Item 1. Financial Statements.
See accompanying notes to the condensed consolidated financial statements.
See accompanying notes to the condensed consolidated financial statements.
See accompanying notes to the condensed consolidated financial statements.
See accompanying notes to the condensed consolidated financial statements.
During the three months ended March 31, 2022 and 2021, we recognized operating lease right-of-use assets and lease liabilities of $10 million and $33 million, respectively.
See accompanying notes to the condensed consolidated financial statements.
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 1. Nature of Operations and Basis of Presentation
The accompanying condensed consolidated financial statements comprise the accounts of Pactiv Evergreen Inc. (“PTVE”) and its subsidiaries (“we”, “us”, “our” or the “Company”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and the related notes thereto included in our latest Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 24, 2022. Operating results for interim periods are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. All intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Although our current estimates contemplate current conditions and how we expect them to change in the future, as appropriate, it is reasonably possible that actual conditions could differ from what was anticipated in those estimates, which could materially affect our results of operations and balance sheet. Among other effects, such changes could result in future impairments of goodwill, intangibles and long-lived assets, and adjustments to reserves for employee benefits and income taxes. The estimated recoverable amounts associated with asset impairments represent Level 3 measurements in the fair value hierarchy, which include inputs that are not based on observable market data.
The worldwide COVID-19 pandemic has had, and will continue to have, a significant impact on our results of operations, and it may also have additional far-reaching impacts on many aspects of our operations including the impact on customer behaviors, business and manufacturing operations, our employees and the market in general. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations, cash flows and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the progress of the pandemic, actions taken to contain the virus, the implementation and effectiveness of vaccinations and how quickly and to what extent normal economic and operating conditions can resume.
Accounting Guidance Issued but Not Yet Adopted as of March 31, 2022
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification Topic 606: Revenue from Contracts with Customers (“ASC 606”). Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. This ASU will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC 606. This ASU is effective for annual and interim periods beginning after December 15, 2022. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. This ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments. We are currently evaluating the impact of the new guidance on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. This ASU is effective upon issuance and generally can
8
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
be applied through the end of calendar year 2022. We are currently evaluating the impact and whether we plan to adopt the optional expedients and exceptions provided under this new standard.
We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our condensed consolidated financial statements.
Note 2. Acquisitions and Dispositions
Acquisitions
On October 1, 2021, we acquired 100% of the outstanding ownership interests of Fabri-Kal LLC, Monarch Mill Pond LLC and Pure Pulp Products LLC (collectively, “Fabri-Kal”) for a purchase price of $378 million, including final adjustments for cash, indebtedness and working capital of $2 million which was paid during the three months ended March 31, 2022. Fabri-Kal is a U.S. manufacturer of thermoformed plastic packaging products. Its products include portion cups, lids, clamshells, drink cups and yogurt containers for the consumer packaging goods and institutional foodservice markets. The acquisition includes four manufacturing facilities in the United States. The acquisition is expected to broaden our portfolio of sustainable packaging products and expand our manufacturing capacity to better serve our customers. The acquisition was funded with our existing cash resources and a portion of the U.S. term loans Tranche B-3 incurred in September 2021.
The Fabri-Kal acquisition was accounted for under the acquisition method of accounting and the results of operations were included in our condensed consolidated financial statements from the date of acquisition. Included in our condensed consolidated statements of income (loss) are Fabri-Kal’s net revenues of $102 million for the three months ended March 31, 2022.
The following table summarizes the preliminary purchase price allocation of the fair value of net tangible and intangible assets acquired and liabilities assumed:
|
|
As of October 1, 2021 |
|
Cash and cash equivalents |
|
$ |
3 |
|
Accounts receivable |
|
|
46 |
|
Inventories |
|
|
86 |
|
Other current assets |
|
|
2 |
|
Property, plant and equipment |
|
|
126 |
|
Operating lease right-of-use assets |
|
|
31 |
|
Goodwill |
|
|
66 |
|
Customer relationships |
|
|
56 |
|
Trademarks |
|
|
34 |
|
Deferred income taxes |
|
|
8 |
|
Assets acquired |
|
$ |
458 |
|
Accounts payable |
|
$ |
17 |
|
Current portion of long-term debt |
|
|
1 |
|
Current portion of operating lease liabilities |
|
|
3 |
|
Accrued and other current liabilities |
|
|
26 |
|
Long-term debt |
|
|
1 |
|
Long-term operating lease liabilities |
|
|
25 |
|
Long-term employee benefit obligations |
|
|
6 |
|
Other noncurrent liabilities |
|
|
1 |
|
Liabilities assumed |
|
$ |
80 |
|
Total purchase price |
|
$ |
378 |
|
We allocated the intangible assets acquired to the Foodservice segment which included $56 million of customer relationships with an estimated life of 8 years and $34 million of definite-lived trademarks with an estimated life of 10 years. We increased the cost of acquired inventories by $12 million, all of which was expensed as a component of cost of sales during the year ended December 31, 2021. We allocated $66 million of goodwill to the Foodservice segment, of which $42 million is expected to be tax deductible. Goodwill arises principally as a result of expansion opportunities provided by Fabri-Kal’s manufacturing
9
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
capacity to better serve our customers and plant operation synergies. The purchase price allocation in the table above is preliminary and subject to the finalization of our valuation analysis.
Real property and personal property fair values were determined using the cost approach. The fair values for customer relationships at the acquisition date were determined using the multi-period excess earnings method under the income approach. Significant assumptions used in assessing the fair value of the customer relationships intangible asset were forecasted Adjusted EBITDA margins and contributory asset charges. Trademark fair values were determined using the relief from royalty method. The fair value measurements of intangible assets are based on significant unobservable inputs and thus represent Level 3 inputs.
Dispositions
During the fourth quarter of 2021, we committed to a plan to sell our carton packaging and filling machinery businesses in China, Korea and Taiwan (“Beverage Merchandising Asia”) included in the Beverage Merchandising segment. As a result, we classified the assets and liabilities of Beverage Merchandising Asia as held for sale as of December 31, 2021. The operations of Beverage Merchandising Asia did not meet the criteria to be presented as discontinued operations.
On January 4, 2022, we entered into a definitive agreement with SIG Schweizerische Industrie-Gesellschaft GmbH to sell Beverage Merchandising Asia. We expect to receive proceeds from the transaction of approximately $335 million, adjusted for cash, indebtedness and working capital as of the date of completion. The transaction is expected to close in the second or third quarter of 2022, subject to customary closing conditions, including regulatory approvals.
The carrying amounts of the major classes of Beverage Merchandising Asia’s assets and liabilities as of March 31, 2022 and December 31, 2021 comprised the following:
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
Cash and cash equivalents |
|
$ |
19 |
|
|
$ |
17 |
|
Accounts receivable |
|
|
22 |
|
|
|
27 |
|
Inventories |
|
|
23 |
|
|
|
23 |
|
Other current assets |
|
|
2 |
|
|
|
3 |
|
Property, plant and equipment |
|
|
47 |
|
|
|
48 |
|
Goodwill |
|
|
14 |
|
|
|
14 |
|
Deferred income taxes |
|
|
3 |
|
|
|
3 |
|
Other noncurrent assets |
|
|
4 |
|
|
|
4 |
|
Total current assets held for sale |
|
$ |
134 |
|
|
$ |
139 |
|
Accounts payable |
|
$ |
4 |
|
|
$ |
7 |
|
Income taxes payable |
|
|
3 |
|
|
|
3 |
|
Accrued and other current liabilities |
|
|
17 |
|
|
|
18 |
|
Long-term employee benefit obligations |
|
|
1 |
|
|
|
1 |
|
Deferred income taxes |
|
|
2 |
|
|
|
2 |
|
Total current liabilities held for sale |
|
$ |
27 |
|
|
$ |
31 |
|
Income from operations before income taxes for Beverage Merchandising Asia for the three months ended March 31, 2022 and 2021 were $5 million and $6 million, respectively.
On October 12, 2021, we entered into a definitive agreement for the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd., our 50% joint venture with Naturepak Limited, to affiliates of Elopak ASA. As a result, as of December 31, 2021, we reclassified the carrying value of our interests in Naturepak Beverage Packaging Co. Ltd. to assets held for sale. The transaction closed on March 29, 2022, and we received preliminary proceeds of $47 million, which are subject to adjustments for cash, indebtedness and working capital as of the date of completion, resulting in a preliminary gain on the sale of our equity interests of $27 million during the three months ended March 31, 2022 which was reflected in other income, net. Our interests in Naturepak Beverage Packaging Co. Ltd. did not meet the criteria to be presented as discontinued operations.
During the third quarter of 2020, we committed to a plan to sell the South American closures businesses included in the Other operating segment. In December 2020, we entered into an agreement to sell the businesses. On March 31, 2021, we completed the sale of the South American closures businesses for an immaterial amount and recognized a partial reversal of the initial impairment charge of $2 million during the three months ended March 31, 2021 which was reflected in restructuring, asset
10
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
impairment and other related charges. This partial reversal was driven by a change in the carrying value of the assets held for sale as of the disposal date. The operations of the South American closures businesses did not meet the criteria to be presented as discontinued operations. The South American closures businesses’ income from operations before income taxes for the three months ended March 31, 2021 was insignificant.
Note 3. Restructuring, Asset Impairment and Other Related Charges
There were no restructuring, asset impairment and other related charges recorded during the three months ended March 31, 2022. During the three months ended March 31, 2021, we recorded the following restructuring, asset impairment and other related charges:
|
|
Other Asset Impairment |
|
|
Total |
|
Other |
|
$ |
(2 |
) |
|
$ |
(2 |
) |
Total |
|
$ |
(2 |
) |
|
$ |
(2 |
) |
For the three months ended March 31, 2021, we recorded a partial reversal of the initial impairment charge relating to the sale of the South American closures businesses of $2 million. Refer to Note 2, Acquisitions and Dispositions, for additional details.
The following table summarizes the changes to our restructuring liability for the three months ended March 31, 2022:
|
|
December 31, 2021 |
|
|
Charges to
Earnings |
|
|
Cash Paid |
|
|
March 31, 2022 |
|
Employee termination costs |
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2 |
|
Total |
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2 |
|
We expect to settle our restructuring liability within twelve months.
Note 4. Inventories
The components of inventories consisted of the following:
|
|
As of
March 31,
2022 |
|
|
As of
December 31,
2021 |
|
Raw materials |
|
$ |
243 |
|
|
$ |
226 |
|
Work in progress |
|
|
114 |
|
|
|
102 |
|
Finished goods |
|
|
512 |
|
|
|
427 |
|
Spare parts |
|
|
99 |
|
|
|
99 |
|
Inventories |
|
$ |
968 |
|
|
$ |
854 |
|
Note 5. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
|
|
As of
March 31,
2022 |
|
|
As of
December 31,
2021 |
|
Land and land improvements |
|
$ |
72 |
|
|
$ |
72 |
|
Buildings and building improvements |
|
|
641 |
|
|
|
638 |
|
Machinery and equipment |
|
|
3,395 |
|
|
|
3,383 |
|
Construction in progress |
|
|
193 |
|
|
|
170 |
|
Property, plant and equipment, at cost |
|
|
4,301 |
|
|
|
4,263 |
|
Less: accumulated depreciation |
|
|
(2,530 |
) |
|
|
(2,477 |
) |
Property, plant and equipment, net |
|
$ |
1,771 |
|
|
$ |
1,786 |
|
11
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Depreciation expense related to property, plant and equipment was recognized in the following components in the condensed consolidated statements of income (loss):
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Cost of sales |
|
$ |
63 |
|
|
$ |
54 |
|
Selling, general and administrative expenses |
|
|
6 |
|
|
|
6 |
|
Total depreciation expense |
|
$ |
69 |
|
|
$ |
60 |
|
Note 6. Goodwill and Intangible Assets
Goodwill by reportable segment was as follows:
|
|
Foodservice |
|
|
Food
Merchandising |
|
|
Beverage
Merchandising |
|
|
Other (1) |
|
|
Total |
|
Balance as of December 31, 2021 |
|
$ |
990 |
|
|
$ |
770 |
|
|
$ |
52 |
|
|
$ |
— |
|
|
$ |
1,812 |
|
Movements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance as of March 31, 2022 |
|
$ |
990 |
|
|
$ |
770 |
|
|
$ |
52 |
|
|
$ |
— |
|
|
$ |
1,812 |
|
Accumulated impairment losses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15 |
|
|
$ |
15 |
|
(1) |
Other includes operations that do not meet the quantitative threshold for reportable segments. |
Intangible assets, net consisted of the following:
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Net |
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Net |
|
Finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
1,075 |
|
|
$ |
(609 |
) |
|
$ |
466 |
|
|
$ |
1,075 |
|
|
$ |
(594 |
) |
|
$ |
481 |
|
Trademarks |
|
$ |
42 |
|
|
|
(9 |
) |
|
|
33 |
|
|
$ |
42 |
|
|
|
(9 |
) |
|
|
33 |
|
Other |
|
|
12 |
|
|
|
(12 |
) |
|
|
— |
|
|
|
12 |
|
|
|
(12 |
) |
|
|
— |
|
Total finite-lived intangible assets |
|
$ |
1,129 |
|
|
$ |
(630 |
) |
|
$ |
499 |
|
|
$ |
1,129 |
|
|
$ |
(615 |
) |
|
$ |
514 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
$ |
554 |
|
|
$ |
— |
|
|
$ |
554 |
|
|
$ |
554 |
|
|
$ |
— |
|
|
$ |
554 |
|
Other |
|
|
59 |
|
|
|
— |
|
|
|
59 |
|
|
|
59 |
|
|
|
— |
|
|
|
59 |
|
Total indefinite-lived intangible assets |
|
$ |
613 |
|
|
$ |
— |
|
|
$ |
613 |
|
|
$ |
613 |
|
|
$ |
— |
|
|
$ |
613 |
|
Total intangible assets |
|
$ |
1,742 |
|
|
$ |
(630 |
) |
|
$ |
1,112 |
|
|
$ |
1,742 |
|
|
$ |
(615 |
) |
|
$ |
1,127 |
|
Amortization expense for intangible assets of $15 million and $13 million for the three months ended March 31, 2022 and 2021, respectively, was recognized in selling, general and administrative expenses.
Note 7. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
|
|
As of
March 31,
2022 |
|
|
As of
December 31,
2021 |
|
Accrued personnel costs |
|
$ |
92 |
|
|
$ |
86 |
|
Accrued rebates and credits |
|
|
98 |
|
|
|
87 |
|
Accrued interest |
|
|
44 |
|
|
|
19 |
|
Other(1) |
|
|
139 |
|
|
|
123 |
|
Accrued and other current liabilities |
|
$ |
373 |
|
|
$ |
315 |
|
(1) |
Other includes items such as accruals for freight, utilities and property and other non-income related taxes. |
12
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 8. Debt
Debt consisted of the following:
|
|
As of |
|
|
As of |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Credit Agreement |
|
$ |
2,244 |
|
|
$ |
2,250 |
|
Notes: |
|
|
|
|
|
|
|
|
4.000% Senior Secured Notes due 2027 |
|
|
1,000 |
|
|
|
1,000 |
|
4.375% Senior Secured Notes due 2028 |
|
|
500 |
|
|
|
500 |
|
Pactiv Debentures: |
|
|
|
|
|
|
|
|
7.950% Debentures due 2025 |
|
|
276 |
|
|
|
276 |
|
8.375% Debentures due 2027 |
|
|
200 |
|
|
|
200 |
|
Other |
|
|
51 |
|
|
|
53 |
|
Total principal amount of borrowings |
|
|
4,271 |
|
|
|
4,279 |
|
Deferred financing transaction costs (“DIC”) |
|
|
(16 |
) |
|
|
(17 |
) |
Original issue discounts, net of premiums (“OID”) |
|
|
(12 |
) |
|
|
(12 |
) |
|
|
|
4,243 |
|
|
|
4,250 |
|
Less: current portion |
|
|
(30 |
) |
|
|
(30 |
) |
Long-term debt |
|
$ |
4,213 |
|
|
$ |
4,220 |
|
We were in compliance with all debt covenants during the three months ended March 31, 2022 and the year ended December 31, 2021.
On September 24, 2021, we incurred $1,015 million of term loans (“U.S. term loans tranche B-3”) and issued $500 million aggregate principal amount of 4.375% senior secured notes (“4.375% Notes”). A portion of the net proceeds from the U.S. term loans Tranche B-3, along with the net proceeds from the 4.375% Notes, was used to repay the $1,207 million of existing U.S. term loans Tranche B-1 maturing in February 2023, including accrued interest, extinguishing this tranche of borrowings. The balance of the net proceeds from the U.S. term loans Tranche B-3 was used to partially fund the acquisition of Fabri-Kal. During the three months ended March 31, 2021, we repaid the remaining $59 million of the 5.125% senior secured notes at a price of 101.281%. The early repayment of these senior secured notes resulted in a loss on extinguishment of debt of $1 million in respect of the premium on redemption, which was recognized in interest expense, net.
Credit Agreement
PTVE and certain of its U.S. subsidiaries are parties to a senior secured credit agreement dated August 5, 2016 as amended (the “Credit Agreement”). The Credit Agreement comprises the following term and revolving tranches:
|
|
|
|
Value Drawn or Utilized
as of |
|
|
Applicable Interest Rate
as of |
|
|
|
Maturity Date |
|
March 31, 2022 |
|
|
March 31, 2022 |
|
Term Tranches |
|
|
|
|
|
|
|
|
|
|
U.S. term loans Tranche B-2 |
|
February 5, 2026 |
|
$ |
1,234 |
|
|
LIBOR (floor of 0.000%) + 3.250% |
|
U.S. term loans Tranche B-3 |
|
September 24, 2028 |
|
$ |
1,010 |
|
|
LIBOR (floor of 0.500%) + 3.500% |
|
Revolving Tranche(1) |
|
|
|
|
|
|
|
|
|
|
U.S. Revolving Loans |
|
August 5, 2024 |
|
$ |
44 |
|
|
|
— |
|
(1) The Revolving Tranche represents a $250 million facility. The amount utilized is in the form of letters of credit.
The weighted average contractual interest rates related to our U.S. term loans Tranche B-2 and Tranche B-3 for the three months ended March 31, 2022 were 3.39% and 4.00%, respectively. The weighted average contractual interest rates related to our U.S. term loans Tranche B-1 and B-2 for the three months ended March 31, 2021 were 2.88% and 3.38%, respectively. The effective interest rates of our debt obligations under the Credit Agreement are not materially different from the contractual interest rates.
13
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
PTVE and certain of its U.S. subsidiaries have guaranteed on a senior basis the obligations under the Credit Agreement to the extent permitted by law. The borrowers and the guarantors have granted security over substantially all of their assets to support the obligations under the Credit Agreement. This security is expected to be shared on a first priority basis with the holders of the Notes.
Indebtedness under the Credit Agreement may be voluntarily repaid, in whole or in part, and must be mandatorily repaid in certain circumstances. We are required to make quarterly amortization payments of 0.25% of the principal amount of U.S. term loans. Additionally, we are required to make annual prepayments of term loans with up to 50% of excess cash flow (which will be reduced to 25% or 0% if specified senior secured first lien leverage ratios are met) as determined in accordance with the Credit Agreement. No excess cash flow prepayments were due in 2021 or are due in 2022 for the year ended December 31, 2021.
The Credit Agreement contains customary covenants which restrict us from certain activities including, among other things, incurring debt, creating liens over assets, selling assets and making restricted payments, in each case except as permitted under the Credit Agreement.
Notes
Outstanding Notes, as of March 31, 2022, are summarized below:
|
|
Maturity Date |
|
Interest Payment Dates |
4.000% Senior Secured Notes due 2027 |
|
October 15, 2027 |
|
April 15 and October 15 |
4.375% Senior Secured Notes due 2028 |
|
October 15, 2028 |
|
April 15 and October 15,
commencing April 15, 2022 |
The effective interest rates of our debt obligations under the Notes are not materially different from the contractual interest rates.
PTVE and certain of its U.S. subsidiaries have guaranteed on a senior basis the obligations under the Notes to the extent permitted by law. The issuers and the guarantors have granted security over substantially all of their assets to support the obligations under the Notes. This security is expected to be shared on a first priority basis with the creditors under the Credit Agreement.
The respective indentures governing the 4.000% Senior Secured Notes due 2027 (“4.000% Notes”) and the 4.375% Notes (together with the 4.000% Notes, the “Notes”) contain customary covenants which restrict us from certain activities including, among other things, incurring debt, creating liens over assets, selling assets and making restricted payments, in each case except as permitted under the respective indentures governing the Notes.
Under the respective indentures governing the Notes, we can, at our option, elect to redeem the Notes under terms and conditions specified in the indentures. Under the respective indentures governing the Notes, in certain circumstances which would constitute a change in control, the holders of the Notes have the right to require us to repurchase the Notes at a premium.
Pactiv Debentures
As of March 31, 2022, we had outstanding the following debentures (together, the “Pactiv Debentures”):
|
|
Maturity Date |
|
Interest Payment Dates |
7.950% Debentures due 2025 |
|
December 15, 2025 |
|
June 15 and December 15 |
8.375% Debentures due 2027 |
|
April 15, 2027 |
|
April 15 and October 15 |
The effective interest rates of our debt obligations under the Pactiv Debentures are not materially different from the contractual interest rates.
The Pactiv Debentures are not guaranteed and are unsecured.
The indentures governing the Pactiv Debentures contain a negative pledge clause limiting the ability of certain of our entities, subject to certain exceptions, to (i) incur or guarantee debt that is secured by liens on “Principal Manufacturing Properties” (as such term is defined in the indentures governing the Pactiv Debentures) or on the capital stock or debt of certain subsidiaries that own or lease any such Principal Manufacturing Property and (ii) sell and then take an immediate lease back of such Principal Manufacturing Property.
14
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
The 8.375% Debentures due 2027 may be redeemed at any time at our option, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus a make-whole premium, if any, plus accrued and unpaid interest to the date of the redemption.
Other borrowings
Other borrowings represented finance lease obligations of $51 million and $53 million as of March 31, 2022 and December 31, 2021, respectively.
Scheduled Maturities
Below is a schedule of required future repayments on our debt outstanding as of March 31, 2022:
|
|
|
|
|
2022 |
|
$ |
23 |
|
2023 |
|
|
30 |
|
2024 |
|
|
29 |
|
2025 |
|
|
304 |
|
2026 |
|
|
1,202 |
|
Thereafter |
|
|
2,683 |
|
Total principal amount of borrowings |
|
$ |
4,271 |
|
Fair value of our long-term debt
The fair value of our long-term debt as of March 31, 2022 and December 31, 2021 is a Level 2 fair value measurement. Below is a schedule of carrying values and fair values of our debt outstanding:
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
|
|
Carrying
Value |
|
|
Fair
Value |
|
|
Carrying
Value |
|
|
Fair
Value |
|
Credit Agreement |
|
$ |
2,233 |
|
|
$ |
2,188 |
|
|
$ |
2,239 |
|
|
$ |
2,243 |
|
Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.000% Senior Secured Notes due 2027 |
|
|
992 |
|
|
|
930 |
|
|
|
991 |
|
|
|
975 |
|
4.375% Senior Secured Notes due 2028 |
|
|
495 |
|
|
|
461 |
|
|
|
495 |
|
|
|
497 |
|
Pactiv Debentures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.950% Debentures due 2025 |
|
|
273 |
|
|
|
283 |
|
|
|
273 |
|
|
|
305 |
|
8.375% Debentures due 2027 |
|
|
199 |
|
|
|
207 |
|
|
|
199 |
|
|
|
222 |
|
Other |
|
|
51 |
|
|
|
51 |
|
|
|
53 |
|
|
|
53 |
|
Total |
|
$ |
4,243 |
|
|
$ |
4,120 |
|
|
$ |
4,250 |
|
|
$ |
4,295 |
|
15
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Interest expense, net
Interest expense, net consisted of the following:
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Interest expense: |
|
|
|
|
|
|
|
|
Credit Agreement |
|
$ |
21 |
|
|
$ |
19 |
|
Notes |
|
|
15 |
|
|
|
10 |
|
Pactiv Debentures |
|
|
10 |
|
|
|
10 |
|
Interest income |
|
|
— |
|
|
|
(1 |
) |
Amortization: |
|
|
|
|
|
|
|
|
DIC |
|
|
1 |
|
|
|
1 |
|
Net foreign currency exchange losses |
|
|
1 |
|
|
|
1 |
|
Loss on extinguishment of debt: |
|
|
|
|
|
|
|
|
Redemption premiums |
|
|
— |
|
|
|
1 |
|
Other |
|
|
1 |
|
|
|
1 |
|
Interest expense, net |
|
$ |
49 |
|
|
$ |
42 |
|
Note 9. Financial Instruments
We had the following derivative instruments recorded at fair value in our condensed consolidated balance sheets:
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
|
|
Asset
Derivatives |
|
|
Liability
Derivatives |
|
|
Asset
Derivatives |
|
|
Liability
Derivatives |
|
Commodity swap contracts |
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
Total fair value |
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
Recorded in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
— |
|
Accrued and other current liabilities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Total fair value |
|
$ |
5 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
Our derivatives are comprised of commodity swaps. All derivatives represent Level 2 financial assets and liabilities. Our derivatives are valued using an income approach based on the observable market index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our calculation of the fair value of these financial instruments takes into consideration the risk of non-performance, including counterparty credit risk. The majority of our derivative contracts do not have a legal right of set-off. We manage the credit risk in connection with our derivatives by limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.
During the three months ended March 31, 2022 and 2021, we recognized an unrealized gain of $5 million and an unrealized loss of $1 million, respectively, in cost of sales.
The following table provides the detail of outstanding commodity derivative contracts as of March 31, 2022:
Type |
|
Unit of Measure |
|
Contracted
Volume |
|
|
Contracted
Price Range |
|
Contracted Date of Maturity |
Benzene swaps |
|
U.S. liquid gallon |
|
|
5,518,856 |
|
|
$3.12 - $4.05 |
|
May 2022 - Dec 2022 |
Natural gas swaps |
|
Million BTU |
|
|
224,024 |
|
|
$2.81 - $2.81 |
|
May 2022 - Sep 2022 |
16
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 10. Employee Benefits
Net periodic benefit income for defined benefit pension plans and other post-employment benefit plans consisted of the following:
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Service cost |
|
$ |
— |
|
|
$ |
(2 |
) |
Interest cost |
|
|
(21 |
) |
|
|
(27 |
) |
Expected return on plan assets |
|
|
21 |
|
|
|
50 |
|
Ongoing net periodic benefit income |
|
|
— |
|
|
|
21 |
|
Income due to settlement(1) |
|
|
10 |
|
|
|
— |
|
Total net periodic benefit income |
|
$ |
10 |
|
|
$ |
21 |
|
(1) |
Refer to the Pension Partial Settlement Transactions section below for additional details. |
Net periodic benefit income for defined benefit pension plans and other post-employment benefit plans was recognized as follows:
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Cost of sales |
|
$ |
— |
|
|
$ |
(2 |
) |
Non-operating income, net |
|
|
10 |
|
|
|
23 |
|
Total net periodic benefit income |
|
$ |
10 |
|
|
$ |
21 |
|
No contributions to the Pactiv Evergreen Pension Plan (“PEPP”) are expected to be made in 2022.
Pension Partial Settlement Transactions
On February 24, 2022, we purchased with $1,260 million of PEPP assets a non-participating group annuity contract from an insurance company and transferred $1,257 million of the PEPP’s projected benefit obligations. Under the transaction, the insurance company assumed responsibility for pension benefits and annuity administration for approximately 13,300 retirees or their beneficiaries. As a result of this transaction, the PEPP’s projected benefit obligations and plan assets were remeasured, and we recognized a non-cash pre-tax pension settlement gain of $10 million in the three months ended March 31, 2022.
On July 21, 2021, we purchased with $941 million of PEPP assets a non-participating group annuity contract from an insurance company and transferred $959 million of the PEPP’s projected benefit obligations. Under the transaction, the insurance company will assume responsibility for pension benefits and annuity administration for approximately 16,300 retirees or their beneficiaries. As a result of this transaction, the PEPP’s projected benefit obligations and plan assets were remeasured, and we recognized a non-cash pre-tax pension settlement gain of $22 million in the third quarter of 2021.
Note 11. Other Income, Net
Other income, net consisted of the following:
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Gain on sale of businesses and noncurrent assets |
|
$ |
27 |
|
|
$ |
— |
|
Foreign exchange losses on cash(1) |
|
|
(2 |
) |
|
|
— |
|
Transition service agreement income(2) |
|
|
1 |
|
|
|
4 |
|
Other |
|
|
2 |
|
|
|
2 |
|
Other income, net |
|
$ |
28 |
|
|
$ |
6 |
|
(1) |
Primarily arose from holding U.S. dollars in non-U.S. dollar functional currency entities. |
17
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
(2) |
Refer to Note 15, Related Party Transactions, for additional details. The transition services agreement income is primarily attributable to services provided to our former segments, Reynolds Consumer Products Inc. (“RCPI”) and Graham Packaging Company Inc. (“GPCI”), and our former closures businesses. |
Note 12. Commitments and Contingencies
We are from time to time party to litigation, legal proceedings and tax examinations arising from our operations. Most of these matters involve allegations of damages against us relating to employment matters, personal injury and commercial or contractual disputes. We record estimates for claims and proceedings that constitute a present obligation when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of such obligation can be made. While it is not possible to predict the outcome of any of these matters, based on our assessment of the facts and circumstances, we do not believe any of these matters, individually or in the aggregate, will have a material adverse effect on our balance sheet, results of operations or cash flows. However, actual outcomes may differ from those expected and could have a material effect on our balance sheet, results of operations or cash flows in a future period. Except for amounts provided, there were no legal proceedings pending other than those for which we have determined that the possibility of a material outflow is remote.
Legal Proceedings
On April 14, 2021, MP2 Energy LLC (“MP2”) filed a lawsuit against Pactiv LLC (“Pactiv”), one of our indirect subsidiaries, in state court in Montgomery County, Texas. In this lawsuit, MP2 seeks to collect approximately $50 million from Pactiv that MP2 claims that Pactiv owes MP2 under an energy management services agreement (“EMSA”). Under the EMSA, including Transaction Confirmation No. 4, Pactiv agreed, among other things, to sell MP2 a certain contract quantity of energy at a specified price. If this contract quantity of energy became unavailable for Pactiv to sell to MP2, the EMSA granted MP2 the right to contract for the purchase of the shortfall in the contract quantity, and to charge Pactiv for the cost incurred by MP2 in contracting for that shortfall, “unless due to an event of Force Majeure.” Pactiv notified MP2 that Pactiv was excused by Force Majeure under the EMSA to the extent that the contract quantity of energy was not available for Pactiv to sell to MP2 because of the winter weather emergency caused by Winter Storm Uri. Even though MP2 does not dispute that Winter Storm Uri constituted an event of Force Majeure under the EMSA and Transaction Confirmation No. 4, MP2 nevertheless seeks to hold Pactiv responsible in this lawsuit for approximately $50 million in costs that MP2 claims it incurred in contracting for a shortfall in Pactiv’s contract quantity of energy during the event of Force Majeure. Pactiv disputes any liability to MP2 and maintains that Pactiv acted reasonably at all times and that the event of Force Majeure excused any obligation Pactiv had to supply the contract quantity under the EMSA and Transaction Confirmation No. 4 or to reimburse MP2 for its cost in contracting for any shortfall in the contract quantity. Pactiv believes that MP2’s claim is without merit and that Pactiv has strong defenses against MP2’s claim, including, but not limited to, Force Majeure. Pactiv intends to vigorously defend itself against MP2’s claim in this lawsuit. Although we are confident of Pactiv’s legal position in this matter and do not consider it probable that this matter will result in a material loss, we can offer no assurance that Pactiv will in fact obtain a favorable outcome.
Indemnities
As part of the agreements for the sale of various businesses, we have provided certain warranties and indemnities to the respective purchasers as set out in the respective sale agreements. These warranties and indemnities are subject to various terms and conditions affecting the duration and total amount of the indemnities. As of March 31, 2022, we are not aware of any material claims under these agreements that would give rise to an additional liability. However, if such claims arise in the future, they could have a material effect on our balance sheet, results of operations or cash flows.
18
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 13. Accumulated Other Comprehensive Loss
The following table summarizes the changes in our balances of each component of accumulated other comprehensive loss (“AOCL”):
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Currency translation adjustments: |
|
|
|
|
|
|
|
|
Balance as of beginning of period |
|
$ |
(207 |
) |
|
$ |
(189 |
) |
Currency translation adjustments |
|
|
4 |
|
|
|
(9 |
) |
Amounts reclassified from AOCL(1) |
|
|
— |
|
|
|
(11 |
) |
Other comprehensive income (loss) |
|
|
4 |
|
|
|
(20 |
) |
Balance as of end of period |
|
$ |
(203 |
) |
|
$ |
(209 |
) |
Defined benefit plans: |
|
|
|
|
|
|
|
|
Balance as of beginning of period |
|
$ |
108 |
|
|
$ |
(160 |
) |
Net actuarial loss arising during year(2) |
|
|
(126 |
) |
|
|
— |
|
Deferred tax expense on net actuarial loss |
|
|
31 |
|
|
|
— |
|
Gain reclassified from AOCL |
|
|
|
|
|
|
|
|
Defined benefit plan settlement gain |
|
|
(10 |
) |
|
|
— |
|
Deferred tax expense on reclassification |
|
|
2 |
|
|
|
— |
|
Other comprehensive loss |
|
|
(103 |
) |
|
|
— |
|
Balance as of end of period |
|
$ |
5 |
|
|
$ |
(160 |
) |
AOCL |
|
|
|
|
|
|
|
|
Balance as of beginning of period |
|
$ |
(99 |
) |
|
$ |
(349 |
) |
Other comprehensive loss |
|
|
(99 |
) |
|
|
(20 |
) |
Balance as of end of period |
|
$ |
(198 |
) |
|
$ |
(369 |
) |
(1) |
The reclassification of currency translation adjustment amounts to earnings during the three months ended March 31, 2021 relates to the sale of the South American closures businesses. Refer to Note 2, Acquisitions and Dispositions, for additional details. |
(2) |
Net actuarial loss arising during the three months ended March 31, 2022 relates to the interim remeasurement of the PEPP due to the pension partial settlement transaction. The net actuarial loss for the three months ended March 31, 2022 was primarily due to asset returns, partially offset by an increase in the discount rate utilized in measuring plan obligations, reflecting changes in market rates. Refer to Note 10, Employee Benefits, for additional details. |
Note 14. Income Taxes
The effective tax rates for the three months ended March 31, 2022 and 2021 represent our estimate of the annual effective tax rates expected to be applicable for the respective full fiscal years, adjusted for any discrete events which are recorded in the period that they occur.
During the three months ended March 31, 2022, we recognized a tax expense of $36 million on income from continuing operations before tax of $79 million. The effective tax rate was driven primarily by a $14 million discrete expense from the sale of our equity interests in Naturepak Beverage Packaging Co. Ltd.
During the three months ended March 31, 2021, we recognized a tax benefit of $18 million on a loss from continuing operations before tax of $29 million. The effective tax rate was driven primarily by a $10 million discrete benefit from the partial release of our valuation allowance for deferred interest deductions, which was partially offset by certain nondeductible expenses and varying rates among the jurisdictions in which we operate.
19
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
We are under audit by the Internal Revenue Service (“IRS”) and other taxing authorities. The IRS is currently auditing our U.S. income tax returns for 2016-2017. As of March 31, 2022, we have not received any proposed adjustments from taxing authorities that would be material. Although the ultimate timing is uncertain, it is reasonably possible that a reduction of up to $10 million of unrecognized tax benefits could occur within the next twelve months due to changes in audit status, settlements of tax assessments and other events.
Note 15. Related Party Transactions
As of March 31, 2022, 78% of our shares are owned by PFL or another entity of which Mr. Graeme Hart is the ultimate shareholder (together with PFL, the “Hart Stockholders”).
The related party entities and types of transactions we entered into with them are detailed below. All related parties detailed below have a common ultimate controlling shareholder, except for the joint ventures.
|
|
Transaction Value for the |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
Balance Outstanding as of |
|
|
|
2022 |
|
|
2021 |
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
Balances and transactions with joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other current assets |
|
|
|
|
|
|
|
|
|
$ |
2 |
|
|
$ |
9 |
|
Sale of goods and services(1) |
|
$ |
7 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
Balances and transactions with other entities
controlled by Mr. Graeme Hart |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current related party receivables(2) |
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
48 |
|
Sale of goods and services(2) |
|
|
100 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
Transition services agreements and rental income(2) |
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Charges(3) |
|
|
— |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Related party payables(2) |
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
(10 |
) |
Purchase of goods(2) |
|
|
(27 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
Charges(3) |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
(1) |
All transactions with joint ventures are settled in cash. Sales of goods and services are negotiated based on market rates. All amounts are unsecured, non-interest bearing and repayable on demand. |
(2) |
Following the distribution of RCPI on February 4, 2020, we continue to trade with them, selling and purchasing various goods and services under contractual arrangements that expire over a variety of periods through December 31, 2024. As part of the separation process, among other agreements, we have entered into two lease arrangements with RCPI and entered into a transition services agreement to provide ongoing agreed services to RCPI, as requested. We do not trade with GPCI on an ongoing basis. We have entered into a transition services agreement to provide ongoing agreed services to GPCI, as requested. We have also entered into a tax matters agreement with GPCI. We have recognized a payable of $1 million under the tax matters agreement in relation to GPCI’s share of U.S. state tax refunds in respect of the periods through to September 16, 2020. |
(3) |
These charges are for various costs incurred including services provided, financing and other activities. All amounts are unsecured, non-interest bearing and settled on normal trade terms. As part of our IPO, we have entered into a transition services agreement with Rank Group Limited (“Rank”), an entity controlled by Mr. Graeme Hart, under which Rank will, upon our request, continue to provide certain administrative and support services to us, and we will provide support services to Rank upon request. All services provided will be charged at an agreed hourly rate plus any third party costs. The agreements with Rank and affiliated entities also include an insurance sharing agreement and an investment advisory agreement in respect of our pension plan investment committee. |
Note 16. Equity Based Compensation
In conjunction with our IPO, we established the Pactiv Evergreen Inc. Equity Incentive Plan (the “Equity Incentive Plan”) for purposes of granting stock or other equity based compensation awards to our employees (including our senior management), directors, consultants and advisors. The maximum number of shares of common stock initially available for issuance under our Equity Incentive Plan was 9,079,395 shares.
Equity based compensation expense of $4 million and $4 million for the three months ended March 31, 2022 and 2021, respectively, was recognized in selling, general and administrative expenses.
20
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Restricted Stock Units
During the three months ended March 31, 2022, we granted restricted stock units (“RSUs”) to certain members of management. These RSUs required future service to be provided and vest in annual installments over a period ranging from 1 to 3 years beginning on the first anniversary of the grant date. During the vesting period, the RSUs carry dividend-equivalent rights, but the RSUs do not have voting rights. The RSUs and any related dividend-equivalent rights are forfeited in the event the holder is no longer an employee on the vesting date, unless the holder satisfies certain retirement-eligibility criteria. The following table summarizes RSU activity during 2022:
(In thousands, except per share amounts) |
|
Number of
Stock Units |
|
|
Weighted
Average
Grant Date
Fair Value |
|
Non-vested, at January 1 |
|
|
1,491 |
|
|
$ |
14.67 |
|
Granted(1) |
|
|
1,091 |
|
|
$ |
9.18 |
|
Forfeited |
|
|
(6 |
) |
|
$ |
14.55 |
|
Vested |
|
|
(332 |
) |
|
$ |
15.22 |
|
Non-vested, at March 31 |
|
|
2,244 |
|
|
$ |
11.92 |
|
(1) |
Includes 11 thousand shares reserved for issuance upon the settlement of dividend-equivalent rights carried by the reported RSUs concurrently with the settlement of such RSUs for shares. |
Unrecognized compensation cost related to unvested RSUs as of March 31, 2022 was $19 million, which is expected to be recognized over a weighted average period of 2.4 years. The total vest date fair value of shares that vested during the three months ended March 31, 2022 was $3 million.
Performance Share Units
During the three months ended March 31, 2022, we granted performance share units (“PSUs”) to certain members of management which vest on the third anniversary of the grant date. Based on the achievement of various company performance targets during a performance period set by our Compensation Committee, upon vesting, the PSUs are exchanged for a number of shares of common stock equal to the number of PSUs multiplied by a factor between 0% and 200%. We use our stock price on the grant date to estimate the fair value of our PSUs. We adjust the expense based on the likelihood of future achievement of performance metrics. If any of the performance targets are not achieved, the awards are forfeited. During the vesting period, the PSUs carry dividend-equivalent rights, but the PSUs do not have voting rights. The PSUs and any related dividend-equivalent rights are forfeited in the event the holder is no longer an employee on the vesting date, unless the holder satisfies certain retirement-eligibility criteria. The following table summarizes PSU activity during 2022:
(In thousands, except per share amounts) |
|
Number of
Stock Units |
|
|
Weighted
Average
Grant Date
Fair Value |
|
Non-vested, at January 1 |
|
|
— |
|
|
$ |
— |
|
Granted(1) |
|
|
1,042 |
|
|
$ |
9.18 |
|
Non-vested, at March 31 |
|
|
1,042 |
|
|
$ |
9.18 |
|
(1) |
Includes 11 thousand shares reserved for issuance upon the settlement of dividend-equivalent rights carried by the reported PSUs concurrently with the settlement of such PSUs for shares. |
Unrecognized compensation cost related to unvested PSUs as of March 31, 2022 was $9 million, which is expected to be recognized over a weighted average period of 2.4 years.
21
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Note 17. Earnings Per Share
Earnings (loss) per share, including a reconciliation of the number of shares used for our earnings (loss) per share calculation, was as follows:
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Net earnings (loss) attributable to Pactiv Evergreen Inc. common shareholders |
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
43 |
|
|
$ |
(12 |
) |
From discontinued operations |
|
|
— |
|
|
|
(3 |
) |
Total |
|
$ |
43 |
|
|
$ |
(15 |
) |
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
177.6 |
|
|
|
177.2 |
|
Effect of dilutive securities |
|
|
0.4 |
|
|
|
— |
|
Diluted |
|
|
178.0 |
|
|
|
177.2 |
|
Earnings (loss) per share attributable to Pactiv Evergreen Inc. common shareholders |
|
|
|
|
|
|
|
|
From continuing operations |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
(0.07 |
) |
Diluted |
|
$ |
0.24 |
|
|
$ |
(0.07 |
) |
From discontinued operations |
|
|
|
|
|
|
|
|
Basic |
|
$ |
— |
|
|
$ |
(0.02 |
) |
Diluted |
|
$ |
— |
|
|
$ |
(0.02 |
) |
Total |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
(0.09 |
) |
Diluted |
|
$ |
0.24 |
|
|
$ |
(0.09 |
) |
The weighted average number of anti-dilutive potential common shares excluded from the calculation above was 0.7 million shares and 0.2 million shares for the three months ended March 31, 2022 and 2021, respectively.
Our Board of Directors declared a dividend of $0.10 per share on May 3, 2022 to be paid on June 15, 2022 to shareholders of record as of May 31, 2022.
Note 18. Segment Information
ASC 280 Segment Reporting establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, we have three reportable segments: Foodservice, Food Merchandising and Beverage Merchandising. These reportable segments reflect our operating structure and the manner in which our Chief Operating Decision Maker (“CODM”), who is our President and Chief Executive Officer, assesses information for decision-making purposes.
The key factors used to identify these reportable segments are the organization and alignment of our internal operations and the nature of our products. This reflects how our CODM monitors performance, allocates capital and makes strategic and operational decisions. Our reportable segments are described as follows:
Foodservice - Manufactures a broad range of products that enable consumers to eat and drink where they want and when they want with convenience. Foodservice manufactures food containers, drinkware (hot and cold cups and lids), tableware, serviceware and other products which make eating on-the-go more enjoyable and easy to do.
Food Merchandising - Manufactures products that protect and attractively display food while preserving freshness. Food Merchandising products include clear rigid-display containers, containers for prepared and ready-to-eat food, trays for meat and poultry and egg cartons.
22
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Beverage Merchandising - Manufactures cartons for fresh refrigerated beverage products, primarily serving dairy (including plant-based, organic and specialties), juice and other specialty beverage end-markets. Beverage Merchandising manufactures and supplies integrated fresh carton systems, which include printed cartons, spouts and filling machinery. It also produces fiber-based liquid packaging board for its internal requirements and to sell to other fresh beverage carton manufacturers as well as a range of paper-based products which it sells to paper and packaging converters.
Other/Unallocated - In addition to our reportable segments, we have other operating segments that do not meet the threshold for presentation as a reportable segment. These operating segments include the remaining components of our former closures business, which generate revenue from the sale of caps and closures, and are presented as “Other” in the reconciliation between total reportable segment amounts and the equivalent consolidated measure. Unallocated includes corporate costs, primarily relating to companywide functions such as finance, tax and legal and the effects of the PEPP and equity based compensation.
Information by Segment
We present reportable segment Adjusted EBITDA as this is the financial measure by which management and our CODM allocate resources and analyze the performance of our reportable segments.
A segment’s Adjusted EBITDA represents its earnings before interest, tax, depreciation and amortization and is further adjusted to exclude certain items, including but not limited to, restructuring, asset impairment and other related charges, gains or losses on the sale of businesses and noncurrent assets, non-cash pension income or expense, operational process engineering-related consultancy costs, business acquisition and integration costs and purchase accounting adjustments, unrealized gains or losses on derivatives, foreign exchange gains or losses on cash and executive transition charges.
Reportable segment assets represent trade receivables, inventory and property, plant and equipment.
|
|
Foodservice |
|
|
Food
Merchandising |
|
|
Beverage
Merchandising |
|
|
Reportable
Segment Total |
|
For the Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
697 |
|
|
$ |
404 |
|
|
$ |
372 |
|
|
$ |
1,473 |
|
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
31 |
|
|
|
31 |
|
Total reportable segment net revenues |
|
$ |
697 |
|
|
$ |
404 |
|
|
$ |
403 |
|
|
$ |
1,504 |
|
Adjusted EBITDA |
|
$ |
116 |
|
|
$ |
60 |
|
|
$ |
24 |
|
|
$ |
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
454 |
|
|
$ |
342 |
|
|
$ |
339 |
|
|
$ |
1,135 |
|
Intersegment revenues |
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
18 |
|
Total reportable segment net revenues |
|
$ |
454 |
|
|
$ |
342 |
|
|
$ |
357 |
|
|
$ |
1,153 |
|
Adjusted EBITDA |
|
$ |
61 |
|
|
$ |
55 |
|
|
$ |
(32 |
) |
|
$ |
84 |
|
Reportable segment assets consisted of the following:
|
|
Foodservice |
|
|
Food
Merchandising |
|
|
Beverage
Merchandising |
|
|
Reportable
Segment Total |
|
As of March 31, 2022 |
|
$ |
1,434 |
|
|
$ |
776 |
|
|
$ |
981 |
|
|
$ |
3,191 |
|
As of December 31, 2021 |
|
|
1,380 |
|
|
|
737 |
|
|
|
951 |
|
|
|
3,068 |
|
23
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
The following table presents a reconciliation of reportable segment Adjusted EBITDA to consolidated GAAP income (loss) from continuing operations before income taxes:
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Reportable segment Adjusted EBITDA |
|
$ |
200 |
|
|
$ |
84 |
|
Other |
|
|
— |
|
|
|
1 |
|
Unallocated |
|
|
(18 |
) |
|
|
(8 |
) |
|
|
|
182 |
|
|
|
77 |
|
Adjustments to reconcile to GAAP income (loss)
from continuing operations before income taxes |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(49 |
) |
|
|
(42 |
) |
Depreciation and amortization |
|
|
(84 |
) |
|
|
(73 |
) |
Restructuring, asset impairment and other related charges |
|
|
— |
|
|
|
2 |
|
Gain on sale of businesses and noncurrent assets |
|
|
27 |
|
|
|
— |
|
Non-cash pension income |
|
|
10 |
|
|
|
23 |
|
Operational process engineering-related consultancy costs |
|
|
(3 |
) |
|
|
(3 |
) |
Business acquisition and integration costs and purchase accounting adjustments |
|
|
(4 |
) |
|
|
— |
|
Unrealized gains (losses) on derivatives |
|
|
5 |
|
|
|
(1 |
) |
Foreign exchange losses on cash |
|
|
(2 |
) |
|
|
— |
|
Executive transition charges |
|
|
— |
|
|
|
(10 |
) |
Costs associated with legacy sold facility |
|
|
(3 |
) |
|
|
— |
|
Other |
|
|
— |
|
|
|
(2 |
) |
Income (loss) from continuing operations before tax |
|
$ |
79 |
|
|
$ |
(29 |
) |
The following table presents a reconciliation of reportable segment assets to consolidated assets:
|
|
As of
March 31,
2022 |
|
|
As of
December 31,
2021 |
|
Reportable segment assets |
|
$ |
3,191 |
|
|
$ |
3,068 |
|
Other |
|
|
44 |
|
|
|
37 |
|
Unallocated(1) |
|
|
3,927 |
|
|
|
3,916 |
|
Total assets |
|
$ |
7,162 |
|
|
$ |
7,021 |
|
(1) |
Unallocated is comprised of cash and cash equivalents, other current assets, assets held for sale, entity-wide property, plant and equipment, operating lease right-of-use assets, goodwill, intangible assets, deferred income taxes, related party receivables and other noncurrent assets. |
24
Pactiv Evergreen Inc.
Notes to the Condensed Consolidated Financial Statements
(In millions, except per share data and unless otherwise indicated)
(Unaudited)
Information in Relation to Products
Net revenues by product line are as follows:
|
|
For the Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Foodservice |
|
|
|
|
|
|
|
|
Containers |
|
$ |
308 |
|
|
$ |
209 |
|
Drinkware |
|
|
268 |
|
|
|
165 |
|
Tableware |
|
|
65 |
|
|
|
38 |
|
Serviceware and other |
|
|
56 |
|
|
|
42 |
|
Food Merchandising |
|
|
|
|
|
|
|
|
Tableware |
|
|
102 |
|
|
|
82 |
|
Bakery/snack/produce/fruit containers |
|
|
91 |
|
|
|
69 |
|
Meat trays |
|
|
85 |
|
|
|
87 |
|
Prepared food trays |
|
|
41 |
|
|
|
34 |
|
Egg cartons |
|
|
28 |
|
|
|
26 |
|
Other |
|
|
57 |
|
|
|
44 |
|
Beverage Merchandising |
|
|
|
|
|
|
|
|
Cartons for fresh beverage products |
|
|
217 |
|
|
|
192 |
|
Liquid packaging board |
|
|
115 |
|
|
|
91 |
|
Paper products |
|
|
71 |
|
|
|
74 |
|
Reportable segment net revenues |
|
|
1,504 |
|
|
|
1,153 |
|
Other / Unallocated |
|
|
|
|
|
|
|
|
Other |
|
|
22 |
|
|
|
29 |
|
Inter-segment eliminations |
|
|
(31 |
) |
|
|
(18 |
) |
Net revenues |
|
$ |
1,495 |
|
|
$ |
1,164 |
|
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.
25