UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to ___________
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (Zip Code)
Telephone: (
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
☑ |
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
Table of Contents
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PART I. |
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Item 1. |
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3 |
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3 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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27 |
Item 3. |
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37 |
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Item 4. |
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37 |
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PART II. |
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38 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 2. |
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38 |
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Item 3. |
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38 |
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Item 4. |
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38 |
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Item 5. |
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38 |
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Item 6. |
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39 |
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40 |
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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, 2021. 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)
(In millions, except per share amounts)
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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2022 |
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2021 |
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2022 |
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2021 |
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Net revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring, asset impairment and other related charges |
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( |
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( |
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( |
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Other income, net |
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Operating income from continuing operations |
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Non-operating (expense) income, net |
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Interest expense, net |
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( |
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( |
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( |
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Income (loss) from continuing operations before tax |
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Income tax (expense) benefit |
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( |
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( |
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( |
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Income (loss) from continuing operations |
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Loss from discontinued operations, net of income taxes |
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— |
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( |
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— |
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( |
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Net income (loss) |
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Income attributable to non-controlling interests |
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( |
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— |
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( |
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( |
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Net income (loss) attributable to Pactiv Evergreen Inc. common shareholders |
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$ |
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$ |
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$ |
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$ |
( |
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Earnings (loss) per share attributable to Pactiv Evergreen Inc. |
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From continuing operations |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
( |
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From discontinued operations |
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Basic |
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$ |
— |
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$ |
( |
) |
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$ |
— |
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$ |
( |
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Diluted |
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$ |
— |
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$ |
( |
) |
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$ |
— |
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$ |
( |
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Total |
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Basic |
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$ |
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$ |
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$ |
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$ |
( |
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Diluted |
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$ |
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$ |
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$ |
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$ |
( |
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See accompanying notes to the condensed consolidated financial statements.
3
Pactiv Evergreen Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
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Other comprehensive (loss) income, net of income taxes: |
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Currency translation adjustments |
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( |
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( |
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( |
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Defined benefit plans |
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— |
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— |
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( |
) |
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— |
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Other comprehensive (loss) income |
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( |
) |
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( |
) |
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( |
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Comprehensive income (loss) |
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( |
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Comprehensive income attributable to non-controlling interests |
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( |
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— |
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( |
) |
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( |
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Comprehensive income (loss) attributable to Pactiv Evergreen Inc. |
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$ |
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$ |
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$ |
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$ |
( |
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See accompanying notes to the condensed consolidated financial statements.
4
Pactiv Evergreen Inc.
Condensed Consolidated Balance Sheets
(In millions, except share amounts)
(Unaudited)
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As of June 30, |
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As of December 31, |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowances for doubtful accounts of $ |
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Related party receivables |
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Inventories |
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Other current assets |
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Assets held for sale |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets, net |
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Goodwill |
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Intangible assets, net |
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Deferred income taxes |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Accounts payable |
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$ |
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$ |
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Related party payables |
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Current portion of long-term debt |
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Current portion of operating lease liabilities |
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Income taxes payable |
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Accrued and other current liabilities |
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Liabilities held for sale |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities |
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Deferred income taxes |
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Long-term employee benefit obligations |
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Other noncurrent liabilities |
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Total liabilities |
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$ |
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$ |
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Equity |
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Common stock, $ |
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$ |
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$ |
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Preferred stock, $ |
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Additional paid in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Retained earnings |
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Total equity attributable to Pactiv Evergreen Inc. common shareholders |
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Non-controlling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
5
Pactiv Evergreen Inc.
Condensed Consolidated Statements of Equity
(In millions, except per share amounts)
(Unaudited)
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Common Stock |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Retained |
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Non- |
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Total |
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For the Three Months Ended June 30, 2021 |
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Balance as of March 31, 2021 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income, net of income taxes |
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— |
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— |
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— |
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— |
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— |
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Equity based compensation |
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— |
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— |
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— |
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— |
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— |
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Dividends declared - common shareholders ($ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance as of June 30, 2021 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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For the Three Months Ended June 30, 2022 |
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Balance as of March 31, 2022 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive loss, net of income taxes |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Equity based compensation |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units, net of tax withholdings |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends declared - common shareholders ($ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance as of June 30, 2022 |
|
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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For the Six Months Ended June 30, 2021 |
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Balance as of December 31, 2020 |
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$ |
— |
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$ |
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$ |
( |
) |
|
$ |
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$ |
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$ |
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|||||
Net (loss) income |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Other comprehensive loss, net of income taxes |
|
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— |
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— |
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— |
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( |
) |
|
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— |
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— |
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( |
) |
Equity based compensation |
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— |
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— |
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— |
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— |
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— |
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||
Dividends declared - common shareholders ($ |
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— |
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— |
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— |
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— |
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( |
) |
|
|
— |
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|
|
( |
) |
Balance as of June 30, 2021 |
|
|
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|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
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$ |
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$ |
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|||||
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|||||||
For the Six Months Ended June 30, 2022 |
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|||||||
Balance as of December 31, 2021 |
|
|
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|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
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|
$ |
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|
$ |
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|||||
Net income |
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— |
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— |
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— |
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— |
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|||
Other comprehensive loss, net of income taxes |
|
|
— |
|
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|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
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— |
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|
( |
) |
Equity based compensation |
|
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— |
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— |
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|
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— |
|
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— |
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— |
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||
Vesting of restricted stock units, net of tax withholdings |
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— |
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( |
) |
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— |
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— |
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— |
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|
( |
) |
|
Dividends declared - common shareholders ($ |
|
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— |
|
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|
— |
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— |
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— |
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( |
) |
|
|
— |
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|
( |
) |
Balance as of June 30, 2022 |
|
|
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
See accompanying notes to the condensed consolidated financial statements.
6
Pactiv Evergreen Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash provided by operating activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to operating cash flows: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Unrealized (gain) loss on derivatives |
|
|
( |
) |
|
|
|
|
Gain on sale of businesses and noncurrent assets |
|
|
( |
) |
|
|
— |
|
Non-cash portion of employee benefit obligations |
|
|
( |
) |
|
|
( |
) |
Non-cash portion of operating lease expense |
|
|
|
|
|
|
||
Amortization of OID and DIC |
|
|
|
|
|
|
||
Loss on extinguishment of debt |
|
|
— |
|
|
|
|
|
Equity based compensation |
|
|
|
|
|
|
||
Other non-cash items, net |
|
|
|
|
|
|
||
Change in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
Inventories |
|
|
( |
) |
|
|
( |
) |
Other current assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
|
||
Operating lease payments |
|
|
( |
) |
|
|
( |
) |
Income taxes payable/receivable |
|
|
— |
|
|
|
|
|
Accrued and other current liabilities |
|
|
|
|
|
|
||
Employee benefit obligation contributions |
|
|
( |
) |
|
|
( |
) |
Other assets and liabilities |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash used in investing activities |
|
|
|
|
|
|
||
Acquisition of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Acquisition of business, net of cash acquired |
|
|
( |
) |
|
|
— |
|
Disposal of businesses and joint venture equity interests, net of cash disposed |
|
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash used in financing activities |
|
|
|
|
|
|
||
Long-term debt repayments |
|
|
( |
) |
|
|
( |
) |
Premium on redemption of long-term debt |
|
|
— |
|
|
|
( |
) |
Dividends paid to common shareholders |
|
|
( |
) |
|
|
( |
) |
Other financing activities |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Increase (decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents, including amounts classified as held for sale, as of beginning of the period |
|
|
|
|
|
|
||
Cash and cash equivalents as of end of the period |
|
$ |
|
|
$ |
|
||
Cash and cash equivalents are comprised of: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Cash and cash equivalents classified as assets held for sale |
|
|
|
|
|
|
||
Cash and cash equivalents as of end of the period |
|
$ |
|
|
$ |
|
||
Cash paid (received): |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Income taxes paid (refunded), net |
|
|
|
|
|
( |
) |
|
Significant non-cash investing and financing activities
During the six months ended June 30, 2022 and 2021, we recognized operating lease right-of-use assets and lease liabilities of $
See accompanying notes to the condensed consolidated financial statements.
7
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 1. Nature of Operations and Basis of Presentation
The accompanying condensed consolidated financial statements comprise the accounts of Pactiv Evergreen Inc. (“PTVE”) and its subsidiaries (“we”, “us”, “our” or the “Company”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and the related notes thereto included in our latest Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 24, 2022. Operating results for interim periods are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. All intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Although our current estimates contemplate current conditions and how we expect them to change in 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 results of operations and balance sheet. Among other effects, such changes could result in future impairments of goodwill, intangibles and long-lived assets, and adjustments to reserves for employee benefits and income taxes. The estimated recoverable amounts associated with asset impairments represent Level 3 measurements in the fair value hierarchy, which include inputs that are not based on observable market data.
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, cash flows and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the progress of the pandemic, actions taken to contain the virus, the implementation and effectiveness of vaccinations and how quickly and to what extent normal economic and operating conditions can resume.
Accounting Guidance Issued but Not Yet Adopted as of June 30, 2022
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification Topic 606: Revenue from Contracts with Customers (“ASC 606”). Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. This ASU will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC 606. This ASU is effective for annual and interim periods beginning after December 15, 2022. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. This ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments. We are currently evaluating the impact of the new guidance on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, 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
8
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
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.
We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our condensed consolidated financial statements.
Note 2. Acquisitions and Dispositions
Acquisitions
On October 1, 2021, we acquired
The Fabri-Kal acquisition was accounted for under the acquisition method of accounting and the results of operations were included in our condensed consolidated financial statements from the date of acquisition. Included in our condensed consolidated statements of income (loss) are Fabri-Kal’s net revenues of $
The following table summarizes the preliminary purchase price allocation of the fair value of net tangible and intangible assets acquired and liabilities assumed:
|
|
As of October 1, 2021 |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Other current assets |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
Goodwill |
|
|
|
|
Customer relationships |
|
|
|
|
Trademarks |
|
|
|
|
Deferred income taxes |
|
|
|
|
Assets acquired |
|
$ |
|
|
Accounts payable |
|
$ |
|
|
Current portion of long-term debt |
|
|
|
|
Current portion of operating lease liabilities |
|
|
|
|
Accrued and other current liabilities |
|
|
|
|
Long-term debt |
|
|
|
|
Long-term operating lease liabilities |
|
|
|
|
Long-term employee benefit obligations |
|
|
|
|
Other noncurrent liabilities |
|
|
|
|
Liabilities assumed |
|
$ |
|
|
Total purchase price |
|
$ |
|
|
We allocated the intangible assets acquired to the Foodservice segment which included $
9
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
measurement period adjustment we recorded during the three months ended June 30, 2022 which increased goodwill and decreased inventories by $
Real property and personal property fair values were determined using the cost approach. The fair values for customer relationships at the acquisition date were determined using the multi-period excess earnings method under the income approach. Significant assumptions used in assessing the fair value of the customer relationships intangible asset were forecasted Adjusted EBITDA margins and contributory asset charges. Trademark fair values were determined using the relief from royalty method. The fair value measurements of intangible assets are based on significant unobservable inputs and thus represent Level 3 inputs.
Dispositions
During the fourth quarter of 2021, we committed to a plan to sell our carton packaging and filling machinery businesses in China, Korea and Taiwan (“Beverage Merchandising Asia”) included in the Beverage Merchandising segment. As a result, we classified the assets and liabilities of Beverage Merchandising Asia as held for sale as of December 31, 2021. The operations of Beverage Merchandising Asia did not meet the criteria to be presented as discontinued operations.
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 received preliminary proceeds of $
The carrying amounts of the major classes of Beverage Merchandising Asia’s assets and liabilities as of June 30, 2022 and December 31, 2021 comprised the following:
|
|
As of June 30, 2022 |
|
|
As of December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Other noncurrent assets |
|
|
|
|
|
|
||
Total current assets held for sale |
|
$ |
|
|
$ |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Income taxes payable |
|
|
|
|
|
|
||
Accrued and other current liabilities |
|
|
|
|
|
|
||
Long-term employee benefit obligations |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Total current liabilities held for sale |
|
$ |
|
|
$ |
|
||
Income from operations before income taxes for Beverage Merchandising Asia for the three months ended June 30, 2022 and 2021 and for the six months ended June 30, 2022 and 2021 was $
On October 12, 2021, we entered into a definitive agreement for the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd., our
During the third quarter of 2020, we committed to a plan to sell the South American closures businesses included in the Other operating segment. In December 2020, we entered into an agreement to sell the businesses. On March 31, 2021, we completed the sale of the South American closures businesses for an immaterial amount. The operations of the South American closures
10
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
businesses did not meet the criteria to be presented as discontinued operations. The South American closures businesses’ income from operations before income taxes for the six months ended June 30, 2021 was insignificant.
Note 3. Restructuring, Asset Impairment and Other Related Charges
During the three and six months ended June 30, 2022, we recorded $
During the three months ended June 30, 2021, we recorded the following restructuring, asset impairment and other related charges:
|
|
Other Asset Impairment |
|
|
Employee Terminations |
|
|
Total |
|
|||
Beverage Merchandising |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
During the six months ended June 30, 2021, we recorded the following restructuring and other related charges:
|
|
Employee Terminations |
|
|
Total |
|
||
Beverage Merchandising |
|
$ |
|
|
$ |
|
||
Other |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
$ |
|
||
On July 28, 2021, we announced the decision to close our coated groundwood paper production line located in our Pine Bluff, Arkansas mill. On October 31, 2021, we ceased manufacturing coated groundwood paper. As a result of the closure, we recognized $
The following table summarizes the changes to our restructuring liability for the six months ended June 30, 2022:
|
|
December 31, 2021 |
|
|
Charges to |
|
|
Cash Paid |
|
|
June 30, 2022 |
|
||||
Employee termination costs |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
We expect to settle our restructuring liability within twelve months.
Note 4. Inventories
The components of inventories consisted of the following:
|
|
As of |
|
|
As of |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Spare parts |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
11
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 5. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
|
|
As of |
|
|
As of |
|
||
Land and land improvements |
|
$ |
|
|
$ |
|
||
Buildings and building improvements |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Property, plant and equipment, at cost |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
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 Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total depreciation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 6. Goodwill and Intangible Assets
Goodwill by reportable segment was as follows:
|
|
Foodservice |
|
|
Food |
|
|
Beverage |
|
|
Other (1) |
|
|
Total |
|
|||||
Balance as of December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Measurement period adjustment |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Balance as of June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Accumulated impairment losses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Intangible assets, net consisted of the following:
|
|
As of June 30, 2022 |
|
|
As of December 31, 2021 |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
||||||
Finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Trademarks |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Other |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Total finite-lived intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trademarks |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Other |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total indefinite-lived intangible assets |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Total intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Amortization expense for intangible assets of $
12
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 7. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
|
|
As of |
|
|
As of |
|
||
Accrued personnel costs |
|
$ |
|
|
$ |
|
||
Accrued rebates and credits |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Other(1) |
|
|
|
|
|
|
||
Accrued and other current liabilities |
|
$ |
|
|
$ |
|
||
(1) Other includes items such as accruals for freight, utilities and property and other non-income related taxes.
Note 8. Debt
Debt consisted of the following:
|
|
As of |
|
|
As of |
|
||
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Credit Agreement |
|
$ |
|
|
$ |
|
||
Notes: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Pactiv Debentures: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
||
Total principal amount of borrowings |
|
|
|
|
|
|
||
Deferred financing transaction costs (“DIC”) |
|
|
( |
) |
|
|
( |
) |
Original issue discounts, net of premiums (“OID”) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
Long-term debt |
|
$ |
|
|
$ |
|
||
We were in compliance with all debt covenants during the six months ended June 30, 2022 and the year ended December 31, 2021.
On September 24, 2021, we incurred $
13
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Credit Agreement
PTVE and certain of its U.S. subsidiaries are parties to a senior secured credit agreement dated August 5, 2016 as amended (the “Credit Agreement”).
|
|
Maturity Date |
|
Value Drawn or Utilized |
|
|
Applicable Interest Rate |
|
||
Term Tranches |
|
|
|
|
|
|
|
|
||
U.S. term loans Tranche B-2 |
|
|
$ |
|
|
LIBOR (floor of |
|
|||
U.S. term loans Tranche B-3 |
|
|
$ |
|
|
LIBOR (floor of |
|
|||
Revolving Tranche(1) |
|
|
|
|
|
|
|
|
||
U.S. Revolving Loans |
|
|
$ |
|
|
|
— |
|
||
(1) The Revolving Tranche represents a $
The weighted average contractual interest rates related to our U.S. term loans Tranche B-2 and Tranche B-3 for the six months ended June 30, 2022 were
PTVE and certain of its U.S. subsidiaries have guaranteed on a senior basis the obligations under the Credit Agreement 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 holders of the Notes.
Indebtedness under the Credit Agreement may be voluntarily repaid, in whole or in part, and must be mandatorily repaid in certain circumstances. We are required to make quarterly amortization payments of
The Credit Agreement contains customary covenants which restrict us from certain activities including, among other things, incurring debt, creating liens over assets, selling assets and making restricted payments, in each case except as permitted under the Credit Agreement.
Notes
Outstanding Notes, as of June 30, 2022, are summarized below:
|
|
Maturity Date |
|
Interest Payment Dates |
|
|
|||
|
|
|
The effective interest rates of our debt obligations under the Notes are not materially different from the contractual interest rates.
PTVE and certain of its U.S. subsidiaries have guaranteed on a senior basis the obligations under the Notes to the extent permitted by law. The issuers and the guarantors have granted security over substantially all of their assets to support the obligations under the Notes. This security is expected to be shared on a first priority basis with the creditors under the Credit Agreement.
The respective indentures governing the
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 Notes have the right to require us to repurchase the Notes at a premium.
14
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Pactiv Debentures
As of June 30, 2022, we had the following outstanding debentures (together, the “Pactiv Debentures”):
|
|
Maturity Date |
|
Interest Payment Dates |
|
|
|||
|
|
The effective interest rates of our debt obligations under the Pactiv Debentures are not materially different from the contractual interest rates.
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
Other borrowings
Other borrowings represented finance lease obligations of $
Scheduled maturities
Below is a schedule of required future repayments on our debt outstanding as of June 30, 2022:
|
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total principal amount of borrowings |
|
$ |
|
|
Fair value of our long-term debt
The fair value of our long-term debt as of June 30, 2022 and December 31, 2021 is a Level 2 fair value measurement.
|
|
As of June 30, 2022 |
|
|
As of December 31, 2021 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Credit Agreement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pactiv Debentures: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Credit Agreement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pactiv Debentures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
DIC |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
OID |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net foreign currency exchange (gains) losses |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
Loss on extinguishment of debt: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Redemption premiums |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 9. Financial Instruments
We had the following derivative instruments recorded at fair value in our condensed consolidated balance sheets:
|
|
As of June 30, 2022 |
|
|
As of December 31, 2021 |
|
||||||||||
|
|
Asset |
|
|
Liability |
|
|
Asset |
|
|
Liability |
|
||||
Commodity swap contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Total fair value |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Recorded in: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other current assets |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Accrued and other current liabilities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other noncurrent liabilities |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Total fair value |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Our derivatives are comprised of commodity 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. 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 three and six months ended June 30, 2022, we recognized an unrealized gain of $
The following table provides the detail of outstanding commodity derivative contracts as of June 30, 2022:
Type |
|
Unit of Measure |
|
Contracted |
|
|
Contracted |
|
Contracted Date of Maturity |
|
Benzene swaps |
|
U.S. liquid gallon |
|
|
|
|
$ |
|
Aug 2022 - Feb 2023 |
|
Natural gas swaps |
|
Million BTU |
|
|
|
|
$ |
|
Aug 2022 - Dec 2025 |
|
16
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 10. Employee Benefits
Net periodic benefit (expense) income for defined benefit pension plans and other post-employment benefit plans consisted of the following:
|
|
For the Three Months Ended |
|
|
For The Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Service cost |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest cost |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Expected return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Ongoing net periodic benefit (expense) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income due to settlement(1) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Total net periodic benefit (expense) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net periodic benefit (expense) income for defined benefit pension plans and other post-employment benefit plans was recognized as follows:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of sales |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Non-operating (expense) income, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total net periodic benefit (expense) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Pension Partial Settlement Transactions
On February 24, 2022, we purchased with $
On July 21, 2021, we purchased with $
Note 11. Other Income, Net
Other income, net consisted of the following:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Gain on sale of businesses and noncurrent assets |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
Gain on legal settlement(1) |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Foreign exchange losses on cash(2) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Transition service agreement income(3) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Other income, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
17
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 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 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.
Legal Proceedings
On April 14, 2021, MP2 Energy LLC (“MP2”) filed a lawsuit against Pactiv LLC (“Pactiv”), one of our indirect subsidiaries, in state court in Montgomery County, Texas. In this lawsuit, MP2 sought to collect approximately $
On July 20, 2022, the parties entered into a settlement agreement pursuant to which, among other things, MP2 dismissed its claims with prejudice, Pactiv paid MP2 an immaterial cash payment and the parties entered into new commercial arrangements.
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 June 30, 2022, we are not aware of any material claims under these agreements that would give rise to an additional liability. However, if such claims arise in the future, they could have a material effect on our balance sheet, results of operations or cash flows.
18
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 13. Accumulated Other Comprehensive 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 Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Currency translation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Currency translation adjustments |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from AOCL(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of beginning of period |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Net actuarial loss arising during year(2) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Deferred tax benefit on net actuarial loss |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Gain reclassified from AOCL |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Defined benefit plan settlement gain |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Deferred tax expense on reclassification |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Balance as of end of period |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
AOCL |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(1) The reclassification of currency translation adjustment amounts to earnings during the six months ended June 30, 2021 relates to the sale of the South American closures businesses. Refer to Note 2, Acquisitions and Dispositions, for additional details.
(2) Net actuarial loss arising during the six months ended June 30, 2022 relates to the interim remeasurement of the PEPP due to the pension partial settlement transaction. The net actuarial loss for the six months ended June 30, 2022 was primarily due to asset returns, partially offset by an increase in the discount rate utilized in measuring plan obligations, reflecting changes in market rates. Refer to Note 10, Employee Benefits, for additional details.
Note 14. Income Taxes
The effective tax rates for the three and six months ended June 30, 2022 and 2021 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 June 30, 2022, we recognized a tax expense of $
During the three months ended June 30, 2021, we recognized tax expense of $
19
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
We are under audit by the Internal Revenue Service (“IRS”) and other taxing authorities. The IRS is currently auditing our U.S. income tax returns for 2016-2017. As of June 30, 2022, 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 reduction of up to $
Note 15. Related Party Transactions
As of June 30, 2022, approximately
The related party entities and types of transactions we entered into with them are detailed below. All related parties detailed below have a common ultimate controlling shareholder, except for the joint ventures.
|
|
Transaction Value for the |
|
|
Transaction Value for the |
|
|
|
|
|
|
|
||||||||||||
|
|
Three Months Ended |
|
|
For The Six Months Ended |
|
|
Balance Outstanding as of |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||
Balances and transactions with joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Included in other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||||
Sale of goods and services(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||||
Balances and transactions with other entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Current related party receivables(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sale of goods and services(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transition services agreements and rental income(2) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Charges(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Related party payables(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Purchase of goods(2) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Charges(3) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|||
Note 16. Equity Based Compensation
In conjunction with our IPO, we established the Pactiv Evergreen Inc. Equity Incentive Plan (the “Equity Incentive Plan”) for purposes of granting stock or other equity-based compensation awards to our employees (including our senior management), directors, consultants and advisors. The maximum number of shares of common stock available for issuance under our Equity Incentive Plan is
Equity-based compensation expense of $
20
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Restricted Stock Units
During the six months ended June 30, 2022, we granted restricted stock units (“RSUs”) to certain members of management and certain members of our Board of Directors. These RSUs required future service to be provided and vest in annual installments over a period ranging from
(In thousands, except per share amounts) |
|
Number of |
|
|
Weighted |
|
||
Non-vested, at January 1 |
|
|
|
|
$ |
|
||
Granted(1) |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
Non-vested, at June 30 |
|
|
|
|
$ |
|
||
Unrecognized compensation cost related to unvested RSUs as of June 30, 2022 was $
Performance Share Units
During the six months ended June 30, 2022, 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, 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
(In thousands, except per share amounts) |
|
Number of |
|
|
Weighted |
|
||
Non-vested, at January 1 |
|
|
— |
|
|
$ |
— |
|
Granted(1) |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
Non-vested, at June 30 |
|
|
|
|
$ |
|
||
Unrecognized compensation cost related to unvested PSUs as of June 30, 2022 was $
21
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 17. Earnings Per Share
Earnings (loss) per share, including a reconciliation of the number of shares used for our earnings (loss) per share calculation, was as follows:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net earnings (loss) attributable to common shareholders - continuing operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Less: dividend-equivalents declared for equity based awards |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Net earnings (loss) available to common shareholders - continuing operations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Net loss attributable to common shareholders - discontinued operations |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total net earnings (loss) available to common shareholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Weighted average number of shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings (loss) per share attributable to Pactiv Evergreen Inc. common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
||||
From continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
From discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
Diluted |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
The weighted average number of anti-dilutive potential common shares excluded from the calculation above was
On
Note 18. Segment Information
ASC 280 Segment Reporting establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, we have
22
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
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 and alignment of our internal operations and the nature of our products. This reflects how our CODM 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 enable consumers to eat and drink where they want and when they want with convenience. Foodservice manufactures food containers, drinkware (hot and cold cups and lids), tableware, serviceware and other products which make eating on-the-go more enjoyable and easy to do.
Food Merchandising - Manufactures products that protect and attractively display food while preserving freshness. Food Merchandising products include clear rigid-display containers, containers for prepared and ready-to-eat food, trays for meat and poultry and egg cartons.
Beverage Merchandising - Manufactures cartons for fresh refrigerated beverage products, primarily serving dairy (including plant-based, organic and specialties), juice and other specialty beverage end-markets. Beverage Merchandising manufactures and supplies integrated fresh carton systems, which include printed cartons, spouts and filling machinery. It also produces fiber-based liquid packaging board for its internal requirements and to sell to other fresh beverage carton manufacturers as well as a range of paper-based products which it sells to paper and packaging converters.
Other/Unallocated - In addition to our reportable segments, we have other operating segments that do not meet the threshold for presentation as a reportable segment. These operating segments include the remaining components of our former closures business, which generate revenue from the sale of caps and closures, and are presented as “Other” in the reconciliation between total reportable segment amounts and the equivalent consolidated measure. Unallocated includes corporate costs, primarily relating to companywide functions such as finance, tax and legal and the effects of the PEPP and equity based compensation.
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 related 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, executive transition charges and gains or losses on certain legal settlements.
Reportable segment assets represent trade receivables, inventory and property, plant and equipment.
23
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
|
|
Foodservice |
|
|
Food |
|
|
Beverage |
|
|
Reportable |
|
||||
For the Three Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Reportable segment assets consisted of the following:
|
|
Foodservice |
|
|
Food |
|
|
Beverage |
|
|
Reportable |
|
||||
As of June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 GAAP income (loss) from continuing operations before income taxes:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Reportable segment Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unallocated |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjustments to reconcile to GAAP income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Restructuring, asset impairment and other related charges |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on sale of businesses and noncurrent assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Non-cash pension (expense) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Operational process engineering-related consultancy costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Business acquisition and integration costs and purchase accounting adjustments |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Unrealized gains (losses) on derivatives |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Foreign exchange losses on cash |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Executive transition charges |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Gain on legal settlement |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Costs associated with legacy sold facility |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Other |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Income (loss) from continuing operations before tax |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
The following table presents a reconciliation of reportable segment assets to consolidated assets:
|
|
As of |
|
|
As of |
|
||
Reportable segment assets |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
Unallocated(1) |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
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 Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Foodservice |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Drinkware |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Containers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tableware |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Serviceware and other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food Merchandising |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tableware |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bakery/snack/produce/fruit containers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Meat trays |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Prepared food trays |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Egg cartons |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beverage Merchandising |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cartons for fresh beverage products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liquid packaging board |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Paper products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reportable segment net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other / Unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Intersegment eliminations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For all product lines, there is a relatively short time period between the receipt of the order and the transfer of control over the goods to the customer.
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.
Description of the 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 food and beverages for today’s consumers. Our products, many of which are made with recycled, recyclable or renewable materials, are sold to a diversified mix of customers, including restaurants, foodservice distributors, retailers, food and beverage producers, packers and processors. We report our business in three reportable segments: Foodservice, Food Merchandising and Beverage Merchandising. Our Foodservice segment manufactures a broad range of products that enable consumers to eat and drink where they want and when they want with convenience. Our Food Merchandising segment manufactures products that protect and attractively display food while preserving freshness. Our Beverage Merchandising segment manufactures cartons for fresh refrigerated beverage products, primarily serving dairy (including plant-based, organic and specialties), juice and other specialty beverage end-markets.
Recent Developments and Items Impacting Comparability
Pension Partial Settlement Transactions
On February 24, 2022, we purchased with $1,260 million of PEPP assets a non-participating group annuity contract from an insurance company and transferred $1,257 million of the PEPP’s projected benefit obligations. Under the transaction, the insurance company assumed responsibility for pension benefits and annuity administration for approximately 13,300 retirees or their beneficiaries. As a result of this transaction, the PEPP’s projected benefit obligations and plan assets were remeasured, and we recognized a non-cash pre-tax pension settlement gain of $10 million in the six months ended June 30, 2022.
On July 21, 2021, we purchased with $941 million of PEPP assets a non-participating group annuity contract from an insurance company and transferred $959 million of the PEPP’s projected benefit obligations. Under the transaction, the insurance company will assume responsibility for pension benefits and annuity administration for approximately 16,300 retirees or their beneficiaries. As a result of this transaction, the PEPP’s projected benefit obligations and plan assets were remeasured, and we recognized a non-cash pre-tax pension settlement gain of $22 million in the third quarter of 2021.
Fabri-Kal Acquisition
On October 1, 2021, we acquired 100% of the outstanding ownership interests of Fabri-Kal for a purchase price of $378 million, including final adjustments for cash, indebtedness and working capital of $2 million paid during the six months ended June 30, 2022. Fabri-Kal is a U.S. manufacturer of thermoformed plastic packaging products. Its products include portion cups, lids, clamshells, drink cups and yogurt containers for the institutional foodservice and consumer packaged goods markets. The acquisition includes four manufacturing facilities in the United States. The acquisition is expected to broaden our portfolio of sustainable packaging products and expand our manufacturing capacity to better serve our customers. The acquisition was funded with our existing cash resources and a portion of the U.S. term loans Tranche B-3 incurred in September 2021.
Dispositions
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. The transaction closed on August 2, 2022, and we received preliminary proceeds of $336 million, which are subject to adjustments for cash, indebtedness and working capital as of the date of completion. We expect to recognize gain on sale in the third quarter of 2022.
On October 12, 2021, we entered into a definitive agreement for the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd., our 50% joint venture with Naturepak Limited, to affiliates of Elopak ASA. The transaction closed on March 29, 2022, and we received preliminary proceeds of $47 million, which are subject to adjustments for cash, indebtedness and working capital as of the date of completion. We recognized a gain on the sale of our equity interests of $27 million during the six months ended June 30, 2022.
Neither of these dispositions qualifies for presentation as discontinued operations.
27
Coated Groundwood Paper Business Exit
On July 28, 2021, we announced the decision to close our coated groundwood paper production line located in our Pine Bluff, Arkansas mill. With the decline in the coated groundwood market, our decision to exit this business enables us to re-invest resources into our strategic core competency of liquid packaging board, as well as other more profitable segments across the enterprise. On October 31, 2021, we ceased manufacturing coated groundwood paper, and we substantially completed our exit from this business during the fourth quarter of 2021. As a result of the closure, we recognized $1 million for disassembly costs in the three months ended June 30, 2022 and $8 million for contractual termination benefits in the three months ended June 30, 2021.
Winter Storm Uri
During February 2021, the Southern portion of the United States was impacted by Winter Storm Uri which brought record low temperatures, snow and ice and resulted in power failures, hazardous road conditions, damage to property and death and injury to individuals in those states. During most of this weather event, we were unable to fully operate some of our mills, plants and warehouses in Texas and Arkansas. During the first half of 2021, we incurred approximately $50 million of incremental costs including energy costs, primarily related to natural gas, shut-down costs and some property damage during the storm. Our Beverage Merchandising segment was impacted to the greatest degree with total incremental costs of $37 million incurred by our paper mill in Pine Bluff, Arkansas.
As a result of the storm, certain of our suppliers with locations in the impacted areas were also unable to operate which subsequently resulted in their declaration of force majeure on meeting the supply quantities due to us. In particular, our supply of various resin types was limited, and we were required to purchase from other suppliers, and at a higher price, in order to meet our production demands for March and April of 2021. As further discussed in our Results of Operations, our cost of sales was impacted for the three and six months ended June 30, 2021 as the products manufactured with this higher priced material were sold.
COVID-19
We have been actively responding to the COVID-19 pandemic and its impact. Our highest priorities continue to be the safety of our employees and working with our employees and network of suppliers and customers to help maintain the food supply chain as an essential business. As we are a part of the global food supply chain, we have taken a number of actions to promote the health and safety of our employees and customers in order to maintain the availability of our products to meet the needs of our customers. To date, we have not experienced significant issues within our supply chain due to the COVID-19 pandemic, including the sourcing of materials and logistics service providers.
During the early part of 2021, prior to the widespread availability of vaccines during which various measures restricted consumer mobility, we experienced lower demand for our products and, as a result, decreased revenues. Our Foodservice segment experienced lower net revenues due to the closure or reduced activity of restaurants and other food-serving institutions. Within our Beverage Merchandising segment, sales of fresh beverage cartons remained relatively constant with declines in sales of school milk cartons offset by higher demand in the retail sector, while sales in the paper markets declined due to a decrease in demand of printed publications and advertising and demand for liquid packaging board softened. Commencing in the second quarter of 2021, as the availability of vaccines and inoculation rates improved and measures that restricted consumer mobility were lifted, volumes improved in our business, most significantly in our Foodservice segment. Additionally, we have adapted along with our customers as COVID-19 restrictions were lifted, or subsequently reinstated, and as consumer behavior required more take-out and online ordering options.
As the general effects of the COVID-19 pandemic continue to change and remain unpredictable, the COVID-19 pandemic will continue to impact our results of operations in future periods as the macroeconomic environment changes and consumer behavior continues to evolve. We continue to proactively manage our business in response to the evolving impacts of the pandemic, and we will continue to communicate with and support our employees and customers, to monitor and take steps to further safeguard our supply chain, operations and assets, to protect our liquidity and financial position, to work toward our strategic priorities and to monitor our financial performance as we seek to position ourselves to withstand the current uncertainty related to this pandemic.
How We Assess the Performance of Our Business and Use of Non-GAAP Measures
In addition to financial measures determined in accordance with GAAP, we make use of the non-GAAP financial measure Adjusted EBITDA from continuing operations to evaluate and manage our business and to plan and make near-term and long-term operating and strategic decisions.
28
Non-GAAP Measures – Adjusted EBITDA from Continuing Operations
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, including but not limited to restructuring, asset impairment and other related 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, executive transition charges and gains or losses on certain legal settlements.
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, make strategic 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 Board of 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. 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) 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 Six Months Ended |
|
||||||||||
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) from continuing operations (GAAP) |
|
$ |
74 |
|
|
$ |
8 |
|
|
$ |
117 |
|
|
$ |
(3 |
) |
Income tax expense (benefit) |
|
|
45 |
|
|
|
5 |
|
|
|
81 |
|
|
|
(13 |
) |
Interest expense, net |
|
|
50 |
|
|
|
42 |
|
|
|
99 |
|
|
|
84 |
|
Depreciation and amortization |
|
|
86 |
|
|
|
77 |
|
|
|
170 |
|
|
|
150 |
|
Restructuring, asset impairment and other related charges(1) |
|
|
1 |
|
|
|
10 |
|
|
|
1 |
|
|
|
8 |
|
Gain on sale of businesses and noncurrent assets(2) |
|
|
— |
|
|
|
— |
|
|
|
(27 |
) |
|
|
— |
|
Non-cash pension expense (income)(3) |
|
|
2 |
|
|
|
(25 |
) |
|
|
(8 |
) |
|
|
(48 |
) |
Operational process engineering-related consultancy costs(4) |
|
|
1 |
|
|
|
7 |
|
|
|
4 |
|
|
|
10 |
|
Business acquisition and integration costs and purchase accounting adjustments(5) |
|
|
2 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
Unrealized (gains) losses on derivatives(6) |
|
|
(1 |
) |
|
|
3 |
|
|
|
(6 |
) |
|
|
4 |
|
Foreign exchange losses on cash(7) |
|
|
— |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
Executive transition charges(8) |
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
10 |
|
Gain on legal settlement(9) |
|
|
(15 |
) |
|
|
— |
|
|
|
(15 |
) |
|
|
— |
|
Costs associated with legacy sold facility(10) |
|
|
3 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
Other |
|
|
(1 |
) |
|
|
2 |
|
|
|
(1 |
) |
|
|
4 |
|
Adjusted EBITDA from continuing operations (Non-GAAP) |
|
$ |
249 |
|
|
$ |
130 |
|
|
$ |
431 |
|
|
$ |
207 |
|
29
Results of Operations
Three Months Ended June 30, 2022 compared with the Three Months Ended June 30, 2021
Consolidated Results
|
|
For the Three Months Ended June 30, |
|
|||||||||||||||||||||
(In millions, except for %) |
|
2022 |
|
|
% of |
|
|
2021 |
|
|
% of |
|
|
Change |
|
|
% Change |
|
||||||
Net revenues |
|
$ |
1,640 |
|
|
|
100 |
% |
|
$ |
1,352 |
|
|
|
100 |
% |
|
$ |
288 |
|
|
|
21 |
% |
Cost of sales |
|
|
(1,332 |
) |
|
|
(81 |
)% |
|
|
(1,202 |
) |
|
|
(89 |
)% |
|
|
(130 |
) |
|
|
(11 |
)% |
Gross profit |
|
|
308 |
|
|
|
19 |
% |
|
|
150 |
|
|
|
11 |
% |
|
|
158 |
|
|
|
105 |
% |
Selling, general and administrative expenses |
|
|
(148 |
) |
|
|
(9 |
)% |
|
|
(115 |
) |
|
|
(9 |
)% |
|
|
(33 |
) |
|
|
(29 |
)% |
Restructuring, asset impairment and other related charges |
|
|
(1 |
) |
|
|
— |
% |
|
|
(10 |
) |
|
|
(1 |
)% |
|
|
9 |
|
|
|
90 |
% |
Other income, net |
|
|
12 |
|
|
|
1 |
% |
|
|
5 |
|
|
|
— |
% |
|
|
7 |
|
|
NM |
|
|
Operating income from continuing operations |
|
|
171 |
|
|
|
10 |
% |
|
|
30 |
|
|
|
2 |
% |
|
|
141 |
|
|
NM |
|
|
Non-operating (expense) income, net |
|
|
(2 |
) |
|
|
— |
% |
|
|
25 |
|
|
|
2 |
% |
|
|
(27 |
) |
|
NM |
|
|
Interest expense, net |
|
|
(50 |
) |
|
|
(3 |
)% |
|
|
(42 |
) |
|
|
(3 |
)% |
|
|
(8 |
) |
|
|
(19 |
)% |
Income from continuing operations before tax |
|
|
119 |
|
|
|
7 |
% |
|
|
13 |
|
|
|
1 |
% |
|
|
106 |
|
|
NM |
|
|
Income tax expense |
|
|
(45 |
) |
|
|
(3 |
)% |
|
|
(5 |
) |
|
|
— |
% |
|
|
(40 |
) |
|
NM |
|
|
Income from continuing operations |
|
|
74 |
|
|
|
5 |
% |
|
|
8 |
|
|
|
1 |
% |
|
|
66 |
|
|
NM |
|
|
Loss from discontinued operations, net of income taxes |
|
|
— |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
1 |
|
|
|
|
|||
Net income |
|
$ |
74 |
|
|
|
|
|
$ |
7 |
|
|
|
|
|
$ |
67 |
|
|
|
|
|||
Adjusted EBITDA from continuing operations(1) |
|
$ |
249 |
|
|
|
15 |
% |
|
$ |
130 |
|
|
|
10 |
% |
|
$ |
119 |
|
|
|
92 |
% |
NM indicates that the calculation is “not meaningful”.
Components of Change in Reportable Segment Net Revenues for the Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021
|
|
Price/Mix |
|
|
Volume |
|
|
Acquisitions |
|
|
FX |
|
|
Total |
|
|||||
Net revenues |
|
|
23 |
% |
|
|
(10 |
)% |
|
|
9 |
% |
|
|
(1 |
)% |
|
|
21 |
% |
By reportable segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Foodservice |
|
|
27 |
% |
|
|
(9 |
)% |
|
|
21 |
% |
|
|
— |
% |
|
|
39 |
% |
Food Merchandising |
|
|
20 |
% |
|
|
(6 |
)% |
|
|
— |
% |
|
|
— |
% |
|
|
14 |
% |
Beverage Merchandising |
|
|
19 |
% |
|
|
(9 |
)% |
|
|
— |
% |
|
|
(1 |
)% |
|
|
9 |
% |
Net Revenues. Net revenues for the three months ended June 30, 2022 increased by $288 million, or 21%, to $1,640 million compared to the three months ended June 30, 2021. The increase was primarily due to favorable pricing, due to the contractual pass-through of higher material costs and pricing actions across all of our segments. In addition, the Foodservice segment’s acquisition of Fabri-Kal on October 1, 2021 contributed $121 million of incremental sales for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. These increases were partially offset by lower sales volume, primarily due to strong prior year period sales volume as businesses and restaurants re-opened post-COVID-19 lockdowns in our Foodservice segment, labor and related impacts in our Food Merchandising segment and our strategic exit from the coated groundwood business in our Beverage Merchandising segment in December 2021.
Cost of Sales. Cost of sales for the three months ended June 30, 2022 increased by $130 million, or 11%, to $1,332 million compared to the three months ended June 30, 2021. The increase was primarily due to higher material and manufacturing costs
30
across all of our segments as well as the Foodservice segment’s acquisition of Fabri-Kal. These increases were partially offset by lower sales volume.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended June 30, 2022 increased by $33 million, or 29%, to $148 million compared to the three months ended June 30, 2021. The increase was primarily due to higher employee-related costs and higher costs related to the Foodservice segment’s acquisition of Fabri-Kal.
Restructuring, Asset Impairment and Other Related Charges. Restructuring, asset impairment and other related charges for the three months ended June 30, 2022 and June 30, 2021 included a $1 million and $8 million charge, respectively, related to our strategic exit from the coated groundwood operations. Refer to Note 3, Restructuring, Asset Impairment and Other Related Charges, for additional details.
Other Income, Net. Other income, net for the three months ended June 30, 2022 increased by $7 million to $12 million compared to the three months ended June 30, 2021. The increase was primarily attributable to the $15 million gain, net of costs, arising from the settlement of a historical legal action, partially offset by lower transition service agreement income.
Non-operating (Expense) Income, Net. Non-operating (expense) income, net, for the three months ended June 30, 2022 was $2 million of expense compared to $25 million of income for the three months ended June 30, 2021. The change reflects the net impact of lower gross plan assets and liabilities due to the completion of multiple pension partial settlement transactions as well as a decrease in the expected return on assets and in increase in discount rates due to changes in market conditions.
Interest Expense, Net. Interest expense, net, for the three months ended June 30, 2022 increased by $8 million, or 19%, to $50 million, compared to the three months ended June 30, 2021. The increase was primarily due to an increase in principal amounts outstanding under our senior secured notes. Refer to Note 8, Debt, for additional details.
Income Tax Expense. During the three months ended June 30, 2022, we recognized a tax expense of $45 million on income from continuing operations before tax of $119 million, compared to tax expense of $5 million on income from continuing operations before tax of $13 million for the three months ended June 30, 2021. The effective tax rate during the three months ended June 30, 2022 was primarily attributable to our overall projected earnings subject to taxation at varying rates in the jurisdictions in which we operate and limitations on the ability to recognize a tax benefit on all interest expense. The effective tax rate during the three months ended June 30, 2021 was primarily attributable to our overall projected earnings subject to taxation at varying rates in the jurisdictions in which we operate.
Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations for the three months ended June 30, 2022 increased by $119 million to $249 million compared to the three months ended June 30, 2021. The increase reflects favorable pricing, net of raw material costs passed through, and the impact from the acquisition of Fabri-Kal, partially offset by higher manufacturing and employee-related costs and lower sales volume.
Segment Information
Foodservice
|
|
For the Three Months Ended June 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
791 |
|
|
$ |
571 |
|
|
$ |
220 |
|
|
|
39 |
% |
Segment Adjusted EBITDA |
|
$ |
165 |
|
|
$ |
62 |
|
|
$ |
103 |
|
|
|
166 |
% |
Segment Adjusted EBITDA margin |
|
|
21 |
% |
|
|
11 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Foodservice total segment net revenues for the three months ended June 30, 2022 increased by $220 million, or 39%, to $791 million compared to the three months ended June 30, 2021. The increase was primarily due to favorable pricing, due to the contractual pass-through of higher material costs and pricing actions taken to offset higher input costs. In addition, the acquisition of Fabri-Kal on October 1, 2021 contributed $121 million of incremental sales for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. These increases were partially offset by lower sales volume as the prior year period had strong sales volume as businesses and restaurants re-opened post-COVID-19 lockdowns.
Adjusted EBITDA. Foodservice Adjusted EBITDA for the three months ended June 30, 2022 increased by $103 million to $165 million compared to the three months ended June 30, 2021. The increase was primarily due to favorable pricing, net of material costs passed through, and the impact from the acquisition of Fabri-Kal, partially offset by higher manufacturing costs, lower sales volume and higher employee-related costs.
31
Food Merchandising
|
|
For the Three Months Ended June 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
444 |
|
|
$ |
388 |
|
|
$ |
56 |
|
|
|
14 |
% |
Segment Adjusted EBITDA |
|
$ |
78 |
|
|
$ |
59 |
|
|
$ |
19 |
|
|
|
32 |
% |
Segment Adjusted EBITDA margin |
|
|
18 |
% |
|
|
15 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Food Merchandising total segment net revenues for the three months ended June 30, 2022 increased by $56 million, or 14%, to $444 million compared to the three months ended June 30, 2021. The increase was primarily due to favorable pricing, due to pricing actions taken to offset higher input costs and the contractual pass-through of higher material costs, partially offset by lower sales volume, primarily due to labor and related impacts.
Adjusted EBITDA. Food Merchandising Adjusted EBITDA for the three months ended June 30, 2022 increased by $19 million, or 32%, to $78 million compared to the three months ended June 30, 2021. The increase was primarily due to favorable pricing, net of material costs passed through, partially offset by higher manufacturing costs and lower sales volume.
Beverage Merchandising
|
|
For the Three Months Ended June 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
420 |
|
|
$ |
387 |
|
|
$ |
33 |
|
|
|
9 |
% |
Segment Adjusted EBITDA |
|
$ |
29 |
|
|
$ |
15 |
|
|
$ |
14 |
|
|
|
93 |
% |
Segment Adjusted EBITDA margin |
|
|
7 |
% |
|
|
4 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Beverage Merchandising total segment net revenues for the three months ended June 30, 2022 increased by $33 million, or 9%, to $420 million compared to the three months ended June 30, 2021. The increase was primarily due to favorable pricing, due to pricing actions taken to offset higher input costs and the contractual pass-through of higher material costs, and favorable product mix. These increases were partially offset by lower sales volume, primarily due to our strategic exit from the coated groundwood business in December 2021.
Adjusted EBITDA. Beverage Merchandising Adjusted EBITDA for the three months ended June 30, 2022 increased by $14 million, or 93%, to $29 million compared to the three months ended June 30, 2021. The increase was primarily due to favorable pricing, net of material costs passed through, partially offset by higher manufacturing costs, including $11 million due to a scheduled annual pulp mill outage, higher employee-related costs and lower sales volume.
Six Months Ended June 30, 2022 compared with the Six Months Ended June 30, 2021
Consolidated Results
|
|
For the Six Months Ended June 30, |
|
|||||||||||||||||||||
(In millions, except for %) |
|
2022 |
|
|
% of |
|
|
2021 |
|
|
% of |
|
|
Change |
|
|
% Change |
|
||||||
Net revenues |
|
$ |
3,135 |
|
|
|
100 |
% |
|
$ |
2,516 |
|
|
|
100 |
% |
|
$ |
619 |
|
|
|
25 |
% |
Cost of sales |
|
|
(2,595 |
) |
|
|
(83 |
)% |
|
|
(2,258 |
) |
|
|
(90 |
)% |
|
|
(337 |
) |
|
|
(15 |
)% |
Gross profit |
|
|
540 |
|
|
|
17 |
% |
|
|
258 |
|
|
|
10 |
% |
|
|
282 |
|
|
|
109 |
% |
Selling, general and administrative expenses |
|
|
(290 |
) |
|
|
(9 |
)% |
|
|
(241 |
) |
|
|
(10 |
)% |
|
|
(49 |
) |
|
|
(20 |
)% |
Restructuring, asset impairment and other related charges |
|
|
(1 |
) |
|
|
— |
% |
|
|
(8 |
) |
|
|
— |
% |
|
|
7 |
|
|
|
88 |
% |
Other income, net |
|
|
40 |
|
|
|
1 |
% |
|
|
11 |
|
|
|
— |
% |
|
|
29 |
|
|
NM |
|
|
Operating income from continuing operations |
|
|
289 |
|
|
|
9 |
% |
|
|
20 |
|
|
|
1 |
% |
|
|
269 |
|
|
NM |
|
|
Non-operating income, net |
|
|
8 |
|
|
|
— |
% |
|
|
48 |
|
|
|
2 |
% |
|
|
(40 |
) |
|
|
(83 |
)% |
Interest expense, net |
|
|
(99 |
) |
|
|
(3 |
)% |
|
|
(84 |
) |
|
|
(3 |
)% |
|
|
(15 |
) |
|
|
(18 |
)% |
Income (loss) from continuing operations before tax |
|
|
198 |
|
|
|
6 |
% |
|
|
(16 |
) |
|
|
(1 |
)% |
|
|
214 |
|
|
NM |
|
|
Income tax (expense) benefit |
|
|
(81 |
) |
|
|
(3 |
)% |
|
|
13 |
|
|
|
1 |
% |
|
|
(94 |
) |
|
NM |
|
|
Income (loss) from continuing operations |
|
|
117 |
|
|
|
4 |
% |
|
|
(3 |
) |
|
|
— |
% |
|
|
120 |
|
|
NM |
|
|
Loss from discontinued operations, net of income taxes |
|
|
— |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
4 |
|
|
|
|
|||
Net income (loss) |
|
$ |
117 |
|
|
|
|
|
$ |
(7 |
) |
|
|
|
|
$ |
124 |
|
|
|
|
|||
Adjusted EBITDA from continuing operations(1) |
|
$ |
431 |
|
|
|
14 |
% |
|
$ |
207 |
|
|
|
8 |
% |
|
$ |
224 |
|
|
|
108 |
% |
32
Components of Change in Reportable Segment Net Revenues for the Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021
|
|
Price/Mix |
|
|
Volume |
|
|
Acquisitions |
|
|
Total |
|
||||
Net revenues |
|
|
24 |
% |
|
|
(8 |
)% |
|
|
9 |
% |
|
|
25 |
% |
By reportable segment: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foodservice |
|
|
29 |
% |
|
|
(6 |
)% |
|
|
22 |
% |
|
|
45 |
% |
Food Merchandising |
|
|
22 |
% |
|
|
(6 |
)% |
|
|
— |
% |
|
|
16 |
% |
Beverage Merchandising |
|
|
18 |
% |
|
|
(7 |
)% |
|
|
— |
% |
|
|
11 |
% |
Net Revenues. Net revenues for the six months ended June 30, 2022 increased by $619 million, or 25%, to $3,135 million compared to the six months ended June 30, 2021. The increase was primarily due to favorable pricing, due to the contractual pass-through of higher material costs and pricing actions across all of our segments. In addition, the Foodservice segment’s acquisition of Fabri-Kal on October 1, 2021 contributed $223 million of incremental sales for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. These increases were partially offset by lower sales volume, primarily due to strong sales volume in the prior year period as businesses and restaurants re-opened post-COVID-19 lockdowns in our Foodservice segment, labor and related impacts in our Food Merchandising segment and our strategic exit from the coated groundwood business in our Beverage Merchandising segment in December 2021.
Cost of Sales. Cost of sales for the six months ended June 30, 2022 increased by $337 million, or 15%, to $2,595 million compared to the six months ended June 30, 2021. The increase was primarily due to higher material, manufacturing and logistics costs across all of our segments, partially offset by the benefit related to prior year period costs of $50 million from Winter Storm Uri and $16 million due to a scheduled cold mill outage that did not recur, as well as the Foodservice segment’s acquisition of Fabri-Kal. These increases were partially offset by lower sales volume.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ended June 30, 2022 increased by $49 million, or 20%, to $290 million compared to the six months ended June 30, 2021. The increase was primarily due to higher employee-related costs and higher costs related to the Foodservice segment’s acquisition of Fabri-Kal.
Restructuring, Asset Impairment and Other Related Charges. Restructuring, asset impairment and other related charges for the six months ended June 30, 2022 and June 30, 2021 included a $1 million and $8 million charge, respectively, related to our strategic exit from the coated groundwood operations. Refer to Note 3, Restructuring, Asset Impairment and Other Related Charges, for additional details.
Other Income, Net. Other income, net for the six months ended June 30, 2022 increased by $29 million to $40 million compared to the six months ended June 30, 2021. The increase was primarily attributable to the $27 million gain on the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd. and the $15 million gain, net of costs, arising from the settlement of a historical legal action, partially offset by lower transition service agreement income.
Non-operating Income, Net. Non-operating income, net, for the six months ended June 30, 2022 decreased by $40 million, or 83%, to $8 million compared to $48 million for the six months ended June 30, 2021. The decrease reflects the net impact of lower gross plan assets and liabilities due to the completion of multiple pension partial settlement transactions as well as a decrease in the expected return on assets and in increase in discount rates due to changes in market conditions. Non-operating income, net for the six months ended June 30, 2022 also included a $10 million pension settlement gain.
Interest Expense, Net. Interest expense, net, for the six months ended June 30, 2022 increased by $15 million, or 18%, to $99 million, compared to the six months ended June 30, 2021, primarily due to a net increase in principal amounts outstanding under our senior secured notes and an increase in the interest rate on our floating rate term loans. Refer to Note 8, Debt, for additional details.
Income Tax (Expense) Benefit. During the six months ended June 30, 2022, we recognized a tax expense of $81 million on income from continuing operations before tax of $198 million, compared to tax benefit of $13 million on a loss from continuing operations before tax of $16 million for the six months ended June 30, 2021. The effective tax rate during the six months ended June 30, 2022 was driven primarily by a $14 million discrete expense from the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd., as well as the mix of income taxed at varying rates among the jurisdictions in which we operate and the inability to recognize a tax benefit on all interest expense. The effective tax rate during the six months ended June 30, 2021 was primarily attributable to the partial release of our valuation allowance for deferred interest deductions, which was partially offset by varying tax rates among the jurisdictions in which we operate.
33
Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations for the six months ended June 30, 2022 increased by $224 million to $431 million compared to the six months ended June 30, 2021. The increase reflects favorable pricing, net of material costs passed through, and the impact from the acquisition of Fabri-Kal, partially offset by higher manufacturing costs, lower sales volume and higher employee-related and logistics costs. The increase in Adjusted EBITDA also includes the benefit related to prior year period costs of $50 million from Winter Storm Uri.
Segment Information
Foodservice
|
|
For the Six Months Ended June 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
1,488 |
|
|
$ |
1,025 |
|
|
$ |
463 |
|
|
|
45 |
% |
Segment Adjusted EBITDA |
|
$ |
281 |
|
|
$ |
123 |
|
|
$ |
158 |
|
|
|
128 |
% |
Segment Adjusted EBITDA margin |
|
|
19 |
% |
|
|
12 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Foodservice total segment net revenues for the six months ended June 30, 2022 increased by $463 million, or 45%, to $1,488 million compared to the six months ended June 30, 2021. The increase was primarily due to favorable pricing, due to the contractual pass-through of higher material costs and pricing actions taken to offset higher input costs. In addition, the acquisition of Fabri-Kal on October 1, 2021 contributed $223 million of incremental sales for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. These increases were partially offset by lower sales volume, primarily due to strong sales volume in the prior year period as businesses and restaurants re-opened post-COVID-19 lockdowns.
Adjusted EBITDA. Foodservice Adjusted EBITDA for the six months ended June 30, 2022 increased by $158 million to $281 million compared to the six months ended June 30, 2021. The increase was primarily due to favorable pricing, net of material costs passed through, and the impact from the acquisition of Fabri-Kal, partially offset by higher manufacturing costs, lower sales volume and higher employee-related costs.
Food Merchandising
|
|
For the Six Months Ended June 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
848 |
|
|
$ |
730 |
|
|
$ |
118 |
|
|
|
16 |
% |
Segment Adjusted EBITDA |
|
$ |
138 |
|
|
$ |
114 |
|
|
$ |
24 |
|
|
|
21 |
% |
Segment Adjusted EBITDA margin |
|
|
16 |
% |
|
|
16 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Food Merchandising total segment net revenues for the six months ended June 30, 2022 increased by $118 million, or 16%, to $848 million compared to the six months ended June 30, 2021. The increase was primarily due to favorable pricing, due to the contractual pass-through of higher material costs and pricing actions taken to offset higher input costs, partially offset by lower sales volume, primarily due to labor and related impacts.
Adjusted EBITDA. Food Merchandising Adjusted EBITDA for the six months ended June 30, 2022 increased by $24 million, or 21%, to $138 million compared to the six months ended June 30, 2021. The increase was primarily due to favorable pricing, net of material costs passed through, partially offset by higher manufacturing costs, lower sales volume and higher logistics and employee-related costs.
Beverage Merchandising
|
|
For the Six Months Ended June 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
823 |
|
|
$ |
744 |
|
|
$ |
79 |
|
|
|
11 |
% |
Segment Adjusted EBITDA |
|
$ |
53 |
|
|
$ |
(17 |
) |
|
$ |
70 |
|
|
NM |
|
|
Segment Adjusted EBITDA margin |
|
|
6 |
% |
|
|
(2 |
)% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Beverage Merchandising total segment net revenues for the six months ended June 30, 2022 increased by $79 million, or 11%, to $823 million compared to the six months ended June 30, 2021. The increase was primarily due to favorable pricing, due to pricing actions taken to offset higher input costs and the contractual pass-through of higher material costs, and favorable product mix. These increases were partially offset by lower sales volume, primarily due to our strategic exit from the coated groundwood business in December 2021.
Adjusted EBITDA. Beverage Merchandising Adjusted EBITDA for the six months ended June 30, 2022 increased by $70 million to $53 million compared to the six months ended June 30, 2021. The increase reflects favorable pricing, net of material
34
costs passed through, and the benefit related to prior year period costs of $37 million from Winter Storm Uri. These items were partially offset by higher manufacturing and employee-related costs.
Liquidity and Capital Resources
We believe that we have sufficient liquidity to support our ongoing operations and to invest in future growth to create value for our shareholders. Our projected operating cash flows, existing cash balances, cash proceeds received from the sale of Beverage Merchandising Asia in August 2022 and available capacity under our revolving credit facility are our primary sources of liquidity for the next 12 months and are expected to be used for, among other things, capital expenditures, payment of interest and principal on our long-term debt obligations and distributions to shareholders that require approval by our Board of Directors. Additionally, we may continue to utilize long-term debt issuances for our funding requirements.
Cash provided by operating activities
Net cash provided by operating activities increased by $44 million to $166 million for the six months ended June 30, 2022 compared to $122 million for the six months ended June 30, 2021. The increase was primarily driven by higher cash earnings and favorable changes in accounts payable, accrued expenses and accounts receivable balances. These increases were partially offset by planned inventory build activity, $67 million of higher tax payments due to the comparative period including the receipt of a refund and higher interest payments.
Cash used in investing activities
Net cash used in investing activities decreased by $68 million to $69 million for the six months ended June 30, 2022 compared to $137 million for the six months ended June 30, 2021. The decrease was primarily attributable to $47 million of cash received from the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd. Property, plant and equipment additions were $114 million during the six months ended June 30, 2022, compared to $131 million during the six months ended June 30, 2021, with the decrease reflecting the timing of spend.
Cash used in financing activities
Net cash used in financing activities decreased by $49 million to $53 million for the six months ended June 30, 2022 compared to $102 million for the six months ended June 30, 2021. The decrease was primarily attributable to the $59 million redemption of the remaining portion of our 5.125% senior secured notes during the six months ended June 30, 2021.
Dividends
We paid cash dividends of $36 million and $35 million during the six months ended June 30, 2022 and 2021, respectively. On August 1, 2022, our Board of Directors declared a dividend of $0.10 per share to be paid on September 15, 2022 to shareholders of record as of August 31, 2022.
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 operating performance, expected future cash flows, debt levels, liquidity needs and investment opportunities.
Debt and Liquidity
As of June 30, 2022, we had $4,264 million of total principal amount of borrowings. Refer to Note 8, Debt, for additional details.
Our 2022 annual cash interest obligations on our borrowings are expected to be approximately $201 million. As of June 30, 2022, the underlying one month LIBO rate for amounts borrowed under our Credit Agreement was 1.67%.
As of June 30, 2022, we had $246 million of cash and cash equivalents on hand, with a further $9 million of cash and cash equivalents classified within current assets held for sale and we received $336 million of preliminary cash proceeds from our sale of Beverage Merchandising Asia in August 2022. We also had $206 million available for drawing under our revolving credit facility. We believe that our existing cash balances, projected operating cash flows together with our available capacity under our revolving credit facility are sufficient to fund our principal debt payments, interest expense, working capital needs and expected capital expenditures for the next 12 months. Our next significant near term maturity of borrowings is $276 million of Pactiv Debentures due in December 2025. We currently anticipate incurring approximately $265 million of capital expenditures during fiscal year 2022.
Our ability to borrow under our revolving credit facility or our local working capital facilities or to incur additional indebtedness may be limited by the terms of such indebtedness or other indebtedness, including the Credit Agreement and the Notes. The
35
Credit Agreement and the respective indentures governing the Notes generally allow our subsidiaries to transfer funds in the form of cash dividends, loans or advances within the Company.
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 senior secured indebtedness 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, 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 or the consolidated total leverage ratio is no greater than 5.50 to 1.00 and 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 Credit Agreement. No excess cash flow prepayments were made in 2021 or will be due in 2022 for the year ended December 31, 2021.
Other than short-term leases entered into 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 are those that are most important to the portrayal of our financial condition and results of operations and require us to make the most difficult and subjective 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 Form 10-K for the year ended December 31, 2021. Our critical accounting estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
New accounting guidance that we have recently adopted, as well as accounting guidance that has been recently issued but not yet adopted by us, is included in Note 1, Nature of Operations and Basis of Presentation.
36
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes to our market risk during the six months ended June 30, 2022. For additional information, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2021.
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 Exchange 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 June 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, 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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information required to be set forth under this heading is incorporated by reference from Note 12, Commitments and Contingencies, to the interim Condensed 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 Annual Report on Form 10-K for the year ended December 31, 2021.
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.
None.
38
Item 6. Exhibits.
The following exhibits are filed as part of, or are incorporated by reference in, this report:
|
|
|
Incorporated by Reference |
||
Exhibit |
Exhibit Title |
Filed Here-With? |
Form |
Exhibit No. |
Date Filed |
10.1* |
Employment Agreement, dated as of May 27, 2022, by and between Pactiv LLC and Jonathan Baksht. |
X |
|
|
|
10.2* |
Separation Agreement, dated June 15, 2022, by and between Pactiv LLC and Michael J. Ragen. |
X |
|
|
|
10.3* |
X |
|
|
|
|
10.4* |
X |
|
|
|
|
31.1 |
|
X |
|
|
|
31.2 |
|
X |
|
|
|
32.1 |
|
X |
|
|
|
32.2 |
|
X |
|
|
|
101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
* Indicates a management contract or compensatory plan.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
PACTIV EVERGREEN INC. |
|
|
|
(Registrant) |
|
|
|
|
|
By: |
|
/s/ Jonathan H. Baksht |
|
|
|
Jonathan H. Baksht |
|
|
|
Chief Financial Officer (principal financial officer and principal accounting officer) |
|
|
|
August 4, 2022 |
|
|
|
|
40