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Item 8. Financial Statements and Supplementary Data

2021-02-12 compared with 2020-03-10 · 412 added, 465 removed, 599 unchanged (59% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO COMBINED FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Combined Statements of Income for the years ended December 31, 2019, 2018 and 2017

Combined Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Combined Balance Sheets as of December 31, 2019 and 2018

Combined Statements of Equity (Deficit) for the years ended December 31, 2019, 2018 and 2017

Combined Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Notes to the Combined Financial Statements

Report of Independent Regis tered Public Accounting Firm

To the Board of Directors and Shareholders of Reynolds Consumer Products Inc.

Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Reynolds Consumer Products Inc.

Opinion on the Financial Statements

We have audited the accompanying combined balance sheets of Reynolds Consumer Group, which is comprised of the Reynolds Consumer Products segment of Reynolds Group Holdings Limited, (the “Company”) as of December 31, 2019 and 2018, and the related combined statements of income, of comprehensive income, of equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “combined financial statements”).

In our opinion, the combined financial statements present fairly, in all material respects, the combined financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Reynolds Consumer Products Inc.

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the combined financial statements, the Company changed the manner in which it accounts for leases in 2019.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

These combined financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s combined financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these combined financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicat ing the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Sales Incentives

As described in Note 2 to the consolidated financial statements, the Company recorded net revenues of $3,147 million for the year ended December 31, 2020.

Consideration in contracts with customers is variable due to anticipated reductions such as discounts, allowances and trade promotions.

Accordingly, revenues are recorded net of estimated sales incentives, based on known or expected adjustments.

The transaction price is estimated based on the amount of consideration to which management believes they will be entitled.

The principal considerations for our determination that performing procedures relating to revenue recognition – sales incentives is a critical audit matter are a high degree of auditor effort in performing procedures and evaluating audit evidence related to contractual terms in customer arrangements to determine the amount of consideration.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effecti veness of certain controls relating to sales incentives.

These procedures also included, among others, evaluating contractual terms in customer arrangements that impact management’s determination of the sales incentive related to the product and related re cognition of revenue on a sample basis.

/s/PricewaterhouseCoopers LLP

Chicago, Illinois

March 10 , 2020

February 12, 2021

We have served as the Company’s auditor since 2015.

Reynolds Consumer Group

Combined Statements of Income

Reynolds Consumer Products Inc.

Consolidated Statements of Income

For the Years Ended December 31

(in millions, except share and per share data)

(in millions, except for per share data)

Related party net revenues

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Income before income taxes

Income tax (expense) benefit

Income tax expense

Earnings per share

Shares outstanding

See accompanying notes to the combined financial statements.

Reynolds Consumer Group

Combined Statements of Comprehensive Income

See accompanying notes to the consolidated financial statements.

Reynolds Consumer Products Inc.

Consolidated Statements of Comprehensive Income

For the Years Ended December 31

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Currency translation adjustment

Postretirement benefit plans

Employee benefit plans

Interest rate derivatives

Other comprehensive income (loss), net of income taxes

Comprehensive income

See accompanying notes to the combined financial statements.

Reynolds Consumer Group

Combined Balance Sheets

See accompanying notes to the consolidated financial statements.

Reynolds Consumer Products Inc.

Consolidated Balance Sheets

As of December 31

(in millions)

(in millions, except for per share data)

Cash and cash equivalents

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Related party receivables

Income taxes receivable

Other current assets

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Intangible assets, net

Related party receivables

Accounts payable

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Current portion of long-term debt

Current portion of related party borrowings

Income taxes payable

Accrued and other current liabilities

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Commitments and contingencies (Note 13)

Equity (deficit)

Stockholders’ equity

Common stock, $0.001 par value;

2,000 shares authorized;

209.7 shares issued and

Additional paid-in capital

Net Parent deficit

Accumulated other comprehensive income

Total equity (deficit)

Total liabilities and equity (deficit)

See accompanying notes to the combined financial statements.

Reynolds Consumer Group

Combined Statements of Equity (Deficit)

(in millions)

Retained earnings

Total stockholders' equity

Total liabilities and stockholders' equity

See accompanying notes to the consolidated financial statements.

Reynolds Consumer Products Inc.

Consolidated Statements of Stockholders’ Equity

(in millions, except for per share data)

Comprehensive

Balance as of December 31, 2017

Adoption of new accounting principle

Other comprehensive income, net of income taxes

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Adoption of new accounting principle

Other comprehensive income, net of income taxes

Other comprehensive loss, net of income taxes

Net transfers (to) from Parent

Balance as of December 31, 2019

Adoption of new accounting principle

Other comprehensive loss, net of income taxes

Net transfers (to) from Parent

Reclassification of net parent (deficit) in RCP

Issuance of common stock, net of costs

Dividends ($0.59 per share declared)

Balance as of December 31, 2020

See accompanying notes to the combined financial statements.

Reynolds Consumer Group

Combined Statements of Cash Flows

See accompanying notes to the consolidated financial statements.

Reynolds Consumer Products Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31

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Deferred income taxes

Unrealized (gains) losses on derivatives

Non-cash portion of employee benefit obligations

Other non-cash items, net

Unrealized (gains) losses on commodity derivatives

Stock compensation expense

Change in assets and liabilities:

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Related party receivables

Operating lease right-of-use assets

Accounts payable

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Related party accrued interest payable

Operating lease liabilities

Income taxes payable

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Other assets and liabilities

Employee benefit obligations, net

Net cash provided by operating activities

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Cash provided by (used in) financing activities

Long-term debt repayments

Proceeds from long-term debt, net of discounts

Repayment of long-term debt

Repayments of PEI Group Credit Agreement

Advances from related parties

Repayments to related parties

Deferred debt and equity transaction costs

Deferred debt transaction costs

Proceeds from IPO settlement facility

Repayment of IPO settlement facility

Issuance of common stock

Equity issuance costs

Dividends paid

Net transfers from (to) Parent

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Cash and cash equivalents:

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Refer to Note 17 - Related Party Transactions for details of significant non-cash investing and financing activities.

See accompanying notes to the combined financial statements.

Reynolds Consumer Group

Notes to the Combined Financial Statements

See accompanying notes to the consolidated financial statements.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Note 1 - Description of Business and Basis of Presentation

Description of Business:

Reynolds Consumer Group (“we”, “us” or “our”) produce and sell products across three broad categories:

Reynolds Consumer Products Inc.

and its subsidiaries (“we”, “us” or “our”) produce and sell products across three broad categories:

cooking products, waste & storage products and tableware.

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Basis of Presentation:

Prior to the completion of our corporate reorganization and initial public offering (“IPO”) on February 4, 2020, we operated as part of Reynolds Group Holdings Limited (“RGHL”) and not as a stand-alone entity.

We represented the business that was reported as the Reynolds Consumer Products segment in the consolidated financial statements of RGHL and its subsidiaries (collectively, “RGHL Group” or the “Parent”).

In conjunction with our corporate reorganization and IPO, we separated from RGHL Group on February 4.

Our combined financial statements present the results of operations, financial position and cash flows prepared on a stand-alone basis and have been derived from the consolidated financial statements and accounting records of RGHL Group.

All revenues and costs as well as assets and liabilities that are either legally attributable to us or directly associated with our business activities are included in our combined financial statements.

Intercompany transactions, profits and balances between our combined entities have been eliminated.

Our combined financial statements include Reynolds Consumer Products Inc., the entity whose shares were issued to the public in our IPO.

Refer to Note 17 – Subsequent Events for further information.

Our combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Our combined statements of income include allocations of certain expenses for services provided by RGHL Group, including, but not limited to, general corporate expenses related to group wide functions including executive management, finance, legal, tax, information technology and a portion of a related party management fee incurred by RGHL Group.

Total costs allocated to us for these functions were $41 million , $40 million and $37 million for the years ended December 31, 2019, 2018 and 2017, respectively, and were primarily included in selling, general and administrative expenses in our combined statements of income.

These amounts include costs of $22 million , $21 million and $20 million for the years ended December 31, 2019, 2018 and 2017, respectively, that were not historically allocated to us as part of RGHL Group's normal monthly reporting process.

Additionally, in the year ended December 31, 2019 costs of $28 million were allocated to us related to the IPO process that cannot be deferred and offset against the IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company, which were included in other expense, net in our combined statements of income.

We have prepared the accompanying audited consolidated financial statements in accordance with United States generally accepted accounting principles ("GAAP").

Prior to the completion of our Corporate Reorganization, as defined in our Registration Statement on Form S-1 (File No.

333-234731), and initial public offering (“IPO”) on February 4, 2020, we operated as part of Pactiv Evergreen Inc.

(“PEI”) (previously known as Reynolds Group Holdings Limited) and not as a stand-alone entity.

We represented the business that was previously reported as the Reynolds Consumer Products segment in the consolidated financial statements of PEI and its subsidiaries (collectively, “PEI Group” or the “Parent”).

As part of our Corporate Reorganization, we reorganized the legal structure of our entities so they are all under a single parent entity, Reynolds Consumer Products Inc.

In conjunction with our Corporate Reorganization and IPO, we separated from PEI Group on February 4, 2020.

All financial information presented after our Corporate Reorganization and IPO represents the consolidated financial statements of our company.

Our consolidated statements of income include allocations of certain expenses for services provided by PEI Group prior to our separation, including, but not limited to, general corporate expenses related to group wide functions including executive management, finance, legal, tax, information technology and a portion of a related party management fee incurred by PEI Group.

Total costs allocated to us for these functions were $2 million , $41 million and $40 million for the years ended December 31, 2020, 2019 and 2018, respectively, and were primarily included in selling, general and administrative expenses in our consolidated statements of income.

These amounts include costs of $1 million , $22 million and $21 million for the years ended December 31, 2020, 2019 and 2018, respectively, that were not historically allocated to us as part of PEI Group's normal monthly reporting process.

Additionally, in the year ended December 31, 2020 and 2019, costs of $2 million and $28 million were allocated to us related to the IPO process that cannot be deferred and offset against the IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company, which were included in other expense, net in our consolidated statements of income.

All of these expenses have been allocated on a basis considered reasonable by management, using either specific identification, such as direct usage or headcount when identifiable, or proportional allocations determined with reference to time incurred, relative to revenues, or other reasonable methods of allocation.

Amounts allocated on a proportional basis relate to certain corporate functions and are reflective of the time and effort expended in the provision of these corporate functions to us.

The allocations referred to above may not, however, reflect all actual expenses we would have incurred and may not reflect the combined results of operations, financial position and cash flows had we operated as a stand-alone company during the years presented.

The allocations referred to above may not, however, reflect all actual expenses we would have incurred and may not reflect the consolidated results of operations, financial position and cash flows had we operated as a stand-alone company during the years presented.

The amount of actual costs that may have been incurred if we were a stand-alone company would depend on a number of factors, including our chosen organizational structure, which functions were performed by our employees or outsourced and strategic decisions made in areas such as information technology and infrastructure.

RGHL Group centrally managed substantially all of our financial resources.

We financed our operating and capital requirements through a combination of cash provided by operations, RGHL Group's external borrowings that we have incurred and intercompany funding with RGHL Group.

We were a borrower under a portion of RGHL Group's external borrowings and therefore a portion of this third-party debt is reflected as long-term debt on our combined balance sheets.

Refer to Note 6 - Debt and Borrowing Arrangements for further information.

Our intercompany funding with RGHL Group, which is subject to various legal agreements with RGHL Group, is reflected in related party borrowings on our combined balance sheets.

We also advanced surplus cash to RGHL Group as part of its cash management activities.

The balance of these amounts is reflected in non-current related party receivables in our combined balance sheets.

Refer to Note 16 - Related Party Transactions for further information.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Net Parent deficit represents the Parent’s interest in our net assets.

As a direct ownership relationship did not exist between the various entities of our combined group, a Net Parent deficit account is shown in our combined financial statements.

The majority of transactions between us and RGHL Group have a history of settlement or were settled for cash in conjunction with our separation from RGHL Group and IPO .

These transactions have been reflected in our combined balance sheets as related party receivables and payables.

Transactions that did not have a history of settlement are reflected in equity (deficit) in our combined balance sheets as Net Parent deficit and, when cash is utilized (contributed), in our combined statements of cash flows as a financing activity in net transfers from (to) Parent.

As a direct ownership relationship did not exist between the various entities of our previously combined group, a Net Parent deficit account is shown in our previously combined financial statements.

The majority of transactions between us and PEI Group have a history of settlement or were settled for cash in conjunction with our separation from PEI Group and IPO.

These transactions have been reflected in our consolidated balance sheets as related party receivables and payables.

Transactions that did not have a history of settlement are reflected in equity (deficit) in our previously combined balance sheets as Net Parent deficit and, when cash is utilized (contributed), in our consolidated statements of cash flows as a financing activity in net transfers from (to) Parent.

Refer to Note 17 - Related Party Transactions for further information.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Initial Public Offering:

On February 4, 2020, we completed our separation from PEI Group and the IPO of our common stock pursuant to a Registration Statement on Form S-1.

In the IPO, we sold an aggregate of 54,245,500 shares of common stock, including 7,075,500 shares of common stock purchased by the underwriters on February 7, 2020 pursuant to their option to purchase additional shares, under the Registration Statement at a public offering price of $26.00 per share.

In conjunction with our separation from PEI Group and IPO, we reclassified PEI Group’s historical net investment in us to additional paid-in capital.

Each share of our outstanding common stock, immediately prior to our IPO, was exchanged into 155,455 shares of common stock.

In addition, certain related party borrowings owed to PEI Group were contributed as additional paid-in capital without the issuance of any additional shares.

Note 2 - Summary of Significant Accounting Policies

Use of Estimates:

We prepare our combined financial statements in accordance with GAAP, which requires us to make estimates and assumptions that affect a number of amounts in our combined financial statements.

We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions that affect a number of amounts in our consolidated financial statements.

Significant accounting policy elections, estimates and assumptions include, among others, benefit plan assumptions, valuation assumptions of goodwill and intangible assets, useful lives of long-lived assets, sales incentives and income taxes.

We base our estimates on historical experience and other assumptions that we believe are reasonable.

If actual amounts differ from estimates, we include the revisions in our combined results of operations in the period the actual amounts become known.

Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our combined financial statements.

If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the actual amounts become known.

Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our consolidated financial statements.

Currency Translation:

Our combined financial statements are presented in U.S.

Our consolidated financial statements are presented in U.S.

dollars, which is our reporting currency.

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dollar using average exchange rates during each period and translate balance sheet accounts using exchange rates at the end of each period.

We record currency translation adjustments as a component of equity (deficit) within accumulated other comprehensive income and transaction gains and losses in other expense, net in our combined statements of income.

We record currency translation adjustments as a component of stockholders’ equity within accumulated other comprehensive income and transaction gains and losses in other expense, net in our consolidated statements of income.

Cash and Cash Equivalents:

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We evaluate the aging of the accounts receivable balances and the financial condition of our customers to estimate the amount of accounts receivable that may not be collected in the future and record the appropriate provision.

Substantially all of our U.S.

accounts receivables had been transferred in their entirety to RGHL Group and were accounted for as a sale in accordance with our accounts receivable factoring arrangement described below.

The allowance for doubtful accounts related to the accounts receivable of our non-U.S.

operations was less than $1 million in each of the years presented.

The allowance for doubtful accounts was not material as of December 31, 2020 and 2019.

Variable Interest Entities:

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(a) direct or indirect ability to make decisions, (b) obligation to absorb expected losses or (c) right to receive expected residual returns.

VIEs must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

To determine a VIE's primary beneficiary, we perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and or receive its benefits.

This assessment involves identifying the activities that most significantly impact the VIE's economic performance and determine whether we, or another party, has the power to direct those activities.

In each of the years presented, we had a variable interest in one VIE related to our factoring arrangement with RGHL Group, described below.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Transfers of Financial Assets:

We account for transfers of financial assets, such as non-recourse accounts receivable factoring arrangements, when we have surrendered control over the related assets.

Prior to our separation from PEI Group and IPO, we had a variable interest in one VIE related to our factoring arrangement with PEI Group, described below.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Transfers of Financial A ssets:

Prior to our separation from PEI Group and IPO, we accounted for transfers of financial assets, such as non-recourse accounts receivable factoring arrangements, when we have surrendered control over the related assets.

Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of our continuing involvement with the assets transferred and any other relevant considerations.

We had a non-recourse factoring arrangement in which we sold eligible receivables to a special purpose entity (“SPE”) consolidated by RGHL Group in exchange for cash.

We transferred sold accounts receivables in their entirety to RGHL Group and satisfied all of the conditions to report the transfer of financial assets in their entirety as a sale.

We continued to collect the receivables sold, acting solely as a collecting agent on behalf of RGHL Group, and received income of $1 million in each of the years presented for this service.

We have not recognized any assets or liabilities related to the servicing arrangement as of December 31, 2019 and 2018.

We had a non-recourse factoring arrangement in which we sold eligible receivables to a special purpose entity (“SPE”) consolidated by PEI Group in exchange for cash.

We transferred sold accounts receivables in their entirety to PEI Group and satisfied all of the conditions to report the transfer of financial assets in their entirety as a sale.

The SPE is considered to be a VIE, however we were not its primary beneficiary because we did not have the power to direct any of its most significant activities through our arrangement as a collecting agent.

The principal amount of receivables sold under this arrangement was $3,252 million , $3,101 million and $2,952 million during the years ended December 31, 2019, 2018 and 2017, respectively, and represented substantially all of our U.S.

The principal amount of receivables sold under this arrangement was $3,252 million during the year ended December 31, 2019 and represented substantially all of our U.S.

accounts receivable.

The balance of receivables sold, and still outstanding, was $264 million as of both December 31, 2019 and 2018.

The incremental costs of factoring receivables under this arrangement are included in other expense, net in our combined statements of income.

Refer to Note 11 - Other Expense, Net for additional information.

The proceeds from the sales of receivables are included in cash from operating activities in our combined statements of cash flows.

The balance of receivables sold, and still outstanding, was $264 million as of December 31, 2019.

On January 30, 2020, we repurchased all of the U.S.

accounts receivable sold for $264 million, $240 million of which was settled in cash and the remaining amount used to settle certain current related party receivables.

The proceeds from the sales of receivables are included in cash from operating activities in our consolidated statements of cash flows.

We value our inventories using the first-in, first-out method.

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Expenditures for maintenance and repairs are expensed as incurred.

When property, plant or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and any gain or loss realized on disposition is reflected in other expense, net in our combined statements of income.

We review long-lived assets, including finite-lived intangible assets, for recoverability on an ongoing basis.

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If an impairment loss is recorded, it is calculated as the excess of the asset’s carrying value over its estimated fair value as determined by an estimate of discounted future cash flows.

Depending on the nature of the asset, impairment losses are recorded in either cost of sales or selling, general and administrative expenses in our combined statements of income.

Depending on the nature of the asset, impairment losses are recorded in either cost of sales or selling, general and administrative expenses in our consolidated statements of income.

There were no impairments of long-lived assets in any of the years presented.

We determine whether a contract is or contains a lease at contract inception.

On January 1, 2019, we began to record operating leases on our combined balance sheet.

On January 1, 2019, we began to record operating leases on our consolidated balance sheet.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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Following initial recognition, operating lease liability balances are amortized using the effective interest method, while the related ROU assets are adjusted by the difference between the fixed lease expense recognized and the interest expense associated with the effective interest method in the period.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Some of our leases contain non-lease components, fo r example common area or other maintenance costs, that relate to the lease components of the agreement.

Non-lease components and the lease components to which they relate are accounted for as a single lease component as we have elected to combine lease and non-lease components for all classes of underlying assets.

We recognize interest on operating lease liabilities and amortization of ROU assets as a single lease expense for operating leases on a straight-line basis over the lease term , substantially all i n co st of sales in our combined statements of income.

All operating lease cash payments are recorded within cash flows from operating activities in the combined statements of cash flows.

Our lease agreements do not include significant restrictions, covenan ts or residual value guarantees.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Some of our leases contain non-lease components, for example common area or other maintenance costs , that relate to the lease components of the agreement.

We recognize interest on operating lease liabilities and amortization of ROU assets as a single lease expense for operating leases on a straight-line basis over the lease term, substantially all in cost of sales in our co nsolidated statements o f income.

All operating lease cash payments are recorded within cash flows from oper ating activities in the consolidated statements of cash flows.

Our lease agreements do not include significant restrictions, covenants or residual value guarantees.

Prior to January 1, 2019, we classified leases at inception date as either a capital lease or an operating lease.

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Revenue Recognition:

On January 1, 2018 we adopted the requirements of ASC Topic 606 Revenue from Contracts with Customers , which contains a new revenue recognition framework, on a modified retrospective basis.

Our accounting policies for revenue recognition for the current year and previous years are presented below.

From January 1, 2018, after assessing our customers' creditworthiness, we recognize revenue when control over products transfers to our customers, which generally occurs upon delivery or shipment of the products.

After assessing our customers' creditworthiness, we recognize revenue when control over products transfers to our customers, which generally occurs upon delivery or shipment of the products.

We account for product shipping, handling and insurance as fulfillment activities, with revenues for these activities recorded in net revenues and costs recorded in cost of sales.

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Estimates of sales incentives are monitored and adjusted each period until the sales incentives are realized.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

We consider purchase orders, which in some cases are governed by master supply agreements, to be the contracts with a customer.

Key sales terms, such as pricing and quantities ordered, are es tablished frequently, so most customer arrangements and related sales incentives have a duration of one year or shorter.

Key sales terms, such as pricing and quantities ordered, are established frequently, so most customer arrangements and related sales incentives have a duration of one year or shorter.

We generally do not have any unbilled receivables at the end of a period.

Deferred revenues are not material and primarily include cust omer advance payments typically collected a few days before product delivery, at which time deferred revenues are reclassified and recorded as net revenues.

We generally do not receive non-cash consideration for the sale of goods nor do we grant payment fi nancing terms greater than one year.

Deferred revenues are not material and primarily include cu stomer advance payments typically collected a few days before product delivery, at which time deferred revenues are reclassified and recorded as net revenues.

We generally do not receive non-cash consideration for the sale of goods nor do we grant payment financing terms greater than one year.

We do not incur any significant costs to obtain a contract.

Prior to January 1, 2018, we recognized revenue when the sales price was determinable and the risks and rewards of ownership had transferred to the customer as determined by the shipping terms.

Revenues were recorded net of sales incentives, which were based on historical promotional experience.

Marketing, Advertising and Research and Development:

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The costs of end-consumer marketing programs that are conducted in conjunction with our customers, such as coupons, are recorded as a reduction to revenue.

We do not defer these costs on our combined balance sheets and all marketing and advertising costs are recorded as an expense in the year incurred.

We do not defer these costs on our consolidated balance sheets and all marketing and advertising costs are recorded as an expense in the year incurred.

Advertising expense was $72 million , $57 million and $55 million in the years ended December 31, 2020, 2019 and 2018, respectively.

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We record marketing and advertising as well as research and development expenses in selling, general and administrative expenses.

Employee Benefit Plans:

We provide benefits to our current and retired employees.

The cost for these plans is recognized in income primarily over the working life of the covered employee.

We participated in a defined benefit plan sponsored by RGHL Group, which was accounted for as a multiemployer plan in our combined financial statements.

We also sponsor a postretirement benefit plan which is accounted for as a single employer plan in our combined financial statements.

See Note 9 - Benefit Plans for additional information.

Stock-based Compensation:

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The Service Condition will be satisfied with respect to one-third of an employee’s RSUs on each anniversary from the date of our IPO for three consecutive years, subject to the employee’s continued employment through the applicable vesting date.

We have also granted RSUs to certain members of management that have a service-based vesting condition.

In addition, we granted performance stock units (“PSUs”) to certain members of management that have a performance-based vesting condition.

We account for forfeitures of outstanding but unvested grants in the period they occur.

The grant date fair value of the RSUs was approximately $4 million.

Although the requisite service period began in July 2019, we have not recognized any compensation expense in our combined financial statements because the IPO Condition had not been achieved as of December 31, 2019.

Financial Instruments:

We are exposed to certain risks relating to our ongoing business operations.

To manage the volatility relating to these exposures, we enter into various derivative instruments from time to time under our risk management policies.

We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes.

Interest Rate Derivatives:

We manage interest rate risk by using interest rate derivative instruments.

Interest rate swaps (pay fixed, receive variable) are entered into as cash flow hedges to manage a portion of the interest rate risk associated with our floating-rate borrowings.

We record interest rate derivative instruments at fair value (Level 2) and on a net basis by counterparty based on our master netting arrangements.

The instruments are classified in our consolidated balance sheets in other assets or other liabilities, as applicable.

Cash flows from interest rate derivative instruments are classified as operating activities in our consolidated statements of cash flows based on the nature of the derivative instrument.

We have elected to use hedge accounting for our interest rate derivative instruments.

Accordingly, the effective portion of the gain or loss on the open hedging instrument is recorded in other comprehensive income and is reclassified into earnings as interest expense, net when settled.

We terminate derivative instruments if the underlying asset or liability matures or is repaid, or if we determine the underlying forecasted transaction is no longer probable of occurring.

Commodity Derivatives:

We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials.

From time to time we may enter into derivative financial instruments to mitigate certain risks.

We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes.

We record derivative financial instruments on a gross basis and at fair value in our combined balance sheets in other current assets or accrued and other current liabilities due to their relatively short-term duration.

Cash flows from derivative instruments are classified as operating activities in our combined statements of cash flows based on the nature of the derivative instrument.

We record commodity derivative financial instruments at fair value (Level 2) and on a gross basis in our consolidated balance sheets in other current assets or accrued and other current liabilities due to their relatively short-term duration.

Cash flows from commodity derivative instruments are classified as operating activities in our consolidated statements of cash flows based on the nature of the derivative instrument.

Historically, we have not elected to use hedge accounting.

Accordingly, any unrealized gains or losses (mark-to-market impacts) and realized gains or losses are recorded in cost of sales in our combined statements of income.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Accordingly, any unrealized gains or losses (mark-to-market impacts) and realized gains or losses are recorded in cost of sales in our consolidated statements of income.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Income Taxes:

During the years presented, our U.S.

For the periods prior to our separation from PEI Group and IPO, our U.S.

operations were included in consolidated U.S.

federal, certain state and local tax returns filed by RGHL Group.

federal, certain state and local tax returns filed by PEI Group.

We also file certain separate U.S.

state and local and foreign income tax returns.

The income tax expense (benefit) included in our combined statements of income has been calculated using the separate return basis.

The income tax expense (benefit) included in our consolidated statements of income has been calculated using the separate return basis.

It is possible that we will make different tax accounting elections and assertions subsequent to our shares being issued to the public.

Therefore, our income taxes, as presented in our combined financial statements, may not be indicative of our income taxes in the future.

In jurisdictions where we have been included in tax returns filed by RGHL Group, any income taxes payable resulting from the related income tax expense had been reflected in the combined balance sheets in Net Parent deficit.

Our income tax expense includes amounts payable or refundable for the current year, the effects of deferred taxes and impacts from uncertain tax positions.

Therefore, our income taxes, as presented in our consolidated financial statements, may not be indicative of our income taxes in the future.

In jurisdictions where we have been included in tax returns filed by PEI Group, any income taxes payable resulting from the related income tax expense had been reflected in the consolidated balance sheets in Net Parent deficit.

For the periods following our separation from PEI Group and IPO, our income tax expense includes amounts payable or refundable for the current year, the effects of deferred taxes and impacts from uncertain tax positions.

We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of our assets and liabilities, operating loss carryforwards and tax credit carryforwards.

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The carrying values of cash equivalents, accounts receivables, other receivables, related party receivables, accounts payable, related party payables and accrued and other current liabilities are reasonable estimates of their fair values as of December 31, 2020 and 2019 due to the short-term nature of these instruments.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Recently Adopted Accounting Guidance:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02, Leases (Topic 842) .

The ASU revises existing GAAP and outlines a new model for lessors and lessees to use in accounting for lease contracts.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (“ASC 606”), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition .

This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

On January 1, 2018, we adopted ASC 606, using the modified retrospective method for all contracts not completed as of the date of adoption, resulting in a $5 million adjustment to Net Parent deficit.

There was no other material financial impact from adopting the new revenue recognition standard.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .

The ASU revised then-existing GAAP and outlines a new model for lessors and lessees to use in accounting for lease contracts.

The guidance requires lessees to recognize an ROU asset and a lease liability on the balance sheet for all leases, with the exception of short-term leases.

Lessees will classify leases as either operating (resulting in straight-line expense recognition) or finance (resulting in a front-loaded expense pattern).

In July 2018, the FASB issued an ASU which allows for an alternative transition approach, which will not require adjustments to comparative prior-period amounts.

In July 2018, the FASB issued an ASU which allowed for an alternative transition approach, which does not require adjustments to comparative prior-period amounts.

Topic 842 and all related ASUs are effective for fiscal years beginning after December 15, 2018, with early adoption permitted.

We adopted the new standard on January 1, 2019 on a modified

Reynolds Consumer Group

Notes to the Combined Financial Statements

retrospective basis using a simplified transition approach, with no adjustment made to our prior period combined financial statements.

We adopted the new standard on January 1, 2019 on a modified retrospective basis using a simplified transition approach, with no adjustment made to our prior period combined financial statements.

We elected to apply the package of practical expedients, including not reassessing whether expired or existing contracts contained leases, the classification of those leases and initial direct costs for any existing leases.

We also elected to exclude short-term leases (term of 12 months or less) from the balance sheet presentation.

The most significant impact from adopting the standard is the initial recognition of ROU assets and operating lease liabilities on our combined balance sheet.

The most significant impact from adopting the standard was the initial recognition of ROU assets and operating lease liabilities on our previously combined balance sheet.

Upon adoption, we recorded ROU assets (adjusted for deferred rent) and operating lease liabilities of $37 million and $39 million, respectively, representing the present value of future lease payments with terms greater than 12 months.

There was no other impact on our combined financial statements.

There was no other impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This ASU and subsequent amendments to the initial guidance modify the impairment model to use an expected loss methodology in place of the previously used incurred loss methodology, which may result in earlier recognition of losses related to financial instruments.

This change is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, and requires a cumulative effect adjustment to the balance sheet upon adoption.

We adopted these requirements as of January 1, 2020 with no material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220):

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We adopted the standard as of January 1, 2019 which resulted in a reclassification of $3 million of income tax expense from accumulated other comprehensive income into Net Parent deficit.

Accounting Guidance Issued But Not Yet Adopted as of December 31, 2019:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance:

ASU 2019-04, Financial Instruments—Credit Losses (Topic 326) , Derivatives and Hedging (Topic 815) , and Financial Instruments - Codification Improvements (Topic 825) , ASU 2019-05, Financial Instruments - Credit Losses - Targeted Transition Relief (Topic 326) and ASU 2019-11, Codification Improvements, Financial Instruments – Credit Losses (Topic 326) .

These ASUs modify the impairment model to use an expected loss methodology in place of the currently used incurred loss methodology, which may result in earlier recognition of losses related to financial instruments.

These ASUs are effective for fiscal years beginning after December 15, 2019, with early adoption permitted, and require a cumulative effect adjustment to the balance sheet upon adoption.

The adoption of these standards will not have a material impact on our combined financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) Disclosure - Framework - Changes to the Disclosure Requirements for Defined Benefit Plans .

The ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

The ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

We are currently evaluating the requirements of this guidance, which is expected to impact our disclosures but is not expected to impact the measurement and recognition of amounts in our combined financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

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This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The adoption of this standard will not have a material impact on our combined financial statements.

We adopted the standard as of January 1, 2020 with no material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans .

This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

We adopted the standard as of January 1, 2021 with no material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income taxes.

Simplifying the Accounting for Income Taxes (“ASC 740”), which is intended to simplify various aspects related to accounting for income taxes.

This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

We are currently assessing the impact of this standard on our combined financial statements.

Reynolds Consumer Group

Notes to the Combined Financial Statements

This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

We adopted the standard as of January 1, 2021 with no material impact on our consolidated financial statements.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Recently Issued Accounting Guidance :

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates.

This ASU was effective upon its issuance and can be applied prospectively through December 31, 2022.

We are currently assessing the impact of this standard on our consolidated financial statements.

Note 3 - Inventories

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Property, plant and equipment, net

Depreciation expense was $59 million, $55 million and $58 million for the years ended December 31, 2019, 2018 and 2017, respectively, of which $55 million , $49 million and $47 million was recognized in cost of sales, respectively, and $4 million , $6 million and $11 million was recognized in selling, general and administrative expenses, respectively.

Depreciation expense was $68 million, $59 million and $55 million for the years ended December 31, 2020, 2019 and 2018, respectively, of which $62 million , $55 million and $49 million, respectively, was recognized in cost of sales and $6 million , $4 million and $6 million, respectively, was recognized in selling, general and administrative expenses.

Note 5 - Goodwill and Intangible Assets

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Balance as of December 31, 2020

Reynolds Consumer Group

Notes to the Combined Financial Statements

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Intangible assets, net consisted of the following:

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Total intangible assets

Amortization expense for intangible assets was $32 million for each of the years ended December 31, 2019, 2018 and 2017, and has been recognized in selling, general and administrative expenses.

Amortization expense for intangible assets was $31 million, $32 million and $32 million for the years ended December 31, 2020, 2019 and 2018, respectively, and has been recognized in selling, general and administrative expenses.

For the next five years, we estimate annual amortization expense of approximately $30 million each year.

Note 6 - Debt and Borrowing Arrangements

We had incurred borrowings under RGHL Group's Senior Secured Credit Agreement, as amended (the “RGHL Group Credit Agreement”).

The information presented below relates to our borrowings under the RGHL Group Credit Agreement, which represent only a portion of the total RGHL Group borrowings incurred under the RGHL Group Credit Agreement.

For details regarding our borrowings with RGHL Group, refer to Note 16 - Related Party Transactions.

Note 6 - Debt

Long-Term Debt:

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(in millions)

RGHL Group U.S.

Term Loan Facility

PEI Group U.S.

Deferred financing transaction costs

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Long-term debt

Overview - RGHL Group Credit Agreement

The facilities under the RGHL Group Credit Agreement are comprised of (i) U.S.

and European Term Loans, denominated in U.S.

dollars and euro, respectively, and (ii) a Revolving Facility, denominated in U.S.

For all periods presented, the Revolving Facility has only been utilized by RGHL Group in the form of letters of credit.

As of December 31, 2019, RGHL Group has utilized $56 million , including $7 million for our letters of credit.

We were not a borrower under the European Term Loans.

The obligations under the RGHL Group Credit Agreement are guaranteed by, and secured by the assets of, certain members of RGHL Group, including certain entities of our combined group.

For further details of the guarantees and security we have provided in relation to RGHL Group’s external borrowings, refer to Note 12 - Commitments and Contingencies.

Reynolds Consumer Group

Notes to the Combined Financial Statements

We were a borrower under the RGHL Group U.S.

Interest under the RGHL Group U.S.

Term Loan comprises one-month LIBOR, with a floor of 0%, plus a margin of 2.75%.

The weighted average contractual interest rate related to our long-term debt as of December 31, 2019, 2018 and 2017, was 5.04 % , 4.77% and 4.05%, respectively.

The effective interest rate of our debt obligations is not materially different from the contractual interest rate.

The RGHL Group U.S.

Term Loan requires quarterly amortization payments of 0.25% of the outstanding principal as of February 5, 2017, with the balance due at maturity in February 2023.

Based on our portion of the outstanding borrowings, this represented amortization payments of approximately $5 million per quarter.

Borrowings under the RGHL Group U.S.

Term Loan may be voluntarily repaid in whole or in part and are subject to mandatory prepayments in certain circumstances, including the requirement to make annual prepayments of both the U.S.

and European Term Loans with up to 50% of excess cash flow as determined in accordance with the RGHL Group Credit Agreement.

No excess cash flow prepayments were due in 2019 for the year ended December 31, 2018 or are due in 2020 for the year ended December 31, 2019.

Deferred Financing Transaction Costs and Original Issue Discounts

As of December 31, 2019 and 2018, our portion of RGHL Group’s deferred financing transaction costs, net of amortization, related to the RGHL Group U.S.

Term Loan and the RGHL Group Revolving Facility were $4 million and $5 million, respectively.

In addition, as of December 31, 2019 and 2018, we have recorded original issue discounts, net of accumulated amortization, of $2 million.

These deferred amounts are presented as a direct reduction of the carrying amount of our long-term debt as of December 31, 2019 and 2018.

Our portions of deferred financing transaction costs and original issue discounts are being amortized over the life of the RGHL Group U.S.

Term Loan under the effective interest method.

The RGHL Group Credit Agreement contains customary covenants which restrict RGHL and certain of its subsidiaries from certain activities including, among other things, incurring debt, creating liens over assets, selling or acquiring assets and making restricted payments, in each case except as permitted under the RGHL Group Credit Agreement.

As of December 31, 2019, RGHL Group was in compliance with all of its covenants.

The RGHL Group Credit Agreement also contains a total secured leverage ratio covenant not to exceed 5.00 to 1.00 on a pro forma basis.

This covenant only applies if the aggregate revolving credit exposure (excluding any exposure in respect of undrawn letters of credit) as of the last day of a fiscal quarter exceeds 35% of the total Revolving Facility commitments on such day.

Scheduled Maturities

Below is a schedule of required future repayments on our debt outstanding under the RGHL Group Credit Agreement as of December 31, 2019:

(in millions)

Total long-term debt

As detailed in Note 17 - Subsequent Events, our obligations under the RGHL Group Credit Agreement were extinguished on February 4, 2020.

Details of the required future repayments of our debt outstanding following our separation from RGHL Group and IPO are presented in Note 17 - Subsequent Events.

External Debt Facilities

In February 2020, we entered into new external debt facilities (“External Debt Facilities”), which consist of (i) a $2,475 million senior secured term loan facility (“Term Loan Facility”);

and (ii) a $250 million senior secured revolving credit facility (“Revolving Facility”).

In addition, on February 4, 2020 we entered into, and extinguished, a $1,168 million facility (“IPO Settlement Facility”).

The proceeds from the Term Loan Facility and IPO Settlement Facility, net of transaction costs and original issue discounts, together with available cash, were used to repay accrued related party interest and a portion of the related party loans payable.

Borrowings under the External Debt Facilities bear interest at a rate per annum equal to, at our option, either a base rate or a LIBO rate plus an applicable margin of 1.75%.

During September 2020, we entered into a series of interest rate swaps to hedge a portion of the interest rate exposure resulting from these borrowings.

Refer to Note 8 – Financial Instruments for further details.

The External Debt Facilities contain a springing financial covenant requiring compliance with a ratio of first lien net indebtedness to consolidated EBITDA, applicable solely to the Revolving Facility.

The financial covenant is tested on the last day of any fiscal quarter only if the aggregate principal amount of borrowings under the Revolving Facility and drawn but unreimbursed letters of credit exceed 35% of the total amount of commitments under the Revolving Facility on such day.

We are currently in compliance with the covenants contained in our External Debt Facilities.

If an event of default occurs, the lenders under the External Debt Facilities are entitled to take various actions, including the acceleration of amounts due under the External Debt Facilities and all actions permitted to be taken by secured creditors.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Term Loan Facility

The Term Loan Facility matures in February 2027.

The Term Loan Facility amortizes in equal quarterly installments of $6 million, which commenced in June 2020, with the balance payable on maturity.

During the year ended December 31, 2020, we made voluntary principal payments of $200 million on our Term Loan Facility.

Revolving Facility

The Revolving Facility matures in February 2025 and includes a sub-facility for letters of credit.

As of December 31, 2020, we had no outstanding borrowings under the Revolving Facility, and we had $7 million of letters of credit outstanding, which reduces the borrowing capacity under the Revolving Facility.

Reallocation of Borrowings Under the PEI Group Credit Agreement

The U.S Term Loan outstanding under the PEI Group Credit Agreement was reallocated to an entity within PEI Group and on February 4, 2020, we were fully and unconditionally released from the security and guarantee arrangements relating to PEI Group’s borrowings.

Fair Value of Our Long-Term Debt

The fair value of our long-term debt as of December 31, 2019 and 2018, which is a Level 2 fair value measurement, approximates the carrying value due to the variable market interest rate and the stability of RGHL Group's credit profile.

Reynolds Consumer Group

Notes to the Combined Financial Statements

The fair value of our long-term debt as of December 31, 2020, which is a Level 2 fair value measurement, approximates the carrying value due to the variable market interest rate and the stability of our credit profile.

Interest expense, net:

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(in millions)

Interest expense, RGHL Group U.S.

Interest expense, Term Loan Facility

Interest expense, PEI Group U.S.

Interest expense, related party borrowings (1)

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Refer to Note 17 – Related Party Transactions for additional information.

Scheduled Maturities

Below is a schedule of required future repayments on our debt outstanding as of December 31, 2020:

(in millions)

Total long-term debt

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Note 7 - Leases

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Variable payments for real estate leases relate primarily to common area maintenance, insurance, taxes and utilities associated with the properties.

Variable payments for equipment leases relate primarily to hours, miles, or other quantifiable usage factors, which are not determinable at the time the lease agreement is entered into.

Variable payments for equipment leases relate primarily to hours, miles, or other quantifiable usage factors, which are not determinable at the time of lease inception.

These variable payments are expensed as incurred.

The discount rate applied to our leases in determining the present value of lease payments is our incremental borrowing rate based on the information available at the commencement date.

Leases with an initial term of 12 months or less are not recorded in our combined balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded in our consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term.

We do not have finance leases.

Lease costs consisted of the following:

For the Year Ended

December 31, 2019

As of December 31,

(in millions)

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Total lease costs

Rental expenses were $17 million and $14 million during the years ended December 31, 2018 and 2017, respectively.

Future lease payments under non-cancelable leases under prior lease accounting rules (ASC 840) and under the new lease accounting rules (ASC 842) that went into effect on January 1, 2019 were as follows:

Rental expenses were $17 million during the year ended December 31, 2018.

Future lease payments under non-cancellable leases were as follows:

As of December 31,

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Operating lease liabilities

Reynolds Consumer Group

Notes to the Combined Financial Statements

As of December 31, 2019, t here were no material lease transactions that we have entered into but have not yet commenced.

Operating lease liabilities and ROU assets included in our combined balance sheets were as follows:

As of December 31, 2020, there were no material lease transactions that we have entered into but have not yet commenced.

Operating lease liabilities and ROU assets included in our consolidated balance sheets were as follows:

As of December 31,

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Operating lease right-of-use assets, net

During the year ended December 31, 2019, new leases resulted in the recognition of ROU assets and corresponding lease liabilities of $9 million .

During the year ended December 31, 2019, cash flows from operating activities include $10 million of payments for operating lease liabilities.

In addition, on November 1, 2019, we entered into new lease agreements, as part of our separation from RGHL Group, for arrangements that are directly attributable to our business and have been historically reflected in our combined financial statements.

During the years ended December 31, 2020 and 2019, new leases resulted in the recognition of ROU assets and corresponding lease liabilities of $31 million and $9 million, respectively .

During the years ended December 31, 2020 and 2019, cash flows from operating activities included $14 million and $10 million, respectively, of payments for operating lease liabilities.

In addition, on November 1, 2019, we entered into new lease agreements, as part of our separation from PEI Group, for arrangements that are directly attributable to our business and have been historically reflected in our consolidated financial statements.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

As of December 31, 20 20 , the weighted average remaining lease term and weighted average discount rate for operating leases was 5.74 years and 5.49 % , respectively.

Note 8 - Financial Instruments

Derivative instruments, consisting of commodity contracts, were recorded at fair value in our combined balance sheets and consisted of an asset of less than $1 million , recorded in other current assets , as of December 31, 2019 and a $9 million liability, recorded in accrued and other current liabilities, as of December 31, 2018.

Interest Rate Derivatives

During the year ended December 31, 2020, we entered into a series of interest rate swaps which fixed the LIBO rate to an annual rate of 0.18% to 0.47% (for an annual effective interest rate of 1.93% to 2.22%, including margin) for an aggregate notional amount of $1,650 million.

These interest rate swaps hedge a portion of the interest rate exposure resulting from our Term Loan Facility.

We classified these instruments as cash flow hedges.

Our cash flow hedge contracts are for periods ranging from one to five years.

The effective portion of the gain or loss on the open hedging instrument is recorded in accumulated other comprehensive income and will be reclassified into earnings as interest expense, net when settled.

The associated asset or liability on the open hedges is recorded at its fair value in other assets or other liabilities , as applicable.

The effect of our interest rate derivatives on accumulated other comprehensive income and the consolidated statements of income for the year ended December 31, 2020 was not material.

The fair value of our interest rate contracts designated as cash flow hedging instruments included on our consolidated balance sheets as of December 31, 2020 was not material.

Commodity Derivatives

Commodity derivative contracts are recorded at fair value in our consolidated balance sheets and consisted of zero and $1 million , recorded in other current assets , as of December 31, 2020 and 2019, respectively.

Our commodity contracts are primarily commodity swaps and are all Level 2 financial assets and liabilities.

1 unchanged sentence

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.

The majority of our commodity derivative contracts do not have a legal right of set-off.

We manage the credit risk in connection with our derivatives by limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.

During the years ended December 31, 2019, 2018 and 2017, we recognized an unrealized gain of $9 million , an unrealized loss of $14 million and an unrealized gain of $4 million, respectively, in cost of sales in the combined statements of income.

During the years ended December 31, 2020, 2019 and 2018, we recognized no unrealized gain or loss , an unrealized gain of $9 million and an unrealized loss of $14 million, respectively, in cost of sales in the consolidated statements of income.

The following table provides the detail of outstanding commodity derivative contracts as of December 31, 2020:

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Contracted date

Aluminum swaps

Aluminum Midwest Premium swaps

Benzene swaps

liquid gallon

1 unchanged sentence

Jan - Jun 2021

liquid gallon

$3.00 - $3.30

Jan - Dec 2020

Note 9 - Benefit Plans

Related Party Multiemployer Defined Benefit Plan

Prior to our separation from RGHL Group and IPO, certain of our employees participated in a defined benefit plan sponsored by RGHL Group, along with participants of RGHL Group's other businesses.

This plan is accounted for as a multiemployer plan in these combined financial statements and as a result, no asset or liability was recorded by us to recognize the funded status of the plan.

We recorded expense of $3 million in cost of sales for each of the years ended December 31, 2019, 2018 and 2017 relating to our employees' participation in the RGHL Group sponsored plan.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Defined Contribution Pl ans

Defined Benefit Plan

Prior to our separation from PEI Group and IPO, certain of our employees participated in a defined benefit plan sponsored by PEI Group, along with participants of PEI Group's other businesses.

This plan was accounted for as a multiemployer plan in our previously combined financial statements presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and as a result, no asset or liability was recorded by us to recognize the funded status of the plan.

We recorded expense of $3 million relating to our employees’ participation in the PEI Group sponsored plan in cost of sales for each of the years ended December 31, 2019 and 2018.

During the year ended December 31, 2020, we recorded no expense relating to our employees' participation in the PEI Group sponsored plan in our consolidated statements of income.

After the separation, this obligation was retained by PEI Group.

After our separation from PEI Group and IPO, we established a defined benefit plan for certain of our employees.

The initial liability was $2 million which was funded during 2020.

The plan is non-contributory and eligible employees are fully vested after five years of service.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Defi ned Contribution Plans

We offer defined contribution plans to eligible employees in the United States as well as employees in certain other countries.

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Benefits paid

Actuarial losses (gains)

Accumulated postretirement benefit obligation as of December 31

The accrued benefit obligation was included in our combined balance sheets as follows:

Actuarial losses

Accumulated postretirement benefit obligation as of

The accrued benefit obligation was included in our consolidated balance sheets as follows:

As of December 31,

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Our expected health care cost trend rate is based on historical costs and long-term expectations.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Assumed health care cost trend rates can impact the amounts reported for the health care plans.

A one-percentage-point change in assumed health care cost trend rates would have less than a $1 million effect on the measurement of our postretirement benefit obligation and l ess than a $1 million effect on the annual service and interest cost.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Components of Net Periodic Postretirement Costs:

Net periodic postretirement benefit costs consisted of the following:

For the Years Ended December 31,

(in millions)

Interest cost

Amortization of actuarial gain

Net periodic postretirement costs

The service cost component of net periodic postretirement costs is recognized in cost of sales, while interest cost and amortization of actuarial gain are recognized in non-operating expense, net in the combined statements of income.

As of December 31, 2019, we expect to amortize an actuarial gain of approximately $1 million from accumulated other comprehensive income into pre-tax net periodic postretirement costs during 2020.

Our total net periodic pension and postretirement benefit cost for each of the years ended December 31, 2020, 2019 and 2018 was not material.

Prior to the separation from PEI Group, our net periodic benefit costs included only our other postretirement benefit plan.

After the separation, total net periodic benefit costs include all costs associated with our defined benefit and other postretirement plans.

The service cost component of net periodic postretirement costs, interest cost and amortization of actuarial gain are recognized in cost of sales in the consolidated statements of income.

We used the following weighted-average assumptions to determine our net periodic postretirement health care cost:

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(in millions)

Reynolds Consumer Group

Notes to the Combined Financial Statements

Note 10 - Stock-based Compensation

We granted restricted stock units (“RSUs”) in July 2019 to certain members of management, pursuant to retention agreements entered into with these employees (the “IPO Grants”).

These RSUs vest upon satisfaction of both a performance-based vesting condition (the “IPO Condition”) and a service-based vesting condition (the “Service Condition”).

The IPO Condition was satisfied when we completed our IPO on February 4, 2020.

In addition, in conjunction with our Corporate Reorganization and IPO, we have established a 2020 equity incentive plan for purposes of granting stock-based compensation awards to certain of our senior management, our non-executive directors and to certain employees, to incentivize their performance and align their interests with ours.

A maximum of 10.5 million shares of common stock were initially available for issuance under equity incentive awards granted pursuant to the plan .

In the year ended December 31, 2020, 0.3 million RSUs and 0.2 million PSUs were granted.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

A summary of activity for RSUs and PSUs for the year ended December 31, 2020, is as follows (in millions , except for per share data ) :

Weighted-Average Grant-Date Fair Value Per Share

Unvested, at January 1, 2020

Unvested, at December 31, 2020

Unrecognized compensation expense relating to unvested RSUs and PSUs as of December 31, 2020, was $12 million, which is expected to be recognized over a weighted average period of two years.

At December 31, 2020, there were stock-based compensation awards representing approximately 0.4 million shares outstanding.

For the year ended December 31, 2020, stock-based compensation expense was $5 million.

Note 11 - Accrued and Other Current Liabilities

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Allocated related party management fee (2)

Transaction-related costs (3)

IPO and separation-related costs (3)

Other expense, net

As discussed in Note 2 - Summary of Significant Accounting Policies, we participated in an accounts receivable factoring arrangement with RGHL Group whereby we transferred substantially all of our U.S.

accounts receivable in their entirety to RGHL Group and satisfied all of the conditions to report the transfer of financial assets in their entirety as a sale.

The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under this factoring arrangement approximates the fair value of such receivables.

We recognized losses of $25 million, $22 million and $19 million for the years ended December 31, 2019, 2018 and 2017, respectively, which represents the discount from book values at which these accounts receivable were sold to RGHL Group.

RGHL Group’s financing agreements permit the payment to related parties of management, consulting, monitoring and advising fees (the “Management Fee”) of up to 1.5% of RGHL Group’s Adjusted EBITDA (as defined in RGHL Group's financing agreements) for the previous year.

We had been allocated a portion of this Management Fee based on our portion of RGHL Group's Adjusted EBITDA.

We were allocated costs during the year ended December 31, 2019 related to the IPO process that cannot be deferred and offset against the IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company.

Reflects the loss on sale that we incurred when we sold our U.S.

trade receivables through PEI Group’s securitization facility.

Our participation in this facility ceased upon the completion of our Corporate Reorganization and IPO.

Reflects our allocation, from PEI Group, of a management fee that was charged by Rank Group Limited to PEI Group, which ceased upon the completion of our Corporate Reorganization and IPO.

Reflects costs related to the IPO process, as well as costs related to our separation to operate as a stand-alone public company.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Note 1 3 - Commitments and Contingencies

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As of December 31, 2020, there were no legal proceedings pending other than those for which we have determined that the possibility of a material outflow is remote.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Security and Guarantee Arrangements:

As of December 31, 2019, certain of our entities and other related entities within RGHL Group had guaranteed certain borrowings of RGHL Group.

Certain of our entities and other related entities within RGHL Group have granted security over their assets to support the secured obligations.

The equity interests in certain of our entities had been pledged as collateral to support the secured obligations.

We would only be liable under these guarantees in the event of default by RGHL Group on its obligations, the probability of which we believe is remote.

As a result of these arrangements, substantially all of our assets were pledged as security for the secured obligations.

Under the RGHL Group Credit Agreement, all of the U.S.

Term Loan borrowers are jointly and severally liable for the outstanding principal.

The total principal balance outstanding for the U.S.

Term Loan was $3,215 million and $3,248 million as of December 31, 2019 and 2018, respectively.

These amounts include the $2,017 million and $2,037 million presented on our combined balance sheets as of December 31, 2019 and 2018, respectively.

We have not recognized a liability for the additional outstanding principal as we would only be liable under the agreement in the event of default by RGHL Group on its obligations, which we believe is remote.

As detailed in Note 17 – Subsequent Events, as of February 4, 2020, we were fully and unconditionally released from the guarantees of RGHL Group borrowings and the security we granted was also released.

Note 14 - Accumulated Other Comprehensive Income

The following table summarizes the changes in our balances of each component of accumulated other comprehensive income.

Amounts reclassified from accumulated other comprehensive income to net income (net of tax) were net gains of $2 million , $1 million and $2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

For the Years Ended December 31,

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Balance as of end of period

Postretirement benefit plan:

Employee benefit plans:

Balance as of beginning of period

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Balance as of end of period

Interest rate derivatives:

Balance as of beginning of period

Loss arising during period

Other comprehensive income (loss)

Balance as of end of period

Accumulated other comprehensive income

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Balance as of end of period

Taxes reclassified to income are recorded in income tax (expense) benefit.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Note 1 5 - Income Taxes

During the years presented, our U.S.

operations were included in the consolidated U.S.

federal, certain state and local tax returns filed by RGHL Group.

Prior to our separation from PEI Group and IPO, our U.S.

operations were included in the U.S.

federal consolidated and certain state and local tax returns filed by PEI Group.

We also file certain separate U.S.

state and local and foreign income tax returns.

The income tax (expense) benefit included in our combined statements of income has been calculated using the separate return basis.

In the future, as a stand-alone entity, we will file tax returns on our own behalf, and our deferred taxes and effective tax rate may differ from those in the historical periods.

For the periods prior to the separation, income tax (expense) benefit and deferred tax balances are presented in the consolidated financial statements as if we filed tax returns on a stand-alone basis.

Income tax payable balances as of December 31, 2019, were classified within “Net Parent deficit” on the consolidated balance sheet since PEI Group was legally liable for the tax.

Upon separation from PEI Group, becoming a separate taxable entity and the change from carve-out financial statements to consolidated financial statements, we have remeasured certain deferred taxes.

These adjustments have been recognized directly in equity.

The components of income before income tax were as follows:

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Total income tax expense (benefit)

Reynolds Consumer Group

Notes to the Combined Financial Statements

A reconciliation of income taxes computed at the U.S.

Federal statutory income tax rate of 21% for 2019 and 2018, and 35% for 2017, to our income tax e xpense (benefit) was as follows:

Federal statutory income tax rate of 21% for 2020, 2019 and 2018, to our income tax expense (benefit) was as follows:

For the Years Ended December 31,

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State income tax expense

Tax differential on foreign earnings

Non-deductible compensation

Non-deductible stewardship costs

Non-deductible transaction costs

Manufacturing tax benefits

Non-deductible expenses

Return to provision adjustments

Uncertain tax positions

Total income tax expense (benefit)

While our foreign activities are conducted through corporations, in these combined financial statements, these foreign corporations are not foreign controlled subsidiaries.

Accordingly, there are no undistributed earnings of foreign subsidiaries.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Act"), which included the reduction of the U.S.

federal tax rate from a maximum of 35% to a flat rate of 21%, effective January 1, 2018.

The reduction in the tax rate resulted in a tax benefit of $172 million related to the remeasurement of net deferred tax liabilities that is recognized in the combined statements of income for the year ended December 31, 2017.

Total income tax expense

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Deferred Tax Assets and Liabilities

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Employee benefits

Lease obligations

Total deferred tax assets

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Property, plant and equipment

Lease right-of-use assets

Total deferred tax liabilities

Net deferred tax liabilities

As a result of the Act, $95 million and $36 million of interest expense was not deductible for the years ended December 31, 2018 and 2019, respectively, and has been deferred.

Reynolds Consumer Group

Notes to the Combined Financial Statements

State and foreign net operating loss and tax credit carryforwards, presented on a gross basis, were as follows:

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Total tax credit carryforwards

Deferred tax assets related to state and foreign net operating loss carryovers and state tax credit carryovers are available to offset future state taxable earnings.

Deferred tax assets related to state and foreign net operating loss carryovers and state tax credit carryovers are available to offset future state and foreign taxable earnings.

We have provided a valuation allowance to reduce the carrying value of certain of these deferred tax assets, as we have concluded that, based on the available evidence, it is more likely than not that the deferred tax assets will not be fully realized.

Valuation allowances were $3 million as of both December 31, 2019 and 2018.

Valuation allowances were $5 million and $3 million as of December 31, 2020 and 2019, respectively.

There were no material changes in valuation allowances in any of the years presented.

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Our policy is to include interest and penalties related to gross unrecognized tax benefits in income tax expense.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

The following table summarizes the activity related to our gross unrecognized tax benefits:

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(in millions)

Balance at beginning of the year

Balance as of beginning of the year

Increase associated with tax positions taken during the

Ending unrecognized tax benefits

Accrued interest and penalties related to unrecognized tax benefits have been recorded in income tax expense.

No expense for accrued interest and penalties was recognized during the years ended December 31, 2019, 2018 and 2017.

Each year we file income tax returns in the various national, state and local income taxing jurisdictions in which we operate.

Each year we file income tax returns in the various federal, state, local and foreign income taxing jurisdictions in which we operate.

Foreign jurisdictions comprise Canada and China.

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Although ultimate timing is uncertain, the net amount of tax liability for unrecognized tax benefits may change within the next twelve months due to changes in audit status, settlements of tax assessments and other events.

For the period through to December 31, 2019, we were part of consolidated U.S.

federal tax returns filed by RGHL Group.

Under a Tax Matters Agreement, entered into as part of our corporate reorganization prior to our IPO, RGHL Group has retained responsibility for all U.S.

federal tax matters for periods through to and including December 31, 2019.

Prior to February 4, 2020, we were part of consolidated U.S.

federal tax returns filed by PEI Group.

Under a Tax Matters Agreement, entered into as part of our corporate reorganization prior to our IPO, PEI Group has retained responsibility for all U.S.

federal tax matters for periods to and including February 4, 2020.

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return.

We are currently subject to a separate company New Jersey state income tax audit for the years 2013 through 2015.

The open tax years for our Canadian income taxes are 2015 and forward.

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We have no current or recent tax audits in either Canada or China.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Taxes paid were $76 million, $4 million and $8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Prior to our separation from PEI Group and IPO, our U.S.

entities were members of a consolidated U.S.

tax entity group for federal and certain state tax returns.

The current U.S.

tax entity group for federal and certain state tax returns filed by the PEI Group.

For periods prior to our separation, the current U.S.

federal and state tax liabilities of our U.S.

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The settlement of our current U.S.

federal and state taxes was recognized directly as a movement in Net Parent deficit.

federal and state taxes for the periods prior to our separation were recognized directly as a movement in Net Parent deficit.

Note 16 - Segment Information

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ASC 280 Segment Reporting establishes the standards for reporting information about segments in financial statements.

In applying the criteria set forth in ASC 280, and in conjunction with a management realignment in June 2019, we have determined that we have four reportable segments - Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware and Presto Products.

In applying the criteria set forth in ASC 280, we have determined that we have four reportable segments - Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware and Presto Products.

The key factors used to identify these reportable segments are the organization and alignment of our internal operations and the nature of our products.

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Our products are sold under the Hefty Ultra Strong, Hefty Strong Trash Bags, Hefty Renew and Hefty Slider Bags brands.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Hefty Tableware

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We present segment adjusted EBITDA ("Adjusted EBITDA") as this is the financial measure by which management and our CODM allocate resources and analyze the performance of our reportable segments.

Adjusted EBITDA represents each segment's earnings before interest, tax, depreciation and amortization and is further adjusted to exclude unrealized gains and losses on derivatives, costs associated with rationalizing operations and administrative functions, factoring discounts, amortization of actuarial gains, the allocated related party Management Fee and transaction-related costs.

Adjusted EBITDA represents each segment's earnings before interest, tax, depreciation and amortization and is further adjusted to e xclude unrealized gains and losses on commodity derivatives, costs associated with rationalizing operations and administrative functions, factoring discounts, amortization of actuarial gains, the allocated related party management fee and IPO and separation-related costs.

Total assets by segment are those assets directly associated with the respective operating activities, comprising inventory, property, plant and equipment and operating lease right-of-use assets.

Other assets, such as cash, accounts receivable and intangible assets, are monitored on an entity-wide basis and not included in segment information that is regularly reviewed by our CODM.

Reynolds Consumer Group

Notes to the Combined Financial Statements

The accounting policies applie d by our segments are the same as those described in Note 2 - Summary of Significant Accounting Policies.

The accounting policies applied by our segments are the same as those described in Note 2 - Summary of Significant Accounting Policies.

Transactions between segments are at negotiated prices.

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Capital expenditures (2)

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Unallocated (1)

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Capital expenditures (2)

Unallocated includes eliminations of intersegment revenues, unallocated depreciation and amortization and unallocated assets, which are comprised of cash, accounts receivable, other receivables, entity-wide property, plant and equipment, entity-wide operating lease right-of-use assets, goodwill, intangible assets, related party receivables and other assets.

Until October 31, 2019, the property, plant and equipment included in our Hefty Tableware segment was contributed to us from RGHL Group.

Unallocated includes the elimination of intersegment revenues, other revenue adjustments and certain corporate costs, depreciation and amortization and assets not allocated to segments.

Unallocated assets are comprised of cash, accounts receivable, other receivables, entity-wide property, plant and equipment, entity-wide operating lease ROU assets, goodwill, intangible assets, related party receivables and other assets.

Until October 31, 2019, the property, plant and equipment included in our Hefty Tableware segment was contributed to us from PEI Group.

No capital expenditures were incurred by us in relation to these items.

Refer to Note 16 - Related Party Transactions for additional information.

On November 1, 2019, as part of our separation from RGHL Group, we acquired the legal title to these assets.

Reynolds Consumer Group

Notes to the Combined Financial Statements

The following table presents a reconciliation of segment Adjusted EBITDA to combined GAAP income before income taxes:

On November 1, 2019, as part of our separation from PEI Group, we acquired the legal title to these assets.

The following table presents a reconciliation of segment Adjusted EBITDA to consolidated GAAP income before income taxes:

For the Years Ended December 31,

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Allocated related party management fee

Transaction-related costs

IPO and separation-related costs

Unrealized gains (losses) on derivatives

Business rationalization costs

Combined GAAP income before income taxes

Consolidated GAAP income before income taxes

Information in Relation to Products

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Waste and storage products are comprised of our Hefty Waste & Storage and Presto Products segments.

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Our different product lines are generally sold to a common group of customers.

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.

For all product lines, there is a relativel y short time period between the receipt of the order and the transfer of control over the goods to the customer.

Geographic Data

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United States

Reynolds Consumer Group

Notes to the Combined Financial Statements

As of December 31,

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The net revenues from our largest customer were recognized across all of our segments.

No other customers accounted for 10% or more of our total net revenues in any of the periods presented.

As a result of our participation in RGHL Group's factoring arrangement, there were no outstanding receivables with this customer as of December 31, 2019 and 2018.

No other customers accounted for 10% or more of our total net revenues in any of the years presented.

Note 17 - Related Party Transactions

Our parent is RGHL, the ultimate parent is Packaging Holdings Limited, and the ultimate shareholder is Mr.

In addition to the allocation of expenses for certain services related to group wide functions provided by RGHL Group discussed in Note 1 - Description of Business and Basis of Presentation, other transactions between us and RGHL Group are described below.

As indicated, certain transactions are reflected in equity (deficit) in our combined balance sheets as Net Parent deficit and in our combined statements of cash flows as a financing activity in net transfers from Parent.

For the years ended December 31, 2019, 2018 and 2017, revenues from product sold to RGHL Group were $149 million, $161 million and $148 million, respectively, and the related costs of sales were $145 million, $155 million and $144 million, respectively.

For each of the years ended December 31, 2019, 2018 and 2017, we charged RGHL Group $2 million of our warehousing costs, which were included in cost of sales.

Current related party receivables were $14 million and $30 million as of December 31, 2019 and 2018, respectively.

For the years ended December 31, 2019, 2018 and 2017, products purchased from RGHL Group were $438 million, $511 million and $492 million, respectively.

For the years ended December 31, 2019, 2018 and 2017, RGHL Group charged us $134 million, $143 million and $120 million, respectively, of their freight and warehousing costs, which were included in cost of sales.

Current related party payables were $72 million and $268 million as of December 31, 2019 and 2018, respectively.

These related party receivables and payables are settled regularly with RGHL Group in the normal course of business.

On November 1, 2019, as part of our separation from RGHL Group, we acquired the legal title to certain property, plant and equipment and inventories from RGHL Group for cash consideration of $112 million which represented fair market value and is presented within net transfers from (to) Parent in our combined statements of cash flows.

These assets are directly attributable to our business and have been historically reflected in our combined financial statements, at their respective net book values, within our Hefty Tableware segment.

During the periods presented up until October 31, 2019, RGHL Group incurred capital expenditures on property, plant and equipment related to our Hefty Tableware segment of $14 million , $17 million and $5 million, respectively.

We acquired the legal title to these assets on November 1, 2019.

We have written interest-bearing loan agreements in place with RGHL Group which are presented as related party long-term receivables and related party borrowings on our combined balance sheets.

Prior to our separation from RGHL Group, these balances were expected to be settled in cash.

In June 2019, our non-current related party receivables and a portion of current related party receivables were used to reduce the balances outstanding of various related party borrowings, related party accrued interest payable and related party payables.

We historically operated as part of PEI Group.

In preparation for our IPO, PEI Group transferred its interest in us to Packaging Finance Limited (“PFL”).

PFL owns the majority of our outstanding common stock and owns the majority of the outstanding common stock of PEI Group.

In addition to the allocation of expenses for certain services related to group wide functions provided by PEI Group discussed in Note 1 – Description of Business and Basis of Presentation, other transactions between us and PEI Group are described below.

Transactions Related to our Separation from PEI Group

On November 1, 2019, as part of our separation from PEI Group, we acquired the legal title to certain property, plant and equipment and inventories from PEI Group for cash consideration of $112 million which represented fair market value and is presented within net transfers from (to) Parent in our consolidated statements of cash flows.

These assets are directly attributable to our business and have been historically reflected in our consolidated financial statements, at their respective net book values, within our Hefty Tableware segment.

We had written interest-bearing loan agreements in place with PEI Group.

In June 2019, all of our non-current related party receivables and a portion of current related party receivables were used to reduce the balances outstanding of various related party borrowings, related party accrued interest payable and related party payables.

As a result of this process, we net settled related party borrowings of $1,714 million, related party accrued interest payable of $655 million and related party payables of $94 million.

Accordingly, we had no related party long-term receivables as of December 31, 2019.

Related party long-term receivables were $2,401 million as of December 31, 2018.

During the year ended December 31, 2017, $162 million of related party long-term receivables from RGHL Group were offset against current income taxes payable.

Related party borrowings were $2,214 million and $3,950 million as of December 31, 2019 and 2018, respectively.

Related party accrued interest payable was $18 million and $576 million as of December 31, 2019 and 2018, respectively.

We remit accrued interest payable to RGHL Group as and when requested in conjunction with its cash management activities.

Interest expense and income related to these loan agreements are discussed in Note 6 - Debt and Borrowing Arrangements and are accrued based on the written loan agreements.

During the years ended December 31, 2019, 2018 and 2017 we borrowed $98 million ($31 million non-cash), $338 million and $416 million, respectively, from RGHL Group and repaid borrowings of $141 million, $314 million and $456 million ($3 million non-cash), respectively.

Related party borrowings were $2,214 million as of December 31, 2019.

Related party accrued interest payable was $18 million as of December 31, 2019.

We remitted accrued interest payable on the borrowings to PEI Group as and when requested in conjunction with its cash management activities.

Interest expense and income related to these loan agreements are discussed in Note 6 - Debt and were accrued based on the written loan agreements.

During the year ended December 31, 2019, we borrowed $98 million ($31 million non-cash), from PEI Group and repaid borrowings of $141 million.

In addition, during the year ended December 31, 2019, $36 million of accrued interest was capitalized into related party borrowings.

During the years ended December 31, 2019, 2018 and 2017 we advanced loans of $170 million, $537 million and $508 million, respectively, to RGHL Group and received repayments of $151 million, $65 million and $200 million, respectively.

Reynolds Consumer Group

Notes to the Combined Financial Statements

The weighted average contractual interest rate related to our related party borrowings as of December 31, 2019, 2018 and 2017, was 2.20 % , 6.00% and 6.28%, respectively.

Below is a schedule of maturity of our related party borrowings as of December 31, 2019 .

The fair value of our related party borrowings as of December 31, 2019 and 2018, which is a Level 2 fair value measurement, approximates the carrying value.

(in millions)

Related party borrowings

As discussed in Note 2 - Summary of Significant Accounting Policies, we also participated in RGHL Group's accounts receivable factoring arrangement whereby certain of our accounts receivable were sold at a discount to RGHL Group.

Costs for participating in the factoring arrangement are disclosed in Note 11 - Other Expense, Net.

In addition, our U.S.

entities were members of a consolidated U.S.

tax entity group for federal and certain state tax returns.

The current U.S.

federal and state tax liabilities of our U.S.

entities was aggregated with the other members of the consolidated U.S.

tax entity group and settled on a net basis by a related party.

There was no formal tax sharing agreement.

The settlement of our current U.S.

federal and state taxes was recognized directly as a movement in Net Parent deficit.

Note 17 - Subsequent Events

On February 4, 2020 we completed our separation from RGHL Group and an IPO of our common stock pursuant to a Registration Statement on Form S-1.

We received net proceeds of $1,336 million in the IPO, after deducting underwriting discounts and commissions of $67 million and other expenses of $7 million .

In conjunction with our separation from RGHL Group and IPO, subsequent to December 31, 2019, we entered into the following transactions:

Legal entity reorganization

We reorganized the legal structure of our entities so they are all under a single parent entity, Reynolds Consumer Products Inc.

In conjunction with this, we acquired from RGHL Group the issued capital of certain non-U.S.

entities that are part of Reynolds Consumer Products for $15 million in cash.

Reclassification of Net Parent investment to additional paid-in capital and establishment of share capital

We reclassified RGHL Group’s historical net investment in us to additional paid-in capital and established share capital consisting of shares of common stock.

Each share of our outstanding common stock, immediately prior to our IPO, was exchanged into 155,455 shares of common stock.

Repurchase of accounts receivables previously sold to RGHL Group

As detailed in Note 2 – Summary of Significant Accounting Policies, we have historically sold all of our U.S.

accounts receivable to an entity within RGHL Group.

These factoring arrangements with RGHL Group ceased upon our separation from RGHL Group and IPO.

During the year ended December 31, 2019, we advanced loans of $170 million to PEI Group and received repayments of $151 million.

The weighted average contractual interest rate related to our related party borrowings as of December 31, 2019 was 2.20% .

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

On January 30, 2020, we repurchased all of the U.S.

accounts receivable that we previously sold through RGHL Group’s securitization facility for $264 million, $240 million of which was settled in cash and the remaining amount used to settle certain current related party receivables.

accounts receivable that we previously sold through PEI Group’s securitization facility for $264 million, $240 million of which was settled in cash and the remaining am ount used to settle certain current related party receivables.

The cash to purchase these receivables was provided by an increase in related party borrowings, which was subsequently settled as discussed below.

Reynolds Consumer Group

Notes to the Combined Financial Statements

Reallocation of borrowings under the RGHL Group Credit Agreement

As detailed in Note 6 – Debt and Borrowing Arrangements, as of December 31, 2019, we had incurred $2,017 million of borrowings under the RGHL Group Credit Agreement.

On January 30, 2020, our outstanding borrowings, net of deferred financing transaction costs and original issue discounts plus accrued interest incurred under the RGHL Group Credit Agreement were reallocated to an entity within RGHL Group and on February 4, 2020, we were fully and unconditionally released from the security and guarantee arrangements relating to RGHL Group’s borrowings as discussed in Note 12 – Commitments and Contingencies.

This reallocation resulted in a payment to RGHL Group of $8 million for accrued interest and an increase in related party borrowings, which was subsequently settled as discussed below.

New external debt

On February 4, 2020, we entered into new external debt facilities (“External Debt Facilities”), which consist of (i) a $2,475 million senior secured term loan facility (“Term Loan Facility”);

(ii) a $250 million senior secured revolving credit facility (“Revolving Facility”);

and (iii) a $1,168 million facility which was drawn and repaid on February 4, 2020 (“IPO Settlement Facility”).

The Term Loan Facility matures in February 2027.

The Revolving Facility matures in February 2025, is undrawn and includes a sub-facility for letters of credit.

Borrowings under the External Debt Facilities bear interest at a rate per annum equal to, at our option, either a base rate or a LIBO rate plus an applicable margin of 1.75%.

The Term Loan Facility amortizes in equal quarterly installments in an aggregate annual amount equal to 1.00% of the original principal amount thereon, with the balance being payable on maturity.

The proceeds from the Term Loan Facility and the IPO Settlement Facility, net of transaction costs, together with available cash, were used to repay accrued related party interest and a portion of the related party loans payable.

Settlement of related party borrowings and accrued interest

On February 4, 2020, we repaid related party borrowings and accrued interest owing to RGHL Group of $1,375 million and capitalized, as additional paid-in capital without the issuance of any additional shares, the remaining balance of the related party borrowings owing to RGHL Group.

Transition services agreements

On February 4, 2020, in conjunction with our separation from RGHL Group, we entered into a transition services agreement with Reynolds Group Holdings Inc.

whereby RGHL Group will continue to provide certain administrative services to us, including information technology services;

On January 30, 2020, our outstanding borrowings, net of deferred financing transaction costs and original issue discounts plus accrued interest incurred under the PEI Group Credit Agreement were reallocated to an entity within PEI Group and on February 4, 2020, we were fully and unconditionally released from the security and guarantee arrangements relating to PEI Group’s borrowings.

This reallocation resulted in a payment to PEI Group of $8 million for accrued interest and an increase of $2,001 million in related party borrowings, which was subsequently settled as discussed below.

On February 4, 2020, we repaid $3,627 million of related party borrowings and $22 million of related party accrued interest owed to PEI Group and capitalized, as additional paid-in capital without the issuance of any additional shares, the remaining $831 million balance of the related party borrowings owed to PEI Group.

On February 4, 2020, we entered into a transition services agreement with a subsidiary of PEI Group, whereby PEI Group will continue to provide certain administrative services to us, including information technology services;

accounting, treasury, financial reporting and transaction support;

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In addition, we entered into a transition services agreement with Rank Group Limited whereby, upon our request, Rank Group Limited will provide certain administrative services to us, including financial reporting, consulting and compliance services, insurance procurement and human resources support, legal and corporate secretarial support, and related services for up to 24 months.

Basic and diluted earnings per share

Basic and diluted earnings per share is computed by dividing the net income for the year by the weighted average number of common shares outstanding during the year.

The weighted average number of shares outstanding for the basic and diluted earnings per share for the year is based on the number of shares of common stock outstanding on February 4, 2020, immediately prior to our IPO.

Reynolds Consumer Group

Notes to the Combined Financial Statements

The following table presents earnings per share information for each of the three years in the period ended December 31, 2019 :

For the Years Ended December 31,

(in millions, except share and per share data)

Earnings per share

Shares outstanding

Quarterly cash dividend

On March 5, 2020, the Company declared a cash dividend for the first quarter of 2020 of $0.15 per common share, which will be paid on April 30, 2020 to shareholders of record as of March 16, 2020.

Except as described above, there have been no events subsequent to December 31, 2019 which would require accrual or disclosure in these combined financial statements.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

For the year ended December 31, 2020, we incurred $10 million related to transition services which was included in selling, general and administrative expenses in our consolidated statements of income.

On-going Related Party Transactions

For the years ended December 31, 2020, 2019 and 2018, revenues from products sold to PEI Group were $116 million, $149 million and $161 million, respectively.

For the years ended December 31, 2020, 2019 and 2018, products purchased from PEI Group were $330 million, $438 million and $511 million, respectively.

For the years ended December 31, 2020, 2019 and 2018, PEI Group charged us freight and warehousing costs of $80 million, $134 million and $143 million, respectively, which were included in cost of sales.

The resulting related party receivables and payables are settled regularly with PEI Group in the normal course of business.

Furthermore, $92 million of the dividends paid during the year ended December 31, 2020 were paid to PFL.

Note 18 - Selected Quarterly Financial Data (unaudited)

The following is selected quarterly financial data for the years ended December 31, 2020 and 2019:

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Total net revenues

Net income (loss)

Earnings (loss) per share

CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Earnings per share

Reynolds Consumer Products Inc.

Notes to the Consolidated Financial Statements

Note 1 9 - Subsequent Events

Quarterly Cash Dividend

On February 8, 2021, our Board of Directors approved a cash dividend of $0.23 per common share to be paid on March 9, 2021 to shareholders of record on February 23, 2021.

Term Loan Facility

Subsequent to December 31, 2020, we made a voluntary principal payment of $100 million related to our Term Loan Facility.

Except as described above, there have been no events subsequent to December 31, 2020 which would require accrual or disclosure in these consolidated financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data