REYNOLDS CONSUMER PRODUCTS INC. Our 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 combined financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . 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 & 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.
We manage our operations in four operating and reportable segments: Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware and Presto Products.
Our Separation from RGHL Group
Prior to our Corporate Reorganization and IPO completed on February 4, 2020 , we
operated as part of RGHL Group's broader corporate organization rather than as a
stand-alone public company. RGHL Group performed or supported various corporate
services for us, including executive management, supply chain, information
technology, legal, finance and accounting, human resources, risk management,
tax, treasury and other services. In addition, we have sold products to, and
purchased products from, RGHL Group . Historically, these transactions involving
RGHL Group may not have always been consummated on terms equivalent to those in
an arm's-length transaction. Sales to RGHL Group of products that we manufacture
have been reflected as related party net revenues in our condensed consolidated
financial statements. Certain related party transactions are reflected as
related party receivables and payables in our condensed consolidated balance
sheets and are settled in cash. Prior to our Corporate Reorganization and IPO,
certain related party transactions with RGHL Group were settled by either
non-cash capital contributions from RGHL Group to us or non-cash capital
distributions from us and were included as part of RGHL Group's net investment
in our condensed consolidated balance sheets. We also utilize manufacturing and
warehousing facilities and resources managed by RGHL Group to conduct our
business. The expenses associated with these transactions are included in cost
of sales in our condensed consolidated statements of income. We believe that the
assumptions and methodologies underlying the allocation of these expenses from
RGHL Group are reasonable. However, such allocations do not necessarily reflect
what the results of operations and financial position would have been had we
operated as a stand-alone public company during the periods presented.
In conjunction with our separation from RGHL Group , we entered into a transition
services agreement with Reynolds Group Holdings Inc. whereby RGHL Group will
continue to provide certain administrative services to us, including information
technology services; accounting, treasury, financial reporting and transaction
support; human resources; procurement; tax, legal and compliance related
services; and other corporate services for up to 24 months. In addition, we
entered into a transition services agreement with Rank Group Limited whereby,
upon our request, Rank Group Limited will provide certain administrative
services to us, including financial reporting, consulting and compliance
services, insurance procurement and human resources support, legal and corporate
secretarial support, and related services for up to 24 months. At the conclusion
of these transitional arrangements, we will have to perform these services with
internal resources or contract with third party providers. The previous
arrangements we had with RGHL Group may be materially different from the
arrangements that we have entered into as part of our separation from RGHL
Group .
On February 4, 2020 , in conjunction with our Corporate Reorganization and IPO,
we entered into the External Debt Facilities, consisting of the Term Loan
Facility and the Revolving Facility, and repaid portions of the related party
borrowings owed to RGHL Group that were reflected on our condensed consolidated
balance sheet. RGHL Group contributed the remaining balance of related party
borrowings owed by us to RGHL Group as additional paid-in capital without the
issuance of any additional shares prior to the closing of our IPO. In addition,
all indebtedness that we had borrowed under RGHL Group's Credit Agreement was
reallocated and we were released as a borrower and guarantor from such
facilities and released as a guarantor of RGHL Group's outstanding senior notes.
15
--------------------------------------------------------------------------------
Impact of COVID-19
As we manufacture and sell products that are essential to the daily lives of
consumers, we have been classified as an "essential business" and our operations
have remained open throughout the COVID-19 pandemic. We have implemented
policies and procedures designed to protect our employees and our customers
including implementing recommendations from the Centers for Disease Control and
Prevention for social distancing in our plants, screening employees for
increased temperature at certain locations, providing masks and/or face
coverings, engagement of third-party vendors to clean and sanitize facilities,
implementing a work from home policy for all employees who can do so, and
enhanced leave policies to ensure employees experiencing symptoms of COVID-19
stay at home. As the pandemic progresses, we remain committed to adapting our
policies and procedures to ensure the safety of our employees and compliance
with federal, state and local regulations. While not significant to our overall
results of operations, we experienced increased costs in the second quarter of
2020 as a result of COVID-19. However, these costs may not be representative of
what we expect to incur moving forward.
We continue to experience an increase in demand due to the consumer response to
the COVID-19 pandemic. We have experienced increased demand across three of our
segments: Reynolds Cooking & Baking, Hefty Waste & Storage and Presto Products;
while our Hefty Tableware segment has been negatively impacted by the pandemic
due to fewer large gatherings, particularly around summer holidays and end of
school events, as well as lower demand from the foodservice businesses, which
are serviced by certain of our retail partners. The duration of the COVID-19
pandemic remains unknown, and its ongoing impact on our operations may not be
consistent with our experiences to date. At this time, we are unable to predict
with any certainty the nature, timing or magnitude of any changes in future
sales and/or earnings attributable to the spread of COVID-19 in North America .
We do not currently anticipate that the COVID-19 pandemic will materially impact
our liquidity over the next 12 months.
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 unrealized gains and losses on
derivatives, factoring discounts (pre-IPO), the allocated related party
management fee (pre-IPO) and 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 the sum of IPO and separation-related
costs, the impact of tax legislation changes under the CARES Act enacted March
27, 2020 and any unrealized gains or losses on derivatives.
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
metrics 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 metrics 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.
16
--------------------------------------------------------------------------------
The following is a reconciliation of our net income, the most directly
comparable GAAP financial measure, to Adjusted EBITDA for each of the periods
indicated:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(in millions) (in millions)Net income - GAAP $ 112 $ 55$ 138 $ 72 Income tax expense 36 19 75 24 Interest expense, net 17 67 44 135 Depreciation and amortization 24 21 48 42 Factoring discount (1) - 5 - 10 Allocated related party management fee (2) - 2 - 4 IPO and separation-related costs (3) 7 1 21 1 Unrealized (gains) losses on derivatives (4) (3 ) (1 ) 1 (8 ) Other - - 1 (1 ) Adjusted EBITDA (Non-GAAP) $ 193 $ 169$ 328 $ 279
(1) Reflects the loss on sale that we incurred when we sold our
receivables through
in this facility ceased upon the completion of our Corporate Reorganization
and IPO.
(2) Reflects our allocation, from
by
Corporate Reorganization and IPO.
(3) 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.
(4) Reflects the mark-to-market movements in our commodity derivatives. For
further information, refer to Note 6 - Financial Instruments in our condensed
consolidated financial statements included elsewhere in this Quarterly Report
on Form 10-Q.
The following is a reconciliation of our net income and diluted EPS, the most
directly comparable GAAP financial measure, to Adjusted Net Income and Adjusted
EPS for each of the periods indicated:
Three Months Ended June 30, 2020
(In millions, except for per share data) Net Income Diluted Shares Diluted EPS
As Reported - GAAP $ 112 210 $ 0.53
Adjustments:
IPO and separation-related costs (1) 5 210 0.03
Unrealized gains on derivatives (1) (2 ) 210 (0.01 )
Adjusted (Non-GAAP) $ 115 210 $ 0.55
Six Months Ended June 30, 2020
(In millions, except for per share data) Net Income Diluted Shares Diluted EPS
As Reported - GAAP $ 138 199 $ 0.69
Assume full period impact of IPO shares (2) - 11 -
Total 138 210 0.66
Adjustments:
Impact of tax legislation change from the CARES Act 23 210 0.11 IPO and separation-related costs (1) 16 210 0.08 Unrealized losses on derivatives (1) 1 210 - Adjusted (Non-GAAP)$ 178 210$ 0.85
(1) Amounts are after tax calculated using a tax rate of 24% for the three and
six months ended
one-time discrete expense associated with the legislation change from the
CARES Act.
(2) Represents incremental shares required to adjust the weighted average shares
outstanding for the period to the actual shares outstanding as of
2020. We utilize the shares outstanding at period end as if they had been
outstanding for the full period rather than weighted average shares
outstanding over the course of the period as it is a more meaningful
calculation that provides consistency in comparability due to the additional
shares issued as a result of the IPO in the period.
17
--------------------------------------------------------------------------------
Results of Operations - Three Months Ended June 30, 2020
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(2) Products
Net revenues for the three months
ended June 30:
2020 $ 295 $ 203 $ 186 $ 138 $ - $ 822
2019 275 183 207 131 (5 ) 791
Adjusted EBITDA for the three months
ended
June 30: (1)
2020 $ 66 $ 63 $ 43 $ 28 $ (7 ) $ 193
2019 49 52 51 24 (7 ) 169
(1) Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" for details,
including a reconciliation between net income and Adjusted EBITDA.
(2) The unallocated net revenues include elimination of intersegment revenues and
other revenue adjustments. These transactions arise primarily from sales by
Hefty Waste & Storage to Presto Products. The unallocated Adjusted EBITDA
represents corporate expenses which are not allocated to our segments.
Three Months Ended
2019
Total
For the Three Months Ended June 30,
(In millions, except for %) 2020 % of Revenue 2019 % of Revenue Change % Change
Net revenues $ 798 97 % $ 753 95 % $ 45 6 %
Related party net revenues 24 3 % 38 5 % (14 ) (37 )%
Total net revenues 822 100 % 791 100 % 31 4 %
Cost of sales (570 ) (69 )% (564 ) (71 )% (6 ) 1 %
Gross profit 252 31 % 227 29 % 25 11 %
Selling, general and
administrative expenses (81 ) (10 )% (77 ) (10 )% (4 ) 5 %
Other expense, net (6 ) (1 )% (9 ) (1 )% 3 (33 )%
Income from operations 165 20 % 141 18 % 24 17 %
Interest expense, net (17 ) (2 )% (67 ) (9 )% 50 (75 )%
Income before income taxes 148 18 % 74 9 % 74 100 %
Income tax expense (36 ) (4 )% (19 ) (2 )% (17 ) 89 %
Net income $ 112 14 % $ 55 7 % $ 57 104 %
Adjusted EBITDA (1) $ 193 23 % $ 169 21 % $ 24 14 %
(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 (2 )% 9 % 7 %
Hefty Waste & Storage - % 11 % 11 %
Hefty Tableware 3 % (13 )% (10 %)
Presto Products (1 )% 6 % 5 %
Total RCP (1 )% 5 % 4 %
18
-------------------------------------------------------------------------------- Total Net Revenues. Total net revenues increased by$31 million , or 4%, to$822 million . The increase was primarily driven by increased demand due to the consumer response to the COVID-19 pandemic, partially offset by a$16 million decline in revenue due to the exit of certain low margin store branded business in the prior year and a$14 million decline in related party revenue. We have experienced increased demand across three of our segments: Reynolds Cooking & Baking, Hefty Waste & Storage and Presto Products; while our Hefty Tableware segment has been negatively impacted by the pandemic due to fewer large gatherings, particularly around summer holidays and end of school events, as well as lower demand from the foodservice businesses, which are serviced by certain of our retail partners. Cost of Sales. Cost of sales increased by$6 million , or 1%, to$570 million . The increase was primarily due to increased revenue, as noted above, partially offset by lower material and manufacturing costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by
Other Expense, Net. Other expense, net decreased by$3 million , or 33%, to$6 million . The decrease was primarily attributable to the factoring discount on the sale of ourU.S. trade receivables throughRGHL Group's securitization facility and the allocated related party management fee in the comparable prior period partially offset by IPO and separation-related costs during the current period. Interest Expense, Net. Interest expense, net decreased by$50 million , or 75%, to$17 million . The decrease was primarily due to the change in our debt structure as a result of our IPO in the first quarter of 2020. Prior to the IPO we had related party debt and associated interest expense that was replaced with our External Debt Facilities in conjunction with the IPO. Income Tax (Expense) Benefit. We recognized income tax expense of$36 million on income before income taxes of$148 million (an effective tax rate of 24%) for the three months endedJune 30, 2020 compared to income tax expense of$19 million on income before income taxes of$74 million (an effective tax rate of 26%) for the three months endedJune 30, 2019 . The decrease in the effective tax rate was due to a reduction in permanently non-deductible items. Adjusted EBITDA. Adjusted EBITDA increased by$24 million , or 14% to$193 million . The increase in Adjusted EBITDA was primarily due to the increased revenue, as noted above. Segment Information Reynolds Cooking & Baking For the Three Months EndedJune 30 ,
(In millions, except for %) 2020 2019 Change % Change Total segment net revenues$ 295 $ 275 $ 20 7 % Segment Adjusted EBITDA 66 49 17 35 % Segment Adjusted EBITDA Margin 22 % 18 % Total Segment Net Revenues. Reynolds Cooking & Baking total segment net revenues increased by$20 million , or 7%, to$295 million . The increase in net revenues was primarily driven by the increased consumer demand associated with the changes in consumer behavior driven by the COVID-19 pandemic. The increased volume was partially offset by a decline in related party revenue and lower pricing driven by price reductions in support of certain of our customers achieving key price points and as a result of lower material costs. Adjusted EBITDA. Reynolds Cooking & Baking Adjusted EBITDA increased by$17 million , or 35%, to$66 million . The increase in Adjusted EBITDA was primarily driven by the increased revenue, as noted above, and lower material and manufacturing costs, partially offset by the impact of lower pricing as noted above. Hefty Waste & Storage For the Three Months Ended June 30,
(In millions, except for %) 2020 2019 Change % Change Total segment net revenues$ 203 $ 183 $ 20 11 % Segment Adjusted EBITDA 63 52 11 21 % Segment Adjusted EBITDA Margin 31 % 28 % 19
-------------------------------------------------------------------------------- Total Segment Net Revenues. Hefty Waste & Storage total segment net revenues increased by$20 million , or 11%, to$203 million . The increase in net revenues was primarily driven by increased consumer demand associated with the changes in consumer behavior driven by the COVID-19 pandemic. Adjusted EBITDA. Hefty Waste & Storage Adjusted EBITDA increased by$11 million , or 21%, to$63 million . The increase in Adjusted EBITDA was primarily driven by the increased revenue, as noted above. Hefty Tableware For the Three Months EndedJune 30 ,
(In millions, except for %) 2020 2019 Change % Change
Total segment net revenues $ 186 $ 207 $ (21 ) (10 )%
Segment Adjusted EBITDA 43 51 (8 ) (16 )%
Segment Adjusted EBITDA Margin 23 % 25 %
Total Segment Net Revenues. Hefty Tableware total segment net revenues decreased
by $21 million , or 10%, to $186 million . The decrease in net revenues was
primarily due to changes in consumer behavior driven by the COVID-19 pandemic.
As a result of COVID-19-related restrictions, there have been fewer large
gatherings, particularly around summer holidays and end of school events, as
well as lower demand from the foodservice businesses, which are serviced by
certain of our retail partners. Lower trade promotion spend partially offset
these volume declines.
Adjusted EBITDA. Hefty Tableware Adjusted EBITDA decreased by $8 million , or
16%, to $43 million . The decrease in Adjusted EBITDA was primarily driven by
lower revenue, as noted above, and increased material and manufacturing costs
which were primarily driven by our transition to a stand-alone entity.
Presto Products
For the Three Months Ended June 30,(In millions, except for %) 2020 2019 Change % Change Total segment net revenues$ 138 $ 131 $ 7 5 % Segment Adjusted EBITDA 28 24 4 17 % Segment Adjusted EBITDA Margin 20 % 18 %
Total Segment Net Revenues. Presto Products total segment net revenues increased
by
Adjusted EBITDA. Presto Products Adjusted EBITDA increased by$4 million , or 17%, to$28 million . The increase in Adjusted EBITDA was primarily driven by the increased revenue, as noted above. Results of Operations - Six Months EndedJune 30, 2020 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. 20
--------------------------------------------------------------------------------
Aggregation of Segment Revenue and Adjusted EBITDA
Total
Reynolds Hefty Reynolds
Cooking & Waste & Hefty Presto Consumer
(In millions) Baking Storage Tableware Products Unallocated(2) Products
Net revenues for the six months
ended June 30:
2020 $ 538 $ 395 $ 364 $ 265 $ (10 ) $ 1,552
2019 488 348 371 258 (9 ) 1,456
Adjusted EBITDA for the six
months ended
June 30: (1)
2020 $ 106 $ 118 $ 78 $ 51 $ (25 ) $ 328
2019 67 91 86 44 (9 ) 279
(1) Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" for details,
including a reconciliation between net income and Adjusted EBITDA.
(2) The unallocated net revenues include elimination of intersegment revenues and
other revenue adjustments. These transactions arise primarily from sales by
Hefty Waste & Storage to Presto Products. The unallocated Adjusted EBITDA
represents corporate expenses which are not allocated to our segments.
Six Months Ended
Total
For the Six Months Ended June 30,
(In millions, except for %) 2020 % of Revenue 2019 % of Revenue Change % Change
Net revenues $ 1,489 96 % $ 1,378 95 % $ 111 8 %
Related party net revenues 63 4 % 78 5 % (15 ) (19 )%
Total net revenues 1,552 100 % 1,456 100 % 96 7 %
Cost of sales (1,111 ) (72 )% (1,056 ) (73 )% (55 ) 5 %
Gross profit 441 28 % 400 27 % 41 10 %
Selling, general and
administrative expenses (163 ) (11 )% (155 ) (11 )% (8 ) 5 %
Other expense, net (21 ) (1 )% (14 ) (1 )% (7 ) 50 %
Income from operations 257 17 % 231 16 % 26 11 %
Interest expense, net (44 ) (3 )% (135 ) (9 )% 91 (67 )%
Income before income taxes 213 14 % 96 7 % 117 122 %
Income tax expense (75 ) (5 )% (24 ) (2 )% (51 ) 213 %
Net income $ 138 9 % $ 72 5 % $ 66 92 %
Adjusted EBITDA (1) $ 328 21 % $ 279 19 % $ 49 18 %
(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 Six Months Ended
Price Volume/Mix Total
Reynolds Cooking & Baking (3 )% 13 % 10 %
Hefty Waste & Storage (1 )% 15 % 14 %
Hefty Tableware - % (2 %) (2 %)
Presto Products - % 3 % 3 %
Total RCP (2 )% 9 % 7 %
Total Net Revenues. Total net revenues increased by $96 million , or 7%, to
$1,552 million . The increase in net revenues was largely due to increased demand
due to the consumer response to the COVID-19 pandemic, partially offset by a
decline in revenue due to the exit of certain low margin store branded business
in the prior year, a decline in related party revenue and lower pricing driven
by price reductions in support of certain of our customers achieving key price
points and as a result of lower material costs.
21
--------------------------------------------------------------------------------
Cost of Sales. Cost of sales increased by $55 million , or 5%, to $1,111 million .
The increase was primarily due to increased revenue, as noted above, partially
offset by lower material and manufacturing costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by
Other Expense, Net. Other expense, net increased by$7 million , or 50%, to$21 million . The increase was primarily attributable to IPO and separation-related costs in the current period, partially offset by a reduction in costs related to the factoring discount on the sale of ourU.S. trade receivables throughRGHL Group's securitization facility and the allocated related party management fee in the comparable prior period. Interest Expense, Net. Interest expense, net decreased by$91 million , or 67%, to$44 million . The decrease was primarily due to the change in our debt structure as a result of our IPO in the first quarter of 2020. Prior to the IPO we had related party debt and associated interest expense that was replaced with our External Debt Facilities in conjunction with the IPO. Income Tax (Expense) Benefit. We recognized income tax expense of$75 million on income before income taxes of$213 million (an effective tax rate of 35%) for the six months endedJune 30, 2020 compared to income tax expense of$24 million on income before income taxes of$96 million (an effective tax rate of 25%) for the six months endedJune 30, 2019 . The increase in the effective tax rate was due to the recognition of a$23 million discrete tax expense associated with the remeasurement of our deferred taxes as a result of the legislation change from the CARES Act. Excluding the impact of this, our effective tax rate was 24% for the six months endedJune 30, 2020 .
Adjusted EBITDA. Adjusted EBITDA increased by
Segment Information
Reynolds Cooking & Baking
For the Six Months Ended June 30 ,
(In millions, except for %) 2020 2019 Change % Change
Total segment net revenues $ 538 $ 488 $ 50 10 %
Segment Adjusted EBITDA 106 67 39 58 %
Segment Adjusted EBITDA Margin 20 % 14 %
Total Segment Net Revenues. Reynolds Cooking & Baking total segment net revenues
increased by $50 million , or 10%, to $538 million . The increase in net revenues
was primarily driven by increased consumer demand associated with the changes in
consumer behavior driven by the COVID-19 pandemic, partially offset by a decline
in related party revenue and lower pricing driven by price reductions in support
of certain of our customers achieving key price points and as a result of lower
material costs.
Adjusted EBITDA. Reynolds Cooking & Baking Adjusted EBITDA increased by
Hefty Waste & Storage
For the Six Months Ended June 30 ,
(In millions, except for %) 2020 2019 Change % Change
Total segment net revenues $ 395 $ 348 $ 47 14 %
Segment Adjusted EBITDA 118 91 27 30 %
Segment Adjusted EBITDA Margin 30 % 26 %
Total Segment Net Revenues. Hefty Waste & Storage total segment net revenues
increased by $47 million , or 14%, to $395 million . The increase in net revenues
was primarily driven by increased consumer demand associated with the changes in
consumer behavior driven by the COVID-19 pandemic.
22
--------------------------------------------------------------------------------
Adjusted EBITDA. Hefty Waste & Storage Adjusted EBITDA increased by $27 million ,
or 30%, to $118 million . The increase in Adjusted EBITDA was primarily driven by
increased revenue, as noted above.
Hefty Tableware
For the Six Months Ended June 30,
(In millions, except for %) 2020 2019 Change % Change
Total segment net revenues $ 364 $ 371 $ (7 ) (2 )%
Segment Adjusted EBITDA 78 86 (8 ) (9 )%
Segment Adjusted EBITDA Margin 21 % 23 %
Total Segment Net Revenues. Hefty Tableware total segment net revenues decreased
by $7 million , or 2%, to $364 million . The decrease was largely due to changes
in consumer behavior driven by the COVID-19 pandemic. While there was a
temporary increase in revenue at the onset of the pandemic, largely driven by
pantry loading, the pandemic-related restrictions have resulted in fewer large
gatherings, particularly around summer holidays and end of school events, as
well as lower demand from the foodservice businesses, which are serviced by
certain of our retail partners.
Adjusted EBITDA. Hefty Tableware Adjusted EBITDA decreased by $8 million , or 9%,
to $78 million . The decrease in Adjusted EBITDA was primarily driven by the
decline in revenue, as noted above, and increased material and manufacturing
costs which were primarily driven by our transition to a stand-alone entity.
Presto Products
For the Six Months Ended June 30,(In millions, except for %) 2020 2019 Change % Change Total segment net revenues$ 265 $ 258 $ 7 3 % Segment Adjusted EBITDA 51 44 7 16 % Segment Adjusted EBITDA Margin 19 % 17 %
Total Segment Net Revenues. Presto Products total segment net revenues increased
by
Adjusted EBITDA. Presto Products Adjusted EBITDA increased by$7 million , or 16%, to$51 million . The increase in Adjusted EBITDA was primarily driven by increased revenue, as noted above, and lower material and manufacturing costs. Historical Cash Flows
The following table discloses our cash flows for the periods presented:
For the Six Months Ended
June 30,
(In millions) 2020 2019
Net cash provided by operating activities $ 3 $ 78
Net cash used in by investing activities (52 ) (60 )
Net cash provided by (used in) financing activities 339 (27 )
Increase (decrease) in cash and cash equivalents $ 290
$ (9 )
Cash provided by operating activities
Net cash provided by operating activities decreased by$75 million to$3 million in the six months endedJune 30, 2020 . The change was primarily driven by a$268 million increase in accounts receivable,$240 million of which was related to accounts receivables previously sold throughRGHL Group's securitization facility prior to our separation fromRGHL Group , partially offset by an increase in net income, a lower net investment in inventory and changes in related party receivables during the current period. 23 --------------------------------------------------------------------------------
Cash used in investing activities
Net cash used in investing activities decreased by$8 million to$52 million in the six months endedJune 30, 2020 . The net decrease was primarily attributable to net changes in cash advanced toRGHL Group as part of widerRGHL Group cash management activities in the prior period. In addition to these related party items, cash outflows from investing activities increased$11 million or 27%. This change was primarily attributable to taking operational ownership of two facilities previously managed by a related party in conjunction with the IPO.
Cash provided by (used in) financing activities
Net cash from financing activities changed by$366 million , from an outflow of$27 million for the six months endedJune 30, 2019 to an inflow of$339 million for the six months endedJune 30, 2020 . The change in cash flows from financing activities was primarily attributable to proceeds received from the IPO and the drawdown of the Term Loan Facility partially offset by repayments of related party balances and dividends paid during the 2020 period. Liquidity and Capital Resources Our principal sources of liquidity are existing cash and cash equivalents, cash generated from operating activities and available borrowings under the Revolving Facility. 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. 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 or a LIBO rate plus an applicable margin of 1.75%. 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.
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; provided, however, that any voluntary prepayment, refinancing or repricing of the External Debt Facilities in connection with certain repricing transactions that occur prior toAugust 4, 2020 will be subject to a prepayment premium of 1% of the principal amount of the term loans so prepaid, refinanced or repriced. Subsequent toJune 30, 2020 , we made a voluntary principal payment of$100 million related to the Term Loan Facility, which was not subject to a prepayment premium.
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 being 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 entered into by affiliates of 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. 24 -------------------------------------------------------------------------------- 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 believe that our projected cash position, cash flows from operations and borrowings under the External Debt Facilities are sufficient to meet the needs of our business for at least the next 12 months.
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
ended December 31, 2019 .
25
--------------------------------------------------------------------------------
© Edgar Online, source
