable to the Company's investment in Energizer common
stock. During the year ended September 30, 2021, the Company sold its remaining
shares in Energizer common stock. See Note 7 - Fair Value of Financial
Instruments in Notes to the Consolidated Financial Statements, included
elsewhere in this Annual Report, for further details;
•Non-cash asset impairments or write-offs realized and recognized in earnings
from continuing operations;
•Non-cash purchase accounting inventory adjustments recognized in earnings from
continuing operations after an acquisition;
•Incremental reserves for non-recurring litigation or environmental remediation
activity including (1) proposed settlement on outstanding litigation matters at
our H&G division attributable to significant and unusual nonrecurring claims
with no previous history or precedent recognized during the year ended September
30, 2021, (2) environmental remediation reserves realized during the year ended
September 30, 2019 on legacy properties and former manufacturing sites assumed
by the organization which had previously been exited by the Company, and (3)
legal settlement costs associated with retained litigation from the Company's
divested GAC operations realized during the year ended September 30, 2019. See
Note 21 - Commitments and Contingencies in Notes to the Consolidated Financial
Statements included elsewhere in this Annual Report for further detail;
•Incremental costs realized under a three-year tolling agreement entered into
with the buyer in consideration with the divestiture of the Coevorden Operations
on March 29, 2020, for the continued production of dog and cat food products
purchased to support GPC commercial operations and distribution in Europe. See
Note 3 - Divestitures in Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for further detail;
•Gain on extinguishment of the Salus CLO debt due to the discharge of the
obligation during the year ended September 30, 2020. See Note 12 - Debt in Notes
to the Consolidated Financial Statements, included elsewhere in this Annual
Report, for further details;
•Foreign currency gains and losses attributable to multicurrency loans for the
year ended September 30, 2020 and 2019, that were entered into with foreign
subsidiaries in exchange for the receipt of divestiture proceeds by the parent
company and the distribution of the respective foreign subsidiaries' net assets
as part of the GBL and GAC divestitures; and
•Other adjustments primarily consisting of costs attributable to (1) incremental
fines and penalties realized for delayed shipments following the transition of a
third-party logistics service provider in GPC during the year ended September
30, 2021; (2) costs associated with Salus operations during the years ended
September 30, 2021, 2020 and 2019 as they are not considered a component of
continuing commercial products company; (3) expenses and cost recovery for flood
damage at the Company's facilities in Middleton, Wisconsin recognized during the
years ended September 30, 2020 and 2019; (4) incremental costs for separation of
a key executives during the years ended September 30, 2020 and 2019; (5) costs
associated with a safety recall in GPC during the year ended September 30, 2019;
(6) operating margin on H&G sales to GAC discontinued operations during the year
ended September 30, 2019; and (7) certain fines and penalties for delayed
shipments following the completion of a GPC distribution center consolidation in
EMEA during the year ended September 30, 2019.

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The following is a reconciliation of net income to Adjusted EBITDA for the years
ended September 30, 2021, 2020 and 2019 for SBH:
SPECTRUM BRANDS HOLDINGS, INC. (in
millions)                                       HPC                GPC                H&G            Corporate          Consolidated
Year Ended September 30, 2021
Net income from continuing operations       $    46.1          $   127.7          $   83.7          $  (242.2)         $       15.3
Income tax benefit                                  -                  -                 -              (26.4)                (26.4)
Interest expense                                    -                  -                 -              116.5                 116.5
Depreciation and amortization                    44.0               39.3              19.2               14.5                 117.0
EBITDA                                           90.1              167.0             102.9             (137.6)                222.4
Share and incentive based
compensation                                        -                  -                 -               29.4                  29.4
Restructuring and related charges                 9.1               15.2               0.4               15.6                  40.3
Transaction related charges                       3.4               16.5              10.8               25.6                  56.3
Unallocated shared costs                            -                  -                 -               26.9                  26.9
Gain on Energizer investment                        -                  -                 -               (6.9)                 (6.9)
Inventory acquisition step-up                       -                3.4               3.9                  -                   7.3
Legal and environmental remediation
reserves                                            -                  -               6.0                  -                   6.0
Coevorden tolling related charges                   -                6.2                 -                  -                   6.2
Other                                               -                3.8                 -                0.1                   3.9
Adjusted EBITDA                             $   102.6          $   212.1          $  124.0          $   (46.9)         $      391.8
Net Sales                                   $ 1,260.1          $ 1,129.9          $  608.1          $       -          $    2,998.1
Adjusted EBITDA Margin                            8.1  %            18.8  %           20.4  %               -                  13.1  %
Year Ended September 30, 2020
Net income (loss) from continuing
operations                                  $    42.9          $    44.9          $   91.2          $  (231.4)         $      (52.4)
Income tax expense                                  -                  -                 -               27.3                  27.3
Interest expense                                    -                  -                 -               93.7                  93.7
Depreciation and amortization                    35.2               44.4              20.4               14.7                 114.7
EBITDA                                           78.1               89.3             111.6              (95.7)                183.3
Share and incentive based
compensation                                        -                  -                 -               36.1                  36.1
Restructuring and related charges                 4.6               20.8               0.5               45.7                  71.6
Transaction related charges                       8.8               10.8                 -                3.5                  23.1
Unallocated shared costs                            -                  -                 -               17.4                  17.4
Loss on Energizer investment                        -                  -                 -               16.8                  16.8
Loss on sale of Coevorden operations                -               26.8                 -                  -                  26.8
Write-off from impairment of
intangible assets                                   -               24.2                 -                  -                  24.2
Foreign currency loss on
multicurrency divestiture loans                   0.6                  -                 -                3.2                   3.8
Salus CLO debt extinguishment                       -                  -                 -              (76.2)                (76.2)
Other                                             0.1                0.1                 -               (3.2)                 (3.0)
Adjusted EBITDA                             $    92.2          $   172.0          $  112.1          $   (52.4)         $      323.9
Net Sales                                   $ 1,107.6          $   962.6          $  551.9          $       -          $    2,622.1
Adjusted EBITDA Margin                            8.3  %            17.9  %           20.3  %               -                  12.4  %
Year Ended September 30, 2019
Net (loss) income from continuing
operations                                  $  (127.8)         $    63.4          $   84.9          $  (322.7)         $     (302.2)
Income tax benefit                                  -                  -                 -              (52.0)                (52.0)
Interest expense                                    -                  -                 -              158.4                 158.4
Depreciation and amortization                    64.6               48.8              19.3               14.6                 147.3
EBITDA                                          (63.2)             112.2             104.2             (201.7)                (48.5)
Share and incentive based
compensation                                        -                  -                 -               47.6                  47.6
Restructuring and related charges                 8.1                7.6               1.8               43.5                  61.0
Transaction related charges                       7.4                2.5                 -               11.0                  20.9
Unallocated shared cost                             -                  -                 -               15.7                  15.7
Loss on Energizer investment                        -                  -                 -               12.1                  12.1
Write-off from impairment of goodwill           116.0                  -                 -                  -                 116.0
Write-off from impairment of
intangible assets                                18.8               16.6                 -                  -                  35.4
Legal and environmental remediation
reserves                                            -                  -                 -               10.0                  10.0
Foreign currency loss on
multicurrency divestiture loans                     -                  -                 -               36.2                  36.2
Other                                             0.1                3.7              (0.5)               3.6                   6.9
Adjusted EBITDA                             $    87.2          $   142.6          $  105.5          $   (22.0)         $      313.3
Net Sales                                   $ 1,068.1          $   870.2          $  508.1          $       -          $    2,446.4
Adjusted EBITDA Margin                            8.2  %            16.4  %           20.8  %               -                  12.8  %


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The following is a reconciliation of net income to Adjusted EBITDA for the years ended. September 30, 2021, 2020 and 2019 for SB / RH:
SB / RH HOLDINGS, LLC (in millions)

              HPC                GPC                H&G            Corporate         Consolidated
Year Ended September 30, 2021
Net income from continuing
operations                                 $    46.1          $   127.7          $   83.7          $ (240.2)         $       17.3
Income tax benefit                                 -                  -                 -             (25.0)                (25.0)
Interest expense                                   -                  -                 -             116.8                 116.8
Depreciation and amortization                   44.0               39.3              19.2              14.5                 117.0
EBITDA                                          90.1              167.0             102.9            (133.9)                226.1
Share and incentive based
compensation                                       -                  -                 -              27.7                  27.7
Restructuring and related charges                9.1               15.2               0.4              15.6                  40.3
Transaction related charges                      3.4               16.5              10.8              25.6                  56.3
Unallocated shared costs                           -                  -                 -              26.9                  26.9
Gain on Energizer investment                       -                  -                 -              (6.9)                 (6.9)
Inventory acquisition step-up                      -                3.4               3.9                 -                   7.3
Legal and environmental remediation
reserves                                           -                  -               6.0                 -                   6.0
Coevorden tolling related charges                  -                6.2                 -                 -                   6.2
Other                                              -                3.8                 -               0.1                   3.9
Adjusted EBITDA                            $   102.6          $   212.1          $  124.0          $  (44.9)         $      393.8
Net Sales                                  $ 1,260.1          $ 1,129.9    

$ 608.1 $ – $ 2,998.1
Adjusted EBITDA margin

                           8.1  %            18.8  %           20.4  %              -                  13.1  %
Year Ended September 30, 2020
Net income (loss) from continuing
operations                                 $    42.9          $    44.9          $   91.2          $ (287.4)         $     (108.4)
Income tax expense                                 -                  -                 -              14.5                  14.5
Interest expense                                   -                  -                 -              93.2                  93.2
Depreciation and amortization                   35.2               44.4              20.4              14.7                 114.7
EBITDA                                          78.1               89.3             111.6            (165.0)                114.0
Share and incentive based
compensation                                       -                  -                 -              34.8                  34.8
Restructuring and related charges                4.6               20.8               0.5              45.7                  71.6
Transaction related charges                      8.8               10.8                 -               3.5                  23.1
Unallocated shared costs                           -                  -                 -              17.4                  17.4
Loss on Energizer investment                       -                  -                 -              16.8                  16.8
Loss on sale of Coevorden operations               -               26.8                 -                 -                  26.8
Write-off from impairment of
intangible assets                                  -               24.2                 -                 -                  24.2
Foreign currency loss on
multicurrency divestiture loans                  0.6                  -                 -               3.2                   3.8
Other                                            0.1                0.1                 -              (3.9)                 (3.7)
Adjusted EBITDA                            $    92.2          $   172.0          $  112.1          $  (47.5)         $      328.8
Net Sales                                  $ 1,107.6          $   962.6    

$ 551.9 $ – $ 2,622.1
Adjusted EBITDA margin

                           8.3  %            17.9  %           20.3  %              -  %               12.5  %
Year Ended September 30, 2019
Net (loss) income from continuing
operations                                 $  (127.8)         $    63.4          $   84.9          $ (281.8)         $     (261.3)
Income tax benefit                                 -                  -                 -             (36.1)                (36.1)
Interest expense                                   -                  -                 -             106.1                 106.1
Depreciation and amortization                   64.6               48.8              19.3              14.6                 147.3
EBITDA                                         (63.2)             112.2             104.2            (197.2)                (44.0)
Share and incentive based
compensation                                       -                  -                 -              47.2                  47.2
Restructuring and related charges                8.1                7.6               1.8              43.5                  61.0
Transaction related charges                      7.4                2.5                 -              11.0                  20.9
Unallocated shared cost                            -                  -                 -              15.7                  15.7
Loss on Energizer investment                       -                  -                 -              12.1                  12.1
Write-off from impairment of
goodwill                                       116.0                  -                 -                 -                 116.0
Write-off from impairment of
intangible assets                               18.8               16.6                 -                 -                  35.4
Legal and environmental remediation
reserves                                           -                  -                 -              10.0                  10.0
Foreign currency loss on
multicurrency divestiture loans                    -                  -                 -              36.2                  36.2
Other                                            0.1                3.7              (0.5)              0.8                   4.1
Adjusted EBITDA                            $    87.2          $   142.6          $  105.5          $  (20.7)         $      314.6
Net Sales                                  $ 1,068.1          $   870.2          $  508.1          $      -          $    2,446.4
Adjusted EBITDA Margin                           8.2  %            16.4  %           20.8  %              -                  12.9  %


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Consolidated Results of Operations
The following section provides an analysis of our operations for the years ended
September 30, 2021, 2020 and 2019.
SBH
The following is summarized consolidated results of operations for SBH for the
years ended September 30, 2021, 2020 and 2019, respectively:
(in millions, except %)               2021               2020                  Variance                  2020               2019                  Variance
Net sales                         $ 2,998.1          $ 2,622.1          $ 376.0        14.3  %       $ 2,622.1          $ 2,446.4          $ 175.7         7.2  %
Gross profit                        1,034.6              878.1            156.5        17.8  %           878.1              819.6             58.5         7.1  %
Gross profit margin                    34.5  %            33.5  %           100    bps                    33.5  %            33.5  %             -    

bps

Operating expenses                    937.5              869.5             68.0         7.8  %           869.5              972.0           (102.5)      (10.5) %
Interest expense                      116.5               93.7             22.8        24.3  %            93.7              158.4            (64.7)      (40.8) %
Other non-operating
(income) expense, net                  (8.3)              16.2            (24.5)           n/m            16.2               43.4            (27.2)      (62.7) %
Income tax (benefit)
expense                               (26.4)              27.3            (53.7)           n/m            27.3              (52.0)            79.3    

n / m

Net income (loss) from
continuing operations                  15.3              (52.4)            67.7            n/m           (52.4)            (302.2)           249.8     

n / m

Income from discontinued
operations, net of tax                174.3              150.9             23.4        15.5  %           150.9              798.0           (647.1)      (81.1) %
Net income                            189.6               98.5             91.1        92.5  %            98.5              495.8           (397.3)      (80.1) %
n/m = not meaningful


Net Sales. The following is a summary of net sales by segment for the years
ended September 30, 2021, 2020 and 2019 and the principal components of changes
in net sales for the respective periods.
(in millions, except %)                     2021               2020                  Variance                  2020               2019                  Variance
HPC                                     $ 1,260.1          $ 1,107.6          $ 152.5        13.8  %       $ 1,107.6          $ 1,068.1          $  39.5         3.7  %
GPC                                       1,129.9              962.6            167.3        17.4  %           962.6              870.2             92.4        10.6  %
H&G                                         608.1              551.9             56.2        10.2  %           551.9              508.1             43.8         8.6  %
Net Sales                               $ 2,998.1          $ 2,622.1            376.0        14.3  %       $ 2,622.1          $ 2,446.4            175.7         7.2  %


(in millions)                                                            2021               2020
Net Sales for the year ended September 30, 2020 and 2019,
respectively                                                         $ 2,622.1          $ 2,446.4
Increase due to acquisition                                              122.7                7.5
Increase in HPC                                                          121.4               58.4
Increase in GPC                                                           49.4               86.0
Increase in H&G                                                           33.0               43.9
Foreign currency impact, net                                              49.5              (20.1)

Net sales for the year ended September 30, 2021 and 2020, respectively

                                                         $ 

2 998.1 $ 2,622.1



Gross Profit. Gross profit for the year ended September 30, 2021 increased
primarily due to higher sales volume with increased productivity, favorable mix
with incremental product and input costs partially offset by pricing
adjustments. Gross profit for the year ended September 30, 2020 increased with
no change in margin, primarily due to increased sales volume with incremental
product and input costs including tariffs, offset by productivity, favorable
product mix and pricing adjustments.
Operating Expenses. Operating expenses for the year ended September 30, 2021
increased due to higher selling expenses of $78.3 million attributable to higher
freight and distribution costs and higher marketing and advertising spend,
increased general and administrative costs of $26.3 million and increased
transaction related charges of $33.2 million due to strategic acquisition and
divestiture activities; offset by a decrease in restructuring costs of $19.4
million with loss from sale of Coevorden facility of $26.8 million and
impairment of related intangible assets of $24.2 million in the prior year.
Operating expenses for the year ended September 30, 2020 decreased due to the
impairment of HPC goodwill of $116.0 million and impairment of intangible assets
of $35.4 million in the previous year with offsets by the recognition of loss
from sale of Coevorden facility of $26.8 million and impairment of related
intangible assets $24.2 million. See Note 2 - Significant Accounting Policies
and Practices and Note 5 - Restructuring and Related Charges in the Notes to the
Consolidated Financial Statements included elsewhere in this Annual Report for
additional detail on transaction and restructuring related charges.
Interest Expense. Interest expense for the year ended September 30, 2021
increased due to one-time refinancing charges offset by lower average borrowing
rates. Interest expense for the year ended September 30, 2020 decreased due to
lower borrowings and average interest rates during the period. See Note 12 -
Debt in Notes to the Consolidated Financial Statements included elsewhere in
this Annual Report.
Other Non-Operating Expense, Net. Other non-operating expense, net for the year
ended September 30, 2021 decreased due to realized gains on the investment in
Energizer common stock which was fully liquidated in January 2021. Other
non-operating expense, net for the year ended September 30, 2020 decreased
primarily due to foreign currency losses in the previous year related to
multicurrency loans with foreign subsidiaries associated with the GBL and GAC
divestitures and realized and unrealized losses on the investment in Energizer
common stock. See Note 7 - Fair Value of Financial Instruments in the Notes to
the Consolidated Financial Statements included elsewhere in this Annual Report
for additional detail.

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Income Taxes. The effective tax rate was 237.8% for the year ended September 30,
2021 compared to 108.8% for the year ended September 30, 2020 and 14.7% for the
year ended September 30, 2019. Pretax income from continuing operations in the
year ended September 30, 2021 was close to breakeven and therefore many items
have a sizeable impact on the effective tax rate. Our annual effective tax rate
is significantly impacted by income earned outside the U.S. that is subject to
U.S. tax including the U.S. tax on global intangible low taxed income, certain
nondeductible expenses, state income taxes, and foreign rates that differ from
the U.S. federal statutory rate. The year ended September 30, 2021 tax expense
was significantly impacted by valuation allowance release, tax expense due to an
increase to the United Kingdom's future tax rate, and tax benefits from
retroactive law changes for global intangible low taxed income. See Note 16 -
Income Taxes in Notes to the Consolidated Financial Statements, included
elsewhere in this Annual Report for additional detail.
Income From Discontinued Operations. Discontinued operations includes the
results of operations, financial position and cash flows for the GBL and GAC
divisions sold during the year ended September 30, 2019, effective January 2,
2019 and January 28, 2019, respectively, plus the operations, financial position
and cash flows for HHI for all comparable periods, with the HHI disposal group
being held for sale as of September 30, 2021.
Income from discontinued operations, net of tax increased during the year ended
September 30, 2021 due to increased income from operations of HHI driven by
strong consumer demand and new product innovation driving sales growth across
retail, e-commerce and new build channels coupled with fulfillment of prior year
retail inventory rebuild when the prior year was impacted by COVID-19 supply
related disruptions; partially offset by higher freight and input cost inflation
and higher marketing investments.
Income from discontinued operations, net of tax, decreased during the year ended
September 30, 2020 due to the net gain realized from the disposition of the GBL
and GAC divestitures during the year ended September 30, 2019, offset by the
decrease in income from operations of HHI. Decrease in HHI operations was
attributable to lower sales volumes driven by COVID-19 supply constraints
coupled with higher input costs and tariffs, offset by improved productivity,
pricing and mix, retrospective tariff exclusions and reduced restructuring
spend; and lower allocation of interest costs from corporate debt allocated to
discontinued operations attributable to the paydown of debt following the
disposition of the GBL and GAC divestitures.
See Note 3 - Divestitures in Notes to the Consolidated Financial Statements,
included elsewhere in this Annual Report, for more information on the
divestitures and the assets and liabilities classified as held for sale.
Noncontrolling Interest. The net income attributable to noncontrolling interest
reflects the share of the net income of our subsidiaries, which are not
wholly-owned, attributable to the accounting interest. Such amount varies in
relation to such subsidiary's net income or loss for the period and the
percentage interest not owned by SBH.
SB/RH
The following is summarized consolidated results of operations for SB/RH for the
years ended September 30, 2021, 2020 and 2019:
(in millions, except %)               2021               2020                  Variance                  2020               2019                  Variance
Net sales                         $ 2,998.1          $ 2,622.1          $ 376.0        14.3  %       $ 2,622.1          $ 2,446.4          $ 175.7         7.2  %
Gross profit                        1,034.6              878.1            156.5        17.8  %           878.1              819.6             58.5         7.1  %
Gross profit margin                    34.5  %            33.5  %           100    bps                    33.5  %            33.5  %             -    

bps

Operating expenses                    933.8              862.5             71.3         8.3  %           862.5              967.3           (104.8)      (10.8  %)
Interest expense                      116.8               93.2             23.6        25.3  %            93.2              106.1            (12.9)      (12.2  %)
Other non-operating
(income) expense, net                  (8.3)              16.3            (24.6)           n/m            16.3               43.6            (27.3)      (62.6  %)
Income tax (benefit)
expense                               (25.0)              14.5            (39.5)           n/m            14.5              (36.1)            50.6    

n / m

Net income (loss) from
continuing operations                  17.3             (108.4)           125.7            n/m          (108.4)            (261.3)           152.9       (58.5  %)
Income from discontinued
operations, net of tax                174.3              150.9             23.4        15.5  %           150.9              803.9           (653.0)      (81.2  %)
Net income                            191.6               42.5            149.1       350.8  %            42.5              542.6           (500.1)      (92.2  %)
n/m = not meaningful



For the years ended September 30, 2021 and 2020, the change in net sales, gross
profit, operating expenses and other non-operating expenses are primarily
attributable to changes in SBH previously discussed. The change in interest
expense is primarily attributable to the changes in SBH previously discussed
except for the non-cash gain on extinguishment of Salus CLO debt. Income from
discontinued operations is attributable to SBH previously discussed.
The effective tax rate was 324.7% for the year ended September 30, 2021 compared
to (15.4%) for the year ended September 30, 2020 and 12.1% for the year ended
September 30, 2019. The change in tax rate is primarily attributable to the
changes in SBH previously discussed.


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Segment Financial Data
This section provides an analysis of our results of reportable segments for the
years ended September 30, 2021 and 2020. For a discussion of our fiscal 2019
results, please refer to Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for the Company's Annual Report
on Form 10-K for the year ended September 30, 2020 filed with the SEC on
November 15, 2019.
Home & Personal Care (HPC)
(in millions, except %)                   2021               2020                  Variance                  2020               2019                 Variance
Net sales                             $ 1,260.1          $ 1,107.6          $ 152.5        13.8  %       $ 1,107.6          $ 1,068.1          $  39.5        3.7  %
Operating income (loss)                    46.4               42.9              3.5         8.2  %            42.9             (127.5)           170.4           n/m
Operating income margin                     3.7  %             3.9  %           (20)   bps                     3.9  %           (11.9) %         1,580    bps
Adjusted EBITDA                       $   102.6          $    92.2          $  10.4        11.3  %       $    92.2          $    87.2          $   5.0        5.7  %
Adjusted EBITDA margin                      8.1  %             8.3  %           (20)   bps                     8.3  %             8.2  %            10    bps
n/m = not meaningful


Net sales for the year ended September 30, 2021 increased driven by strong
growth in hair care products as part of the personal care appliance category and
strong growth in cooking, food preparation and garment within the small home
appliance category; coupled with a strong holiday season earlier in the year,
new product introductions, continued e-commerce growth, expanded distribution in
LATAM markets, re-opening of traditional retail channels and pricing adjustments
in response to higher material input costs partially mitigated by supply chain
constraints limiting distribution. Organic net sales increased $121.4 million,
or 11.0%, excluding favorable foreign exchange impact.
Operating income and Adjusted EBITDA for the year ended September 30, 2021
increased with a decrease in margin due to increased sales from volume and
pricing with favorable foreign currency offset by increased material and input
cost inflation, freight costs and increased marketing investments; with higher
depreciation and amortization expense impacting operating income and margin.
Net sales for the year ended September 30, 2020 increased driven by growth in
both small appliances and personal care including strong net sales growth in the
U.S. from e-commerce and mass channels with continued strength in convenience
cooking including new product introductions from George Foreman grills, holiday
season promotional volumes, coupled with demand increase partially offset by
supply constraints and store closures in response to the COVID-19 pandemic.
Organic net sales increased $58.4 million or 5.5% excluding unfavorable foreign
exchange impact.
Operating income and Adjusted EBITDA for the year ended September 30, 2020
increased with an increase in margin due to higher sales volumes with favorable
product mix and productivity with benefit from retrospective tariff exclusions,
offset by incremental input costs driven by tariffs, increased marketing and
advertising spend, plus incremental foreign currency transaction loss. Operating
income and margin for the year ended September 30, 2019 was further impacted by
the recognition of goodwill impairment of $116.0 million, write-off of
indefinite lived intangible assets of $18.8 million, and incremental
depreciation and amortization of $29.0 million in the prior year associated with
HPC business being de-recognized from held for sale.
Global Pet Care (GPC)
(in millions, except %)                   2021              2020                 Variance                 2020             2019                 Variance
Net sales                             $ 1,129.9          $ 962.6          $ 167.3        17.4  %       $ 962.6          $ 870.2          $  92.4        10.6  %
Operating income                          129.9             47.1             82.8       175.8  %          47.1             65.6            (18.5)      (28.2) %
Operating income margin                    11.5  %           4.9  %           660    bps                   4.9  %           7.5  %          (260)   bps
Adjusted EBITDA                       $   212.1          $ 172.0          $  40.1        23.3  %       $ 172.0          $ 142.6          $  29.4        20.6  %
Adjusted EBITDA margin                     18.8  %          17.9  %            90    bps                  17.9  %          16.4  %           150    bps


Net sales for the year ended September 30, 2021 increased due to acquisition
sales of $99.5 million coupled with continued growth in aquatics and companion
animal categories highlighted by dog chews and treats, with strong development
across distribution channels led by expanded e-commerce, partially mitigated by
lower than anticipated fulfillment levels attributable to distribution center
transitions during the year. Organic net sales increased $49.4 million, or 5.1%
excluding favorable foreign exchange impact and acquisition sales.
Operating income and Adjusted EBITDA for the year ended September 30, 2021
increased with an increase in margins due to higher volume, favorable product
mix, pricing and productivity, offset by higher material input costs, freight
and distribution costs, and incremental costs and inefficiencies with
distribution center transition, including higher than normal customer fines and
penalties further impacting operating income and margin.
Net sales for the year ended September 30, 2020 increased due to continued
growth in aquatics and companion animal products driven by broad based demand
across all aquatic product types, including significant demand for hard goods
through e-commerce and pet specialty channels, plus growth in companion animal
categories driven by strong consumables demand in the dollar, mass and
e-commerce channels and increased consumer demand experienced during the
COVID-19 pandemic. Organic net sales increased $86.0 million or 9.9% due to
unfavorable foreign exchange impact and acquisition sales.
Operating income for the year ended September 30, 2020 decreased with a decline
in margin due to the recognition of a loss on assets held for sale of $26.8
million associated with the Coevorden Operations divestiture, and a $24.2
million write-off from impairment of intangible assets; incremental transaction
costs associated with the Omega acquisition and Coevorden Operations
divestiture, plus restructuring costs and accelerated depreciation as part of
the Global Productivity Improvement Program, tariffs and additional investment
in marketing and advertising, offset by increased sales volume, product cost
improvements, and positive pricing. Adjusted EBITDA increased with an increase
in margin due to increased sales volume, productivity, and positive pricing,
offset by tariffs and additional investment in marketing and advertising.
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Home & Garden (H&G)
(in millions, except %)                  2021             2020                 Variance                 2020             2019                Variance
Net sales                             $ 608.1          $ 551.9          $ 56.2        10.2  %        $ 551.9          $ 508.1          $  43.8        8.6  %
Operating income                         83.7             91.2            (7.5)       (8.2  %)          91.2             85.0              6.2        7.3  %
Operating income margin                  13.8  %          16.5  %         (270)   bps                   16.5  %          16.7  %           (20)   bps
Adjusted EBITDA                       $ 124.0          $ 112.1          $ 11.9        10.6  %        $ 112.1          $ 105.5          $   6.6        6.3  %
Adjusted EBITDA margin                   20.4  %          20.3  %           10    bps                   20.3  %          20.8  %           (50)   bps


Net sales for the year ended September 30, 2021 increased across product
categories driven by strong early season orders across channels and strong early
season POS coupled with strong late season consumer demand and acquisition
sales. Organic net sales increased $33.0 million, or 6.0% excluding acquisition
sales.
Operating income for the year ended September 30, 2021 decreased with a decline
in margin due to increased material input costs, advertising and marketing
investment, and higher distribution expenses, partially offset by higher sales
volumes and positive pricing and productivity improvements; with increased
acquisition related costs and legal reserves. Adjusted EBITDA increased with an
increase in margin attributable to increased material input costs, advertising
and marketing investment, and higher distribution expenses, partially offset by
higher sales volumes and positive pricing and productivity improvements
Net sales for the year ended September 30, 2020 increased driven by growth
across all three major product categories of controls, household insecticides
and repellents; and benefited from strong point of sale and replenishment as
retailers supported the extended selling season.
Operating income and Adjusted EBITDA for the year ended September 30, 2020
increased with a decline in margin due to increased sales volume offset by
higher material and input costs including tariffs, plus higher marketing and
advertising investment spending.
Liquidity and Capital Resources
This section provides a discussion of our financial condition and an analysis of
our cash flows for the years ended September 30, 2021, 2020, and 2019. This
section also provides a discussion of our contractual operations and other
commercial commitments as well as our ability to fund future commitments and
operating activities through sources of capital as of September 30, 2021.
The following is a summary of the Company's net cash flows from continuing
operations for the years ended September 30, 2021, 2020, and 2019:
                                                SBH                                        SB/RH
   (in millions)                 2021          2020           2019           2021          2020           2019

Operating activities $ 89.2 $ 201.8 $ (42.6) $

81.7 $ (8.3) $ (34.9)

Investment activities (400.7) $ $ 125.2 $ 2,820.9 (400.7) $ $ 125.2 $ 2,820.9

Fundraising activities $ (206.9) $ (495.1) $ (2,721.6) $ (197.1) $ (283.8) $ (2,693.4)



Cash flows from operating activities
Cash flows from operating activities by SBH continuing operations for the year
ended September 30, 2021 decreased $112.6 million. primarily attributable to the
increased use in cash spend towards working capital, particularly from inventory
build-up, and cash paid towards strategic transaction activity with increased
cash generated by operations from continuing operations and lower spending on
restructuring activities
Cash flows from operating activities by SBH continuing operations for the year
ended September 30, 2020 increased $244.4 million due to cash provided by
continuing operations with cash contributed by working capital primarily
attributable to timing of accounts payable, reduction in cash paid for interest
and taxes, lower spending towards strategic transaction, offset by increase in
cash used towards restructuring activities during the year.
Changes in cash flows from operating activities by SB/RH continuing operations
are primarily due to the SBH items discussed above except for an incremental
operating cash outflow to its parent company for payments to SBH for the use of
federal net operating losses, as provided under the Company's tax sharing
agreement.
Cash flows from investing activities
Cash flows used in investing activities by SBH continuing operations for the
year ended September 30, 2021 increased $525.9 million primarily due to increase
in cash used for acquisitions of $413.0 million from the acquisitions of
Rejuvenate and Armitage and higher cash proceeds in the prior year from
divestiture activity of $32.6 million attributable to the Coevorden Facility,
and the sale of Energizer common stock of $74.0 million, The Company sold its
remaining investment in Energizer common stock in January 2021. Cash flow from
investing activities for SB/RH continuing operations for the year ended
September 30, 2021 are primarily due to the SBH items previously discussed.
Cash flows from investing activities by SBH continuing operations for the year
ended September 30, 2020 decreased $2,695.7 million primarily due to higher
proceeds in the prior year from divestitures of $2,826.9 million attributable to
the divestitures of GBL and GAC, offset by the cash proceeds from the Coevorden
Operations divestiture, increase in cash used for acquisition of $16.9 million
from the acquisition of Omega, offset by proceeds from the sale of Energizer
common stock of $147.1 million. Capital expenditures increased $3.7 million
primarily towards investment in higher return cost reduction projects and
related restructuring initiatives. Cash flows from investing activities for
SB/RH continuing operations for the year ended September 30, 2020 are primarily
due to the SBH items previously discussed.

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Cash flows from financing activities
Cash flows used in financing activities by SBH continuing operations decreased
$288.2 million for the year ended September 30, 2021 primarily due to lower
stock repurchase activity, payment of contingent consideration associated with
the GBL divestiture of $197.0 million in the prior year; partially offset by
reduced cash inflow from debt financing of $157.9 million primarily due to
premiums and loss on extinguishment from refinancing activity. During the year
ended September 30, 2021, the Company realized $899.0 million of proceeds from
the new Term Loan Facility and issuance of the 3.875% Notes, net discount, with
payment of $891.2 million of outstanding principal on the 6.125% Notes and the
5.75% Notes including make whole premiums of $23.4 million, plus paydown of
assumed debt from the acquisition of Armitage. Refer to Note 12 - Debt in Notes
to Consolidated Financial Statements included elsewhere in this Annual Report
for additional information. There has been no issuance of common stock, other
than through the Company's share-based compensation plan, with reduced spending
on common stock repurchases of $239.0 million from the accelerated share
repurchase arrangement and open market purchases in the prior year. See Note 18
- Shareholder's Equity in Notes to Consolidated Financial Statements included
elsewhere in this Annual Report for additional information. Cash dividend
payments decreased due to lower shares outstanding with a consistent dividend
rate of $0.42 per shares. Cash flows from financing activities for SB/RH
continuing operations for the year ended September 30, 2021 are highly dependent
upon the financing cash flow activity of SBH.
Cash flows used in financing activities by SBH continuing operations decreased
$2,226.5 million for the year ended September 30, 2020 primarily due to the debt
repayment activity in the prior year following the GBL and GAC divestitures,
offset by the payment of the Varta contingent payment to Energizer subsequent to
the GBL divestiture and incremental treasury share repurchase activity. During
the year ended September 30, 2020, SBH recognized net proceeds of $300.0 million
from the issuance of 5.50% Notes. The proceeds from the issuance of the 5.50%
Notes were used for repayment of the Revolver Facility obligation. The Company
made $134.3 million payment on debts for the outstanding balance of 6.625% Notes
of $117.4 million with premium of early extinguishment of $1.3 million, and
other debt payments of $15.6 million. There has been no issuance of common
stock, other than through the Company's share-based compensation plan, with
increased spending on common stock repurchase activity of $364.8 million from
the accelerated share repurchase arrangement and open market purchases during
the year. See Note 18 - Shareholder's Equity in Notes to Consolidated Financial
Statements included elsewhere in this Annual Report for additional information.
Cash dividend payments decreased due to lower shares outstanding with a
consistent dividend rate of $0.42 per shares. Cash flows from financing
activities for SB/RH continuing operations are highly dependent upon the
financing cash flow activity of SBH.
Liquidity Outlook
Our ability to generate significant cash flow from operating activities coupled
with our expected ability to access the credit markets, enables us to execute
our growth strategies and return value to our shareholders. Our ability to make
principal and interest payments on borrowings under our debt agreements and our
ability to fund planned capital expenditures will depend on the ability to
generate cash in the future, which, to a certain extent, is subject to general
economic, financial, competitive, regulatory and other conditions. Based upon
our current level of operations, existing cash balances, the anticipated
proceeds from HHI divestitures and availability under our credit facility, we
expect cash flows from operations to be sufficient to meet our operating and
capital expenditure requirements for at least the next 12 months. Additionally,
we believe the availability under our credit facility and access to capital
markets are sufficient to achieve our longer-term strategic plans. As of
September 30, 2021, the Company had borrowing availability of $575.4 million,
net of outstanding letters of credit of $24.6 million, under our credit
facility. Liquidity and capital resources of SB/RH are highly dependent upon the
cash flow activities of SBH.
Short-term financing needs primarily consist of working capital requirements,
restructuring initiatives, capital spending, and periodic principal and interest
payments on our long-term debt. Long-term financing needs depend largely on
potential growth opportunities, including acquisition activity, repayment or
refinancing of our long-term obligations, and repurchases of our common stock.
We may, from time-to-time, seek to repurchase shares of our common stock. Such
repurchases, if any, will depend on prevailing market conditions, our liquidity
requirements, and other factors. During the fourth quarter ended September 30,
2021, SBH entered into a $150 million rule 10b5-1 repurchase to facilitate daily
market share repurchases through September 2022 or until the cap is reached or
agreement is terminated, of which $16.0 million was executed as of September 30,
2021. Our long-term liquidity may be influenced by our ability to borrow
additional funds, renegotiate existing debt, and raise equity under terms that
are favorable to us. We also have long-term obligations associated with defined
benefit plans with expected minimum required contributions that are not
considered significant to the consolidated group.
We maintain a capital structure that we believe provides us with sufficient
access to credit markets. When combined with strong levels of cash flow from
operations, our capital structure has provided the flexibility necessary to
pursue strategic growth opportunities and return value to our shareholders. The
Company's access to capital markets and financing costs may depend on the
Company's credit ratings. None of the Company's current borrowings are subject
to default or acceleration as a result of a downgrading of credit ratings,
although a downgrade of the Company's credit ratings could increase fees and
interest charges on future borrowings. At September 30, 2021, we were in
compliance with all covenants under the Credit Agreement and the indentures
governing the 3.875% Notes, 5.00% Notes, 5.50% Notes, 5.75% Notes, and 4.00%
Notes.
A portion of our cash balance is located outside the U.S. given our
international operations. We manage our worldwide cash requirements centrally by
reviewing available cash balances across our worldwide group and the cost
effectiveness with which this cash can be accessed. We generally repatriate cash
from non-U.S. subsidiaries, provided the cost of the repatriation is not
considered material. The counterparties that hold our deposits consist of major
financial institutions. At September 30, 2021, we believe there is approximately
$50-75 million of foreign cash available for repatriation.
The majority of our business is not considered seasonal with a year round
selling cycle that is overall consistent during the fiscal year with the
exception of our H&G segment. H&G sales typically peak during the first six
months of the calendar year (the Company's second and third fiscal quarters) due
to customer seasonal purchasing patterns and the timing of promotional activity.
This seasonality requires the Company to ship large quantities of product ahead
of peak consumer buying season that can impact cash flow demands to meet
manufacturing and inventory requirements earlier in the fiscal year, as well as
extended credit terms and/or promotional discounts throughout the peak season.
The Company enters into factoring agreements and customers' supply chain
financing arrangements to provide for the sale of certain trade receivables to
unrelated third-party financial institutions. The factored receivables are
accounted for as a sale without recourse, and the balance of the receivables
sold are removed from the Consolidated Balance Sheet at the time of the sales
transaction, with the proceeds received recognized as an operating cash flow.
Additionally, the Company facilitates a voluntary supply chain financing program
to provide certain of its suppliers with the opportunity to sell receivables due
from the Company (the Company's trade payables) to an unrelated third-party
financial institution under the sole discretion of the supplier and the
participating financial institution. There are no guarantees provided by the
Company or its subsidiaries and we do not enter into any agreements with the
suppliers regarding their participation. The Company's responsibility is limited
to payments on the original terms negotiated with its suppliers, regardless of
whether the suppliers sell their receivables to the financial institution, and
continue to be recognized as accounts payable on the Company's Consolidated
Balance Sheet with cash flow activity recognized as an operating cash flow.
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The COVID-19 pandemic has not, as of the date of this report, materially
impacted our operations or demand for our products and has not had a materially
negative impact on the Company's liquidity position. The Company has realized
supply chain disruptions which has impacted our cash flow to facilitate
increased investment in inventory to ensure timely supply to meet customer
demands along with shortened payment dates for some suppliers to account for
longer shipping cycles. There can be no assurance that it won't have a material
negative impact on us in the future. Nonetheless, we continue to actively
monitor our global cash balances and liquidity, and if necessary, could
reinitiate mitigating efforts to manage non-critical capital spend and assess
operating spend to preserve cash and liquidity, including the suspension of our
share repurchase activity. We continue to generate operating cash flows to meet
our short-term liquidity needs, and we expect to maintain access to the capital
markets, although there can be no assurance of our ability to do so. However,
the continued spread of COVID-19 has led to disruption and volatility in the
global capital markets, which, depending on future developments, could impact
our capital resources and liquidity in the future.
Debt obligations
Our debt obligations, excluding finance leases, have varying maturity dates with
no material outstanding principal payments due within the following 12 months.
Our Term Loan Facility is subject to quarterly amortizing payments of $1.0
million. Refer to Note 12-Debt in notes to Consolidated Financial Statements
included elsewhere in this Annual Report for expiration dates and maturity
schedules on outstanding debt obligations for the following 5 years and
thereafter. In addition to the outstanding principal on our debt, we anticipate
annual interest payments of $117.4 million in the aggregate and includes
interest under our: (i) Term Loan and Revolver Facility of $20.9 million,
subject to variable interest rates; (ii) 5.75% Notes of $25.9 million; (iii)
4.00% Notes of $19.7 million; (iv) 5.00% Notes of $15.0 million; (v) 5.50% Notes
of $16.5 million;(v) 3.875% Notes of $19.4 million. Interest on the notes is
payable semi-annually in arrears and interest under the Term Loan and Revolver
Facility is payable on various interest payment dates as provided in the Senior
Credit Agreement.
Lease obligations
The Company enters into leases primarily pertaining to real estate for
manufacturing facilities, distribution centers, office space, warehouses, and
various equipment including automobiles, machinery, computers, and office
equipment, amongst others. Lease obligations with a term in excess of 12 months
are recognized on the Company's Consolidated Statement of Financial Position.
See Note 13 - Leases of Notes to the Consolidated Financial Statement included
elsewhere in the Annual Report for further detail, including maturity schedule
on outstanding finance and operating lease obligations for the following 5 years
and thereafter, including imputed interest not reflected on the Consolidated
Statements of Financial Position.
Employee benefit plan obligations
The Company and its subsidiaries are sponsors to various defined benefit pension
plans covering some of its employees that provide post-employment benefits of
stated amounts for each year of service, including a number of other non-U.S.
pension arrangements, including various retirement and termination benefit
plans, some of which are covered by local law or coordinated with
government-sponsored plans. The Company's recognizes an actuarial determined
unfunded projected benefit obligation recognized as Other Long-Term Liabilities
on the Company's Consolidated Statement of Financial Position, net fair value of
dedicated plan assets. See Note 15 - Employee Benefit Plans of the Notes to the
Consolidated Financial Statements included elsewhere in this Annual Report for
further detail included projected payments towards the future obligation for the
following 5 years and thereafter. The Company anticipates that benefit
obligations will be predominantly paid through dedicated plan assets. Future
contributions to defined benefit plans are not expected to be material to the
operations and cash flow for the Company.
Other commitments and obligations
Other commitments and obligations include an outstanding mandatory repatriation
tax liability of $18.9 million that is payable over the next 5 years, with $2.0
million due and payable in the next 12 months but will be offset by previous
payments and credits. The remaining balance due is net of refundable tax credits
and overpayments that must be applied to the mandatory tax installments, and due
to the credits and overpayments, the Company does not expect to make an
additional payment for mandatory repatriation until Fiscal 2025. See Note 16 -
Income Taxes of Notes to the Consolidated Financial Statements included
elsewhere in this Annual Report.
Our Consolidated Statements of Financial Position also includes reserves for
uncertain tax positions; however, it is not possible to predict or estimate the
amount and timing of payments for uncertain tax positions and those liabilities
have been excluded from the obligations above. The Company cannot reasonably
predict the ultimate outcome of income tax audits currently in progress for
certain of our companies. It is reasonably possible that during the next 12
months, some portion of our unrecognized tax benefits could be recognized. See
Note 16 - Income Taxes of the Notes to the Consolidated Financial Statements
included elsewhere in this Annual Report for additional discussion on uncertain
tax positions.
The Company has recognized other payables associated with indemnifications
following divestitures, including tax indemnifications, that we cannot
reasonably predict the ultimate outcome of our obligation; however it is
reasonably possible that during the next 12 months, some portion of our
indemnification payable could be recognized. As of September 30, 2021, there are
$17.3 million of indemnification liabilities recognized as Other Current
Accruals and $19.2 million recognized as Other Long-Term Liabilities on the
Consolidated Statement of Financial Position. See Note 3 - Divestitures of the
Notes to the Consolidated Financial Statements included elsewhere in this Annual
Report.
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Guarantor Statements - SB/RH
SBI has issued the 5.75% Notes under the 2025 Indenture, the 4.00% Notes under
the 2026 Indenture, the 5.00% Notes under the 2029 Indenture, the 5.50% Notes
under the 2030 Indenture, and the 3.875% Notes under the 2031 Indentures
(collectively, the "Notes"). The Notes are unconditionally guaranteed, jointly
and severally, on a senior unsecured basis by SB/RH and SBI's domestic
subsidiaries. The Notes and the related guarantees rank equally in right of
payment with all of SBI and the guarantors' existing and future senior
indebtedness and rank senior in right of payment to all of SBI and the
guarantors' future indebtedness that expressively provide for its subordination
to the Notes and the related guarantees. Non-guarantor subsidiaries primarily
consist of SBI's foreign subsidiaries.
The following financial information consists of summarized financial information
of the Obligor, presented on a combined basis. The "Obligor" consists of the
financial statements of SBI as the debt issuer, SB/RH as a parent guarantor, and
the domestic subsidiaries of SBI as subsidiary guarantors. Intercompany balances
and transactions between SBI and the guarantors have been eliminated.
Investments in non-guarantor subsidiaries and the earnings or losses from those
non-guarantor subsidiaries have been excluded.
(in millions)                                                  2021
Statement of Operations Data
Third-party net sales                                       $ 1,774.2
Intercompany net sales to non-guarantor subsidiaries             18.8
Total net sales                                               1,793.0
Gross profit                                                    555.5
Operating loss                                                  (79.5)
Net loss from continuing operations                            (116.2)
Net income                                                       28.6
Net income attributable to controlling interest                  28.6
Statement of Financial Position Data
Current Assets                                              $ 1,999.1
Noncurrent Assets                                             2,090.2
Current Liabilities                                             936.1
Noncurrent Liabilities                                        2,881.7

Amounts owed by the debtor, due to non-guarantor subsidiaries at
September 30, 2021 are as follows: (in millions)

                                               2021

Data from the statement of financial position Current receivables of non-guarantor subsidiaries $ 9.5
Long-term receivables from non-guarantor subsidiaries 202.8 Current debts to non-guarantor subsidiaries

              266.2
Long-term debt with non-guarantor subsidiaries             123.3


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Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance with GAAP
and fairly present our financial position and results of operations. The
preparation of the consolidated financial statements 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
revenues and expenses during the reporting period. The Company bases its
accounting estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances and evaluates its
estimates on an ongoing basis. The following section identifies and summarizes
those accounting policies considered by management to be the most critical to
understanding the judgments that are involved in the preparation of our
consolidated financial statements and the uncertainties that could impact our
results of operations, financial position and cash flows. The application of
these accounting policies requires judgment and use of assumptions as to future
events and outcomes that are uncertain and, as a result, actual results could
differ from these estimates. Refer to Note 2 - Significant Accounting Policies
and Practices of Notes to the Consolidated Financial Statements for all relevant
accounting policies.
Goodwill, Intangible Assets and Other Long-Lived Assets
The Company's goodwill, intangible assets and tangible fixed assets are stated
at historical cost, net of depreciation and amortization, less any provision for
impairment. Intangible and tangible assets with determinable lives are amortized
or depreciated on a straight line basis over estimated useful lives. Refer to
Note 2 - Significant Accounting Policies and Practices of Notes to the
Consolidated Financial Statements for more information about useful lives.
On an annual basis, during the fourth quarter of the fiscal year, or more
frequently if triggering events occur, the Company tests for impairment of
goodwill by either performing a qualitative assessment or quantitative test for
some or all reporting units. Our reporting units are consistent with our
operating segments. See Note 22 - Segment Information of Notes to the
Consolidated Financial Statements for further discussion of operating and
reporting segments.
The Company evaluates qualitative factors to determine whether it is more likely
than not that the fair value of the reporting unit is less than its carrying
amount. In performing a qualitative assessment, the Company considers events and
circumstances, including, but not limited to macroeconomic conditions, industry
and market conditions, cost factors, overall financial performance, changes in
management or key personnel, changes in strategy, changes in customers, changes
in market value, composition or carrying amount of a reporting unit's net asset,
and considering change in the market price of the Company's common stock. If we
determine that it is more likely than not the carrying value is greater than the
fair value of a reporting unit after assessing the totality of facts and
circumstances, a quantitative assessment is performed to determine the reporting
unit fair value and measure the impairment. If the fair value of a reporting
unit is less than its carrying value, an impairment loss is recorded for the
difference between the fair value of the reporting unit goodwill and its
carrying value. The estimated fair value represents the amount at which a
reporting unit could be bought or sold in a current transaction between willing
parties on an arms-length basis. In estimating the fair value of the reporting
unit, we use a discounted cash flows methodology, which requires us to estimate
future revenues, expenses, and capital expenditures and make assumptions about
our weighted average cost of capital and perpetuity growth rate, among other
variables. We test the aggregate estimated fair value of our reporting units by
comparison to our total market capitalization, including both equity and debt
capital. For the year ended September 30, 2021, we did not recognize an
impairment of goodwill or deem any reporting units as 'at risk' of impairment.
In addition to goodwill, the Company has indefinite-lived intangible assets that
consist of acquired tradenames. On an annual basis, during the Company's fourth
quarter, or more frequently if triggering events occur, the Company tests for
impairment by either performing a qualitative assessment or quantitative test
for some or all indefinite-lived intangible assets. The Company evaluates
qualitative factors to determine whether it is more likely than not that the
fair value of the indefinite lived intangible assets is less than its carrying
amount. In performing a qualitative assessment, the Company considers events and
circumstances including, but not limited to, macroeconomic conditions, industry
and market conditions, cost factors, changes in strategy and overall financial
performance. If we determine that it is more likely than not the carrying value
is greater than the fair value of an indefinite lived intangible asset, a
quantitative assessment is performed to determine the fair value and measure the
impairment. If the fair value is less than its carrying value, an impairment
loss is recorded for the excess. The fair value of indefinite-lived intangible
assets is determined using an income approach, the relief-from-royalty
methodology, which requires us to make estimates and assumptions about future
revenues, royalty rates, and the discount rate, among others. There was no
impairment on indefinite life intangible assets for the year ended September 30,
2021. As of September 30, 2021, there were no material intangible assets that
could be deemed at risk of future impairment due to the limited excess fair
value.
The Company also reviews other definite-lived intangible assets and tangible
fixed assets for impairment when events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable.
Circumstances such as the discontinuation of a product or product line, a sudden
or consistent decline in the sales forecast for a product, changes in technology
or in the way an asset is being used, a history of operating or cash flow losses
or an adverse change in legal factors or in the business climate, among others,
may trigger an impairment review. If such indicators are present, the Company
performs undiscounted cash flow analyses to determine if impairment exists. The
asset value would be deemed impaired if the undiscounted cash flows expected to
be generated by the asset did not exceed the carrying value of the asset. If
impairment is determined to exist, any related impairment loss is calculated
based on fair value. During the year ended September 30, 2021, there was no
impairment of definite-lived intangible assets or tangible fixed assets.
A considerable amount of judgment and assumptions are required in performing the
impairment tests, principally in determining the fair value of each reporting
unit and assets subject to impairment testing. While the Company believes its
judgments and assumptions are reasonable, different assumptions could change the
estimated fair value and therefore, additional impairment charges could be
required. The Company is subject to financial statement risk in the event that
business or economic conditions unexpectedly decline and impairment is realized.
Income Taxes
The Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgment is required in determining our worldwide
provision for income taxes and recording the related deferred tax assets and
liabilities.
The Company assesses its income tax positions and records tax liabilities for
all years subject to examination based upon management's evaluation of the facts
and circumstances and information available for reporting. For those income tax
positions where it is more-likely-than-not that a tax benefit will be sustained
upon conclusion of an examination, the Company has recorded a reserve based upon
the largest amount of tax benefit having a cumulatively greater than 50%
likelihood of being realized upon ultimate settlement with the applicable taxing
authority assuming that it has full knowledge of all relevant information. For
those income tax positions where it is more-likely-than-not that a tax benefit
will not be sustained, the Company did not recognize a tax benefit. As of
September 30, 2021, the total amount of unrecognized tax benefits, including
interest and penalties, that if not recognized would affect the effective tax
rate in future periods was $19.5 million. Our effective tax rate includes the
impact of income tax reserves and changes to those reserves when considered
appropriate. A number of years may elapse before a particular matter for which
we have established a reserve is finally resolved. Unfavorable settlement of any
particular issue may require the use of cash or a reduction in our net operating
loss carryforwards or tax credits. Favorable resolution would be recognized as a
reduction to the effective rate in the year of resolution.

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The Company recognizes deferred tax assets and liabilities for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases, net
operating losses, tax credit, and other carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The Company does not adjust its measurement for proposed
future tax rate changes that have not yet been enacted into law. The Company
regularly reviews its deferred tax assets for recoverability and establishes a
valuation allowance based on historical losses, projected future taxable income,
expected timing of the reversals of existing temporary differences, and ongoing
prudent and feasible tax planning strategies. We base these estimates on
projections of future income, including tax planning strategies, in certain
jurisdictions. Changes in industry conditions and other economic conditions may
impact our ability to project future income. Should we determine that we would
not be able to realize all or part of our net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to income in the period
we make that determination.
As of September 30, 2021, we have U.S. federal net operating loss carryforwards
("NOLs") of $1,389.3 million, with a federal tax benefit of $291.7 million and
future tax benefits related to state NOLs of $69.6 million. Our total valuation
allowance for the tax benefit of deferred tax assets that may not be realized is
$349.4 million at September 30, 2021. Of this amount, $253.0 million relates to
U.S. net deferred tax assets and $96.4 million relates to foreign net deferred
tax assets. We estimate that $149.1 million of valuation allowance related to
domestic deferred tax assets cannot be released regardless of the amount of
domestic operating income generated due to prior period ownership changes that
limit the amount of NOLs and credits we can use.
As of September 30, 2021, we have provided no significant residual U.S. taxes on
earnings not yet taxed in the U.S. As of September 30, 2021, we project $1.8
million of additional tax from non-U.S. withholding and other taxes expected to
be incurred on repatriation of foreign earnings.
See Note 16 - Income Taxes of Notes to the Consolidated Financial Statements
elsewhere included in this Annual Report.
New Accounting Pronouncements
See Note 2 - Significant Accounting Policies and Practices of Notes to the
Consolidated Financial Statements elsewhere included in this Annual Report for
information about recent accounting pronouncements not yet adopted.

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NIGHTDRAGON ACQUISITION CORP. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q) https://goodwillsavannahga.org/nightdragon-acquisition-corp-managements-discussion-and-analysis-of-financial-position-and-operating-results-form-10-q/ Mon, 22 Nov 2021 13:34:03 +0000 https://goodwillsavannahga.org/nightdragon-acquisition-corp-managements-discussion-and-analysis-of-financial-position-and-operating-results-form-10-q/
References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to NightDragon Acquisition Corp. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to NightDragon Acquisition Sponsor, LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
that are not historical facts and involve risks and uncertainties that could
cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form
10-Q
are forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. You
should read these statements carefully because they discuss future expectations
or state other "forward-looking" information. These statements relate to our
future plans, objectives, expectations, intentions and performance and the
assumptions that underlie these statements. These forward-looking statements
include, but are not limited to:

• our ability to select one or more suitable target companies;



     •    our ability to complete our initial business combination, particularly
          given competition from other blank check companies and financial and
          strategic buyers;



     •    our expectations around the performance of the prospective target
          business or businesses, including competitive prospects of the business
          following our initial business combination;



     •    our success in retaining or recruiting, or changes required in, our
          officers, key employees or directors following our initial business
          combination;



     •    our officers and directors allocating their time to other businesses and
          potentially having conflicts of interest with our business or in
          approving our initial business combination;



     •    our potential ability to obtain additional financing to complete our
          initial business combination;



  •   our pool of prospective target businesses;



     •    our ability to consummate an initial business combination amidst the
          uncertainty resulting from the ongoing
          COVID-19
          pandemic, the economy and any business or businesses with which we
          consummate our initial business combination;



     •    the ability of our officers and directors to generate a number of
          potential acquisition opportunities;



  •   our public securities' potential liquidity and trading;



  •   the lack of a market for our securities;



  •   our ability to remain in compliance with Nasdaq listing rules;



     •    the use of proceeds not held in the trust account or available to us from
          interest income on the trust account balance;



  •   the trust account not being subject to claims of third parties; or



  •   our financial performance following this offering.

A number of factors could cause actual events, performance or results to differ materially from the events, performance and results described in forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A “Risk Factors” and elsewhere in this report. Our risk factors do not guarantee that any of these conditions currently exist and should not be construed as an affirmative statement that any such risks or conditions have not materialized, in whole or in part. These statements, like all statements in this report, speak only as of their date, and we assume no obligation to update or revise such statements in light of future developments.


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In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this report, and although we
believe such information forms a reasonable basis for such statements, such
information may be limited or incomplete, and our statements should not be read
to indicate that we have conducted a thorough inquiry into, or review of, all
potentially available relevant information. These statements are inherently
uncertain and you are cautioned not to unduly rely upon these statements.
This Part I, Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" has been amended and restated to give effect to the
restatement of our financial statements at March 31, 2021 and June 30, 2021.
Management has identified errors made in our historical financial statements
based on our improper valuation of our Class A common stock subject to possible
redemption at the closing of our Initial Public Offering. We previously
determined the Class A common stock subject to possible redemption to be equal
to the redemption value of $10.00 per share of Class A common stock while also
taking into consideration a redemption cannot result in net tangible assets
being less than $5,000,001. Management has determined that the Class A common
stock issued during the Initial Public Offering can be redeemed or become
redeemable subject to the occurrence of future events considered outside of the
Company's control. Therefore, management has concluded that the redemption value
should include all Class A common stock subject to possible redemption,
resulting in the Class A common stock subject to possible redemption being equal
to its redemption value. As a result, management has noted a reclassification
error related to temporary equity and permanent equity. This resulted in a
restatement to the initial carrying value of the Class A common stock subject to
possible redemption with the offset recorded to additional paid-in capital (to
the extent available), accumulated deficit and Class A common stock.
Overview
We are a blank check company incorporated under the laws of the State of
Delaware on December 8, 2020 for the purpose of effectuating a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or other
similar business combination with one or more businesses. We intend to
effectuate our Business Combination using cash from the proceeds of the Initial
Public Offering and the sale of the Private Placement SCALE Units, our capital
stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from December 8, 2020 (inception) through September 30, 2021
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and identifying a target company for a
Business Combination. We do not expect to generate any operating revenues until
after the completion of our Business Combination. We generate non-operating
income in the form of interest income on marketable securities held in the Trust
Account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended September 30, 2021, we had a net income of $3,572,079
which consists of the change in fair value of warrant liability of $4,090,597
and interest earned on marketable securities held in the Trust Account of $4,439
offset by operating and formation costs of $522,957.
For the nine months ended September 30, 2021, we had net income of $2,834,719,
which consists of the change in fair value of warrant liability of $4,480,687
and interest earned on marketable securities held in the Trust Account of
$23,401 offset by operating and formation costs of $1,058,923, transaction costs
associated with the Initial Public Offering of $579,585 and compensation expense
of $30,861.
Liquidity and Capital Resources
On March 4, 2021, we consummated the Initial Public Offering of 34,500,000 SCALE
(Stakeholder-Centered Aligned Listed Equity) Units, which includes the full
exercise by the underwriter of its over-allotment option in the amount of
4,500,000 SCALE Units, at $10.00 per SCALE Unit, generating gross proceeds of
$345,000,000. Simultaneously with the closing of the Initial Public Offering, we
consummated the sale of 1,035,000 Private Placement SCALE Units at a price of
$10.00 per Private Placement SCALE Unit in a private placement to NightDragon
Acquisition Sponsor, LLC, generating gross proceeds of $10,350,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option, and the sale of the Private Placement SCALE Units, a total of
$345,000,000 was placed in the Trust Account. We incurred $19,601,538 in Initial
Public Offering related costs, including $6,900,000 of underwriting fees,
$12,075,000 of deferred underwriting fees and $626,538 of other offering costs.
For the nine months ended September 30, 2021, cash used in operating activities
was $1,643,762. Net income of $2,834,719 was affected by change
(non-cash
gain) in fair value of warrant liability of ($4,480,687), transaction costs
associated with the Initial Public Offering of $579,585, compensation expense of
$30,861, and interest income on marketable securities held in the Trust Account
of $23,401. Changes in operating assets and liabilities used $584,839 of cash
for operating activities.
As of September 30, 2021, we had marketable securities held in the Trust Account
of $345,023,401 (including approximately $23,401 of interest income) consisting
of U.S. Treasury Bills with a maturity of 185 days or less. Interest income on
the balance in the Trust Account may be used by us to pay taxes. Through
September 30, 2021, we have not withdrawn any interest earned from the Trust
Account.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
taxes payable), to complete our Business Combination. To the extent that our
capital stock or debt is used, in whole or in part, as consideration to complete
our Business Combination, the remaining proceeds held in the Trust Account will
be used as working capital to finance the operations of the target business or
businesses, make other acquisitions and pursue our growth strategies.
As of September 30, 2021, we had cash of $1,209,700. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a Business Combination.


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  Table of Contents
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into SCALE
Units at a price of $10.00 per SCALE Unit, at the option of the lender. The
SCALE Units would be identical to the Private Placement SCALE Units.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating a Business Combination are less than the actual
amount necessary to do so, we may have insufficient funds available to operate
our business prior to our Business Combination. Moreover, we may need to obtain
additional financing either to complete our Business Combination or because we
become obligated to redeem a significant number of our Public Shares upon
consummation of our Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination.

                                       18

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  Table of Contents
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of September 30, 2021. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating
off-balance
sheet arrangements. We have not entered into any
off-balance
sheet financing arrangements, established any special purpose entities,
guaranteed any debt or commitments of other entities, or purchased any
non-financial
assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
The underwriters are entitled to a deferred fee of $0.35 per SCALE Unit, or
$12,075,000 in the aggregate. The deferred fee will become payable to the
underwriters from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the underwriting
agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liability
We account for the warrants issued in connection with our Initial Public
Offering in accordance with the guidance contained in Accounting Standards
Codification ("ASC") Topic 815, "Derivatives and Hedging," under which the
warrants do not meet the criteria for equity treatment and must be recorded as
liabilities. Accordingly, we classify the warrants as liabilities at their fair
value and adjust the warrants to fair value at each reporting period. This
liability is subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value is
recognized in our statements of operations.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Common stock subject to mandatory redemption is classified as a liability
instrument and measured at fair value. Conditionally redeemable common stock
(including common stock that features redemption rights that are either within
the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within our control) is classified as temporary
equity. At all other times, common stock is classified as stockholders' equity.
Our common stock features certain redemption rights that are considered to be
outside of our control and subject to occurrence of uncertain future events.
Accordingly, common stock subject to possible redemption is presented at
redemption value as temporary equity, outside of the stockholders' equity
section of our condensed balance sheets.
Net Income (Loss) Per Common Share
Net income (loss) per common stock is computed by dividing net income (loss) by
the weighted average number of common stock outstanding for the period. The
Company applies the
two-class
method in calculating earnings per share. Accretion associated with the
redeemable shares of Class A common stock is excluded from earnings per share as
the redemption value approximates fair value.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.

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  Table of Contents
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief
Executive Officer and Chief Financial Officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2021. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures were not effective, due solely to the material weakness
in our internal control over financial reporting related to the Company's
accounting for complex financial instruments. As a result, we performed
additional analysis as deemed necessary to ensure that our financial statements
were prepared in accordance with U.S. generally accepted accounting principles.
Accordingly, management believes that the financial statements included in this
Form 10-Q present fairly in all material respects our financial position,
results of operations and cash flows for the period presented.
Management has implemented remediation steps to improve our internal control
over financial reporting. Specifically, we expanded and improved our review
process for complex securities and related accounting standards. We plan to
further improve this process by enhancing access to accounting literature,
identification of third-party professionals with whom to consult regarding
complex accounting applications and consideration of additional staff with the
requisite experience and training to supplement existing accounting
professionals.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended September 30, 2021, other than noted below,
there has been no change in our internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting, other than as described herein.
Management has identified a material weakness in internal controls related to
the accounting for complex financial instruments as described above. While we
have processes to identify and appropriately apply applicable accounting
requirements, we plan to enhance our system of evaluating and implementing the
accounting standards that apply to our financial statements, including through
enhanced analyses by our personnel and third-party professionals with whom we
consult regarding complex accounting applications. The elements of our
remediation plan can only be accomplished over time, and we can offer no
assurances that these initiatives will ultimately have the intended effects.

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Contents

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DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS OF WESTROCK CO MANAGEMENT (Form 10-K) https://goodwillsavannahga.org/discussion-and-analysis-of-the-financial-position-and-operating-results-of-westrock-co-management-form-10-k/ Fri, 19 Nov 2021 21:45:10 +0000 https://goodwillsavannahga.org/discussion-and-analysis-of-the-financial-position-and-operating-results-of-westrock-co-management-form-10-k/

PREVIEW


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.

Organization


On November 2, 2018, we completed the KapStone Acquisition. As a result, among
other things, the Company became the ultimate parent of WRKCo, KapStone and
their respective subsidiaries, and the Company changed its name to "WestRock
Company" and WRKCo changed its name to "WRKCo Inc.". See "Note 3. Acquisitions
and Investments" of the Notes to Consolidated Financial Statements for
additional information.

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, 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. Following completion of the
monetization of these assets, we ceased reporting the results of the Land and
Development segment as a separate segment. We have not included a discussion of
the Land and Development segment below as its net sales and segment income are
not significant. See "Note 7. Segment Information" of the Notes to Consolidated
Financial Statements for certain disclosures with respect to our former Land and
Development segment.

In the first quarter of fiscal 2022, we expect to realign our segments and will
disclose three reportable segments: Packaging, which will consist of our
converting operations and associated integrated profit from our mill system;
Paper, which will consist of third-party paper sales and associated profit from
our mill system; and Distribution, which will consist of our distribution
business combined with our merchandising display assembly operations.

A detailed discussion of the fiscal 2021 year-over-year changes can be found
below and a detailed discussion of fiscal 2020 year-over-year changes can be
found in Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2020.

Acquisitions

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

On November 2, 2018, we completed the KapStone Acquisition. KapStone was a
leading North American producer and distributor of containerboard, corrugated
products and specialty papers, including liner and medium containerboard, kraft
papers and saturating kraft. KapStone also owned Victory Packaging, a packaging
solutions distribution company with facilities in the U.S., Canada and Mexico.
We have included the financial results of KapStone in our Corrugated Packaging
segment since the date of the acquisition.

See "Note 3. Acquisitions and Investments" of the Notes to Consolidated
Financial Statements for additional information. See also Item 1A. "Risk Factors
- We May Be Unsuccessful in Making and Integrating Mergers, Acquisitions and
Investments, and Completing Divestitures".



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                               EXECUTIVE SUMMARY



In fiscal 2021, we continued to pursue our strategy of offering differentiated,
sustainable paper and packaging solutions that help our customers win. As a
result of our broad portfolio, 188 customers bought at least $1 million from
each of our Corrugated Packaging and Consumer Packaging segments in fiscal 2021.
Net sales of $18,746.1 million for fiscal 2021 increased $1,167.3 million, or
6.6%, compared to fiscal 2020 primarily due to higher selling price/mix and
higher volumes. In the second quarter of fiscal 2021, we experienced lost sales
associated with the Ransomware Incident and winter weather events (the "Events")
and we estimate these Events decreased net sales by approximately $189.1
million. Additionally, we experienced aggregate favorable impact of foreign
currency across our segments. Volumes in fiscal 2020 were negatively impacted by
COVID-19, primarily in the last half of the fiscal year.



Segment income increased $211.3 million in fiscal 2021 compared to fiscal 2020,
primarily due to higher Consumer Packaging and Corrugated Packaging segment
income. A detailed review of our performance appears below under "Results of
Operations".



We generated $2,279.9 million of net cash provided by operating activities in
fiscal 2021, compared to $2,070.7 million in fiscal 2020. The increase was
primarily due to a $141.0 million net decrease in the use of 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. See "COVID-19 RESPONSE - WestRock Pandemic Action Plan" for more
information. We invested $815.5 million in capital expenditures in fiscal 2021
while returning $233.8 million in dividends to our stockholders and repurchasing
$122.4 million of Common Stock. We believe our strong balance sheet and cash
flow provide us the flexibility to continue to invest to sustain and improve our
operating performance. See "Liquidity and Capital Resources" for more
information.

Earnings per diluted share was $3.13 in fiscal 2021 compared to loss per diluted
share of $2.67 in fiscal 2020. Adjusted Earnings Per Diluted Share were $3.39
and $2.75 in fiscal 2021 and 2020, respectively. The loss per diluted share in
fiscal 2020 was driven by a pre-tax non-cash goodwill impairment of $1,333.2
million in our Consumer Packaging reporting unit.

A detailed review of our performance for fiscal 2021 and 2020 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.

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. In our second
quarter Form 10-Q, we announced that all systems were 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 pre-tax 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. In the fourth quarter of fiscal 2021, we recorded a $15 million
credit for preliminary recoveries - approximately $10 million as a reduction of
selling, general, and administrative expenses ("SG&A") excluding intangible
amortization and approximately $5 million as a reduction of

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cost of goods sold. We plan to recover almost all of the remaining cyber insurance and business interruption ransomware losses in future periods. Disputes over the extent of insurance coverage for claims are not uncommon, and there will be a time lag between incurring costs and receiving any insurance product.


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 and technology 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.

See section 1A. “Risk Factors – We are subject to cybersecurity risks, including those relating to customers, employees, suppliers or other company data.”

Expectations for the first quarter of fiscal 2022 and fiscal 2022




In the first quarter of fiscal 2022, we expect a sequential decline in net sales
and earnings from the fourth quarter of fiscal 2021 reflecting the normal season
sequential volume declines in many of our businesses and scheduled mill
maintenance outages. We expect lower volume with three fewer shipping days
during the first quarter of fiscal 2022, although in line with shipping days in
the first quarter of fiscal 2021. Due to delays in mill maintenance in fiscal
2021 for items such as COVID-19 and the Ransomware Incident, we expect
approximately 200,000 tons of maintenance downtime, the peak maintenance outage
period for fiscal 2022. We expect sequential cost inflation driven primarily by
higher natural gas, transportation, and recycled and virgin fiber costs along
with increased health insurance costs prior to the annual reset of employee
deductibles. However, we expect the flow through of the previously published
price increases we are implementing to more than offset inflation.



In fiscal 2022, we expect solid demand across most of our end markets and
continued flow through of the previously published price increases. We expect
record sales and operating profit despite continued commodity input cost
inflation and productivity unavoidably affected by supply chain challenges and
higher labor costs that may persist through the fiscal year. We expect the
implementation of previously published price increases will outpace inflation
despite our expectation for higher recycled fiber, energy, virgin fiber,
chemical and transportation costs. In addition, we expect to benefit from the
fiscal 2021 completion of strategic investments such as the new paper machine at
our Florence, SC mill and our Tres Barras mill upgrade. We expect our planned
mill maintenance outage schedule will be approximately 100,000 tons higher than
in fiscal 2021.



With the completion of certain of our strategic projects in fiscal 2021,
including the paper machine at our Florence, SC mill and the Tres Barras mill
upgrade project, we expect capital expenditures of approximately $1.0 billion in
fiscal 2022.



                               COVID-19 RESPONSE



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 are continuing to focus on the protection, safety and
well-being of our teammates and continuing to match our supply with our
customers' demand. We have modified the WestRock Pandemic Action Plan as the
impact of COVID-19 has evolved. For example, we changed our capital expenditure
assumptions, increased our May 2021 dividend, and in October 2021, announced an

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incremental increase to our November 2021 dividend, in each case as described
below. 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. 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 September 30, 2021, we had achieved more than
$975 million of the approximately $1 billion goal. The ultimate level achieved
has been impacted by modifications such as increased capital investments and
increased dividends as we modified the WestRock Pandemic Action Plan.



Pursuant to the WestRock Pandemic Action Plan, we took a series of actions that
were designed to protect the safety and well-being of our teammates and preserve
cash that could be used to pay down our outstanding debt, all while continuing
to match our supply with our customers' demand. For example, we committed to (i)
reducing discretionary expenses, (ii) using Common Stock to make Company funded
401(k) match and annual contribution (i.e. up to 5% and 2.5%, respectively) from
July 1, 2020 through September 30, 2021 (final period funded in October 2021),
(iii) targeting a reduction of fiscal 2021 capital investments to a range of
$800 million to $900 million, up from an initial range of $600 to $800 million
(we invested $815.5 million in fiscal 2021), and (iv) resetting our quarterly
dividend to $0.20 per share for an annual rate of $0.80 per share, which we did
in May 2020. We paid quarterly dividends of $0.24 per share in May 2021 and
August 2021 and in October 2021, our board of directors declared a quarterly
dividend of $0.25 per share, representing a $1.00 per share annualized dividend
or an increase of 25% since our February 2021 dividend. The recent decisions to
increase our dividend reflects the confidence we have in our business and our
ability to generate strong cash flows, as well as the progress we have made in
reducing debt since we began implementing the WestRock Pandemic Action Plan.



In addition to the items addressed above, 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. We expect to pay the employment
taxes deferred under the CARES Act as required, 50% by December 2021 and the
remaining 50% by December 2022.



During fiscal 2021, we recorded $38.4 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. During fiscal 2020, we provided one-time COVID-19
recognition awards to our teammates who work in manufacturing and operations and
recognized expense of $31.6 million for those awards. During fiscal 2020, we
also incurred an additional expense of $32.4 million for cleaning, safety
supplies and equipment, screening resources and other items. We began tracking
the impact of costs related to COVID-19 in the third quarter of fiscal 2020. We
expect to continue to incur expenses for these items as needed in the future.





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                             RESULTS OF OPERATIONS

The following table summarizes our consolidated results for the two years ended
September 30, 2021:



                                                           Year Ended September 30,
(In millions)                                               2021               2020

Net sales                                               $    18,746.1      $   17,578.8
Cost of goods sold                                           15,315.8          14,381.6
Gross profit                                                  3,430.3           3,197.2
Selling, general and administrative, excluding
intangible
  amortization                                                1,759.3       

1,624.4

Selling, general and administrative intangible
amortization                                                    357.1       

400.5

Loss (gain) on disposal of assets                                 4.1             (16.3 )
Multiemployer pension withdrawal income                          (2.9 )            (1.1 )
Restructuring and other costs                                    31.5             112.7
Goodwill impairment                                                 -           1,333.2
Operating profit (loss)                                       1,281.2            (256.2 )
Interest expense, net                                          (372.3 )          (393.5 )
Loss on extinguishment of debt                                   (9.7 )            (1.5 )
Pension and other postretirement non-service income             134.9       

103.3

Other income, net                                                10.9       

9.5

Equity in income of unconsolidated entities                      40.9       

15.8

Income (loss) before income taxes                             1,085.9            (522.6 )
Income tax expense                                             (243.4 )          (163.5 )
Consolidated net income (loss)                                  842.5            (686.1 )
Less: Net income attributable to noncontrolling
interests                                                        (4.2 )     

(4.8) Net income attributable to ordinary shareholders $ 838.3 $ (690.9)

Net sales (Unaffiliated customers)


Net sales in fiscal 2021 increased $1,167.3 million, or 6.6%, compared to fiscal
2020 primarily due to higher selling price/mix and higher volumes. In the second
quarter of fiscal 2021, we experienced lost sales associated with the Events
that we estimate decreased net sales by approximately $189.1
million. Additionally, we experienced aggregate favorable impact of foreign
currency across our segments. Volumes in fiscal 2020 were negatively impacted by
COVID-19, primarily in the last half of the fiscal year. The change in net sales
by segment is outlined below in "Results of Operations - Corrugated Packaging
Segment" and "Results of Operations - Consumer Packaging Segment".

Cost of goods sold


Cost of goods sold increased to $15,315.8 million in fiscal 2021 compared to
$14,381.6 million in fiscal 2020. Cost of goods sold as a percentage of net
sales was 81.7% in fiscal 2021 compared to 81.8% in fiscal 2020. The increase in
cost of goods sold in fiscal 2021 compared to fiscal 2020 was primarily due to
higher volumes, increased cost inflation and other items, including operational
disruption associated with the Events. These items were partially offset by
productivity improvements and other items. In fiscal 2020, we incurred
approximately $4.5 million of direct costs and property damage associated with
Hurricane Michael, and received Hurricane Michael-related insurance proceeds of
$32.3 million and recorded a reduction of cost of goods sold of $32.1 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 fiscal 2021, we recorded costs of goods
sold of $35.4 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 began to track and report the impact of COVID-19 on fiscal 2020 in
the third fiscal quarter. Fiscal 2020 includes costs of goods sold of $56.5
million associated with COVID-19, including one-time recognition awards to our
teammates who work in manufacturing and operations recorded in the third quarter
of fiscal 2020, increased costs for safety, cleaning and other items related to
COVID-19. We expect to continue to

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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".

Sales, general and administrative, excluding intangible amortization


SG&A excluding intangible amortization increased $134.9 million to $1,759.3
million in fiscal 2021 compared to fiscal 2020 primarily due to a $119.8 million
increase in bonus and stock-based compensation expense as a result of expected
fiscal 2021 payments being higher than fiscal 2020 payments, including a $9.6
million acceleration of stock-based compensation in connection with the
departure of 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 $21.2 million compared to the prior year period,
primarily associated with the Ransomware Incident. These increases were
partially offset by a $29.4 million decrease in bad debt expense compared to the
prior year period, as well as a $18.4 million reduction in travel and
entertainment associated with prolonged shelter-in-place orders in response to
the ongoing effects of COVID-19. SG&A excluding intangible amortization as a
percentage of net sales increased in fiscal 2021 to 9.4% from 9.2% in fiscal
2020.

Commercial, general and administrative intangible amortization


SG&A intangible amortization was $357.1 million and $400.5 million in fiscal
2021 and 2020, respectively. The decline was primarily attributable to certain
intangibles from prior acquisitions reaching full amortization.

Restructuring and other costs


We recorded aggregate pre-tax restructuring and other costs of $31.5 million and
$112.7 million for fiscal 2021 and 2020, respectively. These amounts are not
comparable since the timing and scope of the individual actions associated with
each 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 4.
Restructuring and Other Costs" of the Notes to Consolidated Financial Statements
for additional information, including a description of the type of costs
incurred. We have restructured portions of our operations from time to time and
it is likely that we will engage in additional restructuring opportunities in
the future. See also Item 1A. "Risk Factors - We May Incur Additional
Restructuring Costs and May Not Realize Expected Benefits from Restructuring".

Depreciation of goodwill


In fiscal 2020, we recorded a pre-tax non-cash goodwill impairment of $1,333.2
million in our Consumer Packaging reporting unit. The impairment was driven by
the expected lower volumes and cash flows related to certain external SBS end
markets, including commercial print, tobacco and plate and cup stock markets. In
fiscal 2021, no impairments were recorded as all reporting units that have
goodwill have a fair value that exceeded their carrying values by more than 20%
each.

Interest Expense, net

Interest expense, net was $372.3 million and $393.5 million for fiscal 2021 and
2020, respectively. The decrease was primarily due to lower debt levels in the
current fiscal year that was partially offset by higher interest rates in the
current fiscal year. Additionally, fiscal 2020 was impacted by $20.5 million of
interest income recorded in connection with an indirect tax claim in Brazil
partially offset by a $15.0 million increase in interest expense associated with
the remeasurement of our multiemployer pension liabilities. See "Note 17.
Commitments and Contingencies - Indirect Tax Claim" of the Notes to Consolidated
Financial Statements for additional information. See Item 1A. "Risk Factors - We
Have Had Significant Levels of Indebtedness in the Past and May Incur
Significant Levels of Indebtedness in the Future, Which Could Adversely Affect
Our Financial Condition and Impair Our Ability to Operate Our Business".

Pension and other income unrelated to post-retirement service

Retirement income and other income unrelated to post-retirement service were $ 134.9 million and
$ 103.3 million in fiscal years 2021 and 2020, respectively. The increase is mainly due to the increase in the plan asset balances used to determine the

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expected return on plan assets for fiscal year 2021. Usual retirement costs and other (income) after retirement are included in segment income. See “Note 5. Pension plans” of the Notes to the Consolidated Financial Statements for more information.


Other Income, net

Other income, net was $10.9 million and $9.5 million in fiscal 2021 and 2020,
respectively. Fiscal 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.

Equity in profit or loss of non-consolidated entities


We recorded equity in income of unconsolidated entities of $40.9 million in
fiscal 2021 compared to $15.8 million in fiscal 2020. The increase was driven by
earnings improvement across the portfolio, most notably, our joint venture with
Grupo Gondi.

Provision for Income Taxes



We recorded income tax expense of $243.4 million for fiscal 2021 at an effective
tax rate of 22.4%, compared to an income tax expense of $163.5 million at an
effective tax rate of (31.3)% in fiscal 2020, due to the loss before income tax
in fiscal 2020. See "Note 6. Income Taxes" of the Notes to Consolidated
Financial Statements for additional information, including a table reconciling
the statutory federal tax rate to our effective tax rate. Excluding the effect
of the goodwill impairment, which was largely not tax deductible, our effective
tax rate was 22.5% in fiscal 2020.

Hurricane Michel




In October 2018, our containerboard and pulp mill located in Panama City, FL
sustained extensive damage from Hurricane Michael. We shut down the mill's
operations in advance of the hurricane's landfall. Repair work was completed on
the two paper machines and related infrastructure during June 2019. In the first
quarter of fiscal 2020, we settled our property damage and business interruption
insurance claim for $212.3 million (net of our $15 million deductible) and
received the remaining $32.3 million of insurance proceeds (we received $180.0
million in fiscal 2019 that consisted of $55.3 million of business interruption
recoveries and $124.7 million for direct costs and property damage). The
insurance proceeds received in fiscal 2020 consisted of $11.7 million of
business interruption recoveries and $20.6 million for direct costs and property
damage.

Corrugated Packaging Segment

Corrugated cardboard 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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Corrugated Cardboard Packaging Shipments to North America



                                             First        Second         Third        Fourth         Fiscal
                                            Quarter       Quarter       Quarter       Quarter         Year
Fiscal 2020
North American Corrugated Packaging
  Shipments - thousands of tons              2,591.2       2,618.8       2,504.4       2,504.4       10,218.8
North American Corrugated Containers
  Shipments - BSF                               23.9          23.8          23.2          24.9           95.8

North American Corrugated Containers By

  Shipping Day - MMSF                          385.9         371.2         

369.3 388.0 378.6


Fiscal 2021
North American Corrugated Packaging
  Shipments - thousands of tons              2,519.3       2,485.2       2,582.7       2,688.7       10,275.9
North American Corrugated Containers
  Shipments - BSF                               25.4          24.7          25.3          24.6          100.0
North American Corrugated Containers Per
  Shipping Day - MMSF                          416.7         391.5         402.0         383.6          398.2



Brazil / Corrugated cardboard packaging shipments to India



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

Fiscal 2021
Brazil / India Corrugated Packaging
Shipments
  - thousands of tons                     156.8         183.9         194.9         201.1        736.7
Brazil / India Corrugated
Containers Shipments
  - BSF                                     1.8           1.9           1.9           2.1          7.7
Brazil / India Corrugated
Containers Per
  Shipping Day - MMSF                      23.5          24.5          26.0          26.4         25.1




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Corrugated Packaging Segment – Net sales and income




                                                         Segment        

To recover

(In millions, except percentages)    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
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
Fourth Quarter                              3,398.7         374.8           11.0
Total                               $      12,343.7     $ 1,116.8            9.0 %



(1) Net sales before intersegment eliminations

Net sales (Aggregate) – Corrugated Cardboard Packaging Segment


Net sales before intersegment eliminations for the Corrugated Packaging segment
increased $924.5 million in fiscal 2021 compared to fiscal 2020 primarily
reflecting $675.7 million of higher selling price/mix and $298.0 million of
higher volumes that was partially offset by $25.2 million of unfavorable impact
of foreign currency. Volumes were negatively impacted by an estimated $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 fiscal 2020 were
negatively impacted by COVID-19, primarily in the last half of the fiscal year.
Record North American per day box shipments during the fiscal year ended
September 30, 2021 increased 5.2% compared to the prior fiscal year.

Segment Revenue – Corrugated Packaging Segment


Segment income attributable to the Corrugated Packaging segment in fiscal 2021
increased $79.1 million compared to fiscal 2020, primarily due to $686.5 million
of margin impact from higher selling price/mix, $93.7 million of higher volumes
excluding the Events, $24.8 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, an estimated $19.9 million of lower economic
downtime 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. 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 fiscal 2020 was $33.5
million compared to $20.8 million in fiscal 2021. These items were partially
offset by an estimated $553.3 million of net cost inflation, an estimated $69.6
million of lower productivity, $42.6 million of estimated impact from the
Ransomware Incident, $27.8 million of Hurricane Michael insurance recoveries net
of direct costs and $29.1 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. Net cost inflation
consisted primarily of higher recovered fiber, wage and other, energy, freight,
chemical and virgin fiber costs compared to the prior fiscal year.

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 since
it is not consolidated.

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                                             First        Second         Third        Fourth        Fiscal
                                            Quarter       Quarter       Quarter       Quarter        Year
Fiscal 2020
Consumer Packaging Shipments - thousands
  of tons                                      922.4         987.7         

984.5 976.8 3,871.4


Fiscal 2021
Consumer Packaging Shipments - thousands
  of tons                                      940.4         913.0         987.4         998.4       3,839.2



Consumer packaging segment – Net sales and income




                                                        Segment       

To recover

(In millions, except percentages)    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
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
Fourth Quarter                              1,783.0        151.6           8.5
Total                               $       6,702.7     $  457.3           6.8 %



(1) Net sales before intersegment eliminations

Net sales (Aggregate) – Consumer packaging segment


Net sales before intersegment eliminations for the Consumer Packaging segment
increased $369.7 million in fiscal 2021 compared to the prior year primarily due
to $202.6 million of higher selling price/mix, $78.3 million of higher volumes
and $88.5 million of favorable impact of foreign currency. Volumes were
negatively impacted by an estimated $40.5 million and $31.7 million due to the
Ransomware Incident and winter weather, respectively, in the second quarter of
fiscal 2021. Additionally, volumes in fiscal 2020 were negatively impacted by
COVID-19, primarily in the last half of the fiscal year.

Segment Revenue – Consumer Packaging Segment




Segment income attributable to the Consumer Packaging segment in fiscal 2021
increased $133.6 million compared to the prior year. Segment income in the
period increased primarily due to $168.3 million of margin impact from higher
selling price/mix, an estimated $158.4 million of productivity improvements,
$35.6 million of higher volumes excluding the Events, an estimated $31.0 million
of lower economic downtime, and other items. 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 fiscal 2020 was $25.1
million compared to $15.8 million in fiscal 2021. These items were partially
offset by an estimated $225.4 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, recovered fiber, chemical, energy and freight costs.



                        LIQUIDITY AND CAPITAL RESOURCES

We finance our working capital needs, capital expenditures, mergers, acquisitions and investments, restructuring activities, dividends and share buybacks from the net cash provided by operating activities, borrowings

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under our credit facilities, proceeds from 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 13. Debt" of the Notes to Consolidated Financial
Statements 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.

We are a party to enforceable and legally binding contractual obligations
involving commitments to make payments to third parties. These obligations
impact our short-term and long-term liquidity and capital resource
needs. Certain contractual obligations are reflected on the consolidated balance
sheet as of September 30, 2021, while others are considered future
obligations. Our contractual obligations primarily consist of items such as:
long-term debt, including current portion, lease obligations, purchase
obligations and other obligations. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Contractual
Obligations", for additional information.

Cash and cash equivalents were $290.9 million at September 30, 2021 and $251.1
million at September 30, 2020. Approximately three-fourths of the cash and cash
equivalents at September 30, 2021 were 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 September 30, 2021, total debt was $8,194.1 million, $168.8
million of which was current. At September 30, 2020, total debt was $9,430.6
million, $222.9 million of which was current. Included in our total debt at
September 30, 2021 was $192.4 million of non-cash acquisition related step-up.
Total debt was primarily impacted by net cash provided by operating activities
exceeding aggregate capital expenditures, dividends and stock repurchases.

At September 30, 2021, we had approximately $3.7 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. On September 10, 2021, we redeemed $400 million aggregate principal
amount of our 4.900% senior notes due March 2022 using cash and cash equivalents
and recorded a loss on extinguishment of debt of $8.6 million.

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

TO September 30, 2021, we have had $ 63.2 million outstanding letters of credit outstanding.




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

We engage in certain customer-based SCF programs to accelerate the receipt of
payment for outstanding accounts receivables from certain customers. Certain
costs of these programs are borne by the customer or us. Receivables transferred
under these customer-based supply chain finance programs generally meet the
requirements to be accounted for as sales in accordance with guidance under
Financial Accounting Standards Board's ("FASB") Accounting Standards
Codification ("ASC") 860, "Transfers and Servicing" ("ASC 860") resulting in
derecognition of such receivables from our consolidated balance sheets.
Receivables involved with these customer-based supply chain financing programs
constitute approximately 2% 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. For a
discussion of our monetization facilities see "Note 12. Fair Value - A/R Sales
Agreements".

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

                                       45
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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 sheets 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 that allows for borrowing availability based on the eligible underlying
accounts receivable and compliance with certain covenants. For a discussion of
our receivables securitization facility and the amount outstanding under our
vendor financing and commercial card programs see "Note 13. Debt" of the Notes
to Consolidated Financial Statements for additional information.

Cash Flow Activity



                                              Year Ended September 30,
(In millions)                                   2021              2020

Net cash flow generated by operating activities $ 2,279.9 $ 2,070.7
Net cash used for investing activities $ (676.0) $ (921.5)
Net cash used for financing activities $ (1,580.4) $ (1,021.1)



Net cash provided by operating activities during fiscal 2021 increased $209.2
million from fiscal 2020 primarily due to higher consolidated net income and a
$141.0 million net decrease in the use of working capital compared to the prior
year.

Net cash used for investing activities of $676.0 million in fiscal 2021
consisted primarily of $815.5 million for capital expenditures that were
partially offset by $58.5 million of proceeds from the sale of the Summerville,
SC sawmill, $44.9 million of proceeds from corporate owned life insurance and
$29.5 million of proceeds from the sale of investments. Net cash used for
investing activities of $921.5 million in fiscal 2020 consisted primarily of
$978.1 million for capital expenditures that were partially offset by $35.0
million of proceeds from the sale of property, plant and equipment and $16.9
million of proceeds from corporate owned life insurance.

We invested $815.5 million in capital expenditures in fiscal 2021, which is in
the range of the $800 million to $900 million we expected to invest heading into
the year. With the completion of certain of our strategic projects in fiscal
2021, including the paper machine at our Florence, SC mill and the Tres Barras
mill upgrade project, we expect capital expenditures of approximately $1.0
billion in fiscal 2022. At this level of capital investment, we are confident
that we will continue to invest in the appropriate safety, environmental and
maintenance 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.

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In fiscal 2021, net cash used for financing activities of $1,580.4 million
consisted primarily of a net decrease in debt of $1,241.3 million and cash
dividends paid to stockholders of $233.8 million and stock repurchases of $122.4
million. In fiscal 2020, net cash used for financing activities of $1,021.1
million consisted primarily of a net decrease in debt of $673.9 million and cash
dividends paid to stockholders of $344.5 million.

We estimate that we will invest approximately $21 million for capital
expenditures during fiscal 2022 in connection with matters relating to
environmental compliance. We were obligated to purchase approximately $249
million of fixed assets at September 30, 2021 for various capital projects. See
Item 1A. "Risk Factors - Our Capital Expenditures May Not Achieve the Desired
Outcomes or May Be Achieved at a Higher Cost than Anticipated".

At September 30, 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 $59 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. 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 fiscal 2022 cash tax rate will be
slightly lower than our income tax rate. Our cash tax rate in fiscal 2023 and
2024 will be driven slightly higher than our income tax rate primarily due to
the absence of certain nonrecurring tax credits, the expected release of a 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.

During fiscal 2021 and 2020, we made contributions of $23.2 million and $22.5
million, respectively, to our U.S. and non-U.S. pension plans. Based on current
facts and assumptions, we expect to contribute approximately $25 million to our
U.S. and non-U.S. pension plans in fiscal 2022. Based on current assumptions,
including future interest rates, we estimate that minimum pension contributions
to our U.S. and non-U.S. pension plans will be approximately $23 million to $24
million annually in fiscal 2023 through 2026. We have made contributions and
expect to continue to make contributions in the coming years to our pension
plans in order to ensure that our funding levels remain adequate in light of
projected liabilities and to meet the requirements of the Pension Act and other
regulations. The net overfunded status of our U.S. and non-U.S. pension plans at
September 30, 2021 was $405.1 million. See "Note 5. Retirement Plans" of the
Notes to Consolidated Financial Statements.

In the normal course of business, we evaluate our potential exposure to MEPPs,
including with respect to potential withdrawal liabilities. In fiscal 2018, we
submitted formal notification to withdraw from PIUMPF and Central States,
Southeast and Southwest Areas Pension Plan ("Central States"), and recorded
estimated withdrawal liabilities for each. We also have liabilities associated
with other MEPPs that we, or legacy companies, have withdrawn from in the past.
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 liability, both
individually and in the aggregate, is not material for the remaining plans in
which we participate. At September 30, 2021 and September 30, 2020, we had
withdrawal liabilities recorded of $247.1 million and $252.0 million,
respectively, including liabilities associated with PIUMPF's accumulated funding
deficiency demands. See "Note 5. Retirement Plans - Multiemployer Plans" of the
Notes to Consolidated Financial Statements for additional information. See also
Item 1A. "Risk Factors - We May Incur Withdrawal Liability and/or Increased
Funding Requirements in Connection with MEPPs".

In October 2021, our board of directors declared a quarterly dividend of $0.25
per share, representing a $1.00 per share annualized dividend or an increase of
25% since our February 2021 dividend. The recent decisions to increase our
dividend reflects the confidence we have in our business and our ability to
generate strong cash flows, as well as the progress we have made in reducing
debt since we began implementing the WestRock Pandemic Action Plan. In fiscal
2021, we paid an annual dividend of $0.88 per share (we paid a quarterly
dividend of $0.24, $0.24, $0.20 and $0.20 per share in August 2021, May 2021,
February 2021 and November 2020, respectively) compared to $1.33 per share in
fiscal 2020 (we paid a quarterly dividend of $0.20, $0.20, $0.465 and $0.465 per
share in August 2020, May 2020, February 2020 and November 2019, respectively)
and $1.82 per share in fiscal 2019. In May 2020, we reduced our dividend given
the uncertain market conditions at the time driven by COVID-19. We believe the
reduction was prudent given the uncertain market conditions at the time and the
reduction has allowed us to allocate additional cash to pay down our outstanding
debt. Our short-term goal has

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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 align to our strategy and generate attractive returns, and (v)
opportunistic share repurchases.

In July 2015, our board of directors authorized a repurchase program of up to
40.0 million shares of our Common Stock, representing approximately 15% of our
outstanding Common Stock as of July 1, 2015. Shares of our Common Stock may be
purchased from time to time in open market or privately negotiated transactions.
The timing, manner, price and amount of repurchases will be determined by
management at its discretion based on factors, including the market price of our
Common Stock, general economic and market conditions and applicable legal
requirements. The repurchase program may be commenced, suspended or discontinued
at any time. In fiscal 2021, we repurchased approximately 2.5 million shares of
our Common Stock for an aggregate cost of $125.1 million (a portion of which
settled after September 30, 2021). In fiscal 2020, we repurchased no shares of
our Common Stock. In fiscal 2019, we repurchased approximately 2.1 million
shares of our Common Stock for an aggregate cost of $88.6 million. As of
September 30, 2021, we had approximately 16.6 million shares of Common Stock
available for repurchase under the program.

We anticipate that we will be able to fund our capital expenditures, interest
payments, dividends and stock repurchases, pension payments, working capital
needs, note repurchases, restructuring activities, repayments of current portion
of long-term debt and other corporate actions for the foreseeable future from
cash generated from operations, borrowings under our credit facilities, proceeds
from our 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.

Contractual obligations


We summarize our enforceable and legally binding contractual obligations at
September 30, 2021, and the effect these obligations are expected to have on our
liquidity and cash flow in future periods in the following table. Certain
amounts in this table are based on management's estimates and assumptions about
these obligations, including their duration, the possibility of renewal,
anticipated actions by third parties and other factors, including estimated
minimum pension plan contributions and estimated benefit payments related to
postretirement obligations, supplemental retirement plans and deferred
compensation plans. Because these estimates and assumptions are subjective, the
enforceable and legally binding obligations we actually pay in future periods
may vary from those presented in the table.



                                                                   Payments Due by Period
                                                                        Fiscal 2023       Fiscal 2025
(In millions)                           Total         Fiscal 2022        and 2024          and 2026         Thereafter

Long-Term Debt, including current
portion,
  excluding finance lease
obligations (1)                       $  7,787.9     $       160.2     $     1,258.2     $     1,990.4     $    4,379.1
Lease obligations (2)                    1,108.9             207.0             311.3             184.0            406.6
Purchase obligations and other (3)
(4) (5)                                  1,749.2           1,021.5             221.9             128.8            377.0
Total                                 $ 10,646.0     $     1,388.7     $     1,791.4     $     2,303.2     $    5,162.7



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

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

excluded $ 142.1 million of the fair value of the progressive, deferred debt

financing costs and discounts on unamortized bonds in the table to arrive at

real debt obligations. See “Note 13. Debt” of the Notes to

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

    various debt instruments.



(2) See “Note 14. Leases” in the appendix to the consolidated financial statements for

    additional information.



(3) Purchase obligations include agreements to purchase goods or services that

are enforceable and legally binding and which specify all important conditions,

comprising: fixed or minimum quantities to be purchased; fixed, minimum or

variable price supply; and the approximate time of the transaction.

Purchase obligations exclude agreements that are terminable without penalty.



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(4) We have included the estimated future minimum contributions to the pension plan, the IPP

withdrawal payments with defined payment terms and estimated benefit payments

related to pension commitments, supplementary pension plans and

deferred compensation plans. Our estimates are based on factors such as

discount rate and expected returns on plan assets. Future contributions are

subject to changes in our underfunding status based on factors such as

investment returns, discount rates, returns on plan assets and changes in

legislation. Our assumptions may change, the real market

the return may vary or we may choose to contribute different amounts. We

excluded $ 80.2 million the IPP withdrawal liability recorded in

September 30, 2021, including our estimate of accumulated funding

deficit, due to the absence of defined payment terms for some of the

obligations. See “Note 5. Pension plans – Multi-employer plans” of the

    Notes to Consolidated Financial Statements for additional information.



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

• An item entitled “other long-term liabilities” reflected in our

      balance sheet because these liabilities do not have a defined pay-out
      schedule.

$ 250.4 million for certain provisions of ASC 740, Associated “Income Taxes”

with liabilities, mainly for uncertain tax positions due to the

uncertainty as to the amount and time of payment, if any.



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

Environmental compliance expenses


See Item 1. "Business - Governmental Regulation - Environmental" and "Business -
Governmental Regulation - Climate Change" for a discussion of our expenditures
for environmental compliance.

Summary financial information of the guarantor

WRKCo, Inc. (the “Issuer”), a wholly owned subsidiary of the parent company (as defined below), has issued the following debt securities pursuant to offers registered under the Securities Act of 1933, as amended ( collectively for the purposes of this paragraph, the “Notes”):



 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 Company, WRKCo Inc. and WestRock RKT, LLC
("RKT") and WestRock MWV, LLC ("MWV", and together with RKT, 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 the Parent and the
Guarantor Subsidiaries. Accordingly, each series of the Notes is fully and
unconditionally guaranteed on a joint and several basis by the Parent and the
Guarantor Subsidiaries (together, the "Guarantors"). Collectively, the Issuer
and the Guarantors are the "Obligor Group".

                                       49

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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 the Parent will be
automatically released and will terminate upon the merger of the Parent with or
into the Issuer or another guarantor, the consolidation of the Parent with the
Issuer or another guarantor or the transfer of all or substantially all of the
assets of the 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.

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 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.

                                       50

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SUMMARY STATEMENT OF OPERATIONS


                                                            Year Ended
                                                           September 30,
(In millions)                                                  2021

Net sales to unrelated parties                            $       1,550.4
Net sales to non-Guarantor Subsidiaries                   $       1,049.5
Gross profit                                              $         631.5

Net interest expense with non-guarantor subsidiaries $ (66.8) Net loss and net loss attributable to Debtor group $ (94.8)


SUMMARIZED BALANCE SHEETS



                                         September 30,
(In millions)                         2021           2020

ASSETS
Total current assets               $    310.4     $    334.8

Non-current amounts due from non-

  Guarantor Subsidiaries           $    306.1     $    310.0
Other noncurrent assets (1)           1,980.5        2,096.7
Total noncurrent assets            $  2,286.6     $  2,406.7

LIABILITIES
Current amounts due to non-
  Guarantor Subsidiaries           $  2,281.4     $  1,520.1
Other current liabilities               130.4          237.9
Total current liabilities          $  2,411.8     $  1,758.0

Non-current amounts due to non-

  Guarantor Subsidiaries           $  3,437.4     $  2,821.3

Other non-current liabilities 7,296.6 8,633.4 Total non-current liabilities $ 10,734.0 $ 11,454.7




         (1) Other noncurrent assets includes aggregate goodwill and
             intangibles, net of $1,699.2 million and $1,797.2 million as
             of September 30, 2021 and September 30, 2020, respectively.




                          NON-GAAP FINANCIAL MEASURES

We report our financial results in accordance with generally accepted accounting
principles in the U.S. ("GAAP"). However, management believes certain non-GAAP
financial measures provide our board of directors, investors, potential
investors, securities analysts and others with additional meaningful financial
information that should be considered when assessing our ongoing performance.
Management also uses these non-GAAP financial measures in making financial,
operating and planning decisions, and in evaluating our performance. Non-GAAP
financial measures should be viewed in addition to, and not as an alternative
for, our GAAP results. The non-GAAP financial measures we present may differ
from similarly captioned measures presented by other companies.

We use the non-GAAP financial measures "Adjusted Net Income" and "Adjusted
Earnings Per Diluted Share". Management believes these measures provide our
board of directors, investors, potential investors, securities analysts and
others with useful information to evaluate our performance because they exclude
restructuring and other costs and other specific items that management believes
are not indicative of the ongoing operating results of the business. We and our
board of directors use this information to evaluate our performance relative to
other periods. We believe that the most directly comparable GAAP measures to
Adjusted Net Income and Adjusted

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Diluted earnings per share is net earnings (loss) attributable to common shareholders and earnings (loss) per diluted share, respectively.

Below is a reconciliation of the non-GAAP financial measure of adjusted earnings per diluted share to earnings (loss) per diluted share, the most directly comparable GAAP measure (in dollars per share) for the periods indicated. .




                                                            Years Ended September 30,
                                                             2021           

2020

Earnings (loss) per diluted share                        $       3.13       $      (2.67 )
Goodwill impairment                                                 -       

5.07

Restructuring and other items                                    0.09               0.33
COVID-19 employee payments                                       0.06               0.09
Grupo Gondi option                                               0.06                  -
Ransomware recovery costs, net of insurance proceeds             0.05                  -
Accelerated compensation - former CEO                            0.04                  -
Loss on extinguishment of debt                                   0.03                  -
Losses at closed plants, transition and start-up costs           0.01       

0.07

North Charleston and Florence transition and

 reconfiguration costs                                              -       

0.13

Accelerated depreciation on major capital projects and

 certain plant closures                                             -       

0.05

MEPP liability adjustment due to interest rates                     -               0.05
Gain on sale of investment                                      (0.05 )                -
Gain on sale of sawmill                                         (0.03 )                -
Brazil indirect tax claim                                           -              (0.14 )
Litigation recovery                                                 -              (0.07 )
Adjustment related to Tax Cuts and Jobs Act                         -              (0.06 )
Direct recoveries from Hurricane Michael, net of
 related costs                                                      -              (0.05 )
Gain on sale of certain closed facilities                           -              (0.05 )
Other                                                               -       

0.02

Adjustment to reflect adjusted earnings on a fully diluted basis

                                                       -              (0.02 )
Adjusted Earnings Per Diluted Share                      $       3.39       $       2.75






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The GAAP results in the tables below for Pre-Tax, Tax and Net of Tax are
equivalent to the line items "Income (loss) before income taxes", "Income tax
expense" and "Consolidated net income (loss)", respectively, as reported on the
Consolidated Statements of Operations. Set forth below are reconciliations of
Adjusted Net Income to the most directly comparable GAAP measure, Net income
(loss) attributable to common stockholders (represented in the table below as
the GAAP Results for Consolidated net income (loss) (i.e., Net of Tax) less net
income attributable to Noncontrolling interests), for the periods indicated (in
millions):



                                           Year ended September 30, 2021                  Year ended September 30, 2020
                                      Pre-Tax           Tax         Net of Tax        Pre-Tax         Tax         Net of Tax
As reported                         $    1,085.9      $ (243.4 )   $      

842.5 $ (522.6) $ (163.5) $ (686.1)
Good will deficiency

                            -             -                -         1,333.2        (18.9 )        1,314.3
Restructuring and other items               31.5          (7.7 )           23.8           112.7        (28.2 )           84.5
COVID-19 employee payments                  22.0          (5.4 )           16.6            31.6         (7.7 )           23.9
Grupo Gondi option                          22.5          (6.7 )           15.8               -            -                -
Ransomware recovery costs, net of
insurance
 proceeds                                   18.9          (4.7 )           14.2               -            -                -
Accelerated compensation - former
CEO                                         11.7             -             11.7               -            -                -
Loss on extinguishment of debt               9.7          (2.4 )            7.3             1.5         (0.4 )            1.1
Losses at closed plants,
transition and
 start-up costs                              3.0          (0.6 )            2.4            21.9         (5.4 )           16.5
Accelerated depreciation on major
capital
 projects and certain plant
closures                                     0.7          (0.2 )            0.5            17.3         (4.2 )           13.1
North Charleston and Florence
transition and
 reconfiguration costs                         -             -                -            43.4        (10.6 )           32.8
Multiemployer pension withdrawal
expense                                        -             -                -             0.9         (0.2 )            0.7
Gain on sale of investment                 (16.0 )         2.4            (13.6 )             -            -                -
Gain on sale of sawmill                    (16.5 )         8.3             (8.2 )             -            -                -
Gain on sale of certain closed
facilities                                  (0.9 )         0.2             (0.7 )         (15.6 )        3.8            (11.8 )
Brazil indirect tax claim                   (0.9 )         0.3             (0.6 )         (51.9 )       16.0            (35.9 )
MEPP liability adjustment due to
interest rates                              (0.4 )         0.1             (0.3 )          15.0         (3.7 )           11.3
Litigation recovery                            -             -                -           (23.9 )        5.9            (18.0 )
Adjustment related to Tax Cuts
and Jobs Act                                   -             -                -               -        (16.4 )          (16.4 )
Direct recoveries from Hurricane
Michael, net
 of related costs                              -             -                -           (16.1 )        4.0            (12.1 )
Land and Development operating
results                                        -             -                -            (1.3 )        0.3             (1.0 )
Other                                          -             -                -             6.0         (1.5 )            4.5
Adjusted Results                    $    1,171.2      $ (259.8 )   $      911.4     $     952.1     $ (230.7 )   $      721.4
Noncontrolling interests                                                   (4.2 )                                        (4.8 )
Adjusted Net Income                                                $      907.2                                  $      716.6







We discuss some of these charges in more detail in “Note 4. Restructuring and other costs”, “Note 7. Segment information” and “Note 17. Commitments and contingencies – Indirect tax claim”.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

We have prepared our accompanying consolidated financial statements in accordance with GAAP, which requires management to make estimates that affect the amounts of income, expenses, assets and liabilities reported. Certain significant accounting policies are described in “Note 1. Description of operations and summary of significant accounting policies” of the Notes to the consolidated financial statements.


These critical accounting policies are both important to the portrayal of our
financial condition and results of operations and require some of management's
most subjective and complex judgments. The accounting for these

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matters involves the making of estimates based on current facts, circumstances
and assumptions that, in management's judgment, could change in a manner that
would materially affect management's future estimates with respect to such
matters and, accordingly, could cause our future reported financial condition
and results of operations to differ materially from those that we are currently
reporting based on management's current estimates.

Good will


We review the carrying value of our goodwill annually at the beginning of the
fourth quarter of each fiscal year, or more often if events or changes in
circumstances indicate that the carrying amount may exceed fair value as set
forth in ASC 350, "Intangibles - Goodwill and Other." We test goodwill for
impairment at the reporting unit level, which is an operating segment or one
level below an operating segment, referred to as a component.

ASC 350 allows an optional qualitative assessment, prior to a quantitative
assessment test, to determine whether it is "more likely than not" that the fair
value of a reporting unit exceeds its carrying amount. We generally do not
attempt a qualitative assessment and move directly to the quantitative test. As
part of the quantitative test, we utilize the present value of expected cash
flows or, as appropriate, a combination of the present value of expected cash
flows and the guideline public company method to determine the estimated fair
value of our reporting units. This present value model requires management to
estimate future cash flows, the timing of these cash flows, and a discount rate
(based on a weighted average cost of capital), which represents the time value
of money and the inherent risk and uncertainty of the future cash flows. The
assumptions we use to estimate future cash flows are consistent with the
assumptions that the reporting units use for internal planning purposes, which
we believe would be generally consistent with that of a market participant. If
we determine that the estimated fair value of the reporting unit exceeds its
carrying amount, goodwill of the reporting unit is not impaired. If we determine
that the carrying amount of the reporting unit exceeds its estimated fair value,
we measure the goodwill impairment charge based on the excess of a reporting
unit's carrying amount over its fair value as required under ASU 2017-04,
"Simplifying the Test for Goodwill Impairment", which we early adopted starting
with our fiscal 2020 annual goodwill impairment test on July 1, 2020. We
describe our accounting policy for goodwill further in "Note 1. Description of
Business and Summary of Significant Accounting Policies - Goodwill and
Long-Lived Assets" of the Notes to Consolidated Financial Statements.

During the fourth quarter of fiscal 2021, we completed our annual goodwill
impairment testing. We considered factors such as, but not limited to, our
expectations for the short-term and long-term impacts of COVID-19, macroeconomic
conditions, industry and market considerations, and financial performance,
including planned revenue, earnings and capital investments of each reporting
unit. The discount rate used for each reporting unit ranged from 8.0% to 12.0%.
We used perpetual growth rates in the reporting units ranging from 0.5% to 1.0%.
All reporting units that have goodwill were noted to have a fair value that
exceeded their carrying values by more than 20% each. If we had concluded that
it was appropriate to increase the discount rate we used by 100 basis points to
estimate the fair value of each reporting unit, the fair value of each of our
reporting units would have continued to exceed its carrying value.

At September 30, 2021, the North American Corrugated, Consumer Packaging, Brazil
Corrugated and Victory Packaging reporting units had $3,518.5 million, $2,295.9
million, $103.7 million and $41.1 million of goodwill, respectively. Our
long-lived assets, including intangible assets remain recoverable. Subsequent to
our annual test, we monitored industry economic trends until the end of our
fiscal year and determined no additional testing for goodwill impairment was
warranted. We have not made any material changes to our impairment loss
assessment methodology during the past three fiscal years. Currently, we do not
believe there is a reasonable likelihood that there will be a material change in
future assumptions or estimates we use to calculate impairment losses. However,
we cannot predict certain market factors with certainty, including the impact of
COVID-19, and have certain risks inherent to our operations as described in Item
1A. "Risk Factors". If actual results are not consistent with our assumptions
and estimates, we may be exposed to additional impairment losses that could be
material.

See Item 1A. "Risk Factors - We Have a Significant Amount of Goodwill and Other
Intangible Assets and a Write-Down Would Adversely Impact Our Operating Results
and Shareholders' Equity".

 Long-Lived Assets

We follow the provisions included in ASC 360, “Property, Plant, and Equipment” to determine whether the carrying amount of any of our long-lived assets, including rights of use (“ROU”) and depreciable intangible assets

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other than goodwill, is impaired. We review long-lived assets for impairment
when events or changes in circumstances indicate that the carrying amount of the
long-lived asset might not be recoverable. If we determine that indicators of
impairment are present, we determine whether the estimated undiscounted cash
flows for the potentially impaired assets are less than the carrying value. This
requires management to estimate future cash flows through operations over the
remaining useful life of the asset and its ultimate disposition. The assumptions
we use to estimate future cash flows are consistent with the assumptions we use
for internal planning purposes, updated to reflect current expectations. If our
estimated undiscounted cash flows do not exceed the carrying value, we estimate
the fair value of the asset and record an impairment charge if the carrying
value is greater than the fair value of the asset. We estimate fair value using
discounted cash flows, observable prices for similar assets, or other valuation
techniques.

Our judgments regarding the existence of indicators of impairment are based on legal factors, market conditions and operational performance. Future events could lead us to conclude that there are indicators of impairment and that the assets associated with a particular transaction are impaired. Assessing impairment also requires us to estimate future operating results and cash flows, which also requires management judgment.

Accounting for income taxes


Our income tax expense, deferred tax assets and liabilities, and liabilities for
unrecognized tax benefits, reflect management's best assessment of estimated
current and future taxes to be paid. Significant judgments and estimates are
required in determining the consolidated income tax expense. In evaluating our
ability to recover our deferred tax assets within the jurisdiction from which
they arise we consider all available positive and negative evidence, including
future reversals of existing taxable temporary differences, projected future
taxable income, tax planning strategies, recent financial operations and their
associated valuation allowances, if any. We use significant judgment in (i)
determining whether a tax position, based solely on its technical merits, is
"more likely than not" to be sustained upon examination and (ii) measuring the
tax benefit as the largest amount of benefit that is "more likely than not" to
be realized upon ultimate settlement. We do not record any benefit for the tax
positions where we do not meet the "more likely than not" initial recognition
threshold. Income tax positions must meet a "more likely than not" recognition
threshold at the effective date to be recognized. We generally recognize
interest and penalties related to unrecognized tax benefits in income tax
expense in the Consolidated Statements of Operations. Resolution of the
uncertain tax positions could have a material adverse effect on our cash flows
or materially benefit our results of operations in future periods depending upon
their ultimate resolution. A 1% change in our effective tax rate would increase
or decrease tax expense by approximately $10.9 million for fiscal 2021. A 1%
change in our effective tax rate used to compute deferred tax liabilities and
assets, as recorded on the September 30, 2021 consolidated balance sheet, would
increase or decrease tax expense by approximately $124 million for fiscal 2021.

Pension


The funded status of our qualified and non-qualified U.S. and non-U.S. pension
plans increased $353.4 million in fiscal 2021. Our U.S. qualified and
non-qualified pension plans were over funded by $387.9 million as of September
30, 2021. Our non-U.S. pension plans were over funded by $17.2 million as of
September 30, 2021. Our U.S. pension plan benefit obligations were negatively
impacted in fiscal 2021 primarily by a 1-basis point decrease in the discount
rate compared to the prior measurement date. The non-U.S. pension plan
obligations were positively impacted in fiscal 2021 by a 47-basis point increase
in the discount rate compared to the prior measurement date.

The determination of pension obligations and pension expense requires various
assumptions that can significantly affect liability and expense amounts, such as
the expected long-term rate of return on plan assets, discount rates, projected
future compensation increases and mortality rates for each of our plans. These
assumptions are determined annually in conjunction with our actuary. The
accounting for these matters involves the making of estimates based on current
facts, circumstances and assumptions that, in management's judgment, could
change in a manner that would materially affect management's future estimates
with respect to such matters and, accordingly, could cause our future reported
financial condition and results of operations to differ materially from those
that we are currently reporting based on management's current estimates.

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A 25-basis point change in the discount rate, compensation level, expected
long-term rate of return on plan assets and interest crediting rate, factoring
in our corridor (as defined herein) as appropriate, would have had the following
effect on fiscal 2021 pension expense (amounts in the table in parentheses
reflect additional income, in millions):

                                                         Pension Plans
                                                    25 Basis       25 Basis
                                                     Point          Point
                                                    Increase       Decrease
Discount rate                                      $    (14.5 )   $     15.2
Compensation level                                 $      0.3     $     (0.3 )
Expected long-term rate of return on plan assets   $    (16.7 )   $     16.7
Interest crediting rate                            $      0.4     $     (0.4 )




New Accounting Standards

See “Note 1. Description of operations and summary of significant accounting policies” of the notes to the consolidated financial statements for a full description of recent accounting pronouncements, including the respective expected adoption dates and expected effects on our results. ‘operations and our financial situation.

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Zeromax moving company is based in New York https://goodwillsavannahga.org/zeromax-moving-company-is-based-in-new-york/ Fri, 19 Nov 2021 06:36:16 +0000 https://goodwillsavannahga.org/zeromax-moving-company-is-based-in-new-york/

We are a moving company in New York. Are you considering a simple move? Maybe a remote or local move? We recommend that you use Zeromax’s full support. Our company will handle the preparation for the move and our moving experts in New York will deliver your items to the desired address. They will help them lift them, unpack them and set them up. Whatever the hour, we have experienced movers who will provide you with prompt service. You can place your order 24/7, and your gear will be there within 15 minutes of agreeing on the details.

Our moving services

Our New York moving companies are just professionals who know their stuff well. We also provide packaging material at wholesale rates. We have a system of discounts for regular customers. The local moving services we offer can be paid for in cash or with a non-cash payment.

  1. Storage warehouses on the move or production sites. Warehouse shelves can be disassembled or assembled.
  2. Residential moving companies – If you use the residential moving services offered by our company, you can save yourself all these hassles by paying for the services of skilled workers. In addition to packaging, the company offers the installation and assembly of furniture and household appliances.
  3. Commercial Movers – Professional movers finish the job at a high standard. They consider all aspects. It is better to contact an expert company rather than a personal mover. They may not finish the job properly and could even damage your property. In such a case, the customer will not receive compensation. Therefore, it is not worth hiring commercial movers for the lowest price.
  4. Flat-rate mover – The flat-rate mover service only offers professionals. Transport and assembly of furniture.
  5. Local Movers Local Movers – Our local movers know the area well and are able to get around. They also know the layouts of the majority of homes and businesses in the region. Using this knowledge, our professional movers are able to anticipate the types of materials and packaging you will need and will have the consumables you need.
  6. Moving Artwork – Family photos, small mirrors and other decorative artwork should be wrapped in newspaper and bubble wrap before being placed vertically in an empty cardboard box covered with bubble wrap or a foam pad.
  7. Inexpensive Moving Boxes – We have our own packaging manufacturing factory and experienced drivers. This allows us to easily move fragile items. Our company is fully responsible for all financial transactions.
  8. Moving over long distances – Our firm will professionally manage your short distance movers quickly and smoothly without any difficulty. Your employees will be properly loaded for long distance transport.

Moving expense calculator and its features

Do you want to know in advance how much it will cost to transport your goods from your apartment or chalet? You can estimate the cost of moving goods remotely if the volume of work is minimal. For example, if the office space is for 10 employees. The customer should prepare the information in advance in order to get an accurate estimate when calling the transport company.

There are many calculations involved during the moving process, including cost estimates and mileage. One of the most important factors in your move is the space you need for your furniture and belongings. Knowing how much space your belongings are consuming is important to avoid paying to fill too many spaces. Below, enter the dimensions for each item you intend to bring along, as well as the dimensions for the most basic items. It will calculate the number of square meters of your items in total. This calculation can help you make an informed decision on how to pack and move your belongings.

Zeromax: Why choose it?

  • Responsibilities for the property and it’s time it’s over
  • Throughout the move Supervision of transport, personnel, and at all times.
  • Only professional movers can move, not street movers.
  • We have extensive experience in complex moves.
  • Free visit by an assessor at your convenience,
  • Personal manager,

Our experienced team, on-site transportation, affordable rates and many years of experience allow us to make every move quickly, safely and in the most comfortable way. Using our moving company and team to ensure a safe and comfortable move to a new apartment. Each order is assigned a sufficient number of movers to ensure the job is completed in a safe.

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ISORAY, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q) https://goodwillsavannahga.org/isoray-inc-managements-discussion-and-analysis-of-financial-position-and-operating-results-form-10-q/ Wed, 10 Nov 2021 22:27:06 +0000 https://goodwillsavannahga.org/isoray-inc-managements-discussion-and-analysis-of-financial-position-and-operating-results-form-10-q/

Caution regarding forward-looking information

In addition to historical information, this Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). This statement is included for the express purpose of relying Isoray, Inc. protections from the safe harbor provisions of the PSSRA.




All statements contained in this Form 10-Q, other than statements of historical
facts, that address future activities, events or developments are
forward-looking statements, including, but not limited to, statements containing
the words "believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project," and similar expressions. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including any statements of the plans, strategies and objectives of management
for future operations; any statements concerning proposed new products,
services, developments or industry rankings; any statements regarding future
revenue, economic conditions or performance; any statements of belief; and any
statements of assumptions underlying any of the foregoing. These statements are
based on certain assumptions and analyses made by us in light of our experience
and our assessment of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate under the
circumstances. However, whether actual results will conform to the expectations
and predictions of management is subject to a number of risks and uncertainties
described under Item 1A - Risk Factors beginning on page 21 below that may cause
actual results to differ materially.



Consequently, all of the forward-looking statements made in this Form 10-Q are
qualified by these cautionary statements and there can be no assurance that the
actual results anticipated by management will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on our business operations. Readers are cautioned not to place undue
reliance on such forward-looking statements as they speak only of the Company's
views as of the date the statement was made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.



Critical accounting conventions and estimates




The discussion and analysis of the Company's financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an on-going basis, management evaluates past
judgments and estimates, including those related to bad debts, inventories,
accrued liabilities, derivative liabilities and contingencies. Management bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The accounting
policies and related risks described in the Company's annual report on Form 10-K
as filed with the SEC on September 27, 2021 are those that depend most heavily
on these judgments and estimates. As of September 30, 2021 there had been no
material changes to any of the critical accounting policies contained therein.



Overview



Isoray is a brachytherapy device manufacturer with FDA clearance for a single
medical device that can be delivered to the physician in multiple configurations
as prescribed for the treatment of cancers in multiple body sites. The Company
manufactures and sells this product as the Cesium-131 brachytherapy seed or
Cesium Blu.



The brachytherapy seed utilizes Cesium-131, with a 9.7 day half-life, as its
radiation source. The Company believes that it is the unique combination of the
short half-life and the energy of the Cesium-131 isotope that are yielding the
beneficial treatment results that have been published in peer reviewed journal
articles and presented in various forms at conferences and tradeshows.



The Company has distribution agreements outside of the United States. These
distributors are responsible for obtaining regulatory clearance to sell the
Company's products in their territories, with the support of the Company. As of
the date of this Report, the Company has distributors in the Russian Federation,
Peru and India with no reported revenues in these locations during the three
months ended September 30, 2021.



The Company has a supply agreement with The Open Joint Stock Company
<<Isotope>>, a Russian company, for the supply of Cesium-131 for a term of
August 2020 to December 2021. On March 18, 2021, the Company entered into a new
supply contract (the "New Agreement") with JSC Isotope pursuant to which the
Company will purchase Cesium-131 for a term from March 18, 2021 through March
31, 2023. Our source of supply of Cesium-131 from Russia is historically
produced using one of two nuclear reactors which supply the irradiation needed
for Cesium-131 production. One of the Russian nuclear reactors was shut down
from December 2017 until August 2018, and the other Russian nuclear reactor shut
down for much of 2019, 2020 and 2021. As a result of these scheduled shutdowns
only one of the Company's historic Russian suppliers of Cesium-131 was available
during these periods. The Company also has a consignment inventory agreement
with MedikorPharma-Ural LLC ("Medikor") to process the Company's enriched barium
at another nuclear reactor in Russia. The term of this consignment agreement
began in November 2017 and is for 10 years.



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On September 9, 2021, the Company entered into another Consignment Agreement
with MedikorPharma-Ural LLC. Pursuant to this Consignment Agreement, the Company
purchased 6,000 mg of enriched barium carbonate for $720,000, which is needed
for the manufacture of Cesium-131, and consigned this inventory to Medikor.
Beginning in October 2021, Medikor started to use the barium carbonate consigned
by the Company and contract with a third-party manufacturer to produce
Cesium-131. Pursuant to this Consignment Agreement, Medikor pays the
Company varying US dollar amounts per curie of Cesium-131 the Company purchases.
The amount varies based on how many curies of Cesium-131 the Company purchases.
This arrangement is expected to minimize the impact on the Company of the
temporary shutdown of one of the nuclear reactors that serves as its source of
Cesium-131 from Russia.



The Company continues to explore how our proprietary isotope may be effective in
the treatment of additional cancers. We recently entered into a research grant
agreement with a leading cancer center to study the treatment of metastatic
melanoma. In this immuno-oncology study, Cesium-131 will be used in combination
with an immune checkpoint inhibitor. Metastatic melanoma is the most virulent
form of skin cancer, often spreading to lymph nodes, the lungs, liver, brain,
and tissue under the skin. This study follows our recently announced agreement
with the University of Cincinnati to study the combination of Cesium-131 with
the immunotherapy drug Keytruda® in recurrent head and neck cancers.



The Company recently filed a provisional patent application for a device
designed to achieve directional dosing using our Cesium-131 seeds. This device
is a bed that holds the Cesium-131 seeds to focus the radiation to a specific
treatment area. The device is fixed to a directional mesh that can be used to
treat pancreatic cancers as well as retroperitoneal sarcomas. We see
unidirectional brachytherapy utilizing Cesium-131 as a highly attractive
potential therapy for advanced abdominal cancers as well. In this practical
application, the device will be aimed at cancers of the abdomen that invade the
abdominal wall and pelvic floor, such as advanced cancers of the colon and
rectum and advanced GYN cancers such as ovarian and uterine cancers. The
directional dosing device will likely be used initially with the recurrent
cancers mentioned above where our competitors' external beam radiation therapy
has previously been administered.



The Company recently attended the annual meeting of the American Society for
Therapeutic Radiation Oncology ("ASTRO") held in Chicago in October 2021. There
were several presentations on Cesium-131 that continue to support the use of
Cesium-131 for recurrent brain metastases and high grade meningiomas both with
the GammaTile™ and the Company's legacy product with braided strands.



Results of Operations


Three months ended September 30, 2021 and 2020 (in thousands):



                                                    Three months ended September 30,
                                            2021                           2020               2021 - 2020
                                    Amount            % (a)        Amount        % (a)         % Change
Sales, net                     $          2,564           100     $  2,384           100                 8
Cost of sales                             1,535            60        1,138            48                35
Gross profit                              1,029            40        1,246            52               (17 )

Operating expenses:
Research and development
expenses                                    702            27          312            13               125
Sales and marketing expenses                761            30          581            24                31
General and administrative
expenses                                  1,840            72        1,067            45                72

Total operating expenses                  3,303           129        1,960            82                69
Operating loss                 $         (2,274 )         (89 )   $   (714 )         (30 )             218



(a) Expressed as a percentage of sales, net




Sales



Sales, net for the three months ended September 30, 2021 increased 8% compared
to the three months ended September 30, 2020. The Company's sales personnel
continued to bring on new accounts while also working with existing customers to
increase their order volumes. We believe that due to hospitals' renewed focus on
COVID-19 due to the Delta variant during the three months ended September 30,
2021 in various states, patients' brachytherapy procedures continued to be
delayed or cancelled. In addition, several key physicians took extended
vacations during the quarter ended September 30, 2021 which also negatively
impacted our revenues. In the prior year period many physicians did not take
extended vacations due to stay-at-home orders that were in place in several
states. Further, we believe that hospitals are having a difficult time staffing
nurses needed to support procedures our products are utilized in.


The distribution of sales between prostatic and non-prostatic applications is shown below.

Three months ended September 30, 2021 and 2020 (in thousands):



                                       Three months ended September 30,
                                2021                    2020             2021 - 2020
                          Amount      % (a)      Amount      % (a)        % Change
Prostate brachytherapy   $  1,973         77     $ 1,890         79                 4
Other sales                   591         23         494         21                20
Sales, net                  2,564        100       2,384        100                 8




  (a) Expressed as a percentage of sales, net




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Prostate Brachytherapy



Prostate sales increased by approximately 4% during the three months
ended September 30, 2021 compared to the three months ended September 30, 2020.
We believe that due to hospitals' focus on COVID-19 including the Delta
variant during the three months ended September 30, 2021 in various states,
patients' brachytherapy procedures continued to be delayed or cancelled. This
led to a smaller increase in sales for prostate treatments during the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020.



Management believes continued growth in prostate brachytherapy revenues will be
the result of physicians, payors, and patients increasingly considering overall
treatment advantages including costs compared with non-brachytherapy treatments,
better treatment outcomes and improvement in the quality of life for patients.
The American Cancer Society estimates that nearly 250,000 new prostate cancer
cases will be diagnosed in calendar year 2021, which represents an increase of
approximately 30% over the calendar year 2020 estimate (American Cancer Society,
2021). This increase is due to patients being unable to access treatment or
putting treatment off due to the COVID pandemic, but there is no assurance that
this will occur and if it occurs that it will have a positive impact on the
Company's performance. We believe the trend to use brachytherapy in lieu of
other options is starting to improve our performance but there is no assurance
as to how long this trend will continue.



In early October, we recently treated a few patients with C4 Imaging’s Sirius® positive signal MRI (magnetic resonance imaging) markers with cesium-131 ​​seeds after “pre-market” activities with this technology had started. were completed in September.




Other Sales



Other sales includes, but is not limited to, brain, lung, head/neck,
gynecological, and pelvis treatments, as well as services. Other sales, net
increased by 20% for the three months ended September 30, 2021 compared to the
three months ended September 30, 2020. The main driver of this growth was
increased services as well as treatments for pelvic and lung cancers. The
increase in services was mainly due to an increase in the minimum order fee due
from GT Medical Technologies as their forecast was greater than their actual
orders during the three months ended September 30, 2021. Initial applications
for these other brachytherapy treatments are primarily used in recurrent cancer
treatments or salvage cases that are generally difficult to treat aggressive
cancers where other treatment options are either ineffective or unavailable.



Other brachytherapy treatments are subject to the influence of a small pool of
innovative physicians who are the early adopters of the technology who also tend
to be faculty at teaching hospitals training the next generation of physicians.
This causes the revenue created by these types of treatment applications to be
more volatile and varies significantly from year to year. Individual centers
weigh the value of the procedure with their other treatment priorities on a
patient by patient basis.



Other brachytherapy treatments, such as brain, lung, and head/neck are typically
performed in the in-patient setting using the DRG or diagnostic related
groups. DRGs are designed for Medicare to set payment levels for hospital
in-patient services. Other health insurers may follow Medicare reimbursement
when setting their payment rates. When these other types of brachytherapy are
performed in the out-patient setting, existing codes for Cesium-131 that are
also used for prostate brachytherapy are used to bill for these procedures.



In May 2020, the Centers for Medicare and Medicaid Services (CMS) approved 64
ICD-10-PCS billing codes used for reimbursement of Cesium-131 for the hospital
in-patient DRG setting. The codes allow hospitals to bill Medicare for specific
surgical procedures that would benefit from the addition of Cesium-131.



The 64 ICD-10-PCS codes are important for the growing surgical applications of
Cesium-131 in treating a significant range of hard to treat cancers including
brain, lung, head and neck, abdominal, gynecological, pelvic, and colorectal
cancers. The new codes took effect on October 1, 2020 and management believes
they will provide greater impetus for usage as now CMS will be able to track the
additional cost of the Cesium-131 seed itself and be able to reimburse the
hospital through the DRG payment system for these additional costs when an
in-patient brachytherapy procedure is performed. Isoray believes that additional
clinical data and these new billing codes will begin to build a compelling
argument to support reimbursement and increased adoption of the procedures;
however, any growth will be inconsistent in the near term.



GammaTile™



For several years the Company has focused on many different applications of its
Cesium-131 brachytherapy seeds in the cranial cavity to target many forms of
brain cancer. Most recently, the Company has focused on using braided strand
configurations and on being a contract manufacturer of GammaTile™ Therapy which
is owned by GT Medical Technologies, Inc. (GT Med Tech). GammaTile™ Therapy uses
biodegradable "tiles" to deliver Cesium-131 brachytherapy seeds into contact
with cancerous tumors in the brain.



GammaTile™ Therapy was originally cleared for treating recurrent brain
cancers. GT Med Tech filed a 510k with the FDA on an expanded indication of
GammaTile™ Therapy to include treatment of newly diagnosed brain tumors with an
application of Cesium-131. On January 27, 2020, GT Med Tech announced that it
had received clearance from the FDA for an expanded indication allowing patients
of newly diagnosed malignant brain tumors to be treated by GammaTile™
Therapy. For the three months ended September 30, 2021, total revenues from
sales including minimum order fees to GT Med Tech were approximately 15% of
sales.



Cost of sales


Cost of sales mainly includes the costs of manufacturing and distributing the Company’s products.




Contributing to the increase in the three months ended September 30, 2021 and
2020 comparison were increases in isotope and other materials costs as well as
increases in labor and depreciation. Due to lower than forecasted levels
of sales volumes, we had excess isotope on hand which went unused. Other
materials costs increased due to supplier price increases. Labor costs increased
due to annual merit increases for production personnel as well as additional
headcount and depreciation increased due to completion of production automation
projects.



Gross Profit



Contributing to the three months ended September 30, 2021 and 2020 gross profit
decline was lower than anticipated sales due to orders being cancelled or
postponed due to COVID-19, increases in isotope costs due to lower than
forecasted sales volumes which led to excess isotope on hand which went unused,
and increases in payroll due to annual merit increases and additional headcount.
Additionally, material costs increased compared to the three months ended
September 30, 2020.



Research and development


Research and development mainly includes personnel and third party costs related to research and development activities.




Contributing to the three months ended September 30, 2021 and 2020 research and
development comparison was an increase in payroll due to annual merit increase
as well as additional headcount and an increase in consulting expenses relating
to market research. This increase was partially offset by a reduction in
investment in the development of the Blu Build™ delivery system for real-time
prostate brachytherapy.



                                       15

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Contents




On December 31, 2020, the Company received FDA 510k clearance for use of C4
Imaging's Sirius® positive-signal MRI (Magnetic Resonance Imaging) markers with
the Company's Cesium-131 brachytherapy seeds. Sirius® is implanted during the
treatment of prostate cancer with the Cesium-131 seeds and is used to facilitate
seed localization within the prostate utilizing a single post-implant MRI
procedure. We finished our premarket activities related to the Sirius® marker
during the first quarter of fiscal 2022 and we are starting a product
performance evaluation (formerly referred to as a limited market release) on
this technology in the second quarter of fiscal 2022 and expect it to be
available for full market release later in fiscal year 2022 but there is no
assurance this timing will occur.



Management believes that research and development spending will remain at this level as we continue to explore new projects and collaborations.



Sales and marketing expenses


Selling and marketing expenses consist primarily of costs related to the internal and external activities of the Company’s sales, marketing and customer service functions.




Contributing to the quarters ended September 30, 2021 and 2020 comparison was an
increase in travel and tradeshow costs due to some COVID-19 restrictions being
eased as well as increased payroll expenses resulting from annual merit
increases and new hires. These increases were partially offset by a reduction in
consulting expenses due to reclassification of reimbursement consulting to
general and administrative expenses.



General and administrative expenses




General and administrative expenses consist primarily of the costs related to
the executive, human resources/training, quality assurance/regulatory affairs,
finance, and information technology functions of the Company.



Contributing to the three months ended September 30, 2021 and 2020 comparison
were increased payroll due to annual merit increases and new
hires, employment hiring expenses, IT consulting expenses, director and officer
insurance expense, public company related expenses, increased audit and legal
fees, and increased travel due to the easing of some COVID-19 restrictions. In
addition, the majority of annual employee and director stock grants have
historically been granted in the fiscal fourth quarter, however awards for
performance in fiscal 2021 were granted in July 2021 thereby increasing
share-based stock compensation expense in the three months ended September 30,
2021 compared to the three months ended September 30, 2020.



Impact of COVID-19



From the onset of the COVID-19 global pandemic we have been proactive in
implementing plans to ensure the health and well-being of our employees, while
remaining focused on providing uninterrupted product flow to the physicians and
patients who count on us. We transitioned many employees to work from home and
made other adjustments to ensure the continuity of our business through this
time. At the beginning of the pandemic, we moved quickly to ensure that our
inventory of non-isotope supplies were appropriate in case our supply chain was
disrupted. In addition, we set in motion a strategy to maintain a continuous and
uninterrupted supply of isotope from our suppliers in Russia including the
review and use of alternative freight services due to the cancellation of many
international flights.



As COVID-19 spread, many states implemented new guidelines in an attempt to
mitigate the spread of the virus and to conserve certain medical supplies. Those
guidelines led to the cancellation or postponement of elective and non-emergency
surgical procedures, including prostate brachytherapy procedures.  Although
during the first three months of fiscal 2022, our sales revenues increased 8%
compared to the first three months of fiscal 2021, we were still below the
average monthly prostate revenues attained in our third quarter of fiscal 2020
prior to the outset of COVID-19's impact on our operations. We believe this is
due to hospitals' focus on COVID-19 including variants, resulting in a delay or
cancellation of patients scheduled to be seen by physicians. This resulted in
fewer or delayed urology referrals for prostate brachytherapy treatment.



In the first three months of fiscal 2022, we forecasted an increase in cases,
particularly prostate cases, which did not occur due to an increase in the Delta
variant of COVID-19 as well as increased physician vacations. We plan to
continue to manage our expenses and make adjustments to isotope orders, as
permitted by our suppliers, to meet potential increased treatment demands.



Liquidity and capital resources




The Company assesses its liquidity in terms of its ability to generate cash to
fund its operating, investing and financing activities. The Company has
historically financed its operations through selling equity to investors. During
the three months ended September 30, 2021 and 2020, the Company used existing
cash reserves to fund its operations and capital expenditures (in thousands
except current ratio):



                                                    Three months
                                                ended September 30,
                                                  2021           2020

Net cash (used) by operating activities $ (2,084) $ (338)
Net cash (used) by investing activities

                (54 )      (113 )

Net (decrease) in cash and cash equivalents $ (2 138) $ (451)




                                    As of
                    September 30, 2021       June 30, 2021
Working capital   $             63,159     $        65,501
Current ratio                    36.11               37.37




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Contents

Cash flow from operating activities




Net cash used by operating activities in the three months ended September 30,
2021 was primarily due to a net loss of approximately $2.24 million net of
approximately $673,000 in adjustments for non-cash activity such as share-based
compensation, depreciation and amortization expense, and accretion of asset
retirement obligation. Changes in operating assets and liabilities contributed
approximately $514,000 to the cash used by operating activities; increases in
inventory, mainly due to the purchase of enriched barium carbonate, and
decreases in accrued payroll and related taxes and accrued vacation, were
partially offset by decreases in prepaid expenses and other current assets and
accounts receivable due to increased collection efforts, and increases in
accounts payable and accrued expenses, accrued protocol expenses, and accrued
radioactive waste disposal.



Net cash used by operating activities in the three months ended September 30,
2020 was primarily due to a net loss of approximately $713,000, net of
approximately $137,000 in adjustments for non-cash activity such as depreciation
and amortization expense, share-based compensation, and accretion of asset
retirement obligation. Changes in operating assets and liabilities
provided approximately $238,000 from operating activities; decreases to accounts
receivable due to increased collection efforts and prepaid expenses, and
increases in accounts payable, accrued protocol expense, accrued vacation, and
accrued radioactive waste disposal were partially offset by a decrease in
accrued payroll and related taxes and increased inventory purchases.



Cash flow from investing activities




Investing activities for the three months ended September 30, 2021 and 2020
respectively, consisted of transactions related to the purchase of fixed assets.
Management will continue to invest in technology and machinery that improves and
streamlines production processes and to invest in low-risk investment
opportunities that safeguard assets and provide greater assurance those
resources will be liquid and available for business needs as they arise.



Cash flow from financing activities

There was no fundraising activity during the quarter ended September 30, 2021 and 2020 respectively.

Cash and capital resources forecast for fiscal year 2022



Operating activities



Management forecasts that fiscal 2022 cash requirements will increase compared
to previous years and that current cash and cash equivalents will be sufficient
to meet projected operating cash needs for the next twelve months. Monthly
operating expenses are budgeted to increase for sales and marketing, research
and development and general and administrative expenses in fiscal 2022 as
management works to implement its strategy. Assuming no extraordinary expenses
occur (whether operating or capital), if management is successful at
implementing its strategy to focus on renewed emphasis to drive the consumer to
the prostate market and meets or exceeds its growth targets of twenty-five
percent increase in revenue in fiscal 2022 and this annual growth continues, the
Company anticipates reaching cashflow break-even in three to four years. These
assumptions do assume that GammaTile™ will contribute to total revenue but do
not incorporate any significant growth in the other non-prostate applications as
they generate nominal revenues today but if they show significant improvement,
cashflow break-even could occur sooner. There is no assurance that the targeted
sales growth will materialize but management is encouraged by the depth and
experience of its sales team and its track record of growth during the last
three fiscal years. The Company missed its target of twenty-five percent
increased revenue in the first three months of fiscal 2022 and there is no
assurance that targeted sales growth will continue over the next three to four
years.



Capital expenditures



Management has completed the design of a future production and administration
facility but has not determined when or if it will move ahead with construction.
If financing is obtained and the facility constructed, it is believed that the
new facility will have non-cash depreciation cost equal to or greater than the
monthly rental cost of the current facility. The Company has limited additional
space at this time and may need more office space in the future.



Management is reviewing all aspects of production operations (including process
automation), research and development, sales and marketing, and general and
administrative functions to evaluate the most efficient deployment of capital to
ensure that the appropriate materials, systems, and personnel are available to
support and drive sales.





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Financing activities



When it does require capital in the future, the Company expects to finance its
future cash needs through sales of equity, possible strategic collaborations,
debt financing or through other sources that may be dilutive to existing
stockholders, Management anticipates that if it raises additional financing that
it will be at a discount to the market price and it will be dilutive to
stockholders.



Other commitments and contingencies




The Company presented its other commitments and contingencies in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2021. There have been no
material changes outside of the ordinary course of business in those obligations
during the three months ended September 30, 2021 other than those previously
disclosed in note 7 of the financial statements contained in this filing.



Off-balance sheet provisions

The Company has no off-balance sheet arrangements.

Critical accounting conventions and estimates




The discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of these consolidated financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, as well as
revenue and expenses during the reporting periods. The Company evaluates its
estimates and judgments on an ongoing basis. The Company bases its estimates on
historical experience and on various other factors the Company believes are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities. Actual
results could therefore differ materially from those estimates if actual
conditions differ from our assumptions.



During the three months ended September 30, 2021, there have been no changes to
the critical accounting policies and estimates discussed in Part II, Item 7 of
our Form 10-K for the year ended June 30, 2021.

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BP MIDSTREAM PARTNERS LP MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL CONDITIONS AND OPERATING RESULTS (Form 10-Q) https://goodwillsavannahga.org/bp-midstream-partners-lp-management-report-and-analysis-of-financial-conditions-and-operating-results-form-10-q/ Tue, 09 Nov 2021 13:05:14 +0000 https://goodwillsavannahga.org/bp-midstream-partners-lp-management-report-and-analysis-of-financial-conditions-and-operating-results-form-10-q/
Unless otherwise stated or the context otherwise indicates, all references to
"we," "our," "us," refer to the legal entity BP Midstream Partners LP (the
"Partnership"). The term "our Parent" refers to BP Pipelines (North America),
Inc. ("BP Pipelines"), any entity that wholly owns BP Pipelines, indirectly or
directly, including BP America Inc. and BP p.l.c. ("BP"), and any entity that is
wholly owned by the aforementioned entities, excluding BP Midstream Partners LP.

The following management discussion and analysis of financial conditions and
results of operations should be read in conjunction with the unaudited financial
statements and accompanying notes in this quarterly report and our Annual Report
on Form 10-K for the year ended December 31, 2020 (the "Partnership's 2020
10-K"). All amounts are in millions of dollars, unless otherwise indicated.

Partnership overview


We are a fee-based, growth-oriented master limited partnership formed by BP
Pipelines, an indirect wholly-owned subsidiary of BP, to own, operate, develop
and acquire pipelines and other midstream assets. For additional information
regarding the assets and interests owned by the Partnership, refer to   Note 1 -

Activity and method of presentation in the notes to the condensed consolidated financial statements.

                                       22
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Take a private proposal


On August 4, 2021, the board of directors of our General Partner received a
non-binding preliminary proposal letter from BP Pipelines, through its
wholly-owned subsidiary BP Midstream Partners Holdings LLC, to acquire all of
our issued and outstanding common units not already owned by BP Pipelines or its
affiliates at a to-be-determined fixed exchange ratio, at a value of $13.01 per
each issued and outstanding publicly held common unit of the Partnership payable
in newly-issued American Depositary Receipts ("ADRs") of BP p.l.c. (the
"Proposal"). Under the Proposal, the exchange ratio would be determined based on
a 30-day volume-weighted average closing price of ADRs of BP p.l.c. as of the
day immediately preceding the signing of a merger agreement. The board of
directors has appointed a conflicts committee to review, evaluate and negotiate
the Proposal. The conflicts committee continues to evaluate the Proposal.

The proposed transaction is subject to a number of contingencies, including the
approval of the conflicts committee of the board of directors of our General
Partner, and the satisfaction of any conditions to the consummation of a
transaction set forth in any definitive agreement concerning the transaction.
There can be no assurance that such definitive documentation will be executed or
that any transaction will materialize on the terms described above or at all.

Business environment, market conditions and outlook


The impacts to the energy industry from the decline and subsequent volatility in
demand for petroleum and petroleum-based products resulting from the response to
the global outbreak of COVID-19 have been unprecedented. Management continues to
monitor the uneven macro environment. For risks associated with these and other
factors, refer to "  Item 1A. Risk Factors  " in this Quarterly Report.

Management continues to work closely with BP Pipelines, as operator of our
assets under the omnibus agreement, to ensure appropriate practices are adopted
for continued functioning of our assets as well as mitigation strategies for any
office or worksite where COVID-19 may be detected.

In the third quarter of 2021, we experienced a reduction in volumes on our
onshore pipelines compared to the second quarter of 2021. On BP2, this was a
result of apportionment on the Enbridge mainline and Whiting refinery feedstock
optimization. With respect to Diamondback, we experienced lower throughput due
to reduced demand from shippers of diluent. We did not experience any
significant impacts on River Rouge.

Hurricane Ida


In late August 2021, Hurricane Ida formed and threatened catastrophic damage to
the U.S. Gulf Coast along its path. In response, producers in the Gulf of
Mexico, including BP, suspended production at platforms and evacuated offshore
workers. Additionally, operators performed impact assessments when it was safe
to do so. Caesar, Cleopatra, Proteus and Endymion were able to return to normal
operating service at different points in September 2021.

While no damage was directly incurred by any of the assets held by the Mars
joint venture that we have an interest in, damage to the West Delta-143 facility
was discovered after a comprehensive damage assessment and resulted in the
facility remaining offline for repairs. On November 5, 2021, the West Delta-143
offshore facilities safely re-started operations. With the facilities now
operational, the Mars Oil Pipeline has resumed normal operations as producers
ramp up production.

Shippers provided notice that, effective as of August 29, 2021, Hurricane Ida
constituted an event of force majeure under their current contracts, which has
since been cancelled consistent with the resumption of normal operations of the
Mars Oil Pipeline. We estimate that this outage caused a reduction of
approximately $8 million to $10 million to our cash available for distribution
during the third quarter of 2021 relative to our financial outlook. For more
information, refer to our risk factor titled "Hurricanes and other severe
weather conditions, natural disasters or other adverse events or conditions
could damage our pipeline systems or disrupt the operations of our customers,
which could adversely affect our operations and financial condition."

COVID-19[female[feminine


Uncertainties related to COVID-19 continue to affect the oil and gas industry,
including the possibility of renewed restrictions on various commercial, social,
and economic activities, thereby impacting the demand for crude oil, natural
gas, refined products.

                                       23
--------------------------------------------------------------------------------

To limit the impact of COVID-19, BP and our other customers, as well as
third-party operators of our pipelines, have implemented various protocols for
both onshore and offshore personnel; however, these protocols may not prove to
be successful. There is risk of decreased volumes with respect to our offshore
operations if operators take actions to reduce operations in response to demand
volatility or the inability to control COVID-19 infections on platforms and are
required to shut-in. Additionally, we expect the shippers on our offshore
pipelines to continue to find buyers for their production; however, they may not
be successful.

As noted above, BP Pipelines and the third-party operators of our assets have
taken steps and continue to actively work to mitigate any continuing impact of
the COVID-19 pandemic on our operations, financial condition, cash flows and
liquidity. However, there is no certainty that the measures we take will be
ultimately sufficient.

How we evaluate our operations


Partnership management uses a variety of financial and operating metrics to
analyze performance. These metrics are significant factors in assessing
operating results and profitability and include: (i) safety and environmental
metrics, (ii) revenue (including FLA) from throughput and utilization; (iii)
operating expenses and maintenance spend; (iv) Adjusted EBITDA (as defined
below); and (v) cash available for distribution (as defined below).

Preventive safety and environmental measures


We are committed to maintaining and improving the safety, reliability and
efficiency of Partnership operations. As noted above, we have worked with BP
Pipelines and the third-party operators of our assets to ensure that COVID-19
response and business continuity plans have been implemented across all of our
assets and operations. We have implemented reporting programs requiring all
employees and contractors of our Parent who provide services to us to record
environmental and safety related incidents. The Partnership's management team
uses these existing programs and data to evaluate trends and potential
interventions to deliver on performance targets. We integrate health,
occupational safety, process safety and environmental principles throughout
Partnership operations to reduce and eliminate environmental and safety related
incidents.

Throughput

We have historically generated substantially all of our revenue under long-term
agreements or FERC-regulated generally applicable tariffs by charging fees for
the transportation of products through our pipelines. The amount of revenue we
generate under these agreements depends in part on the volumes of crude oil,
natural gas, refined products and diluent on our pipelines. Refer to Part I,
Item 1 and 2, Business and Properties - Our Commercial Agreements with BP -
Minimum Volume Commitment Agreements in the Partnership's 2020 10-K for
additional information.

Volumes on pipelines are primarily affected by the supply of, and demand for,
crude oil, natural gas, refined products and diluent in the markets served
directly or indirectly by Partnership assets. Results of operations are impacted
by our ability to:

•utilize any remaining unused capacity on, or add additional capacity to,
Partnership pipeline systems;
•increase throughput volumes on Partnership pipeline systems by making
connections to existing or new third-party pipelines or other facilities,
primarily driven by the anticipated supply of and demand for crude oil, natural
gas, refined products and diluent;
•identify and execute organic expansion projects; and
•increase throughput volumes via acquisitions.

Storage usage


Storage utilization is a metric that we use to evaluate the performance of our
storage and terminalling assets. We define storage utilization as the percentage
of the contracted capacity in barrels compared to the design capacity of the
tank.

Operating expenses and total maintenance expenses

Operating Expenses


Management seeks to maximize profitability by effectively managing operating
expenses. These expenses are comprised primarily of labor expenses (including
contractor services), general materials, supplies, minor maintenance, utility
costs (including electricity and fuel) and insurance premiums. Utility costs
fluctuate based on throughput volumes and the grades of crude oil and types of
refined products we handle. Other operating expenses generally remain relatively
stable across broad
                                       24
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Throughput volume ranges, but may fluctuate from period to period depending on the mix of activities performed during that period.

Total Maintenance Expenses – Wholly Owned Assets


We calculate Total Maintenance Spend as the sum of maintenance expenses and
maintenance capital expenditures, excluding any reimbursable maintenance capital
expenditures. We track these expenses on a combined basis because it is useful
to understanding total maintenance requirements. Total Maintenance Spend for the
nine months ended September 30, 2021 and 2020, respectively, is shown in the
table below:
                                                                 Nine Months Ended September 30,
                                                                   2021                     2020
                                                                    (in millions of dollars)
Wholly-Owned Assets
Maintenance expenses                                       $             2.7          $         2.2
Maintenance capital expenditures                                         2.4                    1.5
Maintenance capital recovery(1)                                         (1.5)                  (0.7)
Total Maintenance Spend - Wholly-Owned Assets              $             

$ 3.6 3.0

(1) Refers to the portion of the maintenance capital for the Griffith station incident reimbursable by insurance.


The Partnership seeks to maximize profitability by effectively managing
maintenance expenses, which consist primarily of safety and environmental
integrity programs. We seek to manage maintenance expenses on owned and operated
pipelines by scheduling maintenance over time to avoid significant variability
in maintenance expenses and minimize impact on cash flows, without compromising
our commitment to safety and environmental stewardship.

Maintenance expenses represent the costs we incur that do not significantly
extend the useful life or increase the expected output of property, plant and
equipment. These expenses include pipeline repairs, replacements of immaterial
sections of pipelines, inspections, equipment rentals and costs incurred to
maintain compliance with existing safety and environmental standards,
irrespective of the magnitude of such compliance expenses. Maintenance expenses
may vary significantly from period to period because certain expenses are the
result of scheduled safety and environmental integrity programs, which occur on
a multi-year cycle and require substantial outlays.

Maintenance capital expenditures represent expenditures to sustain operating
capacity or operating income over the long term. Examples of maintenance capital
expenditures include expenditures made to purchase new or replacement assets or
extend the useful life of existing assets. These expenditures includes repairs
and replacements of storage tanks, replacements of significant sections of
pipelines and improvements to an asset's safety and environmental standards.

Adjusted EBITDA and cash available for distribution


The Partnership defines Adjusted EBITDA as net income before net interest
expense, income taxes, gain or loss from disposition of property, plant and
equipment, and depreciation and amortization, plus cash distributed to the
Partnership from equity method investments for the applicable period, less
income from equity method investments. The Partnership defines Adjusted EBITDA
attributable to the Partnership as Adjusted EBITDA less Adjusted EBITDA
attributable to non-controlling interests. We present these financial measures
because we believe replacing our proportionate share of our equity method
investments' net income with the cash received from such equity method
investments more accurately reflects the cash flow from our business, which is
meaningful to our investors.

We compute and present cash available for distribution and define it as Adjusted
EBITDA attributable to the Partnership less maintenance capital expenditures
attributable to the Partnership, net interest paid/received, cash reserves,
income taxes paid and net adjustments from volume deficiency payments
attributable to the Partnership. Cash available for distribution does not
reflect changes in working capital balances.

Adjusted EBITDA and cash available for distribution are non-GAAP supplemental
financial measures, which are metrics that management and external users of our
consolidated financial statements, such as industry analysts, investors, lenders
and rating agencies, may use to assess:

•operating performance as compared to other publicly traded partnerships in the
midstream energy industry, without regard to historical cost basis or financing
methods;
                                       25
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•ability to generate sufficient cash to support decisions to make distributions
to our unitholders;
•ability to incur and service debt and fund capital expenditures; and
•viability of acquisitions and other capital expenditure projects and the
returns on investment of various investment opportunities.

We believe that the presentation of Adjusted EBITDA and cash available for
distribution provides useful information to investors in assessing our financial
condition and results of operations. The GAAP measures most directly comparable
to Adjusted EBITDA and cash available for distribution are net income and net
cash provided by operating activities, respectively. Adjusted EBITDA and cash
available for distribution should not be considered as an alternative to GAAP
net income or net cash provided by operating activities.

Adjusted EBITDA and cash available for distribution have important limitations
as analytical tools because they exclude some but not all items that affect net
income and net cash provided by operating activities. You should not consider
Adjusted EBITDA or cash available for distribution in isolation or as a
substitute for analysis of our results as reported under GAAP. Additionally,
because Adjusted EBITDA and cash available for distribution may be defined
differently by other companies in our industry, our definition of Adjusted
EBITDA and cash available for distribution may not be comparable to similarly
titled measures of other companies, thereby diminishing its utility. Refer to
"Reconciliation of Non-GAAP Measures" section below for the reconciliation of
net income and cash provided by operating activities to Adjusted EBITDA and cash
available for distribution.

Factors affecting our business


Partnership business can be negatively affected by sustained downturns or slow
growth in the economy in general and is impacted by shifts in supply and demand
dynamics, the mix of services requested by the customers of our pipelines,
competition and changes in regulatory requirements affecting our customers'
operations. The ultimate magnitude and duration of the COVID-19 pandemic,
resulting governmental restrictions on the mobility of consumers and the related
impact on demand and the U.S. and global economy and capital markets is
uncertain. As of the date of this Quarterly Report, all of our assets remain
operational.

Customers

BP is our primary customer. Total revenue from BP represented 98.9% and 97.8% of
our revenues for the three and nine months ended September 30, 2021,
respectively. Total revenue from BP represented 98.2% and 97.5% of our revenues
for the three and nine months ended September 30, 2020, respectively. BP's
volumes represented approximately 98.1% and 95.7% of the aggregate total volumes
transported on the Wholly-Owned Assets for the three and nine months ended
September 30, 2021, respectively. BP's volumes represented approximately 96.1%
and 94.6% of the aggregate total volumes transported on the Wholly-Owned Assets
for the three and nine months ended September 30, 2020, respectively.

In addition, we transport and store crude oil, natural gas and diluent for a mix
of third-party customers, including crude oil producers, refiners, marketers and
traders, and Partnership assets are connected to other crude oil, natural gas
and diluent pipeline systems. In addition to serving directly connected
Midwestern U.S. and Gulf Coast markets, our pipelines have access to customers
in various regions of the United States and Canada through interconnections with
other major pipelines. Customers use our transportation and terminalling
services for a variety of reasons. Producers of crude oil require the ability to
deliver their product to market and frequently enter into firm transportation
contracts to ensure that they will have sufficient capacity available to deliver
their product to delivery points with greatest market liquidity. Marketers and
traders generate income from buying and selling crude oil, natural gas, refined
products and diluent to capitalize on price differentials over time or between
markets. Our customer mix can vary over time and largely depends on the crude
oil, natural gas, refined products and diluent supply and demand dynamics in our
markets.

Regulation

Interstate common carrier pipelines are subject to regulation by various
federal, state and local agencies including the FERC, the Environmental
Protection Agency and the Department of Transportation. On December 17, 2020, in
Docket No. RM20-14-000, FERC issued an order establishing a new index level of
PPI-FG plus 0.78% for the five-year period commencing July 1, 2021 ("December
2020 Order"). However, requests for rehearing of the December 2020 Order were
filed with FERC, and those requests remain pending, with rehearing granted for
purposes of extending the time FERC has to review these requests. FERC issued a
notice on May 14, 2021, providing the final change in the PPI-FG that determines
the oil pricing index factor to be applied for the index year starting July 1,
2021. The oil pricing index factor, utilizing the oil pricing index factor
established in the December 2020 Order, resulted in a negative percent change
for the index year July 1, 2021, through
                                       26
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June 30, 2022. A negative percent change means that the ceiling level for
certain of an oil pipelines' rates may decrease and, if the actual
transportation rate would be above such ceiling level, the rate also must
decrease to be equal to or less than the applicable ceiling. Accordingly, the
Partnership and Mars Oil Pipeline Company, LLC filed to reduce their rates,
effective July 1, 2021. FERC's final application of its indexing rate
methodology for the next five-year term of index rates will be determined based
on the outcome of the requests for rehearing of the December 2020 Order, and any
changes to FERC's index level may impact our revenues associated with any
transportation services we may provide pursuant to rates adjusted by the FERC
oil pipeline index.

On May 27, 2021, the Department of Homeland Security's Transportation Security
Administration ("TSA") announced Security Directive Pipeline-2021-01 that
requires us, as a critical pipeline owner, to report confirmed and potential
cybersecurity incidents to the DHS Cybersecurity and Infrastructure Security
Agency ("CISA") and to designate a Cybersecurity Coordinator. It also requires
BP Pipelines and the third-party operators of our assets to review current
practices as well as to identify any gaps and related remediation measures to
address cyber-related risks and report the results to TSA and CISA within 30
days. We designated a Cybersecurity Coordinator, developed a plan to comply with
mandatory reporting timeframes and completed the vulnerability assessment
required under this directive on June 25, 2021. On July 20, 2021, the TSA issued
a second Security Directive. We have evaluated the impacts of this second
directive to our pipeline business and have made significant progress in
compliance.

Refer to Part I, Articles 1 and 2, Business and Property in Partnership 10-K 2020 for more information on federal, state and local regulations affecting our business.

Acquisition opportunities


The Partnership plans to pursue acquisitions of complementary assets from BP as
well as third parties subject to market conditions and our ability to obtain
attractive financing. We may also pursue acquisitions jointly with BP Pipelines.
BP Pipelines has granted us a right of first offer with respect to its retained
ownership interest in Mardi Gras and all of its interests in midstream pipeline
systems and assets related thereto in the contiguous United States and offshore
Gulf of Mexico that were owned by BP Pipelines when we were established. Neither
BP nor any of its affiliates are under any obligation, however, to sell or offer
to sell us additional assets or to pursue acquisitions jointly with us, and we
are under no obligation to buy any additional assets from them or to pursue any
joint acquisitions with them. We will focus our acquisition strategy on
transportation and midstream assets within the crude oil, natural gas and
refined products sectors. We believe that we are well positioned to acquire
midstream assets from BP, and particularly BP Pipelines, as well as third
parties, should such opportunities arise. Identifying and executing acquisitions
will be a key part of our strategy. However, if we do not make acquisitions on
economically acceptable terms, our future growth will be limited, and the
acquisitions we do make may reduce, rather than increase, our available cash.

Funding


We expect to fund future capital expenditures primarily from external sources,
including borrowings under our credit facility and potential future issuances of
equity and debt securities.

We intend to make cash distributions to unitholders at a minimum distribution
rate of $0.2625 per unit per quarter ($1.05 per unit on an annualized basis).
Based on the terms of our cash distribution policy, we expect that we will
distribute to unitholders and the General Partner, as the holder of IDRs, most
of the cash generated by operations.

Griffith station incident


On June 13, 2019, a building fire occurred at the Griffith Station on BP2.
Management performed an evaluation of the assets and determined that an
impairment was required. We have incurred $0.1 million and $0.3 million for
response expense during the three and nine months ended September 30, 2021 and
2020, respectively. Reimbursable costs associated with the incident are offset
with an insurance receivable, of which $2.5 million is outstanding under "Other
current assets" on our condensed consolidated balance sheets as of September 30,
2021 and December 31, 2020. In the event that insurance proceeds exceed the
receivable balance, such amounts would be recognized as a gain. Refer to Part
II, Item 8, Note 13 - Commitments and Contingencies in the Partnership's 2020
10-K for additional information.
                                       27
--------------------------------------------------------------------------------

Results of operations


The following tables and discussion contain a summary of condensed consolidated
results of operations for the three and nine months ended September 30, 2021 and
2020.
                                               Three Months Ended                            Nine Months Ended
                                                  September 30,                                September 30,
                                            2021                    2020                 2021                  2020
                                                                  (in millions of dollars)
Revenue                             $       26.3               $      33.7          $       85.2          $      95.9
Costs and expenses
Operating expenses                           4.9                       4.9                  14.8                 14.5
Maintenance expenses                         1.5                       0.4                   2.7                  2.2

General and administrative                   5.5                       3.9                  14.6                 13.0

Depreciation                                 0.7                       0.7                   2.0                  2.0

Property and other taxes                     0.2                       0.2                   0.6                  0.5
Total costs and expenses                    12.8                      10.1                  34.7                 32.2
Operating income                            13.5                      23.6                  50.5                 63.7
Income from equity method
investments                                 22.1                      27.6                  81.0                 85.7

Interest expense, net                        1.0                       1.5                   3.2                  6.8
Net income                                  34.6                      49.7                 128.3                142.6
Less: Net income attributable to
non-controlling interests                    5.4                       4.4                  16.6                 15.0
Net income attributable to the
Partnership                         $       29.2               $      45.3          $      111.7          $     127.6


                                       28
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                                                         Three Months Ended                        Nine Months Ended
                                                            September 30,                            September 30,
Pipeline throughput (thousands of barrels per
day)(1)                                                 2021                 2020                2021                 2020
Onshore
BP2                                                     259                   253                 278                  266
Diamondback                                              24                    59                  44                   67
River Rouge                                              59                    75                  62                   69
Total Wholly-Owned Assets                               342                   387                 384                  402

Offshore
Mars                                                    334                   479                 439                  506

Caesar                                                  178                   143                 168                  162
Cleopatra(2)                                             21                    15                  19                   18
Proteus                                                 205                   200                 228                  211
Endymion                                                205                   200                 228                  211
Mardi Gras Joint Ventures                               609                   558                 643                  602

Ursa                                                     50                    57                  65                   80

Average revenue per barrel ($ per barrel)(3)
Total Wholly-Owned Assets                        $     0.83               $  0.80          $     0.81              $  0.77
Mars                                                   1.31                  1.17                1.31                 1.31
Mardi Gras Joint Ventures                              0.59                  0.59                0.58                 0.59
Ursa                                                   0.76                  0.93                0.89                 0.90



(1)Pipeline throughput is defined as the volume of delivered barrels.
(2)Natural gas is converted to oil equivalent at 5.8 million cubic feet per one
thousand barrels.
(3)Based on reported revenues from transportation and allowance oil divided by
delivered barrels over the same time period.

Three months ended September 30, 2021 Compared to the three months ended
September 30, 2020


Total revenue from wholly-owned assets decreased by approximately $7.4 million
or 22% for the three months ended September 30, 2021, compared to the three
months ended September 30, 2020, due to the following factors:
•Decrease of $5.1 million from the recognition of deficiency revenue in the
prior period.
•Decrease of $3.7 million in tariff revenue driven by a decrease of $2.4 million
on River Rouge, a $1.6 million decrease on Diamondback, partially offset by a
increase of $0.3 million on BP2.
•Increase of $1.4 million in FLA revenue from BP2 driven by an increase in
throughput volume and an increase in FLA prices realized.
•Throughput volume decreased by 4.1 million barrels driven by a 1.5 million
decrease on River Rouge, 3.2 million decrease on Diamondback, partially offset
by a 0.6 million increase on BP2.

Maintenance expenditure increased by $ 1.1 million or 275% for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, due to increased pipeline inspection and repair activities.

General and administrative expenses increased by $ 1.6 million or 41% for the three months ended September 30, 2021, compared to the three months ended
September 30, 2020, mainly due to the costs associated with the Take Private proposal.

Income from equity-accounted investments decreased by $ 5.5 million or 20% for the three months ended September 30, 2021, compared to the three months ended
September 30, 2020, mainly due to the impacts of Hurricane Ida.

Interest expense decreased by $ 0.5 million or 33% in the three months ended
September 30, 2021, compared to the three months ended September 30, 2020, due to the fall in interest rates linked to LIBOR.

                                       29
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Net income attributable to non-controlling interests increased by $1.0 million
or 23% for the three months ended September 30, 2021, compared to the three
months ended September 30, 2020, due to the increase in earnings from Mardi Gras
in the period.

Nine months ended September 30, 2021 Compared to the nine months ended September 30, 2020


Total revenue from wholly-owned assets decreased by approximately $10.7 million
or 11% for the nine months ended September 30, 2021, compared to the nine months
ended September 30, 2020, due to the following factors:
•Decrease of $11.1 million from the recognition of deficiency revenue in the
prior period.
•Decrease of $4.3 million in tariff revenue driven by a decrease of $3.6 million
on Diamondback, a $3.1 million decrease on River Rouge, partially offset by an
increase of $2.4 million on BP2.
•Increase of $4.7 million in FLA revenue from BP2 driven by an increase in
throughput volume and an increase in FLA prices realized.
•Throughput volume decreased by 5.2 million barrels driven by a 6.3 million
decrease on Diamondback, a 2.0 million decrease on River Rouge, offset by a 3.1
million increase on BP2.

Operating expenses increased by $ 0.3 million or 2% for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020, mainly due to an increase in insurance spending.


Maintenance expenses increased by $0.5 million or 23% for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020, due to
increased pipeline inspection and repair activity.

General and administrative expenses increased by $ 1.6 million or 12% for the nine months ended September 30, 2021, compared to the nine months ended
September 30, 2020, mainly because of the costs associated with the Take Private proposal.


Income from equity method investments decreased by $4.7 million or 5% for the
nine months ended September 30, 2021 compared to the nine months ended September
30, 2020, primarily due to the impacts of Hurricane Ida.

Interest expense, net decreased by $3.6 million or 53% in the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020, due to
lower interest rates tied to LIBOR.

Net income attributable to non-controlling interests increased by $1.6 million
or 11% for the nine months ended September 30, 2021, compared to the nine months
ended September 30, 2020, due to the increase in earnings from Mardi Gras in the
period.

                                       30
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Reconciliation of non-GAAP measures


The following tables present a reconciliation of Adjusted EBITDA to net income
and to net cash provided by operating activities, the most directly comparable
GAAP financial measures, for each of the periods indicated.
                                                         Three Months Ended                       Nine Months Ended
                                                           September 30,                            September 30,
                                                       2021                 2020               2021               2020
                                                                         (in millions of dollars)

Reconciliation of Adjusted EBITDA and Cash
Available for Distribution to Net Income
Net income                                      $     34.6               $   49.7          $    128.3          $  142.6
Add:
Depreciation                                           0.7                    0.7                 2.0               2.0

Interest expense, net                                  1.0                    1.5                 3.2               6.8
Cash distributions received from equity method
investments                                           26.3                   27.2                89.4              93.2

Less:

Income from equity method investments                 22.1                   27.6                81.0              85.7
Adjusted EBITDA                                       40.5                   51.5               141.9             158.9

Less:

Adjusted EBITDA attributable to non-controlling
interests                                              7.3                    5.0                20.0              17.2
Adjusted EBITDA attributable to the Partnership       33.2                   46.5               121.9             141.7

Add:

Net adjustments from volume deficiency
agreements                                             3.2                   (2.1)                4.0              (3.7)
Maintenance capital recovery(1)                        0.4                    0.1                 1.5               0.7

Less:

Net interest paid/(received)                           1.1                    2.1                 3.3              10.1
Maintenance capital expenditures                       0.6                    0.3                 2.4               1.5
Cash reserves(2)                                         -                   (0.7)                  -              (3.0)
Cash available for distribution attributable to
the Partnership                                 $     35.1               $  

42.8 $ 121.7 $ 130.1

(1) Refers to the portion of the maintenance capital for the Griffith station incident reimbursable by insurance. (2) Reflects cash reserved due to timing of interest payment.

                                       31
--------------------------------------------------------------------------------
                                                                       Nine Months Ended September 30,
                                                                           2021                   2020
                                                                          

(in millions of dollars) Reconciliation of Adjusted EBITDA and distributable cash to net cash from operating activities Net cash from operating activities

                          $           142.1          $    148.3
Add:

Interest expense, net                                                            3.2                 6.8

Breakdown of income from equity-accounted investments

      9.7                 7.4

Less:

Changes in other assets and liabilities                                         12.9                 3.4
Non-cash adjustments                                                             0.2                 0.2
Adjusted EBITDA                                                                141.9               158.9
Less:
Adjusted EBITDA attributable to non-controlling interests                       20.0                17.2
Adjusted EBITDA attributable to the Partnership                                121.9               141.7

Add:

Net adjustments from volume deficiency agreements                                4.0                (3.7)
Maintenance capital recovery(1)                                                  1.5                 0.7

Less:

Net interest paid/(received)                                                     3.3                10.1
Maintenance capital expenditures                                                 2.4                 1.5
Cash reserves(2)                                                                   -                (3.0)

Distributable cash attributable to the limited partnership $

121.7 $ 130.1

(1) Refers to the portion of the maintenance capital for the Griffith station incident reimbursable by insurance. (2) Reflects cash reserved due to timing of interest payment.

Capital resources and liquidity


Currently, we expect our primary ongoing sources of liquidity to be cash
generated from operations (including distributions from our equity method
investments), and, as needed, borrowings under our existing credit facility. The
entities in which we own an interest may also incur debt. We believe that cash
generated from these sources will be sufficient to meet our short-term working
capital requirements and long-term capital expenditure requirements and to make
quarterly cash distributions.

Based upon current expectations for the fiscal year 2021, we believe that our
cash on hand, cash flow from operations and borrowings available under our
credit facility will be sufficient to fund our operations for 2021. As of
September 30, 2021, our liquidity was $264.7 million, consisting of
$132.7 million of cash and cash equivalents and $132.0 million available under
our existing credit facility with BP. Our only outstanding indebtedness is
$468.0 million borrowed under our term loan with an affiliate of BP, and there
are no principal payments due until 2025.

Cash distributions


The board of directors of our General Partner has adopted a cash distribution
policy pursuant to which we intend to pay a minimum quarterly distribution of
$0.2625 per unit per quarter, which equates to approximately $27.5 million per
quarter, or $110.0 million per year in the aggregate, based on the number of
common units outstanding as of September 30, 2021. We intend to pay such
distributions to the extent we have sufficient cash after the establishment of
cash reserves and the payment of expenses, including payments to our General
Partner and its affiliates.

Conversion of subordinate units


On April 15, 2021, the Partnership declared a cash distribution of $0.3475 per
limited partner unit to unitholders of record on April 29, 2021, for the three
months ended March 31, 2021. All of the subordinated units were converted into
common units on
                                       32
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February 12, 2021. Therefore, on the Record Date, no subordinated units were outstanding and therefore no part of the cash distribution has been allocated to the subordinated units of Limited Partners. Refer to

Note 8 – Net income per limited partner unit for more information.

Revolving credit facility


On October 30, 2017, the Partnership entered into a $600.0 million unsecured
revolving credit facility agreement with an affiliate of BP. The credit facility
terminates on October 30, 2022 and provides for certain covenants, including the
requirement to maintain a consolidated leverage ratio, which is calculated as
total indebtedness to consolidated EBITDA (as defined in the credit facility),
not to exceed 5.0 to 1.0, subject to a temporary increase in such ratio to 5.5
to 1.0 in connection with certain material acquisitions. In addition, the
limited liability company agreement of our General Partner requires the approval
of BP Holdco prior to the incurrence of any indebtedness that would cause our
leverage ratio to exceed 4.5 to 1.0.

The credit facility also contains customary events of default, such as (i)
nonpayment of principal when due, (ii) nonpayment of interest, fees or other
amounts, (iii) breach of covenants, (iv) misrepresentation, (v) cross-payment
default and cross-acceleration (in each case, to indebtedness in excess of $75.0
million) and (vi) insolvency. Additionally, the credit facility limits our
ability to, among other things: (i) incur or guarantee additional debt, (ii)
redeem or repurchase units or make distributions under certain circumstances;
and (iii) incur certain liens or permit them to exist. Indebtedness under this
facility bears interest at the 3-month London Interbank Offered Rate ("LIBOR")
plus 0.85%. This facility includes customary fees, including a commitment fee of
0.10% and a utilization fee of 0.20%.

In the fourth quarter of 2018, we borrowed $ 468.0 million of the credit facility. This amount was unpaid to December 31, 2019, and reimbursed on March 13, 2020 using the funds from the term loan facility agreement.

Term loan facility agreement


On February 24, 2020, the Partnership entered into a $468.0 million Term Loan
Facility Agreement ("term loan") with an affiliate of BP. On March 13, 2020,
proceeds were used to repay outstanding borrowings under the existing credit
facility. The term loan has a final repayment date of February 24, 2025, and
provides for certain covenants, including the requirement to maintain a
consolidated leverage ratio, which is calculated as total indebtedness to
consolidated EBITDA, not to exceed 5.0 to 1.0, subject to a temporary increase
in such ratio to 5.5 to 1.0 in connection with certain material acquisitions.
Simultaneous with this transaction, we entered into a First Amendment to Short
Term Credit Facility Agreement ("First Amendment") whereby the lender added a
provision that indebtedness under both the term loan and credit facility shall
not exceed $600.0 million. All other terms of the credit facility remain the
same. As of September 30, 2021, the Partnership was in compliance with the
covenants contained in the credit facility and term loan.

Cash flow from operations


Operating Activities. We generated $142.1 million and $148.3 million in cash
flow from operating activities in the nine months ended September 30, 2021 and
2020, respectively. The $6.2 million decrease in cash flows from operating
activities was primarily due to a decrease in distributions of earnings received
from equity method investments.

Investing Activities. Cash flow used by investing activities was $3.5 million
and cash flows generated by investing activities was $6.7 million in the nine
months ended September 30, 2021 and 2020, respectively. The $10.2 million
decrease was due to a $11.2 million increase in capital expenditures, the
absence of $1.3 million in proceeds from insurance claims, partially offset by a
$2.3 million increase in distributions in excess of earnings from equity method
investments.

Fundraising activities. The cash flows used in financing activities were $ 132.8 million
and $ 130.0 million in the nine months ended September 30, 2021 and 2020, respectively. The $ 2.8 million the increase in cash outflows is explained by the increase in distributions to non-controlling interests.

Capital expenditure


Our operations can be capital intensive, requiring investment to expand, upgrade
or enhance existing operations and to meet environmental and operational
regulations. Our capital requirements consist of maintenance capital
expenditures and expansion capital expenditures, both as defined in our
partnership agreement. We are required to distinguish between maintenance
capital expenditures and expansion capital expenditures in accordance with our
Partnership agreement.

                                       33
--------------------------------------------------------------------------------

A summary of capital expenditures associated with ongoing projects related to
the Wholly-Owned Assets, for the nine months ended September 30, 2021 and 2020,
is shown in the table below:
                                                                 Nine Months Ended September 30,
                                                                   2021                      2020
                                                                     (in millions of dollars)
Cash spent on expansion capital expenditures               $             10.8          $         0.5
Cash spent on maintenance capital expenditures                            2.4                    1.5
(Decrease) increase in accrued capital expenditures                      (0.2)                   1.3

Decrease in capital expenditures reimbursable to our parent company

                                                                   (0.3)                     -
Total capital expenditures incurred                        $             

$ 12.7 3.3




Capital expenditures reported on the condensed consolidated statement of cash
flows for the nine months ended September 30, 2021 were $13.2 million. We
incurred $10.8 million expansion capital expenditures for an onshore capacity
increase project and $2.4 million maintenance capital expenditures primarily
associated with the Griffith Station Electrical and Controls project. Capital
expenditures reported on the condensed consolidated statement of cash flows for
the nine months ended September 30, 2020 were $2.0 million.

Contractual obligations

There have been no material changes to the contractual obligations as disclosed in the Partnership’s 10-K 2020.

Off-balance sheet provisions

The Partnership has not entered into any transaction, arrangement or other contractual arrangement that would result in off-balance sheet liabilities.

Critical accounting conventions and estimates

There have been no material changes to critical accounting policies as disclosed in the Partnership’s 10-K 2020.

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Discussion and analysis by the management of GRAFTECH INTERNATIONAL LTD of the financial situation and the results of operations (form 10-Q) https://goodwillsavannahga.org/discussion-and-analysis-by-the-management-of-graftech-international-ltd-of-the-financial-situation-and-the-results-of-operations-form-10-q/ Fri, 05 Nov 2021 20:49:08 +0000 https://goodwillsavannahga.org/discussion-and-analysis-by-the-management-of-graftech-international-ltd-of-the-financial-situation-and-the-results-of-operations-form-10-q/
The Company
GrafTech is a leading manufacturer of graphite electrodes, the critical
consumable for the electric arc furnace industry. We are the only graphite
electrode producer that is substantially vertically integrated into petroleum
needle coke, a key raw material for graphite electrodes. This vertical
integration allows GrafTech to enter into longer term agreements with its
customers. These agreements have a duration of more than 12 months and include
pre-determined ranges of volumes and prices. This provides greater earnings
stability and visibility for GrafTech and a committed, secure source of supply
for our customers.
The environmental and economic advantages of electric arc furnace steel
production positions both that industry and the graphite electrode industry for
continued long-term growth.
We believe GrafTech's leadership position, strong cash flows, and advantaged low
cost structure and vertical integration are sustainable competitive advantages.
The services and solutions we provide will position our customers and us for a
better future.
Commercial Update and Outlook
GrafTech reported strong sales volumes of 43 thousand MT in the third quarter of
2021, consisting of long-term agreement ("LTA") volumes of 28 thousand MT at an
average approximate price of $9,500 per MT and non-LTA volumes of 15 thousand MT
at an average approximate price of $4,600 per MT.
The non-LTA prices for graphite electrodes delivered and recognized in revenue
in the third quarter increased 12% over second quarter non-LTA pricing. The
non-LTA sales price reflects a mix of annual agreements negotiated in the fourth
quarter of 2020, quarterly agreements negotiated earlier in 2021 along with spot
agreements. By volume, more than three quarters of third quarter non-LTA sales
were at prices agreed to under annual and quarterly agreements, when graphite
electrode prices were lower than they are currently, and the remainder at spot
pricing.
In the fourth quarter, we expect our non-LTA price for graphite electrodes
delivered and recognized in revenue to be 7-9% higher than in the third quarter
of 2021. In 2022, we expect our non-LTA pricing to be significantly higher than
the second half of 2021 as market conditions have improved since we last
negotiated annual pricing contracts in late 2020.
We also expect some cost increases in the fourth quarter of 2021 and into 2022,
driven by recent global cost pressures, particularly for third-party needle
coke, energy, and freight.
Production volumes in the third quarter of 2021 increased 22% compared to the
third quarter of 2020 but were impacted sequentially by our annual planned major
maintenance work at our two European facilities. In the third quarter of 2021,
we introduced additional connecting pin production capabilities at our St Marys,
Pennsylvania facility.
Globally, steel market capacity utilization rates continue to be strong:
                                                       Q3 2021              Q2 2021              Q3 2020
Global steel market (ex-China) capacity
utilization rates (1)                                    74%                  75%                  60%
U.S. steel market capacity utilization rates (2)         85%                  82%                  64%


1 Source: World Steel Association and Metal Expert
2 Source: American Iron and Steel Institute
The estimated shipments of graphite electrodes under our LTAs for 2021 have been
updated from our prior estimates as follows:
                                                      2021                        2022                    2023 through 2024
Estimated LTA volume (thousands of                  106-110                      95-105                         35-45
metric tons)
Estimated LTA revenue (in millions)              $1,000-$1,045                 $910-$1,010                   $350-$450(1)


(1) Includes termination fees expected from some customers who have not fulfilled certain obligations under their LTAs

                                       25
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Capital Structure and Capital Allocation
As of September 30, 2021, GrafTech had cash and cash equivalents of $87 million
and total debt of approximately $1.1 billion. We continue to make progress in
reducing our long-term debt, repaying $100 million in the third quarter, for a
total debt repayment of $300 million in the first nine months of 2021.
We repurchased 4.3 million shares in the third quarter for approximately $46
million under our existing open market share repurchase authorization.
For the remainder of 2021, we continue to expect our primary use of cash to be
debt repayment. Our capital expenditure range expectations are unchanged,
between $55 and $65 million. In addition, our Board of Directors has approved a
new $150 million open market stock repurchase program. The Company is now
authorized to repurchase up to $163 million in shares of the Company's common
stock, inclusive of the $13 million remaining under the prior stock repurchase
program as of the end of the third quarter of this year.
Key metrics used by management to measure performance
In addition to measures of financial performance presented in our Consolidated
Financial Statements in accordance with GAAP, we use certain other financial
measures and operating metrics to analyze the performance of our company. The
"non-GAAP" financial measures consist of EBITDA, adjusted EBITDA, adjusted net
income and adjusted EPS. which help us evaluate growth trends, establish
budgets, assess operational efficiencies and evaluate our overall financial
performance. The key operating metrics consist of sales volume, production
volume, production capacity and capacity utilization.
                             Key financial measures
                                                       For the Three Months Ended           For the Nine Months
                                                              September 30,                 Ended September 30,
(in thousands, except per share data)                       2021          2020               2021          2020
Net sales                                              $   347,348    $ 286,987          $  982,495    $ 886,351
Net income                                             $   119,886    $  94,234          $  246,850    $ 309,278
Earnings per share(1)                                  $      0.45    $    0.35          $     0.92    $    1.15
EBITDA(2)                                              $   173,021    $ 150,960          $  394,763    $ 483,634
Adjusted net income(2)                                 $   119,038    $  96,109          $  333,405    $ 308,344
Adjusted earnings per share(1)(2)                      $      0.45    $    0.36          $     1.25    $    1.15
Adjusted EBITDA(2)                                     $   172,175    $ 153,105          $  487,123    $ 483,408


(1) Earnings per share represents diluted earnings per share. Adjusted earnings
per share represents adjusted diluted earnings per share.
(2) Non-GAAP financial measures; see below for information and reconciliations
of EBITDA, adjusted EBITDA, adjusted net income, and adjusted EPS to net income,
the most directly comparable financial measure calculated and presented in
accordance with GAAP.


                             Key operating metrics
                                                          For the Three Months Ended                For the Nine Months
                                                                 September 30,                      Ended September 30,
(in thousands, except utilization)                            2021            2020                  2021             2020
Sales volume (MT)(1)                                                43            33                     123             98
Production volume (MT)(2)                                           39            32                     119             98
Production capacity excluding St. Marys (MT)(3)(4)                  48            48                     150            150
Capacity utilization excluding St. Marys (3)(5)                     81  %         67  %                   79  %          65  %
Total production capacity (MT)(4)(6)                                55            55                     171            171
Total capacity utilization(5)(6)                                    71  %         58  %                   70  %          57  %


(1) Sales volume reflects only graphite electrodes manufactured by GrafTech.
(2) Production volume reflects graphite electrodes we produced during the
period.
(3) In the first quarter of 2018, our St. Marys, Pennsylvania facility began
graphitizing a limited amount of electrodes sourced from our Monterrey, Mexico
facility.
                                       26
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

(4) Production capacity reflects expected maximum production volume during the
period under normal operating conditions, standard product mix and expected
maintenance outage. Actual production may vary.
(5) Capacity utilization reflects production volume as a percentage of
production capacity.
(6) Includes graphite electrode facilities in Calais, France; Monterrey, Mexico;
Pamplona, Spain; and St. Marys, Pennsylvania.
Non-GAAP financial measures
In addition to providing results that are determined in accordance with GAAP, we
have provided certain financial measures that are not in accordance with GAAP.
EBITDA, adjusted EBITDA, adjusted net income, and adjusted EPS are non­GAAP
financial measures. We define EBITDA, a non­GAAP financial measure, as net
income or loss plus interest expense, minus interest income, plus income taxes,
and depreciation and amortization. We define adjusted EBITDA as EBITDA adjusted
for any pension and other post employment benefit ("OPEB") plan expenses or
gains, public offerings and related expenses, non­cash gains or losses from
foreign currency remeasurement of non­operating assets and liabilities in our
foreign subsidiaries where the functional currency is the U.S. dollar, related
party tax receivable agreement, dated April 27, 2018 ("TRA") adjustments,
stock-based compensation, non­cash fixed asset write­offs and Change in Control
charges that were triggered as a result of the ownership of our largest
stockholder falling below 30% of our total outstanding shares. For purposes of
this section, a "Change in Control" occurred when Brookfield and any affiliates
thereof ceased to own stock of the Company that constitutes at least thirty
percent (30%) or thirty-five percent (35%), as applicable, of the total fair
market value or total voting power of the stock of the Company. Adjusted EBITDA
is the primary metric used by our management and our Board of Directors to
establish budgets and operational goals for managing our business and evaluating
our performance.
We monitor adjusted EBITDA as a supplement to our GAAP measures, and believe it
is useful to present to investors, because we believe that it facilitates
evaluation of our period­to­period operating performance by eliminating items
that are not operational in nature, allowing comparison of our recurring core
business operating results over multiple periods unaffected by differences in
capital structure, capital investment cycles and fixed asset base. In addition,
we believe adjusted EBITDA and similar measures are widely used by investors,
securities analysts, ratings agencies, and other parties in evaluating companies
in our industry as a measure of financial performance and debt­service
capabilities.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are:
•adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
•adjusted EBITDA does not reflect our cash expenditures for capital equipment or
other contractual commitments, including any capital expenditure requirements to
augment or replace our capital assets;
•adjusted EBITDA does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on our indebtedness;
•adjusted EBITDA does not reflect tax payments that may represent a reduction in
cash available to us;
•adjusted EBITDA does not reflect expenses relating to our pension and OPEB
plans;
•adjusted EBITDA does not reflect the non­cash gains or losses from foreign
currency remeasurement of non­operating assets and liabilities in our foreign
subsidiaries where the functional currency is the U.S. dollar;
•adjusted EBITDA does not reflect public offerings and related expenses;
•adjusted EBITDA does not reflect related party TRA adjustments;
•adjusted EBITDA does not reflect stock-based compensation or the non­cash
write­off of fixed assets;
•adjusted EBITDA does not reflect the Change in Control charges; and
•other companies, including companies in our industry, may calculate EBITDA and
adjusted EBITDA differently, which reduces its usefulness as a comparative
measure.
We define adjusted net income, a non­GAAP financial measure, as net income or
loss and excluding the items used to calculate adjusted EBITDA, less the tax
effect of those adjustments. We define adjusted EPS, a non­GAAP financial
measure, as adjusted net income divided by the weighted average of diluted
common shares outstanding during the period. We believe adjusted net income and
adjusted EPS are useful to present to investors because we believe that they
assist investors' understanding of the underlying operational profitability of
the Company.
                                       27
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

In evaluating EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, you
should be aware that in the future, we will incur expenses similar to the
adjustments in the reconciliation below, other than change in control charges.
Our presentations of EBITDA, adjusted EBITDA, adjusted net income and adjusted
EPS should not be construed as suggesting that our future results will be
unaffected by these expenses or any unusual or non­recurring items. When
evaluating our performance, you should consider EBITDA, adjusted EBITDA,
adjusted net income, and adjusted EPS alongside other measures of financial
performance and liquidity, including our net income, EPS and other GAAP
measures.
The following tables reconcile our non-GAAP key financial measures to the most
directly comparable GAAP measures:
Reconciliation of Net Income to Adjusted Net
Income
                                                       For the Three Months ended               For the Nine Months Ended
                                                             September 30,                            September 30,
                                                         2021              2020                   2021              2020
                                                                      (in thousands, except per share data)
Net income                                         $      119,886    $      

94 234 $ 246,850 $ 309,278


Diluted income per common share:
Net income per share                               $         0.45    $        0.35          $         0.92    $        1.15
Weighted average shares outstanding                   267,178,963      267,279,555             267,441,394      267,920,890

Net income                                         $      119,886    $      94,234          $      246,850    $     309,278
Adjustments, pre-tax:
Pension and OPEB plan expenses (1)                            434              583                   1,295            1,666
Public offerings and related expenses (2)                       -                -                     663                4
Non-cash loss (gain) on foreign currency
remeasurement (3)                                          (1,542)             798                     365             (441)
Stock-based compensation (4)                                  262              764                   1,580            1,891
Non-cash fixed asset write-off (5)                              -                -                     313                -
Related party Tax Receivable Agreement adjustment
(6)                                                             -                -                      47           (3,346)
Change in Control LTIP award (7)                                -                -                  73,384                -
Change in control stock-based compensation
acceleration (7)                                                -                -                  14,713                -
Total non-GAAP adjustments pre-tax                           (846)           2,145                  92,360             (226)
Income tax impact on non-GAAP adjustments                       2              270                   5,805              708
Adjusted net income                                $      119,038    $      96,109          $      333,405    $     308,344


(1)Service and interest cost of our OPEB plans. Also includes a mark-to-market
loss (gain) for plan assets as of December of each year.
(2)Legal, accounting, printing and registration fees associated with the public
offerings and related expenses.
(3)Non-cash gains and losses from foreign currency remeasurement of
non-operating assets and liabilities of our non-U.S. subsidiaries where the
functional currency is the U.S. dollar.
(4)Non-cash expense for stock-based compensation grants.
(5)Non-cash write-off of fixed assets.
(6)Non-cash expense adjustment for future payment to our sole pre-IPO
stockholder for tax assets that are expected to be utilized.
(7)In the second quarter of 2021, we incurred change in control charges as a
result of the ownership of our largest stockholder, Brookfield, moving below 30%
of our shares outstanding.
                                       28
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Reconciliation of EPS to Adjusted EPS

                                                    For the Three Months Ended         For the Nine Months Ended
                                                          September 30,                      September 30,
                                                        2021           2020                2021           2020

EPS                                                $       0.45    $    0.35          $       0.92    $    1.15
Adjustments per share:
Pension and OPEB plan expenses (1)                            -            -                     -         0.01
Public offerings and related expenses (2)                     -            -                     -            -
Non-cash gains and losses on foreign currency
remeasurement (3)                                             -         0.01                     -            -
Stock-based compensation (4)                                  -            -                  0.02         0.01
Non-cash fixed asset write-off (5)                            -            -                     -            -
Related party Tax Receivable Agreement adjustment
(6)                                                           -            -                     -        (0.02)
Change in control LTIP award (7)                              -            -                  0.27            -
Change in control stock-based compensation
acceleration (7)                                              -            -                  0.06            -
Total non-GAAP adjustments pre-tax per share                  -         0.01                  0.35            -
Income tax impact on non-GAAP adjustments per
share                                                         -            -                  0.02            -
Adjusted EPS                                       $       0.45    $    0.36          $       1.25    $    1.15


(1)Service and interest cost of our OPEB plans. Also includes a mark-to-market
loss (gain) for plan assets as of December of each year.
(2)Legal, accounting, printing and registration fees associated with the public
offerings and related expenses.
(3)Non-cash gains and losses from foreign currency remeasurement of
non-operating assets and liabilities of our non-U.S. subsidiaries where the
functional currency is the U.S. dollar.
(4)Non-cash expense for stock-based compensation grants.
(5)Non-cash fixed asset write-off recorded for obsolete assets.
(6)Non-cash expense adjustment for future payment to our sole pre-IPO
stockholder for tax assets that are expected to be utilized.
(7)In the second quarter of 2021, we incurred Change in Control charges as a
result of the ownership of our largest shareholder, Brookfield, moving below 30%
of our total shares outstanding.
                                       29
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

                                                  For the Three Months Ended         For the Nine Months Ended
                                                         September 30,                     September 30,
                                                       2021          2020                2021          2020
                                                                         (in thousands)
Net income                                        $   119,886    $  94,234          $   246,850    $ 309,278
Add:

Depreciation and amortization                          15,584       16,241               48,415       45,074
Interest expense                                       16,048       22,474               54,209       69,026
Interest income                                          (417)         (93)                (653)      (1,582)
Income taxes                                           21,920       18,104               45,942       61,838
EBITDA                                                173,021      150,960              394,763      483,634
Adjustments:
Pension and OPEB plan expenses (1)                        434          583                1,295        1,666

Public offerings and related expenses (2)                   -            -                  663            4
Non-cash loss (gain) on foreign currency
remeasurement (3)                                      (1,542)         798                  365         (441)
Stock-based compensation (4)                              262          764                1,580        1,891
Non-cash fixed asset write-off (5)                          -            -                  313            -
Related party Tax Receivable Agreement adjustment
(6)                                                         -            -                   47       (3,346)
Change in Control LTIP award (7)                            -            -               73,384            -
Change in control stock-based compensation
acceleration (7)                                            -            -               14,713            -
Adjusted EBITDA                                   $   172,175    $ 153,105          $   487,123    $ 483,408


(1)Service and interest cost of our OPEB plans. Also includes a mark-to-market
loss (gain) for plan assets as of December of each year.
(2)Legal, accounting, printing and registration fees associated with the public
offerings and related expenses.
(3)Non-cash gains and losses from foreign currency remeasurement of
non-operating assets and liabilities of our non-U.S. subsidiaries where the
functional currency is the U.S. dollar.
(4)Non-cash expense for stock-based compensation grants.
(5)Non-cash write-off of fixed assets.
(6)Non-cash expense adjustment for future payment to our sole pre-IPO
stockholder for tax assets that are expected to be utilized.
(7)In the second quarter of 2021, we incurred change in control charges as a
result of the ownership of our largest shareholder, Brookfield, moving below 30%
of our shares outstanding.
Key operating metrics
In addition to measures of financial performance presented in accordance with
GAAP, we use certain operating metrics to analyze the performance of our
company. The key operating metrics consist of sales volume, production volume,
production capacity and capacity utilization. These metrics align with
management's assessment of our revenue performance and profit margin and will
help investors understand the factors that drive our profitability.
Sales volume reflects only graphite electrodes manufactured by GrafTech. For a
discussion of our revenue recognition policy, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies-Revenue Recognition" in our Annual Report on Form 10-K. Sales volume
helps investors understand the factors that drive our net sales.
Production volume reflects graphite electrodes produced during the period.
Production capacity reflects expected maximum production volume during the
period under normal operating conditions, standard product mix and expected
maintenance downtime. Capacity utilization reflects production volume as a
percentage of production capacity. Production volume, production capacity and
capacity utilization help us understand the efficiency of our production,
evaluate cost of sales and consider how to approach our contract initiative.
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Results of Operations
The Three Months Ended September 30, 2021 Compared to the Three Months Ended
September 30, 2020
The tables presented in our period-over-period comparisons summarize our
Condensed Consolidated Statements of Operations and illustrate key financial
indicators used to assess the consolidated financial results. Throughout this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Quarterly Report on Form 10-Q ("MD&A"), insignificant
changes may be deemed not meaningful and are generally excluded from the
discussion.
                                                       For the Three Months Ended
                                                              September 30,                   Increase/
                                                         2021                2020             Decrease             % Change
                                                         (Dollars in thousands)

Net sales                                           $   347,348          $ 286,987          $   60,361                    21  %
Cost of sales                                           170,286            131,862              38,424                    29  %
   Gross profit                                         177,062            155,125              21,937                    14  %
Research and development                                    983                650                 333                    51  %
Selling and administrative expenses                      19,006             19,062                 (56)                    -  %
   Operating income                                     157,073            135,413              21,660                    16  %
Other (income) expense, net                                (364)               694              (1,058)                 (152) %

Interest expense                                         16,048             22,474              (6,426)                  (29) %
Interest income                                            (417)               (93)               (324)                  348  %
Income before provision for income taxes                141,806            112,338              29,468                    26  %
Provision for income taxes                               21,920             18,104               3,816                    21  %
Net income                                          $   119,886          $  94,234          $   25,652                    27  %


Net sales. Net sales increased from $287.0 million in the three months ended
September 30, 2020 to $347.3 million in the three months ended September 30,
2021. The third quarter of 2020 was impacted by market conditions, including the
COVID-19 pandemic. Stronger demand for our products in the third quarter of 2021
resulted in a 30% increase in sales volume compared to the same period of 2020.
Partially offsetting the increased volume was a decrease in average realized
sales prices. This decrease in prices reflects an increased percentage of
non-LTA sales at prices lower than our LTA contracted prices.
Cost of sales. We experienced an increase in cost of sales from $131.9 million
in the three months ended September 30, 2020 to $170.3 million in the three
months ended September 30, 2021, primarily due to the 30% increase in sales
volume of manufactured electrodes. We expect some cost increases in the fourth
quarter of 2021 and into 2022, driven by recent global cost pressures,
particularly for third-party needle coke, energy and freight.
Selling and administrative expenses. Selling and administrative expenses were
flat from $19.1 million in the three months ended September 30, 2020 to
$19.0 million in the three months ended September 30, 2021.
Interest expense. Interest expense decreased from $22.5 million in the three
months ended September 30, 2020 to $16.0 million in the three months ended
September 30, 2021, primarily due to lower interest rates and lower average
borrowings.
Provision for income taxes. The following table summarizes the expense for
income taxes:
                                    For the Three Months ended September 30,
                                    2021                                       2020
                                             (Dollars in thousands)

    Tax expense           $            21,920                               $ 18,104
    Pre-tax income                    141,806                                112,338
    Effective tax rates                  15.5    %                              16.1  %


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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES


The effective tax rate for the three months ended September 30, 2021 was 15.5%.
This rate differs from the U.S. statutory rate of 21% primarily due to worldwide
earnings from various countries taxed at different rates, which was partially
offset by the net combined impact related to the U.S. taxation of global
intangible low taxed income ("GILTI") and Foreign Tax Credits ("FTCs").
The effective tax rate for the three months ended September 30, 2020 was 16.1%.
This rate differs from the U.S. statutory rate of 21% primarily due to worldwide
earnings from various countries taxed at different rates.
Tax expense increased from $18.1 million for the three months ended
September 30, 2020 to $21.9 million for the three months ended September 30,
2021.This change is primarily related to an increase in pre-tax income,
partially offset by a decrease in effective tax rate due to the mix of worldwide
earnings from various countries taxed at different rates and U.S. taxation of
GILTI.
The Nine Months Ended September 30, 2021 Compared to the Nine Months Ended
September 30, 2020
The tables presented in our period-over-period comparisons summarize our
Condensed Consolidated Statements of Operations and illustrate key financial
indicators used to assess the consolidated financial results. Throughout our
MD&A, insignificant changes may be deemed not meaningful and are generally
excluded from the discussion.
                                                        For the Nine Months
                                                        Ended September 30,                 Increase/
                                                      2021                 2020             Decrease             % Change
                                                      (Dollars in thousands)

Net sales                                       $     982,495          $ 886,351          $   96,144                    11  %
Cost of sales                                         518,549            401,379             117,170                    29  %

   Gross profit                                       463,946            484,972             (21,026)                   (4) %
Research and development                                2,970              2,072                 898                    43  %
Selling and administrative expenses                   114,942             49,995              64,947                   130  %
   Operating income                                   346,034            432,905             (86,871)                  (20) %
Other income                                             (361)            (2,309)              1,948                   (84) %
Related party Tax Receivable Agreement expense
(benefit)                                                  47             (3,346)              3,393                      N/A
Interest expense                                       54,209             69,026             (14,817)                  (21) %
Interest income                                          (653)            (1,582)               (929)                   59  %
Income before provision for income taxes              292,792            371,116             (78,324)                  (21) %
Provision for income taxes                             45,942             61,838             (15,896)                  (26) %

Net income                                      $     246,850          $ 309,278          $  (62,428)                  (20) %


Net sales. Net sales increased by $96.1 million, or 11%, from $886.4 million in
the nine months ended September 30, 2020 to $982.5 million in the nine months
ended September 30, 2021. Higher net sales reflect a 26% increase in sales
volume driven primarily by improved customer demand, as the same period of 2020
was impacted by market conditions, including the COVID-19 pandemic. Partially
offsetting the increased volume was a decrease in average realized sales prices.
This decrease in prices reflects an increased percentage of non-LTA sales at
prices lower than our LTA contracted prices.
Cost of sales. Cost of sales increased by $117.2 million, or 29%, from $401.4
million in the nine months ended September 30, 2020 to $518.5 million in the
nine months ended September 30, 2021. This increase was primarily due to the 26%
increase in sales volume of manufactured electrodes. Additionally, cost of sales
for the nine months ended September 30, 2021 was impacted by a one-time
long-term incentive plan ("LTIP") charge of $30.7 million resulting from a
Change in Control after our largest stockholder's ownership of our common stock
was reduced below 30% of our outstanding common stock. We expect some cost
increases in the fourth quarter of 2021 and into 2022, driven by recent global
cost pressures, particularly for third-party needle coke, energy and freight.
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Selling and administrative expenses. Selling and administrative expenses
increased from $50.0 million in the nine months ended September 30, 2020 to
$114.9 million in the nine months ended September 30, 2021 primarily due to the
aforementioned Change in Control resulting in $42.6 million of one-time LTIP
expense. Additionally, the Change in Control resulted in $12.9 million of
one-time accelerated stock based compensation expense.
Other income. Other income decreased from $2.3 million in the nine months ended
September 30, 2020 to $0.4 in the nine months ended September 30, 2021. This
change was primarily due to advantageous non-cash foreign currency impacts on
non-operating assets and liabilities in the nine months ended September 30, 2020
that did not recur in the same period of 2021.
Related party Tax Receivable Agreement expense (benefit). During the first
quarter of 2020, the Company recorded an adjustment to our related-party
payable-Tax Receivable Agreement liability resulting in a benefit of $3.3
million due to the revised profit expectation for the year 2020, primarily
caused by market conditions and the COVID-19 pandemic.
Interest expense. Interest expense decreased by $14.8 million from $69.0 million
in the nine months ended September 30, 2020 to $54.2 million in the same period
of 2021, primarily due to lower interest rates and lower average borrowings.
Partially offsetting these decreases was an increase of $4.3 million in
amortization of deferred financing fees and original issue discounts in the nine
months ended September 30, 2021 resulting from prepayments on our term loan.
Additionally, 2021 interest expense was negatively impacted by the absence of a
$3.8 million benefit that occurred in 2020 resulting from discounts on debt
repurchases.
Provision for income taxes. The following table summarizes the expense for
income taxes:
                                    For the Nine Months Ended September 30,
                                    2021                                      2020
                                             (Dollars in thousands)
    Tax expense           $            45,942                              $ 61,838
    Pre-tax income                    292,792                               371,116
    Effective tax rates                  15.7    %                             16.7  %


The effective tax rate for the nine months ended September 30, 2021 was 15.7%.
This rate differs from the U.S. statutory rate of 21% primarily due to worldwide
earnings from various countries taxed at different rates, partially offset by
the net combined impact related to the U.S. taxation of GILTI and FTCs.
For the nine months ended September 30, 2020, the effective tax rate of 16.7%
differs from the U.S. statutory rate of 21% primarily due to worldwide earnings
from various countries taxed at different rates.
The tax expense decreased from $61.8 million for the nine months ended
September 30, 2020 to $45.9 million for the nine months ended September 30,
2021. This change is primarily related to the reduction in pre-tax income and
the decrease in effective tax rate due to the mix of worldwide earnings from
various countries taxed at different rates and the U.S. taxation of GILTI.
GrafTech has considered the tax impact of COVID-19 legislation, including the
U.S. Coronavirus Aid, Relief and Economic Security (CARES) Act and has concluded
that there is no material tax impact. The Company continues to monitor the tax
effects of any legislative changes.
 Effects of Changes in Currency Exchange Rates
When the currencies of non-U.S. countries in which we have a manufacturing
facility decline (or increase) in value relative to the U.S. dollar, this has
the effect of reducing (or increasing) the U.S. dollar equivalent cost of sales
and other expenses with respect to those facilities. In certain countries in
which we have manufacturing facilities, and in certain export markets, we sell
in currencies other than the U.S. dollar. Accordingly, when these currencies
increase (or decline) in value relative to the U.S. dollar, this has the effect
of increasing (or reducing) net sales. The result of these effects is to
increase (or decrease) operating profit and net income.
Many of the non-U.S. countries in which we have a manufacturing facility have
been subject to significant economic and political changes, which have
significantly impacted currency exchange rates. We cannot predict changes in
currency exchange rates in the future or whether those changes will have net
positive or negative impacts on our net sales, cost of sales or net income.
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

The impact of these changes in the average exchange rates of other currencies
against the U.S. dollar on our net sales was a decrease of $0.4 million and an
increase of $9.1 million for the three and nine months ended September 30, 2021,
respectively, compared to the same period of 2020. The impact of these changes
on our cost of sales was an increase of $1.9 million and $13.5 million for the
three and nine months ended September 30, 2021, respectively, compared to the
same period of 2020.
We have in the past and may in the future use various financial instruments to
manage certain exposures to risks caused by currency exchange rate changes, as
described under "Part I, Item 3-Quantitative and Qualitative Disclosures about
Market Risk."
Liquidity and Capital Resources
Our sources of funds have consisted principally of cash flow from operations and
debt, including our credit facilities (subject to continued compliance with the
financial covenants and representations). Our uses of those funds (other than
for operations) have consisted principally of dividends, capital expenditures,
scheduled debt repayments, optional debt repayments, share repurchases and other
obligations. Disruptions in the U.S. and international financial markets could
adversely affect our liquidity and the cost and availability of financing to us
in the future.
We believe that we have adequate liquidity to meet our needs. As of
September 30, 2021, we had liquidity of $333.4 million, consisting of
$246.7 million of availability under our 2018 Revolving Credit Facility (as
defined below) (subject to continued compliance with the financial covenants and
representations) and cash and cash equivalents of $86.7 million. We had
long-term debt of $1,127.4 million and short-term debt of $0.1 million as of
September 30, 2021. As of December 31, 2020, we had liquidity of $391.8 million
consisting of $246.4 million available on our 2018 Revolving Credit Facility
(subject to continued compliance with the financial covenants and
representations) and cash and cash equivalents of $145.4 million. We had
long-term debt of $1,420.0 million and short-term debt of $0.1 million as of
December 31, 2020.
As of September 30, 2021 and December 31, 2020, $64.3 million and
$114.6 million, respectively, of our cash and cash equivalents were located
outside of the U.S. We repatriate funds from our foreign subsidiaries through
dividends. All of our subsidiaries face the customary statutory limitation that
distributed dividends cannot exceed the amount of retained and current earnings.
In addition, for our subsidiary in South Africa, the South Africa Central Bank
requires that certain solvency and liquidity ratios remain above defined levels
after the dividend distribution, which historically has not materially affected
our ability to repatriate cash from this jurisdiction. The cash and cash
equivalents balances in South Africa were $2.5 million and $1.6 million as of
September 30, 2021 and December 31, 2020, respectively. Upon repatriation to the
U.S., the foreign source portion of dividends we receive from our foreign
subsidiaries is no longer subject to U.S. federal income tax as a result of The
Tax Cuts and Jobs Act of 2017.
Cash flow and plans to manage liquidity. Our cash flow typically fluctuates
significantly between quarters due to various factors. These factors include
customer order patterns, fluctuations in working capital requirements, timing of
tax payments, timing of capital expenditures, acquisitions, divestitures and
other factors. Cash flow from operations is expected to remain at positive
sustained levels due to the predictable earnings generated by our LTAs with our
customers.
Debt Structure
We had availability under the 2018 Revolving Credit Facility of $246.7 million
as of September 30, 2021 and $246.4 million as of December 31, 2020, which
consisted of the $250 million limit reduced by $3.3 million and $3.6 million of
outstanding letters of credit, respectively.
In February 2018, the Company entered into a credit agreement (the "2018 Credit
Agreement"), which provides for (i) a $2,250 million senior secured term
facility (the "2018 Term Loan Facility") after giving effect to the June 2018
amendment (the "First Amendment") that increased the aggregate principal amount
of the 2018 Term Loan Facility from $1,500 million to $2,250 million and (ii) a
$250 million senior secured revolving credit facility (the "2018 Revolving
Credit Facility" and, together with the 2018 Term Loan Facility, the "Senior
Secured Credit Facilities"). GrafTech Finance Inc. ("GrafTech Finance") is the
sole borrower under the 2018 Term Loan Facility while GrafTech Finance, GrafTech
Switzerland SA ("Swissco") and GrafTech Luxembourg II S.à.r.l. ("Luxembourg
Holdco" and, together with GrafTech Finance and Swissco, the "Co-Borrowers") are
co-borrowers under the 2018 Revolving Credit Facility. The 2018 Term Loan
Facility and the 2018 Revolving Credit Facility mature on February 12, 2025 and
February 12, 2023, respectively.
The 2018 Term Loan Facility bears interest, at our option, at a rate equal to
either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement),
plus an applicable margin equal to 3.00% per annum following an amendment in
February 2021 (the "Second Amendment") that decreased the Applicable Rate (as
defined in the 2018 Credit Agreement) by
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

0.50% for each pricing level or (ii) the ABR Rate (as defined in the 2018 Credit
Agreement), plus an applicable margin equal to 2.00% per annum following the
Second Amendment, in each case with one step down of 25 basis points based on
achievement of certain public ratings of the 2018 Term Loan Facility. The Second
Amendment also decreased the interest rate floor from 1.0% to 0.50% for the 2018
Term Loan Facility.
The 2018 Revolving Credit Facility bears interest, at our option, at a rate
equal to either (i) the Adjusted LIBO Rate, plus an applicable margin initially
equal to 3.75% per annum or (ii) the ABR Rate, plus an applicable margin
initially equal to 2.75% per annum, in each case with two 25 basis point step
downs based on achievement of certain senior secured first lien net leverage
ratios. In addition, we are required to pay a quarterly commitment fee on the
unused commitments under the 2018 Revolving Credit Facility in an amount equal
to 0.25% per annum.
The Senior Secured Credit Facilities are guaranteed by each of our domestic
subsidiaries, subject to certain customary exceptions, and by GrafTech
Luxembourg I S.à.r.l., a Luxembourg société à responsabilité limitée and an
indirect wholly owned subsidiary of GrafTech, Luxembourg HoldCo, and Swissco
(collectively, the "Guarantors") with respect to all obligations under the 2018
Credit Agreement of each of our foreign subsidiaries that is a Controlled
Foreign Corporation (within the meaning of Section 956 of the Internal Revenue
Code of 1986, as amended from time to time (the "Code")).
All obligations under the 2018 Credit Agreement are secured, subject to certain
exceptions, by: (i) a pledge of all of the equity securities of each domestic
Guarantor and of each other direct, wholly owned domestic subsidiary of GrafTech
and any Guarantor, (ii) a pledge on no more than 65% of the equity interests of
each subsidiary that is a Controlled Foreign Corporation (within the meaning of
Section 956 of the Code), and (iii) security interests in, and mortgages on,
personal property and material real property of each domestic Guarantor, subject
to permitted liens and certain exceptions specified in the 2018 Credit
Agreement. The obligations of each foreign subsidiary of GrafTech that is a
Controlled Foreign Corporation under the 2018 Revolving Credit Facility are
secured by (i) a pledge of all of the equity securities of each Guarantor that
is a Controlled Foreign Corporation and of each direct, wholly owned subsidiary
of any Guarantor that is a Controlled Foreign Corporation, and (ii) security
interests in certain receivables and personal property of each Guarantor that is
a Controlled Foreign Corporation, subject to permitted liens and certain
exceptions specified in the 2018 Credit Agreement.
The 2018 Term Loan Facility amortizes at a rate of $112.5 million a year payable
in equal quarterly installments, with the remainder due at maturity. The
Co-Borrowers are permitted to make voluntary prepayments at any time without
premium or penalty. GrafTech Finance is required to make prepayments under the
2018 Term Loan Facility (without payment of a premium) with (i) net cash
proceeds from non-ordinary course asset sales (subject to customary reinvestment
rights and other customary exceptions and exclusions), and (ii) commencing with
the Company's fiscal year ended December 31, 2019, 75% of Excess Cash Flow (as
defined in the 2018 Credit Agreement), subject to step-downs to 50% and 0% of
Excess Cash Flow based on achievement of a senior secured first lien net
leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00
and less than or equal to 1.25 to 1.00, respectively. Scheduled quarterly
amortization payments of the 2018 Term Loan Facility during any calendar year
reduce, on a dollar-for-dollar basis, the amount of the required Excess Cash
Flow prepayment for such calendar year, and the aggregate amount of Excess Cash
Flow prepayments for any calendar year reduce subsequent quarterly amortization
payments of the 2018 Term Loan Facility as directed by GrafTech Finance. As of
September 30, 2021, we have satisfied all amortization requirements through
prepayments through the maturity date.
The 2018 Credit Agreement contains customary representations and warranties and
customary affirmative and negative covenants applicable to GrafTech and
restricted subsidiaries, including, among other things, restrictions on
indebtedness, liens, investments, fundamental changes, dispositions, and
dividends and other distributions. The 2018 Credit Agreement contains a
financial covenant that requires GrafTech to maintain a senior secured first
lien net leverage ratio not greater than 4.00:1.00 when the aggregate principal
amount of borrowings under the 2018 Revolving Credit Facility and outstanding
letters of credit issued under the 2018 Revolving Credit Facility (except for
undrawn letters of credit in an aggregate amount equal to or less than
$35 million), taken together, exceed 35% of the total amount of commitments
under the 2018 Revolving Credit Facility. The 2018 Credit Agreement also
contains customary events of default.
2020 Senior Notes
On December 22, 2020, GrafTech Finance issued $500 million aggregate principal
amount of the 4.628% senior secured notes due 2028 (the "2020 Senior Notes") at
an issue price of 100% of the principal amount thereof in a private offering to
qualified institutional buyers in accordance with Rule 144A under the Securities
Act and to non-U.S. persons outside the United States under Regulation S under
the Securities Act.
The 2020 Senior Notes were issued pursuant to the indenture among GrafTech
Finance, as issuer, the Company, as a guarantor, the other subsidiaries of the
Company named therein as guarantors and U.S. Bank National Association, as
trustee and notes collateral agent (the "Indenture").
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

The 2020 Senior Notes are guaranteed on a senior secured basis by the Company
and all of its existing and future direct and indirect U.S. subsidiaries that
guarantee, or borrow under, the credit facilities under its 2018 Credit
Agreement. The 2020 Senior Notes are secured on a pari passu basis by the
collateral securing the term loans under the 2018 Credit Agreement. GrafTech
Finance, the Company and the other guarantors granted a security interest in
such collateral, consisting of substantially all of their respective assets, as
security for the obligations of GrafTech Finance, the Company and the other
guarantors under the 2020 Senior Notes and the Indenture pursuant to a
collateral agreement, dated as of December 22, 2020 (the "Collateral
Agreement"), among GrafTech Finance, the Company, the other subsidiaries of the
Company named therein as grantors and U.S. Bank National Association, as
collateral agent.
The 2020 Senior Notes bear interest at the rate of 4.625% per annum, which
accrues from December 22, 2020 and is payable in arrears on June 15 and December
15 of each year, commencing on June 15, 2021. The 2020 Senior Notes will mature
on December 15, 2028, unless earlier redeemed or repurchased, and are subject to
the terms and conditions set forth in the Indenture.
GrafTech Finance may redeem some or all of the 2020 Senior Notes at the
redemption prices and on the terms specified in the Indenture. If the Company or
GrafTech Finance experiences specific kinds of changes in control or the Company
or any of its restricted subsidiaries sells certain of its assets, then GrafTech
Finance must offer to repurchase the 2020 Senior Notes on the terms set forth in
the Indenture.
The Indenture contains certain covenants that, among other things, limit the
Company's ability, and the ability of certain of its subsidiaries, to incur or
guarantee additional indebtedness or issue preferred stock, pay distributions
on, redeem or repurchase capital stock or redeem or repurchase subordinated
debt, incur or suffer to exist liens securing indebtedness, make certain
investments, engage in certain transactions with affiliates, consummate certain
asset sales and effect a consolidation or merger, or sell, transfer, lease or
otherwise dispose of all or substantially all assets. The Indenture contains
events of default customary for agreements of its type (with customary grace
periods, as applicable) and provides that, upon the occurrence of an event of
default arising from certain events of bankruptcy or insolvency with respect to
the Company or GrafTech Finance, all outstanding 2020 Senior Notes will become
due and payable immediately without further action or notice. If any other type
of event of default occurs and is continuing, then the trustee or the holders of
at least 30% in principal amount of the then outstanding 2020 Senior Notes may
declare all of the Senior Notes to be due and payable immediately.
The entirety of the 2020 Senior Notes proceeds was used to pay down a portion of
our 2018 Term Loans.
Uses of Liquidity
On July 30, 2019, our Board of Directors authorized a program to repurchase up
to $100 million of our outstanding common stock. We may purchase shares from
time to time on the open market, including under Rule 10b5-1 and/or Rule 10b-18
plans. The amount and timing of repurchases are subject to a variety of factors
including liquidity, stock price, applicable legal requirements, other business
objectives and market conditions. We repurchased 4,293,924 shares of common
stock for a total purchase price of $46.2 million under this program during the
nine months ended September 30, 2021. The Company had $12.8 million remaining
under this program as of September 30, 2021. Additionally, our Board of
Directors has approved a new $150 million open market stock repurchase program.
We currently pay a quarterly dividend of $0.01 per share, or $0.04 on an
annualized basis. We review our capital structure with the Board of Directors on
an ongoing basis. There can be no assurance that we will pay dividends in the
future in these amounts or at all. Our Board of Directors may change the timing
and amount of any future dividend payments or eliminate the payment of future
dividends in its sole discretion, without any prior notice to our stockholders.
Our ability to pay dividends will depend upon many factors, including our
financial position and liquidity, results of operations, legal requirements,
restrictions that may be imposed by the terms of our current and future credit
facilities and other debt obligations and other factors deemed relevant by our
Board of Directors.
During 2020, we reduced our long-term debt principal by $400 million. During the
nine months ended September 30, 2021, we repaid an additional $300 million of
principal of our 2018 Term Loans. For the remainder of 2021, we continue to
expect our primary use of cash to be debt repayment. Our capital expenditure
range expectations for 2021 are unchanged, between $55 and $65 million.
Potential uses of our liquidity include dividends, share repurchases, capital
expenditures, acquisitions, scheduled debt repayments, optional debt repayments,
and other general purposes. An improving economy, while resulting in improved
results of operations, could increase our cash requirements to purchase
inventories, make capital expenditures and fund payables and other obligations
until increased accounts receivable are converted into cash. A downturn,
including any potential resurgence of
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                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

the COVID-19 pandemic, could significantly and negatively impact our results of
operations and cash flows, which, coupled with increased borrowings, could
negatively impact our credit ratings, our ability to comply with debt covenants,
our ability to secure additional financing and the cost of such financing, if
available.
In order to seek to minimize our credit risks, we may reduce our sales of, or
refuse to sell (except for prepayment, cash on delivery or under letters of
credit or parent guarantees), our products to some customers and potential
customers. Our unrecovered trade receivables worldwide have not been material
during the last two years individually or in the aggregate.
During the second quarter of 2021, the Company paid out $61.5 million under its
LTIP resulting from a Change in Control provision upon Brookfield's ownership of
the Company's common stock falling below 30% of our total outstanding shares,
which occurred in the second quarter of 2021. We paid an additional $5.3 million
related to payroll taxes in the third quarter of 2021 and the remaining $6.6
million related to payroll taxes will be paid in subsequent quarters. For
details of the LTIP, see Note 7 "Contingencies" to the Notes to Condensed
Consolidated Financial Statements.
We manage our capital expenditures by taking into account quality, plant
reliability, safety, environmental and regulatory requirements, prudent or
essential maintenance requirements, global economic conditions, available
capital resources, liquidity, long-term business strategy and return on invested
capital for the relevant expenditures, cost of capital and return on invested
capital of the Company as a whole and other factors.   Capital expenditures
totaled $40.4 million in the nine months ended September 30, 2021.
In the event that operating cash flows fail to provide sufficient liquidity to
meet our business needs, including capital expenditures, any such shortfall
would need to be made up by increased borrowings under our 2018 Revolving Credit
Facility, to the extent available.
  Cash Flows
The following table summarizes our cash flow activities:
                                       For the Nine Months
                                       Ended September 30,
                                       2021            2020
                                          (in millions)
Cash flow provided by (used in):
Operating activities               $     343.0      $  416.7
Investing activities               $     (40.1)     $  (30.6)
Financing activities               $    (360.8)     $ (307.6)


Operating Activities
Cash flow from operating activities represents cash receipts and cash
disbursements related to all of our activities other than investing and
financing activities. Operating cash flow is derived by adjusting net income
(loss) for:
•Non-cash items such as depreciation and amortization, impairment, post
retirement obligations, and severance and pension plan changes;
•Gains and losses attributed to investing and financing activities such as gains
and losses on the sale of assets, loan modification charges and unrealized
currency transaction gains and losses; and
•Changes in operating assets and liabilities, which reflect timing differences
between the receipt and payment of cash associated with transactions and when
they are recognized in results of operations.
The net impact of the changes in working capital (operating assets and
liabilities), which are discussed in more detail below, include the impact of
changes in: receivables, inventories, prepaid expenses, accounts payable,
accrued liabilities, accrued taxes, interest payable and payments of other
current liabilities.
During the nine months ended September 30, 2021, changes in working capital
resulted in a net source of funds of $47.2 million, which was impacted by:
                                       37
--------------------------------------------------------------------------------

                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

•net cash outflows in accounts receivable of $3.5 million from the increase in
accounts receivable due to the timing of sales;
•net cash outflows due to increased inventory of $7.2 million resulting from
higher costs and quantities on hand;
•net cash outflows due to increased prepaid expense and other current assets of
$17.7 million resulting primarily from the timing of refunds of value-added
taxes in certain foreign jurisdictions;
•net cash outflows from decreased income taxes payable of $2.4 million resulting
from tax payments, partially offset by 2021 income tax accruals;
•net cash inflows from increases in accounts payable and accruals of $71.7
million, due to increased raw material purchases; and
•net cash inflows from increases in interest payable of $6.2 million, due to the
timing of interest payments on the 2020 Senior Notes.
Uses of cash in the nine months ended September 30, 2021 included payments under
our LTIP of $66.7 million, payments under the TRA of $21.8 million, cash taxes
paid of $51.4 million, cash paid for interest of $38.3 million, and
contributions to pension and other benefit plans of $3.6 million.
During the nine months ended September 30, 2020, changes in working capital
resulted in a net source of funds of $85.1 million, which was impacted by:
•net cash inflows in accounts receivable of $78.4 million from the decrease in
accounts receivable due to lower sales;
•net cash inflows in inventory of $10.4 million from our efforts to reduce
inventory levels and lower production levels;
•net cash inflows of $5.4 million from the decrease in other current assets
primarily due to value-added tax refunds received from foreign governments;
•net cash inflows from increased income taxes payable of $16.0 million resulting
from our ability to defer approximately $50.0 million of tax payment in a
foreign jurisdiction resulting from government enacted COVID-19 relief,
partially offset by lower required tax payments due to lower profitability; and
•net cash outflows from decreases in accounts payable and accruals of $25.1
million, due to lower purchases of third-party needle coke and payments.
Uses of cash in the nine months ended September 30, 2020 included payments under
the TRA of $27.9 million, cash paid for interest of $68.0 million and taxes paid
of $31.9 million, and contributions to pension and other benefit plans of $5.3
million.
Investing Activities
Net cash used in investing activities was $40.1 million during the nine months
ended September 30, 2021, resulting primarily from capital expenditures.
Net cash used in investing activities was $30.6 million during the nine months
ended September 30, 2020, resulting from capital expenditures.
 Financing Activities
Net cash outflow from financing activities was $360.8 million during the nine
months ended September 30, 2021, which was the result of the repayment of $300.0
million of principal on our 2018 Term Loan Facility, common stock repurchases of
$42.4 million, taxes paid related to stock awards vesting of $4.1 million, $3.1
million of debt issuance and modification costs and $8.0 million of total
dividends to stockholders.
Net cash outflow from financing activities was $307.6 million during the nine
months ended September 30, 2020, which was the result of the repayment of $249.2
million on our 2018 Term Loan Facility, $28.2 million of total dividends to
stockholders and $30.1 million of stock repurchases.
                                       38
--------------------------------------------------------------------------------

                                PART I (CONT'D)
                  GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Related Party Transactions
We have engaged in transactions with affiliates or related parties during 2021
and we expect to continue to do so in the future. These transactions include
ongoing obligations under the TRA, Stockholders Rights Agreement and
Registration Rights Agreement, each with Brookfield.
Recent Accounting Pronouncements
We discuss recently adopted accounting standards in Note 1, "Organization and
Summary of Significant Accounting Policies" of the Notes to Condensed
Consolidated Financial Statements.
Description of Our Financing Structure
We discuss our financing structure in more detail in Note 4, "Debt and
Liquidity" of the Notes to Condensed Consolidated Financial Statements.

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CHEMED CORP Management Analysis and Analysis of Financial Position and Results of Operations (Form 10-Q) https://goodwillsavannahga.org/chemed-corp-management-analysis-and-analysis-of-financial-position-and-results-of-operations-form-10-q/ Mon, 01 Nov 2021 13:51:04 +0000 https://goodwillsavannahga.org/chemed-corp-management-analysis-and-analysis-of-financial-position-and-results-of-operations-form-10-q/

Abstract


We operate through our two wholly-owned subsidiaries, VITAS Healthcare
Corporation and Roto-Rooter Group, Inc. VITAS focuses on hospice care that helps
make terminally ill patients' final days as comfortable as possible. Through its
teams of doctors, nurses, home health aides, social workers, clergy and
volunteers, VITAS provides direct medical services to patients, as well as
spiritual and emotional counseling to both patients and their families.
Roto-Rooter's services are focused on providing plumbing, drain cleaning, water
restoration and other related services to both residential and commercial
customers. Through its network of company-owned branches, independent
contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning
service to over 90% of the U.S. population.

The following is a summary of the main operating results (in thousands, except per share amounts):


                                  Three months ended September 30,      

Nine months ended September 30,

                                     2021              2020                2021                 2020
Service revenues and sales        $  538,667     $        528,297    $      1,598,283     $      1,546,294
Net income                        $   72,003     $         67,722    $        193,925     $        205,714
Diluted EPS                       $     4.55     $           4.14    $          12.06     $          12.53
Adjusted net income               $   80,084     $         79,556    $        226,554     $        212,494
Adjusted diluted EPS              $     5.06     $           4.86    $          14.09     $          12.94
Adjusted EBITDA                   $  119,373     $        117,805    $        338,840     $        319,576
Adjusted EBITDA as a % of revenue       22.2  %              22.3  %             21.2  %              20.7  %


Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and
depreciation and amortization ("EBITDA"), Adjusted EBITDA and Adjusted EBITDA as
a percent of revenue are not measures derived in accordance with US GAAP. We
provide non-GAAP measures to help readers evaluate our operating results and to
compare our operating performance with that of similar companies that have
different capital structures. Our non-GAAP measures should not be considered in
isolation or as a substitute for comparable measures presented in accordance
with GAAP. A reconciliation of our non-GAAP measures is presented on pages
36-38.

For the three months ended September 30, 2021, the increase in consolidated
service revenues and sales was driven by a 15.7% increase at Roto-Rooter offset
by a 5.8% decrease at VITAS. The increase in service revenues at Roto-Rooter was
driven by an increase in all major service lines. Roto-Rooter's third quarter
2020 revenue was significantly impacted by shut-downs resulting from the COVID
pandemic. The decrease in service revenues at VITAS is comprised primarily of a
5.3% decrease in days-of-care offset by a geographically weighted average
Medicare reimbursement rate increase (including the suspension of sequestration
on May 1, 2020) of approximately 1.2%. Acuity mix shift had a net impact of
reducing revenue approximately $3.0 million, or 0.9% in the quarter when
compared to the prior year revenue and level-of-care mix. The combination of a
Medicare cap revenue reduction and other contra revenue changes negatively
impacted revenue growth by approximately 80 basis points. See page 39 for
additional VITAS operating metrics.

For the nine months ended September 30, 2021, the increase in consolidated
service revenues and sales was driven by a 20.1% increase at Roto-Rooter offset
by a 5.7% decrease at VITAS. The increase in service revenues at Roto-Rooter was
driven by an increase in all major service lines. Roto-Rooter's first nine
months 2020 revenue was significantly impacted by the COVID pandemic. The
decrease in service revenues at VITAS is comprised primarily of a 6.2% decrease
in days-of-care offset by a geographically weighted average Medicare
reimbursement rate increase (including the suspension of sequestration on May 1,
2020) of approximately 1.9%. Acuity mix shift had a net impact of reducing
revenue approximately $16.0 million, or 1.6% in the quarter when compared to the
prior year revenue and level-of-care mix. The combination of a lower Medicare
cap revenue reduction and other contra revenue changes offset a portion of the
revenue decline by approximately 20 basis points. See page 39 for additional
VITAS operating metrics.

The current COVID-19 pandemic did have a material impact on our business
operations, results of operations, cash flow and financial position as of and
for the three months and nine months ended September 30, 2021 and 2020,
respectively. We are closely monitoring the impact of the pandemic on all
aspects of our business including impacts to employees, customers, patients,
suppliers and vendors. The Company's two operating subsidiaries have been
categorized as critical infrastructure businesses and are not currently
materially limited by federal, state or local regulations that restrict movement
or operating ability.

The length and severity of the pandemic, coupled with related governmental
actions including relief acts and actions relating to our workforce at federal,
state and local levels, and underlying economic disruption will determine the
ultimate short-term and long-term impact to our business operations and
financial results. We are unable to predict the myriad of possible issues that
could arise or the ultimate effect to our businesses as a result of the unknown
short, medium and long-term impacts that the pandemic will have on the United
States economy and society as a whole.

                                      -23-

--------------------------------------------------------------------------------
Historically, Chemed earnings guidance has been developed using previous years'
key operating metrics which are then modeled and projected out for the calendar
year. Critical within these projections is the understanding of traditional
patterned correlations among key operating metrics. This modeling exercise also
takes into consideration anticipated industry and macro-economic issues outside
of management's control but are somewhat predictable in terms of timing and
impact on our business segments' operating results.

The COVID-19 pandemic has made accurate modeling and providing meaningful
earnings guidance exceptionally challenging. Since the start of the pandemic,
Chemed has been able to successfully navigate within this rapidly changing
environment and produce operating results that we believe provide us with the
ability to issue earnings guidance for the 2021 calendar year. However, this
guidance should be taken with the recognition the pandemic will continue to
disrupt our healthcare system and general economy to such an extent that future
rules, regulations and government mandates could materially impact the company's
ability to achieve this guidance.

Statistically, patients residing in senior housing are identified as hospice
appropriate earlier into their terminal prognosis and have a much greater
probability of having a length of stay in excess of 90 days. Hospice patients
referred from hospitals, oncology practices and similar referral sources are
generally more acute and have a significantly lower probability of
lengths-of-stay exceeding 90 days. According to data released by the National
Investment Center for Seniors Housing & Care, COVID-19 continues to adversely
affect senior housing occupancy. This reduced occupancy in senior housing has
had a corresponding reduction in VITAS nursing home admissions. Nursing home
patients represented 15.6% of VITAS' third-quarter 2021 patient census. This
compares to nursing home patients averaging 18.2% of total census just prior to
the pandemic.

Based upon the above discussion, VITAS 2021 revenue, prior to Medicare Cap, is
estimated to decline approximately 5% when compared to the prior year. Average
Daily Census in 2021 is estimated to decline approximately 5.5%. Full-year
Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 18.8%. We are
currently estimating $6.6 million for Medicare Cap billing limitations in
calendar year 2021.

Roto-Rooter is forecasted to achieve full-year 2021 revenue growth of 17.3%.
Roto-Rooter's Adjusted EBITDA margin for 2021 is estimated to be between 28.5%
to 29.0%.

Based upon the above, full-year 2021 adjusted earnings per diluted share,
excluding non-cash expense for stock options, tax benefits from stock option
exercises, costs related to litigation, and other discrete items, is estimated
to be in the range of $19.00 to $19.20. This compares to initial 2021 adjusted
earnings per diluted share guidance of $17.00 to $17.50. This revised 2021
guidance assumes an effective corporate tax rate on adjusted earnings of 25.1%.
Chemed's 2020 reported adjusted earnings per diluted share was $18.08.

We expect that our operating income and cash flow will be sufficient to operate our business and meet our commitments for the foreseeable future.

Financial condition

Liquidity and capital resources

Significant changes in the balance sheet accounts of December 31, 2020 To
September 30, 2021 include the following:

?A $ 8.7 million decrease in accounts receivable due to the timing of collections.

?A $ 6.3 million increase in prepaid taxes due to timing of payments.

?A $ 6.1 million increase in prepaid expenses mainly due to a $ 6.0 million
increase in prepaid software at VITAS.

?A $ 13.2 million increased investments in deferred compensation plans primarily due to contributions and market valuation gains. These gains are offset by an expense recognized in the deferred compensation liability.

?A $ 7.5 million decrease in identifiable intangible assets due to amortization.

?A $ 5.8 million increase in accounts payable due to timing of payments.

?A $ 6.0 million increase in accrued compensation due to the accumulation of additional paid leave for VITAS frontline workers and an increase in the accumulated bonus.

?A $ 9.1 million decrease in accrued legal charges mainly due to payments from two legal settlements.

?A $ 345.1 million increase in treasury shares mainly due to share buybacks.


Net cash provided by operating activities decreased $157.4 million from
September 30, 2020 to September 30, 2021. The main drivers of the decrease are a
decrease in net income of $11.8 million, the Unutilized CARES Act grant received
in 2020 of $48.0 million, the deferral of payroll taxes during the second
quarter of 2020 of $22.9 million and increases in cash outflows associated with
accounts

                                      -24-
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payable and current income taxes of $39.6 million. Significant changes in our
accounts receivable balances are typically driven by the timing of payments
received from the Federal government at our VITAS subsidiary. We typically
receive a payment in excess of $40.0 million from the Federal government for
hospice services every other Friday. The timing of a period end will have a
significant impact on the accounts receivable at VITAS. These changes generally
normalize over a two year period, as cash flow variations in one year are offset
in the following year.

Management continually evaluates cash utilization alternatives, including share
repurchase, debt repurchase, acquisitions and increased dividends to determine
the most beneficial use of available capital resources.

On June 20, 2018, we signed the Fourth Amended and Restated Credit Agreement
("2018 Credit Agreement"). Terms of the 2018 Credit Agreement consist of a five
year, $450 million revolving credit facility and a $150 million expansion
feature, which may consist of term loans or additional revolving commitments.
The revolving credit facility has a five year maturity with principal payments
due at maturity.  The interest rate at the inception of the agreement was LIBOR
plus 100 basis points. The 2018 Credit Agreement has a floating interest rate
that is generally LIBOR plus a tiered additional rate which varies based on our
current leverage ratio. We have no debt outstanding under the 2018 Credit
Agreement as of September 30, 2021.

We have issued $46.2 million in standby letters of credit as of September 30,
2021, mainly for insurance purposes. Issued letters of credit reduce our
available credit under the revolving credit agreement. As of September 30, 2021,
we have approximately $403.8 million of unused lines of credit available and
eligible to be drawn down under our revolving credit facility. Management
believes its liquidity and sources of capital are satisfactory for the Company's
needs in the foreseeable future.

Commitments and contingencies

Collectively, the terms of our credit agreements require us to comply with various financial covenants, which must be tested quarterly. We comply with all financial covenants and other covenants dated September 30, 2021 and expect to remain in compliance for the foreseeable future.


We are subject to various lawsuits and claims in the normal course of our
business. In addition, we periodically receive communications from governmental
and regulatory agencies concerning compliance with Medicare and Medicaid billing
requirements at our VITAS subsidiary. We establish reserves for specific,
uninsured liabilities in connection with regulatory and legal action that we
deem to be probable and estimable. We disclose the existence of regulatory and
legal actions when we believe it is reasonably possible that a loss could occur
in connection with the specific action. In most instances, we are unable to make
a reasonable estimate of any reasonably possible liability due to the
uncertainty of the outcome and stage of litigation. We record legal fees
associated with legal and regulatory actions as the costs are incurred.

See Note 11 of the Notes to the Unaudited Consolidated Financial Statements in Item 1 above for a description of the material legal issues outstanding.


?

                                      -25-

————————————————– ——————————

Results of operations

Three months ended September 30, 2021 versus 2020 – Consolidated results

Our service revenues and sales for the third quarter of 2021 increased by 2.0% compared to the service and sales revenues for the third quarter of 2020. Of this increase, a $ 30.1 million increase was due to Roto-Rooter compensated by a
$ 19.7 million decrease attributable to VITAS. The following graph shows the components of revenue by operating segment (in thousands):

                                        Three months ended September 30,
                                         2021                          2020
VITAS
Routine homecare                  $         268,137                 $ 278,856
Continuous care                              22,027                    30,699
General inpatient                            29,368                    27,633
Other                                         3,225                     2,910
Medicare cap adjustment                         (97)                    4,072
Room and board - net                         (2,130)                   (3,289)
Implicit price concessions                   (3,119)                   (3,784)
Roto-Rooter
Drain cleaning - short term core             63,072                    55,527
Plumbing - short term core                   45,124                    39,439
Subtotal                                    108,196                    94,966
Excavation - short term core                 52,607                    47,688
Water restoration                            39,786                    32,137
Contractor operations                        18,969                    16,274
Outside franchisee fees                       1,260                     1,235
Other - short term core                         254                       435
Other                                         3,773                     3,332
Implicit price concessions                   (3,589)                   (4,867)
Total                             $         538,667                 $ 528,297


Days of care at VITAS during the quarter ended September 30 were as follows:

                                           Days of Care       Increase/(Decrease)
                                         2021        2020           Percent

Routine homecare                      1,342,841   1,426,191                 (5.8)
Nursing home                            258,700     261,396                 (1.0)
Respite                                   5,331       4,566                 16.8
Subtotal routine homecare and respite 1,606,872   1,692,153                 (5.0)
Continuous care                          24,299      33,013                (26.4)
General inpatient                        27,962      27,017                  3.5
Total days of care                    1,659,133   1,752,183                 (5.3)


The decrease in service revenues at VITAS is comprised primarily of a 5.3%
decrease in days-of-care offset by a geographically weighted average Medicare
reimbursement rate increase (including the suspension of sequestration on May 1,
2020) of approximately 1.2%. Acuity mix shift had a net impact of reducing
revenue approximately $3.0 million, or 0.9% in the quarter when compared to the
prior year revenue and level-of-care mix. The combination of Medicare cap
revenue reduction and other contra revenue changes negatively impacted revenue
growth by approximately 80 basis points.

The increase in plumbing revenues for the third quarter of 2021 versus 2020 is
attributable to a 1.0% increase in job count and to a 13.4% increase in price
and service mix shift. The increase in excavation revenues for the third quarter
of 2021 versus 2020 is attributable to a 14.2% increase in price and service mix
shift and a 3.9% decrease in job count. Drain cleaning revenues for the third
quarter of 2021 versus 2020 reflect a 11.2% increase in price and service mix
shift and a 2.4% increase in job count. Water restoration revenue increased for
the third quarter of 2021 versus 2020 due to a 11.0% increase in job count and a
12.8% increase in price and service mix shift.

The consolidated gross margin was 36.5% in the third quarter of 2021 as compared
with 35.8% in the third quarter of 2020. On a segment basis, VITAS' gross margin
was 25.0% in the third quarter of 2021 as compared with 26.8%, in the third
quarter of 2020. The decrease is primarily due to the payout of discretionary
bonuses. The Roto-Rooter segment's gross margin was 53.0% for the third quarter
of 2021 as compared with 51.6% in the third quarter of 2020 primarily due to
increased revenue and improved labor costs.

                                      -26-

————————————————– ——————————

Selling, general and administrative expenses ("SG&A") comprise (in thousands):

                                                       Three months ended September 30,
                                                             2021              2020

SG&A fees before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts

                          $           84,197   

$ 79,287
Impact of market value adjustments related to assets held in deferred compensation trusts

                               3,078    

7,256

Long-term incentive compensation                                   1,942           1,774
Total SG&A expenses                                   $           89,217   $      88,317


SG&A expenses before long-term incentive compensation and the impact of market
value adjustments related to deferred compensation trusts for the third quarter
of 2021 were up 6.2% when compared to the third quarter of 2020. This increase
was mainly a result of the increase in variable selling and general
administrative expenses and increased bonus expense at Roto-Rooter caused by
increased income.

Depreciation for the third quarter of 2021 increased by 1.1% compared to the third quarter of 2020.


Amortization for the third quarter of 2021 was flat when compared to the third
quarter of 2020. Quarterly amortization of intangible assets is mainly driven by
two Roto-Rooter franchise acquisitions completed in 2019. The total purchase
price of these acquisitions was $138.0 million. As part of the purchase price
allocation, approximately $59.2 million was determined to be the value of
reacquired franchise rights which are being amortized over the remaining life of
each franchise agreement. The average remaining life on the reacquired franchise
agreements was approximately seven years. Quarterly amortization of reacquired
franchise rights for these two acquisitions is approximately $2.0 million ($8.1
million annualized through 2026). This contrasts to quarterly franchise fees
historically collected from these two franchisees of approximately $470,000
($1.9 million annualized).

Other operating expenses include:


                                      Three months ended September 30,
                                     2021                            2020
Loss on disposal of fixed assets $        63                       $    307
CARES Act grant                             -                         8,805
Litigation settlement                       -                         3,095
Total other operating expenses   $        63                       $ 12,207


Other income – net includes (in thousands):


                                                       Three months ended 

September 30,

                                                             2021           

2020

Market value adjustment on assets held in deferred
compensation trusts                                   $           3,078    $      7,256
Interest income                                                      57             423
Other                                                                (1)             (4)
Total other income - net                              $           3,134    $      7,675



?

                                      -27-

————————————————– ——————————

Our reconciliation of the effective tax rate is as follows (in thousands):

                                                       Three months ended September 30,
                                                            2021                2020

Income tax provision calculated at the statutory
federal rate                                          $         20,038       $   17,137
Stock compensation tax benefits                                 (1,199)          (7,187)
State and local income taxes                                     3,153            3,028
Other--net                                                       1,425              904
Income tax provision                                  $         23,417       $   13,882
Effective tax rate                                                24.5  %          17.0  %

Net income for both periods included the following after-tax items / adjustments that (reduced) or increased after-tax profit (in thousands):

                                                      Three months ended September 30,
                                                            2021              2020
VITAS
Direct costs related to COVID-19                      $         (1,866)   $     (5,181)
CARES Act grant                                                       -         (6,528)
COVID-19 Medicare cap                                                 -           1,679
Medicare cap sequestration adjustment                                 -     

635

Roto-Rooter

Amortization of reacquired franchise agreements                 (1,729)     

(1,728)

Direct costs related to COVID-19                                  (305)           (971)
Litigation settlements                                                -         (2,275)
Corporate
Stock option expense                                            (3,462)         (2,970)
Long-term incentive compensation                                (1,752)     

(1,682)

Excess tax benefits on stock compensation                         1,199           7,187
Other                                                             (166)               -
Total                                                 $         (8,081)   $    (11,834)

Three months ended September 30, 2021 compared to 2020 – Segment results

Net income for the third quarter of 2021 compared to the third quarter of 2020 by segment (in thousands):


                  Three months ended September 30,
                   2021                           2020
VITAS                    42,950                 $  45,737
Roto-Rooter              44,554                    31,176
Corporate              (15,501)                   (9,191)
            $            72,003                 $  67,722


VITAS' after-tax earnings decreased primarily due to lower revenue in the third
quarter of 2021 when compared to the third quarter of 2020. After-tax earnings
as a percent of revenue at VITAS in the third quarter of 2021 was 13.5% as
compared to 13.6% in the third quarter of 2020.

Roto-Rooter the net result was impacted in 2021 compared to 2020 mainly by the increase in revenues and the improvement in labor costs. Profit after tax as a percentage of sales as of Roto-Rooter in the third quarter of 2021 was 20.1%, compared to 16.3% in the third quarter of 2020.

Social charges after tax for 2021 increased by 68.7% compared to 2020 mainly due to a $ 6.0 million reduction in excess tax advantages on share-based compensation.


?

                                      -28-

————————————————– ——————————

Results of operations

Nine months ended September 30, 2021 versus 2020 – Consolidated results


Our service revenues and sales for the first nine months of 2021 increased 3.4%
versus services and sales revenues for the first nine months of 2020. Of this
increase, $109.3 million was attributable to Roto-Rooter offset by a $57.3
million decrease attributable to VITAS. The following chart shows the components
of revenue by operating segment (in thousands):

                                       Nine months ended September 30,
                                         2021                      2020
VITAS
Routine homecare                  $         796,817            $   826,954
Continuous care                              73,658                105,836
General inpatient                            85,895                 85,983
Other                                         9,241                  8,175
Medicare cap adjustment                      (3,597)                (4,178)
Room and board - net                         (7,451)                (9,317)
Implicit price concessions                   (9,428)               (10,976)
Roto-Rooter
Drain cleaning - short term core            187,477                159,003
Plumbing - short term core                  131,045                108,255
Subtotal                                    318,522                267,258
Excavation - short term core                159,714                135,425
Water restoration                           115,804                 92,810
Contractor operations                        56,754                 47,695
Outside franchisee fees                       3,842                  3,635
Other - short term core                         853                  1,371
Other                                        11,601                  9,836
Implicit price concessions                  (13,942)               (14,213)
Total                             $       1,598,283            $ 1,546,294


Days of care at VITAS during the nine months ended September 30 were as follows:

                                           Days of Care       Increase/(Decrease)
                                         2021        2020           Percent

Routine homecare                      4,008,215   4,192,681                 (4.4)
Nursing home                            735,906     844,232                (12.8)
Respite                                  15,509      15,416                  0.6
Subtotal routine homecare and respite 4,759,630   5,052,329                 (5.8)
Continuous care                          79,385     110,200                (28.0)
General inpatient                        82,129      84,907                 (3.3)
Total days of care                    4,921,144   5,247,436                 (6.2)


The decrease in service revenues at VITAS is comprised primarily of a 6.2%
decrease in days-of-care offset by a geographically weighted average Medicare
reimbursement rate increase (including the suspension of sequestration on May 1,
2020) of approximately 1.9%. Acuity mix shift had a net impact of reducing
revenue approximately $16.0 million, or 1.6% in the quarter when compared to the
prior year revenue and level-of-care mix. The combination of a lower Medicare
cap revenue reduction and other contra revenue changes offset a portion of the
revenue decline by approximately 20 basis points.

The increase in plumbing revenues for the first nine months of 2021 versus 2020
is attributable to a 12.3% increase in job count and to an 8.8% increase in
price and service mix shift. The increase in excavation revenues for the first
nine months of 2021 versus 2020 is attributable to a 9.2% increase in job count
and to an 8.7% increase in price and service mix shift. Drain cleaning revenues
for the first nine months of 2021 versus 2020 reflect a 9.1% increase in price
and service mix shift and an 8.8% increase in job count. Water restoration
revenue increased for the first nine months of 2021 versus 2020 due to a 10.2%
increase in job count and a 14.6% increase in price and service mix shift. The
increase in job count for all service lines was driven by both residential and
commercial customers.

The consolidated gross margin was 35.4% in the first nine months of 2021 as
compared with 32.5% in the first nine months of 2020. On a segment basis, VITAS'
gross margin was 23.4% in the first nine months of 2021 as compared with 22.9%,
in the first nine months of 2020. The increase is primarily due to improved
labor costs. The Roto-Rooter segment's gross margin was 52.7% for the first nine
months of 2021 as compared with 50.3% in the first nine months of 2020 primarily
due to increased revenue and improved labor costs.

                                      -29-

————————————————– ——————————

Selling, general and administrative expenses ("SG&A") comprise (in thousands):

                                                       Nine months ended September 30,
                                                            2021              2020

SG&A fees before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts

                          $        259,376    $ 

232,797

Impact of market value adjustments related to assets held in deferred compensation trusts

                             9,770      

5,093

Long-term incentive compensation                                 5,508           5,523
Total SG&A expenses                                   $        274,654    $    243,413


SG&A expenses before long-term incentive compensation and the impact of market
value adjustments related to deferred compensation trusts for the first nine
months of 2021 were up 11.4% when compared to the first nine months of 2020.
This increase was mainly a result of the increase in variable selling and
general administrative expenses and increased bonus expense at Roto-Rooter
caused by increased income.

Depreciation for the first nine months of 2021 increased by 6.9% compared to the first nine months of 2020.


Amortization for the first nine months of 2021 increased 0.7% when compared to
the first nine months of 2020. Quarterly amortization of intangible assets is
mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The
total purchase price of these acquisitions was $138.0 million. As part of the
purchase price allocation, approximately $59.2 million was determined to be the
value of reacquired franchise rights which are being amortized over the
remaining life of each franchise agreement. The average remaining life on the
reacquired franchise agreements was approximately seven years. Quarterly
amortization of reacquired franchise rights for these two acquisitions is
approximately $2.0 million ($8.1 million annualized through 2026). This
contrasts to quarterly franchise fees historically collected from these two
franchisees of approximately $470,000 ($1.9 million annualized).

Other (income) / operating expenses include the following:


                                             Nine months ended September 

30,

                                            2021                           

2020

Loss on disposal of fixed assets        $        789                    $     154
CARES Act grant                                     -                     (32,184)
Litigation settlement                               -                       3,095
Total other operating (income)/expenses $        789                    $ 

(28 935)

Other income – net includes (in thousands):


                                                        Nine months ended 

September 30,

                                                             2021           

2020

Market value adjustment on assets held in deferred
compensation trusts                                   $            9,770    $      5,093
Interest income                                                      288             647
Other                                                                463             (17)
Total other income - net                              $           10,521    $      5,723



?

                                      -30-

————————————————– ——————————

Our reconciliation of the effective tax rate is as follows (in thousands):

                                                       Nine months ended September 30,
                                                            2021               2020

Income tax provision calculated at the statutory
federal rate                                          $        53,379       $   52,531
Stock compensation tax benefits                                (5,305)         (19,943)
State and local income taxes                                    9,332            9,118
Other--net                                                      2,856            2,729
Income tax provision                                  $        60,262       $   44,435
Effective tax rate                                               23.7  %          17.8  %

Net income for both periods included the following after-tax items / adjustments that (reduced) or increased after-tax profit (in thousands):

                                                       Nine months ended September 30,
                                                            2021              2020
VITAS
Direct costs related to COVID-19                      $        (11,442)   $    (24,009)
Facility relocation costs                                       (1,384)               -
CARES Act grant                                                       -          24,009
Medicare cap sequestration adjustment                                 -     

(462)

Roto-Rooter

Amortization of reacquired franchise agreements                 (5,186)     

(5,185)

Direct costs related to COVID-19                                (1,140)         (2,426)
Litigation settlements                                               72         (2,275)
Corporate
Stock option expense                                           (13,695)        (11,369)
Excess tax benefits on stock compensation                         5,305     

19 943

Long-term incentive compensation                                (4,964)     

(5.006)

Direct costs related to COVID-19                                   (29)               -
Other                                                             (166)               -
Total                                                 $        (32,629)   $     (6,780)

Nine months ended September 30, 2021 compared to 2020 – Segment results

Net income for the first nine months of 2021 compared to the first nine months of 2020 by segment (in thousands):

                 Nine months ended September 30,
                  2021                         2020
VITAS       $         113,430               $  147,262
Roto-Rooter           124,504                   84,966
Corporate            (44,009)                 (26,514)
            $         193,925               $  205,714


VITAS' after-tax earnings decreased primarily due to lower revenue. After-tax
earnings as a percent of revenue at VITAS in the first nine months of 2021 was
12.0% as compared to 14.7% in the first nine months of 2020.

Roto-Rooter the net result was impacted in 2021 compared to 2020 mainly by the increase in revenues and the improvement in labor costs. Profit after tax as a percentage of sales as of Roto-Rooter in the first nine months of 2021 was 19.1%, compared to 15.6% in the first nine months of 2020.

Social charges after tax for 2021 increased by 66.0% compared to 2020 mainly due to a $ 14.6 million reduction in excess tax advantages on share-based compensation.


?

                                      -31-

————————————————– ——————————

© Edgar online, source Previews

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YBR Home Loans Signals Digital Pivot and Broker Expansion https://goodwillsavannahga.org/ybr-home-loans-signals-digital-pivot-and-broker-expansion/ Sun, 24 Oct 2021 21:02:53 +0000 https://goodwillsavannahga.org/ybr-home-loans-signals-digital-pivot-and-broker-expansion/

The recently rebranded franchise and brokerage aggregation group – Yellow Brick Road (YBR) Home Loans – has announced a multi-channel distribution offering, with a mix of digital and traditional mortgage brokerage.

In an ASX market update in which it described its strategic direction for FY22 and its results for FY21, the leading brokerage firm announced that it had launched Y Home Loans, the YBR’s digital mortgage brokerage business.

The platform will allow clients to apply for home loans digitally through yhomeloans.com.au; it includes educational content to guide clients through the home loan process.

YBR also reported the upcoming launch of the yhomeloans app, through which customers can apply for a home loan through their phone and receive instant indicative offers if they meet credit policy requirements.

YBR said it will launch targeted digital marketing campaigns to build brand awareness among consumers.

Network of brokers to expand

Along with this digital focus, YBR also announced plans to expand its broker network across YBR and Vow by 100 over the next 12 months, in line with its strategy of combining digital capabilities with traditional mortgage brokerage.

This would be achievable through the brand presence, commission structure, digital marketing and an effective lead management and tracking system, the brokerage said, adding that it would increase recruiting capabilities, d integration and creation of brokerage companies.

YBR aims to become a ‘data driven’ organization in FY 22 and launch predictive triggers for customer retention and market and geographic data for each region in Australia to support expansion of the YBR distribution. It would also use external and internal data to determine the optimal competitive positioning in the market for new brokers.

He previously announced other enhancements to be rolled out over time, including digital marketing, comprehensive sales data, and compliance-related data (with the ability to take a risk-based, risk-based compliance approach to compliance. broker profiles).

Develop the wholesale financing division

In addition, YBR has indicated that it is aiming to “turbo” its mortgage-backed securities securitization business, Resi Wholesale Funding (RWF), by expanding funding, product sets and functionality.

YBR plans to promote RWF products within its network of over 1,400 brokers through a combination of its Business Development Director (BDM) team, online tools and content, direct access to a customer-focused credit team and fast processing times.

YBR – which was known as a brokerage franchise brand – has increasingly positioned itself as a non-bank lender after the launch of its mortgage securitization program.

In 2020, the group partnered with international alternative asset manager Magnetar Capital to launch RWF, the mortgage-backed securities securitization joint venture.

In September of this year, YBR changed its name to YBR Home Loans and ceased to use its earlier mark of Yellow Brick Road Wealth Management. The group sold the operational and commercial functions of the YBR Wealth head office to InterPrac Financial Planning in 2020.

YBR has indicated its intention to invest in technology to reduce human interactions involved in the credit assessment and settlement process for mortgage loan applications, with the goal of obtaining instant conditional approvals for standard mortgage loans. .

He said he would use the data to understand broker and consumer appetites to support his product design process, increase conversion rates by understanding leak areas, and identify brokers with profiles aligned with the RWF appetite.

YBR added that there are opportunities to increase the funding available, including additional warehouses and the issuance of mortgage-backed securities in the public securitization markets.

YBR Group Reports Loss of NPAT

In FY21, RWF – which YBR called its own “home loan factory” – said its loan portfolio stood at $ 152 million while settlements stood at $ 170 million. , with 236 brokers adopting the facility.

The YBR Group reported an overall loss in net income after tax (NPAT) of $ 460,000, due to a loss of $ 5.2 million on the net present value of the future trail (non-cash item), impacted by a combination of market factors and lower margins on the new regulations.

In FY21, YBR Group’s loan settlements totaled $ 13.4 billion (up 16.3% from FY20), while its loonie portfolio stood at $ 51.7 billion (up 2.9% from FY20).

Earnings before interest, taxes, depreciation and amortization (EBITDA) (cash) excluding profit on disposal of companies and impairment of joint ventures increased by 94% compared to FY20 to reach 6.1 million of dollars.

As of September 30, 2021, the Vow Financial network had 1,321 brokers, which reported settlements of $ 11.8 billion in FY21 and $ 43.1 billion in the underlying loan portfolio as of June 2021 .

YBR had 108 brokers in its network as of September 30, 2021, and $ 1.6 billion of settlements in FY21 and $ 7.6 billion of underlying loan portfolio as of June 2021.

The Group’s Resi division reported $ 301 million in settlements in FY21 (including RWF), $ 1.3 billion in loan portfolio in June 2021 (including RWF) and a warehouse of $ 250 million. dollars (in addition to other wholesale funding lines).

[Related: Yellow Brick Road announces rebrand]

YBR Home Loans Signals Digital Pivot and Broker Expansion



The Advisor's logo


Last updated: October 22, 2021

Posted: 25 October 2021

If you’re feeling overworked and overwhelmed by this rapidly changing mortgage market, it’s time to make some changes, and the Business Accelerator program can help! Work smarter, not harder, in 2022 and beyond, visit the website here to secure your ticket.

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Malavika Santhebennur

Malavika Santhebennur

Malavika Santhebennur is the Mortgage Securities Editor at Momentum Media.

Prior to joining the team in 2019, Malavika held positions at Money Management and Benchmark Media. She has been writing about financial services for six years.

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UK regulators launch probe into NFT ‘Fantasy Sports’ Sorare platform https://goodwillsavannahga.org/uk-regulators-launch-probe-into-nft-fantasy-sports-sorare-platform/ Wed, 13 Oct 2021 14:27:49 +0000 https://goodwillsavannahga.org/uk-regulators-launch-probe-into-nft-fantasy-sports-sorare-platform/

Posted: Oct 13, 2021, 7:27 a.m.

Last updated on: October 13, 2021, 7:27 a.m.

UK gambling regulators have said they are investigating fantasy football platform Sorare. The French startup recently became the darling of the boiling NFT market with a $ 680 million cash injection led by SoftBank.

so rare
Virtual football cards which use NFTs to form the basis of Sorare’s fantastic sports and trading platform. (Image: Sorare)

Sorare allows users to trade footballer cards using NFTs (non-fungible tokens) which may increase or decrease in value depending on the actual performance of the players.

NFTs are a relatively new but rapidly growing craze in the crypto space. These digital tokens can represent ownership of a virtual item, such as sports trading cards, a work of art, or even a virtual horse.

Each NFT is unique and acts as a collector’s item that cannot be duplicated, while ownership is tracked on the blockchain, a digital ledger of transactions.

This means that the rarity or uniqueness of an item can always be proven without a doubt, which makes NFTs very attractive to collectors.

No UK license

Sorare may be making waves in this revolutionary new market, but the UK Gambling Commission has warned UK consumers that the company is doing so without a UK gaming license. Whether or not it needs it is currently under investigation by the UKGC. In the meantime, consumers should proceed with caution, he advised.

The regulator has been accused of fumbling the ball when it comes to new technological trends in the gaming space and is clearly determined not to let the NFT craze slip away.

A recent damning report from the UK government on the collapse of another football trading platform, Football Index, revealed that the UKGC had been slow to understand the new betting product it was tasked with regulating.

Sorare has a different and seemingly less risky business model than Football Index and believes the blockchain offers more transparency in its operations.

Football Index, meanwhile, billed itself as a virtual football stock market, where users could buy and sell notional shares of professional players. They would then receive “dividend” payments, based on the performance of those stocks.

But Football Index outdid itself, and in March the market collapsed. The company is currently in insolvency proceedings and owes millions to players.

What is Sorare’s business model?

In contrast, Sorare generates income by issuing and selling new cards which, unlike Football Index ‘stocks’, have underlying value, largely thanks to NFTs. Since January, more than $ 150 million in cards have been traded on the platform.

Sorare users can purchase cards and add them to their collection, or they can add them to a “team” of players to earn points based on actual performance. These teams can compete in leagues and tournaments to win non-cash prizes.

But it was this fantasy sports aspect of the platform that caught the UKGC’s attention. Fantastic sports operators are required to apply to the agency for a pool betting license if they wish to engage with UK customers. Sorare’s games are theoretically “free,” which could be a loophole, although of course users must first purchase a squad before they can enter.

In a statement, Sorare said he anticipates and accepts regulatory issues due to the novelty of the technology involved. But he added that he was “very confident” that he was not breaking any gambling laws.

“This has been confirmed by expert legal opinions at every step since the inception of the company, including a number of fundraisers,” said a spokesperson for Sorare. “We will always engage and have an open dialogue with the authorities who contact us to learn more about our game.”

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