GRAPHIC PACKAGING HOLDING CO

The Company pursues a currency hedging program which utilizes derivatives to reduce the impact of foreign currency exchange fluctuations on its consolidated financial results. Under this program, the Company has previously entered into forward exchange contracts in the normal course of business to hedge certain foreign currency denominated transactions. Realized and unrealized gains and losses on these forward contracts are included in the measurement of the basis of the related foreign currency transaction when recorded. The Company also pursues a hedging program that utilizes derivatives designed to manage risks associated with future variability in cash flows and price risk related to future energy cost increases. Under this program, the Company has entered into natural gas swap contracts to hedge a portion of its forecasted natural gas usage for 2025. Realized gains and losses on these contracts are included in the financial results concurrently with the recognition of the commodity consumed. In addition, the Company has used interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. The Company does not hold or issue financial instruments for trading purposes. See Item 7A, Quantitative and Qualitative Disclosure About Market Risk for additional information.

Off-Balance Sheet Arrangements

The Company had $38 million of standby letters of credit issued under a separate unsecured facility as of December 31, 2025 as disclosed in Note 5. Debt in the Notes to Consolidated Financial Statements. The Company does not have any other off-balance sheet arrangements.

Critical Accounting Judgment and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from these estimates, and changes in these estimates are recorded when known. The critical accounting policies used by management in the preparation of the Company's consolidated financial statements are those that are important both to the presentation of the Company's financial condition and results of operations and require significant judgments by management with regard to estimates used. The critical judgments by management relate to future cash flows associated with impairment testing for goodwill and long-lived assets, and deferred income taxes.

Goodwill

The Company evaluates goodwill for impairment annually as of October 1, as well as whenever events or changes in circumstances suggest that the fair value of a reporting unit may no longer exceed its carrying amount. As of October 1, 2025, the Company had five reporting units, four of which had goodwill.

The Company may perform a qualitative impairment analysis of goodwill associated with each of its reporting units to determine if it is more likely than not that the carrying value of a reporting unit exceeded its fair value. The Company performed a quantitative impairment test as of October 1, 2025 for each of its reporting units. The impairment evaluation of goodwill is measured at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the estimated fair value of the reporting unit. The estimated fair value of each reporting unit is determined by utilizing a cash flow analysis based on the Company's forecasts, discounted using a weighted-average cost of capital and market indicators of terminal year cash flows based upon a multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA"). If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is considered impaired.

In determining fair value, management considers a number of factors in developing our forecasts of future cash flows, including but not limited to, projections of revenues and EBITDA margins, changes in working capital, capital expenditures and discount rates, and market data and analysis, including EBITDA exit multiples. These assumptions used are based on what a hypothetical market participant would use in estimating fair value. Fair value determinations are sensitive to changes in the factors described above. There are inherent uncertainties related to these factors and judgments used to estimate the reporting unit fair value and the related analysis of potential goodwill impairment.

The variability of the assumptions that management uses to perform the goodwill impairment test depends on a number of conditions, including uncertainty about future events and cash flows. Accordingly, the Company's accounting estimates may materially change from period to period due to changing market factors. Due to a decrease in our stock price and market capitalization in 2025, the estimated fair values of our reporting units have also decreased compared to prior year. If the Company had used other assumptions and estimates or if different conditions occur in future periods, future operating results and cash flows could be materially impacted, and judgments and conclusions about the recoverability of goodwill could change. The assumptions used in the goodwill impairment testing process could also be adversely impacted by certain of the risks discussed in Item 1A. Risk Factors and thus could result in future goodwill impairment charges.

As a result of its annual quantitative impairment test, the Company concluded that all reporting units with goodwill have a fair value that exceeded their carrying value, and thus goodwill was not impaired. The Company had goodwill totaling $2,065 million as of December 31, 2025, of which $939 million, $84 million, $497 million and $545 million is related to the Americas, Foodservice, Paperboard Manufacturing and International reporting units, respectively. Excess fair value over carrying value was approximately 2% for the International reporting unit and 18% for the Foodservice reporting unit. No other reporting units had excess fair value over carrying value below 20%. The discount rate used for each reporting unit was 8% and the Company utilized EBITDA multiples ranging from 6.0 to 9.0 times to calculate terminal period cash flows.

A material change in the fair value or carrying value of our International, Foodservice or Paperboard Manufacturing reporting units may result in impairment of the reporting units. For example, our ability to achieve our projected revenues and targeted EBITDA margins are key assumptions in our estimated future cash flows. If our actual experience in future years falls significantly below our current projections, the fair value of the reporting units could be negatively impacted. Similarly, an increase in interest rates would lower our discounted cash flows and negatively impact the fair value of the reporting units. A decline in the market price of our common stock, resulting in a decrease in our market capitalization may indicate a decline in the fair value of individual reporting units. We believe our projections and assumptions are reasonable based on current market conditions, past performance and other factors but it is possible they could change, impacting our fair value estimate, or the carrying value could change.

If we had changed the assumptions used to estimate the fair value of our International and Foodservice reporting units, which have carrying values of $2,127 million and $877 million, respectively, the impact of these isolated changes, which are reasonably possible to occur, would have led to the following fair value exceeding or being (below) the fair value of these reporting units:

Recovery of Long-Lived Assets

The Company evaluates the recovery of its long-lived assets by analyzing operating results and considering significant events or changes in the business environment that may have triggered impairment. The Company reviews long-lived assets (including property, plant and equipment and intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of such long-lived assets may not be fully recoverable by undiscounted cash flows. Measurement of the impairment loss, if any, is based on the fair value of the asset, which is determined by an income, cost or market approach.

Deferred Income Taxes and Potential Assessments

According to the Income Taxes topic of the FASB Codification, a valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The FASB Codification provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. The Company has evaluated the need to maintain a valuation allowance for deferred tax assets based on its assessment of whether it is more likely than not that deferred tax benefits would be realized through the generation of future taxable income. Appropriate consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. In determining whether a valuation allowance is required, many factors are considered, including the specific taxing jurisdiction, the carryforward period, reversals of existing taxable temporary differences, cumulative pre-tax book earnings, income tax strategies and forecasted earnings for the entities in each jurisdiction.

As of December 31, 2025, the Company has a valuation allowance of $62 million against its net deferred tax assets in certain foreign jurisdictions and against domestic deferred tax assets related to certain federal and state tax credit carryforwards. As of December 31, 2024, a total valuation allowance of $45 million was recorded.

As of December 31, 2025, the Company has provided for deferred U.S. income taxes attributable to future withholding tax expense related to the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd. In addition, the Company provides deferred income taxes for future Canadian withholding tax to the extent of excess cash available for distribution after consideration of working capital needs and other debt settlement of its Canadian subsidiary, Graphic Packaging International Canada, ULC. The Company continues to assert that it is permanently reinvested in the cumulative earnings of its Canadian subsidiary in excess of the amount of cash that is on hand and available for distribution after consideration of working capital needs and other debt settlement. The Company determined that no deferred tax liability should be recorded related to the outside basis difference of its Canadian subsidiary as of December 31, 2025.

The Company has not provided for deferred U.S. income taxes on outside basis differences in its other international subsidiaries because of the Company's intention to indefinitely reinvest its earnings outside the U.S. The determination of the amount of the unrecognized deferred income tax liability (primarily withholding tax in certain jurisdictions) on the unremitted earnings or any other associated outside basis differences is not practicable because of the complexities associated with the calculation.

The Company has elected to recognize global intangible low-taxed income ("GILTI") as a period cost as incurred, therefore there are no deferred taxes recognized for basis differences that are expected to impact the amount of the GILTI inclusion upon reversal.

New Accounting Standards

For a discussion of recent accounting pronouncements impacting the Company, see Note 1. Nature of Business and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.