UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202023
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission File Number: 001-39528
PACTIV EVERGREEN INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 88-0927268 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
1900 W. Field Court
Lake Forest, Illinois 60045
(Address of principal executive offices) (Zip Code)
Telephone: (847) 482-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common stock, $0.001 par value | PTVE | The Nasdaq |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐NoYes ☑
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated
Large accelerated filer | ☐ | Accelerated filer | ☑ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
Non-accelerated filer☑Smaller reporting company ☐Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐No ☑
The registrant had 177,157,710178,455,556 shares of common stock, $0.001 par value per share, outstanding as of November 6, 2020.
Table of Contents
Page | ||||
PART I. | ||||
Item 1. | 3 | |||
Condensed Consolidated Statements of Income (Loss) | 3 | |||
4 | ||||
Condensed Consolidated Balance Sheets | 5 | |||
7 | ||||
8 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 | ||
Item 3. | Quantitative and Qualitative Disclosures | 38 | ||
Item 4. | 38 | |||
PART II. | 39 | |||
Item 1. | 39 | |||
Item 1A. | 39 | |||
Item 2. | 39 | |||
Item 3. | 39 | |||
Item 4. | 39 | |||
Item 5. | 39 | |||
Item 6. | 40 | |||
41 | ||||
FORWARD-LOOKING STATEMENTS
This report 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, anticipated trends in our business and anticipated growth in the markets served by 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 factors discussed under the caption entitled “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2022. You should specifically consider these numerous risks. These risks include, among others, those related to:
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. We are under no duty to update any of these forward-looking statements after the date of this report to conform our prior statements to actual results or revised expectations.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Pactiv Evergreen Inc.
Condensed Consolidated Statements of Income (Loss)
(inIn millions, except per share amounts)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net revenues (includes related party net revenues of $89, $72, $259 and $213) | $ | 1,195 | $ | 1,306 | $ | 3,514 | $ | 3,888 | |||||||
Cost of sales | (1,011 | ) | (1,100 | ) | (2,982 | ) | (3,249 | ) | |||||||
Gross profit | 184 | 206 | 532 | 639 | |||||||||||
Selling, general and administrative expenses | (116 | ) | (104 | ) | (358 | ) | (341 | ) | |||||||
Goodwill impairment charges | (6 | ) | (16 | ) | (6 | ) | (16 | ) | |||||||
Restructuring, asset impairment and other related charges | (14 | ) | (39 | ) | (18 | ) | (45 | ) | |||||||
Other (expense) income, net | (79 | ) | 2 | (48 | ) | (7 | ) | ||||||||
Operating (loss) income from continuing operations | (31 | ) | 49 | 102 | 230 | ||||||||||
Non-operating income (expense), net | 17 | 0 | 50 | (2 | ) | ||||||||||
Interest expense, net | (87 | ) | (84 | ) | (275 | ) | (312 | ) | |||||||
Loss from continuing operations before tax | (101 | ) | (35 | ) | (123 | ) | (84 | ) | |||||||
Income tax (expense) benefit | (42 | ) | 0 | 95 | (16 | ) | |||||||||
Loss from continuing operations | (143 | ) | (35 | ) | (28 | ) | (100 | ) | |||||||
(Loss) income from discontinued operations, net of income taxes | (216 | ) | 91 | (234 | ) | 270 | |||||||||
Net (loss) income | (359 | ) | 56 | (262 | ) | 170 | |||||||||
Income attributable to non-controlling interests | 0 | 0 | (1 | ) | (1 | ) | |||||||||
Net (loss) income attributable to Pactiv Evergreen Inc. common stockholders | $ | (359 | ) | $ | 56 | $ | (263 | ) | $ | 169 | |||||
(Loss) earnings per share attributable to Pactiv Evergreen Inc. common stockholders | |||||||||||||||
From continuing operations | |||||||||||||||
Basic | $ | (1.03 | ) | $ | (0.26 | ) | $ | (0.22 | ) | $ | (0.75 | ) | |||
Diluted | $ | (1.03 | ) | (0.26 | ) | $ | (0.22 | ) | $ | (0.75 | ) | ||||
From discontinued operations | |||||||||||||||
Basic | $ | (1.56 | ) | $ | 0.67 | $ | (1.72 | ) | $ | 2.01 | |||||
Diluted | $ | (1.56 | ) | $ | 0.67 | $ | (1.72 | ) | $ | 2.01 | |||||
Total | |||||||||||||||
Basic | $ | (2.59 | ) | $ | 0.41 | $ | (1.94 | ) | $ | 1.26 | |||||
Diluted | $ | (2.59 | ) | $ | 0.41 | $ | (1.94 | ) | $ | 1.26 |
(Unaudited)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net revenues |
| $ | 1,379 |
|
| $ | 1,609 |
|
| $ | 4,236 |
|
| $ | 4,744 |
|
Cost of sales |
|
| (1,098 | ) |
|
| (1,377 | ) |
|
| (3,756 | ) |
|
| (3,972 | ) |
Gross profit |
|
| 281 |
|
|
| 232 |
|
|
| 480 |
|
|
| 772 |
|
Selling, general and administrative expenses |
|
| (137 | ) |
|
| (145 | ) |
|
| (403 | ) |
|
| (435 | ) |
Restructuring, asset impairment and other related charges |
|
| (28 | ) |
|
| (57 | ) |
|
| (133 | ) |
|
| (58 | ) |
Other (expense) income, net |
|
| (3 | ) |
|
| 239 |
|
|
| 1 |
|
|
| 279 |
|
Operating income (loss) from continuing operations |
|
| 113 |
|
|
| 269 |
|
|
| (55 | ) |
|
| 558 |
|
Non-operating (expense) income, net |
|
| (2 | ) |
|
| 44 |
|
|
| (6 | ) |
|
| 52 |
|
Interest expense, net |
|
| (61 | ) |
|
| (59 | ) |
|
| (188 | ) |
|
| (158 | ) |
Income (loss) from continuing operations before tax |
|
| 50 |
|
|
| 254 |
|
|
| (249 | ) |
|
| 452 |
|
Income tax (expense) benefit |
|
| (22 | ) |
|
| (79 | ) |
|
| 5 |
|
|
| (160 | ) |
Income (loss) from continuing operations |
|
| 28 |
|
|
| 175 |
|
|
| (244 | ) |
|
| 292 |
|
Income from discontinued operations, net of income taxes |
|
| 2 |
|
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
Net income (loss) |
|
| 30 |
|
|
| 176 |
|
|
| (242 | ) |
|
| 293 |
|
Income attributable to non-controlling interests |
|
| (1 | ) |
|
| — |
|
|
| (2 | ) |
|
| (1 | ) |
Net income (loss) attributable to Pactiv Evergreen Inc. common shareholders |
| $ | 29 |
|
| $ | 176 |
|
| $ | (244 | ) |
| $ | 292 |
|
Earnings (loss) per share attributable to Pactiv Evergreen Inc. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
From continuing operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.15 |
|
| $ | 0.98 |
|
| $ | (1.39 | ) |
| $ | 1.63 |
|
Diluted |
| $ | 0.15 |
|
| $ | 0.98 |
|
| $ | (1.39 | ) |
| $ | 1.63 |
|
From discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.01 |
|
| $ | 0.01 |
|
| $ | 0.01 |
|
| $ | 0.01 |
|
Diluted |
| $ | 0.01 |
|
| $ | — |
|
| $ | 0.01 |
|
| $ | — |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.16 |
|
| $ | 0.99 |
|
| $ | (1.38 | ) |
| $ | 1.64 |
|
Diluted |
| $ | 0.16 |
|
| $ | 0.98 |
|
| $ | (1.38 | ) |
| $ | 1.63 |
|
See accompanying notes to the condensed consolidated financial statements.
3
Pactiv Evergreen Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(inIn millions)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net (loss) income | $ | (359 | ) | $ | 56 | $ | (262 | ) | $ | 170 | |||||
Other comprehensive income (loss), net of income taxes: | |||||||||||||||
Currency translation adjustments | 66 | (64 | ) | (29 | ) | (47 | ) | ||||||||
Defined benefit plans | 0 | (1 | ) | 0 | (2 | ) | |||||||||
Other comprehensive income (loss) | 66 | (65 | ) | (29 | ) | (49 | ) | ||||||||
Comprehensive (loss) income | (293 | ) | (9 | ) | (291 | ) | 121 | ||||||||
Comprehensive income attributable to non-controlling interests | 0 | 0 | (1 | ) | (1 | ) | |||||||||
Comprehensive (loss) income attributable to Pactiv Evergreen Inc. common stockholders | $ | (293 | ) | $ | (9 | ) | $ | (292 | ) | $ | 120 |
(Unaudited)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | 30 |
|
| $ | 176 |
|
| $ | (242 | ) |
| $ | 293 |
|
Other comprehensive (loss) income, net of income taxes: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Currency translation adjustments |
|
| (5 | ) |
|
| (6 | ) |
|
| 19 |
|
|
| (12 | ) |
Defined benefit plans |
|
| (1 | ) |
|
| 41 |
|
|
| (2 | ) |
|
| (62 | ) |
Interest rate derivatives |
|
| 4 |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
Other comprehensive (loss) income |
|
| (2 | ) |
|
| 35 |
|
|
| 29 |
|
|
| (74 | ) |
Comprehensive income (loss) |
|
| 28 |
|
|
| 211 |
|
|
| (213 | ) |
|
| 219 |
|
Comprehensive income attributable to non-controlling interests |
|
| (1 | ) |
|
| — |
|
|
| (2 | ) |
|
| (1 | ) |
Comprehensive income (loss) attributable to Pactiv Evergreen Inc. common shareholders |
| $ | 27 |
|
| $ | 211 |
|
| $ | (215 | ) |
| $ | 218 |
|
See accompanying notes to the condensed consolidated financial statements.
4
Pactiv Evergreen Inc.
Condensed Consolidated Balance Sheets
(inIn millions, except share amounts)
As of September 30, 2020 | As of December 31, 2019 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 1,756 | $ | 1,155 | |||
Accounts receivable, less allowances for doubtful accounts of $5 and $4 | 425 | 445 | |||||
Related party receivables | 57 | 0 | |||||
Inventories | 744 | 753 | |||||
Other current assets | 172 | 119 | |||||
Assets held for sale or distribution | 23 | 1,232 | |||||
Total current assets | 3,177 | 3,704 | |||||
Property, plant and equipment, net | 1,666 | 1,703 | |||||
Operating lease right-of-use assets, net | 237 | 191 | |||||
Goodwill | 1,760 | 1,766 | |||||
Intangible assets, net | 1,104 | 1,147 | |||||
Deferred income taxes | 11 | 21 | |||||
Related party receivables | 0 | 339 | |||||
Other noncurrent assets | 221 | 161 | |||||
Noncurrent assets held for sale or distribution | 41 | 7,143 | |||||
Total assets | $ | 8,217 | $ | 16,175 | |||
Liabilities | |||||||
Accounts payable | $ | 297 | $ | 316 | |||
Related party payables | 21 | 30 | |||||
Current portion of long-term debt | 2 | 3,587 | |||||
Current portion of operating lease liabilities | 55 | 47 | |||||
Income taxes payable | 16 | 14 | |||||
Accrued and other current liabilities | 342 | 418 | |||||
Liabilities held for sale or distribution | 8 | 485 | |||||
Total current liabilities | 741 | 4,897 | |||||
Long-term debt | 5,196 | 7,043 | |||||
Long-term operating lease liabilities | 198 | 157 | |||||
Deferred income taxes | 504 | 150 | |||||
Long-term employee benefit obligations | 678 | 730 | |||||
Other noncurrent liabilities | 150 | 124 | |||||
Noncurrent liabilities held for sale or distribution | 0 | 992 | |||||
Total liabilities | $ | 7,467 | $ | 14,093 | |||
Commitments and contingencies (Note 14) |
(Unaudited)
|
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 233 |
|
| $ | 531 |
|
Accounts receivable, net of allowances of $2 and $3 |
|
| 470 |
|
|
| 448 |
|
Related party receivables |
|
| 38 |
|
|
| 46 |
|
Inventories |
|
| 846 |
|
|
| 1,062 |
|
Other current assets |
|
| 109 |
|
|
| 126 |
|
Assets held for sale |
|
| 7 |
|
|
| 6 |
|
Total current assets |
|
| 1,703 |
|
|
| 2,219 |
|
Property, plant and equipment, net |
|
| 1,469 |
|
|
| 1,773 |
|
Operating lease right-of-use assets, net |
|
| 276 |
|
|
| 262 |
|
Goodwill |
|
| 1,815 |
|
|
| 1,815 |
|
Intangible assets, net |
|
| 1,019 |
|
|
| 1,064 |
|
Other noncurrent assets |
|
| 164 |
|
|
| 173 |
|
Total assets |
| $ | 6,446 |
|
| $ | 7,306 |
|
Liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 329 |
|
| $ | 388 |
|
Related party payables |
|
| 10 |
|
|
| 6 |
|
Current portion of long-term debt |
|
| 18 |
|
|
| 31 |
|
Current portion of operating lease liabilities |
|
| 63 |
|
|
| 65 |
|
Income taxes payable |
|
| 5 |
|
|
| 6 |
|
Accrued and other current liabilities |
|
| 447 |
|
|
| 415 |
|
Liabilities held for sale |
|
| — |
|
|
| 3 |
|
Total current liabilities |
|
| 872 |
|
|
| 914 |
|
Long-term debt |
|
| 3,593 |
|
|
| 4,105 |
|
Long-term operating lease liabilities |
|
| 225 |
|
|
| 209 |
|
Deferred income taxes |
|
| 255 |
|
|
| 319 |
|
Long-term employee benefit obligations |
|
| 59 |
|
|
| 60 |
|
Other noncurrent liabilities |
|
| 138 |
|
|
| 146 |
|
Total liabilities |
| $ | 5,142 |
|
| $ | 5,753 |
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
| ||
Equity |
|
|
|
|
|
| ||
Common stock, $0.001 par value; 2,000,000,000 shares authorized; 178,452,889 and 177,926,081 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively |
| $ | — |
|
| $ | — |
|
Preferred stock, $0.001 par value; 200,000,000 shares authorized; no shares issued or outstanding |
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 669 |
|
|
| 647 |
|
Accumulated other comprehensive loss |
|
| (73 | ) |
|
| (102 | ) |
Retained earnings |
|
| 704 |
|
|
| 1,003 |
|
Total equity attributable to Pactiv Evergreen Inc. common shareholders |
|
| 1,300 |
|
|
| 1,548 |
|
Non-controlling interests |
|
| 4 |
|
|
| 5 |
|
Total equity |
|
| 1,304 |
|
|
| 1,553 |
|
Total liabilities and equity | �� | $ | 6,446 |
|
| $ | 7,306 |
|
See accompanying notes to the condensed consolidated financial statements.
5
Pactiv Evergreen Inc.
Condensed Consolidated Balance Sheets
(inIn millions, except per share amounts)
As of September 30, 2020 | As of December 31, 2019 | ||||||
Equity | |||||||
Common stock, $0.001 par value; 2,000,000,000 shares authorized; 175,434,000 and 134,408,000 shares issued and outstanding, respectively | 0 | 0 | |||||
Preferred stock, $0.001 par value; 200,000,000 shares authorized; no shares issued or outstanding | 0 | 0 | |||||
Additional paid in capital | 580 | 103 | |||||
Accumulated other comprehensive loss | (386 | ) | (518 | ) | |||
Retained earnings | 554 | 2,494 | |||||
Total equity attributable to Pactiv Evergreen Inc. common stockholders | 748 | 2,079 | |||||
Non-controlling interests | 2 | 3 | |||||
Total equity | $ | 750 | $ | 2,082 | |||
Total liabilities and equity | $ | 8,217 | $ | 16,175 |
(Unaudited)
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
| Non- |
|
|
|
| |||||||
|
| Common Stock |
|
| Paid in |
|
| Comprehensive |
|
| Retained |
|
| Controlling |
|
| Total |
| ||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Interests |
|
| Equity |
| |||||||
For the Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance as of June 30, 2022 |
|
| 177.7 |
|
| $ | — |
|
| $ | 634 |
|
| $ | (208 | ) |
| $ | 838 |
|
| $ | 5 |
|
| $ | 1,269 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 176 |
|
|
| — |
|
|
| 176 |
|
Other comprehensive income, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
Equity based compensation |
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Vesting of restricted stock units, net of tax withholdings |
|
| 0.1 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
Dividends declared - common shareholders ($0.10 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) |
Balance as of September 30, 2022 |
|
| 177.8 |
|
| $ | — |
|
| $ | 639 |
|
| $ | (173 | ) |
| $ | 996 |
|
| $ | 5 |
|
| $ | 1,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
For the Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance as of June 30, 2023 |
|
| 178.4 |
|
| $ | — |
|
| $ | 660 |
|
| $ | (71 | ) |
| $ | 693 |
|
| $ | 3 |
|
| $ | 1,285 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| 1 |
|
|
| 30 |
|
Other comprehensive loss, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
Equity based compensation |
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
Vesting of restricted stock units, net of tax withholdings |
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends declared - common shareholders ($0.10 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) |
Balance as of September 30, 2023 |
|
| 178.5 |
|
| $ | — |
|
| $ | 669 |
|
| $ | (73 | ) |
| $ | 704 |
|
| $ | 4 |
|
| $ | 1,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
For the Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance as of December 31, 2021 |
|
| 177.3 |
|
| $ | — |
|
| $ | 625 |
|
| $ | (99 | ) |
| $ | 758 |
|
| $ | 4 |
|
| $ | 1,288 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 292 |
|
|
| 1 |
|
|
| 293 |
|
Other comprehensive loss, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (74 | ) |
|
| — |
|
|
| — |
|
|
| (74 | ) |
Equity based compensation |
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Vesting of restricted stock units, net of tax withholdings |
|
| 0.5 |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
Dividends declared - common shareholders ($0.30 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (54 | ) |
|
| — |
|
|
| (54 | ) |
Balance as of September 30, 2022 |
|
| 177.8 |
|
| $ | — |
|
| $ | 639 |
|
| $ | (173 | ) |
| $ | 996 |
|
| $ | 5 |
|
| $ | 1,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
For the Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance as of December 31, 2022 |
|
| 177.9 |
|
| $ | — |
|
| $ | 647 |
|
| $ | (102 | ) |
| $ | 1,003 |
|
| $ | 5 |
|
| $ | 1,553 |
|
Net (loss) income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| 2 |
|
|
| (242 | ) |
Other comprehensive income, net of income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Equity based compensation |
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
Vesting of restricted stock units, net of tax withholdings |
|
| 0.6 |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
Dividends declared - common shareholders ($0.30 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (55 | ) |
|
| — |
|
|
| (55 | ) |
Dividends declared - non-controlling shareholders |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (2 | ) |
Disposal of subsidiary |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
Balance as of September 30, 2023 |
|
| 178.5 |
|
| $ | — |
|
| $ | 669 |
|
| $ | (73 | ) |
| $ | 704 |
|
| $ | 4 |
|
| $ | 1,304 |
|
See accompanying notes to the condensed consolidated financial statements.
6
Pactiv Evergreen Inc.
Condensed Consolidated Statements of Equity
(inIn millions)
Common Stock | ||||||||||||||||||||||||||
Shares | Amount | Additional Paid In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Non-controlling Interests | Total Equity | ||||||||||||||||||||
For the Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||
Balance as of June 30, 2019 | 134.4 | $ | 0 | $ | 103 | $ | (714 | ) | $ | 2,516 | $ | 5 | $ | 1,910 | ||||||||||||
Net income | — | — | — | 56 | — | 56 | ||||||||||||||||||||
Other comprehensive loss, net of income taxes | — | — | (65 | ) | — | — | (65 | ) | ||||||||||||||||||
Balance as of September 30, 2019 | 134.4 | $ | 0 | $ | 103 | $ | (779 | ) | $ | 2,572 | $ | 5 | $ | 1,901 | ||||||||||||
For the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||
Balance as of June 30, 2020 | 134.4 | $ | 0 | $ | 55 | $ | (624 | ) | $ | 2,603 | $ | 3 | $ | 2,037 | ||||||||||||
Net loss | — | — | — | (359 | ) | — | (359 | ) | ||||||||||||||||||
Other comprehensive income, net of income taxes | — | — | 66 | — | — | 66 | ||||||||||||||||||||
Forgiveness of related party balances pre IPO | — | — | — | (362 | ) | — | (362 | ) | ||||||||||||||||||
Distribution of Graham Packaging Company Inc.(1) | — | (22 | ) | 172 | (1,328 | ) | — | (1,178 | ) | |||||||||||||||||
Issuance of common stock in connection with initial public offering, net of offering costs, underwriting discounts and commissions | 41.0 | — | 546 | — | — | — | 546 | |||||||||||||||||||
Stock-based compensation | — | 1 | — | — | — | 1 | ||||||||||||||||||||
Dividends paid to non-controlling interests | — | — | — | — | (1 | ) | (1 | ) | ||||||||||||||||||
Balance as of September 30, 2020 | 175.4 | $ | 0 | $ | 580 | $ | (386 | ) | $ | 554 | $ | 2 | $ | 750 | ||||||||||||
For the Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||
Balance as of December 31, 2018 | 134.4 | $ | 0 | $ | 103 | $ | (689 | ) | $ | 2,362 | $ | 9 | $ | 1,785 | ||||||||||||
Cumulative impact of adopting ASU 2018-02 | — | — | (41 | ) | 41 | — | 0 | |||||||||||||||||||
Net income | — | — | — | 169 | 1 | 170 | ||||||||||||||||||||
Other comprehensive loss, net of income taxes | — | — | (49 | ) | — | — | (49 | ) | ||||||||||||||||||
Disposition of non-controlling interest | — | — | — | — | (4 | ) | (4 | ) | ||||||||||||||||||
Dividends paid to non-controlling interests | — | — | — | — | (1 | ) | (1 | ) | ||||||||||||||||||
Balance as of September 30, 2019 | 134.4 | $ | 0 | $ | 103 | $ | (779 | ) | $ | 2,572 | $ | 5 | $ | 1,901 |
(Unaudited)
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating Activities: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (242 | ) |
| $ | 293 |
|
Adjustments to reconcile net (loss) income to operating cash flows: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 518 |
|
|
| 255 |
|
Deferred income taxes |
|
| (67 | ) |
|
| 95 |
|
Unrealized losses on derivatives |
|
| — |
|
|
| 4 |
|
Asset impairment and restructuring related non-cash charges (net of reversals) |
|
| 44 |
|
|
| 56 |
|
Loss (gain) on sale of businesses and noncurrent assets |
|
| 1 |
|
|
| (266 | ) |
Non-cash portion of employee benefit obligations |
|
| 7 |
|
|
| (51 | ) |
Non-cash portion of operating lease expense |
|
| 60 |
|
|
| 62 |
|
Equity based compensation |
|
| 24 |
|
|
| 16 |
|
Other non-cash items, net |
|
| 3 |
|
|
| 18 |
|
Change in assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable, net |
|
| (10 | ) |
|
| (50 | ) |
Inventories |
|
| 183 |
|
|
| (304 | ) |
Accounts payable |
|
| (42 | ) |
|
| 61 |
|
Operating lease payments |
|
| (60 | ) |
|
| (61 | ) |
Accrued and other current liabilities |
|
| 25 |
|
|
| 125 |
|
Other assets and liabilities |
|
| 9 |
|
|
| (12 | ) |
Net cash provided by operating activities |
|
| 453 |
|
|
| 241 |
|
Investing Activities: |
|
|
|
|
|
| ||
Acquisition of property, plant and equipment |
|
| (178 | ) |
|
| (169 | ) |
Disposal of businesses and joint venture equity interests, net of cash disposed |
|
| 1 |
|
|
| 364 |
|
Other investing activities |
|
| 10 |
|
|
| 1 |
|
Net cash (used in) provided by investing activities |
|
| (167 | ) |
|
| 196 |
|
Financing Activities: |
|
|
|
|
|
| ||
Long-term debt repayments |
|
| (523 | ) |
|
| (17 | ) |
Dividends paid to common shareholders |
|
| (54 | ) |
|
| (54 | ) |
Other financing activities |
|
| (10 | ) |
|
| (8 | ) |
Net cash used in financing activities |
|
| (587 | ) |
|
| (79 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 1 |
|
|
| (6 | ) |
(Decrease) increase in cash, cash equivalents and restricted cash |
|
| (300 | ) |
|
| 352 |
|
Cash, cash equivalents and restricted cash, including amounts classified as held for sale, |
|
| 557 |
|
|
| 238 |
|
Cash, cash equivalents and restricted cash as of end of the period |
| $ | 257 |
|
| $ | 590 |
|
Cash, cash equivalents and restricted cash are comprised of: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 233 |
|
| $ | 559 |
|
Restricted cash classified as other noncurrent assets |
|
| 24 |
|
|
| 24 |
|
Cash and cash equivalents classified as assets held for sale |
|
| — |
|
|
| 7 |
|
Cash, cash equivalents and restricted cash as of end of the period |
| $ | 257 |
|
| $ | 590 |
|
Cash paid: |
|
|
|
|
|
| ||
Interest |
| $ | 177 |
|
| $ | 132 |
|
Income taxes paid, net |
|
| 51 |
|
|
| 64 |
|
Significant non-cash investing and financing activities
During the nine months ended September 30, 2023 and 2022, we recognized operating lease right-of-use assets and lease liabilities of $63 million and $49 million, respectively.
See accompanying notes to the condensed consolidated financial statements.
7
Pactiv Evergreen Inc.
Common Stock | ||||||||||||||||||||||||||
Shares | Amount | Additional Paid In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Non-controlling Interests | Total Equity | ||||||||||||||||||||
For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||
Balance as of December 31, 2019 | 134.4 | $ | 0 | $ | 103 | $ | (518 | ) | $ | 2,494 | $ | 3 | $ | 2,082 | ||||||||||||
Net (loss) income | — | — | — | (263 | ) | 1 | (262 | ) | ||||||||||||||||||
Other comprehensive loss, net of income taxes | — | — | (29 | ) | — | — | (29 | ) | ||||||||||||||||||
Distribution of Reynolds Consumer Products Inc.(1) | — | (48 | ) | (11 | ) | 13 | — | (46 | ) | |||||||||||||||||
Forgiveness of related party balances pre IPO | — | — | — | (362 | ) | — | (362 | ) | ||||||||||||||||||
Distribution of Graham Packaging Company Inc.(1) | — | (22 | ) | 172 | (1,328 | ) | — | (1,178 | ) | |||||||||||||||||
Issuance of common stock in connection with initial public offering, net of offering costs, underwriting discounts and commissions | 41.0 | — | 546 | — | — | — | 546 | |||||||||||||||||||
Stock-based compensation | — | 1 | — | — | — | 1 | ||||||||||||||||||||
Dividends paid to non-controlling interests | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||||||||
Balance as of September 30, 2020 | 175.4 | $ | 0 | $ | 580 | $ | (386 | ) | $ | 554 | $ | 2 | $ | 750 |
For the Nine Months Ended September 30, | |||||||
2020 | 2019 | ||||||
Cash provided by (used in) operating activities | |||||||
Net (loss) income | $ | (262 | ) | $ | 170 | ||
Adjustments to reconcile net (loss) income to operating cash flows: | |||||||
Depreciation and amortization | 391 | 484 | |||||
Deferred income taxes | 310 | 3 | |||||
Unrealized gains on derivatives | (3 | ) | (15 | ) | |||
Goodwill impairment charges | 6 | 25 | |||||
Other asset impairment charges | 15 | 98 | |||||
(Gain) loss on disposal of businesses and other assets | (8 | ) | 23 | ||||
Non-cash portion of employee benefit obligations | (44 | ) | 9 | ||||
Non-cash portion of operating lease expense | 78 | 81 | |||||
Other non-cash items, net | (2 | ) | (2 | ) | |||
Change in assets and liabilities: | |||||||
Accounts receivable, net | (4 | ) | (62 | ) | |||
Inventories | (29 | ) | (85 | ) | |||
Other current assets | 0 | 33 | |||||
Accounts payable | 24 | (31 | ) | ||||
Operating lease payments | (75 | ) | (78 | ) | |||
Income taxes payable | (121 | ) | (55 | ) | |||
Accrued and other current liabilities | (76 | ) | 2 | ||||
Other assets and liabilities | 70 | (37 | ) | ||||
Net cash provided by operating activities | 270 | 563 | |||||
Cash provided by (used in) investing activities | |||||||
Acquisition of property, plant and equipment and intangible assets | (329 | ) | (467 | ) | |||
Proceeds from sale of property, plant and equipment | 1 | 21 | |||||
Disposal of businesses, net of cash disposed | 8 | (4 | ) | ||||
Proceeds from related party loan repayment | 0 | 5 | |||||
Net cash used in investing activities | (320 | ) | (445 | ) | |||
Cash provided by (used in) financing activities | |||||||
Long-term debt proceeds | 5,614 | 0 | |||||
Long-term debt repayments | (5,473 | ) | (27 | ) | |||
Financing transaction costs on long-term debt | (35 | ) | 0 | ||||
Premium on redemption of long-term debt | (2 | ) | 0 | ||||
Net proceeds from issuance of shares | 546 | 0 | |||||
Cash held by Reynolds Consumer Products at the time of distribution | (31 | ) | 0 | ||||
Cash held by Graham Packaging Company at the time of distribution | (79 | ) | 0 | ||||
Other financing activities | (4 | ) | (2 | ) | |||
Net cash provided by (used in) financing activities | 536 | (29 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (15 | ) | (3 | ) | |||
Increase (decrease) in cash, cash equivalents and restricted cash | 471 | 86 | |||||
Cash, cash equivalents and restricted cash as of beginning of the period | 1,294 | 786 | |||||
Cash, cash equivalents and restricted cash as of end of the period | $ | 1,765 | $ | 872 |
For the Nine Months Ended September 30, | |||||||
2020 | 2019 | ||||||
Cash, cash equivalents and restricted cash are comprised of: | |||||||
Cash and cash equivalents | $ | 1,756 | $ | 785 | |||
Cash and cash equivalents classified as assets held for sale or distribution | 9 | 85 | |||||
Restricted cash included within other current assets | 0 | 2 | |||||
Cash, cash equivalents and restricted cash as of end of the period | $ | 1,765 | $ | 872 | |||
Cash paid (received): | |||||||
Interest | $ | 344 | $ | 448 | |||
Income taxes (refunded) paid | (15 | ) | 71 |
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 1 -1. Nature of Operations and Basis of Presentation
The accompanying condensed consolidated financial statements comprise the accounts of Pactiv Evergreen Inc. ("PTVE"(“PTVE”) (formerly known as Reynolds Group Holdings Limited) and its subsidiaries (“we”, “us”, “our” or the "Company").
Unless otherwise indicated, information in these notes to the condensed consolidated financial statements relates to our continuing operations. Certain of our operations have been presented as discontinued. We present businesses that represent components as discontinued operations when the components either meet the criteria as held for sale or are sold or distributed, and their expected or actual disposal represents a strategic shift that has, or will have, a major effect on our operations and financial results. As discussed in Note 3 - Discontinued Operations, the assets, liabilities, results of operations and supplemental cash flow information of substantially all of our Closures business, sold in December 2019, all of our former Reynolds Consumer Products ("RCP") segment, distributed in February 2020, and all of our former Graham Packaging ("GPC") segment, distributed in September 2020, are presented as discontinued operations for all periods presented. Sales from our continuing operations to our discontinued operations previously eliminated in consolidation have been recast as external revenues and are included in net revenues within operating income from continuing operations. Refer to Note 18 - Related Party Transactions for further information.
Revision to Restricted Cash
During the nine months ended September 30, 2023, we expect them to change inrevised the future, as appropriate, it is reasonably possible that actual conditions could differ from what was anticipated in those estimates, which could materially affect our resultspresentation of operations and financial condition. For example, the worldwide COVID-19 pandemic has had, and will continue to have, a significant impact on our results of operations, and it may also have additional far-reaching impacts on many aspects of our operations including the impact on customer behaviors, business and manufacturing operations, our employees, and the market in general. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations,restricted cash flows and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, actions taken to contain the virus, as well as, how quickly and to what extent normal economic and operating conditions can resume.
In March 2020, the FASB issued ASU 2020-04, Recent Accounting Pronouncements
Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. This ASU is effective upon issuance and generally can be applied through the end of calendar year 2022. We are currently evaluating the impact and whether we plan to adopt the optional expedients and exceptions provided under this new standard.
Note 3 - Discontinued Operations2. Dispositions
Beverage Merchandising Asia
On January 4, 2022, we entered into a definitive agreement with SIG Schweizerische Industrie-Gesellschaft GmbH to sell our carton packaging and filling machinery businesses in China, Korea and Taiwan (“Beverage Merchandising Asia”) included in the Food and Beverage Merchandising segment. The transaction closed on August 2, 2022, and we received proceeds of $336
RCP As of February 4, 2020 | GPC As of September 16, 2020 | ||||||
(in millions) | |||||||
Assets | |||||||
Cash, cash equivalents and restricted cash | $ | 31 | $ | 79 | |||
Current assets | 699 | 448 | |||||
Noncurrent assets | 3,630 | 3,461 | |||||
$ | 4,360 | $ | 3,988 | ||||
Liabilities | |||||||
Current liabilities | $ | 1,467 | $ | 292 | |||
Noncurrent liabilities | 2,847 | 2,518 | |||||
$ | 4,314 | $ | 2,810 | ||||
Net assets distributed | $ | 46 | $ | 1,178 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Net revenues | $ | 396 | $ | 1,249 | $ | 1,510 | $ | 3,788 | |||||||
Cost of sales | (331 | ) | (937 | ) | (1,234 | ) | (2,868 | ) | |||||||
Gross profit | 65 | 312 | 276 | 920 | |||||||||||
Selling, general and administrative expenses | (52 | ) | (159 | ) | (179 | ) | (422 | ) | |||||||
Goodwill impairment charges | 0 | (9 | ) | 0 | (9 | ) | |||||||||
Restructuring, asset impairment and other related charges | (4 | ) | (46 | ) | (13 | ) | (66 | ) | |||||||
Interest expense, net(1) | (32 | ) | (47 | ) | (54 | ) | (142 | ) | |||||||
Other expense, net | 0 | (6 | ) | (3 | ) | (8 | ) | ||||||||
(Loss) income before income taxes from discontinued operations | (23 | ) | 45 | 27 | 273 | ||||||||||
Income tax (expense) benefit | (193 | ) | 46 | (275 | ) | (3 | ) | ||||||||
Net (loss) income from discontinued operations, before gain on disposal | (216 | ) | 91 | (248 | ) | 270 | |||||||||
Gain on disposal, net of income taxes | 0 | 0 | 14 | 0 | |||||||||||
Net (loss) income from discontinued operations | $ | (216 | ) | $ | 91 | $ | (234 | ) | $ | 270 |
As of December 31, 2019 | |||
(in millions) | |||
Cash and cash equivalents | $ | 137 | |
Accounts receivable, net | 489 | ||
Inventories | 559 | ||
Other current assets | 47 | ||
Total current assets held for sale or distribution | $ | 1,232 | |
Property, plant and equipment, net | $ | 1,309 | |
Operating lease right-of-use assets, net | 150 | ||
Goodwill | 3,173 | ||
Intangible assets, net | 2,470 | ||
Other noncurrent assets | 41 | ||
Total noncurrent assets held for sale or distribution | $ | 7,143 | |
Accounts payable | $ | 243 | |
Accrued and other current liabilities | 242 | ||
Total current liabilities held for sale or distribution | $ | 485 | |
Long-term operating lease liabilities | $ | 126 | |
Deferred income taxes | 731 | ||
Long-term employee benefit obligations | 57 | ||
Other noncurrent liabilities | 78 | ||
Total noncurrent liabilities held for sale or distribution | $ | 992 |
For the Nine Months Ended September 30, | |||||||
2020 | 2019 | ||||||
(in millions) | |||||||
Net cash provided by operating activities | $ | 175 | $ | 523 | |||
Net cash used in investing activities | (122 | ) | (214 | ) | |||
Net cash provided by financing activities | 2,441 | 0 | |||||
Net cash from discontinued operations | $ | 2,494 | $ | 309 |
Closures Businesses
During the three months ended September 30, 2020,third quarter of 2022, we committed to a plan to sell theour remaining South American closures businesses included in the Other operating segment. As a result, we classified the related assets and liabilities of these businesses as held for sale and recognized a pre-taxan impairment charge to earnings of $11$56 million during the prior year quarter within restructuring, asset impairment and other related charges
8
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
amount. We recognized a partial reversal of the threeinitial impairment charge of $1 million during the nine months ended September 30, 2020. See Note 5 - Impairment, Restructuring2023 which was reflected in restructuring, asset impairment and Other Related Charges for additional details.
As of September 30, 2020 | |||
(in millions) | |||
Cash and cash equivalents | $ | 9 | |
Accounts receivable, net | 11 | ||
Inventories | 3 | ||
Other current assets | 1 | ||
Property, plant and equipment, net | 8 | ||
Intangible assets, net | 2 | ||
Held for sale valuation allowance | (11 | ) | |
Total current assets held for sale or distribution | $ | 23 | |
Accounts payable | $ | 3 | |
Accrued and other current liabilities | 3 | ||
Other noncurrent liabilities | 2 | ||
Total current liabilities held for sale or distribution | $ | 8 |
Naturepak Beverage
On March 29, 2022, we completed the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd. (“Naturepak Beverage”), our 50% joint venture with Naturepak Limited, to affiliates of Elopak ASA. We received proceeds of $47 million and recognized a gain on the sale of our equity interests of $27 million during the nine months ended September 30, 2022 which was reflected in other income, net. Our interests in Naturepak Beverage did not meet the criteria to be presented as discontinued operations. The income from operations before income taxes from our equity interests in Naturepak Beverage for the nine months ended September 30, 2022 was immaterial.
Other
During the third quarter of 2023, we committed to a plan to sell certain properties within our Foodservice and Food and Beverage Merchandising segments. As a result, we classified the related assets as held for sale on the condensed consolidated balance sheet as of September 30, 2023. We expect to recognize an immaterial gain upon the sale of these properties.
Note 3. Restructuring, Asset Impairment and Other Related Charges
On March 6, 2023, we announced the Beverage Merchandising Restructuring, a plan approved by our Board of Directors to take significant restructuring actions related to our Beverage Merchandising operations. The Beverage Merchandising Restructuring includes, among other things:
The Beverage Merchandising Restructuring resulted in a workforce reduction of approximately 1,300 employees. We also continue to explore strategic alternatives for our Pine Bluff, Arkansas mill and our Waynesville, North Carolina facility. We have not set a timetable in relation to this process.
As a result of the Beverage Merchandising Restructuring, we incurred charges during the three and nine months ended September 30, 2020 was insignificant.
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
|
| Total Expected Charges(1)(2) |
| |||
Non-cash: |
|
|
|
|
|
|
|
|
| |||
Accelerated property, plant and equipment depreciation |
| $ | 4 |
|
| $ | 271 |
|
| $ | 280 |
|
Other non-cash charges(3) |
|
| 1 |
|
|
| 44 |
|
| 45 - 50 |
| |
Total non-cash charges |
|
| 5 |
|
|
| 315 |
|
| 325 - 330 |
| |
Cash: |
|
|
|
|
|
|
|
|
| |||
Severance, termination and related costs |
|
| 3 |
|
|
| 42 |
|
|
| 45 |
|
Exit, disposal and other transition costs(4) |
|
| 24 |
|
|
| 78 |
|
| 105 - 115 |
| |
Total cash charges |
|
| 27 |
|
|
| 120 |
|
| 150 - 160 |
| |
Total Beverage Merchandising Restructuring charges |
| $ | 32 |
|
| $ | 435 |
|
| $ 475 - 490 |
|
9
Pactiv Evergreen Inc.
Notes to the above, noncurrent assetsCondensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
The Beverage Merchandising Restructuring charges and other restructuring and asset impairment charges (net of reversals) were classified on our condensed consolidated statements of income (loss) as follows by segment:
|
| Food and Beverage Merchandising |
|
| Other |
|
| Total |
| |||
For the Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
| |||
Cost of sales |
| $ | 4 |
|
| $ | — |
|
| $ | 4 |
|
Selling, general and administrative expenses |
|
| — |
|
|
| — |
|
|
| — |
|
Restructuring, asset impairment and other related charges |
|
| 24 |
|
|
| 4 |
|
|
| 28 |
|
Total |
| $ | 28 |
|
| $ | 4 |
|
| $ | 32 |
|
|
|
|
|
|
|
|
|
|
| |||
For the Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
| |||
Cost of sales |
| $ | 298 |
|
| $ | — |
|
| $ | 298 |
|
Selling, general and administrative expenses |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Restructuring, asset impairment and other related charges |
|
| 122 |
|
|
| 11 |
|
|
| 133 |
|
Total |
| $ | 424 |
|
| $ | 11 |
|
| $ | 435 |
|
|
|
|
|
|
|
|
|
|
| |||
For the Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
| |||
Restructuring, asset impairment and other related charges |
| $ | 1 |
|
| $ | 56 |
|
| $ | 57 |
|
Total |
| $ | 1 |
|
| $ | 56 |
|
| $ | 57 |
|
|
|
|
|
|
|
|
|
|
| |||
For the Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
| |||
Restructuring, asset impairment and other related charges |
| $ | 2 |
|
| $ | 56 |
|
| $ | 58 |
|
Total |
| $ | 2 |
|
| $ | 56 |
|
| $ | 58 |
|
During the three months ended September 30, 2020,2022, we recorded the following impairment, restructuring and other related charges:
Goodwill impairment | Other asset impairment | Employee terminations | Total | ||||||||||||
(in millions) | |||||||||||||||
Foodservice | $ | 0 | $ | 0 | $ | 1 | $ | 1 | |||||||
Food Merchandising | 0 | 1 | 0 | 1 | |||||||||||
Other | 6 | 12 | 0 | 18 | |||||||||||
Total | $ | 6 | $ | 13 | $ | 1 | $ | 20 |
During the three and nine months ended September 30, 2022, we recorded employee termination costs and other restructuring charges of $1 million and $2 million, respectively, within the Food and Beverage Merchandising segment.
10
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
The following table summarizes the negative impact from current market conditions and outlook forchanges to our restructuring liability related to the operations of the remaining closures businesses. The estimated recoverable amounts, or fair value, were determined based on a capitalization of earnings methodology, using Adjusted EBITDA expected to be generated multiplied by an earnings multiple. The key assumptions in developing Adjusted EBITDA include management’s assessment of future trends in the industry and are based on both external and internal sources. The forecasted 2021 Adjusted EBITDA for the remaining closures operations was prepared using certain key assumptions including selling prices, sales volumes and costs of raw materials. Earnings multiples reflect recent sale and purchase transactions and comparable company trading multiples in the same industry. These estimates represent a Level 3 measurement in the fair value hierarchy, which includes inputs that are not based on observable market data. For the three months ended September 30, 2020, we recorded $1 million in employee termination costs.
|
| December 31, 2022 |
|
| Charges to Earnings |
|
| Cash Paid |
|
| September 30, 2023 |
| ||||
Severance, termination and related costs |
| $ | — |
|
| $ | 42 |
|
| $ | (29 | ) |
| $ | 13 |
|
Exit, disposal and other transition costs |
|
| — |
|
|
| 78 |
|
|
| (48 | ) |
|
| 30 |
|
Total(1) |
| $ | — |
|
| $ | 120 |
|
| $ | (77 | ) |
| $ | 43 |
|
Goodwill impairment | Other asset impairment | Employee terminations | Other restructuring charges | Total | |||||||||||||||
(in millions) | |||||||||||||||||||
Foodservice | $ | 0 | $ | 1 | $ | 1 | $ | 1 | $ | 3 | |||||||||
Food Merchandising | 0 | 1 | 0 | 0 | 1 | ||||||||||||||
Beverage Merchandising | 0 | 0 | 1 | 0 | 1 | ||||||||||||||
Other | 6 | 12 | 1 | 0 | 19 | ||||||||||||||
Total | $ | 6 | $ | 14 | $ | 3 | $ | 1 | $ | 24 |
Goodwill impairment | Other asset impairment | Employee terminations | Total | ||||||||||||
(in millions) | |||||||||||||||
Foodservice | $ | 0 | $ | 1 | $ | 0 | $ | 1 | |||||||
Other | 16 | 37 | 1 | 54 | |||||||||||
Total | $ | 16 | $ | 38 | $ | 1 | $ | 55 |
Goodwill impairment | Other asset impairment | Employee terminations | Total | ||||||||||||
(in millions) | |||||||||||||||
Foodservice | $ | 0 | $ | 1 | $ | 0 | $ | 1 | |||||||
Food Merchandising | 0 | 4 | 0 | 4 | |||||||||||
Other | 16 | 37 | 3 | 56 | |||||||||||
Total | $ | 16 | $ | 42 | $ | 3 | $ | 61 |
December 31, 2019 | Charges to earnings | Cash paid | September 30, 2020 | ||||||||||||
(in millions) | |||||||||||||||
Employee termination costs | $ | 1 | $ | 3 | $ | (3 | ) | $ | 1 | ||||||
Total | $ | 1 | $ | 3 | $ | (3 | ) | $ | 1 |
Note 4. Inventories
The components of inventories consisted of the following:
As of September 30, 2020 | As of December 31, 2019 | ||||||
(in millions) | |||||||
Raw materials | $ | 167 | $ | 168 | |||
Work in progress | 101 | 106 | |||||
Finished goods | 389 | 397 | |||||
Spare parts | 87 | 82 | |||||
Inventories | $ | 744 | $ | 753 |
|
| As of |
|
| As of |
| ||
Raw materials |
| $ | 206 |
|
| $ | 260 |
|
Work in progress |
|
| 87 |
|
|
| 101 |
|
Finished goods |
|
| 455 |
|
|
| 596 |
|
Spare parts |
|
| 98 |
|
|
| 105 |
|
Inventories |
| $ | 846 |
|
| $ | 1,062 |
|
Note 7 -5. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
As of September 30, 2020 | As of December 31, 2019 | ||||||
(in millions) | |||||||
Land and land improvements | $ | 85 | $ | 92 | |||
Buildings and building improvements | 518 | 551 | |||||
Machinery and equipment | 3,043 | 2,973 | |||||
Construction in progress | 229 | 204 | |||||
Property, plant and equipment, at cost | 3,875 | 3,820 | |||||
Less: accumulated depreciation | (2,209 | ) | (2,117 | ) | |||
Property, plant and equipment, net | $ | 1,666 | $ | 1,703 |
|
| As of |
|
| As of |
| ||
Land and land improvements |
| $ | 72 |
|
| $ | 72 |
|
Buildings and building improvements |
|
| 676 |
|
|
| 661 |
|
Machinery and equipment |
|
| 3,632 |
|
|
| 3,485 |
|
Construction in progress |
|
| 156 |
|
|
| 189 |
|
Property, plant and equipment, at cost |
|
| 4,536 |
|
|
| 4,407 |
|
Less: accumulated depreciation |
|
| (3,067 | ) |
|
| (2,634 | ) |
Property, plant and equipment, net |
| $ | 1,469 |
|
| $ | 1,773 |
|
Depreciation expense related to property, plant and equipment was recognized in the following components in the condensed consolidated statements of income (loss):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Cost of sales |
| $ | 62 |
|
| $ | 63 |
|
| $ | 448 |
|
| $ | 191 |
|
Selling, general and administrative expenses |
|
| 8 |
|
|
| 6 |
|
|
| 25 |
|
|
| 18 |
|
Total depreciation expense(1) |
| $ | 70 |
|
| $ | 69 |
|
| $ | 473 |
|
| $ | 209 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Cost of sales | $ | 54 | $ | 51 | $ | 157 | $ | 148 | |||||||
Selling, general and administrative expenses | 4 | 3 | 14 | 8 | |||||||||||
Total depreciation expense | $ | 58 | $ | 54 | $ | 171 | $ | 156 |
11
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 8 -6. Goodwill and Intangible Assets
Goodwill by reportable segment was as follows:
|
| Foodservice |
|
| Food and Beverage |
|
| Total |
| |||
As of December 31, 2022 |
| $ | 993 |
|
| $ | 822 |
|
| $ | 1,815 |
|
Reclassified due to segment composition change |
|
| (35 | ) |
|
| 35 |
|
|
| — |
|
As of September 30, 2023 |
| $ | 958 |
|
| $ | 857 |
|
| $ | 1,815 |
|
Foodservice(1) | Food Merchandising(1) | Beverage Merchandising | Other(2) | Total | |||||||||||||||
(in millions) | |||||||||||||||||||
Balance as of December 31, 2019 | $ | 924 | $ | 770 | $ | 66 | $ | 6 | $ | 1,766 | |||||||||
Impairment charges | 0 | 0 | 0 | (6 | ) | (6 | ) | ||||||||||||
Balance as of September 30, 2020 | $ | 924 | $ | 770 | $ | 66 | $ | 0 | $ | 1,760 | |||||||||
Accumulated impairment losses | $ | 0 | $ | 0 | $ | 0 | $ | 22 | $ | 22 |
In the second quarter of 2023, in conjunction with the Beverage Merchandising Restructuring, we implemented a new operating and reporting structure resulting in the combination of our legacy Food Merchandising and Beverage Merchandising segments, creating our Food and Beverage Merchandising segment. Refer to Note 5 -3, Restructuring, Asset Impairment Restructuring and Other Related Charges, for information relatedadditional details. We also reorganized the management of certain product lines from our Foodservice segment to our Food and Beverage Merchandising segment. Refer to Note 18, Segment Information, for additional details. The change in the management of certain product lines resulted in a $35 million reclassification of goodwill impairment charges.
Intangible assets, net consisted of the following:
As of September 30, 2020 | As of December 31, 2019 | ||||||||||||||||||||||
Gross carrying amount | Accumulated amortization | Net | Gross carrying amount | Accumulated amortization | Net | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Finite-lived intangible assets | |||||||||||||||||||||||
Customer relationships | $ | 1,015 | $ | (525 | ) | $ | 490 | $ | 1,026 | $ | (494 | ) | $ | 532 | |||||||||
Other | 20 | (18 | ) | 2 | 21 | (18 | ) | 3 | |||||||||||||||
Total finite-lived intangible assets | $ | 1,035 | $ | (543 | ) | $ | 492 | $ | 1,047 | $ | (512 | ) | $ | 535 | |||||||||
Indefinite-lived intangible assets | |||||||||||||||||||||||
Trademarks | $ | 554 | $ | — | $ | 554 | $ | 554 | $ | — | $ | 554 | |||||||||||
Other | 58 | — | 58 | 58 | — | 58 | |||||||||||||||||
Total indefinite-lived intangible assets | $ | 612 | $ | — | $ | 612 | $ | 612 | $ | — | $ | 612 | |||||||||||
Total intangible assets | $ | 1,647 | $ | (543 | ) | $ | 1,104 | $ | 1,659 | $ | (512 | ) | $ | 1,147 |
|
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||||||||||
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| |||||||
Finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Customer relationships |
| $ | 1,060 |
|
| $ | (682 | ) |
| $ | 378 |
|
| $ | 1,060 |
|
| $ | (639 | ) |
| $ | 421 |
|
Trademarks |
|
| 42 |
|
|
| (14 | ) |
|
| 28 |
|
|
| 42 |
|
|
| (12 | ) |
|
| 30 |
|
Other |
|
| 7 |
|
|
| (7 | ) |
|
| — |
|
|
| 7 |
|
|
| (7 | ) |
|
| — |
|
Total finite-lived intangible assets |
| $ | 1,109 |
|
| $ | (703 | ) |
| $ | 406 |
|
| $ | 1,109 |
|
| $ | (658 | ) |
| $ | 451 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trademarks |
| $ | 554 |
|
| $ | — |
|
| $ | 554 |
|
| $ | 554 |
|
| $ | — |
|
| $ | 554 |
|
Other |
|
| 59 |
|
|
| — |
|
|
| 59 |
|
|
| 59 |
|
|
| — |
|
|
| 59 |
|
Total indefinite-lived intangible assets |
| $ | 613 |
|
| $ | — |
|
| $ | 613 |
|
| $ | 613 |
|
| $ | — |
|
| $ | 613 |
|
Total intangible assets |
| $ | 1,722 |
|
| $ | (703 | ) |
| $ | 1,019 |
|
| $ | 1,722 |
|
| $ | (658 | ) |
| $ | 1,064 |
|
Note 9 -7. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
| As of |
|
| As of |
| |||
Rebates and credits |
| $ | 117 |
|
| $ | 108 |
|
Personnel costs |
|
| 122 |
|
|
| 160 |
|
Restructuring costs(1) |
|
| 41 |
|
|
| — |
|
Interest |
|
| 40 |
|
|
| 17 |
|
Other(2) |
|
| 127 |
|
|
| 130 |
|
Accrued and other current liabilities |
| $ | 447 |
|
| $ | 415 |
|
As of September 30, 2020 | As of December 31, 2019 | ||||||
(in millions) | |||||||
Accrued personnel costs | $ | 115 | $ | 108 | |||
Accrued interest | 41 | 115 | |||||
Accrued rebates and credits | 66 | 67 | |||||
Other(1) | 120 | 128 | |||||
Accrued and other current liabilities | $ | 342 | $ | 418 |
12
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 10 -8. Debt
Debt consisted of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Credit Agreement |
| $ | 1,705 |
|
| $ | 2,227 |
|
Notes: |
|
|
|
|
|
| ||
4.000% Senior Secured Notes due 2027 |
|
| 1,000 |
|
|
| 1,000 |
|
4.375% Senior Secured Notes due 2028 |
|
| 500 |
|
|
| 500 |
|
Pactiv Debentures: |
|
|
|
|
|
| ||
7.950% Debentures due 2025 |
|
| 217 |
|
|
| 217 |
|
8.375% Debentures due 2027 |
|
| 167 |
|
|
| 167 |
|
Other |
|
| 43 |
|
|
| 49 |
|
Total principal amount of borrowings |
|
| 3,632 |
|
|
| 4,160 |
|
Deferred debt issuance costs (“DIC”) |
|
| (13 | ) |
|
| (14 | ) |
Original issue discounts, net of premiums (“OID”) |
|
| (8 | ) |
|
| (10 | ) |
|
| 3,611 |
|
|
| 4,136 |
| |
Less: current portion |
|
| (18 | ) |
|
| (31 | ) |
Long-term debt |
| $ | 3,593 |
|
| $ | 4,105 |
|
As of September 30, 2020 | As of December 31, 2019 | ||||||
(in millions) | |||||||
Securitization Facility | $ | 0 | $ | 420 | |||
Credit Agreement | 2,487 | 3,487 | |||||
Notes: | |||||||
5.750% Senior Secured Notes due 2020 | 0 | 3,137 | |||||
Floating Rate Senior Secured Notes due 2021 | 0 | 750 | |||||
5.125% Senior Secured Notes due 2023 | 1,599 | 1,600 | |||||
7.000% Senior Notes due 2024 | 650 | 800 | |||||
Pactiv Debentures: | |||||||
7.950% Debentures due 2025 | 276 | 276 | |||||
8.375% Debentures due 2027 | 200 | 200 | |||||
Other | 13 | 15 | |||||
Total principal amount of borrowings | 5,225 | 10,685 | |||||
Deferred financing transaction costs | (23 | ) | (46 | ) | |||
Original issue discounts, net of premiums | (4 | ) | (9 | ) | |||
5,198 | 10,630 | ||||||
Less: current portion | (2 | ) | (3,587 | ) | |||
Long-term debt | $ | 5,196 | $ | 7,043 |
We were in our Securitization Facility, and consequently in January 2020,compliance with all debt covenants during the size of this facility was reduced from $600 million to $450 millionnine months ended September 30, 2023 and the outstanding borrowings were reduced to $397 million. In February 2020, we made an additional repaymentyear ended December 31, 2022.
Credit Agreement
PTVE and certain of $17 million reducing the outstanding borrowings to $380 million. On July 31, 2020, we repaid the outstanding amount of $380 million and terminated the facility. The Securitization Facility was secured by all of the assets of the borrower, which were primarily the eligible trade receivables and cash. The terms of the arrangement did not result in the derecognition of the trade receivables. The Securitization Facility had an interest rate equal to one-month LIBOR with a 0.0% floor, plus a margin of 1.75% per annum.
|
| Maturity Date |
| Value Drawn or Utilized |
|
| Applicable Interest Rate |
| ||
Term Tranches |
|
|
|
|
|
|
|
| ||
U.S. term loans Tranche B-2 |
| February 5, 2026 |
| $ | 710 |
|
| SOFR (floor of 0.000%) + 3.250% |
| |
U.S. term loans Tranche B-3 |
| September 24, 2028 |
| $ | 995 |
|
| SOFR (floor of 0.500%) + 3.250% |
| |
Revolving Tranche(1) |
|
|
|
|
|
|
|
| ||
U.S. Revolving Loans |
| August 5, 2025 |
| $ | 49 |
|
|
| — |
|
We repaid a total of $515 million of our U.S. term loans Tranche B-2 during the nine months ended September 30, 2023, of which $225 million was repaid during the third quarter of 2023. The repayments were first applied to the remaining U.S term loans Tranche B-2 quarterly amortization payments, thereby eliminating all remaining quarterly amortization payments for the U.S term loans Tranche B-2, with the residual balance applied to the outstanding principal balance due at maturity. On April 17, 2023, we amended the Credit Agreement, replacing the LIBOR-based reference rate with a Secured Overnight Financing Rate (“SOFR”) based reference rate, effective for interest payments for the period commencing April 28, 2023. Other than the foregoing, the material terms of the Credit Agreement remain unchanged, and our election to use certain practical expedients under Accounting Standards Codification Topic 848: Reference Rate Reform resulted in no material impacts on our condensed consolidated financial statements. On July 26, 2023, we further amended the Credit Agreement to extend the maturity date on our $250 million Revolving Tranche facility from August 5, 2024 to August 5, 2025. There were no other material changes to the terms of the Credit Agreement as a result of this amendment. 13
| ||||||||
Notes to the Condensed Consolidated Financial Statements
(In January 2020, we repaid $18 million of borrowings under the Credit Agreement with the net proceeds from the sale of our North Americanmillions, except per share data and Japanese closures businesses.
(Unaudited)
The weighted average contractual interest rates related to our U.S. term loans as ofTranche B-2 and B-3 for the nine months ended September 30, 20202023 and 2019,2022 were 3.71%8.18%, 8.24%, 4.47% and 5.16%4.79%, respectively. Including the impact of interest rate swap agreements, which were entered into in the fourth quarter of 2022, the weighted average rate on our U.S. term loans was 7.77% for the nine months ended September 30, 2023. The effective interest rates of our debt obligations under the Credit Agreement are not materially different from the contractual interest rates.
PTVE and certain of ourits U.S. subsidiaries have guaranteed on a senior basis the obligations under the Credit Agreement and related documents to the extent permitted by law. The borrowers and the guarantors have granted security over substantially all of their assets to support the obligations under the Credit Agreement. This security is expected to be shared on a first priority basis with the note holders underof the 5.125% Senior Secured Notes due 2023 ("5.125% Notes”).
Indebtedness under the Credit Agreement may be voluntarily repaid, in whole or in part, and must be mandatorily repaid in certain circumstances. Following the August 4, 2020 $700 million repayment, the borrowersWe are no longer required to make quarterly amortization payments in respectof 0.25% of the principal amount of our U.S. term loans referred to above. The borrowersTranche B-3. Additionally, we are required to make annual prepayments of term loans with up to 50%50% of excess cash flow (which will be reduced to 25%25% or 0%0% if specified senior secured first lien leverage ratios are met) as determined in accordance with the Credit Agreement. No excess cash flow prepayments were due in 2019 for the year ended December 31, 2018 or are due2022.
The Credit Agreement contains customary covenants which restrict us from certain activities including, among others, incurring debt, creating liens over assets, selling assets and making restricted payments, in 2020 foreach case except as permitted under the year ended December 31, 2019.
Notes
As of September 30, 2020, are summarized below:
Maturity | Interest Payment Dates | |||
| October 15, | April 15 and | ||
4.375% Senior Secured Notes due | October 15, | April 15 and |
The effective interest rate isrates of our debt obligations under the Notes are not materially different from the contractual interest rates.
PTVE and September 30, 2020, we made the following repayments on our notes:
The respective indentures governing the 4.000% Senior Secured Notes due 2027 (“4.000% Notes”) and August 4, 2020, the relevant legal entities within RCP4.375% Senior Secured Notes due 2028 (together with the 4.000% Notes, the “Notes”) contain customary covenants which restrict us from certain activities including, among others, incurring debt, creating liens over assets, selling assets and GPC, respectively, were releasedmaking restricted payments, in each case except as borrowerspermitted under the Credit Agreement, unconditionally released as guarantorsrespective indentures governing the Notes.
Under the respective indentures governing the Notes, we can, at our option, elect to redeem the Notes under terms and conditions specified in the indentures. Under the respective indentures governing the Notes, in certain circumstances which would constitute a change in control, the holders of the Credit Agreement, and released as guarantors ofNotes have the notes. In connection with such releases,right to require us to repurchase the security granted by such entities was also released.
Pactiv Debentures
As of September 30, 2020, we had2023, our outstanding the following debentures (together, the “Pactiv Debentures”):
Maturity | Interest Payment Dates | |||
7.950% Debentures due 2025 | December 15, 2025 | June 15 and December 15 | ||
8.375% Debentures due 2027 | April 15, 2027 | April 15 and October 15 |
14
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
The Pactiv Debentures are not guaranteed and are unsecured.
The indentures governing the Pactiv Debentures contain a negative pledge clause limiting the ability of certain of our entities, subject to certain exceptions, to (i) incur or guarantee debt that is secured by liens on “principal manufacturing properties” (as such term is defined in the indentures governing the Pactiv Debentures) or on the capital stock or debt of certain subsidiaries that own or lease any such principal manufacturing property and (ii) sell and then take an immediate lease back of such principal manufacturing property.
The 8.375% Debentures due 2027 may be redeemed at any time at our option, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus a make-whole premium, if any, plus accrued and unpaid interest to the date of the redemption.
Other borrowings
Other borrowings includerepresented finance lease obligations of $13$43 million and $15$49 million as of September 30, 20202023 and December 31, 2019,2022, respectively.
Scheduled maturities
Below is a schedule of required future repayments on our debt outstanding as of September 30, 2020:2023:
|
|
| ||
2023 |
| $ | 5 |
|
2024 |
|
| 17 |
|
2025 |
|
| 233 |
|
2026 |
|
| 726 |
|
2027 |
|
| 1,183 |
|
Thereafter |
|
| 1,468 |
|
Total principal amount of borrowings |
| $ | 3,632 |
|
(in millions) | |||
2020 | $ | 1 | |
2021 | 2 | ||
2022 | 3 | ||
2023 | 4,087 | ||
2024 | 651 | ||
Thereafter | 481 | ||
Total principal amount of borrowings | $ | 5,225 |
Fair value of our long-term debt
The fair value of our long-term debt as of September 30, 20202023 and December 31, 20192022 is a Level 2 fair value measurement. Below is a schedule of carrying values and fair values of our debt outstanding as of September 30, 2020 and December 31, 2019:outstanding:
|
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||
Credit Agreement |
| $ | 1,696 |
|
| $ | 1,706 |
|
| $ | 2,217 |
|
| $ | 2,206 |
|
Notes: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
4.000% Senior Secured Notes due 2027 |
|
| 994 |
|
|
| 889 |
|
|
| 993 |
|
|
| 890 |
|
4.375% Senior Secured Notes due 2028 |
|
| 496 |
|
|
| 435 |
|
|
| 496 |
|
|
| 447 |
|
Pactiv Debentures: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
7.950% Debentures due 2025 |
|
| 216 |
|
|
| 217 |
|
|
| 215 |
|
|
| 210 |
|
8.375% Debentures due 2027 |
|
| 166 |
|
|
| 167 |
|
|
| 166 |
|
|
| 162 |
|
Other |
|
| 43 |
|
|
| 43 |
|
|
| 49 |
|
|
| 49 |
|
Total |
| $ | 3,611 |
|
| $ | 3,457 |
|
| $ | 4,136 |
|
| $ | 3,964 |
|
As of September 30, 2020 | As of December 31, 2019 | ||||||||||||||
Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
(in millions) | |||||||||||||||
Securitization Facility | $ | 0 | $ | 0 | $ | 418 | $ | 420 | |||||||
Credit Agreement | 2,479 | 2,487 | 3,476 | 3,487 | |||||||||||
Notes: | |||||||||||||||
5.750% Senior Secured Notes due 2020 | 0 | 0 | 3,130 | 3,144 | |||||||||||
Floating Rate Senior Secured Notes due 2021 | 0 | 0 | 739 | 753 | |||||||||||
5.125% Senior Secured Notes due 2023 | 1,592 | 1,620 | 1,591 | 1,641 | |||||||||||
7.000% Senior Notes due 2024 | 644 | 662 | 791 | 828 | |||||||||||
Pactiv Debentures: | |||||||||||||||
7.950% Debentures due 2025 | 272 | 301 | 272 | 311 | |||||||||||
8.375% Debentures due 2027 | 198 | 213 | 198 | 220 | |||||||||||
Other | 13 | 13 | 15 | 15 | |||||||||||
Total | $ | 5,198 | $ | 5,296 | $ | 10,630 | $ | 10,819 |
15
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Interest expense, net
Interest expense, net consisted of the following:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit Agreement |
| $ | 41 |
|
| $ | 32 |
|
| $ | 127 |
|
| $ | 76 |
|
Notes |
|
| 15 |
|
|
| 15 |
|
|
| 46 |
|
|
| 46 |
|
Pactiv Debentures |
|
| 8 |
|
|
| 11 |
|
|
| 24 |
|
|
| 30 |
|
Interest income |
|
| (3 | ) |
|
| (1 | ) |
|
| (10 | ) |
|
| (2 | ) |
Amortization of DIC and OID |
|
| 1 |
|
|
| 2 |
|
|
| 3 |
|
|
| 4 |
|
Realized derivative gains |
|
| (3 | ) |
|
| — |
|
|
| (6 | ) |
|
| — |
|
Net foreign currency exchange losses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Other |
|
| 2 |
|
|
| — |
|
|
| 4 |
|
|
| 3 |
|
Interest expense, net |
| $ | 61 |
|
| $ | 59 |
|
| $ | 188 |
|
| $ | 158 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Interest expense: | |||||||||||||||
Notes | $ | 36 | $ | 48 | $ | 123 | $ | 147 | |||||||
Pactiv Debentures | 11 | 11 | 30 | 30 | |||||||||||
Credit Agreement | 21 | 44 | 87 | 134 | |||||||||||
Securitization Facility | 0 | 4 | 6 | 13 | |||||||||||
Interest income, related party(1) | (3 | ) | (4 | ) | (9 | ) | (12 | ) | |||||||
Interest income, other | 0 | (5 | ) | (6 | ) | (11 | ) | ||||||||
Amortization of deferred transaction costs(2) | 3 | 3 | 12 | 9 | |||||||||||
Derivative losses | 1 | 3 | 15 | 20 | |||||||||||
Net foreign currency exchange losses (gains) | 6 | (23 | ) | 0 | (24 | ) | |||||||||
Other(3) | 12 | 3 | 17 | 6 | |||||||||||
Interest expense, net(4) | $ | 87 | $ | 84 | $ | 275 | $ | 312 |
Note 11 -9. Financial Instruments
We had the following derivative instruments recorded at fair value in our condensed consolidated balance sheets:
|
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
|
| Asset |
|
| Liability |
|
| Asset |
|
| Liability |
| ||||
Commodity swap contracts |
| $ | — |
|
| $ | (5 | ) |
| $ | — |
|
| $ | (5 | ) |
Interest rate derivatives |
|
| 15 |
|
|
| — |
|
|
| 8 |
|
|
| (9 | ) |
Total fair value |
| $ | 15 |
|
| $ | (5 | ) |
| $ | 8 |
|
| $ | (14 | ) |
Classification: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other current assets |
| $ | 12 |
|
| $ | — |
|
| $ | 7 |
|
| $ | — |
|
Other noncurrent assets |
|
| 3 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Accrued and other current liabilities |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (3 | ) |
Other noncurrent liabilities |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (11 | ) |
Total fair value |
| $ | 15 |
|
| $ | (5 | ) |
| $ | 8 |
|
| $ | (14 | ) |
As of September 30, 2020 | As of December 31, 2019 | ||||||||||||||
Asset derivatives | Liability derivatives | Asset derivatives | Liability derivatives | ||||||||||||
(in millions) | |||||||||||||||
Interest rate swap derivatives | $ | 0 | $ | 0 | $ | 7 | $ | 0 | |||||||
Commodity swap contracts | 2 | (2 | ) | 1 | (5 | ) | |||||||||
Total fair value | $ | 2 | $ | (2 | ) | $ | 8 | $ | (5 | ) | |||||
Recorded in: | |||||||||||||||
Other current assets | $ | 2 | $ | 0 | $ | 6 | $ | 0 | |||||||
Other noncurrent assets | 0 | 0 | 2 | 0 | |||||||||||
Accrued and other current liabilities | 0 | (2 | ) | 0 | (5 | ) | |||||||||
Total fair value | $ | 2 | $ | (2 | ) | $ | 8 | $ | (5 | ) |
Our derivatives compriseare comprised of commodity swaps and previously included interest rate swaps. All derivatives represent Level 2 financial assets and liabilities. Our derivatives are valued using an income approach based on the observable market index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices.prices and interest rates. Our calculation of the fair value of these financial instruments takes into consideration the risk of non-performance, including counterparty credit risk. The majority of our derivative contracts do not have a legal right of set-off. We manage the credit risk in connection with our derivatives by limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.
During the fourth quarter of 2022, we entered into derivative financial instruments with several large financial institutions which swapped the LIBO rate for a weighted average fixed rate of 4.120% for an aggregate notional amount of $1,000 million to hedge a portion of the interest rate exposure resulting from our U.S. term loans. These instruments are classified as cash flow hedges and mature in October 2025. In April 2023, we amended our interest rate swap agreements to replace the interest rate benchmark from LIBOR to SOFR, effective for swap payments for the period commencing April 28, 2023. Other than the foregoing, the material terms of the interest rate swap agreements remain unchanged, including the weighted average fixed rate of 4.120%, and our election to use certain practical expedients under Accounting Standards Codification Topic 848: Reference Rate Reform resulted in no material impacts on our condensed consolidated financial statements.
During the three months ended September 30, 2023, we recognized an unrealized gain of $1 million in cost of sales, for our commodity swap contracts. There was no unrealized gain or loss during the nine months ended September 30, 2023 for our commodity swap contracts. During the three and nine months ended September 30, 2020,2022, we recognized unrealized gainslosses of $1$10 million and $3$4 million, respectively, compared to an unrealized loss of $1 million and an unrealized gain of $6 million in the comparable prior year periods, in cost of sales, infor our commodity swap contracts.
16
Pactiv Evergreen Inc.
Notes to the condensed consolidated statementsCondensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
During the three and nine months ended September 30, 2023, we recognized realized gains of $3 million and $6 million, respectively, within interest expense, net and unrealized gains of $8 million and $22 million, respectively, within other comprehensive income (loss).
The following table provides the detail of outstanding commodity derivative contracts as of September 30, 2020:
Type | Unit of measure | Contracted volume | Contracted price range | Contracted date of maturity | ||||
Natural gas swaps | million BTU | 1,963,628 | $2.40 - $2.94 | Nov 2020 - Dec 2021 | ||||
Polymer-grade propylene swaps | pound | 39,250,071 | $0.29 - $0.39 | Oct 2020 - May 2021 | ||||
Benzene swaps | U.S. liquid gallon | 5,251,376 | $1.08 - $2.42 | Nov 2020 - Jun 2021 | ||||
Diesel swaps | U.S. liquid gallon | 936,628 | $2.41 - $3.26 | Oct 2020 - Dec 2021 | ||||
Low-density polyethylene swaps | pound | 15,000,000 | $0.52 - $0.71 | Oct 2020 - Dec 2021 | ||||
Ethylene swaps | pound | 2,105,278 | $0.26 | Oct 2020 - Apr 2021 |
Type | Unit of Measure | Contracted | Contracted | Contracted Date of Maturity | ||||||
Natural gas swaps | Million BTU | 3,511,030 | $3.94 - $5.37 | Nov 2023 - Dec 2025 |
Note 12 -10. Employee Benefits
Net periodic benefit (expense) income (cost) for our defined benefit pension plans and other post-employment benefit plans consisted of the following:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Service cost |
| $ | — |
|
| $ | — |
|
| $ | (1 | ) |
| $ | (1 | ) |
Interest cost |
|
| (13 | ) |
|
| (17 | ) |
|
| (38 | ) |
|
| (54 | ) |
Expected return on plan assets |
|
| 10 |
|
|
| 14 |
|
|
| 30 |
|
|
| 49 |
|
Amortization of actuarial gains |
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Ongoing net periodic benefit cost |
|
| (2 | ) |
|
| (3 | ) |
|
| (7 | ) |
|
| (6 | ) |
Income due to settlements(1) |
|
| — |
|
|
| 47 |
|
|
| — |
|
|
| 57 |
|
Total net periodic benefit (expense) income |
| $ | (2 | ) |
| $ | 44 |
|
| $ | (7 | ) |
| $ | 51 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Service cost | $ | (2 | ) | $ | (2 | ) | $ | (5 | ) | $ | (6 | ) | |||
Interest cost | (35 | ) | (45 | ) | (105 | ) | (136 | ) | |||||||
Expected return on plan assets | 52 | 45 | 155 | 134 | |||||||||||
Amortization of prior service cost | (1 | ) | 0 | (1 | ) | 0 | |||||||||
Amortization of actuarial gains (losses) | 1 | 0 | 1 | 0 | |||||||||||
Total net periodic benefit income (cost) | $ | 15 | $ | (2 | ) | $ | 45 | $ | (8 | ) |
Net periodic benefit (expense) income (cost) for defined benefit pension plans and other post-employment benefit plans has beenwas recognized in our condensed consolidated statements of income (loss) as follows:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Cost of sales |
| $ | — |
|
| $ | — |
|
| $ | (1 | ) |
| $ | (1 | ) |
Non-operating (expense) income, net |
|
| (2 | ) |
|
| 44 |
|
|
| (6 | ) |
|
| 52 |
|
Total net periodic benefit (expense) income |
| $ | (2 | ) |
| $ | 44 |
|
| $ | (7 | ) |
| $ | 51 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Cost of sales | $ | (1 | ) | $ | (1 | ) | $ | (4 | ) | $ | (3 | ) | |||
Selling, general and administrative expenses | (1 | ) | (1 | ) | (1 | ) | (3 | ) | |||||||
Non-operating income (expense), net | 17 | 0 | 50 | (2 | ) | ||||||||||
Total net periodic benefit income (cost) | $ | 15 | $ | (2 | ) | $ | 45 | $ | (8 | ) |
Contributions to the Pension Plan for Pactiv Evergreen Pension Plan (the “PEPP”(“PPPE”) (formerly known asduring the Reynolds Group Pension Plan). NaN further contributions to the PEPPyear ending December 31, 2023 are expected to be madeless than $1 million.
Pension Partial Settlement Transactions
On September 20, 2022 and February 24, 2022, using PPPE assets, we purchased non-participating group annuity contracts from insurance companies and transferred $656 million and $1,257 million, respectively, of the PPPE’s projected benefit obligations. In each instance, the respective insurance companies have assumed responsibility for pension benefits and annuity administration. These transactions resulted in 2020.the recognition of non-cash, pre-tax settlement gains.
17
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 13 -11. Other (Expense) Income, Net
Other (expense) income, net consisted of the following:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Gain (loss) on sale of businesses and noncurrent assets |
| $ | — |
|
| $ | 239 |
|
| $ | (1 | ) |
| $ | 266 |
|
Gain on legal settlement(1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Other |
|
| (3 | ) |
|
| — |
|
|
| 2 |
|
|
| (2 | ) |
Other (expense) income, net |
| $ | (3 | ) |
| $ | 239 |
|
| $ | 1 |
|
| $ | 279 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Related party management fee(1) | $ | (44 | ) | $ | (3 | ) | $ | (49 | ) | $ | (8 | ) | |||
Loss on sale of businesses and noncurrent assets | (1 | ) | (13 | ) | (1 | ) | (24 | ) | |||||||
Foreign exchange (losses) gains on cash(2) | (42 | ) | 17 | (14 | ) | 17 | |||||||||
Transition service agreement income(1) | 5 | 0 | 15 | 1 | |||||||||||
Other | 3 | 1 | 1 | 7 | |||||||||||
Other (expense) income, net | $ | (79 | ) | $ | 2 | $ | (48 | ) | $ | (7 | ) |
Note 14 -12. Commitments and Contingencies
We are from time to time party to litigation, legal proceedings and tax examinations arising from our operations. Most of these matters involve allegations of damages against us relating to employment matters, personal injury and commercial or contractual disputes. We are also involved in various administrative and other proceedings relating to environmental matters that arise in the normal course of business, and we may become involved in similar matters in the future. We record estimates for claims and proceedings that constitute a present obligation when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of such obligation can be made. While it is not possible to predict the outcome of any of these matters, based on our assessment of the facts and circumstances, we do not believe any of these matters, individually or in the aggregate, will have a material adverse effect on our balance sheet, results of operations or cash flows. However, actual outcomes may differ from those expected and could have a material effect on our balance sheet, results of operations or cash flows in a future period. Except for amounts provided, there were no legal proceedings pending other than those for which we have determined that the possibility of a material outflow is remote.
Indemnities
As part of the agreements for the sale of various businesses, we have provided certain warranties and indemnities to the respective purchasers as set out in the respective sale agreements. These warranties and indemnities are subject to various terms and conditions affecting the duration and total amount of the indemnities. As of September 30, 2020, we are not aware of any materialAny claims underpursuant to these agreements that would give rise to an additional liability. However,warranties and indemnities, if such claims arise in the future, theysuccessful, could have a material effect on our balance sheet, results of operations andor cash flows.
18 - Related Party Transactions for further information.
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 15 -13. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in our balances of each component of accumulated other comprehensive loss ("AOCL"):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Currency translation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of beginning of period |
| $ | (165 | ) |
| $ | (213 | ) |
| $ | (189 | ) |
| $ | (207 | ) |
Currency translation adjustments |
|
| (5 | ) |
|
| (6 | ) |
|
| 19 |
|
|
| (12 | ) |
Other comprehensive (loss) income |
|
| (5 | ) |
|
| (6 | ) |
|
| 19 |
|
|
| (12 | ) |
Balance as of end of period |
| $ | (170 | ) |
| $ | (219 | ) |
| $ | (170 | ) |
| $ | (219 | ) |
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of beginning of period |
| $ | 87 |
|
| $ | 5 |
|
| $ | 88 |
|
| $ | 108 |
|
Net actuarial gain (loss) arising during year(1) |
|
| — |
|
|
| 101 |
|
|
| — |
|
|
| (25 | ) |
Deferred tax (expense) benefit on net actuarial gain (loss) |
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| 6 |
|
Loss (gain) reclassified from AOCL: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reclassification upon sale of businesses(2) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Amortization of experience gains |
|
| (1 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
Defined benefit plan settlement gain |
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| (57 | ) |
Deferred tax expense on reclassification |
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| 13 |
|
Other comprehensive (loss) income |
|
| (1 | ) |
|
| 41 |
|
|
| (2 | ) |
|
| (62 | ) |
Balance as of end of period |
| $ | 86 |
|
| $ | 46 |
|
| $ | 86 |
|
| $ | 46 |
|
Interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of beginning of period |
| $ | 7 |
|
| $ | — |
|
| $ | (1 | ) |
| $ | — |
|
Net derivative gain |
|
| 8 |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
Deferred tax expense on net derivative gain |
|
| (2 | ) |
|
| — |
|
|
| (6 | ) |
|
| — |
|
Gain reclassified from AOCL |
|
| (3 | ) |
|
| — |
|
|
| (6 | ) |
|
| — |
|
Deferred tax expense on reclassification |
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Other comprehensive income |
|
| 4 |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
Balance as of end of period |
| $ | 11 |
|
| $ | — |
|
| $ | 11 |
|
| $ | — |
|
AOCL |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of beginning of period |
| $ | (71 | ) |
| $ | (208 | ) |
| $ | (102 | ) |
| $ | (99 | ) |
Other comprehensive (loss) income |
|
| (2 | ) |
|
| 35 |
|
|
| 29 |
|
|
| (74 | ) |
Balance as of end of period |
| $ | (73 | ) |
| $ | (173 | ) |
| $ | (73 | ) |
| $ | (173 | ) |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Currency translation adjustments: | |||||||||||||||
Balance as of beginning of period | $ | (447 | ) | $ | (425 | ) | $ | (354 | ) | $ | (442 | ) | |||
Currency translation adjustments | 65 | (77 | ) | (30 | ) | (67 | ) | ||||||||
Amounts reclassified from AOCL | 1 | 13 | 1 | 20 | |||||||||||
Other comprehensive income (loss) | 66 | (64 | ) | (29 | ) | (47 | ) | ||||||||
Distribution of RCP and GPC(1) | 171 | 0 | 173 | 0 | |||||||||||
Balance as of end of period | $ | (210 | ) | $ | (489 | ) | $ | (210 | ) | $ | (489 | ) | |||
Defined benefit plans: | |||||||||||||||
Plans associated with continuing operations | |||||||||||||||
Balance as of beginning of period | $ | (176 | ) | $ | (302 | ) | $ | (176 | ) | $ | (258 | ) | |||
Cumulative impact of adopting ASU 2018-02 | 0 | 0 | 0 | (44 | ) | ||||||||||
Balance as of end of period | $ | (176 | ) | $ | (302 | ) | $ | (176 | ) | $ | (302 | ) | |||
Plans held for sale or distribution | |||||||||||||||
Balance as of beginning of period | $ | (1 | ) | $ | 13 | $ | 12 | $ | 11 | ||||||
(Gains) and losses reclassified from AOCL: | |||||||||||||||
Amortization of actuarial gain(2) | 0 | (1 | ) | 0 | (2 | ) | |||||||||
Other comprehensive loss | 0 | (1 | ) | 0 | (2 | ) | |||||||||
Cumulative impact of adopting ASU 2018-02 | 0 | 0 | 0 | 3 | |||||||||||
Distribution of RCP and GPC(3) | 1 | 0 | (12 | ) | 0 | ||||||||||
Balance as of end of period | $ | 0 | $ | 12 | $ | 0 | $ | 12 | |||||||
AOCL | |||||||||||||||
Balance as of beginning of period | $ | (624 | ) | $ | (714 | ) | $ | (518 | ) | $ | (689 | ) | |||
Other comprehensive income (loss) | 66 | (65 | ) | (29 | ) | (49 | ) | ||||||||
Cumulative impact of adopting ASU 2018-02 | 0 | 0 | 0 | (41 | ) | ||||||||||
Distribution of RCP and GPC(1)(3) | 172 | 0 | 161 | 0 | |||||||||||
Balance as of end of period | $ | (386 | ) | $ | (779 | ) | $ | (386 | ) | $ | (779 | ) |
Note 16 -14. Income Taxes
The effective tax rates for the three and nine months ended September 30, 20202023 and 20192022 represent our estimate of the annual effective tax rates expected to be applicable for the respective full fiscal years, adjusted for any discrete events which are recorded in the period that they occur.
During the three months ended September 30, 2020,2023, we recognized a tax expense of $42$22 million on income from continuing operations before tax of $50 million. During the nine months ended September 30, 2023, we recognized a tax benefit of $5 million on a loss from continuing operations before tax of $101 million. This effective tax rate was primarily attributable to a $105 million discrete adjustment to increase our valuation allowance for deferred interest deductions. The increase in the valuation allowance reflects the reassessment of the recoverability of our deferred interest deductions following the distribution of Graham Packaging in September 2020.
19
Pactiv Evergreen Inc.
Notes to the mix of incomeCondensed Consolidated Financial Statements
(In millions, except per share data and losses taxed at varying rates among the jurisdictions in which we operate and includes the benefit of the CARES Act, primarily from the ability to utilize additional deferred interest deductions. The year to date effective tax rate also includes a $132 million return to provision benefit from our 2019 federal return, partially offset by a $105 million discrete adjustment for additional valuation allowance. The return to provision benefit was primarily attributable to the retroactive provisions of the CARES Act, enabling the utilization of additional deferred interest deductions. The increase in the valuation allowance reflects the reassessment of the recoverability of our deferred interest deductions following the distribution of Graham Packaging in September 2020.
(Unaudited)
During the three months ended September 30, 2019,2022, we recognized 0a tax expense of $79 million on a lossincome from continuing operations before tax of $35$254 million. During the nine months ended September 30, 2019,2022, we recognized a tax expense of $16$160 million on a lossincome from continuing operations before tax of $84$452 million. The effective tax rates in each period wererate for the aforementioned periods was primarily attributabledriven by the inability to additional valuation allowances, mainly in relation to the deductibility of deferredrecognize a tax benefit on all interest expense and the mixtax impacts from the sales of bookour businesses.
We are under audit by the Internal Revenue Service (“IRS”) and other taxing authorities. The IRS is currently auditing our U.S. income and losses among the jurisdictions in which we operate. The tax expense during the three months endedreturns for 2016-2017. As of September 30, 2019, was offset by2023, we have not received any proposed adjustments from taxing authorities that would be material. Although the ultimate timing is uncertain, it is reasonably possible that a discrete benefit as a resultreduction of filing amended returnsup to claim a foreign$9 million of unrecognized tax creditbenefits could occur within the next twelve months due to changes in lieuaudit status, settlements of a foreign tax deduction.
Foodservice | Food Merchandising | Beverage Merchandising | Reportable segment total | ||||||||||||
(in millions) | |||||||||||||||
For the Three Months Ended September 30, 2020 | |||||||||||||||
Net revenues | $ | 473 | $ | 354 | $ | 338 | $ | 1,165 | |||||||
Intersegment revenues | 0 | 0 | 23 | 23 | |||||||||||
Total reportable segment net revenues | $ | 473 | $ | 354 | $ | 361 | $ | 1,188 | |||||||
Adjusted EBITDA | $ | 81 | $ | 72 | $ | 24 | $ | 177 | |||||||
For the Three Months Ended September 30, 2019 | |||||||||||||||
Net revenues | $ | 546 | $ | 351 | $ | 372 | $ | 1,269 | |||||||
Intersegment revenues | 0 | 0 | 29 | 29 | |||||||||||
Total reportable segment net revenues | $ | 546 | $ | 351 | $ | 401 | $ | 1,298 | |||||||
Adjusted EBITDA | $ | 89 | $ | 56 | $ | 45 | $ | 190 | |||||||
For the Nine Months Ended September 30, 2020 | |||||||||||||||
Net revenues | $ | 1,351 | $ | 1,046 | $ | 1,030 | $ | 3,427 | |||||||
Intersegment revenues | 0 | 0 | 76 | 76 | |||||||||||
Total reportable segment net revenues | $ | 1,351 | $ | 1,046 | $ | 1,106 | $ | 3,503 | |||||||
Adjusted EBITDA | $ | 170 | $ | 186 | $ | 112 | $ | 468 | |||||||
For the Nine Months Ended September 30, 2019 | |||||||||||||||
Net revenues | $ | 1,630 | $ | 1,037 | $ | 1,094 | $ | 3,761 | |||||||
Intersegment revenues | 0 | 0 | 94 | 94 | |||||||||||
Total reportable segment net revenues | $ | 1,630 | $ | 1,037 | $ | 1,188 | $ | 3,855 | |||||||
Adjusted EBITDA | $ | 262 | $ | 161 | $ | 142 | $ | 565 |
Foodservice | Food Merchandising | Beverage Merchandising | Reportable segment total | ||||||||||||
(in millions) | |||||||||||||||
As of September 30, 2020 | $ | 1,060 | $ | 706 | $ | 1,023 | $ | 2,789 | |||||||
As of December 31, 2019 | 1,090 | 727 | 972 | 2,789 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Reportable segment Adjusted EBITDA | $ | 177 | $ | 190 | $ | 468 | $ | 565 | |||||||
Other | 2 | 4 | 6 | 10 | |||||||||||
Unallocated | (6 | ) | (17 | ) | (29 | ) | (57 | ) | |||||||
173 | 177 | 445 | 518 | ||||||||||||
Adjustments to reconcile to U.S. GAAP income (loss) from continuing operations before income taxes | |||||||||||||||
Depreciation and amortization | (73 | ) | (68 | ) | (213 | ) | (198 | ) | |||||||
Interest expense, net | (87 | ) | (84 | ) | (275 | ) | (312 | ) | |||||||
Foreign exchange (losses) gains on cash | (42 | ) | 17 | (14 | ) | 17 | |||||||||
Goodwill impairment charges | (6 | ) | (16 | ) | (6 | ) | (16 | ) | |||||||
Loss on sale of businesses and noncurrent assets | (1 | ) | (13 | ) | (1 | ) | (24 | ) | |||||||
Non-cash pension income | 18 | 0 | 55 | 2 | |||||||||||
Operational process engineering-related consultancy costs | (3 | ) | (5 | ) | (12 | ) | (18 | ) | |||||||
Related party management fee | (44 | ) | (3 | ) | (49 | ) | (8 | ) | |||||||
Restructuring, asset impairment and other related charges | (14 | ) | (39 | ) | (18 | ) | (45 | ) | |||||||
Strategic review and transaction-related costs | (24 | ) | (1 | ) | (39 | ) | (2 | ) | |||||||
Unrealized gains (losses) on derivatives | 1 | (1 | ) | 3 | 6 | ||||||||||
Other | 1 | 1 | 1 | (4 | ) | ||||||||||
Loss from continuing operations before tax | $ | (101 | ) | $ | (35 | ) | $ | (123 | ) | $ | (84 | ) |
As of September 30, 2020 | As of December 31, 2019 | ||||||
(in millions) | |||||||
Reportable segment assets | $ | 2,789 | $ | 2,789 | |||
Other | 39 | 65 | |||||
Unallocated(1) | 5,389 | 13,321 | |||||
Total assets | $ | 8,217 | $ | 16,175 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Foodservice | |||||||||||||||
Cups and lids | $ | 198 | $ | 242 | $ | 560 | $ | 691 | |||||||
Containers | 187 | 196 | 549 | 587 | |||||||||||
Dinnerware | 34 | 52 | 108 | 157 | |||||||||||
Other | 54 | 56 | 134 | 195 | |||||||||||
Food Merchandising | |||||||||||||||
Meat trays | 93 | 91 | 287 | 262 | |||||||||||
Bakery/snack/produce/fruit containers | 75 | 79 | 218 | 236 | |||||||||||
Prepared food trays | 33 | 43 | 95 | 126 | |||||||||||
Egg cartons | 24 | 24 | 74 | 73 | |||||||||||
Dinnerware | 88 | 79 | 257 | 230 | |||||||||||
Other | 41 | 35 | 115 | 110 | |||||||||||
Beverage Merchandising | |||||||||||||||
Cartons for fresh beverage products | 199 | 205 | 597 | 593 | |||||||||||
Liquid packaging board | 92 | 109 | 296 | 335 | |||||||||||
Paper products | 70 | 87 | 213 | 260 | |||||||||||
Reportable segment net revenues | 1,188 | 1,298 | 3,503 | 3,855 | |||||||||||
Other / Unallocated | |||||||||||||||
Other | 30 | 37 | 87 | 127 | |||||||||||
Inter-segment eliminations | (23 | ) | (29 | ) | (76 | ) | (94 | ) | |||||||
Net revenues | $ | 1,195 | $ | 1,306 | $ | 3,514 | $ | 3,888 |
Note 18 -15. Related Party Transactions
Transactions with our related party entities and types of transactions we entered into with themparties are detailed below. All of our related parties detailed below have a common ultimateare commonly controlled by Mr. Graeme Hart, our controlling shareholder, except for theour joint ventures.
|
| Income (expense) for the |
|
| Income (expense) for the |
|
|
|
|
|
| ||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| Balance Outstanding as of |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| September 30, |
|
| December 31, |
| ||||||
Joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Included in other current assets |
|
|
|
|
|
|
|
|
|
|
|
| $ | 2 |
|
| $ | 3 |
| ||||
Sale of goods and services(1) |
| $ | 1 |
|
| $ | 2 |
|
| $ | 5 |
|
| $ | 12 |
|
|
|
|
|
| ||
Other common controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Related party receivables(2) |
|
|
|
|
|
|
|
|
|
|
|
|
| 38 |
|
|
| 46 |
| ||||
Sale of goods and services(2) |
|
| 92 |
|
|
| 107 |
|
|
| 291 |
|
|
| 313 |
|
|
|
|
|
| ||
Transition services agreements and rental income(2) |
|
| 3 |
|
|
| — |
|
|
| 4 |
|
|
| 1 |
|
|
|
|
|
| ||
Charges(3) |
|
| 1 |
|
|
| 1 |
|
|
| 5 |
|
|
| 4 |
|
|
|
|
|
| ||
Related party payables(2) |
|
|
|
|
|
|
|
|
|
|
|
|
| (10 | ) |
|
| (6 | ) | ||||
Purchase of goods(2) |
|
| (21 | ) |
|
| (29 | ) |
|
| (58 | ) |
|
| (77 | ) |
|
|
|
|
| ||
Charges(3) |
|
| (3 | ) |
|
| (3 | ) |
|
| (10 | ) |
|
| (9 | ) |
|
|
|
|
|
Transaction value for the Three Months Ended September 30, | Transaction value for the Nine Months Ended September 30, | Balance outstanding as of | |||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | September 30, 2020 | December 31, 2019 | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Balances and transactions with joint ventures | |||||||||||||||||||||||
Included in other current assets | $ | 7 | $ | 8 | |||||||||||||||||||
Sale of goods and services(a) | $ | 5 | $ | 3 | $ | 23 | $ | 19 | |||||||||||||||
Balances and transactions with other entities controlled by Mr. Graeme Hart | |||||||||||||||||||||||
Current related party receivables | 57 | 0 | |||||||||||||||||||||
Sale of goods and services(b) | 89 | 72 | 259 | 213 | |||||||||||||||||||
Transition services agreement and rental income(b) | 3 | 0 | 11 | 0 | |||||||||||||||||||
Tax loss transfer(c) | 0 | 0 | 13 | 0 | |||||||||||||||||||
Recharges(d) | 1 | 0 | 2 | 4 | |||||||||||||||||||
Forgiveness of a balance(e) | (15 | ) | 0 | (15 | ) | 0 | |||||||||||||||||
Noncurrent related party receivables(f) | 0 | 339 | |||||||||||||||||||||
Interest income | 3 | 4 | 9 | 12 | |||||||||||||||||||
Loan forgiveness | (347 | ) | 0 | (347 | ) | 0 | |||||||||||||||||
Related party payables | (21 | ) | (30 | ) | |||||||||||||||||||
Purchase of goods(b) | (28 | ) | (36 | ) | (91 | ) | (114 | ) | |||||||||||||||
Recharges(d) | (1 | ) | (6 | ) | (11 | ) | (16 | ) | |||||||||||||||
Management fee(g) | (57 | ) | (8 | ) | (65 | ) | (21 | ) | |||||||||||||||
Tax loss transfer(c) | (10 | ) | 0 | (11 | ) | (2 | ) |
We also lease a portion of two facilities to RCPI and are party to an information technology services agreement with RCPI. We do not trade with GPCGraham Packaging Company Inc. (“GPCI”) on an ongoing basis. We have entered intoalso are party to a transition services agreement to provide ongoing agreedwith GPCI.
Note 19 - Stock-based16. Equity Based Compensation
We established the Pactiv Evergreen Inc. Equity Incentive Plan (the “Equity Incentive Plan”) for purposes of granting stock- and cash-basedstock or other equity based compensation awards to our employees (including our senior management), directors, consultants and advisors. The maximum number
20
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Equity based compensation costs were $9 million, $24 million, $6million and $16 million for the three and nine months ended September 30, 2023 and 2022, respectively, substantially all of shares of common stock initially available for issuance under our Equity Incentive Planwhich was 9,079,395 shares.
Restricted Stock Units
During 2019 and 2020, in anticipation of our IPO,the nine months ended September 30, 2023, we granted 297,296 restricted stock units (“RSUs”) to certain members of management which included a performance condition that required the Company to complete an IPO. Certain of these RSUs vest over three years, with one-third of an employee’s RSUs vesting on each anniversary from the dateand certain members of our IPO, subjectBoard of Directors. These RSUs require future service to be provided and vest in annual installments over a period ranging from one to three years beginning on the employee’s continued employment through the applicable vesting date. The remaining portionfirst anniversary of the grant date. During the vesting period, the RSUs vestscarry dividend-equivalent rights, but the RSUs do not have voting rights. The RSUs and any related dividend-equivalent rights are forfeited in the event the holder is no longer an employee on December 31, 2021, subjectthe vesting date, unless the holder satisfies certain retirement-eligibility criteria. The following table summarizes RSU activity during 2023:
(In thousands, except per share amounts) |
| Number of |
|
| Weighted |
| ||
Non-vested, at January 1 |
|
| 1,983 |
|
| $ | 11.89 |
|
Granted(1) |
|
| 1,744 |
|
|
| 9.64 |
|
Forfeited |
|
| (233 | ) |
|
| 12.08 |
|
Vested |
|
| (653 | ) |
|
| 12.89 |
|
Non-vested, at September 30 |
|
| 2,841 |
|
| $ | 10.26 |
|
Unrecognized compensation cost related to the employee’s continued employment through this vesting date. Weunvested RSUs as of September 30, 2023 was $11 million, which is expected to be recognized approximately $1 millionover a weighted average period of stock-based compensation expense2.1 years. The total vest date fair value of shares that vested during the three and nine months ended September 30, 2020 related to these grants. There2023 was 0 stock-based compensation expense recorded during$6 million.
Performance Share Units
During the three and nine months ended September 30, 2019.2023, we granted performance share units (���PSUs”) to certain members of management which vest on the third anniversary of the grant date. Based on the achievement of a company performance target during a performance period set by our Compensation Committee of our Board of Directors, upon vesting, the PSUs are exchanged for a number of shares of common stock equal to the number of PSUs multiplied by a factor between 0% and 200%. We use our stock price on the grant date to estimate the fair value of our PSUs. We adjust the expense based on the likelihood of future achievement of performance metrics. If any of the performance targets are not achieved, the awards are forfeited. During the vesting period, the PSUs carry dividend-equivalent rights, but the PSUs do not have voting rights. The PSUs and any related dividend-equivalent rights are forfeited in the event the holder is no longer an employee on the vesting date, unless the holder satisfies certain retirement-eligibility criteria. The following table summarizes PSU activity during 2023:
(In thousands, except per share amounts) |
| Number of |
|
| Weighted |
| ||
Non-vested, at January 1 |
|
| 1,155 |
|
| $ | 9.29 |
|
Granted(1) |
|
| 1,729 |
|
|
| 9.37 |
|
Forfeited |
|
| (91 | ) |
|
| 9.54 |
|
Non-vested, at September 30 |
|
| 2,793 |
|
| $ | 9.33 |
|
Unrecognized compensation cost related to unvested PSUs as of September 30, 2020, we had 8,782,099 shares available under the Equity Incentive Plan.2023 was $21 million, which is expected to be recognized over a weighted average period of 2.2 years.
21
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 20 -17. Earnings Per Share
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net earnings (loss) attributable to common shareholders - continuing operations |
| $ | 27 |
|
| $ | 175 |
|
| $ | (246 | ) |
| $ | 291 |
|
Less: dividend-equivalents declared for equity based awards |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (1 | ) |
Net earnings (loss) available to common shareholders - continuing operations |
|
| 27 |
|
|
| 175 |
|
|
| (248 | ) |
|
| 290 |
|
Net earnings attributable to common shareholders - discontinued operations |
|
| 2 |
|
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
Total net earnings (loss) available to common shareholders |
| $ | 29 |
|
| $ | 176 |
|
| $ | (246 | ) |
| $ | 291 |
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of shares outstanding - basic |
|
| 178.7 |
|
|
| 177.9 |
|
|
| 178.5 |
|
|
| 177.7 |
|
Effect of dilutive securities |
|
| 1.0 |
|
|
| 0.8 |
|
|
| — |
|
|
| 0.6 |
|
Weighted average number of shares outstanding - diluted |
|
| 179.7 |
|
|
| 178.7 |
|
|
| 178.5 |
|
|
| 178.3 |
|
Earnings (loss) per share attributable to Pactiv Evergreen Inc. common shareholders |
|
|
|
|
|
|
|
|
|
|
|
| ||||
From continuing operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.15 |
|
| $ | 0.98 |
|
| $ | (1.39 | ) |
| $ | 1.63 |
|
Diluted |
| $ | 0.15 |
|
| $ | 0.98 |
|
| $ | (1.39 | ) |
| $ | 1.63 |
|
From discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.01 |
|
| $ | 0.01 |
|
| $ | 0.01 |
|
| $ | 0.01 |
|
Diluted |
| $ | 0.01 |
|
| $ | — |
|
| $ | 0.01 |
|
| $ | — |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.16 |
|
| $ | 0.99 |
|
| $ | (1.38 | ) |
| $ | 1.64 |
|
Diluted |
| $ | 0.16 |
|
| $ | 0.98 |
|
| $ | (1.38 | ) |
| $ | 1.63 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions, except per share amounts) | |||||||||||||||
Net (loss) income attributable to Pactiv Evergreen Inc. common stockholders | |||||||||||||||
From continuing operations | $ | (143 | ) | $ | (35 | ) | $ | (29 | ) | $ | (101 | ) | |||
From discontinued operations | (216 | ) | 91 | (234 | ) | 270 | |||||||||
Total | $ | (359 | ) | $ | 56 | $ | (263 | ) | $ | 169 | |||||
Weighted average number of shares outstanding | |||||||||||||||
Basic | 138.9 | 134.4 | 135.9 | 134.4 | |||||||||||
Effect of dilutive securities | 0 | 0 | 0 | 0 | |||||||||||
Diluted | 138.9 | 134.4 | 135.9 | 134.4 | |||||||||||
(Loss) earnings per share attributable to Pactiv Evergreen Inc. common stockholders | |||||||||||||||
From continuing operations | |||||||||||||||
Basic | $ | (1.03 | ) | $ | (0.26 | ) | $ | (0.22 | ) | $ | (0.75 | ) | |||
Diluted | $ | (1.03 | ) | $ | (0.26 | ) | $ | (0.22 | ) | $ | (0.75 | ) | |||
From discontinued operations | |||||||||||||||
Basic | $ | (1.56 | ) | $ | 0.67 | $ | (1.72 | ) | $ | 2.01 | |||||
Diluted | $ | (1.56 | ) | $ | 0.67 | $ | (1.72 | ) | $ | 2.01 | |||||
Total | |||||||||||||||
Basic | $ | (2.59 | ) | $ | 0.41 | $ | (1.94 | ) | $ | 1.26 | |||||
Diluted | $ | (2.59 | ) | $ | 0.41 | $ | (1.94 | ) | $ | 1.26 |
There were
On October 31, 2023, our Board of shares outstanding duringDirectors declared a dividend of $0.10 per share to be paid on December 15, 2023 to shareholders of record as of November 30, 2023.
Note 18. Segment Information
In the threesecond quarter of 2023, in conjunction with the Beverage Merchandising Restructuring, we implemented a new operating and nine months ended September 30, 2020 reflectsreporting structure resulting in the weighted average number of shares outstanding, as described above, including the weighted average shares issued on September 21, 2020 as partcombination of our IPO.
As of the end of the second quarter of 2023, we analyzed the results of our business through our Foodservice and Food and Beverage Merchandising segments. All prior periods have been no events subsequentrecast to September 30, 2020reflect the current reportable segment structure and the change in the management of certain product lines. These reportable segments reflect our operating structure and the manner in which our Chief Operating Decision Maker (“CODM”), who is our President and Chief Executive Officer, assesses information for decision-making purposes. The key factors used to identify these reportable segments are the organization of our internal operations and the nature of our products. This reflects how our CODM
22
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
monitors performance, allocates capital and makes strategic and operational decisions. Our reportable segments are described as follows:
Foodservice - Manufactures a broad range of products that would require accrual or disclosure in these condensed consolidated financial statements.
Food and Beverage Merchandising - Manufactures products that constitute "forward-looking statements" withinprotect and attractively display food and beverages while preserving freshness. Food and Beverage Merchandising products include cartons for fresh refrigerated beverage products, primarily serving dairy (including plant-based, organic and specialties), juice and other specialty beverage end-markets, clear rigid-display containers, containers for prepared and ready-to-eat food, trays for meat and poultry and egg cartons. It also produces fiber-based liquid packaging board for its internal requirements and to sell to other fresh beverage carton manufacturers. Prior to June 2023, it also produced a range of paper-based products which it sold to paper and packaging converters.
Other/Unallocated - In addition to our reportable segments, we had other operating segments that did not meet the meaningthreshold for presentation as a reportable segment. These operating segments comprised the remaining components of our former closures business, which generated revenue from the sale of caps and closures, and are presented as “Other.” As of March 31, 2023, we had disposed of all of the Private Securities Litigation Reform Actremaining components of 1995. In some cases, you can identify these statements by forward-looking wordsour former closures business. Unallocated includes corporate costs, primarily relating to general and administrative functions such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,”finance, tax and legal and the negativeeffects of these termsthe PPPE.
Information by Segment
We present reportable segment Adjusted EBITDA as this is the financial measure by which management and our CODM allocate resources and analyze the performance of our reportable segments.
A segment’s Adjusted EBITDA represents its earnings before interest, tax, depreciation and amortization and is further adjusted to exclude certain items, including but not limited to restructuring, asset impairment and other comparable terminology. These forward-looking statements, which are subjectrelated charges, gains or losses on the sale of businesses and noncurrent assets, non-cash pension income or expense, operational process engineering-related consultancy costs, business acquisition and integration costs and purchase accounting adjustments, unrealized gains or losses on derivatives, foreign exchange gains or losses on cash and gains or losses on certain legal settlements.
23
Pactiv Evergreen Inc.
Notes to risks, uncertaintiesthe Condensed Consolidated Financial Statements
(In millions, except per share data and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies, anticipated trends in our business and anticipated growth in the markets served by 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 factors discussed in the "Risk Factors" section of our final prospectus filed with the Securities and Exchange Commission on September 18, 2020 pursuant to Rule 424(b)(4). You should specifically consider the numerous risks outlined in the final prospectus. Refer also to Part II, Item 1A. “Risk Factors.” These risks include, among others, those related to:unless otherwise indicated)
(Unaudited)
|
| Foodservice |
|
| Food and Beverage |
|
| Reportable |
| |||
For the Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
| |||
Net revenues |
| $ | 675 |
|
| $ | 704 |
|
| $ | 1,379 |
|
Intersegment revenues |
|
| — |
|
|
| 8 |
|
|
| 8 |
|
Total reportable segment net revenues |
|
| 675 |
|
|
| 712 |
|
|
| 1,387 |
|
Adjusted EBITDA |
|
| 117 |
|
|
| 130 |
|
|
| 247 |
|
|
|
|
|
|
|
|
|
|
| |||
For the Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
| |||
Net revenues |
| $ | 713 |
|
| $ | 870 |
|
| $ | 1,583 |
|
Intersegment revenues |
|
| — |
|
|
| 50 |
|
|
| 50 |
|
Total reportable segment net revenues |
|
| 713 |
|
|
| 920 |
|
|
| 1,633 |
|
Adjusted EBITDA |
|
| 107 |
|
|
| 102 |
|
|
| 209 |
|
|
|
|
|
|
|
|
|
| ||||
For the Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
| |||
Net revenues |
| $ | 1,945 |
|
| $ | 2,289 |
|
| $ | 4,234 |
|
Intersegment revenues |
|
| — |
|
|
| 78 |
|
|
| 78 |
|
Total reportable segment net revenues |
|
| 1,945 |
|
|
| 2,367 |
|
|
| 4,312 |
|
Adjusted EBITDA |
|
| 351 |
|
|
| 340 |
|
|
| 691 |
|
|
|
|
|
|
|
|
|
|
| |||
For the Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
| |||
Net revenues |
| $ | 2,115 |
|
| $ | 2,554 |
|
| $ | 4,669 |
|
Intersegment revenues |
|
| — |
|
|
| 123 |
|
|
| 123 |
|
Total reportable segment net revenues |
|
| 2,115 |
|
|
| 2,677 |
|
|
| 4,792 |
|
Adjusted EBITDA |
|
| 378 |
|
|
| 303 |
|
|
| 681 |
|
Reportable segment assets consisted of the COVID-19 pandemic;following:
|
| Foodservice |
|
| Food and Beverage |
|
| Reportable |
| |||
As of September 30, 2023 |
| $ | 1,279 |
|
| $ | 1,485 |
|
| $ | 2,764 |
|
As of December 31, 2022 |
|
| 1,385 |
|
|
| 1,884 |
|
|
| 3,269 |
|
24
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
The following table presents a reconciliation of reportable segment Adjusted EBITDA to consolidated income (loss) from continuing operations before income taxes:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Reportable segment Adjusted EBITDA |
| $ | 247 |
|
| $ | 209 |
|
| $ | 691 |
|
| $ | 681 |
|
Other |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 3 |
|
Unallocated |
|
| (20 | ) |
|
| (23 | ) |
|
| (58 | ) |
|
| (66 | ) |
|
| 227 |
|
|
| 187 |
|
|
| 633 |
|
|
| 618 |
| |
Adjustments to reconcile to income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
|
| (61 | ) |
|
| (59 | ) |
|
| (188 | ) |
|
| (158 | ) |
Depreciation and amortization (excluding restructuring-related charges) |
|
| (81 | ) |
|
| (85 | ) |
|
| (247 | ) |
|
| (255 | ) |
Beverage Merchandising Restructuring charges |
|
| (32 | ) |
|
| — |
|
|
| (435 | ) |
|
| — |
|
Other restructuring and asset impairment charges (reversals) |
|
| — |
|
|
| (57 | ) |
|
| — |
|
|
| (58 | ) |
Gain (loss) on sale of businesses and noncurrent assets |
|
| — |
|
|
| 239 |
|
|
| (1 | ) |
|
| 266 |
|
Non-cash pension (expense) income |
|
| (2 | ) |
|
| 44 |
|
|
| (6 | ) |
|
| 52 |
|
Operational process engineering-related consultancy costs |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (7 | ) |
Business integration costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
Unrealized gains (losses) on commodity derivatives |
|
| 1 |
|
|
| (10 | ) |
|
| — |
|
|
| (4 | ) |
Foreign exchange losses on cash |
|
| (2 | ) |
|
| — |
|
|
| (4 | ) |
|
| (2 | ) |
Executive transition charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
(Losses) gains on legal settlements |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 15 |
|
Costs associated with legacy facility |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
Other |
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (1 | ) |
Income (loss) from continuing operations before tax |
| $ | 50 |
|
| $ | 254 |
|
| $ | (249 | ) |
| $ | 452 |
|
The following table presents a reconciliation of reportable segment assets to consolidated assets:
| As of |
|
| As of |
| |||
Reportable segment assets(1) |
| $ | 2,764 |
|
| $ | 3,269 |
|
Unallocated(2) |
|
| 3,682 |
|
|
| 4,037 |
|
Total assets |
| $ | 6,446 |
|
| $ | 7,306 |
|
25
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Information in Relation to Products
Net revenues by product line are as follows:
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Foodservice |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Drinkware |
| $ | 324 |
|
| $ | 322 |
|
| $ | 892 |
|
| $ | 934 |
|
Containers |
|
| 233 |
|
|
| 256 |
|
|
| 700 |
|
|
| 798 |
|
Tableware |
|
| 72 |
|
|
| 76 |
|
|
| 215 |
|
|
| 214 |
|
Serviceware and other |
|
| 46 |
|
|
| 59 |
|
|
| 138 |
|
|
| 169 |
|
Food and Beverage Merchandising |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cartons for fresh beverage products |
|
| 177 |
|
|
| 197 |
|
|
| 554 |
|
|
| 644 |
|
Bakery/snack/produce/fruit containers |
|
| 123 |
|
|
| 148 |
|
|
| 389 |
|
|
| 435 |
|
Meat trays |
|
| 108 |
|
|
| 103 |
|
|
| 323 |
|
|
| 278 |
|
Liquid packaging board |
|
| 68 |
|
|
| 152 |
|
|
| 317 |
|
|
| 388 |
|
Tableware |
|
| 103 |
|
|
| 112 |
|
|
| 309 |
|
|
| 325 |
|
Prepared food trays |
|
| 38 |
|
|
| 42 |
|
|
| 110 |
|
|
| 124 |
|
Egg cartons |
|
| 33 |
|
|
| 30 |
|
|
| 103 |
|
|
| 87 |
|
Paper products |
|
| — |
|
|
| 73 |
|
|
| 74 |
|
|
| 213 |
|
Other |
|
| 62 |
|
|
| 63 |
|
|
| 188 |
|
|
| 183 |
|
Reportable segment net revenues |
|
| 1,387 |
|
|
| 1,633 |
|
|
| 4,312 |
|
|
| 4,792 |
|
Other / Unallocated |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other |
|
| — |
|
|
| 26 |
|
|
| 2 |
|
|
| 75 |
|
Intersegment eliminations |
|
| (8 | ) |
|
| (50 | ) |
|
| (78 | ) |
|
| (123 | ) |
Net revenues |
| $ | 1,379 |
|
| $ | 1,609 |
|
| $ | 4,236 |
|
| $ | 4,744 |
|
For all product lines, there is a relatively short time period between the receipt of the order and cyclicality.
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 condensed consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.
Our Company and its Business Segments
We are a leading manufacturer and distributor of fresh foodservice and food merchandising products and fresh beverage cartons in North America. We produce a broad range of on-trend and feature-rich products that protect, package and display fresh food and beverages for consumers who wanttoday’s consumers. Our products include containers, drinkware (such as hot and cold cups and lids), cartons for fresh refrigerated beverage products, tableware, meat and poultry trays, liquid packaging board, serviceware, prepared food trays and egg cartons. Our products, many of which are made with recycled, recyclable or renewable materials, are sold to eat or drink fresh, prepared or ready-to-eat food and beverages conveniently and with confidence. We supply our products to a broad and diversified mix of companies,customers, including full service restaurants, (“FSRs”) and quick service restaurants (“QSRs”), foodservice distributors, supermarkets, grocery and healthy eating retailers, other food stores, food and beverage producers, packers and food processors.
Change in Segments
In the second quarter of manufacturing2023, in conjunction with the Beverage Merchandising Restructuring, we implemented a new operating and selling products through three reportable segments organized across three broad categories:
As of the end of the second quarter of 2023, we analyzed the results of our business through our Foodservice and Food and Beverage Merchandising segments. All prior periods have been recast to reflect the current reportable segment structure and the change in the management of certain product lines.
In connectionaddition, we provided certain unaudited recast financial information for the years ended December 31, 2022 and 2021, the four quarters of the year ended December 31, 2022 and the three months ended March 31, 2023 in a Current Report on Form 8-K filed with the IPO,U.S. Securities and Exchange Commission on September 16, 2020,August 2, 2023.
Refer to Note 3, Restructuring, Asset Impairment and Other Related Charges, and Note 18, Segment Information, for additional details.
Business Environment
During 2023, we distributed allexperienced a continued moderation in consumer demand for certain of our sharesproducts, primarily driven by sustained high levels of inflation and general macroeconomic uncertainty. While we have not seen a material economic contraction to-date, these pressures may continue to impact consumer demand and thus our customers’ purchasing decisions and order patterns throughout the remainder of 2023 and into 2024.
Our input costs have largely stabilized and have begun to moderate in Graham Packaging Company Inc.certain circumstances as compared to PFL,recent periods. We believe our sole shareholder, priorpricing strategy provides us with flexibility to completionmanage our market position through cost recovery mechanisms and strategic competitive pricing. In this dynamic environment, we remain focused on servicing our customers and improving manufacturing productivity across our business.
During the second quarter of the IPO (the “GPC Separation”). As a result of the GPC Separation, Graham Packaging Company Inc. and its subsidiaries have2023, we ceased to be wholly-owned subsidiaries of the Company. Following the IPO, we also completed following transactions:
Elevated interest rates, sustained high levels of inflation, geopolitical factors and the resulting volatility within the capital markets over the last year have created uncertainty with respect to the economic outlook. If economic conditions were used to repay indebtedness, as described below,deteriorate, a further decline in consumer spending may result, which could lead to a meaningful decline in demand for our products in the remainder of 2023 and paybeyond.
Recent Developments and Items Impacting Comparability
Beverage Merchandising Restructuring
On March 6, 2023, we announced the Beverage Merchandising Restructuring, a plan approved by our Board of Directors to take significant restructuring actions related transactionto our Beverage Merchandising operations. We expect these actions to increase our production efficiency, streamline our management structure and reduce our ongoing capital expenditures and overhead costs.
27
We expect that the Beverage Merchandising Restructuring will enable us to maintain our strong position in the liquid packaging market by increasing our overall productivity over time and obtained commitments for a new $250 million senior secured revolving credit facility maturing on August 5, 2024. The new term loans have an interest rate equal to one-month LIBOR with a 0.0% floor, plus a margin of 3.25% per annum. The proceedsoptimizing our manufacturing footprint. It also resulted in our exit from the new term loans were useduncoated freesheet paper market.
We also continue to refinanceexplore strategic alternatives for our Pine Bluff, Arkansas mill and our Waynesville, North Carolina facility. We have not set a portion of our existing term loans, as described below, andtimetable in relation to pay related transaction costs. this process.
The new revolving credit facility replaced our existing $302 million revolving credit facility.
Refer to Note 3, Restructuring, Asset Impairment and Other Related Charges, for additional details.
Dispositions
On January 4, 2022, we entered into a definitive agreement with SIG Schweizerische Industrie-Gesellschaft GmbH to sell Beverage Merchandising Asia. The transaction closed on August 2, 2022, and we expect that impactreceived proceeds of $336 million. We recognized a gain on sale of $239 million during the three months ended September 30, 2022. Sales of liquid packaging board to continue.
During the third quarter of time, stay-at-home,2022, we committed to a plan to sell our remaining closures or similar measures designed to limit the spread of COVID-19, resultingbusinesses included in the temporary closingOther operating segment and recognized a charge to earnings of many$56 million within restructuring, asset impairment and other related charges. We completed the sale of a substantial portion of these businesses these orders include exemptionson October 31, 2022, and the remaining operations on March 1, 2023, all for “essential businesses.” Allan immaterial amount.
On March 29, 2022, we completed the sale of our operations fall within those exemptionsequity interests in Naturepak Beverage, our 50% joint venture with Naturepak Limited, to affiliates of Elopak ASA. We received proceeds of $47 million and have remained open. Somerecognized a gain on the sale of our facilities, however, operate in communities that have had high incident ratesequity interests of COVID-19, resulting in many persons out sick or in quarantine, which has impacted production at some plants. We have implemented several policies designed to protect our employees and our customers including screening employees for all symptoms of COVID-19 (including increased temperature checking), ensuring social distancing is observed, providing physical barriers and personal protective equipment where employees work closely together, tracking and tracing of COVID-19 positive employees to identify close contacts and locations frequented, engagement of third-party vendors to deep-clean and sanitize facilities and enhancing pay and leave policies to ensure employees experiencing symptoms of COVID-19 stay at home. While certain of these measures taken have increased our costs, 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 the pandemic continues. We have taken actions to reduce non-essential spending, including the furlough of certain of our employees, reducing working capital in areas affected by lower sales and reducing non-essential capital spending.
None of these dispositions qualified for presentation as discontinued operations.
Pension Partial Settlement Transactions
On September 20, 2022 and toFebruary 24, 2022, using PPPE assets, we purchased non-participating group annuity contracts from insurance companies and transferred a lesser extent in the third quarter. Our Foodservice segment experienced a significant decline in net revenue due to the closure or reduced activity of restaurants and other food-serving institutions. Our Foodservice customers have adapted to COVID-19 restrictions and changes in consumer behavior by offering more take-out and online ordering options. Consistent with the easing of restrictions, towards the latter partportion of the second quarter of 2020PPPE’s projected benefit obligations. In each instance, the respective insurance companies have assumed responsibility for pension benefits and into the third quarter we experienced an increase in volumes and net revenues in our Foodservice segment. Our Food Merchandising segment has experienced a strong market demand for many of our products as people continue to eat more at home, while there has been a decline in demand for other products, such as bakery and snack containers typically used in many of the group gatherings that were either canceled or scaled back due to restrictions and concerns over COVID-19. Within our Beverage Merchandising segment, sales of fresh beverage cartons have remained relatively constant with declines in sales of school milk cartons being offset by higher demand in the retail segment, while sales in the paper markets have declined due to a decrease in demand of printed publications and advertising and demand for liquid packaging board has softened.
|
|
|
| (In millions) |
|
|
|
| ||||||||||
Transaction Date |
| Reporting Period |
| Assets Transferred |
|
| Projected Benefit Obligations Transferred |
|
| Settlement Gain Recognized |
|
| Number of Participants Impacted |
| ||||
September 20, 2022 |
| Q3 2022 |
| $ | 629 |
|
| $ | 656 |
|
| $ | 47 |
|
|
| 10,200 |
|
February 24, 2022 |
| Q1 2022 |
|
| 1,260 |
|
|
| 1,257 |
|
|
| 10 |
|
|
| 13,300 |
|
Non-GAAP Measures – Adjusted EBITDA from more people eating at home due to the pandemic. We cannot predict if, or for how long, such increased demand will continue. For those products with decreased demand, we do not expect to recover the sales lost during the pandemic, and certain industries we serve, primarily the restaurant industry, are experiencing severe impacts and may not return to pre-pandemic strength for a significant period of time. 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.
In addition to financial measures determined in accordance with GAAP, we make use of the non-GAAP financial measure Adjusted EBITDA from continuing operations in evaluatingto evaluate and manage our consolidated past resultsbusiness and our consolidated future prospects.
Adjusted EBITDA from continuing operations is defined as net income (loss) from continuing operations calculated in accordance with GAAP, plus the sum of income tax expense, net interest expense, depreciation and amortization and further adjusted to exclude certain items, of a significant or unusual nature, including but not limited to foreign exchange gains or losses on cash,restructuring, asset impairment and other related party management fees, unrealized gains or losses on derivatives,charges, gains or losses on the sale of businesses and noncurrent assets, restructuring, asset impairment and other related charges,non-cash pension income or expense, operational process engineering-related consultancy costs, non-cash pension incomebusiness acquisition and integration costs and purchase accounting adjustments, unrealized gains or expenselosses on derivatives, foreign exchange gains or losses on cash and strategic review and transaction-related costs.
We present Adjusted EBITDA from continuing operations because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions.decisions and incentivize and reward our employees. Accordingly, we believe that Adjusted EBITDA from continuing operations provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and boardBoard of directors. Directors. We also believe that using Adjusted EBITDA from continuing operations facilitates operating performance comparisons on a period-to-period basis because it excludes variations primarily caused by changes in the items noted above.
28
In addition, our chief operating decision maker, who is our President and Chief Executive Officer, uses Adjusted EBITDA of each reportable segment to evaluate the operating performance of such segments.
Our use of Adjusted EBITDA from continuing operations has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Instead, you should consider it alongside other financial performance measures, including our net income (loss) from continuing operations and other GAAP results. In addition, in evaluating Adjusted EBITDA from continuing operations, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments made in deriving Adjusted EBITDA from continuing operations, and you should not infer from our presentation of Adjusted EBITDA from continuing operations that our future results will not be affected by these expenses or any unusual or non-recurring items. The following is a reconciliation of our net income (loss) from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITDA from continuing operations for each of the periods indicated:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) from continuing operations (GAAP) |
| $ | 28 |
|
| $ | 175 |
|
| $ | (244 | ) |
| $ | 292 |
|
Income tax expense (benefit) |
|
| 22 |
|
|
| 79 |
|
|
| (5 | ) |
|
| 160 |
|
Interest expense, net |
|
| 61 |
|
|
| 59 |
|
|
| 188 |
|
|
| 158 |
|
Depreciation and amortization (excluding restructuring-related charges) |
|
| 81 |
|
|
| 85 |
|
|
| 247 |
|
|
| 255 |
|
Beverage Merchandising Restructuring charges(1) |
|
| 32 |
|
|
| — |
|
|
| 435 |
|
|
| — |
|
Other restructuring and asset impairment charges (reversals)(2) |
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| 58 |
|
(Gain) loss on sale of businesses and noncurrent assets(3) |
|
| — |
|
|
| (239 | ) |
|
| 1 |
|
|
| (266 | ) |
Non-cash pension expense (income)(4) |
|
| 2 |
|
|
| (44 | ) |
|
| 6 |
|
|
| (52 | ) |
Operational process engineering-related consultancy costs(5) |
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 7 |
|
Business integration costs(6) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Unrealized (gains) losses on commodity derivatives |
|
| (1 | ) |
|
| 10 |
|
|
| — |
|
|
| 4 |
|
Foreign exchange losses on cash |
|
| 2 |
|
|
| — |
|
|
| 4 |
|
|
| 2 |
|
Executive transition charges(7) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Losses (gains) on legal settlements(8) |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| (15 | ) |
Costs associated with legacy facility(9) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Other |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 1 |
|
Adjusted EBITDA from continuing operations (Non-GAAP) |
| $ | 227 |
|
| $ | 187 |
|
| $ | 633 |
|
| $ | 618 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in millions) | |||||||||||||||
Net loss from continuing operations (GAAP) | $ | (143 | ) | $ | (35 | ) | $ | (28 | ) | $ | (100 | ) | |||
Income tax expense (benefit) | 42 | — | (95 | ) | 16 | ||||||||||
Interest expense, net | 87 | 84 | 275 | 312 | |||||||||||
Depreciation and amortization | 73 | 68 | 213 | 198 | |||||||||||
Goodwill impairment charges(1) | 6 | 16 | 6 | 16 | |||||||||||
Restructuring, asset impairment and other related charges(2) | 14 | 39 | 18 | 45 | |||||||||||
Loss on sale of businesses and noncurrent assets(3) | 1 | 13 | 1 | 24 | |||||||||||
Non-cash pension income(4) | (18 | ) | — | (55 | ) | (2 | ) | ||||||||
Operational process engineering-related consultancy costs(5) | 3 | 5 | 12 | 18 | |||||||||||
Related party management fee(6) | 44 | 3 | 49 | 8 | |||||||||||
Strategic review and transaction-related costs(7) | 24 | 1 | 39 | 2 | |||||||||||
Foreign exchange losses (gains) on cash(8) | 42 | (17 | ) | 14 | (17 | ) | |||||||||
Unrealized (gains) losses on derivatives(9) | (1 | ) | 1 | (3 | ) | (6 | ) | ||||||||
Other | (1 | ) | (1 | ) | (1 | ) | 4 | ||||||||
Adjusted EBITDA from continuing operations (Non-GAAP) | $ | 173 | $ | 177 | $ | 445 | $ | 518 |
29
Results of Operations
Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019
(In millions) | Foodservice | Food Merchandising | Beverage Merchandising | ||||||||
Net revenues | |||||||||||
2020 | $ | 473 | $ | 354 | $ | 361 | |||||
2019 | $ | 546 | $ | 351 | $ | 401 | |||||
Adjusted EBITDA | |||||||||||
2020 | $ | 81 | $ | 72 | $ | 24 | |||||
2019 | $ | 89 | $ | 56 | $ | 45 |
For the Three Months Ended September 30, | ||||||||||||||||||||
(In millions, except for %) | 2020 | % of revenue | 2019 | % of revenue | Change | % change | ||||||||||||||
Net revenues | $ | 1,195 | 100 | % | $ | 1,306 | 100 | % | $ | (111 | ) | (8 | )% | |||||||
Cost of sales | (1,011 | ) | (85 | )% | (1,100 | ) | (84 | )% | 89 | 8 | % | |||||||||
Gross profit | 184 | 15 | % | 206 | 16 | % | (22 | ) | (11 | )% | ||||||||||
Selling, general and administrative expenses | (116 | ) | (10 | )% | (104 | ) | (8 | )% | (12 | ) | (12 | )% | ||||||||
Goodwill impairment charges | (6 | ) | (1 | )% | (16 | ) | (1 | )% | 10 | 63 | % | |||||||||
Restructuring, asset impairment and other related charges | (14 | ) | (1 | )% | (39 | ) | (3 | )% | 25 | 64 | % | |||||||||
Other (expense) income, net | (79 | ) | (7 | )% | 2 | — | % | (81 | ) | NM | ||||||||||
Operating (loss) income from continuing operations | (31 | ) | (3 | )% | 49 | 4 | % | (80 | ) | NM | ||||||||||
Non-operating income, net | 17 | 1 | % | — | — | % | 17 | NM | ||||||||||||
Interest expense, net | (87 | ) | (7 | )% | (84 | ) | (6 | )% | (3 | ) | (4 | )% | ||||||||
Loss from continuing operations before tax | (101 | ) | (8 | )% | (35 | ) | (3 | )% | (66 | ) | NM | |||||||||
Income tax expense | (42 | ) | (4 | )% | — | — | % | (42 | ) | NM | ||||||||||
Loss from continuing operations | (143 | ) | (12 | )% | (35 | ) | (3 | )% | (108 | ) | NM | |||||||||
(Loss) income from discontinued operations, net of income taxes | (216 | ) | NM | 91 | NM | (307 | ) | NM | ||||||||||||
Net (loss) income | $ | (359 | ) | NM | $ | 56 | NM | $ | (415 | ) | NM | |||||||||
Adjusted EBITDA from continuing operations(1) | $ | 173 | 14 | % | $ | 177 | 14 | % | $ | (4 | ) | (2 | )% |
Consolidated Results
| For the Three Months Ended September 30, |
| ||||||||||||||||||||||
(In millions, except for %) |
| 2023 |
|
| % of |
|
| 2022 |
|
| % of |
|
| Change |
|
| % Change |
| ||||||
Net revenues |
| $ | 1,379 |
|
|
| 100 | % |
| $ | 1,609 |
|
|
| 100 | % |
| $ | (230 | ) |
|
| (14 | )% |
Cost of sales |
|
| (1,098 | ) |
|
| (80 | )% |
|
| (1,377 | ) |
|
| (86 | )% |
|
| 279 |
|
|
| 20 | % |
Gross profit |
|
| 281 |
|
|
| 20 | % |
|
| 232 |
|
|
| 14 | % |
|
| 49 |
|
|
| 21 | % |
Selling, general and administrative expenses |
|
| (137 | ) |
|
| (10 | )% |
|
| (145 | ) |
|
| (9 | )% |
|
| 8 |
|
|
| 6 | % |
Restructuring, asset impairment and other related charges |
|
| (28 | ) |
|
| (2 | )% |
|
| (57 | ) |
|
| (4 | )% |
|
| 29 |
|
|
| 51 | % |
Other (expense) income, net |
|
| (3 | ) |
|
| — | % |
|
| 239 |
|
|
| 15 | % |
|
| (242 | ) |
| NM |
| |
Operating income from continuing operations |
|
| 113 |
|
|
| 8 | % |
|
| 269 |
|
|
| 17 | % |
|
| (156 | ) |
|
| 58 | % |
Non-operating (expense) income, net |
|
| (2 | ) |
|
| — | % |
|
| 44 |
|
|
| 3 | % |
|
| (46 | ) |
| NM |
| |
Interest expense, net |
|
| (61 | ) |
|
| (4 | )% |
|
| (59 | ) |
|
| (4 | )% |
|
| (2 | ) |
|
| (3 | )% |
Income from continuing operations before tax |
|
| 50 |
|
|
| 4 | % |
|
| 254 |
|
|
| 16 | % |
|
| (204 | ) |
|
| 80 | % |
Income tax expense |
|
| (22 | ) |
|
| (2 | %) |
|
| (79 | ) |
|
| (5 | )% |
|
| 57 |
|
|
| 72 | % |
Income from continuing operations |
|
| 28 |
|
|
| 2 | % |
|
| 175 |
|
|
| 11 | % |
|
| (147 | ) |
|
| 84 | % |
Income from discontinued operations, net of income taxes |
|
| 2 |
|
|
|
|
|
| 1 |
|
|
|
|
|
| 1 |
|
|
|
| |||
Net income |
| $ | 30 |
|
|
|
|
| $ | 176 |
|
|
|
|
| $ | (146 | ) |
|
|
| |||
Adjusted EBITDA from continuing operations(1) |
| $ | 227 |
|
|
| 16 | % |
| $ | 187 |
|
|
| 12 | % |
| $ | 40 |
|
|
| 21 | % |
NM indicates that the calculation is not meaningful.“not meaningful”.
Components of Change in Reportable Segment Net Revenues for the Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019
Price/Mix | Volume | FX | Total | ||||
Net revenues | (1)% | (7)% | —% | (8)% | |||
By reportable segment: | |||||||
Foodservice | (3)% | (10)% | —% | (13)% | |||
Food Merchandising | 3% | (1)% | (1)% | 1% | |||
Beverage Merchandising | (2)% | (8)% | —% | (10)% |
|
| Price/Mix |
|
| Volume |
|
| Dispositions / Mill Closure |
|
| FX |
|
| Total |
| |||||
Net revenues |
|
| (2 | )% |
|
| (4 | )% |
|
| (9 | )% |
|
| 1 | % |
|
| (14 | )% |
By reportable segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foodservice |
|
| (5 | )% |
|
| — | % |
|
| — | % |
|
| — | % |
|
| (5 | )% |
Food and Beverage Merchandising |
|
| — | % |
|
| (6 | )% |
|
| (18 | )% |
|
| 1 | % |
|
| (23 | )% |
Net Revenues. Net revenues for the three months ended September 30, 20202023 decreased by $111$230 million, or 8%14%, to $1,195$1,379 million compared to the three months ended September 30, 2019.prior year period. The decrease was primarily due to the closure of our Canton, North Carolina mill during the second quarter of 2023, lower sales volume across all segments,and unfavorable pricing due to lower material costs. Lower sales volume was largely due to a focus on value over volume and the unfavorable impact from the COVID-19 pandemic, as well as lower pricing, mainly due to lower raw material costs passed through to customers.market softening amid inflationary pressures within our Food and Beverage Merchandising segment.
Cost of Sales. Cost of sales for the three months ended September 30, 20202023 decreased by $89$279 million, or 8%20%, to $1,011$1,098 million compared to the three months ended September 30, 2019.prior year period. The decrease was primarily due to the closure of our Canton, North Carolina mill, lower material costs and lower sales volume and lower raw material costs, partially offset by higher manufacturing costs driven by planned mill outages within the Beverage Merchandising segment in the current year period.volume.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended September 30, 2020 increased2023 decreased by $12$8 million, or 12%6%, to $116$137 million compared to the three months ended September 30, 2019.prior year period. The increasedecrease was primarily due to higher strategic and transaction-related costs, partially offset by lower employeeemployee-related costs.
Goodwill Impairment Charges. 30
Goodwill impairment charges for the three months ended September 30, 2020 decreased by $10 million to $6 million compared to the three months ended September 30, 2019. The goodwill impairment charges in both periods related to our remaining closures business. For additional information, refer to Note 5 - Impairment, Restructuring and Other Related Charges of our interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Restructuring, Asset Impairment and Other Related ChargesCharges.. Restructuring, asset impairment and other related charges for the three months ended September 30, 20202023 decreased by $25$29 million, or 64%51%, to $14$28 million compared to the prior year period. The current period expense related to activities associated with the Beverage Merchandising Restructuring. The prior year period expense was primarily due to a $56 million impairment charge related to the decision to exit our remaining closures businesses. Refer to Note 3, Restructuring, Asset Impairment and Other Related Charges, for additional details.
Other (Expense) Income, Net. During the three months ended September 30, 2019. The decrease reflects different initiatives across our segments. For additional information, refer to Note 5 - Impairment, Restructuring and Other Related Charges of our interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Non-operating (Expense) Income, (Expense), Net. Non-operating income,expense, net, for the three months ended September 30, 2020 increased to $172023 was $2 million of expense compared to nil$44 million of income for the three months ended September 30, 2019.2022. The increasechange was primarily due to a decrease in interest cost on benefit plans, largely as a result of a decrease in interest rates, and an increase$47 million pension settlement gain recognized in the expected return on pension plan assets.prior year period. Refer to Note 10,
Interest Expense, Net. Interest expense, net, for the three months ended September 30, 20202023 increased by $3$2 million, or 4%3%, to $87$61 million, compared to the three months ended September 30, 2019.prior year period. The increase was primarily due to an unfavorable change of $29 millionincrease in net foreign currency losses and a $10 million lossthe interest rate on extinguishment of debt,our floating rate term loans, partially offset by a $23 million reduction in interest expense on our Credit Agreement and a $12 million reduction in interest expense on our notes. The lower interest expense on our Credit Agreement reflects a reduction in the underlying LIBO reference rate on the U.S. term loan, which was 0.16% as of September 30, 2020 comparedtotal debt outstanding. Refer to 2.04% as of September 30, 2019. The decrease in interest expense on our notes is primarily attributable to the repayment of $345 million of the 6.875% notes in November 2019.Note 8
Income Tax Benefit (Expense) Benefit. .During the three months ended September 30, 2020,2023, we recognized a tax expense of $42$22 million on a lossincome from continuing operations before tax of $101$50 million, compared to no tax expense of $79 million on a lossincome from continuing operations before tax of $35$254 million for the three months ended September 30, 2019.prior year period. The effective tax rate during the three months ended September 30, 2020current year period was driven primarily attributableby the inability to recognize a $105 million discrete increase in our valuation allowance for deferredtax benefit on all interest deductions following the reassessment of the recoverability of our deferred interest deductions as a result of the distribution of Graham Packaging in September 2020.expense. The effective tax rate during the three months ended September 30, 2019prior year period was primarily attributable to additional valuation allowances, mainly in relation totax impacts from the deductibilitysale of deferred interest deductions, and the mix of book income and losses among the jurisdictions in which we operate, offset by a discrete benefit as a result of filing amended returns to claim a foreign tax credit in lieu of a foreign tax deduction.our businesses.
(Loss) Income from Discontinued Operations, Net of Continuing Operations. Income Taxes. Loss from discontinued operations, net of income taxes for the three months ended September 30, 2020 changed by $307 million, resulting in a loss of $216 million compared to the three months ended September 30, 2019. The three months ended September 30, 2020 included only two and half months of results of our former Graham Packaging segment, while the results for the three months ended September 30, 2019 include the three months of results of our former RCP, closures and Graham Packaging segments. Additionally, the income tax provision related to our discontinuedcontinuing operations for the three months ended September 30, 20202023 decreased $147 million, or 84%, to $28 million compared to the prior year period. The prior year period included a $239 million gain on the sale of Beverage Merchandising Asia and a $47 million pension settlement gain, partially offset by a $56 million impairment charge due to the decision to exit our remaining closures businesses. The change in income from continuing operations was not materiallyalso impacted by a $57 million decrease in tax expense, largely driven by the new provisionsdiscrete tax effect of the CARES Actgain on sale in the prior year period, a $49 million increase in gross profit, primarily from lower material and thus was attributed a disproportionately higher estimated annualized effective rate. This interim tax expense will largely reverse duringtransportation costs, partially offset by $28 million in current year period charges related to the remainder of the year ending December 31, 2020. Refer to Note 3 - Discontinued Operations of our interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.Beverage Merchandising Restructuring.
Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations for the three months ended September 30, 2020 decreased2023 increased by $4$40 million, or 2%21%, to $173$227 million compared to the three months ended September 30, 2019.prior year period. The decreaseincrease was primarily dueattributable to higher manufacturing costs driven by planned mill outages, lower volume due to the impact of COVID-19 and lower pricing, partially offset by favorable raw material costs, net of lower costs passed through, to customers, favorable net logistics costs and lower employee-related costs.transportation and manufacturing costs, partially offset by the closure of our Canton, North Carolina mill and lower sales volume.
Segment Information
Foodservice
|
| For the Three Months Ended September 30, |
| |||||||||||||
(In millions, except for %) |
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Total segment net revenues |
| $ | 675 |
|
| $ | 713 |
|
| $ | (38 | ) |
|
| (5 | )% |
Segment Adjusted EBITDA |
| $ | 117 |
|
| $ | 107 |
|
| $ | 10 |
|
|
| 9 | % |
Segment Adjusted EBITDA margin(1) |
|
| 17 | % |
|
| 15 | % |
|
|
|
|
|
|
For the Three Months Ended September 30, | ||||||||||||||
(In millions, except for %) | 2020 | 2019 | Change | % change | ||||||||||
Total segment net revenues | $ | 473 | $ | 546 | $ | (73 | ) | (13 | )% | |||||
Segment Adjusted EBITDA | $ | 81 | $ | 89 | $ | (8 | ) | (9 | )% | |||||
Segment Adjusted EBITDA Margin | 17 | % | 16 | % |
Total Segment Net Revenues. Foodservice total segment net revenues for the three months ended September 30, 20202023 decreased by $73$38 million, or 13%5%, to $473$675 million compared to the three months ended September 30, 2019.prior year period. The decrease was primarilymainly due to lower sales volume due to market contraction from the impact of the COVID-19 pandemic, as well as lowerunfavorable pricing, primarily due to lower raw material costs passed through to customers.costs.
Adjusted EBITDA. Foodservice Adjusted EBITDA for the three months ended September 30, 2020 decreased2023 increased by $8$10 million, or 9%, to $81$117 million compared to the three months ended September 30, 2019.prior year period. The decreaseincrease was primarily due to lower sales volume due to the impact of the COVID-19 pandemictransportation and higher manufacturing costs, partially offset by lower raw material costs, net of costs passed through.
31
Food and lower logistics costs due to lower sales volume and favorable freight rates.Beverage Merchandising
For the Three Months Ended September 30, | ||||||||||||||
(In millions, except for %) | 2020 | 2019 | Change | % change | ||||||||||
Total segment net revenues | $ | 354 | $ | 351 | $ | 3 | 1 | % | ||||||
Segment Adjusted EBITDA | $ | 72 | $ | 56 | $ | 16 | 29 | % | ||||||
Segment Adjusted EBITDA Margin | 20 | % | 16 | % |
| For the Three Months Ended September 30, |
| ||||||||||||||
(In millions, except for %) |
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Total segment net revenues |
| $ | 712 |
|
| $ | 920 |
|
| $ | (208 | ) |
|
| (23 | )% |
Segment Adjusted EBITDA |
| $ | 130 |
|
| $ | 102 |
|
| $ | 28 |
|
|
| 27 | % |
Segment Adjusted EBITDA margin |
|
| 18 | % |
|
| 11 | % |
|
|
|
|
|
|
Total Segment Net Revenues. Food Merchandising total segment net revenues for the three months ended September 30, 2020 increased by $3 million, or 1%, to $354 million compared to the three months ended September 30, 2019. The increase was primarily due to favorable pricing, partially offset by lower costs passed through to customers, an unfavorable foreign currency impact and lower volume.
For the Three Months Ended September 30, | ||||||||||||||
(In millions, except for %) | 2020 | 2019 | Change | % change | ||||||||||
Total segment net revenues | $ | 361 | $ | 401 | $ | (40 | ) | (10 | )% | |||||
Segment Adjusted EBITDA | $ | 24 | $ | 45 | $ | (21 | ) | (47 | )% | |||||
Segment Adjusted EBITDA Margin | 7 | % | 11 | % |
Adjusted EBITDA. Food and Beverage Merchandising Adjusted EBITDA for the three months ended September 30, 2020 decreased2023 increased by $21$28 million, or 47%27%, to $24$130 million compared to the three months ended September 30, 2019.prior year period. The decreaseincrease was primarily due to lower pricingmaterial costs, net of costs passed through, and lower transportation and manufacturing costs, partially offset by the closure of our Canton, North Carolina mill and lower sales volume due to the impact of the COVID-19 pandemic, as well as increased manufacturing costs due to planned mill outages in the current year quarter. These items were partially offset by lower raw material costs, driven by wood supply as markets have returned to historical normalized levels from prior year weather-related increases and lower employee-related expenses.volume.
Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019
Consolidated Results
|
| For the Nine Months Ended September 30, |
| |||||||||||||||||||||
(In millions, except for %) |
| 2023 |
|
| % of |
|
| 2022 |
|
| % of |
|
| Change |
|
| % Change |
| ||||||
Net revenues |
| $ | 4,236 |
|
|
| 100 | % |
| $ | 4,744 |
|
|
| 100 | % |
| $ | (508 | ) |
|
| (11 | )% |
Cost of sales |
|
| (3,756 | ) |
|
| (89 | )% |
|
| (3,972 | ) |
|
| (84 | )% |
|
| 216 |
|
|
| 5 | % |
Gross profit |
|
| 480 |
|
|
| 11 | % |
|
| 772 |
|
|
| 16 | % |
|
| (292 | ) |
|
| (38 | )% |
Selling, general and administrative expenses |
|
| (403 | ) |
|
| (10 | )% |
|
| (435 | ) |
|
| (9 | )% |
|
| 32 |
|
|
| 7 | % |
Restructuring, asset impairment and other related charges |
|
| (133 | ) |
|
| (3 | )% |
|
| (58 | ) |
|
| (1 | )% |
|
| (75 | ) |
|
| (129 | )% |
Other income, net |
|
| 1 |
|
|
| — | % |
|
| 279 |
|
|
| 6 | % |
|
| (278 | ) |
|
| (100 | )% |
Operating (loss) income from continuing operations |
|
| (55 | ) |
|
| (1 | )% |
|
| 558 |
|
|
| 12 | % |
|
| (613 | ) |
| NM |
| |
Non-operating (expense) income, net |
|
| (6 | ) |
|
| — | % |
|
| 52 |
|
|
| 1 | % |
|
| (58 | ) |
| NM |
| |
Interest expense, net |
|
| (188 | ) |
|
| (4 | )% |
|
| (158 | ) |
|
| (3 | )% |
|
| (30 | ) |
|
| (19 | )% |
(Loss) income from continuing operations before tax |
|
| (249 | ) |
|
| (6 | )% |
|
| 452 |
|
|
| 10 | % |
|
| (701 | ) |
| NM |
| |
Income tax benefit (expense) |
|
| 5 |
|
|
| — | % |
|
| (160 | ) |
|
| (3 | )% |
|
| 165 |
|
| NM |
| |
(Loss) income from continuing operations |
|
| (244 | ) |
|
| (6 | )% |
|
| 292 |
|
|
| 6 | % |
|
| (536 | ) |
| NM |
| |
Income from discontinued operations, net of income taxes |
|
| 2 |
|
|
|
|
|
| 1 |
|
|
|
|
|
| 1 |
|
|
|
| |||
Net (loss) income |
| $ | (242 | ) |
|
|
|
| $ | 293 |
|
|
|
|
| $ | (535 | ) |
|
|
| |||
Adjusted EBITDA from continuing operations(1) |
| $ | 633 |
|
|
| 15 | % |
| $ | 618 |
|
|
| 13 | % |
| $ | 15 |
|
|
| 2 | % |
(In millions) | Foodservice | Food Merchandising | Beverage Merchandising | ||||||||
Net revenues | |||||||||||
2020 | $ | 1,351 | $ | 1,046 | $ | 1,106 | |||||
2019 | $ | 1,630 | $ | 1,037 | $ | 1,188 | |||||
Adjusted EBITDA | |||||||||||
2020 | $ | 170 | $ | 186 | $ | 112 | |||||
2019 | $ | 262 | $ | 161 | $ | 142 |
For the Nine Months Ended September 30, | ||||||||||||||||||||
(In millions, except for %) | 2020 | % of revenue | 2019 | % of revenue | Change | % change | ||||||||||||||
Net revenues | $ | 3,514 | 100 | % | $ | 3,888 | 100 | % | $ | (374 | ) | (10 | )% | |||||||
Cost of sales | (2,982 | ) | (85 | )% | (3,249 | ) | (84 | )% | 267 | 8 | % | |||||||||
Gross profit | 532 | 15 | % | 639 | 16 | % | (107 | ) | (17 | )% | ||||||||||
Selling, general and administrative expenses | (358 | ) | (10 | )% | (341 | ) | (9 | )% | (17 | ) | (5 | )% | ||||||||
Goodwill impairment charges | (6 | ) | — | % | (16 | ) | — | % | 10 | 63 | % | |||||||||
Restructuring, asset impairment and other related charges | (18 | ) | (1 | )% | (45 | ) | (1 | )% | 27 | 60 | % | |||||||||
Other (expense) income, net | (48 | ) | (1 | )% | (7 | ) | — | % | (41 | ) | NM | |||||||||
Operating income from continuing operations | 102 | 3 | % | 230 | 6 | % | (128 | ) | (56 | )% | ||||||||||
Non-operating income (expense), net | 50 | 1 | % | (2 | ) | — | % | 52 | NM | |||||||||||
Interest expense, net | (275 | ) | (8 | )% | (312 | ) | (8 | )% | 37 | 12 | % | |||||||||
(Loss) income from continuing operations before tax | (123 | ) | (4 | )% | (84 | ) | (2 | )% | (39 | ) | (46 | )% | ||||||||
Income tax benefit (expense) | 95 | 3 | % | (16 | ) | — | % | 111 | NM | |||||||||||
Net (loss) from continuing operations | (28 | ) | (1 | )% | (100 | ) | (3 | )% | 72 | 72 | % | |||||||||
(Loss) income from discontinued operations, net of income taxes | (234 | ) | NM | 270 | NM | (504 | ) | NM | ||||||||||||
Net (loss) income | $ | (262 | ) | NM | $ | 170 | NM | $ | (432 | ) | NM | |||||||||
Adjusted EBITDA from continuing operations(1) | $ | 445 | 13 | % | $ | 518 | 13 | % | $ | (73 | ) | (14 | )% |
Components of Change in Reportable Segment Net Revenues for the Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019
Price/Mix | Volume | FX | Total | ||||
Net revenues | (2)% | (8)% | —% | (10)% | |||
By reportable segment: | |||||||
Foodservice | (3)% | (14)% | —% | (17)% | |||
Food Merchandising | 3% | (1)% | (1)% | 1% | |||
Beverage Merchandising | (2)% | (5)% | —% | (7)% |
|
| Price/Mix |
|
| Volume |
|
| Dispositions / Mill Closure |
|
| FX |
|
| Total |
| |||||
Net revenues |
|
| — | % |
|
| (4 | )% |
|
| (7 | )% |
|
| — | % |
|
| (11 | )% |
By reportable segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foodservice |
|
| (4 | )% |
|
| (4 | )% |
|
| — | % |
|
| — | % |
|
| (8 | )% |
Food and Beverage Merchandising |
|
| 4 | % |
|
| (5 | )% |
|
| (12 | )% |
|
| 1 | % |
|
| (12 | )% |
32
Net Revenues. Net revenues for the nine months ended September 30, 20202023 decreased by $374$508 million, or 10%11%, to $3,514$4,236 million compared to the nine months ended September 30, 2019.prior year period. The decrease was primarily due to the closure of our Canton, North Carolina mill during the second quarter of 2023, lower sales volume across all segments, largelyand the disposition of Beverage Merchandising Asia on August 2, 2022. Lower sales volume was mainly due to a focus on value over volume and the market softening amid inflationary pressures. Favorable pricing in our Food and Beverage Merchandising segment, driven by pricing actions, was offset by unfavorable pricing in our Foodservice segment, mainly due to the unfavorable impact from the COVID-19 pandemic, as well ascontractual pass-through of lower pricing mainly due to lower raw material costs passed through to customers.costs.
Cost of Sales. Cost of sales for the nine months ended September 30, 20202023 decreased by $267$216 million, or 8%5%, to $2,982$3,756 million compared to the nine months ended September 30, 2019.prior year period. The decrease was primarily due to the closure of our Canton, North Carolina mill, lower sales volume, lower raw material costs, the disposition of Beverage Merchandising Asia and lower logistics costs,transportation costs. This decrease was partially offset by $298 million of charges related to the Beverage Merchandising Restructuring as well as higher manufacturing costs. Refer to Note 3
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2020 increased2023 decreased by $17$32 million, or 5%7%, to $358$403 million compared to the nine months ended September 30, 2019.prior year period. The increasedecrease was primarily due to higher strategic reviewlower employee-related costs, partially offset by lower employee costs.
Restructuring, Asset Impairment and Other Related ChargesCharges.. Restructuring, asset impairment and other related charges for the nine months ended September 30, 2020 decreased2023 increased by $27$75 million, or 60%129%, to $18$133 million compared to the nine months ended September 30, 2019.prior year period. The decrease reflects different initiatives acrosscurrent year period expense arose from Beverage Merchandising Restructuring charges. The prior year period expense was primarily related to an impairment charge related to the decision to exit our segments. For additional information, referremaining closures businesses Refer to Note 5 -3, Restructuring, Asset Impairment Restructuring and Other Related Charges of our interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Other (Expense) Income, Net. Other expense, netIncome, Net, for the nine months ended September 30, 2020 increased2023 decreased by $41$278 million to $48$1 million, compared to $7the prior year period. The prior year period included a $239 million forgain on the nine months ended September 30, 2019. The increase was primarily attributable to an increase in the related party management fee and an unfavorable change in foreign exchange losses, largely on U.S. dollar cash balances held by entities with a non-U.S. dollar functional currency, partially offset by a decrease in losses on sale of businessesBeverage Merchandising Asia, a $27 million gain on the sale of our equity interests in Naturepak Beverage and other noncurrent assets and an increase in transition service agreement income.a gain of $15 million, net of costs, related to the settlement of a historical legal action.
Non-operating (Expense) Income, (Expense), Net. Non-operating (expense) income, net, for the nine months ended September 30, 2020 changed by2023 was $6 million of expense compared to $52 million to $50 million of income compared to $2 million of expense for the nine months ended September 30, 2019.2022. The change was primarilyprincipally due to a decrease in interest cost on benefit plans, largely as a result$57 million of a decrease in interest rates, and an increasepension settlement gains recognized in the expected return on pension plan assets.prior year period. Refer to Note 10,
Interest Expense, Net. Interest expense, net, for the nine months ended September 30, 2020 decreased2023 increased by $37$30 million, or 12%19%, to $275$188 million, compared to the nine months ended September 30, 2019.prior year period. The decreaseincrease was primarily due to a $47 million reductionan increase in the interest expenserate on our Credit Agreement and a $24 million reduction in interest expense on our notes,floating rate term loans, partially offset by an unfavorable change in net foreign currency exchange gains. The lower interest expense on our Credit Agreement is primarily attributable to a reduction in the underlying LIBO reference rate on the U.S. term loan, which was 0.16% as of September 30, 2020 comparedtotal debt outstanding. Refer to 2.04% as of September 30, 2019. The decrease in interest expense on our notes is primarily attributable to the repayment of $345 million of the 6.875% notes in November 2019.Note 8
Income Tax Benefit (Expense) Benefit. .During the nine months ended September 30, 2020,2023, we recognized a tax benefit of $95$5 million on a loss from continuing operations before tax of $123$249 million, compared to tax expense of $16$160 million on a lossincome from continuing operations before tax of $84$452 million duringfor the nine months ended September 30, 2019. In both periods, the effective tax rate
(Loss) Income from Discontinued Operations, Net of Income TaxesContinuing Operations. . Loss(Loss) income from discontinued operations, net of income taxes for the nine months ended September 30, 2020 changed by $504 million, resulting in a loss of $234 million compared to the nine months ended September 30, 2019. The nine months ended September 30, 2020 included only approximately one month of results of our former RCP segment and eight and half months of results of our former Graham Packaging segment, while the results for the nine months ended September 30, 2019 included all of the results of our former RCP, closures and Graham Packaging segments. The income tax provision related to our discontinuedcontinuing operations for the nine months ended September 30, 20202023 was not materiallya loss of $244 million compared to income of $292 million for the nine months ended September 30, 2022. The change was impacted by $435 million of current year period charges related to the new provisions of the CARES ActBeverage Merchandising Restructuring and thus was attributed a disproportionately higher estimated annualized effective rate. This interim$165 million decrease in tax expense, will largely reverse duringdriven by the remainderdiscrete tax effects of restructuring charges in the current year ending December 31, 2020. Referperiod and gains on sales in the prior year period. In addition, the prior year period included $266 million of gains on the sale of businesses and $57 million of pension settlement gains, partially offset by a $56 million impairment charge due to Note 3 - Discontinued Operations ofthe decision to exit our interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.remaining closures businesses.
Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations for the nine months ended September 30, 2020 decreased2023 increased by $73$15 million, or 14%2%, to $445$633 million compared to the nine months ended September 30, 2019.prior year period. The decrease was primarily due toincrease reflects lower sales volume due to the impact of the COVID-19 pandemic, higher manufacturing costs and lower pricing. These items were partially offset by favorable material costs, net of lower costs passed through, to customers, and lower logistics costs.transportation costs, partially offset by higher manufacturing costs, lower sales volume as well as the impact from the closure of our Canton, North Carolina mill and the disposition of Beverage Merchandising Asia.
33
Segment Information
Foodservice
For the Nine Months Ended September 30, | ||||||||||||||
(In millions, except for %) | 2020 | 2019 | Change | % change | ||||||||||
Total segment net revenues | $ | 1,351 | $ | 1,630 | $ | (279 | ) | (17 | )% | |||||
Segment Adjusted EBITDA | $ | 170 | $ | 262 | $ | (92 | ) | (35 | )% | |||||
Segment Adjusted EBITDA Margin | 13 | % | 16 | % |
| For the Nine Months Ended September 30, |
| ||||||||||||||
(In millions, except for %) |
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Total segment net revenues |
| $ | 1,945 |
|
| $ | 2,115 |
|
| $ | (170 | ) |
|
| (8 | )% |
Segment Adjusted EBITDA |
| $ | 351 |
|
| $ | 378 |
|
| $ | (27 | ) |
|
| (7 | )% |
Segment Adjusted EBITDA margin |
|
| 18 | % |
|
| 18 | % |
|
|
|
|
|
|
Total Segment Net Revenues. Foodservice total segment net revenues for the nine months ended September 30, 20202023 decreased by $279$170 million, or 17%8%, to $1,351$1,945 million compared to the nine months ended September 30, 2019.prior year period. The decrease was mainly due to unfavorable pricing, largely due to lower material costs, and lower sales volume, primarily due to lower sales volume due to market contraction from the cumulative impact of the COVID-19 pandemic, as well as lower pricing primarily due to lower raw material costs passed through to customers.our strategy focused on value over volume.
Adjusted EBITDA. Foodservice Adjusted EBITDA for the nine months ended September 30, 20202023 decreased by $92$27 million, or 35%7%, to $170$351 million compared to the nine months ended September 30, 2019.prior year period. The decrease was primarily due to lower sales volume due to the impact of the COVID-19 pandemic, higher manufacturing costs due to measures put in place to continue to operate during the pandemic and lower production, and lower pricing. These items weresales volume, partially offset by lower logisticstransportation and material costs, due to lower sales volumenet of costs passed through.
Food and favorable freight rates.Beverage Merchandising
For the Nine Months Ended September 30, | ||||||||||||||
(In millions, except for %) | 2020 | 2019 | Change | % change | ||||||||||
Total segment net revenues | $ | 1,046 | $ | 1,037 | $ | 9 | 1 | % | ||||||
Segment Adjusted EBITDA | $ | 186 | $ | 161 | $ | 25 | 16 | % | ||||||
Segment Adjusted EBITDA Margin | 18 | % | 16 | % |
| For the Nine Months Ended September 30, |
| ||||||||||||||
(In millions, except for %) |
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Total segment net revenues |
| $ | 2,367 |
|
| $ | 2,677 |
|
| $ | (310 | ) |
|
| (12 | )% |
Segment Adjusted EBITDA |
| $ | 340 |
|
| $ | 303 |
|
| $ | 37 |
|
|
| 12 | % |
Segment Adjusted EBITDA margin |
|
| 14 | % |
|
| 11 | % |
|
|
|
|
|
|
Total Segment Net Revenues. Food Merchandising total segment net revenues for the nine months ended September 30, 2020 increased by $9 million, or 1%, to $1,046 million compared to the nine months ended September 30, 2019. The increase was
For the Nine Months Ended September 30, | ||||||||||||||
(In millions, except for %) | 2020 | 2019 | Change | % change | ||||||||||
Total segment net revenues | $ | 1,106 | $ | 1,188 | $ | (82 | ) | (7 | )% | |||||
Segment Adjusted EBITDA | $ | 112 | $ | 142 | $ | (30 | ) | (21 | )% | |||||
Segment Adjusted EBITDA Margin | 10 | % | 12 | % |
Adjusted EBITDA. Food and Beverage Merchandising Adjusted EBITDA for the nine months ended September 30, 2020 decreased2023 increased by $30$37 million, or 21%12%, to $112$340 million compared to the nine months ended September 30, 2019.prior year period. The decreaseincrease was primarily due to increasedfavorable pricing, net of material costs passed through, and lower transportation costs, partially offset by higher manufacturing costs, due to production inefficiencies, higher costs and unfavorable impacts from planned mill outages, as well as lower pricing and lower sales volume, duethe closure of our Canton, North Carolina mill and the disposition of Beverage Merchandising Asia.
Liquidity and Capital Resources
We manage our capital structure in an effort to the impact of the COVID-19 pandemic. These items were partially offset by lower raw material costs, driven by wood supply as marketsmost effectively execute our strategic priorities and maximize shareholder value. We believe that we have returnedsufficient liquidity to historical normalized levels from prior year weather-related increasessupport our ongoing operations and lower employee-related expenses.
For the Nine Months Ended September 30, | |||||||
(In millions) | 2020 | 2019 | |||||
Net cash provided by operating activities | $ | 270 | $ | 563 | |||
Net cash used in investing activities | (320 | ) | (445 | ) | |||
Net cash provided by (used in) financing activities | 536 | (29 | ) | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash, excluding the effect of exchange rate changes | $ | 486 | $ | 89 |
Cash provided by operating activities
Our cash provided by operating activities decreased by $293 million, or 52%, to $270 millionflows for the nine months ended September 30, 20202023 and 2022 were as follows:
| For the Nine Months Ended September 30, |
| ||||||
(In millions) |
| 2023 |
|
| 2022 |
| ||
Net cash provided by operating activities |
| $ | 453 |
|
| $ | 241 |
|
Net cash (used in) provided by investing activities |
|
| (167 | ) |
|
| 196 |
|
Net cash used in financing activities |
|
| (587 | ) |
|
| (79 | ) |
Effect of exchange rate on cash, cash equivalents and restricted cash |
|
| 1 |
|
|
| (6 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
| $ | (300 | ) |
| $ | 352 |
|
34
Net cash flows were an outflow of $300 million in the current year period compared to $563an inflow of $352 million forin the nine months ended September 30, 2019. The decrease isprior year period primarily attributabledue to $515 million of early debt repayments during 2023 and proceeds received from the change insale of Beverage Merchandising Asia and Naturepak Beverage during the prior year, partially offset by higher net cash provided by operating activities from our discontinued operations, which decreased from an inflow of $523 million during the nine months ended September 30, 2019 to an inflow of $175 million during the nine months ended September 30, 2020. The closures operations were sold in December 2019, RCP was distributed on February 4, 2020 and GPC was distributed on September 16, 2020. Excluding the contribution from discontinued operations, netactivities. Net cash provided by operating activities increased by $55 million, or 138%, to $95 million for the nine months ended September 30, 2020 compared to $40 million for the nine months ended September 30, 2019. This $55 million increase in net cash provided by operating activities is primarily attributabledue to favorable changes in accounts receivables, inventories, and trade and other payables,inventory balances, driven in part by the strategic inventory build during the prior year that did not recur, partially offset by lower cash earnings. These changes were primarily as a result of the impact of the COVID-19 pandemic.
During the nine months ended September 30, 2020, we spent $762023, our primary source of cash was $453 million on our strategic investment program.
During the nine months ended September 30, 2020, we repaid $5,4732022, our primary sources of cash were $364 million of outstanding borrowings and received $5,614 million ofin combined proceeds from new borrowings primarily attributablerelated to the incurrencessale of debt by RPCBeverage Merchandising Asia and GPC prior to their distributions. Additionally, we received $546our equity interests in Naturepak Beverage and $241 million of net proceeds relatedcash provided by operating activities. The net cash provided by operating activities reflects income from operations, partially offset by $132 million of cash interest payments and $64 million of cash taxes. Our primary uses of cash for the same period were $169 million of capital expenditures and $54 million of dividends paid.
Dividends
During each of the nine months ended September 30, 2023 and 2022, we paid cash dividends of $54 million. On October 31, 2023, our Board of Directors declared a dividend of $0.10 per share to be paid on December 15, 2023 to shareholders of record as of November 30, 2023.
Our Credit Agreement and Notes limit the ability to make dividend payments, subject to specified exceptions. Our Board of Directors must review and approve future dividend payments and will determine whether to declare additional dividends based on our initial public offering.
Financing and capital resources and cash flow from operations. In addition, we may utilize borrowing capacity under our revolving credit facility and local working capital facilities.
As of September 30, 2020,2023, we had $5,225$3,632 million of total principal amount of borrowings. Refer to Note 8, Debt, for additional details. Of our total debt, $1,705 million is subject to variable interest rates, representing borrowings drawn under our Credit Agreement.
On April 17, 2023, we amended the Credit Agreement, replacing the LIBOR-based reference rate with a SOFR-based reference rate, effective for interest payments for the period commencing April 28, 2023. As of September 30, 2023, the underlying one-month SOFR for amounts borrowed under our Credit Agreement was 5.43%.
On July 26, 2023, we further amended the Credit Agreement to extend the maturity date on our $250 million Revolving Tranche facility from August 5, 2024 to August 5, 2025. There were no other material changes to the terms of the Credit Agreement as a result of this report, which takesamendment.
During the nine months ended September 30, 2023, we repaid an aggregate of $515 million of our U.S. term loans Tranche B-2.
During the fourth quarter of 2022, we entered into accountderivative financial instruments with large institutions that fixed the debt transactions occurringLIBO rate at a weighted average rate of 4.12% for an aggregate notional amount of $1,000 million to hedge a portion of the interest rate exposure resulting from our U.S. term loans and classified the instruments as cash flow hedges. Our cash flow hedge contracts mature in October 2025. During the second quarter of 2023, we amended our interest rate swap agreements, replacing the LIBOR-based reference rate with a SOFR-based reference rate, effective for swap payments for the period commencing April 28, 2023. The weighted average fixed rate of 4.12% for our interest rate swap agreements was unchanged as a result of these amendments.
Based on the one-month SOFR as of September 30, 2023, and expected to occur in November 2020 as described in Note 10 - Debt inincluding the impact of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we had $4,005 million of total principal amount of borrowings, as follows:
(in millions) | |||
Credit Agreement | $ | 2,457 | |
Notes: | |||
5.125% Senior Secured Notes due 2023 | 59 | ||
4.000% Senior Secured Notes due 2027 | 1,000 | ||
Pactiv Debentures: | |||
7.950% Debentures due 2025 | 276 | ||
8.375% Debentures due 2027 | 200 | ||
Other | 13 | ||
Total principal amount of borrowings | $ | 4,005 |
35
Under the Credit Agreement, we may incur additional indebtedness either by satisfying certain incurrence tests or by incurring such additional indebtedness under certain specific categories of permitted debt. Incremental senior secured indebtedness under the Credit Agreement and senior secured or unsecured notes in lieu thereof are permitted to be incurred up to an aggregate principal amount of $750 million subject to pro forma compliance with the Credit Agreement’s total secured leverage ratio covenant. In addition, we may incur incremental senior secured indebtedness under the Credit Agreement and senior secured notes in an unlimited amount as long as our total secured leverage ratio does not exceed 4.50 to 1.00 on a pro forma basis, and (in the case of incremental senior secured indebtedness under the Credit Agreement only) we are in pro forma compliance with the Credit Agreement’s total secured leverage ratio covenant. The incurrence of unsecured indebtedness, including the issuance of senior notes, and unsecured subordinated indebtedness is also permitted (subject to the terms of the Credit Agreement) if the fixed charge coverage ratio is at least 2.00 to 1.00 on a pro forma basis.
Under the respective indentures governing the notes,Notes, we may incur additional indebtedness either by satisfying certain incurrence tests or by incurring such additional indebtedness under certain specific categories of permitted debt. Indebtedness may be incurred under the incurrence tests if the fixed charge coverage ratio is at least 2.00 to 1.00 on a pro forma basis and, (i) underor the indenture governing the 5.125% Notes, the liens securing first lien secured indebtedness do not exceed a 4.50consolidated total leverage ratio is no greater than 5.50 to 1.00 senior secured first lien leverage ratio and (ii) under the indenture governing the 4.000% Notes, the liens securing first lien secured indebtedness do not exceed a 4.10 to 1.00 consolidated secured first lien leverage ratio.
We are required to make annual prepayments of term loans with up to 50% of excess cash flow (which will be reduced to 25% or 0% if specified senior secured first lien leverage ratios are met) as determined in accordance with the termsCredit Agreement. No excess cash flow prepayments were due for the year ended December 31, 2022.
Liquidity and working capital
Our liquidity position is summarized in the table below:
(In millions, except for current ratio) |
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||
Cash and cash equivalents(1) |
| $ | 233 |
|
| $ | 531 |
|
Availability under revolving credit facility |
|
| 201 |
|
|
| 200 |
|
|
| $ | 434 |
|
| $ | 731 |
|
Working capital(2) |
|
| 831 |
|
|
| 1,305 |
|
Current ratio |
|
| 2.0 |
|
|
| 2.4 |
|
As detailedof September 30, 2023, we had $233 million of cash and cash equivalents on-hand. We also had $201 million available under our revolving credit facility, net of $49 million utilized in the notesform of letters of credit under the facility. Our next debt maturity is $217 million of Pactiv Debentures due in December 2025, excluding amortization payments related to our U.S. term loans Tranche B-3 under our Credit Agreement.
36
We believe that we have sufficient liquidity to support our ongoing operations in the table, subsequentnext 12 months and to invest in future growth to create further value for our shareholders. Our primary drivers of decreased liquidity for the nine months ended September 30, 2020, we have repaid an aggregate of $3,4002023 were $515 million of principal on our outstanding borrowings and incurred $2,250debt repayments, $178 million of new principal borrowings:
Total | Less than one year | One to three years | Three to five years | Greater than five years | |||||||||||||||
(in millions) | |||||||||||||||||||
Long-term debt(1)(2)(3) | $ | 6,060 | $ | 239 | $ | 4,520 | $ | 775 | $ | 526 | |||||||||
Operating lease liabilities(4) | 357 | 76 | 125 | 77 | 79 | ||||||||||||||
Unconditional capital expenditure obligations | 94 | 94 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 6,511 | $ | 409 | $ | 4,645 | $ | 852 | $ | 605 |
During the nine months ended September 30, 2023, our working capital decreased $474 million, or 36%, primarily due to our use of cash for $515 million of early debt repayments, capital expenditures and dividend payments, and reductions of our inventory levels which were partially offset by income from continuing operations. Our working capital position provides us the flexibility for further consideration of strategic initiatives, including reinvestment in our contractual obligationsbusiness and commitments since our fiscal year ended December 31, 2019. The ultimate timingdeleveraging of our liabilities for pensions and uncertain tax positions continues to be undeterminable and thereforebalance sheet. As a result, we may continue to utilize portions of our excess cash to repurchase certain amounts of our long-term debt prior to maturity depending on market conditions, among other factors.
Our ability to borrow under our revolving credit facility or to incur additional indebtedness may be excluded fromlimited by the table above. During October 2020, we made a $121 million contributionterms of such indebtedness or other indebtedness, including the Credit Agreement and the Notes. The Credit Agreement and the respective indentures governing the Notes generally allow our subsidiaries to transfer funds in the PEPP and do not expect to make additional contributions in 2020 toform of cash dividends, loans or advances within the PEPP. Future contributions will be dependent on future plan asset returns and interest rates and are highly sensitive to timing. See our final prospectus filed with the Securities and Exchange Commission on September 18, 2020 pursuant to Rule 424(b)(4) for additional information regarding our contractual obligations.
Other than short-term leases entered intoexecuted in the normal course of business, we have no material off-balance sheet obligations.
Critical Accounting Policies, Estimates and Assumptions
The most critical accounting policies and estimates seeare those that are most important to the portrayal of our final prospectus filed withfinancial condition and results of operations and require us to make the Securitiesmost difficult and Exchange Commissionsubjective judgments, often estimating the outcome of future events that are inherently uncertain. Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements in our Annual Report on September 18, 2020 pursuant to Rule 424(b)(4).
Recent Accounting Pronouncements
New accounting guidancestandards that we have recently adopted, as well as accounting guidancestandards that hashave been recently issued but not yet adopted by us, is included in Note 2 — Summary1, Nature of Significant Accounting PoliciesOperations and Basis of our condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no foreign currency derivative contracts as of September 30, 2020.
Item 4. Controls and Procedures.
a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. In connection with the preparation of this report, management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020.2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2020,2023, our disclosure controls and procedures were effective.
b) Changes in Internal Control over Financial Reporting
There were no material changes in our internal control over financial reporting that occurred during the three months ended September 30, 20202023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information required to be set forth under this heading is incorporated by reference from Note 14 - 12, Commitments and Contingencies, to the interim condensed consolidated financial statementsCondensed Consolidated Financial Statements included in Part I, Item 1.
Item 1A. Risk Factors
There have been no material changes to the risk factors described in our final prospectus filed withAnnual Report on Form 10-K for the Securities and Exchange Commission on September 18, 2020 pursuant to Rule 424(b)(4), which are incorporated herein by reference. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, results of operations, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three months ended September 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or any “non-Rule 10b5-1 trading arrangement.”
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Item 6. Exhibits.
By:
PACTIV EVERGREEN INC. | |||
(Registrant) | |||
By: | /s/ Jonathan H. Baksht | ||
Jonathan H. Baksht | |||
Chief Financial Officer (principal financial officer and principal accounting officer) | |||
November 1, 2023 | |||
/s/ MICHAEL J. RAGEN
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