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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 June 30, 2022 

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 Number)

 

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

 

Name of each exchange on which registered

Common stock, $0.001 par value

 

REYN

 

The Nasdaq Stock Market LLC

 

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, a 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 July 29, 2022, the registrant had 209,862,658 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 and six months ended June 30, 2022 and 2021

 

2

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021

 

3

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

 

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021

 

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

 

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

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

 

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

25

Item 4.

Controls and Procedures

 

25

PART II.

OTHER INFORMATION

 

26

Item 1.

Legal Proceedings

 

26

Item 1A.

Risk Factors

 

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

Item 3.

Defaults Upon Senior Securities

 

27

Item 4.

Mine Safety Disclosures

 

27

Item 5.

Other Information

 

27

Item 6.

Exhibits

 

28

 

Signatures

 

29

 

 

 

i


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain statements 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and as updated in our Quarterly Reports on Form 10-Q. You should specifically consider the numerous risks outlined in those “Risk Factors” sections. 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 COVID-19 pandemic;

 

costs of raw materials, energy, labor 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;

 

difficulty meeting our sales growth objectives and innovation goals; and

 

changes in market interest rates, or a phase-out or replacement of the LIBO rate as an interest rate benchmark.

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 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 which was filed on February 9, 2022, under Part I, Item 1A. “Risk Factors” and as updated in our Quarterly Reports on Form 10-Q.


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

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net revenues

 

$

896

 

 

$

847

 

 

$

1,714

 

 

$

1,579

 

Related party net revenues

 

 

21

 

 

 

26

 

 

 

48

 

 

 

50

 

Total net revenues

 

 

917

 

 

 

873

 

 

 

1,762

 

 

 

1,629

 

Cost of sales

 

 

(733

)

 

 

(665

)

 

 

(1,410

)

 

 

(1,229

)

Gross profit

 

 

184

 

 

 

208

 

 

 

352

 

 

 

400

 

Selling, general and administrative expenses

 

 

(91

)

 

 

(89

)

 

 

(174

)

 

 

(167

)

Other expense, net

 

 

(7

)

 

 

(2

)

 

 

(12

)

 

 

(5

)

Income from operations

 

 

86

 

 

 

117

 

 

 

166

 

 

 

228

 

Interest expense, net

 

 

(16

)

 

 

(12

)

 

 

(28

)

 

 

(24

)

Income before income taxes

 

 

70

 

 

 

105

 

 

 

138

 

 

 

204

 

Income tax expense

 

 

(18

)

 

 

(25

)

 

 

(34

)

 

 

(50

)

Net income

 

$

52

 

 

$

80

 

 

$

104

 

 

$

154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

 

$

0.38

 

 

$

0.50

 

 

$

0.73

 

Diluted

 

$

0.25

 

 

$

0.38

 

 

$

0.50

 

 

$

0.73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

209.9

 

 

 

209.8

 

 

 

209.8

 

 

 

209.7

 

Effect of dilutive securities

 

 

 

 

 

0.1

 

 

 

0.1

 

 

 

0.1

 

Diluted

 

 

209.9

 

 

 

209.9

 

 

 

209.9

 

 

 

209.8

 

 

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

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income

 

$

52

 

 

$

80

 

 

$

104

 

 

$

154

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee benefit plans

 

$

(1

)

 

 

 

 

$

(1

)

 

 

 

Interest rate derivatives

 

 

4

 

 

 

(1

)

 

 

11

 

 

 

2

 

Other comprehensive income (loss), net of income taxes

 

 

3

 

 

 

(1

)

 

 

10

 

 

 

2

 

Comprehensive income

 

$

55

 

 

$

79

 

 

$

114

 

 

$

156

 

 

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 June 30,

2022

 

 

As of December 31,

2021

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

101

 

 

$

164

 

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

 

 

259

 

 

 

316

 

Other receivables

 

 

8

 

 

 

12

 

Related party receivables

 

 

8

 

 

 

10

 

Inventories

 

 

734

 

 

 

583

 

Other current assets

 

 

38

 

 

 

19

 

Total current assets

 

 

1,148

 

 

 

1,104

 

Property, plant and equipment (net of accumulated depreciation of $791 and $752)

 

 

684

 

 

 

677

 

Operating lease right-of-use assets, net

 

 

63

 

 

 

55

 

Goodwill

 

 

1,879

 

 

 

1,879

 

Intangible assets, net

 

 

1,046

 

 

 

1,061

 

Other assets

 

 

39

 

 

 

36

 

Total assets

 

$

4,859

 

 

$

4,812

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

277

 

 

$

261

 

Related party payables

 

 

46

 

 

 

38

 

Current portion of long-term debt

 

 

25

 

 

 

25

 

Accrued and other current liabilities

 

 

171

 

 

 

160

 

Total current liabilities

 

 

519

 

 

 

484

 

Long-term debt

 

 

2,076

 

 

 

2,087

 

Long-term operating lease liabilities

 

 

52

 

 

 

46

 

Deferred income taxes

 

 

352

 

 

 

351

 

Long-term postretirement benefit obligation

 

 

50

 

 

 

50

 

Other liabilities

 

 

34

 

 

 

38

 

Total liabilities

 

$

3,083

 

 

$

3,056

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 2,000 shares authorized; 210 shares issued and

   outstanding

 

 

 

 

 

 

Additional paid-in capital

 

 

1,383

 

 

 

1,381

 

Accumulated other comprehensive income

 

 

20

 

 

 

10

 

Retained earnings

 

 

373

 

 

 

365

 

Total stockholders' equity

 

 

1,776

 

 

 

1,756

 

Total liabilities and stockholders' equity

 

$

4,859

 

 

$

4,812

 

 

See accompanying notes to the condensed consolidated financial statements.

4


Reynolds Consumer Products Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in millions, except for per share data)

(Unaudited)

 

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Equity

 

Balance as of December 31, 2020

 

$

 

 

$

1,381

 

 

$

233

 

 

$

1

 

 

$

1,615

 

Net income

 

 

 

 

 

 

 

 

74

 

 

 

 

 

 

74

 

Other comprehensive income, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Dividends ($0.23 per share declared and paid)

 

 

 

 

 

 

 

 

(48

)

 

 

 

 

 

(48

)

Other

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Balance as of March 31, 2021

 

$

 

 

$

1,380

 

 

$

259

 

 

$

4

 

 

$

1,643

 

Net income

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

80

 

Other comprehensive loss, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Dividends ($0.23 per share declared and paid)

 

 

 

 

 

 

 

 

(48

)

 

 

 

 

 

(48

)

Other

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Balance as of June 30, 2021

 

$

 

 

$

1,382

 

 

$

291

 

 

$

3

 

 

$

1,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

 

$

 

 

$

1,381

 

 

$

365

 

 

$

10

 

 

$

1,756

 

Net income

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

52

 

Other comprehensive income, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Dividends ($0.23 per share declared and paid)

 

 

 

 

 

 

 

 

(48

)

 

 

 

 

 

(48

)

Balance as of March 31, 2022

 

$

 

 

$

1,381

 

 

$

369

 

 

$

17

 

 

$

1,767

 

Net income

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

52

 

Other comprehensive income, net of income taxes

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Dividends ($0.23 per share declared and paid)

 

 

 

 

 

 

 

 

(48

)

 

 

 

 

 

(48

)

Other

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Balance as of June 30, 2022

 

$

 

 

$

1,383

 

 

$

373

 

 

$

20

 

 

$

1,776

 

 

See accompanying notes to the condensed consolidated financial statements.

5


Reynolds Consumer Products Inc.

Condensed Consolidated Statements of Cash Flows

(in millions)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Cash provided by operating activities

 

 

 

 

 

 

 

 

Net income

 

$

104

 

 

$

154

 

Adjustments to reconcile net income to operating cash flows:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

57

 

 

 

53

 

Deferred income taxes

 

 

(3

)

 

 

(4

)

Stock compensation expense

 

 

4

 

 

 

3

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

57

 

 

 

(40

)

Other receivables

 

 

4

 

 

 

3

 

Related party receivables

 

 

3

 

 

 

 

Inventories

 

 

(151

)

 

 

(163

)

Accounts payable

 

 

22

 

 

 

54

 

Related party payables

 

 

8

 

 

 

(6

)

Income taxes payable / receivable

 

 

(2

)

 

 

(14

)

Accrued and other current liabilities

 

 

12

 

 

 

(22

)

Other assets and liabilities

 

 

(14

)

 

 

 

Net cash provided by operating activities

 

 

101

 

 

 

18

 

Cash used in investing activities

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(56

)

 

 

(73

)

Net cash used in investing activities

 

 

(56

)

 

 

(73

)

Cash used in financing activities

 

 

 

 

 

 

 

 

Repayment of long-term debt

 

 

(12

)

 

 

(112

)

Dividends paid

 

 

(96

)

 

 

(96

)

Net cash used in financing activities

 

 

(108

)

 

 

(208

)

Net decrease in cash and cash equivalents

 

 

(63

)

 

 

(263

)

Cash and cash equivalents at beginning of period

 

 

164

 

 

 

312

 

Cash and cash equivalents at end of period

 

$

101

 

 

$

49

 

 

 

 

 

 

 

 

 

 

Cash paid:

 

 

 

 

 

 

 

 

Income taxes

 

 

37

 

 

 

67

 

 

See accompanying notes to the condensed consolidated financial statements.

 

6


 

 

Reynolds Consumer Products Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Description of Business and Basis of Presentation

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 and 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:

We have 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, 2021, 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.

In May 2022, we entered into an accounts receivable factoring agreement with JP Morgan Chase Bank, N.A. to sell certain accounts receivables up to $190 million. Factored receivables as of June 30, 2022 were $106 million. Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the condensed consolidated balance sheet at the time of the sales transaction. We classify proceeds received from the sales of accounts receivable as an operating cash flow in the condensed consolidated statement of cash flows. We record the discount as other expense, net in the condensed consolidated statement of income.

 

Note 2 – New Accounting Standards

Accounting Guidance Issued But Not Yet Adopted:

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates. This ASU was effective upon its issuance and can be applied prospectively through December 31, 2022. We are currently assessing the impact of this standard on our consolidated financial statements.

 

 

 

 

 

 

 

 

7


 

 

Note 3 – Inventories

Inventories consisted of the following:

 

 

June 30,

2022

 

 

December 31,

2021

 

 

 

(in millions)

 

Raw materials

 

$

233

 

 

$

206

 

Work in progress

 

 

84

 

 

 

63

 

Finished goods

 

 

377

 

 

 

276

 

Spare parts

 

 

40

 

 

 

38

 

Inventories

 

$

734

 

 

$

583

 

 

Note 4 – Debt

Long-term debt consisted of the following:

 

  

 

June 30,

2022

 

 

December 31,

2021

 

 

 

(in millions)

 

Term loan facility

 

$

2,119

 

 

$

2,132

 

Deferred financing transaction costs

 

 

(16

)

 

 

(18

)

Original issue discounts

 

 

(2

)

 

 

(2

)

 

 

 

2,101

 

 

 

2,112

 

Less: current portion

 

 

(25

)

 

 

(25

)

Long-term debt

 

$

2,076

 

 

$

2,087

 

 

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”).

Borrowings under the External Debt Facilities bear interest at a rate per annum equal to, at our option, either a base rate plus an applicable margin of 0.75% or a LIBO rate plus an applicable margin of 1.75%. During September 2020, we entered into a series of interest rate swaps to hedge a portion of the interest rate exposure resulting from these borrowings. In May 2022, we entered into another series of interest rate swaps to hedge a portion of the interest rate exposure that remains from these borrowings. Refer to Note 5 – Financial Instruments for further details.

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 only if the aggregate principal amount of borrowings under the Revolving Facility and drawn but unreimbursed letters of credit exceed 35% of the total amount of commitments under the Revolving Facility on such day. We are currently in compliance with the covenants contained in our External Debt Facilities.

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, which commenced in June 2020, with the balance payable on maturity.

Revolving Facility

The Revolving Facility matures in February 2025 and includes a sub-facility for letters of credit. As of June 30, 2022, we had no outstanding borrowings under the Revolving Facility, and we had $8 million of letters of credit outstanding, which reduces the borrowing capacity under the Revolving Facility.

Fair Value of Our Long-Term Debt

The fair value of our long-term debt as of June 30, 2022, 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.

8


 

Note 5 - Financial Instruments

Interest Rate Derivatives

During 2020, we entered into a series of interest rate swaps which fixed the LIBO rate to an annual rate of 0.18% to 0.47% (for an annual effective interest rate of 1.93% to 2.22%, including margin) for an aggregate notional amount of $1,650 million, of which $800 million notional value was still in effect as of June 30, 2022. In May 2022, we entered into additional interest rate swaps which fixed the LIBO rate to an annual rate of 2.70% to 2.74% (for an annual effective interest rate of 4.45% to 4.49%, including margin) for an aggregate notional amount of $600 million. As of June 30, 2022, we had interest rate swaps of an aggregate notional amount of $1,400 million.

The interest rate swaps outstanding as of June 30, 2022 hedge a portion of the interest rate exposure resulting from our Term Loan Facility for periods ranging from less than one year to four years. We classified these instruments as cash flow hedges. The effective portion of the gain or loss on the open hedging instrument is recorded in accumulated other comprehensive income and will be reclassified into earnings as interest expense, net when settled. The associated asset or liability on the open hedges is recorded at its fair value in other assets or other liabilities, as applicable. The fair value of the interest rate swaps was determined using a discounted cash flow method based on market-based swap yield curves, taking into account current interest rates, and is classified as Level 2 within the fair value hierarchy.

The following table provides the notional amounts, the annual rates, the annual effective rates, and the fair value of our interest rate derivatives:

 

(In millions)

 

 

 

Notional Amount

 

 

Annual Rate

 

Average Annual Effective Rate

 

Fair Value Asset

 

As of June 30, 2022

 

 

 

$

1,400

 

 

0.20% to 2.74%

 

1.96% to 4.47%

 

$

20

 

As of December 31, 2021

 

 

 

$

800

 

 

0.20% to 0.47%

 

1.96% to 2.22%

 

$

5

 

The following table provides the before tax effect of our interest rate derivatives on accumulated other comprehensive income and the condensed consolidated statements of income: 

(In millions)

 

 

 

Amount of Gain (Loss) Recognized in Other Comprehensive Income

 

 

Amount of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income Into Income

 

For the three months ended June 30, 2022

 

 

 

$

6

 

 

$

 

For the three months ended June 30, 2021

 

 

 

$

(1

)

 

$

 

For the six months ended June 30, 2022