UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact name of Registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer |
(Address of principal executive offices) (Zip Code)
Telephone: (
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of July 29, 2022, the registrant had
Table of Contents
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PART I. |
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2 |
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Item 1. |
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2 |
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3 |
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Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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:
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changes in consumer preferences, lifestyle and environmental concerns; |
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relationships with our major customers, consolidation of our customer bases and loss of a significant customer; |
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competition and pricing pressures; |
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loss of, or disruption at, any of our key manufacturing facilities; |
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our suppliers of raw materials and any interruption in our supply of raw materials; |
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loss due to an accident, labor issues, weather conditions, natural disaster, the emergence of a pandemic or disease outbreak, such as coronavirus or otherwise; |
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the unknown duration and economic, operational and financial impacts of the global COVID-19 pandemic; |
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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; |
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our ability to develop and maintain brands that are critical to our success; |
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economic downturns in our target markets; |
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difficulty meeting our sales growth objectives and innovation goals; and |
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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)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net revenues |
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$ |
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$ |
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$ |
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$ |
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Related party net revenues |
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Total net revenues |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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( |
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( |
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Other expense, net |
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( |
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( |
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Income from operations |
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Interest expense, net |
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( |
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Income before income taxes |
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Income tax expense |
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( |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Earnings per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Effect of dilutive securities |
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— |
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Diluted |
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See accompanying notes to the condensed consolidated financial statements.
2
Reynolds Consumer Products Inc.
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss), net of income taxes: |
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Employee benefit plans |
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$ |
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— |
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$ |
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— |
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Interest rate derivatives |
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Other comprehensive income (loss), net of income taxes |
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( |
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Comprehensive income |
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$ |
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$ |
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$ |
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$ |
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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)
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(Unaudited) As of June 30, 2022 |
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As of December 31, 2021 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable (net of allowance for doubtful accounts of $ |
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Other receivables |
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Related party receivables |
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Inventories |
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Other current assets |
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Total current assets |
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Property, plant and equipment (net of accumulated depreciation of $ |
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Operating lease right-of-use assets, net |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Accounts payable |
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$ |
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$ |
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Related party payables |
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Current portion of long-term debt |
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Accrued and other current liabilities |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities |
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Deferred income taxes |
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Long-term postretirement benefit obligation |
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Other liabilities |
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Total liabilities |
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$ |
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$ |
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Commitments and contingencies (Note 7) |
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Stockholders’ equity |
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Common stock, $ outstanding |
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— |
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— |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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Common Stock |
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Additional Paid-in Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Income |
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Total Equity |
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Balance as of December 31, 2020 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Other comprehensive income, net of income taxes |
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— |
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— |
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— |
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Dividends ($ |
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— |
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— |
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( |
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— |
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( |
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Other |
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— |
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( |
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— |
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— |
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( |
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Balance as of March 31, 2021 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Other comprehensive loss, net of income taxes |
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— |
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— |
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— |
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( |
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( |
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Dividends ($ |
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— |
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— |
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( |
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— |
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( |
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Other |
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— |
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— |
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— |
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Balance as of June 30, 2021 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
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Balance as of December 31, 2021 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Other comprehensive income, net of income taxes |
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— |
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— |
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— |
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Dividends ($ |
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— |
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— |
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( |
) |
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— |
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( |
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Balance as of March 31, 2022 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Other comprehensive income, net of income taxes |
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— |
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— |
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— |
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Dividends ($ |
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— |
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— |
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( |
) |
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— |
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( |
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Other |
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— |
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— |
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— |
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Balance as of June 30, 2022 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
5
Reynolds Consumer Products Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(Unaudited)
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Six Months Ended |
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June 30, |
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2022 |
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2021 |
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Cash provided by operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to operating cash flows: |
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Depreciation and amortization |
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Deferred income taxes |
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( |
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( |
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Stock compensation expense |
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Change in assets and liabilities: |
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Accounts receivable, net |
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( |
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Other receivables |
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Related party receivables |
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— |
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Inventories |
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( |
) |
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( |
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Accounts payable |
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Related party payables |
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( |
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Income taxes payable / receivable |
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( |
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( |
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Accrued and other current liabilities |
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( |
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Other assets and liabilities |
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( |
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— |
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Net cash provided by operating activities |
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Cash used in investing activities |
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Acquisition of property, plant and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash used in financing activities |
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Repayment of long-term debt |
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( |
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( |
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Dividends paid |
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( |
) |
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( |
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Net cash used in financing activities |
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( |
) |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Cash paid: |
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Income taxes |
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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
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 $
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.
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Note 3 – Inventories
Inventories consisted of the following:
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June 30, 2022 |
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December 31, 2021 |
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(in millions) |
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Raw materials |
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$ |
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$ |
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|
Work in progress |
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Finished goods |
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Spare parts |
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Inventories |
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$ |
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|
$ |
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|
Note 4 – Debt
Long-term debt consisted of the following:
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June 30, 2022 |
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December 31, 2021 |
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(in millions) |
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Term loan facility |
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$ |
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$ |
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|
Deferred financing transaction costs |
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( |
) |
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( |
) |
Original issue discounts |
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( |
) |
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( |
) |
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Less: current portion |
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( |
) |
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( |
) |
Long-term debt |
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$ |
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|
|
$ |
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|
External Debt Facilities
In February 2020, we entered into new external debt facilities (“External Debt Facilities”), which consist of (i) a $
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
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
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
Revolving Facility
The Revolving Facility matures in
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.
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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
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
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) |
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Notional Amount |
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Annual Rate |
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Average Annual Effective Rate |
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Fair Value Asset |
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As of June 30, 2022 |
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$ |
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$ |
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