What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-09 compared with 2021-02-12 · 101 added, 171 removed, 284 unchanged (49% of the section changed)

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We produce and sell products across three broad categories:

cooking products, waste & storage products and tableware.

cooking products, waste and storage products and tableware.

We sell our products under iconic brands such as Reynolds and Hefty and also under store brands that are strategically important to our customers.

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We have developed our market-leading position by investing in our product categories and consistently developing innovative products that meet the evolving needs and preferences of the modern consumer.

Our mix of branded and store brand products is a key competitive advantage that aligns our goal of growing the overall product category with our customers’ goals and positions us as a trusted strategic partner to our retailers.

Our mix of branded and store brand products is a key competitive advantage that aligns our goal of growing the overall product categories with our customers’ goals and positions us as a trusted strategic partner to our retailers.

Our Reynolds and Hefty brands have preeminent positions in their categories and carry strong brand recognition in household aisles.

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Reynolds Cooking & Baking:

Through our Reynolds Cooking & Baking segment, we produce branded and store brand foil, disposable aluminum pans, parchment paper, freezer paper, wax paper, plastic wrap, baking cups, oven bags and slow cooker liners.

Through our Reynolds Cooking & Baking segment, we produce branded and store brand foil, disposable aluminum pans, parchment paper, freezer paper, wax paper, butcher paper, plastic wrap, baking cups, oven bags and slow cooker liners.

Our branded products are sold under the Reynolds Wrap, Reynolds KITCHENS and E-Z Foil brands in the United States and selected international markets, under the ALCAN brand in Canada and under the Diamond brand outside of North America.

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Through our Hefty Waste & Storage segment, we produce both branded and store brand trash and food storage bags.

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

Hefty is a well-recognized leader in the trash bag and food storage bag categories and our private label products offer value to our retail partners.

Our branded products are sold under the Hefty Ultra Strong and Hefty Strong brands for trash bags, and as the Hefty and Baggies brands for our food storage bags.

We have the #1 branded market share in the U.S.

outdoor trash bag and slider bag segments, and the #2 branded market share in the tall kitchen trash bag segment.

Our robust product portfolio in this segment includes a full suite of products, including sustainable solutions such as blue and clear recycling bags, compostable bags, bags made from recycled materials and the Hefty EnergyBag Program.

Hefty Tableware:

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While advanced features are already prevalent in many of our products, we intend to continue investing in product development to accommodate the convenience-oriented lifestyles of today’s consumers.

Furthermore, while many consumers still prefer to purchase branded products, they are becoming increasingly comfortable purchasing store brand products across broader product categories.

Branded products and store brand products accounted for 63% and 37% of our revenue, excluding business-to-business revenue, respectively, in the year ended December 31, 2021.

We intend to continue investing in both our branded and store brand products to grow the entire product category.

Our scale across household aisles and ability to offer both branded and store brand products enable us to grow the overall category.

Our scale across household aisles and ability to offer both branded and store brand products enable us

to grow the overall category.

Through our category captain level advisor roles with our retail partners, we offer marketing and consumer shopping strategies, both in store and online, which expand usage occasions and stimulate consumption.

Raw Material, Energy and Freight Price Fluctuations

Our business is impacted by fluctuations in the prices of the raw materials, energy and freight costs incurred in manufacturing and distributing our products as well as fluctuations in logistics costs related thereto.

Costs for Raw Material, Energy, Labor and Freight

The primary raw materials used to manufacture our products are plastic resins and aluminum, and we also use commodity chemicals and energy.

We are exposed to commodity and other price risk principally from the purchase of resin, aluminum, natural gas, electricity, carton board and diesel.

We distribute our products and receive raw materials primarily by rail and truck, which exposes us to fluctuations in freight and handling costs caused by reduced rail and trucking capacity.

Sales contracts for our products typically do not contain pass-through mechanisms for raw material, energy and freight cost changes, but we adjust prices, where possible, in response to such price fluctuations.

We distribute our products and receive raw materials primarily by rail and truck, which exposes us to fluctuations in labor, freight and handling costs caused by reduced rail and trucking capacity.

Sales contracts for our products typically do not contain pass-through mechanisms for raw material, energy, labor and freight cost changes, but we adjust prices, where possible, in response to such price fluctuations.

Resin prices have historically fluctuated with changes in the prices of crude oil and natural gas, as well as changes in refining capacity and the demand for other petroleum-based products.

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The realized and unrealized gains or losses arising from commodity derivative instruments are recognized in cost of sales.

Furthermore, since we distribute our products and receive raw materials primarily by rail and truck, reduced availability of rail or trucking capacity and fluctuations in freight and handling costs have caused us to incur increased expenses in certain prior periods.

Furthermore, since we distribute our products and receive raw materials primarily by rail and truck, reduced availability of rail or trucking capacity and fluctuations in labor, freight and handling costs have caused us to incur increased expenses in certain periods.

Where possible, we also adjust the prices of our products in response to fluctuations in production and distribution costs.

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holidays in our fourth quarter, primarily due to the holiday use of Reynolds Wrap, Reynolds Oven Bags and Reynolds Parchment Paper.

Our tableware products generally have higher sales in the second quarter of the year, primarily due to outdoor summertime use of disposable plates, cups and bowls, however, our tableware products seasonality trends in 2020 were different from historical seasonality trends due to fewer social gatherings as a result of COVID-19.

Our tableware products generally have higher sales in the second quarter of the year, primarily due to outdoor summertime use of disposable plates, cups and bowls.

Sustainability

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As our consumers may shift towards purchasing more sustainable products, we have focused much of our innovation efforts around sustainability.

We offer a broad line of products made with recycled, renewable, recyclable and compostable materials.

We offer a broad line of products made with recycled, renewable, recyclable and compostable

We intend to continue sustainability innovation in our efforts to be at the leading edge of recyclability, renewability and compostability in order to offer our customers environmentally sustainable choices.

Our Separation from PEI Group (previously known as RGHL Group)

Prior to our Corporate Reorganization and IPO completed on February 4, 2020, we operated as part of PEI Group’s broader corporate organization rather than as a stand-alone public company.

PEI Group performed or supported various corporate services for us, including executive management, supply chain, information technology, legal, finance and accounting, human resources, risk management, tax, treasury and other services.

In addition, we have sold products to, and purchased products from, PEI Group.

Historically, these transactions involving PEI Group may not have always been consummated on terms equivalent to those in an arm’s-length transaction.

Sales to PEI Group of products that we manufacture have been reflected as related party net revenues in our consolidated financial statements.

Certain related party transactions are reflected as related party receivables and payables in our consolidated balance sheets and are settled in cash.

Prior to our Corporate Reorganization and IPO, certain related party transactions with PEI Group were settled by either non-cash capital contributions from PEI Group to us or non-cash capital distributions from us and were included as part of PEI Group’s net investment in our balance sheet.

We also utilize manufacturing and warehousing facilities and resources managed by PEI Group to conduct our business.

The expenses associated with these transactions are included in cost of sales in our consolidated statements of income.

We believe that the assumptions and methodologies underlying the allocation of these expenses from PEI Group are reasonable.

However, such allocations do not necessarily reflect what the results of operations and financial position would have been had we operated as a stand-alone public company during the periods presented.

In conjunction with our separation from PEI Group, 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;

human resources;

tax, legal and compliance related services;

and other corporate services for up to 24 months beginning on February 4, 2020.

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

At the conclusion of these transitional arrangements, we will have to perform these services with internal resources or contract with third party providers.

The previous arrangements we had with PEI Group may be materially different from the arrangements that we have entered into as part of our separation from PEI Group.

On February 4, 2020, i n conjunction with our Corporate Reorganization and IPO, we entered into new external debt facilities ( “ External Debt Faciliti es”), consisting of a $2,475 million senior secured term loan facility (“Term Loan Facility”) and a $250 million senior secured revolving credit facility (“Revolving Facility”) , and repaid portions of the related party borrowings owed to PEI Group that were reflected on our balance sheet prior to that date.

PEI Group contributed the remaining balance of related party borrowings owed by us to PEI Group as additional paid-in capital without the issuance of any additional shares prior to the closing of our IPO.

In addition, all indebtedness that we had borrowed under PEI Group’s Credit Agreement was reallocated and we were released as a borrower and guarantor from such facilities and released as a guarantor of PEI Group’s outstanding senior notes.

Public Company Expenses

As a newly public company in 2020, we have implemented additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies.

In particular, our accounting, legal and personnel-related expenses and directors’ and officers’ insurance costs have increased, related to establishing more comprehensive compliance and governance functions, establishing, maintaining and reviewing internal controls over financial reporting in accordance with the Sarbanes-Oxley Act, and preparing , filing and distributing periodic reports in accordance with SEC rules.

Our financial statements from fiscal year 2020 onward reflect the impact of these expenses.

In conjunction with our Corporate Reorganization and IPO, we have assumed responsibility for all of our stand-alone public company costs, including the costs of certain corporate services previously provided by PEI Group.

In addition, as we transition away from the corporate services previously provided by PEI Group, we have incurred, and will continue to incur, non-recurring transitional costs.

We expect the transitional costs to continue into 2021.

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

We began recognizing stock-based compensation expense during the first quarter of fiscal year 2020.

Impact of COVID-19

As we manufacture and sell products that are essential to the daily lives of consumers, we have been classified as an “essential business” and our operations have remained open throughout the COVID-19 pandemic.

We have implemented policies and procedures designed to protect our employees and our customers, including implementing recommendations from the Centers for Disease Control and Prevention for social distancing in our plants, screening employees for increased temperature at certain locations, providing masks and/or face coverings, engagement of third-party vendors to clean and sanitize facilities, implementing a work from home policy for all employees who can do so, and enhancing our leave policies to ensure employees experiencing symptoms of COVID-19 stay at home.

As the pandemic progresses, we remain committed to adapting our policies and procedures to ensure the safety of our employees and compliance with federal, state and local regulations.

While we experienced increased costs in the year ended December 31, 2020 as a result of COVID-19, they were not material to our results of operations.

However, these costs may not be representative of what we may incur moving forward.

We continue to experience an increase in demand from a fundamental shift to more at-home use of our products driven by the consumer response to the COVID-19 pandemic.

The duration and magnitude of the increased demand remains unknown, and its ongoing impact on our operations may not be consistent with our experiences to date.

At this time, we are unable to predict with any certainty the nature, timing or magnitude of any changes in future sales and/or earnings attributable to the impact of COVID-19 in North America.

As previously discussed, in connection with the COVID-19 pandemic, we implemented policies and procedures designed to protect our employees and our customers, including implementing recommendations from the Centers for Disease Control and Prevention.

As the pandemic evolves, we remain committed to adapting our policies and procedures to ensure the safety of our employees and compliance with federal, state and local regulations.

We have continued to see at-home use of our products remain strong driven by the consumer response to the COVID-19 pandemic.

The duration and magnitude of the increased demand remains unknown, particularly as vaccine rollouts continue, and its ongoing impact on our operations may not be consistent with our experiences to date.

At this time, we are unable to predict with any certainty the nature, timing or magnitude of any changes in future sales and/or earnings attributable to the impact of COVID-19 and efforts to reduce its spread.

In addition, since the COVID-19 pandemic has been ongoing for over a year, our results in 2021 have comparisons against results in 2020 that benefited significantly from the shift to more at-home use of our products and related increases in demand.

We do not currently anticipate that the COVID-19 pandemic will materially impact our liquidity over the next 12 months.

Total net revenues increased 9% for the year ended December 31, 2021, compared to the year ended December 31, 2020.

The revenue increase was primarily due to pricing actions taken in response to increased material costs and lower levels of trade promotion.

We experienced significant increases in material costs as well as increased labor and logistics costs in 2021.

The timing and magnitude of easing of material costs is uncertain at this time, however, we are aggressively implementing price increases, including a fourth round of price increases implemented in early 2022, and other cost reduction initiatives in order to maintain our profitability.

Our 2021 earnings decline was primarily attributable to the lag in timing of material cost recovery, which we expect will improve as the cost increases begin to ease and price increases are fully realized.

Non-GAAP Measures

In this Annual Report on Form 10-K we use the non-GAAP financial measures “Adjusted EBITDA”, “Adjusted Net Income” and “Adjusted EPS”, which are measures adjusted for the impact of specified items and are not in accordance with GAAP.

We define Adjusted EBITDA as net income calculated in accordance with GAAP, plus the sum of income tax expense, net interest expense, depreciation and amortization and further adjusted to exclude, as applicable, unrealized gains and losses on commodity derivatives, factoring discounts (pre-IPO), the allocated related party management fee (pre-IPO), IPO and separation-related costs and business rationalization costs.

We define Adjusted Net Income and Adjusted EPS as Net Income and Earnings Per Share calculated in accordance with GAAP, plus the sum of IPO and separation-related costs, the impact of a tax legislation change under the CARES Act enacted on March 27, 2020.

We define Adjusted EBITDA as net income calculated in accordance with GAAP, plus the sum of income tax expense, net interest expense, depreciation and amortization and further adjusted to exclude, as applicable, unrealized gains on commodity derivatives, factoring discounts (pre-IPO), the allocated related party management fee (pre-IPO) and IPO and separation-related costs.

We define Adjusted Net Income and Adjusted EPS as Net Income and Earnings Per Share calculated in accordance with GAAP, plus as applicable, the sum of IPO and separation-related costs and the impact of a tax legislation change under the CARES Act enacted on March 27, 2020.

We present Adjusted EBITDA because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions.

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In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP financial measures presented by other companies.

The following is a reconciliation of our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA for each of the periods indicated:

Year ended December 31,

The following table presents a reconciliation of our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA :

For the Years Ended December 31,

(in millions)

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IPO and separation-related costs (3)

Unrealized losses (gains) on derivatives (4)

Business rationalization costs (5)

Unrealized (gains) on derivatives (4)

Adjusted EBITDA (Non-GAAP)

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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 during the years ended December 31, 2020 and 2019 related to the IPO process, as well as costs related to our separation to operate as a stand-alone public company.

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

Reflects costs during the years ended December 31, 2021, 2020 and 2019 related to our separation to operate as a stand-alone public company as well as costs related to the IPO process.

Reflects the mark-to-market movements in our commodity derivatives.

For further information, refer to Note 8 - Financial Instruments in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Reflects primarily employee termination costs associated with rationalizing our operations in Canada.

The following is a reconciliation of our net income and diluted EPS, the most directly comparable GAAP financial measures, to Adjusted Net Income and Adjusted EPS for the year ended December 31, 2020:

The following table presents a reconciliation of our net income and diluted EPS, the most directly comparable GAAP financial measures, to Adjusted Net Income and Adjusted EPS:

Year Ended December 31, 2021

Year Ended December 31, 2020

(in millions, except for per share data)

Diluted Shares

As Reported - GAAP

Assume full period impact of IPO shares (1)

Impact of tax legislation change from the CARES Act

IPO and separation-related costs (2)

Impact of tax legislation change from the CARES Act

Adjusted (Non-GAAP)

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We utilize the shares outstanding at period end as if they had been outstanding for the full period rather than weighted average shares outstanding over the course of the period as it is a more meaningful calculation that provides consistency in comparability due to the additional shares issued as a result of the IPO in the period.

Amounts are after tax calculated using a tax rate of 24.6% for the year ended December 31, 2020, which is our effective tax rate excluding the one-time discrete expense associated with the legislation change from the CARES Act.

Resu lts of Operations

Amounts are after tax, calculated using a tax rate of 24.6% for each of the years ended December 31, 2021 and 2020, which is our effective tax rate for the periods presented excluding the 2020 one-time discrete expense associated with the legislation change from the CARES Act.

Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Detailed comparisons of revenue and results are presented in the discussions of the operating segments, which follow our consolidated results discussion.

Discussions of the year ended December 31, 2018 items and comparisons between the year ended December 31, 2019 and the year ended December 31, 2018 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed on March 10, 2020.

Discussions of the year ended December 31, 2020 items and comparisons between the year ended December 31, 2020 and the year ended December 31, 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed on February 12, 2021.

Aggregation of Segment Revenue and Adjusted EBITDA

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The unallocated net revenues include elimination of intersegment revenues and other revenue adjustments.

These transactions arise primarily from sales by Hefty Waste & Storage to Presto Products.

The unallocated Adjusted EBITDA represents corporate expenses which are not allocated to our segments.

The unallocated Adjusted EBITDA represents the combination of corporate expenses which are not allocated to our segments and other unallocated revenue adjustments.

Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020

Total Reynolds Consumer Products

For the Year Ended December 31,

For the Years Ended December 31,

(in millions, except for %)

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Total net revenues increased by $293 million, or 9%, to $3,556 million.

The increase in net revenues was largely due to a fundamental shift to more at-home use of our products and the introduction of several new products.

This was partially offset by the exit from certain low margin store branded business in the prior year, a decline in related party revenue and lower pricing.

The increase was primarily driven by higher pricing through a combination of pricing actions taken in response to increased material costs and lower levels of trade promotion, as well as higher volume.

Cost of Sales .

Cost of sales increased by $455 million, or 20%, to $2,745 million.

The increase was primarily due to increased revenue and higher logistics costs, partially offset by lower material and manufacturing costs.

The increase was driven by an increase of $391 million in material costs as well as increased labor and logistics costs.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased by $53 million, or 17%, to $358 million primarily due to higher personnel and advertising costs.

Selling, general and administrative expenses decreased by $38 million, or 11%, to $320 million primarily due to lower advertising and personnel costs.

Other Expense, Net.

Other expense, net decreased by $16 million, or 55%, to $13 million.

The decrease was primarily attributable to the prior year factoring discount on the sale of our U.S.

trade receivables through PEI Group’s securitization facility and the allocated related party management fee.

The decrease was primarily attributable to lower IPO and separation-related costs compared to the prior year period.

Interest Expense , Net .

Interest expense, net decreased by $22 million, or 31%, to $48 million.

The decrease was primarily due to the change in our debt structure as a result of our IPO in the first quarter of 2020.

Prior to the IPO we had related party debt and associated interest expense that was replaced with our External Debt Facilities in conjunction with the IPO.

The decrease was primarily due to lower interest rates and a lower principal balance on our debt.

Income Tax Expense.

We recognized income tax expense of $106 million on income before income taxes of $430 million (an effective tax rate of 24.6%) for the year ended December 31, 2021 compared to income tax expense of $153 million on income before income taxes of $516 million (an effective tax rate of 29.7%) for the year ended December 31, 2020.

The increase in the effective tax rate was due to the recognition of a $27 million discrete tax expense associated with the remeasurement of our deferred taxes as a result of the legislation change from the CARES Act.

Excluding the impact of this, our effective tax rate was 24.6% for year ended December 31, 2020.

The decrease in the effective tax rate was due to the recognition of a $27 million discrete tax expense associated with the remeasurement of our deferred taxes as a result of the legislation change from the CARES Act in the prior year period.

Excluding the impact of this, our effective tax rate was 24.6% for the year ended December 31, 2020.

Adjusted EBITDA.

Adjusted EBITDA increased by $62 million, or 9%, to $717 million.

The increase in Adjusted EBITDA was primarily due to increased revenue and lower material and manufacturing costs, partially offset by higher logistics costs and selling, general and administrative expenses , as discussed above.

Adjusted EBITDA decreased by $116 million, or 16%, to $601 million.

The decrease in Adjusted EBITDA was primarily due to price increases lagging material cost increases and increased labor and logistics costs, partially offset by lower selling, general and administrative expenses and higher volume .

Segment Information

Reynolds Cooking & Baking

For the Year Ended December 31,

For the Years Ended December 31,

(in millions, except for %)

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Reynolds Cooking & Baking total segment net revenues increased by $155 million, or 13%, to $1,314 million.

The increase in net revenues was primarily driven by increased demand, partially offset by a decline in related party revenue and lower pricing.

The increase in net revenues was primarily driven by higher pricing through a combination of pricing actions taken as a result of increased material costs and lower levels of trade promotions, as well as higher volume.

Adjusted EBITDA .

Reynolds Cooking & Baking Adjusted EBITDA increased by $45 million, or 22%, to $254 million.

The increase in Adjusted EBITDA was primarily driven by increased volume and lower material and manufacturing costs, partially offset by lower pricing, as noted above, and increased logistics and advertising costs.

Reynolds Cooking & Baking Adjusted EBITDA was essentially flat at $255 million, compared to $254 million in 2020.

Higher volume was mostly offset by increased material costs, net of pricing actions, and increased logistics costs.

Hefty Waste & Storage

For the Year Ended December 31,

For the Years Ended December 31,

(in millions, except for %)

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Hefty Waste & Storage total segment net revenues increased by $66 million, or 8%, to $884 million.

The increase in net revenues was primarily driven by increased demand.

The increase in net revenues was primarily driven by higher pricing through a combination of pricing actions taken in response to increased material costs and lower levels of trade promotion.

Adjusted EBITDA.

Hefty Waste & Storage Adjusted EBITDA increased by $46 million, or 24%, to $236 million.

The increase in Adjusted EBITDA was primarily driven by increased revenue, as noted above, partially offset by increased logistics costs and advertising spend.

Hefty Waste & Storage Adjusted EBITDA decreased by $63 million, or 27%, to $173 million.

The decrease in Adjusted EBITDA was primarily driven by material cost increases outpacing price increases as well as increased labor costs, partially offset by lower advertising costs.

Hefty Tableware

For the Year Ended December 31,

For the Years Ended December 31,

(in millions, except for %)

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Hefty Tableware total segment net revenues increased by $52 million, or 7%, to $815 million.

The increase in net revenues was primarily due to the introduction of several new products and higher pricing driven by fewer promotions than in the prior year.

The increase in net revenues was primarily driven by higher pricing through a combination of pricing actions taken as a result of increased material costs and lower levels of trade promotion.

Adjusted EBITDA.

Hefty Tableware Adjusted EBITDA decreased by $33 million, or 19%, to $137 million.

The decrease in Adjusted EBITDA was primarily driven by increased logistics costs and advertising spend, partially offset by the increased revenue, as noted above.

The decrease in Adjusted EBITDA was primarily driven by pricing actions lagging material cost increases as well as increased labor costs.

Presto Products

For the Year Ended December 31,

For the Years Ended December 31,

(in millions, except for %)

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Presto Products total segment net revenues increased by $31 million, or 6%, to $564 million.

The increase in net revenues was primarily due to increased demand, partially offset by the exit of certain low margin store branded business in the prior year.

The increase in net revenues was primarily driven by pricing actions taken in response to increased material costs, partially offset by lower volume in the current year primarily due to the lapping of heightened consumption in the prior year as well as import and third party delays.

Adjusted EBITDA .

Presto Products Adjusted EBITDA increased by $7 million, or 8%, to $98 million.

The increase in Adjusted EBITDA was primarily driven by increased revenue, as noted above.

Historical Cash Flows

Presto Products Adjusted EBITDA decreased by $29 million, or 30%, to $69 million.

The decrease in Adjusted EBITDA was primarily driven by price increases lagging material cost increases as well as increased labor and logistics costs.

Portions of our business historically have been moderately seasonal.

Overall, our strongest sales are in our fourth quarter and our weakest sales are in our first quarter.

This is driven by higher levels of sales of cooking products around major U.S.

holidays in our fourth quarter, primarily due to the holiday use of Reynolds Wrap, Reynolds Oven Bags and Reynolds Parchment Paper.

Our tableware products generally have higher sales in the second quarter of the year, primarily due to outdoor summertime use of disposable plates, cups and bowls.

Liquidity and Capital Resources

Our principal sources of liquidity are existing cash and cash equivalents, cash generated from operating activities and available borrowings under the Revolving Facility.

The following table discloses our cash flows for the years presented:

For the Year Ended December 31,

For the Years Ended December 31,

(in millions)

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Net cash used in investing activities

Net cash provided by (used in) financing activities

Increase in cash and cash equivalents

Net cash (used in) provided by financing activities

(Decrease) increase in cash and cash equivalents

Cash provided by operating activities

Net cash from operating activities decreased by $9 million, or 3%, to $310 million.

The change was primarily driven by a $279 million increase in accounts receivable, $240 million of which was related to accounts receivables previously sold through PEI Group’s securitization facility prior to our separation from PEI Group, partially offset by an increase in net income and changes in related party receivables and payables.

The decrease was primarily driven by higher net cash outlays, mainly related to inventory investment, as a result of material costs outpacing price increases during 2021 as well as higher cash tax payments, which were partially offset by the $240 million repurchase of accounts receivables in the prior year previously sold through PEI Group’s securitization facility prior to our separation from PEI Group and lower interest payments.

Cash used in investing activities

Net cash used in investing activities increased by $15 million, or 12%, to $143 million.

The net increase was primarily attributable to an increase of $34 million, or 31%, in the acquisition of property, plant and equipment, partially offset by the reduction in cash advanced to PEI Group as part of wider PEI Group cash management activities in the prior year.

The increase in the acquisition of property, plant and equipment was primarily attributable to taking operational ownership of two facilities previously managed by PEI Group in conjunction with the IPO and expenditures associated with additional capacity in response to the increased demand we have experienced.

Cash provided by (used in) financing activities

Net cash from financing activities changed by $230 million, from an outflow of $196 million for the year ended December 31, 2019 to an inflow of $34 million for the year ended December 31, 2020.

The change in cash flows from financing activities was primarily attributable to proceeds received from the IPO and the drawdown of the Term Loan Facility partially offset by repayments of related party balances, principal repayments of the Term Loan Facility and dividends paid during fiscal year 2020.

Portions of our business historically have been moderately seasonal.

Overall, our strongest sales are in our fourth quarter and our weakest sales are in our first quarter.

This is driven by higher levels of sales of cooking products around major U.S.

holidays in our fourth quarter, primarily due to the holiday use of Reynolds Wrap, Reynolds Oven Bags and Reynolds Parchment Paper.

Liquidity and Capital Resources

Our principal sources of liquidity are existing cash and cash equivalents, cash generated from operating activities and available borrowings under the Revolving Facility.

Net cash used in investing activities decreased by $2 million, or 1%, to $141 million, and was used for the acquisition of property, plant and equipment in both years.

Cash (used in) provided by financing activities

Net cash from financing activities changed by $351 million, from an inflow of $34 million for the year ended December 31, 2020 to an outflow of $317 million for the year ended December 31, 2021.

The change in cash flows from financing activities was primarily attributable to higher dividends paid during the current year, changes in principal repayments on the Term Loan Facility and IPO-related activities during the prior year period, which included proceeds received from the IPO and the drawdown of the Term Loan Facility, partially offset by repayments of related party balances.

External Debt Facilities

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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 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 for periods ranging from one to five years.

The interest rate swaps outstanding as of December 31, 2021 hedge a portion of the interest rate exposure resulting from our Term Loan Facility for periods ranging from one to four years.

The Term Loan Facility contains customary mandatory prepayments, including with respect to excess cash flow, asset sale proceeds and proceeds from certain incurrences of indebtedness.

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During the year ended December 31, 2021 , we made voluntary principal payments of $100 million related to the Term Loan Facility.

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

Amortization and maturity

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Guarantee and security

All obligations under the External Debt Facilities and certain hedge agreements and cash management arrangements provided by any lender party to the External Debt Facilities or any of its affiliates and certain other persons are unconditionally guaranteed by the Company, the Borrower (with respect to hedge agreements and cash management arrangements not entered into by the Borrower) and certain of the Company’s existing and subsequently acquired or organized direct or indirect material wholly-owned U.S.

(“RCPI”), the Borrower (with respect to hedge agreements and cash management arrangements not entered into by the Borrower) and certain of RCPI’s existing and subsequently acquired or organized direct or indirect material wholly-owned U.S.

restricted subsidiaries, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in material adverse tax consequences.

All obligations under the External Debt Facilities and certain hedge agreements and cash management arrangements provided by any lender party to the External Debt Facilities or any of its affiliates and certain other persons, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by:

(i) a perfected first-priority pledge of all the equity interests of each wholly-owned material restricted subsidiary of the Company, the Borrower or a subsidiary guarantor, including the equity interests of the Borrower (limited to 65% of voting stock in the case of first-tier non-U.S.

subsidiaries of the Company, the Borrower or any subsidiary guarantor) and (ii) perfected first-priority security interests in substantially all tangible and intangible personal property of the Company, the Borrower and the subsidiary guarantors (subject to certain other exclusions).

(i) a perfected first-priority pledge of all the equity interests of each wholly-owned material restricted subsidiary of RCPI, the Borrower or a subsidiary guarantor, including the equity interests of the Borrower (limited to 65% of voting stock in the case of first-tier non-U.S.

subsidiaries of RCPI, the Borrower or any subsidiary guarantor) and (ii) perfected first-priority security interests in substantially all tangible and intangible personal property of RCPI, the Borrower and the subsidiary guarantors (subject to certain other exclusions).

Certain covenants and events of default

The External Debt Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of the restricted subsidiaries of the Company to:

The External Debt Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of the restricted subsidiaries of RCPI to:

incur additional indebtedness and guarantee indebtedness;

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

During the year ended December 31, 2020 , our Board of Directors declared quarterly cash dividends totaling $0.59 per share.

During the year ended December 31, 2021 , cash dividends totaling $0.92 per share were declared and paid.

On January 27, 2022, a quarterly cash dividend of $0.23 per share was declared and is to be paid on February 28, 2022.

We expect to continue paying cash dividends on a quarterly basis;

however, future dividends are at the discretion of our Board of Directors and will depend upon our earnings, capital requirements, financial condition, contractual limitations (including under the Term Loan Facility) and other factors.

We believe that our projected cash position, cash flows from operations and borrowings under the External Debt Facilities are sufficient to meet the needs of our business for at least the next 12 months.

We believe that our projected cash position, cash flows from operations and available borrowings under the Revolving Facility are sufficient to meet debt service, capital expenditures and working capital needs for the foreseeable future.

However, we cannot ensure that our business will generate sufficient cash flow from operations or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other liquidity needs.

Actual results of operations will depend on numerous factors, many of which are beyond our control as further discussed in “Item 1A.

Risk Factors”.

Contractual Obligations

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We have no material off-balance sheet obligations.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements.

Specific areas requiring the application of management’s estimates and judgments include, among others, assumptions pertaining to benefit plan assumptions, valuation assumptions of goodwill and intangible assets, useful lives of long-lived assets, sales incentives and income taxes.

Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.

Specific areas requiring the application of management’s estimates and judgments include, among others, assumptions pertaining to valuation assumptions of goodwill and intangible assets, useful lives of long-lived assets and sales incentives.

Accordingly, a different financial presentation could result depending on the judgments, estimates or assumptions that are used.

The most critical accounting policies and estimates are those that are most important to the portrayal of our financial condition and results of operations and require us to make the most difficult and subjective judgments, often estimating the outcome of future events that are inherently uncertain.

Our most critical accounting policies and estimates are related to revenue recognition, the valuation of goodwill and intangible assets and income taxes.

A summary of our significant accounting policies and use of estimates is contained in Note 2 - Summary of Significant Accounting Policies of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

We believe that the accounting estimates and assumptions described below involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results.

Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results.

Revenue Recognition-Sales Incentives

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The use of different assumptions would increase or decrease the estimated fair value of assets and would increase or decrease any impairment measurement.

Prior to our Corporate Reorganization and IPO, our U.S.

operations were included in a consolidated U.S.

federal return as well as 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 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 consolidated financial statements included elsewhere in this Annual Report on Form 10-K, may not be indicative of our income taxes in the future.

Where we have been included in the tax returns filed by PEI Group, any income taxes payable resulting from the separate return basis have been reflected in our consolidated balance sheets in Net Parent deficit.

Considerable management judgment is necessary to assess the inherent uncertainties related to the interpretations of complex tax laws, regulations and taxing authority rulings.

Recent Accounting Pronouncements

New accounting guidance that we have recently adopted, as well as accounting guidance that has been recently issued but not yet adopted by us, is included in Note 2 - Summary of Significant Accounting Policies of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are subject to risks from adverse fluctuations in interest rates and commodity prices.

Our objective in managing our exposure to market risk is to limit the impact on earnings and cash flow.

Interest Rate Risk

We had significant variable rate debt commitments outstanding as of December 31, 2020, which accrue interest at the LIBO rate plus an applicable margin of 1.75%.

These on-balance sheet financial instruments expose us to interest rate risk.

During September 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.

Our average variable rate for an aggregate notional amount of $1,650 million is a one month LIBO rate plus an applicable margin of 1.75%.

The fair value of our interest rate swaps included on our consolidated balance sheets as of December 31, 2020 was not material.

(in millions)

Pay fixed / receive variable notional

Average pay rate

Based on the unhedged outstanding borrowings under the Term Loan Facility as of December 31, 2020, a 100 -basis point increase (decrease) in the interest rates under the Term Loan Facility would result in a $6 million increase (decrease) in interest expense, per annum, on our borrowings.

Commodity Risk

We are exposed to commodity and other price risk principally from the purchase of resin, aluminum, natural gas, electricity, carton board and diesel.

We use various strategies to manage cost exposures on certain material purchases with the objective of obtaining more predictable costs for these commodities.

From time to time, we enter into hedging agreements, including commodity derivative contracts, to hedge commodity prices primarily related to diesel and benzene.

We enter into futures and swaps to reduce our exposure to commodity price fluctuations.

These derivatives are implemented to either (a) mitigate the impact of the lag in timing between when material costs change and when we can pass through these material cost changes to our customers or (b) fix our input costs for a period.

The following table provides the details of our outstanding commodity derivative contracts as of December 31, 2020.

Unit of measure

Contracted date

liquid gallon

$2.30 - $2.84

Jan - Jun 2021

Commodity derivative contracts are valued using observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices.

As of December 31, 2020, the estimated fair values of the outstanding commodity derivative contracts were a net asset of less than $1 million.

During the year ended December 31, 2020, we recognized a $4 million realized gain in cost of sales in the consolidated statement of income related to commodity derivatives and no unrealized gain or loss.

A 10% upward (downward) movement in the price curve used to value the commodity derivative contracts, applied as of December 31, 2020, would have resulted in an increase (decrease) of less than $1 million in unrealized gains recognized in the consolidated statements of income assuming all other variables remain constant.

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 7. Management’s Discussion and Analysis