REYNOLDS CONSUMER PRODUCTS INC. Our management's discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to, and should be read in connection with, our condensed consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Description of the Company and its Business Segments We are a market-leading consumer products company with a presence in 95% of households acrossthe United States . We produce and sell products across three broad categories: cooking products, waste and storage products and tableware. We sell our products under iconic brands such as Reynolds and Hefty and also under store brands that are strategically important to our customers. Overall, across both our branded and store brand offerings, we hold the #1 or #2 U.S. market share position in the majority of product categories in which we participate. We have developed our market-leading position by investing in our product categories and consistently developing innovative products that meet the evolving needs and preferences of the modern consumer. Our mix of branded and store brand products is a key competitive advantage that aligns our goal of growing the overall product categories with our customers' goals and positions us as a trusted strategic partner to our retailers. Our Reynolds and Hefty brands have preeminent positions in their categories and carry strong brand recognition in household aisles.
We manage our operations in four operating and reportable segments: Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware and Presto Products:
• Reynolds Cooking & Baking: Through our Reynolds Cooking & Baking segment, we
produce branded and store brand foil, disposable aluminum pans, parchment
paper, freezer paper, wax paper, butcher paper, plastic wrap, baking cups,
oven bags and slow cooker liners. Our branded products are sold under the
Reynolds Wrap, Reynolds KITCHENS and E-Z Foil brands in
and selected international markets, under the ALCAN brand in
under the Diamond brand outside of
Wrap products, we hold the #1 market position in the
market measured by revenue and volume. We have no significant branded
competitor in this market. Reynolds is one of the most recognized household
brands in
consumer foil market for over 70 years, with greater than 50% market share
in virtually all of its categories.
• Hefty Waste & Storage: Through our Hefty Waste & Storage segment, we produce
both branded and store brand trash and food storage bags. Hefty is a
well-recognized leader in the trash bag and food storage bag categories and
our private label products offer value to our retail partners. Our branded
products are sold under the Hefty Ultra Strong and Hefty Strong brands for
trash bags, and as the Hefty and Baggies brands for our food storage bags.
We have the #1 branded market share in the
slider bag segments, and the #2 branded market share in the tall kitchen
trash bag segment. Our robust product portfolio in this segment includes a
full suite of products, including sustainable solutions such as blue and
clear recycling bags, compostable bags, bags made from recycled materials
and the Hefty EnergyBag Program.
• Hefty Tableware: Through our Hefty Tableware segment, we sell both branded
and store brand disposable and compostable plates, bowls, platters, cups and
cutlery. Our Hefty branded products include dishes and party cups. Hefty
branded party cups are the #1 party cup in America measured by market share.
Our branded products use our Hefty brand to represent both quality and great
price, and we bring this same quality and value promise to all of our store
brands as well. We sell across a broad range of materials and price points
in all retail channels, allowing our consumers to select the product that
best suits their price, function and aesthetic needs.
• Presto Products: Through our Presto Products segment, we primarily sell
store brand products in four main categories: food storage bags, trash bags,
reusable storage containers and plastic wrap. Presto Products is a market
leader in food storage bags and differentiates itself by providing access to
category management, consumer insights, marketing, merchandising and
research and development ("R&D") resources. Our Presto Products segment also
includes our specialty business, which serves other consumer products
companies by providing Fresh-Lock and Slide-Rite resealable closure systems.
14
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Overview
Total net revenues increased 7% and 8% in the three and nine months ended
September 30, 2022 , respectively, compared to the same periods in 2021. The
revenue increase in both periods was primarily due to higher pricing as a result
of pricing actions taken in response to increased material, manufacturing and
logistics costs, partially offset by lower volume.
We experienced significant increases in material costs as well as increases in
manufacturing, logistics and advertising costs in the three and nine months
ended September 30, 2022 , compared to the same prior year periods. We have
aggressively implemented price increases in an effort to recover these costs and
maintain our profitability. Our earnings decline in the three months ended
September 30, 2022 compared to the same prior year period was primarily
attributable to lower volume, higher personnel costs and higher advertising
costs. Our earnings decline in the nine months ended September 30, 2022 compared
to the same prior year period was primarily attributable to lower volume, the
timing of price actions lagging increased material, manufacturing and logistics
costs, as well as higher advertising costs.
Our Reynolds Cooking & Baking segment experienced unplanned equipment downtime
in the third quarter, impacting throughput of non-retail shipments and
manufacturing costs and extending the timeline for reduction of higher cost
aluminum inventory. While most of these issues are temporary in nature, we are
implementing operational changes to address all of them.
Non-GAAP Measures
In this Quarterly Report on Form 10-Q we use the non-GAAP financial measures
"Adjusted EBITDA", "Adjusted Net Income" and "Adjusted EPS", which are measures
adjusted for the impact of specified items and are not in accordance with GAAP.
We define Adjusted EBITDA as net income calculated in accordance with GAAP, plus
the sum of income tax expense, net interest expense, depreciation and
amortization and further adjusted to exclude IPO and separation-related costs.
We define Adjusted Net Income and Adjusted EPS as Net Income and Earnings Per
Share calculated in accordance with GAAP, plus IPO and separation-related costs.
We present Adjusted EBITDA because it is a key measure used by our management
team to evaluate our operating performance, generate future operating plans and
make strategic decisions. In addition, our chief operating decision maker uses
Adjusted EBITDA of each reportable segment to evaluate the operating performance
of such segments. We use Adjusted Net Income and Adjusted EPS as supplemental
measures to evaluate our business' performance in a way that also considers our
ability to generate profit without the impact of certain items. Accordingly, we
believe presenting these measures provides useful information to investors and
others in understanding and evaluating our operating results in the same manner
as our management team and board of directors.
Non-GAAP information should be considered as supplemental in nature and is not
meant to be considered in isolation or as a substitute for the related financial
information prepared in accordance with GAAP. In addition, our non-GAAP
financial measures may not be the same as or comparable to similar non-GAAP
financial measures presented by other companies.
The following table presents a reconciliation of our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in millions) (in millions)
Net income - GAAP $ 48 $ 66 $ 152 $ 220
Income tax expense 15 22 49 72
Interest expense, net 20 12 48 36
Depreciation and amortization 30 27 87 81
IPO and separation-related costs (1) 3 5 10 11
Adjusted EBITDA (Non-GAAP) $ 116 $ 132 $ 346 $ 420
(1) Reflects costs related to the IPO process, as well as costs related to our
separation to operate as a stand-alone public company. These costs are
included in Other expense, net in our condensed consolidated statements of
income.
The following tables present reconciliations of our net income and diluted EPS,
the most directly comparable GAAP financial measures, to Adjusted Net Income and
Adjusted Diluted EPS:
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Three Months Ended September 30, 2022 Three Months Ended September 30, 2021
(In millions, except for per share data) Net Income Diluted Shares Diluted EPS Net Income Diluted Shares Diluted EPS
As Reported - GAAP $ 48 210 $ 0.23 $ 66 210 $ 0.31
Adjustments:
IPO and separation-related costs (1) 2 210 0.01 4 210 0.02
Adjusted (Non-GAAP) $ 50 210 $ 0.24 $ 70 210 $ 0.33 (1) Amounts are after tax, calculated using a tax rate of 24.0% and 24.6% for
the three months ended
our effective tax rate for the periods presented.
Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
(In millions, except for per share data) Net Income Diluted Shares Diluted EPS Net Income Diluted Shares Diluted EPS
As Reported - GAAP $ 152 210 $ 0.72 $ 220 210 $ 1.05
Adjustments:
IPO and separation-related costs (1) 8 210 0.04 8 210 0.04
Adjusted (Non-GAAP) $ 160 210 $ 0.76 $ 228 210 $ 1.09 (1) Amounts are after tax, calculated using a tax rate of 24.5% and 24.6% for the
nine months ended
effective tax rate for the periods presented.
Results of Operations - Three Months Ended September 30, 2022
The following discussion should be read in conjunction with our condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q. Detailed comparisons of revenue and results are presented in the
discussions of the operating segments, which follow our consolidated results
discussion.
Aggregation of Segment Revenue and Adjusted EBITDA
Total
Reynolds Hefty Reynolds
Cooking & Waste & Hefty Presto Consumer
(In millions) Baking Storage Tableware Products Unallocated(1) Products
Net revenues for the three months ended
September 30 :
2022 $ 327 $ 237 $ 251 $ 155 $ (3 ) $ 967
2021 328 237 196 151 (7 ) 905
Adjusted EBITDA for the three months
ended
September 30:
2022 $ 33 $ 44 $ 24 $ 23 $ (8 ) $ 116
2021 56 37 25 14 - 132
(1) The unallocated net revenues include elimination of intersegment revenues
and other revenue adjustments. The unallocated Adjusted EBITDA represents
the combination of corporate expenses which are not allocated to our
segments and other unallocated revenue adjustments.
16--------------------------------------------------------------------------------
Three Months Ended
September 30, 2021
Total
For the Three Months Ended September 30,
(In millions, except for %) 2022 % of Revenue 2021 % of Revenue Change % Change
Net revenues $ 938 97 % $ 876 97 % $ 62 7 %
Related party net revenues 29 3 % 29 3 % - - %
Total net revenues 967 100 % 905 100 % 62 7 %
Cost of sales (789 ) (82 )% (723 ) (80 )% (66 ) (9 )%
Gross profit 178 18 % 182 20 % (4 ) (2 )%
Selling, general and
administrative expenses (90 ) (9 )% (77 ) (9 )% (13 ) (17 )%
Other expense, net (5 ) (1 )% (5 ) (1 )% - - %
Income from operations 83 9 % 100 11 % (17 ) (17 )%
Interest expense, net (20 ) (2 )% (12 ) (1 )% (8 ) (67 )%
Income before income taxes 63 7 % 88 10 % (25 ) (28 )%
Income tax expense (15 ) (2 )% (22 ) (2 )% 7 32 %
Net income $ 48 5 % $ 66 7 % $ (18 ) (27 )%
Adjusted EBITDA (1) $ 116 12 % $ 132 15 % $ (16 ) (12 )%
(1) Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" for details,
including a reconciliation between net income and Adjusted EBITDA.
Components of Change in Net Revenues for the Three Months Ended
Price Volume/Mix Total
Reynolds Cooking & Baking 14 % (14 )% - %
Hefty Waste & Storage 9 % (9 )% - %
Hefty Tableware 21 % 7 % 28 %
Presto Products 11 % (8 )% 3 %
Total RCP 14 % (7 )% 7 %
Total Net Revenues. Total net revenues increased by
Cost of Sales. Cost of sales increased by$66 million , or 9%, to$789 million . The increase was driven by an increase of$81 million in material costs, as well as increased manufacturing and logistics costs, partially offset by lower volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by
Other Expense, Net. Other expense, net was flat.
Interest Expense, Net. Interest expense, net increased by
Income Tax Expense. We recognized income tax expense of$15 million on income before income taxes of$63 million (an effective tax rate of 24.0%) for the three months endedSeptember 30, 2022 compared to income tax expense of$22 million on income before income taxes of$88 million (an effective tax rate of 25.6%) for the three months endedSeptember 30, 2021 .
Adjusted EBITDA. Adjusted EBITDA decreased by
17
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Segment Information
Reynolds Cooking & Baking
For the Three Months Ended September 30,
(In millions, except for %) 2022 2021 Change % Change
Total segment net revenues $ 327 $ 328 $ (1 ) - %
Segment Adjusted EBITDA 33 56 (23 ) (41 )%
Segment Adjusted EBITDA Margin 10 % 17 %
Total Segment Net Revenues. Reynolds Cooking & Baking total segment net revenues
were flat. Lower non-retail and household foil volumes were offset by higher
pricing as a result of pricing actions taken in response to increased material,
manufacturing and logistics costs.
Adjusted EBITDA. Reynolds Cooking & Baking Adjusted EBITDA decreased by $23
million , or 41%, to $33 million . The decrease in Adjusted EBITDA was primarily
driven by lower volume and higher material and manufacturing costs, which were
partially offset by price increases.
Hefty Waste & Storage
For the Three Months Ended September 30,
(In millions, except for %) 2022 2021 Change % Change
Total segment net revenues $ 237 $ 237 - - %
Segment Adjusted EBITDA 44 37 7 19 %
Segment Adjusted EBITDA Margin 19 % 16 %
Total Segment Net Revenues. Hefty Waste & Storage total segment net revenues
were flat. Higher pricing due to pricing actions taken in response to increased
material, manufacturing and logistics costs were offset by lower waste and
slider bag volume.
Adjusted EBITDA. Hefty Waste & Storage Adjusted EBITDA increased by $7 million ,
or 19%, to $44 million . The increase in Adjusted EBITDA was primarily driven by
the timing of price increases to recover higher material, manufacturing and
logistics costs, partially offset by higher advertising costs.
Hefty Tableware
For the Three Months Ended September 30,
(In millions, except for %) 2022 2021 Change % Change
Total segment net revenues $ 251 $ 196 $ 55 28 %
Segment Adjusted EBITDA 24 25 (1 ) (4 )%
Segment Adjusted EBITDA Margin 10 % 13 %
Total Segment Net Revenues. Hefty Tableware total segment net revenues increased
by $55 million , or 28%, to $251 million . The increase in net revenues was
primarily due to higher pricing as a result of pricing actions taken in response
to increased material, manufacturing and logistics costs, as well as higher
volume driven by continued strength in the club channel and new products.
Adjusted EBITDA. Hefty Tableware Adjusted EBITDA decreased by $1 million , or 4%,
to $24 million . The slight decrease in Adjusted EBITDA was primarily driven by
increased material, manufacturing and logistics costs, mostly offset by higher
pricing and higher volume.
Presto Products
For the Three Months Ended September 30,
(In millions, except for %) 2022 2021 Change % Change
Total segment net revenues $ 155 $ 151 $ 4 3 %
Segment Adjusted EBITDA 23 14 9 64 %
Segment Adjusted EBITDA Margin 15 % 9 %
18-------------------------------------------------------------------------------- Total Segment Net Revenues. Presto Products total segment net revenues increased by$4 million , or 3%, to$155 million . The increase in net revenues was primarily due to higher pricing implemented in response to increased material, manufacturing and logistics costs, partially offset by lower waste and food bag volume. Adjusted EBITDA. Presto Products Adjusted EBITDA increased by$9 million , or 64%, to$23 million . The increase in Adjusted EBITDA was primarily driven by the timing of price increases to recover higher material, manufacturing and logistics costs, partially offset by lower volume. Results of Operations - Nine Months EndedSeptember 30, 2022 The following discussion should be read in conjunction with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Detailed comparisons of revenue and results are presented in the discussions of the operating segments, which follow our consolidated results discussion. Aggregation of Segment Revenue and Adjusted EBITDA Total Reynolds Hefty Reynolds Cooking & Waste & Hefty Presto Consumer (In millions) Baking Storage Tableware Products Unallocated(1) Products Net revenues for the nine months endedSeptember 30 : 2022$ 889 $ 704 $ 701 $ 447 $ (12 )$ 2,729 2021 902 651 582 420 (21 ) 2,534 Adjusted EBITDA for the nine months ended September 30: 2022$ 97 $ 135 $ 72 $ 67 $ (25 )$ 346 2021 167 127 104 52 (30 ) 420
(1) The unallocated net revenues include elimination of intersegment revenues and
other revenue adjustments. The unallocated Adjusted EBITDA represents the
combination of corporate expenses which are not allocated to our segments and
other unallocated revenue adjustments.
Nine Months Ended
September 30, 2021
Total
For the Nine Months Ended September 30,
(In millions, except for %) 2022 % of Revenue 2021 % of Revenue Change % Change
Net revenues $ 2,652 97 % $ 2,455 97 % $ 197 8 %
Related party net revenues 77 3 % 79 3 % (2 ) (3 )%
Total net revenues 2,729 100 % 2,534 100 % 195 8 %
Cost of sales (2,199 ) (81 )% (1,952 ) (77 )% (247 ) (13 )%
Gross profit 530 19 % 582 23 % (52 ) (9 )%
Selling, general and
administrative expenses (264 ) (10 )% (244 ) (10 )% (20 ) (8 )%
Other expense, net (17 ) (1 )% (10 ) - % (7 ) (70 )%
Income from operations 249 9 % 328 13 % (79 ) (24 )%
Interest expense, net (48 ) (2 )% (36 ) (1 )% (12 ) (33 )%
Income before income taxes 201 7 % 292 12 % (91 ) (31 )%
Income tax expense (49 ) (2 )% (72 ) (3 )% 23 32 %
Net income $ 152 6 % $ 220 9 % $ (68 ) (31 )%
Adjusted EBITDA (1) $ 346 13 % $ 420 17 % $ (74 ) (18 )%
(1) Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" for details,
including a reconciliation between net income and Adjusted EBITDA.
19
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Components of Change in Net Revenues for the Nine Months Ended
Price Volume/Mix Total
Reynolds Cooking & Baking 14 % (15 )% (1 )%
Hefty Waste & Storage 10 % (2 )% 8 %
Hefty Tableware 15 % 5 % 20 %
Presto Products 13 % (7 )% 6 %
Total RCP 14 % (6 )% 8 %
Total Net Revenues. Total net revenues increased by $195 million , or 8%, to
$2,729 million . The increase was primarily driven by higher pricing as a result
of pricing actions taken in response to increased material, manufacturing and
logistics costs, partially offset by lower volume.
Cost of Sales. Cost of sales increased by
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by
Other Expense, Net. Other expense, net increased by
Interest Expense, Net. Interest expense, net increased by
Income Tax Expense. We recognized income tax expense of$49 million on income before income taxes of$201 million (an effective tax rate of 24.5%) for the nine months endedSeptember 30, 2022 compared to income tax expense of$72 million on income before income taxes of$292 million (an effective tax rate of 24.8%) for the nine months endedSeptember 30, 2021 . Adjusted EBITDA. Adjusted EBITDA decreased by$74 million , or 18%, to$346 million . The decrease in Adjusted EBITDA was primarily attributable to lower volume, the timing of price actions lagging increased material, manufacturing and logistics costs, as well as higher advertising costs. Segment Information Reynolds Cooking & Baking For the Nine Months Ended September 30, (In millions, except for %) 2022 2021 Change
% Change
Total segment net revenues
(1 )%
Segment Adjusted EBITDA 97 167 (70 ) (42 )%
Segment Adjusted EBITDA Margin 11 % 19 %
Total Segment Net Revenues. Reynolds Cooking & Baking total segment net revenues
decreased by $13 million , or 1%, to $889 million . The decrease in net revenues
was primarily driven by lower household foil and non-retail volumes, as well as
timing of retailer inventory replenishment, partially offset by higher pricing
as a result of pricing actions taken in response to increased material,
manufacturing and logistics costs.
Adjusted EBITDA. Reynolds Cooking & Baking Adjusted EBITDA decreased by
20
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Hefty Waste & Storage
For the Nine Months Ended September 30,
(In millions, except for %) 2022 2021 Change % Change
Total segment net revenues $ 704 $ 651 $ 53 8 %
Segment Adjusted EBITDA 135 127 8 6 %
Segment Adjusted EBITDA Margin 19 % 20 %
Total Segment Net Revenues. Hefty Waste & Storage total segment net revenues
increased by $53 million , or 8%, to $704 million . The increase in net revenues
was primarily driven by higher pricing due to pricing actions taken in response
to increased material, manufacturing and logistics costs, partially offset by
lower volume.
Adjusted EBITDA. Hefty Waste & Storage Adjusted EBITDA increased by $8 million ,
or 6%, to $135 million . The increase in Adjusted EBITDA was primarily driven by
higher pricing, partially offset by higher material, manufacturing and logistics
costs as well as higher advertising costs.
Hefty Tableware
For the Nine Months Ended September 30,
(In millions, except for %) 2022 2021 Change % Change
Total segment net revenues $ 701 $ 582 $ 119 20 %
Segment Adjusted EBITDA 72 104 (32 ) (31 )%
Segment Adjusted EBITDA Margin 10 % 18 %
Total Segment Net Revenues. Hefty Tableware total segment net revenues increased
by $119 million , or 20%, to $701 million . The increase in net revenues was
primarily driven by higher pricing as a result of pricing actions taken in
response to increased material, manufacturing and logistics costs, as well as
higher volume.
Adjusted EBITDA. Hefty Tableware Adjusted EBITDA decreased by $32 million , or
31%, to $72 million . The decrease in Adjusted EBITDA was primarily driven by
pricing actions lagging material, manufacturing and logistics costs, partially
offset by higher volume.
Presto Products
For the Nine Months Ended September 30,
(In millions, except for %) 2022 2021 Change % Change
Total segment net revenues $ 447 $ 420 $ 27 6 %
Segment Adjusted EBITDA 67 52 15 29 %
Segment Adjusted EBITDA Margin 15 % 12 %
Total Segment Net Revenues. Presto Products total segment net revenues increased
by $27 million , or 6%, to $447 million . The increase in net revenues was
primarily driven by pricing actions taken in response to increased material,
manufacturing and logistics costs, partially offset by lower volume.
Adjusted EBITDA. Presto Products Adjusted EBITDA increased by $15 million , or
29%, to $67 million . The increase in Adjusted EBITDA was primarily driven by the
timing of price increases to recover higher material, manufacturing and
logistics costs.
Liquidity and Capital ResourcesOur principal sources of liquidity are existing cash and cash equivalents, cash generated from operating activities, including proceeds from factored receivables, and available borrowings under the Revolving Facility.
21
--------------------------------------------------------------------------------The following table discloses our cash flows for the periods presented:
For the Nine Months
Ended September 30,
(In millions) 2022 2021
Net cash provided by operating activities
(86 ) (101 )
Net cash used in financing activities (163 ) (263 )
Decrease in cash and cash equivalents
Cash provided by operating activities
Net cash from operating activities decreased by$4 million , to$118 million in the nine months endedSeptember 30, 2022 . The decrease was primarily driven by lower net income, partially offset by$70 million of cash inflows related to our accounts receivable factoring arrangement in the current year period as well as lower net cash outlays related to employee costs in the current year period, compared to the prior year period.
Cash used in investing activities
Net cash used in investing activities decreased by
Cash used in financing activities
Net cash used in financing activities decreased by
External Debt Facilities
OnFebruary 4, 2020 , in conjunction with our Corporate Reorganization and IPO, we entered into the External Debt Facilities which consist of a$2,475 million Term Loan Facility and a Revolving Facility that provides for additional borrowing capacity of up to$250 million , reduced by amounts used for letters of credit. As ofSeptember 30, 2022 , the outstanding balance under the Term Loan Facility was$2,113 million . As ofSeptember 30, 2022 , we had no outstanding borrowings under the Revolving Facility, and we had$7 million of letters of credit outstanding, which reduces the borrowing capacity under the Revolving Facility. The initial borrower under the External Debt Facilities isReynolds Consumer Products LLC (the "Borrower"). The Revolving Facility includes a sub-facility for letters of credit. In addition, the External Debt Facilities provide that the Borrower has the right at any time, subject to customary conditions, to request incremental term loans or incremental revolving credit commitments in amounts and on terms set forth therein. The lenders under the External Debt Facilities are not under any obligation to provide any such incremental loans or commitments, and any such addition of or increase in loans is subject to certain customary conditions precedent and other provisions.
Interest rate and fees
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 the year endedDecember 31, 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$150 million notional value was still in effect as ofSeptember 30, 2022 . InMay 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 . InAugust 2022 , we entered into additional interest rate swaps which fixed the LIBO rate to an annual rate of 3.42% to 3.44% (for an annual effective interest rate of 5.17% to 5.19%, including margin) for an aggregate notional amount of$400 million . As ofSeptember 30, 2022 , we had interest rate swaps of an aggregate notional amount of$1,150 million . The interest rate swaps outstanding as ofSeptember 30, 2022 hedge a portion of the interest rate exposure resulting from our Term Loan Facility for periods ranging from three to four years.
Prepayments
The Term Loan Facility contains customary mandatory prepayments, including with respect to excess cash flow, asset sale proceeds and proceeds from certain incurrences of indebtedness.
22
--------------------------------------------------------------------------------The Borrower may voluntarily repay outstanding loans under the Term Loan Facility at any time without premium or penalty, other than customary breakage costs with respect to LIBO rate loans.
Amortization and maturity
The Term Loan Facility matures inFebruary 2027 . The Term Loan Facility amortizes in equal quarterly installments of$6 million , which commenced inJune 2020 , with the balance payable on maturity. The Revolving Facility matures inFebruary 2025 . Guarantee and security All obligations under the External Debt Facilities and certain hedge agreements and cash management arrangements provided by any lender party to the External Debt Facilities or any of its affiliates and certain other persons are unconditionally guaranteed byReynolds Consumer Products Inc. ("RCPI"), the Borrower (with respect to hedge agreements and cash management arrangements not entered into by the Borrower) and certain of RCPI's existing and subsequently acquired or organized direct or indirect material wholly-ownedU.S. restricted subsidiaries, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in material adverse tax consequences. All obligations under the External Debt Facilities and certain hedge agreements and cash management arrangements provided by any lender party to the External Debt Facilities or any of its affiliates and certain other persons, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by: (i) a perfected first-priority pledge of all the equity interests of each wholly-owned material restricted subsidiary of RCPI, the Borrower or a subsidiary guarantor, including the equity interests of the Borrower (limited to 65% of voting stock in the case of first-tier non-U.S. subsidiaries of RCPI, the Borrower or any subsidiary guarantor) and (ii) perfected first-priority security interests in substantially all tangible and intangible personal property of RCPI, the Borrower and the subsidiary guarantors (subject to certain other exclusions).
Certain covenants and events of default
The External Debt Facilities contain a number of covenants that, among other
things, restrict, subject to certain exceptions, our ability and the ability of
the restricted subsidiaries of RCPI to:
• incur additional indebtedness and guarantee indebtedness;
• create or incur liens;
• engage in mergers or consolidations;
• sell, transfer or otherwise dispose of assets;
• pay dividends and distributions or repurchase capital stock;
• prepay, redeem or repurchase certain indebtedness;
• make investments, loans and advances;
• enter into certain transactions with affiliates;
• enter into agreements which limit the ability of our restrictedsubsidiaries to incur restrictions on their ability to make distributions;
and
• enter into amendments to certain indebtedness in a manner materially
adverse to the lenders.
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. 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.
We are currently in compliance with the covenants contained in our External Debt Facilities.
Accounts Receivable Factoring
InMay 2022 , we entered into an accounts receivable factoring agreement withJP Morgan Chase Bank, N.A. to sell certain accounts receivable up to$190 million . The outstanding balance owed under the factoring arrangement as ofSeptember 30, 2022 was$70 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 the 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. 23 --------------------------------------------------------------------------------
Dividends
During the three and nine months endedSeptember 30, 2022 , cash dividends of$0.23 and$0.69 per share, respectively, were declared and paid. OnOctober 27, 2022 , a quarterly cash dividend of$0.23 per share was declared and is to be paid onNovember 30, 2022 . We expect to continue paying cash dividends on a quarterly basis; however, future dividends are at the discretion of our Board of Directors and will depend upon our earnings, capital requirements, financial condition, contractual limitations (including under the Term Loan Facility) and other factors. **** We believe that our projected cash position, cash flows from operations, including proceeds from factored receivables, and available borrowings under the Revolving Facility are sufficient to meet debt service, capital expenditures and working capital needs for the foreseeable future. However, we cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other liquidity needs. Actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . Critical Accounting Policies and Estimates Accounting policies and estimates are considered critical when they require management to make subjective and complex judgments, estimates and assumptions about matters that have a material impact on the presentation of our financial statements and accompanying notes. For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . 24
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