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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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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38 |
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Item 4. |
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38 |
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PART II. |
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39 |
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Item 1. |
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39 |
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Item 1A. |
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39 |
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Item 2. |
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39 |
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Item 3. |
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Item 4. |
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Item 5. |
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39 |
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Item 6. |
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40 |
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41 |
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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 Nine 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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( |
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Gross profit |
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Selling, general and administrative expenses |
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( |
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( |
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( |
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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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( |
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Other income, net |
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Operating income from continuing operations |
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Non-operating 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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( |
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Income (loss) from continuing operations before tax |
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( |
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Income tax (expense) benefit |
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( |
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( |
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Income (loss) from continuing operations |
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( |
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Income (loss) from discontinued operations, net of income taxes |
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( |
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( |
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Net income (loss) |
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— |
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( |
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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
(In millions)
(Unaudited)
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For the Three Months Ended |
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For the Nine 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 income (loss), 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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( |
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Defined benefit plans |
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( |
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Other comprehensive income (loss) |
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( |
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Comprehensive income |
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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 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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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 September 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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— |
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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 |
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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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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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— |
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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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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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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 September 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 |
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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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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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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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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 September 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 Nine Months Ended |
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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 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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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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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 September 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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For the Nine Months Ended |
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|||||||
Balance as of December 31, 2021 |
|
|
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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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( |
) |
|
Dividends declared - common shareholders ($ |
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance as of September 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 Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to operating cash flows: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Unrealized loss on derivatives |
|
|
|
|
|
|
||
Asset impairment charges |
|
|
|
|
|
— |
|
|
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 |
|
|
|
|
|
|
||
Investing Activities: |
|
|
|
|
|
|
||
Acquisition of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Disposal of businesses and joint venture equity interests, net of cash disposed |
|
|
|
|
|
( |
) |
|
Other investing activities |
|
|
|
|
|
|
||
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Financing Activities: |
|
|
|
|
|
|
||
Long-term debt proceeds |
|
|
— |
|
|
|
|
|
Long-term debt repayments |
|
|
( |
) |
|
|
( |
) |
Long-term debt issuance costs |
|
|
— |
|
|
|
( |
) |
Premium on redemption of long-term debt |
|
|
— |
|
|
|
( |
) |
Dividends paid to common shareholders |
|
|
( |
) |
|
|
( |
) |
Other financing activities |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Increase 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 |
|
|
|
|
|
( |
) |
|
7
Significant non-cash investing and financing activities
During the nine months ended September 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.
8
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, balance sheet and cash flows. 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 may 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 economic and operating conditions evolve.
Accounting Guidance Issued but Not Yet Adopted as of September 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. While the impact of this ASU is dependent on the nature of any future transactions, we currently do not expect this ASU to have a significant impact 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 be applied through the end of calendar year 2022. While we currently do not expect this new guidance to have a significant
9
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
impact on our condensed consolidated financial statements or related disclosures, we continue to evaluate our contracts and the optional expedients and exceptions provided under the 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 final 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 finite-lived intangible assets acquired to the Foodservice segment which included $
10
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
nine months ended September 30, 2022 which increased goodwill 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
Beverage Merchandising Asia
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 December 31, 2021 comprised the following:
|
|
As of December 31, 2021 |
|
|
Cash and cash equivalents |
|
$ |
|
|
Current assets |
|
|
|
|
Noncurrent assets |
|
|
|
|
Total current assets held for sale |
|
$ |
|
|
Current liabilities |
|
$ |
|
|
Noncurrent liabilities |
|
|
|
|
Total current liabilities held for sale |
|
$ |
|
|
Income from operations before income taxes for Beverage Merchandising Asia for the three and nine months ended September 30, 2022 and 2021 was $
Closures Businesses
During the third quarter of 2022, we committed to a plan to sell our remaining closures businesses included in the Other operating segment. As a result, we classified the assets and liabilities of these businesses as held for sale and recognized an impairment charge of $
11
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
The carrying amounts of the major classes of the remaining closures businesses’ assets and liabilities as of September 30, 2022 comprised the following:
|
|
As of September 30, |
|
|
Cash and cash equivalents |
|
$ |
|
|
Current assets |
|
|
|
|
Noncurrent assets |
|
|
|
|
Held for sale valuation allowance |
|
|
( |
) |
Total current assets held for sale |
|
$ |
|
|
Current liabilities |
|
$ |
|
|
Noncurrent liabilities |
|
|
|
|
Total current liabilities held for sale |
|
$ |
|
|
The remaining closures businesses’ income from operations before income taxes for the nine months ended September 30, 2022 and 2021 was insignificant.
Naturepak Beverage
On October 12, 2021, we entered into a definitive agreement for the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd. (“Naturepak Beverage”), our
Note 3. Restructuring, Asset Impairment and Other Related Charges
Restructuring, asset impairment and other related charges consisted of the following:
|
|
Employee Terminations |
|
|
Asset |
|
|
Other Related Charges |
|
|
Total |
|
||||
For the Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beverage Merchandising |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Other |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beverage Merchandising |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Other |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Nine Months Ended September 30, 2021(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beverage Merchandising |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
During the three months ended September 30, 2022, we recorded a non-cash impairment charge of $
12
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
During the three months ended September 30, 2022, we internally announced the decision to close our El Salvador operations in the Beverage Merchandising segment, which is expected to be completed by December 31, 2022. As a result, we recognized $
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 $
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 |
|
$ |
|
|
$ |
|
||
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 Nine 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 |
|
|
Total |
|
||||
As of December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Measurement period adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
13
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Intangible assets, net consisted of the following:
|
|
As of September 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 $
Note 7. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
|
|
As of |
|
|
As of |
|
||
Personnel costs |
|
$ |
|
|
$ |
|
||
Rebates and credits |
|
|
|
|
|
|
||
Interest |
|
|
|
|
|
|
||
Other(1) |
|
|
|
|
|
|
||
Accrued and other current liabilities |
|
$ |
|
|
$ |
|
||
Note 8. Debt
Debt consisted of the following:
|
|
As of |
|
|
As of |
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Credit Agreement |
|
$ |
|
|
$ |
|
||
Notes: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Pactiv Debentures: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
||
Total principal amount of borrowings |
|
|
|
|
|
|
||
Deferred debt issuance costs (“DIC”) |
|
|
( |
) |
|
|
( |
) |
Original issue discounts, net of premiums (“OID”) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
Long-term debt |
|
$ |
|
|
$ |
|
||
14
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
We were in compliance with all debt covenants during the nine months ended September 30, 2022 and the year ended December 31, 2021.
On September 24, 2021, we incurred $
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 nine months ended September 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 others, incurring debt, creating liens over assets, selling assets and making restricted payments, in each case except as permitted under the Credit Agreement.
Notes
A
|
|
Maturity Date |
|
Interest Payment Dates |
|
|
|||
|
|
|
15
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
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.
Pactiv Debentures
As of September 30, 2022, our outstanding debentures (together, the “Pactiv Debentures”) were as follows:
|
|
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 September 30, 2022:
|
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total principal amount of borrowings |
|
$ |
|
|
16
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Fair value of our long-term debt
The fair value of our long-term debt as of September 30, 2022 and December 31, 2021 is a Level 2 fair value measurement.
|
|
As of September 30, 2022 |
|
|
As of December 31, 2021 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Credit Agreement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Pactiv Debentures: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest expense, net
Interest expense, net consisted of the following:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Credit Agreement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pactiv Debentures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
DIC |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
OID |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net foreign currency exchange losses |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other(1) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
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 September 30, 2022 |
|
|
As of December 31, 2021 |
|
||||||||||
|
|
Asset |
|
|
Liability |
|
|
Asset |
|
|
Liability |
|
||||
Commodity swap contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Total fair value |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Classification: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other current assets |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Other noncurrent assets |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Accrued and other current liabilities |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other noncurrent liabilities |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Total fair value |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
17
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
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 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 nine months ended September 30, 2022 and 2021, we recognized unrealized losses of $
The following table provides the detail of outstanding commodity derivative contracts as of September 30, 2022:
Type |
|
Unit of Measure |
|
Contracted |
|
|
Contracted |
|
Contracted Date of Maturity |
|
Benzene swaps |
|
U.S. liquid gallon |
|
|
|
|
$ |
|
Nov 2022 - Jun 2023 |
|
Natural gas swaps |
|
Million BTU |
|
|
|
|
$ |
|
Nov 2022 - Dec 2025 |
|
Note 10. Employee Benefits
Net periodic benefit income for our defined benefit pension plans and other post-employment benefit plans consisted of the following:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Service cost |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest cost |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Expected return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Ongoing net periodic benefit (expense) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income due to settlements(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net periodic benefit income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net periodic benefit income for defined benefit pension plans and other post-employment benefit plans was recognized as follows:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of sales |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Non-operating income, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net periodic benefit income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Pension Partial Settlement Transactions
On September 20, 2022, February 24, 2022 and July 21, 2021, using PEPP assets, we purchased non-participating group annuity contracts from insurance companies and transferred $
18
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 11. Other Income, Net
Other income, net consisted of the following:
|
|
For the Three Months Ended |
|
|
For the Nine 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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 are also involved in various administrative and other proceedings relating to environmental matters that arise in the normal course of business, and we may become involved in similar matters in the future. We record estimates for claims and proceedings that constitute a present obligation when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of such obligation can be made. While it is not possible to predict the outcome of any of these matters with certainty, 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 others, MP2 dismissed its claims with prejudice, Pactiv paid MP2 an insignificant 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. Any claims pursuant to these warranties and indemnities, if successful, could have a material effect on our balance sheet, results of operations or cash flows.
19
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 Nine 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 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance as of end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of beginning of period |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Net actuarial gain (loss) arising during year(2) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Deferred tax (expense) benefit on net actuarial gain (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Loss (gain) reclassified from AOCL |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reclassification upon sale of businesses(3) |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Defined benefit plan settlement gain |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred tax expense on reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Balance as of end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
AOCL |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Balance as of end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 14. Income Taxes
The effective tax rates for the three and nine months ended September 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 September 30, 2022, we recognized a tax expense of $
During the three months ended September 30, 2021, we recognized a tax benefit of $
20
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 September 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 September 30, 2022, approximately
Transactions with our related parties are detailed below. All of our related parties are commonly controlled by Mr. Graeme Hart, our controlling shareholder, except for our joint ventures.
|
|
Income (expense) for the |
|
|
Income (expense) for the |
|
|
|
|
|
|
|
||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Balance Outstanding as of |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
September 30, |
|
|
December 31, |
|
||||||
Joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Included in other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||||
Sale of goods and services(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||||
Other common controlled entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
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
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 $
Restricted Stock Units
During the nine months ended September 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 to
21
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
the vesting period, the RSUs carry dividend-equivalent rights, but the RSUs do not have voting rights. The RSUs and any related dividend-equivalent rights are forfeited in the event the holder is no longer an employee on the vesting date, unless the holder satisfies certain retirement-eligibility criteria.
(In thousands, except per share amounts) |
|
Number of |
|
|
Weighted |
|
||
Non-vested, at January 1 |
|
|
|
|
$ |
|
||
Granted(1) |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
Non-vested, at September 30 |
|
|
|
|
$ |
|
||
Unrecognized compensation cost related to unvested RSUs as of September 30, 2022 was $
Performance Share Units
During the nine months ended September 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 September 30 |
|
|
|
|
$ |
|
||
Unrecognized compensation cost related to unvested PSUs as of September 30, 2022 was $
22
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 Nine 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 earnings (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
We have
The key factors used to identify these reportable segments are the organization of our internal operations and the nature of our products. This reflects how our CODM 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.
23
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
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”. As of September 30, 2022, we expect to dispose of all of the remaining components of our former closures business within the next twelve months. Unallocated includes corporate costs, primarily relating to general and administrative 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 allocates resources and analyzes 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.
|
|
Foodservice |
|
|
Food |
|
|
Beverage |
|
|
Reportable |
|
||||
For the Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total reportable segment net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
24
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 |
|
||||
As of September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The following table presents a reconciliation of reportable segment Adjusted EBITDA to consolidated income (loss) from continuing operations before income taxes:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Reportable segment Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unallocated |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjustments to reconcile to 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 income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operational process engineering-related consultancy costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Business acquisition and integration costs and purchase accounting adjustments |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Unrealized losses on derivatives |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange losses on cash |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Executive transition charges |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Gain on legal settlement |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Costs associated with legacy 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(1) |
|
$ |
|
|
$ |
|
||
Other |
|
|
— |
|
|
|
|
|
Unallocated(2) |
|
|
|
|
|
|
||
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 Nine 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.
Our Company
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 include containers, drinkware (such as hot and cold cups and lids), cartons for fresh refrigerated beverage products, tableware, meat and poultry trays, paper products, liquid packaging board, serviceware, prepared food trays and egg cartons. Our products, many of which are made with recycled, recyclable or renewable materials, are sold to 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. Refer to Note 18, Segment Information, for additional details.
Business Environment
During 2022, we experienced meaningful input cost inflation, including higher raw material and labor costs. Our pricing strategy across all of our segments, including contractual pass-through mechanisms and other pricing actions, has mitigated certain of these inflationary pressures. These pressures may also impact our customers’ purchasing decisions and order patterns throughout the remainder of 2022 and into 2023, as well as consumer mobility and discretionary spending. Additionally, while labor availability has improved during the year, a tight labor market has continued to challenge our business and our operations. Despite these headwinds, we have seen strong customer retention while renewing our focus on manufacturing productivity across all of our segments.
While strong demand for labor domestically continues to support consumer spending in the face of inflationary pressures, rising interest rates and the resulting volatility within the capital markets have created additional uncertainty with respect to the economic outlook. If economic conditions were to deteriorate, a decline in consumer spending may result, which could lead to a meaningful decline in demand for our products into 2023 and beyond.
Recent Developments and Items Impacting Comparability
Pension Partial Settlement Transactions
On September 20, 2022, February 24, 2022, and July 21, 2021, using PEPP assets, we purchased non-participating group annuity contracts from insurance companies and transferred portions of the PEPP’s projected benefit obligations. In each instance, the respective insurance companies have assumed responsibility for pension benefits and annuity administration. The following table provides details regarding each transaction:
|
|
|
|
(In millions) |
|
|
|
|
||||||||||
Transaction Date |
|
Reporting Period |
|
Assets Transferred |
|
|
Projected Benefit Obligations Transferred |
|
|
Settlement Gain Recognized |
|
|
Number of Participants Impacted |
|
||||
September 20, 2022 |
|
Q3 2022 |
|
$ |
629 |
|
|
$ |
656 |
|
|
$ |
47 |
|
|
|
10,200 |
|
February 24, 2022 |
|
Q1 2022 |
|
|
1,260 |
|
|
|
1,257 |
|
|
|
10 |
|
|
|
13,300 |
|
July 21, 2021 |
|
Q3 2021 |
|
|
941 |
|
|
|
959 |
|
|
|
22 |
|
|
|
16,300 |
|
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 nine months ended September 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 U.S. The acquisition broadened our portfolio of sustainable packaging products and expanded 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.
27
Dispositions and Exit Activities
Over recent periods, we made strategic decisions to focus on our core, business-to-business North American foodservice, food merchandising and beverage merchandising operations. Accordingly, we divested or exited certain of our non-core businesses which enables us to focus on our strategic core competencies.
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 $336 million, which are subject to adjustments for cash, indebtedness and working capital as of the date of completion. We recognized a preliminary gain on sale of $239 million during the three months ended September 30, 2022. Sales of liquid packaging board to our former Beverage Merchandising Asia operations, which were previously eliminated in consolidation, are recorded as external net revenues subsequent to the transaction’s completion.
In September 2022, we committed to a plan to sell our remaining closures businesses. As a result, we classified the assets and liabilities of these businesses as held for sale and recognized a pre-tax charge to earnings of $56 million within restructuring, asset impairment and other related charges during the three months ended September 30, 2022.
On October 12, 2021, we entered into a definitive agreement for the sale of our equity interests in Naturepak Beverage, 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 preliminary gain on the sale of our equity interests of $27 million during the nine months ended September 30, 2022.
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, 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 during the nine months ended September 30, 2022 and $8 million for contractual termination benefits during the nine months ended September 30, 2021.
None of these dispositions qualify for presentation as discontinued operations.
Winter Storm Uri and Tropical Storm Fred
In February 2021, the Southern portion of the U.S. 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 adversely impacted for the nine months ended September 30, 2021 as the products manufactured with this higher priced material were sold.
In August 2021, the Southeastern portion of the U.S. was impacted by Tropical Storm Fred which brought severe flooding. As a result of the storm, our paper mill in Canton, North Carolina experienced a flood which resulted in the damage of certain property, plant and equipment. The mill subsequently experienced an explosion and resulting fire. Due to the extent of damage sustained from the flood, fire and related events, we were unable to fully operate our paper mill in Canton, North Carolina for several days during the third quarter of 2021. Accordingly, our Beverage Merchandising segment incurred $7 million of incremental costs, including costs related to the shut-down of the mill and to repair damaged property, plant and equipment, during the three months ended September 30, 2021.
COVID-19
We have been actively responding to the COVID-19 pandemic and its impact. During the early part of 2021, we experienced lower demand for our products and, as a result, a decline in revenues. Commencing in the second quarter of 2021 and continuing throughout 2021, volumes improved in our business, most significantly in our Foodservice segment. To date, we have not experienced significant issues across our supply chain due to the COVID-19 pandemic, including the sourcing of materials and
28
logistics service providers. As the general effects of the COVID-19 pandemic continue to change and remain unpredictable, the COVID-19 pandemic may continue to impact our results of operations in future periods as the macroeconomic environment and consumer behavior continue to evolve.
Non-GAAP Measures – Adjusted EBITDA from Continuing Operations
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.
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 Nine Months Ended |
|
||||||||||
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) from continuing operations (GAAP) |
|
$ |
175 |
|
|
$ |
2 |
|
|
$ |
292 |
|
|
$ |
(1 |
) |
Income tax expense (benefit) |
|
|
79 |
|
|
|
(13 |
) |
|
|
160 |
|
|
|
(26 |
) |
Interest expense, net |
|
|
59 |
|
|
|
57 |
|
|
|
158 |
|
|
|
141 |
|
Depreciation and amortization |
|
|
85 |
|
|
|
103 |
|
|
|
255 |
|
|
|
253 |
|
Restructuring, asset impairment and other related charges(1) |
|
|
57 |
|
|
|
— |
|
|
|
58 |
|
|
|
8 |
|
Gain on sale of businesses and noncurrent assets(2) |
|
|
(239 |
) |
|
|
— |
|
|
|
(266 |
) |
|
|
— |
|
Non-cash pension income(3) |
|
|
(44 |
) |
|
|
(40 |
) |
|
|
(52 |
) |
|
|
(88 |
) |
Operational process engineering-related consultancy costs(4) |
|
|
3 |
|
|
|
6 |
|
|
|
7 |
|
|
|
16 |
|
Business acquisition and integration costs and purchase accounting adjustments(5) |
|
|
— |
|
|
|
2 |
|
|
|
6 |
|
|
|
2 |
|
Unrealized losses on derivatives |
|
|
10 |
|
|
|
1 |
|
|
|
4 |
|
|
|
5 |
|
Foreign exchange losses on cash |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
1 |
|
Executive transition charges(6) |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
10 |
|
Gain on legal settlement(7) |
|
|
— |
|
|
|
— |
|
|
|
(15 |
) |
|
|
— |
|
Costs associated with legacy facility(8) |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
Other |
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
5 |
|
Adjusted EBITDA from continuing operations (Non-GAAP) |
|
$ |
187 |
|
|
$ |
119 |
|
|
$ |
618 |
|
|
$ |
326 |
|
29
Results of Operations
Three Months Ended September 30, 2022 and 2021
Consolidated Results
|
|
For the Three Months Ended September 30, |
|
|||||||||||||||||||||
(In millions, except for %) |
|
2022 |
|
|
% of |
|
|
2021 |
|
|
% of |
|
|
Change |
|
|
% Change |
|
||||||
Net revenues |
|
$ |
1,609 |
|
|
|
100 |
% |
|
$ |
1,394 |
|
|
|
100 |
% |
|
$ |
215 |
|
|
|
15 |
% |
Cost of sales |
|
|
(1,377 |
) |
|
|
(86 |
)% |
|
|
(1,291 |
) |
|
|
(93 |
)% |
|
|
(86 |
) |
|
|
(7 |
)% |
Gross profit |
|
|
232 |
|
|
|
14 |
% |
|
|
103 |
|
|
|
7 |
% |
|
|
129 |
|
|
|
125 |
% |
Selling, general and administrative expenses |
|
|
(145 |
) |
|
|
(9 |
)% |
|
|
(104 |
) |
|
|
(7 |
)% |
|
|
(41 |
) |
|
|
(39 |
)% |
Restructuring, asset impairment and other related charges |
|
|
(57 |
) |
|
|
(4 |
)% |
|
|
— |
|
|
|
— |
% |
|
|
(57 |
) |
|
NM |
|
|
Other income, net |
|
|
239 |
|
|
|
15 |
% |
|
|
7 |
|
|
|
— |
% |
|
|
232 |
|
|
NM |
|
|
Operating income from continuing operations |
|
|
269 |
|
|
|
17 |
% |
|
|
6 |
|
|
|
— |
% |
|
|
263 |
|
|
NM |
|
|
Non-operating income, net |
|
|
44 |
|
|
|
3 |
% |
|
|
40 |
|
|
|
3 |
% |
|
|
4 |
|
|
|
10 |
% |
Interest expense, net |
|
|
(59 |
) |
|
|
(4 |
)% |
|
|
(57 |
) |
|
|
(4 |
)% |
|
|
(2 |
) |
|
|
(4 |
)% |
Income (loss) from continuing operations before tax |
|
|
254 |
|
|
|
16 |
% |
|
|
(11 |
) |
|
|
(1 |
)% |
|
|
265 |
|
|
NM |
|
|
Income tax (expense) benefit |
|
|
(79 |
) |
|
|
(5 |
)% |
|
|
13 |
|
|
|
1 |
% |
|
|
(92 |
) |
|
NM |
|
|
Income from continuing operations |
|
|
175 |
|
|
|
11 |
% |
|
|
2 |
|
|
|
— |
% |
|
|
173 |
|
|
NM |
|
|
Income (loss) from discontinued operations, net of income taxes |
|
|
1 |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
3 |
|
|
|
|
|||
Net income |
|
$ |
176 |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
176 |
|
|
|
|
|||
Adjusted EBITDA from continuing operations(1) |
|
$ |
187 |
|
|
|
12 |
% |
|
$ |
119 |
|
|
|
9 |
% |
|
$ |
68 |
|
|
|
57 |
% |
NM indicates that the calculation is “not meaningful”.
Components of Change in Reportable Segment Net Revenues
|
|
Price/Mix |
|
|
Volume |
|
|
Acquisitions |
|
|
Dispositions |
|
|
Total |
|
|||||
Net revenues |
|
|
17 |
% |
|
|
(8 |
)% |
|
|
8 |
% |
|
|
(2 |
)% |
|
|
15 |
% |
By reportable segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Foodservice |
|
|
16 |
% |
|
|
(8 |
)% |
|
|
19 |
% |
|
|
— |
% |
|
|
27 |
% |
Food Merchandising |
|
|
20 |
% |
|
|
(4 |
)% |
|
|
— |
% |
|
|
— |
% |
|
|
16 |
% |
Beverage Merchandising |
|
|
16 |
% |
|
|
(5 |
)% |
|
|
— |
% |
|
|
(6 |
)% |
|
|
5 |
% |
30
Net Revenues. Net revenues for the three months ended September 30, 2022 increased by $215 million, or 15%, to $1,609 million compared to the prior year period. 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 $114 million of incremental sales for the three months ended September 30, 2022 as compared to the prior year period. 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, the market softening amid inflationary pressures in our Food Merchandising segment and our strategic exit from the coated groundwood business in our Beverage Merchandising segment in December 2021, and the impact from the disposition of Beverage Merchandising Asia on August 2, 2022.
Cost of Sales. Cost of sales for the three months ended September 30, 2022 increased by $86 million, or 7%, to $1,377 million compared to the prior year period. The increase was primarily due to the Foodservice segment’s acquisition of Fabri-Kal and higher material and manufacturing costs across all of our segments. These increases were partially offset by lower sales volume.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended September 30, 2022 increased by $41 million, or 39%, to $145 million compared to the prior year period. 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 September 30, 2022 included a $56 million impairment charge related to the decision to exit our remaining closures businesses. Refer to Note 3, Restructuring, Asset Impairment and Other Related Charges, for additional details.
Other Income, Net. Other income, net for the three months ended September 30, 2022 increased by $232 million to $239 million compared to the prior year period. The increase was primarily attributable to the $239 million preliminary gain on the sale of Beverage Merchandising Asia, which was completed during the three months ended September 30, 2022.
Non-operating Income, Net. Non-operating income, net, for the three months ended September 30, 2022 increased by $4 million, or 10%, to $44 million compared to the prior year period. The increase was primarily due to a $47 million pension settlement gain recognized in the current year period compared to a $22 million pension settlement gain recognized in the prior year period, partially offset by lower ongoing net periodic benefit income. Refer to Note 10, Employee Benefits, for additional details.
Interest Expense, Net. Interest expense, net, for the three months ended September 30, 2022 increased by $2 million, or 4%, to $59 million, compared to the prior year period. The increase was primarily due to an increase in the interest rate on our floating rate term loans and an increase in principal amounts outstanding under our senior secured notes. These increases were partially offset by $14 million of fees and third party costs incurred in the prior year period that did not recur. Refer to Note 8, Debt, for additional details.
Income Tax Expense. During the three months ended September 30, 2022, we recognized a tax expense of $79 million on income from continuing operations before tax of $254 million, compared to tax benefit of $13 million on a loss from continuing operations before tax of $11 million for the prior year period. The effective tax rate is primarily due to the tax impacts from the sale of our businesses. The effective tax rate during the prior year period 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 September 30, 2022 increased by $68 million, or 57%, to $187 million compared to the prior year period. 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 and employee-related costs and lower sales volume.
Segment Information
Foodservice
|
|
For the Three Months Ended September 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
756 |
|
|
$ |
594 |
|
|
$ |
162 |
|
|
|
27 |
% |
Segment Adjusted EBITDA |
|
$ |
113 |
|
|
$ |
64 |
|
|
$ |
49 |
|
|
|
77 |
% |
Segment Adjusted EBITDA margin |
|
|
15 |
% |
|
|
11 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Foodservice total segment net revenues for the three months ended September 30, 2022 increased by $162 million, or 27%, to $756 million compared to the prior year period. The increase was primarily due to the acquisition of Fabri-Kal on October 1, 2021, which contributed $114 million of incremental sales for the three months ended September 30,
31
2022 as compared to the prior year period, and favorable pricing, due to the contractual pass-through of higher material costs and pricing actions taken to offset higher input costs. 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 three months ended September 30, 2022 increased by $49 million, or 77%, to $113 million compared to the prior year period. 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 Three Months Ended September 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
455 |
|
|
$ |
391 |
|
|
$ |
64 |
|
|
|
16 |
% |
Segment Adjusted EBITDA |
|
$ |
70 |
|
|
$ |
49 |
|
|
$ |
21 |
|
|
|
43 |
% |
Segment Adjusted EBITDA margin |
|
|
15 |
% |
|
|
13 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Food Merchandising total segment net revenues for the three months ended September 30, 2022 increased by $64 million, or 16%, to $455 million compared to the prior year period. 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 the market softening amid inflationary pressures.
Adjusted EBITDA. Food Merchandising Adjusted EBITDA for the three months ended September 30, 2022 increased by $21 million, or 43%, to $70 million compared to the prior year period. The increase was primarily due to favorable pricing, net of material costs passed through, partially offset by higher manufacturing and employee-related costs and lower sales volume.
Beverage Merchandising
|
|
For the Three Months Ended September 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
422 |
|
|
$ |
403 |
|
|
$ |
19 |
|
|
|
5 |
% |
Segment Adjusted EBITDA |
|
$ |
26 |
|
|
$ |
16 |
|
|
$ |
10 |
|
|
|
63 |
% |
Segment Adjusted EBITDA margin |
|
|
6 |
% |
|
|
4 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Beverage Merchandising total segment net revenues for the three months ended September 30, 2022 increased by $19 million, or 5%, to $422 million compared to the prior year period. 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. The increase was partially offset by the impact from the disposition of Beverage Merchandising Asia on August 2, 2022 and 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 September 30, 2022 increased by $10 million, or 63%, to $26 million compared to the prior year period. The increase was primarily due to favorable pricing, net of material costs passed through, and the benefit related to prior year period costs of $7 million from Tropical Storm Fred. These items were partially offset by higher manufacturing costs, including $8 million due to a scheduled cold mill outage, and higher employee-related costs.
32
Nine Months Ended September 30, 2022 and 2021
Consolidated Results
|
|
For the Nine Months Ended September 30, |
|
|||||||||||||||||||||
(In millions, except for %) |
|
2022 |
|
|
% of |
|
|
2021 |
|
|
% of |
|
|
Change |
|
|
% Change |
|
||||||
Net revenues |
|
$ |
4,744 |
|
|
|
100 |
% |
|
$ |
3,910 |
|
|
|
100 |
% |
|
$ |
834 |
|
|
|
21 |
% |
Cost of sales |
|
|
(3,972 |
) |
|
|
(84 |
)% |
|
|
(3,549 |
) |
|
|
(91 |
)% |
|
|
(423 |
) |
|
|
(12 |
)% |
Gross profit |
|
|
772 |
|
|
|
16 |
% |
|
|
361 |
|
|
|
9 |
% |
|
|
411 |
|
|
|
114 |
% |
Selling, general and administrative expenses |
|
|
(435 |
) |
|
|
(9 |
)% |
|
|
(345 |
) |
|
|
(9 |
)% |
|
|
(90 |
) |
|
|
(26 |
)% |
Restructuring, asset impairment and other related charges |
|
|
(58 |
) |
|
|
(1 |
)% |
|
|
(8 |
) |
|
|
— |
% |
|
|
(50 |
) |
|
NM |
|
|
Other income, net |
|
|
279 |
|
|
|
6 |
% |
|
|
18 |
|
|
|
— |
% |
|
|
261 |
|
|
NM |
|
|
Operating income from continuing operations |
|
|
558 |
|
|
|
12 |
% |
|
|
26 |
|
|
|
1 |
% |
|
|
532 |
|
|
NM |
|
|
Non-operating income, net |
|
|
52 |
|
|
|
1 |
% |
|
|
88 |
|
|
|
2 |
% |
|
|
(36 |
) |
|
|
(41 |
)% |
Interest expense, net |
|
|
(158 |
) |
|
|
(3 |
)% |
|
|
(141 |
) |
|
|
(4 |
)% |
|
|
(17 |
) |
|
|
(12 |
)% |
Income (loss) from continuing operations before tax |
|
|
452 |
|
|
|
10 |
% |
|
|
(27 |
) |
|
|
(1 |
)% |
|
|
479 |
|
|
NM |
|
|
Income tax (expense) benefit |
|
|
(160 |
) |
|
|
(3 |
)% |
|
|
26 |
|
|
|
1 |
% |
|
|
(186 |
) |
|
NM |
|
|
Income (loss) from continuing operations |
|
|
292 |
|
|
|
6 |
% |
|
|
(1 |
) |
|
|
— |
% |
|
|
293 |
|
|
NM |
|
|
Income (loss) from discontinued operations, net of income taxes |
|
|
1 |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
7 |
|
|
|
|
|||
Net income (loss) |
|
$ |
293 |
|
|
|
|
|
$ |
(7 |
) |
|
|
|
|
$ |
300 |
|
|
|
|
|||
Adjusted EBITDA from continuing operations(1) |
|
$ |
618 |
|
|
|
13 |
% |
|
$ |
326 |
|
|
|
8 |
% |
|
$ |
292 |
|
|
|
90 |
% |
Components of Change in Reportable Segment Net Revenues
|
|
Price/Mix |
|
|
Volume |
|
|
Acquisitions |
|
|
Dispositions |
|
|
FX |
|
|
Total |
|
||||||
Net revenues |
|
|
22 |
% |
|
|
(8 |
)% |
|
|
9 |
% |
|
|
(1 |
)% |
|
|
(1 |
)% |
|
|
21 |
% |
By reportable segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foodservice |
|
|
25 |
% |
|
|
(7 |
)% |
|
|
21 |
% |
|
|
— |
% |
|
|
— |
% |
|
|
39 |
% |
Food Merchandising |
|
|
21 |
% |
|
|
(5 |
)% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
16 |
% |
Beverage Merchandising |
|
|
18 |
% |
|
|
(7 |
)% |
|
|
— |
% |
|
|
(2 |
)% |
|
|
— |
% |
|
|
9 |
% |
Net Revenues. Net revenues for the nine months ended September 30, 2022 increased by $834 million, or 21%, to $4,744 million compared to the prior year period. 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 $337 million of incremental sales for the nine months ended September 30, 2022 as compared to the prior year period. 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 nine months ended September 30, 2022 increased by $423 million, or 12%, to $3,972 million compared to the prior year period. The increase was primarily due to higher material and manufacturing costs 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 and the benefit related to prior year period costs of $50 million from Winter Storm Uri.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2022 increased by $90 million, or 26%, to $435 million compared to the prior year period. 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 nine months ended September 30, 2022 increased by $50 million to $58 million. The increase was primarily attributable to a $56 million impairment charge related to the decision to exit our remaining closures businesses. Refer to Note 3, Restructuring, Asset Impairment and Other Related Charges, for additional details.
Other Income, Net. Other income, net for the nine months ended September 30, 2022 increased by $261 million to $279 million compared to the prior year period. The increase was primarily attributable to the $239 million gain on the sale of Beverage
33
Merchandising Asia, the $27 million gain on the sale of our equity interests in Naturepak Beverage 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 nine months ended September 30, 2022 decreased by $36 million, or 41%, to $52 million compared to the prior year period. The decrease was primarily due to lower ongoing net periodic benefit income, partially offset by $57 million of pension settlement gains recognized in the current year period compared to a $22 million pension settlement gain recognized in the prior year period. Refer to Note 10, Employee Benefits, for additional details.
Interest Expense, Net. Interest expense, net, for the nine months ended September 30, 2022 increased by $17 million, or 12%, to $158 million, compared to the prior year period, primarily due to an increase in the interest rate on our floating rate term loans and a net increase in principal amounts outstanding under our senior secured notes. These increases were partially offset by $14 million of fees and third party costs incurred in the prior year period that did not recur. Refer to Note 8, Debt, for additional details.
Income Tax (Expense) Benefit. During the nine months ended September 30, 2022, we recognized a tax expense of $160 million on income from continuing operations before tax of $452 million, compared to tax benefit of $26 million on a loss from continuing operations before tax of $27 million for the prior year period. The effective tax rate is primarily due to the inability to recognize a tax benefit on all interest expense and the tax impacts from the sales of our businesses. The effective tax rate during the prior year period 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.
Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations for the nine months ended September 30, 2022 increased by $292 million, or 90%, to $618 million compared to the prior year period. 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 and employee-related costs, lower sales volume and higher logistics costs. The increase in Adjusted EBITDA also included the benefit related to prior year period costs of $50 million from Winter Storm Uri.
Segment Information
Foodservice
|
|
For the Nine Months Ended September 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
2,244 |
|
|
$ |
1,619 |
|
|
$ |
625 |
|
|
|
39 |
% |
Segment Adjusted EBITDA |
|
$ |
394 |
|
|
$ |
187 |
|
|
$ |
207 |
|
|
|
111 |
% |
Segment Adjusted EBITDA margin |
|
|
18 |
% |
|
|
12 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Foodservice total segment net revenues for the nine months ended September 30, 2022 increased by $625 million, or 39%, to $2,244 million compared to the prior year period. 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 $337 million of incremental sales for the nine months ended September 30, 2022 as compared to the prior year period. 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 nine months ended September 30, 2022 increased by $207 million, or 111%, to $394 million compared to the period year period. 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 Nine Months Ended September 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
1,303 |
|
|
$ |
1,121 |
|
|
$ |
182 |
|
|
|
16 |
% |
Segment Adjusted EBITDA |
|
$ |
208 |
|
|
$ |
163 |
|
|
$ |
45 |
|
|
|
28 |
% |
Segment Adjusted EBITDA margin |
|
|
16 |
% |
|
|
15 |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Food Merchandising total segment net revenues for the nine months ended September 30, 2022 increased by $182 million, or 16%, to $1,303 million compared to the prior year period. 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.
34
Adjusted EBITDA. Food Merchandising Adjusted EBITDA for the nine months ended September 30, 2022 increased by $45 million, or 28%, to $208 million compared to the prior year period. 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 employee-related and logistics costs.
Beverage Merchandising
|
|
For the Nine Months Ended September 30, |
|
|||||||||||||
(In millions, except for %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
Total segment net revenues |
|
$ |
1,245 |
|
|
$ |
1,147 |
|
|
$ |
98 |
|
|
|
9 |
% |
Segment Adjusted EBITDA |
|
$ |
79 |
|
|
$ |
(1 |
) |
|
$ |
80 |
|
|
NM |
|
|
Segment Adjusted EBITDA margin |
|
|
6 |
% |
|
|
— |
% |
|
|
|
|
|
|
||
Total Segment Net Revenues. Beverage Merchandising total segment net revenues for the nine months ended September 30, 2022 increased by $98 million, or 9%, to $1,245 million compared to the nine months ended September 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, and the impact from the disposition of Beverage Merchandising Asia on August 2, 2022.
Adjusted EBITDA. Beverage Merchandising Adjusted EBITDA for the nine months ended September 30, 2022 increased by $80 million to $79 million compared to the prior year period. The increase reflected favorable pricing, net of material costs passed through, and the benefit related to prior year period costs of $37 million from Winter Storm Uri and $7 million from Tropical Storm Fred. These items were partially offset by higher manufacturing and employee-related costs and lower sales volume.
Liquidity and Capital Resources
We manage our capital structure in an effort to most effectively execute our strategic priorities and maximize shareholder value. We believe that we have sufficient liquidity to support our ongoing operations and to re-invest in our business to drive future growth. Our projected operating cash flows, cash on-hand and available capacity under our revolving credit facility are our primary sources of liquidity for the next 12 months. We expect our liquidity to fund capital expenditures, payments of interest and principal on our debt and distributions to shareholders that require approval by our Board of Directors. Additionally, we may utilize portions of our excess cash to repurchase certain amounts of our long-term debt prior to maturity depending on market conditions, among other factors.
Cash flows
Our cash flows for the nine months ended September 30, 2022 and 2021 were as follows:
|
|
For the Nine Months Ended |
|
|||||
(In millions) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
241 |
|
|
$ |
190 |
|
Net cash provided by (used in) investing activities |
|
|
196 |
|
|
|
(201 |
) |
Net cash (used in) provided by financing activities |
|
|
(79 |
) |
|
|
173 |
|
Effect of exchange rate on cash and cash equivalents |
|
|
(6 |
) |
|
|
(3 |
) |
Net increase in cash and cash equivalents |
|
$ |
352 |
|
|
$ |
159 |
|
Net cash flows increased $193 million, or 121%, compared to the prior year period primarily due to proceeds from the disposition of Beverage Merchandising Asia and our equity interests in Naturepak Beverage, and higher net cash provided by operating activities. These items were partially offset by net cash provided by various debt financing transactions undertaken during the prior year period. Net cash provided by operating activities increased as compared to the prior year period primarily due to favorable pricing, net of material costs passed through, the impact from the acquisition of Fabri-Kal and prior year period costs from Winter Storm Uri, partially offset by a strategic inventory build during the current year period and higher cash tax and interest payments.
During the nine months ended September 30, 2022, our primary sources of cash were $364 million in combined proceeds related to the sale of Beverage Merchandising Asia and our equity interests in Naturepak Beverage, and $241 million of net cash provided by operating activities. The net cash provided by operating activities reflects income from operations, partially offset by $132 million of cash interest payments and $64 million of cash taxes. Our primary uses of cash for the same period were $169 million in capital expenditures and $54 million of dividends paid.
35
During the nine months ended September 30, 2021, our primary sources of cash were $1,015 million of proceeds from debt issued under the U.S. term loans Tranche B-3, $500 million of proceeds from the issuance of our 4.375% Notes and $190 million of net cash provided by operating activities. The net cash provided by operating activities reflects income from operations and a net tax refund of $25 million, partially offset by $99 million of cash interest payments. Our primary uses of cash for the same period were the repayment of $1,207 million of U.S. term loans Tranche B-1, $199 million in capital expenditures, repayment of the remaining $59 million aggregate principal amount of the 5.125% senior secured notes at a price of 101.281% and $53 million of dividends paid.
Dividends
We paid cash dividends of $54 million and $53 million during the nine months ended September 30, 2022 and 2021, respectively. On November 3, 2022, our Board of Directors declared a dividend of $0.10 per share to be paid on December 15, 2022 to shareholders of record as of November 30, 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.
Financing and capital resources
As of September 30, 2022, we had $4,258 million of total principal amount of borrowings. Refer to Note 8, Debt, for additional details. As of September 30, 2022, the underlying one month LIBO rate for amounts borrowed under our Credit Agreement was 3.12%. Based on this rate, our 2022 annual cash interest obligations on our borrowings are expected to be approximately $215 million. Of our total debt, $2,233 million is subject to variable interest rates, representing borrowings drawn under our Credit Agreement. Based on our outstanding debt commitments as of September 30, 2022 and all other variables remaining constant, a 100 basis point increase (decrease) in interest rates would result in a $22 million per annum increase (decrease) in interest expense on the term loans under our Credit Agreement.
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.
Liquidity and working capital
Our liquidity position is summarized in the table below:
(In millions, except for current ratio) |
|
As of |
|
|
As of |
|
||
Cash and cash equivalents(1) |
|
$ |
559 |
|
|
$ |
197 |
|
Availability under revolving credit facility |
|
|
200 |
|
|
|
206 |
|
|
|
$ |
759 |
|
|
$ |
403 |
|
Working capital(2) |
|
|
1,386 |
|
|
|
1,043 |
|
Current ratio |
|
|
2.4 |
|
|
|
2.3 |
|
36
As of September 30, 2022, we had $559 million of cash and cash equivalents on-hand, with a further $7 million of cash and cash equivalents classified within current assets held for sale. We also had $200 million available for drawing under our revolving credit facility, net of $50 million utilized in the form of letters of credit under the facility. Our next debt maturity is $276 million of Pactiv Debentures due in December 2025, excluding amortization payments related to our U.S. term loans tranche B-2 and B-3 under our Credit Agreement.
We believe that we have sufficient liquidity to support our ongoing operations in the next 12 months and to invest in future growth to create further value for our shareholders. Our primary drivers of increased liquidity for the nine months ended September 30, 2022 were $364 million in proceeds from the sale of Beverage Merchandising Asia and our equity interests in Naturepak Beverage, and net operating cash flows of $241 million. These sources of additional liquidity were partially offset by capital expenditures of $169 million during the year. We currently anticipate incurring a total of approximately $260 million in capital expenditures during fiscal year 2022.
During 2022, our working capital increased $343 million, or 33%, primarily due to cash proceeds from our recent divestitures and our strategic inventory build during the year. Our working capital position provides us the flexibility for further consideration of strategic initiatives, including reinvestment in our business and deleveraging of our balance sheet. As a result, we may utilize portions of our excess cash to repurchase certain amounts of our long-term debt prior to maturity depending on market conditions, among other factors.
Our ability to borrow under our revolving credit facility or to incur additional indebtedness may be limited by the terms of such indebtedness or other indebtedness, including the Credit Agreement and the Notes. The Credit Agreement and the respective indentures governing the Notes generally allow our subsidiaries to transfer funds in the form of cash dividends, loans or advances within the Company.
Other than short-term leases executed 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 standards that we have recently adopted, as well as accounting standards that have been recently issued but not yet adopted by us, is included in Note 1, Nature of Operations and Basis of Presentation.
37
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes to our market risk during the nine months ended September 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 September 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2022, our disclosure controls and procedures were effective.
b) Changes in Internal Control over Financial Reporting
During the third quarter of 2022, we completed the integration of Fabri-Kal's internal control environment into Pactiv Evergreen's internal control environment. As a part of this integration, we migrated Fabri-Kal’s legacy enterprise resource planning (“ERP”) system onto Pactiv Evergreen’s primary ERP system.
Other than as described in the preceding paragraph, there were no material changes in our internal control over financial reporting that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
38
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.
39
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# |
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) |
|
|
|
|
# Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because they are not material and are of the type that the registrant treats as private or confidential. The registrant agrees to furnish an unredacted copy of this exhibit and the registrant’s materiality and privacy or confidentiality analyses on a supplemental basis to the SEC or its staff upon request.
40
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) |
|
|
|
November 8, 2022 |
|
|
|
|
41