reyn-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-39205

 

REYNOLDS CONSUMER PRODUCTS INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-3464426

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

1900 W. Field Court

Lake Forest, Illinois 60045

(Address of principal executive offices) (Zip Code)

 

Telephone: (800) 879-5067

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.001 par value

 

REYN

 

Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of April 30, 2020, the registrant had 209,700,500 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

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

2

 

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

3

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019

5

 

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

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

 

Signatures

27

 

 

 

i


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those risks and uncertainties discussed in Item 1A. “Risk Factors” in the 2019 Form 10-K and as updated in the Quarterly Reports on Form 10-Q. You should specifically consider the numerous risks outlined in Item 1A. “Risk Factors.” These risks and uncertainties include factors related to:

 

changes in consumer preferences, lifestyle and environmental concerns;

 

relationships with our major customers, consolidation of our customer bases and loss of a significant customer;

 

competition and pricing pressures;

 

loss of, or disruption at, any of our key manufacturing facilities;

 

our suppliers of raw materials and any interruption in our supply of raw materials;

 

loss due to an accident, labor issues, weather conditions, natural disaster, the emergence of a pandemic or disease outbreak, such as coronavirus or otherwise;

 

the unknown duration and economic, operational and financial impacts of the global outbreak of the COVID-19 pandemic;

 

costs of raw materials, energy and freight, including the impact of tariffs, trade sanctions and similar matters affecting our importation of certain raw materials;

 

our ability to develop and maintain brands that are critical to our success;

 

economic downturns in our target markets; and

 

difficulty meeting our sales growth objectives and innovation goals.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations.

Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements is included within our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 which was filed on March 10, 2020, under Part I, Item 1A. “Risk Factors.”


1


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Reynolds Consumer Products Inc.

Condensed Consolidated Statements of Income

(in millions, except for per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net revenues

 

$

691

 

 

$

625

 

Related party net revenues

 

 

39

 

 

 

40

 

Total net revenues

 

 

730

 

 

 

665

 

Cost of sales

 

 

(541

)

 

 

(492

)

Gross profit

 

 

189

 

 

 

173

 

Selling, general and administrative expenses

 

 

(82

)

 

 

(78

)

Other expense, net

 

 

(15

)

 

 

(5

)

Income from operations

 

 

92

 

 

 

90

 

Interest expense, net

 

 

(27

)

 

 

(68

)

Income before income taxes

 

 

65

 

 

 

22

 

Income tax expense

 

 

(39

)

 

 

(5

)

Net income

 

$

26

 

 

$

17

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

0.11

 

Diluted

 

$

0.14

 

 

$

0.11

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

188.8

 

 

 

155.5

 

Effect of dilutive securities

 

 

0.2

 

 

 

 

Diluted

 

 

189.0

 

 

 

155.5

 

 

See accompanying notes to the condensed consolidated financial statements.

2


Reynolds Consumer Products Inc.

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net income

 

$

26

 

 

$

17

 

Other comprehensive income (loss), net of income taxes:

 

 

 

 

 

 

 

 

Currency translation adjustment

 

 

(2

)

 

 

 

Employee benefit plans

 

 

 

 

 

(1

)

Other comprehensive income (loss), net of income taxes

 

 

(2

)

 

 

(1

)

Comprehensive income

 

$

24

 

 

$

16

 

 

See accompanying notes to the condensed consolidated financial statements.

3


Reynolds Consumer Products Inc.

Condensed Consolidated Balance Sheets

(in millions, except for per share data)

 

 

(Unaudited)

As of March 31,

2020

 

 

As of December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

200

 

 

$

102

 

Accounts receivable (net of allowance for doubtful accounts of $1 and $0)

 

 

316

 

 

 

13

 

Other receivables

 

 

8

 

 

 

7

 

Related party receivables

 

 

4

 

 

 

14

 

Inventories

 

 

433

 

 

 

418

 

Other current assets

 

 

12

 

 

 

16

 

Total current assets

 

 

973

 

 

 

570

 

Property, plant and equipment (net of accumulated depreciation of $657 and $642)

 

 

543

 

 

 

537

 

Operating lease right-of-use assets, net

 

 

62

 

 

 

42

 

Goodwill

 

 

1,879

 

 

 

1,879

 

Intangible assets, net

 

 

1,115

 

 

 

1,123

 

Other assets

 

 

15

 

 

 

9

 

Total assets

 

$

4,587

 

 

$

4,160

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

144

 

 

$

135

 

Related party payables

 

 

48

 

 

 

72

 

Related party accrued interest payable

 

 

 

 

 

18

 

Current portion of long-term debt

 

 

25

 

 

 

21

 

Income taxes payable

 

 

10

 

 

 

 

Dividends payable

 

 

31

 

 

 

 

Accrued and other current liabilities

 

 

127

 

 

 

132

 

Total current liabilities

 

 

385

 

 

 

378

 

Long-term debt

 

 

2,423

 

 

 

1,990

 

Long-term related party borrowings

 

 

 

 

 

2,214

 

Long-term operating lease liabilities

 

 

54

 

 

 

35

 

Deferred income taxes

 

 

288

 

 

 

294

 

Long-term postretirement benefit obligation

 

 

49

 

 

 

48

 

Other liabilities

 

 

18

 

 

 

19

 

Total liabilities

 

$

3,217

 

 

$

4,978

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 2,000 shares authorized; 209.7 shares issued and outstanding

 

 

 

 

 

 

Additional paid-in capital

 

 

1,378

 

 

 

 

Net parent deficit

 

 

 

 

 

(823

)

Accumulated other comprehensive income

 

 

3

 

 

 

5

 

Retained earnings

 

 

(11

)

 

 

 

Total stockholders' equity

 

 

1,370

 

 

 

(818

)

Total liabilities and stockholders' equity

 

$

4,587

 

 

$

4,160

 

 

See accompanying notes to the condensed consolidated financial statements.

4


Reynolds Consumer Products Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in millions)

(Unaudited)

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Net Parent

(Deficit)

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Equity

(Deficit)

 

Balance as of December 31, 2018

 

$

 

 

$

 

 

$

 

 

$

(1,034

)

 

$

7

 

 

$

(1,027

)

Adoption of new accounting principle

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

3

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

17

 

Other comprehensive loss, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Net transfers (to) from Parent

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Balance as of March 31, 2019

 

$

 

 

$

 

 

$

 

 

$

(1,008

)

 

$

9

 

 

$

(999

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

$

 

 

$

 

 

$

 

 

$

(823

)

 

$

5

 

 

$

(818

)

Net income

 

 

 

 

 

 

 

 

20

 

 

 

6

 

 

 

 

 

 

26

 

Other comprehensive loss, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Net transfers (to) from Parent

 

 

 

 

 

 

 

 

 

 

 

855

 

 

 

 

 

 

855

 

Reclassification of net parent (deficit) in RCP

 

 

 

 

 

38

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

Issuance of common stock, net of costs

 

 

 

 

 

1,339

 

 

 

 

 

 

 

 

 

 

 

 

1,339

 

Dividends declared

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

Stock-based compensation

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance as of March 31, 2020

 

$

 

 

$

1,378

 

 

$

(11

)

 

$

 

 

$

3

 

 

$

1,370

 

 

 

See accompanying notes to the condensed consolidated financial statements.

5


Reynolds Consumer Products Inc.

Condensed Consolidated Statements of Cash Flows

(in millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash provided by (used in) operating activities

 

 

 

 

 

 

 

 

Net income

 

$

26

 

 

$

17

 

Adjustments to reconcile net income to operating cash flows:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24

 

 

 

21

 

Deferred income taxes

 

 

28

 

 

 

(1

)

Unrealized (gains) losses on derivatives

 

 

4

 

 

 

(7

)

Stock compensation expense

 

 

1

 

 

 

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(303

)

 

 

3

 

Other receivables

 

 

(1

)

 

 

8

 

Related party receivables

 

 

9

 

 

 

(88

)

Inventories

 

 

(16

)

 

 

(59

)

Accounts payable

 

 

10

 

 

 

(11

)

Related party payables

 

 

(20

)

 

 

(18

)

Related party accrued interest payable

 

 

(18

)

 

 

53

 

Income taxes payable

 

 

11

 

 

 

6

 

Accrued and other current liabilities

 

 

(7

)

 

 

(20

)

Other assets and liabilities

 

 

(3

)

 

 

 

Net cash used in operating activities

 

 

(255

)

 

 

(96

)

Cash (used in) provided by investing activities

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(23

)

 

 

(15

)

Advances to related parties

 

 

 

 

 

(50

)

Repayments from related parties

 

 

 

 

 

137

 

Net cash (used in) provided by investing activities

 

 

(23

)

 

 

72

 

Cash provided by (used in) financing activities

 

 

 

 

 

 

 

 

Proceeds from long-term debt, net of discounts

 

 

2,472

 

 

 

 

Repayments of RGHL Group Credit Agreement

 

 

(8

)

 

 

(4

)

Advances from related parties

 

 

240

 

 

 

12

 

Repayments to related parties

 

 

(3,627

)

 

 

(6

)

Deferred debt transaction costs

 

 

(28

)

 

 

 

Proceeds from IPO settlement facility

 

 

1,168

 

 

 

 

Repayment of IPO settlement facility

 

 

(1,168

)

 

 

 

Issuance of common stock

 

 

1,410

 

 

 

 

Equity issuance costs

 

 

(69

)

 

 

 

Net transfers from (to) Parent

 

 

(14

)

 

 

4

 

Net cash provided by financing activities

 

 

376

 

 

 

6

 

Effect of exchange rate on cash flows and cash equivalents

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

98

 

 

 

(18

)

Cash and cash equivalents at beginning of period

 

 

102

 

 

 

23

 

Cash and cash equivalents at end of period

 

$

200

 

 

$

5

 

Significant non-cash investing and financing activities

New leases resulted in the recognition of ROU assets and corresponding lease liabilities of $24 million and $3 million for the three months ended March 31, 2020 and 2019, respectively. Refer to Note 1 – Summary of Significant Accounting Policies and Note 12 – Related Party Transactions for details of significant non-cash investing and financing activities.

 

See accompanying notes to the condensed consolidated financial statements.

 

6


 

Reynolds Consumer Products Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Summary of Significant Accounting Policies

Description of Business:

Reynolds Consumer Products Inc. and its subsidiaries (“we”, “us” or “our”) produce and sell products across three broad categories: cooking products, waste & storage products and tableware. We sell our products under brands such as Reynolds and Hefty, and also under store brands. Our product portfolio includes aluminum foil, wraps, disposable bakeware, trash bags, food storage bags and disposable tableware. We report four business segments: Reynolds Cooking & Baking; Hefty Waste & Storage; Hefty Tableware; and Presto Products.

Basis of Presentation:

Prior to the completion of our Corporate Reorganization, as defined in our registration statement on Form S-1 (File No. 333-234731), and initial public offering (“IPO”) on February 4, 2020, we operated as part of Reynolds Group Holdings Limited (“RGHL”) and not as a stand-alone entity. We represented the business that was reported as the Reynolds Consumer Products segment in the consolidated financial statements of RGHL and its subsidiaries (collectively, “RGHL Group” or the “Parent”). As part of our Corporate Reorganization, we reorganized the legal structure of our entities so they are all under a single parent entity, Reynolds Consumer Products Inc. In conjunction with our Corporate Reorganization and IPO, we separated from RGHL Group on February 4, 2020. We prepared the accompanying unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by GAAP for comprehensive annual financial statements.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019, and should be read in conjunction with the disclosures therein. In our opinion, these interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to state fairly the financial condition, results of operations, and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of annual operating results.

Our condensed consolidated statements of income include allocations of certain expenses for services provided by RGHL Group prior to our separation, including, but not limited to, general corporate expenses related to group wide functions including executive management, finance, legal, tax, information technology and a portion of a related party management fee incurred by RGHL Group. Total costs allocated to us for these functions were $2 million and $9 million for the three months ended March 31, 2020 and 2019, respectively, and were primarily included in selling, general and administrative expenses in our condensed consolidated statements of income. These amounts include costs of $1 million and $4 million for the three months ended March 31, 2020 and 2019, respectively, that were not historically allocated to us as part of RGHL Group's normal monthly reporting process. Additionally, in the three months ended March 31, 2020, costs of $2 million were allocated to us related to the IPO process that cannot be deferred and offset against the IPO proceeds, which are included in other expense, net in our condensed consolidated statements of income. All of these expenses have been allocated on a basis considered reasonable by management, using either specific identification, such as direct usage or headcount when identifiable, or proportional allocations determined with reference to time incurred, relative to revenues, or other reasonable methods of allocation. Amounts allocated on a proportional basis relate to certain corporate functions and are reflective of the time and effort expended in the provision of these corporate functions to us.

Initial Public Offering:

On February 4, 2020, we completed our separation from RGHL Group and the IPO of our common stock pursuant to a Registration Statement on Form S-1. In the IPO, we sold an aggregate of 54,245,500 shares of common stock, including 7,075,500 shares of common stock purchased by the underwriters on February 7, 2020 pursuant to their option to purchase additional shares, under the Registration Statement at a public offering price of $26.00 per share.

In conjunction with our separation from RGHL Group and IPO, we reclassified RGHL Group’s historical net investment in us to additional paid-in capital. Each share of our outstanding common stock, immediately prior to our IPO, was exchanged into 155,455 shares of common stock. In addition, certain related party borrowings owing to RGHL Group were contributed as additional paid-in capital without the issuance of any additional shares.

 

7


 

Note 2 – New Accounting Standards

Recently Adopted Accounting Guidance:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU and subsequent amendments to the initial guidance modify the impairment model to use an expected loss methodology in place of the previously used incurred loss methodology, which may result in earlier recognition of losses related to financial instruments. This change is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, and requires a cumulative effect adjustment to the balance sheet upon adoption. We adopted these requirements as of January 1, 2020 with no material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We adopted the standard as of January 1, 2020 with no material impact on our condensed consolidated financial statements.

Accounting Guidance Issued But Not Yet Adopted:

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) Disclosure - Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.  The ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the requirements of this guidance, which is expected to impact our disclosures but is not expected to impact the measurement and recognition of amounts in our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact of this standard on our condensed consolidated financial statements.

Note 3 – Inventories

Inventories consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(in millions)

 

Raw materials

 

$

136

 

 

$

125

 

Work in progress

 

 

46

 

 

 

47

 

Finished goods

 

 

222

 

 

 

217

 

Spare parts

 

 

29

 

 

 

29

 

Inventories

 

$

433

 

 

$

418

 

 

Note 4 – Debt

Long-term debt consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(in millions)

 

Term loan facility

 

$

2,475

 

 

$

 

RGHL Group U.S. Term Loan

 

 

 

 

 

2,017

 

Deferred financing transaction costs

 

 

(24

)

 

 

(4

)

Original issue discounts

 

 

(3

)

 

 

(2

)

 

 

 

2,448

 

 

 

2,011

 

Less: current portion

 

 

(25

)

 

 

(21

)

Long-term debt

 

$

2,423

 

 

$

1,990

 

8


 

 

External Debt Facilities

In February 2020, we entered into new external debt facilities (“External Debt Facilities”), which consist of (i) a $2,475 million senior secured term loan facility (“Term Loan Facility”); and (ii) a $250 million senior secured revolving credit facility (“Revolving Facility”). In addition, on February 4, 2020 we entered into, and extinguished, a $1,168 million facility (“IPO Settlement Facility”). The proceeds from the Term Loan Facility and IPO Settlement Facility, net of transaction costs and original issue discounts, together with available cash, were used to repay accrued related party interest and a portion of the related party loans payable.

Borrowings under the External Debt Facilities bear interest at a rate per annum equal to, at our option, either a base rate or a LIBO rate plus an applicable margin of 1.75%.

The External Debt Facilities contain a springing financial covenant requiring compliance with a ratio of first lien net indebtedness to consolidated EBITDA, applicable solely to the Revolving Facility. The financial covenant is tested on the last day of any fiscal quarter (commencing on June 30, 2020) only if the aggregate principal amount of borrowings under the Revolving Facility and drawn but unreimbursed letters of credit exceeds 35% of the total amount of commitments under the Revolving Facility on such day.

If an event of default occurs, the lenders under the External Debt Facilities are entitled to take various actions, including the acceleration of amounts due under the External Debt Facilities and all actions permitted to be taken by secured creditors.

Term Loan Facility

The Term Loan Facility matures in February 2027. The Term Loan Facility amortizes in equal quarterly installments of $6 million, commencing in June 2020, with the balance being payable on maturity.

Revolving Facility

The Revolving Facility matures in February 2025 and includes a sub-facility for letters of credit. As of March 31, 2020, we had no drawings under the Revolving Facility, however, we had $7 million of letters of credit outstanding, which reduces the borrowing capacity under the Revolving Facility.

Reallocation of Borrowings Under the RGHL Group Credit Agreement

Amounts outstanding under the RGHL Group Credit Agreement were reallocated to an entity within RGHL Group and on February 4, 2020, we were fully and unconditionally released from the security and guarantee arrangements relating to RGHL Group’s borrowings.

Fair Value of Our Long-Term Debt

The fair value of our long-term debt as of March 31, 2020, which is a Level 2 fair value measurement, approximates the carrying value due to the variable market interest rate and the stability of our credit profile.

Note 5 – Benefit Plans

Prior to our separation from RGHL Group and IPO, certain of our employees participated in a defined benefit plan sponsored by RGHL Group, along with participants of RGHL Group's other businesses. This plan was accounted for as a multiemployer plan in our combined financial statements presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and as a result, no asset or liability was recorded by us to recognize the funded status of the plan. We recorded no expense relating to our employees' participation in the RGHL Group sponsored plan in the condensed consolidated statements of income after the separation as this obligation was maintained by RGHL Group.

After our separation from RGHL Group and IPO, we established a defined benefit plan for certain of our employees. The initial liability was $2 million which was funded during the first quarter of 2020. The plan is non-contributory and eligible employees are fully vested after five years of service.

Components of Net Periodic Defined Benefit Pension and Other Postretirement Benefit Costs

Total net periodic pension and postretirement benefit cost was $1 million and zero for the three months ended March 31, 2020 and 2019, respectively. Prior to the separation from RGHL Group, our net periodic benefit costs included just our other postretirement

9


 

benefit plans. After the separation, total net periodic benefit costs include all costs associated with our defined benefit and other postretirement plans.

 

Note 6 – Income Taxes

Prior to our separation from RGHL Group and IPO, our U.S. operations were included in the U.S. federal consolidated and certain state and local tax returns filed by RGHL Group.  We also file certain separate U.S. state and local and foreign income tax returns. For the periods prior to separation, income tax (expense) benefit and deferred tax balances are presented in these condensed consolidated statements of income as if we filed tax returns on a stand-alone basis. Income tax payable balances as of December 31, 2019, were classified within “net parent deficit” on the condensed consolidated balance sheet since RGHL Group is legally liable for the tax. On separation from RGHL Group, becoming a separate taxable entity and the change from carve-out financial statements to consolidated financial statements, we have remeasured certain deferred taxes. These adjustments have been recognized directly in equity.

Our income tax expense for the three months ended March 31, 2020 and 2019 incorporates an expected annualized effective tax rate of approximately 25%, excluding the impact of discrete items.  Our income tax expense for the three months ended March 31, 2020 includes an incremental discrete expense of $23 million due to the remeasurement of our deferred tax asset associated with deductibility of interest expense as a result of the enactment, subsequent to our separation from RGHL Group, of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act on March 27, 2020. The retroactive components of the CARES Act are expected to change RGHL Group’s U.S. federal consolidated tax return for the year ended December 31, 2019, which will reduce the benefits of future tax deductions that we received at the time of separation from RGHL Group.

Note 7 – Financial Instruments

Derivative instruments, consisting of commodity contracts, were recorded at fair value in our condensed consolidated balance sheets and consisted of a liability of $4 million, recorded in accrued and other liabilities, and an asset of $1 million, recorded in other current assets, as of March 31, 2020 and December 31, 2019, respectively.

Our commodity contracts are primarily commodity swaps and are all Level 2 financial assets and liabilities. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our calculation of the fair value of these financial instruments takes into consideration the risk of non-performance, including counterparty credit risk. The majority of our derivative contracts do not have a legal right of set-off. We manage the credit risk in connection with our derivatives by limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.

We recognized an unrealized loss of $4 million and an unrealized gain of $7 million for the three months ended March 31, 2020 and 2019, respectively, in cost of sales in the condensed consolidated statements of income.

The following table provides the detail of outstanding commodity derivative contracts as of March 31, 2020:

 

Type

 

Unit of measure

 

Contracted

volume

 

 

Contracted

price range

 

Contracted date

of maturity

Benzene swaps

 

U.S. liquid gallon

 

 

1,340,608

 

 

$2.15-$2.59

 

Jun - Sep 2020

Diesel swaps

 

U.S. liquid gallon

 

 

3,540,349

 

 

$2.50-$3.17

 

May 2020 - Mar 2021

 

Note 8 Stock-based Compensation

We granted restricted stock units (“RSUs”) in July 2019 to certain members of management, pursuant to retention agreements entered into with these employees (the “IPO Grants”). These RSUs vest upon satisfaction of both a performance-based vesting condition (the “IPO Condition”) and a service-based vesting condition (the “Service Condition”). The IPO Condition was satisfied when we completed our IPO on February 4, 2020. The Service Condition will be satisfied with respect to one-third of an employee’s RSUs on each anniversary from the date of our IPO for three consecutive years, subject to the employee’s continued employment through the applicable vesting date.

 

In addition, in conjunction with our Corporate Reorganization and IPO, we have established a 2020 incentive award plan for purposes of granting stock-based compensation awards to certain of our senior management, our non-executive directors and to certain employees, to incentivize their performance and align their interests with ours. The maximum number of shares of common stock initially available for issuance under equity incentive awards granted pursuant to the plan is equal to 10.5 million shares. At March 31, 2020, there were approximately 0.4 million total restricted stock units outstanding, of which 0.2 million shares were IPO Grants and 0.2 million shares were granted in the three months ended March 31, 2020.

10


 

 

Note 9 – Commitments and Contingencies

Legal Proceedings:

We are from time to time party to litigation, legal proceedings and tax examinations arising from our operations. Most of these matters involve allegations of damages against us relating to employment matters, personal injury and commercial or contractual disputes. We record estimates for claims and proceedings that constitute a present obligation when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of such obligation can be made. While it is not possible to predict the outcome of any of these matters, based on our assessment of the facts and circumstances, we do not believe any of these matters, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows. However, actual outcomes may differ from those expected and could have a material effect on our financial position, results of operations or cash flows in a future period.

As of March 31, 2020, there were no legal proceedings pending other than those for which we have determined that the possibility of a material outflow is remote.

Note 10 – Segment Reporting

We have four reportable segments - Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware and Presto Products. The key factors used to identify these reportable segments are the organization and alignment of our internal operations and the nature of our products.  This reflects how our Chief Operating Decision Maker (“CODM”) monitors performance, allocates capital and makes strategic and operational decisions. We present segment adjusted EBITDA ("Adjusted EBITDA") as this is the financial measure by which management and our CODM allocate resources and analyze the performance of our reportable segments. Adjusted EBITDA represents each segment's earnings before interest, tax, depreciation and amortization and is further adjusted to exclude unrealized gains and losses on derivatives, costs associated with rationalizing operations and administrative functions, factoring discounts (pre-IPO), amortization of actuarial gains, the allocated related party management fee (pre-IPO) and IPO transaction-related costs.

 

 

 

Reynolds

Cooking

& Baking

 

 

Hefty

Waste &

Storage

 

 

Hefty

Tableware

 

 

Presto

Products

 

 

Segment

Total

 

 

Unallocated(1)

 

 

Total

 

Three Months Ended March 31, 2020

 

(in millions)

 

 

 

 

 

Net revenues

 

$

243

 

 

$

189

 

 

$

178

 

 

$

127

 

 

$

737

 

 

 

(7

)

 

$

730

 

Intersegment revenues

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

(3

)

 

 

 

Total segment net revenues

 

 

243

 

 

 

192

 

 

 

178

 

 

 

127

 

 

 

740

 

 

 

(10

)

 

 

730

 

Adjusted EBITDA

 

 

40

 

 

 

55

 

 

 

35

 

 

 

23

 

 

 

153

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6

 

 

 

4

 

 

 

3

 

 

 

4

 

 

 

17

 

 

 

7

 

 

 

24

 

 

 

 

Reynolds

Cooking

& Baking

 

 

Hefty

Waste &

Storage

 

 

Hefty

Tableware

 

 

Presto

Products

 

 

Segment

Total

 

 

Unallocated(1)

 

 

Total

 

Three Months Ended March 31, 2019

 

(in millions)

 

 

 

 

 

Net revenues

 

$

213

 

 

$

161

 

 

$

164

 

 

$

127

 

 

$

665

 

 

 

 

 

$

665

 

Intersegment revenues

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

 

 

(4

)

 

 

 

Total segment net revenues

 

 

213

 

 

 

165

 

 

 

164

 

 

 

127

 

 

 

669

 

 

 

(4

)

 

 

665

 

Adjusted EBITDA

 

 

18

 

 

 

39

 

 

 

35

 

 

 

20

 

 

 

112

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4

 

 

 

3

 

 

 

3

 

 

 

6

 

 

 

16

 

 

 

5

 

 

 

21

 

 

Segment assets consisted of the following:

 

 

 

Reynolds

Cooking

& Baking

 

 

Hefty

Waste &

Storage

 

 

Hefty

Tableware

 

 

Presto

Products

 

 

Segment

Total

 

 

Unallocated(1)

 

 

Total

 

 

 

(in millions)

 

 

 

 

 

As of March 31, 2020

 

$

421

 

 

$

241

 

 

$

148

 

 

$

181

 

 

$

991

 

 

$

3,596

 

 

$

4,587

 

As of December 31, 2019

 

 

395

 

 

 

251

 

 

 

137

 

 

 

182

 

 

 

965

 

 

 

3,195

 

 

 

4,160

 

 

(1)

Unallocated includes the elimination of intersegment revenues, other revenue adjustments and certain corporate costs, depreciation and amortization and assets not allocated to segments. Unallocated assets are comprised of cash, accounts

11


 

receivable, other receivables, entity-wide property, plant and equipment, entity-wide operating lease right-of-use assets, goodwill, intangible assets, related party receivables and other assets.

The following table presents a reconciliation of segment Adjusted EBITDA to GAAP income before income taxes:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in millions)

 

Segment Adjusted EBITDA

 

$

153

 

 

$

112

 

Corporate / unallocated expenses

 

 

(18

)

 

 

(2

)

 

 

 

135

 

 

 

110

 

Adjustments to reconcile to GAAP income before income taxes

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

(24

)

 

 

(21

)

Interest expense, net

 

 

(27

)

 

 

(68

)

Factoring discount

 

 

 

 

 

(5

)

Allocated related party management fee

 

 

 

 

 

(2

)

IPO transaction-related costs

 

 

(14

)

 

 

 

Unrealized gains (losses) on derivatives

 

 

(4

)

 

 

7

 

Other

 

 

(1

)

 

 

1

 

Consolidated GAAP income before income taxes

 

$

65

 

 

$

22

 

 

Information in Relation to Products

Net revenues by product line are as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in millions)

 

Waste and storage products (1)

 

$

316

 

 

$

288

 

Cooking products

 

 

243

 

 

 

213

 

Tableware

 

 

178

 

 

 

164

 

Other

 

 

(7

)

 

 

 

Net revenues

 

$

730

 

 

$

665

 

 

(1)

Waste and storage products are comprised of our Hefty Waste & Storage and Presto Products segments.

Our different product lines are generally sold to a common group of customers.  For all product lines, there is a relatively short time period between the receipt of the order and the transfer of control over the goods to the customer.

 

12


 

Note 11 – Accumulated Other Comprehensive Income

The following table summarizes the changes in our balances of each component of accumulated other comprehensive income. 

 

 

 

Three Months

Ended March 31,

 

Three Months

Ended March 31,

 

 

 

2020

 

2019

 

 

 

(in millions)

 

Currency translation adjustments:

 

 

 

 

 

 

 

Balance as of beginning of period

 

$

(6

)

$

(7

)

Currency translation adjustments

 

 

(2

)

 

 

Other comprehensive income (loss)

 

 

(2

)

 

 

Balance as of end of period

 

$

(8

)

$

(7

)

Employee benefit plans:

 

 

 

 

 

 

 

Balance as of beginning of period

 

$

11

 

$

14

 

Adoption of new accounting principle