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TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     24  

SPECIAL NOTE REGARDING FORWARD -LOOKING STATEMENTS

     46  

USE OF PROCEEDS

     47  

DIVIDEND POLICY

     48  

CAPITALIZATION

     49  

DILUTION

     51  

SELECTED HISTORICAL COMBINED FINANCIAL DATA

     52  

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

     57  

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     68  

BUSINESS

       96  

MANAGEMENT

     119  

EXECUTIVE COMPENSATION

     125  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     141  

PRINCIPAL STOCKHOLDERS

     147  

DESCRIPTION OF CAPITAL STOCK

     148  

MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

     154  

SHARES ELIGIBLE FOR FUTURE SALE

     157  

UNDERWRITING (CONFLICTS OF INTEREST )

     159  

LEGAL MATTERS

     166  

EXPERTS

     166  

WHERE YOU CAN FIND MORE INFORMATION

     166  

INDEX TO COMBINED FINANCIAL STATEMENTS

     F-1  

 

 

In this prospectus, “Reynolds Consumer Products,” “RCP,” the “Company,” “we,” “us” and “our” refer to (i) prior to the Corporate Reorganization, as defined below, the Reynolds Consumer Group business consisting of the combination of Reynolds Consumer Products Inc. and the operations, assets and liabilities comprising Reynolds Group Holdings Limited’s Reynolds Consumer Products segment as reflected in the combined financial statements included elsewhere in this prospectus; and (ii) after the Corporate Reorganization, Reynolds Consumer Products Inc. and its consolidated subsidiaries. We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

No action is being taken in any jurisdiction outside the United States to permit a public offering of common stock. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restriction as to this offering and the distribution of this prospectus applicable to those jurisdictions.

Market Share and Other Information

This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, filings of public companies in our industry and internal company surveys. These include government and industry sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe the industry and market data to be reliable as of the date of this prospectus, this information could prove to be inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because

 

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information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.

Trademarks and Trade Names

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® or symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

Presentation of Information

References to “fiscal year 2020,” “fiscal year 2019,” “fiscal year 2018,” “fiscal year 2017” and “fiscal year 2016” relate to our fiscal year ending December 31, 2020 and fiscal years ended December 31, 2019, 2018, 2017 and 2016, respectively. With the exception of the adoption of ASC 606 Revenue from Contracts with Customers as of January 1, 2018, the accounting policies set out in the annual combined financial statements included elsewhere in this prospectus have been consistently applied to all periods presented. We adopted the new revenue recognition standard on a modified retrospective basis for all contracts not completed as of the date of adoption, resulting in a $5 million adjustment to Net Parent deficit. There was no other material financial impact from adopting the new revenue recognition standard. See Note 2—Summary of Significant Accounting Policies in our annual combined financial statements included elsewhere in this prospectus for an explanation of the impact of the adoption of ASC 606.

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them. Unless otherwise indicated, all references to “U.S. dollars,” “dollars,” “U.S. $” and “$” in this prospectus are to the lawful currency of the United States of America.

Non-GAAP Financial Measures

This prospectus contains “non-GAAP financial measures,” which are financial measures that are not calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”).

The Securities and Exchange Commission (“SEC”) has adopted rules to regulate the use in filings with the SEC and in other public disclosures of non-GAAP financial measures. These rules govern the manner in which non-GAAP financial measures are publicly presented and require, among other things:

 

   

a presentation with equal or greater prominence of the most comparable financial measure or measures calculated and presented in accordance with GAAP; and

 

   

a statement disclosing the purposes for which the registrant’s management uses the non-GAAP financial measure.

Specifically, we make use of the non-GAAP financial measure “Adjusted EBITDA” in evaluating our past results and future prospects. For the definition of Adjusted EBITDA and a reconciliation to net income, its most directly comparable financial measure presented in accordance with GAAP, see “Prospectus Summary—Summary Historical and Unaudited Pro Forma Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—How We Assess the Performance of Our Business.”

 

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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. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider such a measure either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations include the following:

 

   

Adjusted EBITDA does not reflect every expenditure or contractual commitment;

 

   

Adjusted EBITDA does not reflect changes in our working capital needs;

 

   

Adjusted EBITDA does not reflect any interest expense, or the amounts necessary to service interest or principal payments on any debt obligations;

 

   

Adjusted EBITDA does not reflect income tax expense;

 

   

although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any costs of such replacements;

 

   

Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative, on a recurring basis, of our ongoing operations; and

 

   

other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA as supplemental information.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the “Risk Factors” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our combined financial statements and the notes thereto included elsewhere in this prospectus.

Overview

Our mission is to simplify daily life so consumers can enjoy what matters most.

We are a market-leading consumer products company with a presence in 95% of households across the United States. We produce and sell products across three broad categories: cooking products, waste & 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. Overall, across both our branded and store brand offerings, over 65% of our revenue for the year ended December 31, 2018 came from products where we hold the #1 U.S. market share position in the category, and in virtually all of our major product categories we hold either a #1 or #2 U.S. market share position by revenue. 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 Reynolds and Hefty brands have preeminent positions in their categories and carry strong brand recognition in household aisles. The combination of our store brand offerings, the shared goal of category growth and indispensable support in marketing, innovation, branding and promotions has enabled us to achieve the position of category captain level advisor across 29 customers, which represent 73% of U.S. category sales, based on Nielsen all-commodity volume (“ACV”) in 2018.

 

 

Our leading brand portfolio

 

 

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Our products are typically used in the homes of consumers of all demographics on a daily basis and meet the convenience-oriented preferences of today’s consumer across a broad range of household activities. We help make daily life easier by assisting with preparation, cooking, mealtime and cleanup and by providing convenient storage and indoor/outdoor disposal solutions. Our diverse product portfolio includes aluminum foil, disposable bakeware, trash bags, food storage bags and disposable tableware. Our products are known for their quality, which is recognized by our consumers and retail partners alike. Our consumers know they can rely on our trusted brands. These factors generate loyalty which empowers us to develop and launch new products that expand usage occasions and transition our portfolio into adjacent categories.

 

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We have strong relationships with a diverse set of customers including leading grocery stores, mass merchants, warehouse clubs, discount chains, drug stores, home improvement stores, military outlets and eCommerce retailers. Our customer relationships have been built on a long history of trust. Our portfolio of branded and store brand products allows our retail partners to manage multiple household aisles with a single vendor. Many of our products have had a prominent position on the shelves of major retailers for decades and have become an integral part of household aisles. We believe our strong brand recognition and customer loyalty lead to robust product performance.

As a category captain level advisor for many of our retail partners, we provide the insights retailers require to grow entire product categories. We provide our customers with category management expertise, including assortment analytics and promotion strategies, which is supported by innovation and consumer-focused insights. We believe that championing our categories helps cement our retailer relationships and will drive growth across all of our product lines. This approach, combined with our leading products, capabilities and service, further differentiates us from our competitors.

While our products have been trusted for generations, we place significant emphasis on constantly improving them. Innovation is a key component of our corporate culture and we aim to continually evolve across our segments through both the introduction of new features on our existing product portfolio and the development of new product solutions. Our objective is to generate 20% of our revenue each year from new products introduced within the prior three years. All of our key product lines include newly developed innovative products such as our Hefty Ultra Strong trash bags, Reynolds KITCHENS® Slow Cooker Liners, Parchment Pop Up Sheets, 75% Unbleached Compostable Parchment Paper, Hefty branded party cups, store brand party cups and our Presto store brand square-shaped snack bags. We believe our commitment to innovation has driven our growth and is a key reason why consumers continue to choose our products.

We put safety first, treat people with respect and act ethically to operate a business that is sustainable for the long-term. We never compromise our values in the face of market forces and we remain committed to strong rules of governance. We strive to operate with respect for the environment, and we are committed to sustainability across three key areas: our product portfolio, supply chain and communities. We currently deliver sustainable solutions across all of our product lines and are focused on innovation that further develops the eco-friendly profile of our product portfolio.

We have an attractive financial profile with steady, organic revenue growth, robust margins and disciplined capital expenditures. These attributes allow us to generate significant free cash flow. In the year ended December 31, 2018, we generated $3.1 billion in revenue, $176 million in net income and $647 million in Adjusted EBITDA. For the nine months ended September 30, 2019, we generated $2.2 billion in revenue, $135 million in net income and $441 million in Adjusted EBITDA. Since 2014, our income from operations margin and Adjusted EBITDA margin have grown by 364 and 242 basis points to 16% and 21%, respectively, in the year ended December 31, 2018. We have driven margin expansion mainly through our consistent focus on improving operational efficiency, managing costs throughout the cycle and driving innovation. Our revenue, net income and Adjusted EBITDA in the year ended December 31, 2018 reflect compound annual growth rates (“CAGR”) of 2.2%, 110.3% and 5.5%, respectively, since 2014. In the year ended December 31, 2018, we generated $530 million of net cash provided by operating activities and spent $82 million on capital expenditures. See “—Summary Historical and Unaudited Pro Forma Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—How We Assess the Performance of Our Business” for a reconciliation of Adjusted EBITDA to net income.

 

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Our ‘Reyvolution’ Culture

We have a unique corporate culture that aims to continually reinvent and optimize our business. We have formalized our approach into an ethos we refer to as ‘Reyvolution.’ Reyvolution is an all-encompassing way of thinking, planning and evaluating our operations to accelerate future growth through product innovation, process automation and cost reduction. Through this disciplined process and mindset, we aim to drive revenue growth, market share increases and margin expansion. We are focused on long-term planning and goal-setting strategies as well as our near term operating results. We believe it is critical to embrace new technology and, through this program, we have made significant investment across our business to accelerate optimization opportunities. Reyvolution is focused on four key areas:

 

   

Growth—support our products and customers through a holistic approach to our categories

 

   

Innovation—reinforce our existing product portfolio with new and on-trend products

 

   

Cost reduction—optimize our processes to drive increased profitability

 

   

Automation—continuously refine our manufacturing base to increase efficiency

Reyvolution includes a collective, cross-functional effort to drive growth across our business. This systematic program includes collaborative partnerships across our business units, monthly meetings with top executives and rigorous measurement of initiatives and progress against internal benchmarks. The program has yielded significant results both on the top and bottom line. From January 1, 2017 to September 30, 2019, the impact of Reyvolution was approximately $246 million of Adjusted EBITDA benefit. Of the total, $179 million was generated through cost savings across our businesses, with $67 million of Adjusted EBITDA being generated through revenue initiatives. Our Reyvolution strategic initiatives also include internal goals for innovation. Our objective is to generate 20% of our revenue each year from new products introduced within the prior three years. In fiscal year 2018, 21% of our revenue was generated from products that were less than three years old. Reyvolution will continue to impact everything we do on a daily basis.

Our Segments and Products

The pie charts below show the breakdown of our revenue for the fiscal year ended December 31, 2018 by our segments and products.

 

 

Our segments

 

 

 

    

 

  

 

Our products

 

FY2018 revenue      FY2018 revenue

 

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Our Segments

We manage our operations in four reportable segments: Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware and Presto Products.

 

   

Reynolds Cooking & Baking: Our namesake Reynolds Cooking & Baking segment (“Reynolds Cooking & Baking”) generated $1.2 billion in revenue and $234 million in Adjusted EBITDA (a 20% Adjusted EBITDA margin) for the year ended December 31, 2018 and has grown its revenue at a 4.7% CAGR from 2016 to 2018. 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. 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. With our flagship Reynolds Wrap products, we hold the #1 market position in the U.S. consumer foil market measured by revenue and volume. We have no significant branded competitor in this market. Reynolds is one of the most recognized household brands in the United States and has been the top trusted brand in the consumer foil market for over 70 years, with greater than 50% market share in virtually all of its categories. This sustained leadership provides us with a platform for continued product innovation and expansion into adjacent categories. Reynolds Wrap has been one of the most trusted household brands in the United States since 1947, and Reynolds has aided brand awareness of 98%, according to a 2015 brand awareness study.

 

   

Hefty Waste & Storage: Our Hefty Waste & Storage segment (“Hefty”) generated $696 million in revenue and $172 million in Adjusted EBITDA (a 25% Adjusted EBITDA margin) for the year ended December 31, 2018 and has grown its revenue at a 1.8% CAGR from 2016 to 2018. Through our Hefty 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 food storage bag and trash bag categories. We have the #1 market share in U.S. outdoor trash bags. Our robust product portfolio includes a full suite of indoor and outdoor and contractor bags. It also includes sustainable solutions such as blue and clear recycling bags, compostable bags, bags made from recycled materials and the Hefty EnergyBag® Program.

 

   

Hefty Tableware: Our Hefty Tableware segment (“Tableware”) generated $757 million in revenue and $168 million in Adjusted EBITDA (a 22% Adjusted EBITDA margin) for the year ended December 31, 2018 and has grown its revenue at a 3.3% CAGR from 2016 to 2018. Through our Tableware segment, we sell both branded and store brand disposable and compostable plates, bowls, platters, cups and cutlery. Our Hefty branded products include dishes and party cups. Hefty branded party cups were the #1 party cup in America by market share as of September 28, 2019. Our branded products use our Hefty brand to represent both quality and great price, and we bring this same quality and value promise to all of our store brands as well. We sell across a broad range of materials and price points in all retail channels, allowing our consumers to select the product that best suits their price, function and aesthetic needs.

 

   

Presto Products: Our Presto Products segment (“Presto”) generated $539 million in revenue and $85 million in Adjusted EBITDA (a 16% Adjusted EBITDA margin) for the year ended December 31, 2018 and has grown its revenue at a 2.8% CAGR from 2016 to 2018. Through our Presto segment, we primarily sell store brand products in four main categories: food storage bags, trash bags, reusable storage containers and plastic wrap. Presto is a market leader in food storage bags and differentiates itself by providing access to category management, consumer insights, marketing, merchandising and R&D resources. As a result, through Presto we had a 57% share of the U.S. store brand food storage bag category and a 26% share of the total category as of September 28, 2019. Our store brand products are national brand equivalent (or better) and we offer consumer-desired features, including compostable bags and products made with plant-based and recycled materials. Our Presto segment also includes our

 

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growing specialty business, which serves other consumer products companies by providing Fresh-Lock® and Slide-Rite® resealable closure systems. We have extended our innovative product technology from our food storage bag products and are growing it through this unique channel.

Our Products

Our portfolio consists of three main product groups: waste & storage products, cooking products and tableware. All of our key product lines include newly developed innovative products. We have the #1 branded market share in product categories that comprised over 65% of our total revenue in fiscal year 2018. We are also a leading store brand supplier in many of the same categories.

 

 

Our key product categories

 

    

Waste & storage products

  

Cooking products

  

Tableware

  FY18 revenue

  (in millions)

 

  

$1,226

 

  

$1,159

 

  

$757

 

  FY16—FY18

  revenue

  CAGR

 

  

2.5%

 

  

4.7%

 

  

3.3%

 

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  Products

  

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Indoor bags

 

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Outdoor bags

 

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Sustainable bags

 

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Slider storage bags

 

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Press-to-close storage bags

 

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Reusable storage containers

  

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Aluminum foil

 

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Aluminum bakeware

 

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Parchment paper

 

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Slow cooker liners

 

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Oven bags

 

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Freezer paper

 

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Wax paper

  

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Party cups

 

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Tableware

 

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Sustainable tableware

 

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Platters

 

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Cutlery

 

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Our Competitive Strengths

Leading market positions in attractive consumer categories reinforced by well-recognized, iconic brands that resonate with consumers

We hold the #1 or #2 market position by revenue in virtually all of our product categories and are well positioned to capitalize on their growth. Over 65% of our revenue comes from products that are #1 in their respective categories. We invest in both our branded and store brand products, which allows us to focus on growing the entire product category. We have preeminent market positions across both branded and store brand products with total market share of 44% across all of our major product categories for the 52 weeks ended September 28, 2019.

 

Leading market share in core categories across both branded and store brand

(% total combined market share for the 52 weeks ended September 28, 2019)

 

 

 

Aluminum foil

 

   

 

Convenience cooking

 

   

 

Trash bags

 

(Total category: $809 million)                 

(Parchment, wax and freezer paper,
slow cooker liners, oven bags
and baking cups)

(Total category: $264 million)

 

            

  (Total category: $2,675 million)

 

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Food storage bags

 

   

 

Foam dishes

 

   

 

Plastic cups

 

(Total category: $1,638 million)     (Total category: $741 million)     (Total category: $595 million)

 

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Source: Nielsen xAOC last 52 weeks ended September 28, 2019.

We participate in large and growing consumer product categories, with an average growth rate of 3.4% year-over-year from the 52 weeks ended September 29, 2018 to the 52 weeks ended September 28, 2019. Our categories continue to experience consistent growth, with foil and food storage bags growing at 4.6% and 2.0%, respectively, year-over-year from the 52 weeks ended September 29, 2018 to the 52 weeks ended September 28, 2019. Our categories are supported by strong demographic profiles, consumer demand for convenience and evolving consumer needs. We continue to drive category growth through our innovation driven new product development and relationships with leading retailers.

 

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Our iconic brands, such as Reynolds and Hefty, have developed strong brand recognition within their categories. Our brands are recognized across all demographics and generations for their quality, strength and reliability. Reynolds Wrap has been one of the top trusted household brands in the United States since 1947. According to a 2015 brand awareness study, Reynolds Wrap has aided brand awareness of 98%. Additionally, Hefty has aided brand awareness of 95%, according to a 2017 brand awareness study.

 

Our brands have #1 positions across nearly all our categories

 

Category

 

 

Brand

 

 

Position

 

 

Brand share of total category

 

Aluminum foil (U.S.)

 

 

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  64%

Aluminum foil (Canada)

 

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  72%

Parchment paper

 

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  51%

Wax paper

 

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  59%

Slow cooker liners

 

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  77%

Oven bags

 

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  93%

Freezer paper

 

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  94%

Slider bags

 

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  34%

Party cups

 

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  22%

Foam dishes

 

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  43%

Trash bags

 

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  20%

 

Source: Nielsen xAOC last 52 weeks ended September 28, 2019.

Long-term strategic relationships with a diverse set of leading customers

Our customer relationships across leading grocery stores, mass merchants, warehouse clubs, discount chains, drug stores, home improvement stores, military outlets and eCommerce retailers are based on a long history of trust. With many of our customers, we have maintained an ongoing relationship since the inception of our Reynolds brand over 70 years ago. Our experienced sales force, which averages over 10 years of experience at RCP, and the superb service we provide our customers drive our superior levels of ongoing customer satisfaction. The majority of our products are made in the United States, and our strategically located national manufacturing footprint provides logistics advantages and certainty of supply for our retail partners. Our short supply chain relative to competitors and the vendor-managed inventory we offer our major customers are highly valued by our customers because it reduces the inventory they have to carry and limits product shortages.

We have over 70 years of technical knowledge about our products. We deploy this experience across our business segments to deliver custom innovation solutions. This, together with our low cost manufacturing capabilities and consistent product quality, enables us to provide our customers with a compelling value

 

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proposition. For example, in addition to our renowned branded products, our store brand products are subject to the same high degree of quality control as branded products and as a result consistently receive a “Pass” rating when tested against the national brands at third-party laboratories.

We work to make not only our individual products successful but also to provide our retail partners with the insights and recommendations they need to grow entire product categories. We provide our retailers with category management expertise that is supported by innovation and consumer focused insights and includes assortment and promotion strategies. Our ability to provide best-in-class shopper insights directly results in stronger customer loyalty.

We believe these value-added services differentiate us from our competitors and strengthen our customer relationships. This is evidenced by our relationships with our largest retail customers, who we partner with to sell our branded products and to produce their store brand products.

Demonstrated track record of new product development

We have a strong track record of innovation, focused on the addition of innovative features to our existing products and the development of new products that address consumers’ unmet needs. Additionally, we strive to further enhance our core product portfolio. We are able to identify emerging consumer trends through our extensive consumer insights, allowing us to develop products with the features and functions that consumers are looking for. We believe we were the first to introduce a food storage bag, the first to introduce a slider closure on food storage bags, the first to introduce the drawstring trash bag, the first to introduce the “gripper” feature on trash bags, the first to add an unscented odor block feature to trash bags and the first to add non-stick coating to aluminum foil. We have a robust track record of developing and launching successful new products.

 

Hefty Ultra Strong     

 

Reynolds KITCHENS Slow

Cooker Liners

 

    

 

Store brand square

snack bags

 

 

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•  Addresses top consumer dissatisfactions such as odors, drawstring breaks and bag tears

    

•  Addresses key pain point of soaking/scrubbing the slow cooker

    

•  Addresses consumer need for taller bags that can fit a larger assortment of snacks in terms of size and shape

•  Utilizes Arm & Hammer® patented odor neutralizer for revitalized scents

    

•  BPA-free product that offers convenience for household meal preparation

    

•  Unique square shape that is easier to fill and close and offers more optionality than rectangular bags

•  Uses active tear-resistant technology and higher grade resin for stronger bags and improved performance

      

•  Provides fast and easy clean up in seconds

      

•  Multipurpose storage that seals in flavor and freshness for food items

We have invested considerable resources to develop proprietary products and efficient manufacturing capabilities and we actively protect our intellectual property. We have a significant number of registered patents and registered trademarks, including Reynolds and Hefty, as well as several copyrights, which, along with our trade secrets and manufacturing know-how, help support our ability to add value within the market and sustain our competitive advantages. We also look to partner with both our suppliers and customers to drive innovation through the entire supply chain.

 

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As sustainability becomes more central to the consumer’s purchasing decision, we remain focused on developing new eco-friendly products, and we are continuously investing in our capabilities to improve our ability to utilize recycled materials. We currently have environmentally friendly options across the vast majority of our product categories, such as compostable trash bags and store brand bags made from plant-based resins and recyclable materials. We have a strong pipeline of new products in development, many of which are part of our broader sustainability initiatives.

Innovation is a significant component of our culture and is further instilled through Reyvolution. We have devoted significant resources towards this endeavor and believe that our highly experienced R&D teams will remain on the cutting edge.

Well-invested manufacturing footprint that serves as a competitive moat

We have a robust and well invested manufacturing footprint which includes 17 manufacturing facilities and over 5,000 employees. Our facilities are strategically located across the United States and Canada, and the majority of our products are proudly made in the United States. Our low-cost and efficient manufacturing facilities enable us to optimize distribution, minimize lead times and reduce freight costs. This significant production base, built over decades, positions us well versus our competitive peer set. We estimate that it would require more than $2.5 billion to replicate our manufacturing assets, and we believe it would be exceedingly difficult to replicate our proprietary manufacturing know-how and in-house developed technology that enable us to run our facilities faster, with greater automation and with higher quality control. Our unique manufacturing capabilities enable us to produce a broad selection of differentiated products that help drive growth while providing a substantial barrier to entry.

Through Reyvolution, we are focused on lean manufacturing initiatives to reduce material usage, improve uptime and increase productivity across every site. We are heavily automated today and are committed to further investments in automation, including recent initiatives focused on the automation of repetitive manual tasks to increase operating efficiency and consistency, while protecting ourselves from labor fluctuations. Our automation processes and proprietary manufacturing technologies are difficult for competitors to replicate.

Our operations have significant scale and substantial vertical integration, which provides us with competitive advantages. Our substantial vertical integration gives us increased independence from suppliers and the ability to control costs more efficiently. It also partially insulates us from import volatility. We have a robust network of suppliers allowing us to be nimble in our input material purchasing.

Attractive financial performance with strong free cash flow generation

We have an attractive financial profile with steady organic revenue growth, strong margins and disciplined capital expenditures. These attributes allow us to generate robust free cash flow.

Since 2014, our income from operations margin and Adjusted EBITDA margin have grown by 364 and 242 basis points to 16% and 21%, respectively, in the year ended December 31, 2018. We have driven margin expansion mainly by managing costs, increasing our volumes and manufacturing efficiency and driving innovation. We are able to deliver attractive Adjusted EBITDA margins due to the high value-added nature of our products. We defend our margin position through innovation driven growth, cost savings and effective purchasing. The vertically integrated nature of our business provides further insulation for our margin profile.

We plan to continue leveraging Reyvolution to deliver incremental operational productivity savings, improve our business mix and increase the effectiveness of our sales force. Historically our business has relatively low capital expenditure requirements, averaging $60 million per year over the past three fiscal years, which drives our high rate of free cash flow conversion. We plan to continue to manage our costs, working capital and capital expenditures to deliver strong free cash flow.

 

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Commitment to sustainability and values

We put safety first, treat people with respect and operate ethically to help ensure that we manage our business on a sound long-term foundation. We never compromise our values, regardless of market forces, and we remain committed to strong rules of governance. We manage our business for long-term results, as evidenced by the robust Reyvolution initiative pipeline across all facets of our business. We believe corporate responsibility is the obligation of all employees. Our management team is committed to maintaining our culture, which has been an important component of our success.

We strive to operate with respect for the environment and are committed to sustainability across three key areas: our product portfolio, supply chain and communities. We engage with our employees and partner with our customers to explore sustainability topics like plant and distribution route efficiency. We participate at the forefront of emerging municipal programs that generate new community based solutions and also end-to-end recycling solutions with our Hefty EnergyBag Program in partnership with a key supplier. We are longstanding members of the Sustainable Packaging Coalition®, an industry working group dedicated to a more robust environmental vision for packaging, and the Forest Stewardship Council through their voluntary program for responsible forest management. We are committed to using recycled, renewable, recyclable, compostable and other sustainable materials in our products, which drives our product-oriented sustainability initiatives. In 2018, 43% of the products that we sold in the United States were compostable, recyclable and/or made from recyclable material.

Management team with a strong track record of innovation-driven growth

We have a deep bench of talented managers led by Lance Mitchell, our President and Chief Executive Officer, who has over 35 years of industry experience. Both our CEO and CFO have played a pivotal role in the successful integration of the Reynolds and Hefty businesses. We have continued to assemble a leading team through strategic hires and have expanded our organizational capabilities in new product development. Through the lens of Reyvolution, our management team is focused on their vision for RCP, which includes a culture of innovation, excelling at quality and service, creating products people love and constantly evolving the business. Our management team’s key accomplishments include integrating, developing and growing a company with a strong ethics-driven and safety-focused culture while still achieving best-in-class market share and strong financial results. In addition, we attribute our lower than industry standard turnover rates to our collaborative, trustworthy company culture and our unwavering commitment to safety and to our people. Our strong management team is well positioned to effectively manage the business into the future with a depth of talented and dedicated employees already primed to lead the next generation of RCP.

Our Business Strategies

Key elements of our business strategy include:

Champion our categories and grow with our customers

We participate in large consumer categories with strong household penetration. Our combined branded and store brand share is significant in our categories. Our products appeal to consumers of all demographics and have a multitude of usage occasions. Our scale across household aisles and ability to offer trusted branded and store brand products enable us to grow the overall category and has earned us the opportunity to provide category captain level advisor insights at the majority of our retail partners. Our respected and trusted category managers provide our customers with category management expertise, insight and analytics to help them drive consumer traffic and spending. Through marketing and consumer education strategies, both inside the store and out, we expand usage occasions and stimulate consumption. Our new product innovation drives incremental growth within our categories. These factors and our focus on offering a high quality portfolio of branded and store brand products provide tremendous value to our retailers versus our competition.

 

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Continued investment behind our market-leading brand portfolio

We have iconic brands and a proven ability to innovate, which enable us to approach adjacencies strategically and enhance our brand relevance with consumers. We plan to continue our investment in marketing and advertising to grow the revenues of our product offerings and the categories in which they participate. Our innovative approach to advertising, and early adoption of new channels such as digital, social media and experiential events, have addressed the full range of consumer constituents and resulted in powerful penetration growth, market share growth and increased usage occasions, even in some of our more mature categories. For example, we have worked closely with advertisers to integrate aluminum foil, parchment paper, slow cooker liners and oven bags into recipes, which has resulted in over 40,000 integrated online recipes which offer simplified solutions in the kitchen. Additionally, our successful Hefty advertising campaigns have driven a 5% market share growth in the trash bag category over the last four years. We have a strong competency in measuring, monitoring and improving the efficiency of our marketing spending through internal proprietary analytical techniques. We believe there is a significant opportunity to use our existing brand equity and expand into adjacent categories.

Strengthen presence across distribution channels

In addition to traditional grocery, we believe there is significant opportunity to expand within the club, home improvement, dollar-store and eCommerce channels across our full product portfolio. Building on Hefty’s brand dominance in large trash bags, we have provided new consumer insights to the home improvement and club channels, which have generated growth and new distribution. For example, the introduction of the new Hefty Load ‘n Carry product in the home improvement channel has energized Hefty’s relationships with DIYers and generated significant interest from these retail partners. Additionally, we see opportunity for our Reynolds products in the home improvement and club channels, with recent new customer wins and stock keeping unit (“SKU”) expansion driving future growth.

eCommerce penetration is expected to increase, due to the convenience of online ordering and subscription delivery, particularly for easy-to-ship household product categories. Given our strong relationship with online retailers, we are well-positioned to compete profitably and gain share in this growing channel. We provide both branded and private brand products through this channel to address the consumer’s need for convenience and value. Furthering our eCommerce strategy, we recently launched a full line of store brand aluminum foil, trash bags and food storage bags as the exclusive supplier to the eCommerce leader. Additionally, most of our products are compatible with the eCommerce channel because they are shelf stable and efficient to transport. The recurring nature of consumer purchase cycles for our products positions us well to capitalize on continued growth of grocery pickup and subscription services.

Finally, given our brand strength, technical expertise and the extensive use of products within our categories around the world, we see opportunities to selectively expand internationally. We currently sell to 54 countries around the world; however, this currently represents a small percentage of our annual revenue. During fiscal year 2018, North America represented 99% of our total sales. We estimate our addressable market outside the United States and Canada to be approximately $7.3 billion.

Drive growth through new and innovative products

We are an innovation driven company, and through Reyvolution, new product development plays a significant role in our growth strategy. Our innovation capabilities, combined with our investments in consumer-focused market research, will allow us to continue our track record of successful new product launches. We proactively collaborate with our retail partners on customized product innovation. Our product innovation pipeline focuses on use occasions including meals and snacks on-the-go as well as sustainability and the needs of

 

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the millennial consumer. Our objective is to generate 20% of our revenue each year from new products introduced within the prior three years. In fiscal year 2018, 21% of our revenue was generated from products that were less than three years old.

More recently, through Hefty, we launched a new Ultra Strong product line that takes advantage of our triple action technology, which Nielsen awarded the 2018 Innovation Award (one of only 25 nationally). Our Reynolds KITCHENS Parchment Pop Up Sheets and Presto store brand square-shaped snack bags have been great successes with consumers, providing products better aligned with usage needs than the existing options on the shelf. Furthermore, Hefty sliders storage bags with the Stand & Fill feature, launched in 2019, are preferred over the competition by 73% of consumers.

We have focused much of our innovation efforts around sustainability, and we offer a broad line of products that are better for the planet. We are focusing on products made with recycled, renewable, recyclable and compostable materials. For example, we recently launched 75% Unbleached Compostable Parchment Paper and redesigned our Hefty party cups to reduce the plastic by 10% while maintaining strength.

Systematically improve operational efficiency and reduce cost

We have cultivated a continuous improvement mindset oriented towards cost reduction, productivity improvements and lean manufacturing. We are focused on improving the ways in which we develop and manufacture products with data-driven decision making and robust lean business principles. Deep manufacturing expertise across our portfolio provides us with trade secret manufacturing know-how that delivers technical advantages and a low-cost competitive position. Our scale enables us to purchase inputs efficiently and increases our purchasing flexibility. We have implemented a simplified go-to-market strategy that fully leverages our customer relationships and scale and reduces overhead. We also continue to invest in automating repetitive manual tasks to increase operating efficiency and consistency, while reducing our exposure to labor fluctuations. We use digital capabilities to significantly improve our operational efficiency and effectiveness. We have launched an “intelligent factory program” to establish an integrated, data-driven culture that transforms our operations through digitally-connected people, assets and processes.

Drive shareholder returns through balanced capital allocation

We believe our strong free cash flow enables us to invest in and grow our business organically, reduce our indebtedness and pursue strategic M&A to create value for our stockholders. We also expect to return capital to our stockholders through regular dividend payments. We expect to pay a regular quarterly cash dividend on our common stock, subject to declaration by our board of directors. For fiscal year 2020, we expect to pay a quarterly cash dividend of $0.223 per share. However, we expect the initial dividend for the quarter ending on March 31, 2020 to be a prorated cash dividend for the period beginning on the first day of trading of our common stock on Nasdaq and ending on the last day of that period. We expect this initial dividend to be approximately $0.15 per share. See “Dividend Policy” for additional details.

Recent Developments

Preliminary Estimated Unaudited Combined Financial Results for the Three Months and the Year Ended December 31, 2019

Our preliminary estimated unaudited combined Net revenues, Net income and Adjusted EBITDA for the three months and year ended December 31, 2019 are set forth below. We have provided a range for these preliminary financial results because our closing procedures for our fiscal quarter and year ended December 31, 2019 are not yet complete. Our preliminary estimates of the combined financial results set forth below are based solely on information available to us as of the date of this prospectus and are inherently uncertain and subject to

 

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change. Our preliminary estimates contained in this prospectus are forward-looking statements. Our actual results remain subject to the completion of management’s final review and our other closing procedures, as well as the completion of the audit of our annual combined financial statements. Accordingly, you should not place undue reliance on these preliminary financial results, which may differ materially from actual results. See “Risk Factors”, “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of certain factors that could result in differences between the preliminary estimated unaudited combined financial results reported below and the actual results. Our actual audited combined financial statements and related notes as of and for the year ended December 31, 2019 are not expected to be filed with the SEC until after this offering is completed.

These preliminary estimates are not a comprehensive statement of our combined financial results for the three months and the year ended December 31, 2019, and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. In addition, these preliminary estimates for the three months and the year ended December 31, 2019 are not necessarily indicative of the results to be achieved in any future period. Our actual financial results for the three months and year ended December 31, 2019 may differ from these preliminary estimates due to the completion of our financial closing procedures, final adjustments and other developments that may arise between the date of this prospectus and the time that financial results for the three months and year ended December 31, 2019 are finalized.

The preliminary financial data included in this prospectus has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled, or applied agreed-upon procedures with respect to this preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

 

     For the three months ended
December 31,
     For the year ended
December 31,
 
     2019      2018      2019      2018  
     Low      High             Low      High         
(in millions)    (estimated)      (actual)      (estimated)      (actual)  

Preliminary Estimated Statement of Income Data:

           

Net revenues

   $ 827      $ 843      $ 907      $ 3,024      $ 3,040      $ 3,142  

Net income

   $ 85      $ 89      $ 84      $ 220      $ 224      $ 176  

Adjusted EBITDA (non-GAAP)

   $ 209      $ 219      $ 224      $ 650      $ 660      $ 647  

Three Months Ended December 31, 2019 Compared with the Three Months Ended December 31, 2018

For the three months ended December 31, 2019, we expect Net revenues to be in the range of $827 million to $843 million compared to $907 million in the three months ended December 31, 2018. The expected decline in Net revenues was primarily due to unusually high demand in the three months ended December 31, 2018 as customers increased inventory levels due to uncertainty regarding availability of future transportation. As expected, this trend did not repeat in the three months ended December 31, 2019. The expected decrease in Net revenues is also attributable to changes made earlier in fiscal year 2019, including the exit of certain store branded business and lower pricing for certain of our cooking products to support our customers in achieving certain key retail price points.

For the three months ended December 31, 2019, we expect Net income to be in the range of $85 million to $89 million compared to $84 million for the three months ended December 31, 2018. The expected Net income for the year ended December 31, 2019 includes the benefit of favorable material prices, primarily resin and aluminum, and lower interest expense, net, following our reduction in related party borrowings during the second quarter of fiscal year 2019. These benefits are partially offset by the decline in Net revenues, for the reasons discussed above, particularly the customer inventory build in the three months ended December 31, 2018, and transaction-related costs associated with this offering and our separation from RGHL Group.

 

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For the three months ended December 31, 2019, we expect Adjusted EBITDA to be in the range of $209 million to $219 million compared to $224 million in the three months ended December 31, 2018. This expected decline in quarterly Adjusted EBITDA is primarily due to the decline in Net revenues, for the reasons discussed above, particularly the customer inventory build in the three months ended December 31, 2018 and lower 2019 pricing, partially offset by favorable material prices, primarily resin and aluminum.

Year ended December 31, 2019 Compared with the Year Ended December 31, 2018

For the year ended December 31, 2019, we expect Net revenues to be in the range of $3,024 million to $3,040 million compared to $3,142 million in the year ended December 31, 2018. The expected decline in Net revenues was largely due to unusually high demand in the fourth quarter of 2018 as customers increased inventory levels due to uncertainty regarding availability of future transportation, lower foodservice and reroll sales, the exit of certain store branded business and lower pricing for certain of our cooking products to support our customers in achieving certain key retail price points.

For the year ended December 31, 2019, we expect Net income to be in the range of $220 million to $224 million compared to $176 million for the year ended December 31, 2018. This expected increase in Net income reflects the combination of favorable material prices, primarily resin and aluminum, and a lower interest expense, net, following our reduction in related party borrowings during the second quarter of fiscal year 2019. The benefit from these items was partially offset by the combination of higher manufacturing costs, the impact of lower foodservice and reroll sales and lower pricing, as discussed above in Net Revenues, and transaction-related costs associated with this offering and our separation from RGHL Group.

For the year ended December 31, 2019, we expect Adjusted EBITDA to be in the range of $650 million to $660 million compared to $647 million for the year ended December 31, 2018. This expected full year increase in Adjusted EBITDA, was driven by favorable material prices, primarily resin and aluminum, partially offset by higher manufacturing costs and the impact of unusually high demand in fourth quarter 2018 as customers increased inventory levels, lower foodservice and reroll sales and lower pricing, as discussed above in Net Revenues.

Reconciliation of Net Income to Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. See “—Summary Historical and Unaudited Pro Forma Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — How We Assess the Performance of Our Business” for a discussion on how we define Adjusted EBITDA and why believe this measure is important. The following table presents a reconciliation of net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA for each of the periods indicated:

 

 

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     For the three months ended
December 31,
     For the year ended
December 31,
 
     2019     2018      2019     2018  
     Low      High            Low      High        
(in millions)    (estimated)     (actual)      (estimated)     (actual)  

Net income—GAAP

   $ 85      $ 89     $ 84      $ 220      $ 224     $ 176  

Income tax expense (benefit)(a)

     33        35       33        77        79       57  

Interest expense, net

     35        37       68        209        211       280  

Depreciation and amortization

     27        29       21        90        92       87  

Factoring discount(b)

     10        10       8        25        25       22  

Allocated related party management fee(c)

     3        3       4        10        10       10  

Transaction-related costs(d)

     18        19       —          30        31       —    

Unrealized (gains) losses on derivatives(e)

     —          —         6        (9)        (9     14  

Business rationalization costs(f)

     (1)        (1     —          —          —         4  

Defined benefit plan settlement loss

     —          —         —          —          —         —    

Other(g)

     (1)        (2     —          (2)        (3     (3

Adjusted EBITDA (non-GAAP)

   $   209      $   219     $   224      $   650      $   660     $   647  

 

(a)

This preliminary estimated range reflects our provisionally determined amounts for the computation of income tax expense. The finalization of our computation of income tax expense requires a detailed evaluation of all income statement and balance sheet information, the finalization of return to provision adjustments and the finalization of our analysis of regulatory updates. These processes are not complete. The preliminary estimated income tax expense range also considers several factors outlined in “Risks Factors—Risks Related to our Business—Tax legislation initiatives or challenges to our tax positions could adversely affect our operations and financial condition.” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Income Taxes.”

(b)

Reflects the loss on sale that we incur when we sell our U.S. trade receivables through RGHL Group’s securitization facility. In conjunction with this offering, we will cease to participate in this facility.

(c)

Reflects our allocation, from RGHL Group, of a management fee that is charged by Rank to RGHL Group. We will not be required to pay any portion of this management fee after the closing of this offering.

(d)

Reflects costs during the three months and the fiscal year ended December 31, 2019 related to the IPO process that cannot be offset against the expected future IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company.

(e)

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

(f)

Reflects primarily employee termination costs, net of adjustments, associated with rationalizing our operations in Canada.

(g)

Includes the amortization of actuarial gains related to our postretirement benefit plan.

Summary Risk Factors

Investing in our stock involves risks. These risks include, among others, those related to:

 

   

changes in consumer preferences, lifestyle and environmental concerns;

 

   

relationships with our major customers, consolidation of our customer bases and loss of a significant customer;

 

   

competition and pricing pressures;

 

   

loss of any of our key manufacturing facilities;

 

   

our suppliers of raw materials and any interruption in our supply of raw materials;

 

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costs of raw materials, energy and freight, including the impact of tariffs, trade sanctions and similar matters affecting our importation of certain raw materials;

 

   

our ability to develop and maintain brands that are critical to our success;

 

   

economic downturns in our target markets; and

 

   

difficulty meeting our sales growth objectives and innovation goals.

Before you invest in our stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors” beginning on page 24.

Our Corporate Information

Reynolds Consumer Products Inc. (“RCPI”) was incorporated in the state of Delaware under the name RenPac Holdings Inc. on September 29, 2011. On June 26, 2019, RenPac Holdings Inc. changed its name to Reynolds Consumer Products Inc.

Our principal executive offices are located at 1900 W. Field Court Lake Forest, Illinois, 60045 and our telephone number is (800) 879-5067. Our website is www.reynoldsconsumerproducts.com. Our website and the information contained therein or connected thereto are not incorporated into this prospectus or the registration statement of which it forms a part.

PFL, a company incorporated pursuant to the laws of New Zealand, will be our only stockholder immediately prior to the closing of this offering. PFL is a wholly-owned subsidiary of Packaging Holdings Limited (“PHL”), a company incorporated pursuant to the laws of New Zealand and wholly-owned by Mr. Graeme Hart. PFL is also the sole shareholder of Reynolds Group Holdings Limited (“RGHL” and together with its subsidiaries, “RGHL Group”). Rank Group Limited (“Rank”), a company incorporated pursuant to the laws of New Zealand, is Mr. Graeme Hart’s principal operating entity. For more information on our relationship with PFL, RGHL Group, Rank and Mr. Graeme Hart, see “Certain Relationships and Related Party Transactions” and “Principal Stockholders.”

Upon closing of this offering, PFL will own, and control the voting power of, approximately 77% of our outstanding shares of common stock (or approximately 74% if the underwriters’ option to purchase additional shares of common stock is exercised in full). Upon closing of this offering, we will be a “controlled company” as defined under the corporate governance rules of Nasdaq. As a result, PFL will be able to exercise control over all matters requiring approval by our stockholders, including the election of our directors and approval of significant corporate transactions. PFL’s controlling interest may discourage or prevent a change in control of our company that other holders of our common stock may favor. See “Risk Factors—Risks Relating to Our Relationship with RGHL Group, PFL and Rank—We will be a “controlled company” within the meaning of the rules of Nasdaq and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.”

Prior to the closing of this offering, we will consummate the following transactions:

 

   

the legal entity reorganization of our companies so that they are all under a single parent entity, RCPI;

 

   

the execution of a transition services agreement with Reynolds Group Holdings Inc. (“RGHI”) (“RGHI TSA”), whereby RGHL Group will continue to provide certain administrative services to us, and we will provide certain services to RGHL Group, in each case for up to 24 months, which is described in greater detail in “Certain Relationships and Related Party Transactions;”

 

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the execution of plant and asset transfer agreements (and related support agreements), manufacturing and supply agreements and certain other agreements to be entered into with RGHL Group that document and/or amend ongoing commercial arrangements that we have with RGHL Group, all of which are described in greater detail in “Certain Relationships and Related Party Transactions;”

 

   

the execution of a transition services agreement with Rank (“Rank TSA”) whereby, upon our request, Rank will provide certain administrative services to us for up to 24 months, which is described in greater detail in “Certain Relationships and Related Party Transactions;”

 

   

the reallocation to an entity within RGHL Group of our portion of outstanding borrowings under RGHL Group’s credit agreement (“RGHL Group Credit Agreement”) and our subsequent legal release from the RGHL Group Credit Agreement and the legal release from the guarantees of all the senior notes issued by entities of RGHL Group;

 

   

the repurchase, for cash, of the U.S. trade receivables that we previously sold through RGHL Group’s securitization facility that are outstanding as of the time of the repurchase of such trade receivables;

 

   

the reclassification of RGHL Group’s historical net investment in us to additional paid-in capital and the establishment of share capital consisting of shares of common stock;

 

   

the consummation of a stock split pursuant to which each share of our outstanding common stock will be reclassified into 155,455 shares of common stock (“Stock Split”);

 

   

entering into our new external debt facilities (“New Credit Facilities”), which will consist of a $2,475 million senior secured term loan facility (“New Term Loan Facility”) and a $250 million senior secured revolving credit facility (“New Revolving Facility”), each of which is described in greater detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sources of Liquidity.” We intend to use the net proceeds of the New Term Loan Facility to settle certain related party borrowings, including amounts arising as part of the Corporate Reorganization (as defined below) prior to this offering. The New Revolving Facility is expected to be undrawn upon the closing of this offering;

 

   

the incurrence of debt in an amount equal to the net proceeds from this offering under a one-day settlement facility (“IPO Settlement Facility”). The IPO Settlement Facility, which is described in greater detail in “Use of Proceeds,” will be funded on the date of, and immediately prior to the closing of, this offering and will be repaid and terminated with the net proceeds from this offering;

 

   

the repayment of certain related party borrowings owing to RGHL Group and the capitalization, as additional paid-in capital without the issuance of any additional shares, of the remaining balance of the related party borrowings owing to RGHL Group; and

 

   

the reorganization of our equity holdings such that RGHL Group will transfer its interests in us to PFL and, as such, PFL’s ownership of our common stock will be held outside the group of entities that will represent RGHL Group after this offering.

We refer to the foregoing transactions we will consummate prior to the closing of this offering collectively as the “Corporate Reorganization.”

 

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THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our common stock. You should carefully read this entire prospectus before investing in our common stock including the “Risk Factors” section and our combined financial statements and notes thereto.

 

Common stock offered

47,170,000 shares

Common stock to be outstanding after this offering

202,625,000 shares

 

Option to purchase additional shares of common stock

7,075,500 shares

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $1,161 million, or approximately $1,336 million if the underwriters exercise their option to purchase additional shares of common stock in full, at an initial public offering price of $26.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses. We intend to use the net proceeds from this offering to repay amounts owed under the IPO Settlement Facility incurred as part of the Corporate Reorganization. See “Use of Proceeds.”

 

Conflicts of Interest

An affiliate of Goldman Sachs & Co. LLC, which is an underwriter in this offering, is the lender under the IPO Settlement Facility. The net proceeds from this offering will be used to repay the IPO Settlement Facility. Because of the manner in which the proceeds will be used, this offering will be conducted in accordance with Financial Industry Regulatory Authority, Inc., or FINRA, Rule 5121. This rule requires, among other things, that a qualified independent underwriter has participated in the preparation of, and has exercised the usual standards of ‘‘due diligence’’ with respect to, this prospectus and the registration statement of which this prospectus forms a part. Credit Suisse Securities (USA) LLC has agreed to act as qualified independent underwriter for the offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act, specifically including those inherent in Section 11 of the Securities Act. We will agree to indemnify Credit Suisse Securities (USA) LLC against liabilities incurred in connection with acting as qualified independent underwriter, including liabilities under the Securities Act. Moreover, Goldman Sachs & Co. LLC is not permitted to sell common stock in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder. See “Underwriting (Conflicts of Interest).”

 

Concentration of ownership

Upon closing of this offering, PFL will own a majority of the voting power of our common stock. We currently intend to avail ourselves of

 

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the “controlled company” exemption under the corporate governance rules of Nasdaq.

 

Dividend policy

Following closing of this offering and subject to legally available funds, we intend to pay quarterly cash dividends on our common stock. For fiscal year 2020, we expect to pay a quarterly cash dividend of $0.223 per share. However, we expect the initial dividend for the quarter ending on March 31, 2020 to be a prorated cash dividend for the period beginning on the first day of trading of our common stock on Nasdaq and ending on the last day of that period. We expect this initial dividend to be approximately $0.15 per share. This initial dividend is expected to paid in mid-April 2020. Thereafter, the quarterly dividend will be paid subsequent to the close of each fiscal quarter.

 

  The declaration, amount and payment of any dividends will be at the sole discretion of our board of directors and subject to certain considerations. See “Dividend Policy.”

 

Listing

Our common stock has been approved for listing on Nasdaq under the trading symbol “REYN.”

The number of shares of our common stock to be outstanding after this offering:

 

   

is based on 155,455,000 shares of common stock outstanding prior to this offering (after giving effect to the Corporate Reorganization);

 

   

excludes 165,993 shares of common stock (based on the price set forth on the cover of this prospectus) underlying the grants to be issued upon the closing of this offering to persons, including our senior management, pursuant to retention agreements entered into with such persons (“IPO Grants”). These IPO Grants will be issued as restricted stock units, vesting ratably on an annual basis over a three-year period, commencing on the first anniversary of the closing date of this offering;

 

   

excludes 10,485,025 shares of common stock reserved for future issuance under the Reynolds Consumer Products Inc. Equity Incentive Plan (the “Incentive Plan”) (which includes the 165,993 shares of common stock underlying the IPO Grants); and

 

   

excludes the issuance of up to 7,075,500 shares of common stock which the underwriters have the option to purchase from us solely to cover over-allotments. If the underwriters exercise their option to purchase additional shares in full, 209,700,500 shares of common stock will be outstanding after this offering.

Unless we specifically state otherwise, all information in this prospectus, (1) except for our historical combined financial statements included elsewhere in this prospectus, assumes the consummation of the Corporate Reorganization immediately prior to the closing of this offering and (2) assumes no exercise of the underwriters’ option to purchase additional shares of common stock solely to cover overallotments.

 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

Set forth below are summary historical financial and other data. The combined balance sheet data as of December 31, 2018 and 2017 and the combined statements of income data and the combined statements of cash flows data for the years ended December 31, 2018, 2017 and 2016 have been derived from our annual combined financial statements included elsewhere in this prospectus. The combined balance sheet data as of December 31, 2016 has been derived from our financial records, which were derived from the financial records of RGHL Group and are not included in this prospectus. The combined balance sheet data as of September 30, 2019 and the combined statements of income data and the combined statements of cash flows data for the nine months ended September 30, 2019 and 2018 have been derived from our interim condensed combined financial statements included elsewhere in this prospectus. The interim condensed combined financial statements were prepared on a basis consistent with that used in preparing our annual combined financial statements and include all normal and recurring adjustments considered necessary for a fair statement of our financial position and results of operations for the interim periods. The historical financial data includes costs of our business, which include the allocation of certain expenses from RGHL Group. We believe these allocations were made on a reasonable basis. The summary financial data may not be indicative of our future performance as a stand-alone public company. It should be read in conjunction with the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Combined Financial Data” and the annual combined financial statements and corresponding notes and the interim condensed combined financial statements and corresponding notes included elsewhere in this prospectus.

Also set forth below are summary unaudited pro forma combined statements of income data for the nine months ended September 30, 2019 and the year ended December 31, 2018, which assume that the Corporate Reorganization and this offering had occurred as of January 1, 2018. The summary unaudited pro forma combined balance sheet data as of September 30, 2019 assumes that the Corporate Reorganization and this offering occurred as of September 30, 2019. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. The summary unaudited pro forma combined financial data does not purport to represent what the financial position or results of operations of RCP would have been if we had operated as a stand-alone public company during the periods presented or if the transactions described therein had actually occurred as of the dates indicated, nor does it project the financial position at any future date or the results of operations for any future period. Please see the notes to the “Unaudited Pro Forma Combined Financial Data” included elsewhere in this prospectus for a complete description of the adjustments reflected in the unaudited pro forma combined financial data.

 

    Pro Forma     Historical  
    Nine months
ended
September 30,
    Year ended
December 31,
    Nine months ended
September 30,
    Year ended December 31,  
    2019     2018     2019     2018     2018     2017     2016  
    (In millions, except share and per share data)  

Statements of Income Data:

             

Net revenues(1)

  $ 2,083     $ 2,981     $ 2,083     $ 2,113     $ 2,981     $ 2,809     $ 2,792  

Related party net revenues(1)

    114       161       114       122       161       148       143  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

    2,197       3,142       2,197       2,235       3,142       2,957       2,935  

Cost of sales

    (1,580     (2,310     (1,580     (1,669     (2,310     (2,095     (2,048
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    617       832       617       566       832       862       887  

Selling, general and administrative expenses

    (232     (291     (231     (218     (288     (294     (325

Other expense, net(2)

    (12     1       (34     (20     (31     (28     (28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    373       542       352       328       513       540       534  

Non-operating income (expense), net

    1       —         1       —         —         —         (10

Interest expense, net

    (70     (93     (174     (212     (280     (322     (391
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    304       449       179       116       233       218       133  

Income tax (expense) benefit

    (73     (106     (44     (24     (57     84       (54
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 231     $ 343     $ 135     $ 92     $ 176     $ 302     $ 79  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Pro Forma     Historical  
    Nine months
ended
September 30,
    Year ended
December 31,
    Nine months ended
September 30,
    Year ended December 31,  
    2019     2018     2019     2018     2018     2017     2016  
    (In millions, except share and per share data)  

Per share:

             

Earnings per share:

             

Basic

  $ 1.14     $ 1.69            

Diluted

  $ 1.14     $ 1.69            

Weighted average number of shares used in calculating earnings per share:

             

Basic

    202,680,331       202,625,000            

Diluted

    202,751,471       202,681,121            

Balance Sheet Data (as of end of period):

             

Accounts receivable, net

  $ 286       $ 15       $ 16     $ 9     $ 52  

Inventories

    478         478         429       371       298  

Related party receivables—non-current

    —           —           2,401       1,929       1,784  

Total assets(3)

    4,354         4,130         6,421       5,911       5,738  

Accounts payable

    119         119         136       121       124  

Long-term debt, including current portion

    2,447         2,016         2,030       2,049       2,067  

Related party borrowings, including current portion

    —           2,148         3,950       3,927       3,957  

Total equity (deficit)

    1,231         (798       (1,027     (1,298     (1,517

Cash Flow Data:(4)

             

Net cash provided by (used in):

             

Operating activities

      $ 158     $ 347     $ 530     $ 395     $ 393  

Investing activities

        (93     (235     (554     (364     (584

Financing activities

        (73     (129     24       (40     180  

Other Financial Data:(5)

             

Adjusted EBITDA (non-GAAP)

  $ 441     $ 647     $ 441     $ 423     $ 647     $ 656     $ 647  

 

(1)

On January 1, 2018, we adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers and other related Accounting Standards Updates regarding Accounting Standards Codification Topic 606 (“ASC 606”), using the modified retrospective method. Results as of and for the year ended December 31, 2018 and periods thereafter are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under ASC 605, Revenue Recognition, the accounting standard in effect for those periods presented. Our adoption of ASC 606 resulted in a $5 million adjustment to Net Parent deficit. There was no other material financial statement impact from adopting the new revenue recognition accounting standard. For further details regarding the impact of the adoption of ASC 606, refer to Note 2—Summary of Significant Accounting Policies of our annual combined financial statements included elsewhere in this prospectus.

(2)

For the historical periods, Other expense, net, is primarily comprised of an allocated related party management fee and the loss on sale that we incur when we sell our trade receivables through the RGHL Group securitization facility. For further information, refer to Note 9—Other Expense, Net in our annual combined financial statements and Note 11—Other Expense, Net in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus. We will not be required to pay any portion of this management fee after closing of this offering, and in conjunction with this offering, we will cease to participate in such securitization facility.

(3)

On January 1, 2019, we adopted Accounting Standards Update 2016-02, Leases, and other related Accounting Standard Updates regarding Accounting Standards Codification Topic 842 (“ASC 842”), using the modified retrospective method without the recasting of comparative periods’ financial information, as permitted by the transition guidance. Results as of and for the nine months ended September 30, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported under ASC 840, Leases, the accounting standard in effect for those periods presented. For further details regarding the impact of the adoption of ASC 842, refer to Note 2—Summary of Significant Accounting Policies of our interim condensed combined financial statements included elsewhere in this prospectus.

(4)

We have historically operated as part of RGHL Group and not as a stand-alone public company. RGHL Group centrally managed substantially all of our financial resources for all of the periods presented. Accordingly, our historical operating, investing and financing cash flow data each includes significant related party transactions which may not have arisen had we been a stand-alone public company.

 

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Our net cash provided by operating activities includes the impact of changes in related party receivables and payables that are not representative of the timing of settlement of trade balances on terms consistent with third party arrangements entered into in the normal course of business. Our net cash provided by operating activities also includes historical related party interest paid, net, related to arrangements with RGHL Group that will cease on or prior to the closing of this offering. Furthermore, as detailed in Note 2—Summary of Significant Accounting Policies of our annual combined financial statements included elsewhere in this prospectus, our U.S. operations were included in a consolidated U.S. federal tax return and the settlement of our U.S. federal current tax is recognized directly as a movement in Net Parent deficit. As a result, our net cash provided by operating activities does not include any cash outflow associated with the payment of U.S. federal tax.

 

  

The following table illustrates the impact of the timing of settlement of related party receivables and payables, as well as the settlement of our U.S. federal current tax directly through Net Parent deficit, on our net cash provided by operating activities.

 

     Nine months ended
September 30,
     Year ended December 31,  
         2019              2018              2018              2017              2016      
     (In millions)  

Change in related party accounts payable

   $ (72    $ 163      $ 22      $ (7    $ 64  

Change in related party accounts receivable (excluding related party interest receivable)

     (28      (32      (3      (10      —    

Change in income tax payable

     50        42        71        67        54  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net (decrease) increase in net cash provided by operating activities due to the above items

   $ (50    $ 173      $ 90      $ 50      $ 118  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  

The following table illustrates the impact of historical related party interest expense paid, net of related party interest income received on our net cash provided by operating activities.

 

     Nine months ended
September 30,
     Year ended December 31,  
         2019              2018              2018              2017              2016      
     (In millions)  

Related party interest received (paid), net

   $ (2    $ 16      $ 65      $ (56    $ (207

 

  

For further information regarding related party transactions reported within our cash flows from investing and financing activities, refer to our combined statements of cash flows in our annual combined financial statements and interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

Non-GAAP Financial Measures

 

(5)

It is management’s intent to provide non-GAAP financial measures to enhance the understanding of our GAAP financial information, and it should be considered in addition to, and not instead of, the financial statements prepared in accordance with GAAP included elsewhere in this prospectus. Our non-GAAP financial measure is presented along with the corresponding most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial measure presented may be determined or calculated differently by other companies.

 

  

We define “Adjusted EBITDA” as our 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 unrealized gains and losses on derivatives, costs associated with rationalizing operations and administrative functions, factoring discounts, defined benefit plan settlement losses, amortization of actuarial gains, operational process engineering related consultancy costs, the allocated related party management fee and transaction-related costs.

We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.

 

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

 

    Pro Forma     Historical  
    Nine months
ended
September 30,
    Year ended
December 31,
    Nine months
ended
September 30,
    Year ended
December 31,
 
    2019     2018     2019     2018     2018     2017     2016  
    (In millions)  

Net income—GAAP

  $ 231     $ 343     $ 135     $ 92     $ 176     $ 302     $ 79  

Income tax expense (benefit)

    73       106       44       24       57       (84     54  

Interest expense, net

    70       93       174       212       280       322       391  

Depreciation and amortization

    63       87       63       66       87       90       97  

Factoring discount(a)

    —         —         15       14       22       19       15  

Allocated related party management fee(b)

    —         —         7       6       10       10       13  

Transaction-related costs(c)

    13       3       12       —         —         —         —    

Unrealized losses (gains) on derivatives(d)

    (9     14       (9     8       14       (4     (8

Business rationalization costs(e)

    1       4       1       4       4       2       1  

Defined benefit plan settlement loss(f)

    —         —         —         —         —         —         9  

Other(g)

    (1     (3     (1     (3     (3     (1     (4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (Non-GAAP)

  $ 441     $ 647     $ 441     $ 423     $ 647     $ 656     $ 647  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a)

Reflects the loss on sale that we incur when we sell our U.S. trade receivables through RGHL Group’s securitization facility. For further information, refer to Note 9—Other Expense, Net in our annual combined financial statements and Note 11—Other Expense, Net in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus. In conjunction with this offering, we will cease to participate in this facility.

  (b)

Reflects our allocation, from RGHL Group, of a management fee that is charged by Rank to RGHL Group. We will not be required to pay any portion of this management fee after closing of this offering. For further information, refer to Note 9—Other Expense, Net in our annual combined financial statements and Note 11—Other Expense, Net in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

  (c)

Reflects allocated costs during the nine months ended September 30, 2019 related to the IPO process that cannot be offset against the expected future IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company. Refer to “Unaudited Pro Forma Combined Financial Data” for details of incremental pro forma transaction-related costs.

  (d)

Reflects the mark-to-market movements in our commodity derivatives. For further information, refer to Note 7—Financial Instruments in our annual combined financial statements and Note 8—Financial Instruments in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

  (e)

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

  (f)

Reflects the settlement loss recognized on merging our defined benefit plan into a plan sponsored by RGHL Group. For further information, refer to Note 8—Benefit Plans in our annual combined financial statements included elsewhere in this prospectus.

  (g)

Includes the amortization of actuarial gains related to our postretirement benefit plan. For further information, refer to Note 8—Benefit Plans in our annual combined financial statements and Note 9—Benefit Plans in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks discussed below are not the only risks we face. Additional risks or uncertainties not currently known to us, or that we currently deem immaterial, may also have a material adverse effect on our business, financial condition, prospects, results of operations or cash flows. We cannot assure you that any of the events discussed in the risk factors below will not occur.

Risks Relating to Our Business and Industry

Our success depends on our ability to anticipate and respond to changes in consumer preferences.

We are a consumer products company and believe that our success depends, in part, on our ability to leverage our existing brands and products to drive increased sales and profits. This depends on our ability to identify and offer products at attractive prices that appeal to consumer tastes and preferences, which are difficult to predict and evolve over time. Our ability to implement this strategy depends on, among other things, our ability to:

 

   

continue to offer to our customers products that consumers want at competitive prices;

 

   

introduce new and appealing products and innovate successfully on our existing products;

 

   

develop and maintain consumer interest in our brands; and

 

   

increase our brand recognition and loyalty.

We may not be able to implement this strategy successfully, which could materially and adversely affect our sales and business, financial condition and results of operations.

We are dependent on maintaining satisfactory relationships with our major customers, and significant consolidation among our customers, or the loss of a significant customer, could decrease demand for our products or reduce our profitability.

Many of our customers are large and possess significant market leverage, which results in significant downward pricing pressure, and can constrain our ability to pass through price increases. We generally sell our branded products pursuant to informal trading policies and our store brand products under one year or multi-year agreements. We do not have written agreements with many of our customers. Our contracts generally do not obligate the customer to purchase any given amount of product. If our major customers reduce purchasing volumes or stop purchasing our products for any reason, our business and results of operations would likely be materially and adversely affected. It is possible that we will lose customers, which may materially and adversely affect our business, financial condition and results of operations.

We rely on a relatively small number of customers for a significant portion of our revenue. Sales to our top ten customers accounted for 69% of our total revenue in fiscal year 2018. Our two largest customers, Walmart and Sam’s Club, individually accounted for 28% and 12%, respectively, of our total revenue in fiscal year 2018. Sales to Walmart are concentrated more heavily in our Hefty Waste & Storage segment, and sales to Sam’s Club are concentrated more heavily in our Hefty Tableware segment. The loss of any of our significant customers would have a material adverse effect on our business, financial condition and results of operations.

In addition, over the last several years, there has been a trend toward consolidation among our customers in the retail industry, and we expect that this trend will continue. Consolidation among our customers could increase

 

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their ability to apply pricing pressure, and thereby force us to reduce our selling prices or lose sales. In addition, following a consolidation, our customers may close stores, reduce inventory or switch suppliers of consumer products. Any of these factors could negatively impact our business, financial condition and results of operations.

We operate in competitive markets.

We operate in competitive markets, and our main competitors include The Clorox Company, S.C. Johnson & Sons, Inc., Poly-America, Handi-Foil Corporation, Republic Plastics, Ltd., Trinidad Benham Corporation, Inteplast Group, Ltd. and Dart Container Corporation. Although capital costs and intellectual property and technology may create barriers to entry, we face the threat of competition from new entrants to our markets as well as from existing competitors, including overseas competitors who may have lower production costs. Our customers continuously evaluate their suppliers, often resulting in downward pricing pressure and increased pressure to continuously introduce and commercialize innovative new products, improve customer service, maintain strong relationships with our customers and, where applicable, develop and maintain brands that are meaningful to consumers. If our products fail to compete successfully with other branded or private label offerings, demand for our products and our sales and profitability could be negatively impacted.

Loss of any of our key manufacturing facilities or of those of our key suppliers could have an adverse effect on our business.

Some of our products are manufactured at a single location. For example, our Malvern, Arkansas plant is our sole producer of foil reroll for our Louisville, Kentucky plant, which in turn is our sole producer of household foil. The loss of the use of all or a portion of any of our key manufacturing facilities, especially one that is a sole producer, or the loss of the use of key suppliers, due to an accident, labor issues, weather conditions, natural disaster or otherwise could have a material adverse effect on our business, financial condition and results of operations.

Any interruption in our supply of raw materials could harm our business, financial condition and results of operations.

We are dependent on our suppliers for an uninterrupted supply of key raw materials in a timely manner. The supply of these materials could be disrupted for a wide variety of reasons, including political and economic instability, the financial stability of our suppliers, their ability to meet our standards, labor problems, the availability and prices of raw materials, currency exchange rates, transport availability and cost, transport security and inflation, and other factors beyond our control. We have written contracts with some but not all of our key suppliers, and where we have written contracts, they generally include force majeure clauses that excuse the supplier’s failure to supply in certain circumstances. Any interruption in the supply of raw materials for an extended period of time could have a material adverse effect on our business, financial condition and results of operations.

Our business is impacted by fluctuations in raw material, energy and freight costs, including the impact of tariffs and similar matters.

Fluctuations in raw material and energy costs could adversely affect our business, financial condition and results of operations. Raw material costs represent a significant portion of our cost of sales. The primary raw materials we use are plastic resins, particularly polyethylene and polystyrene, and aluminum. The prices of our raw materials have fluctuated significantly in recent years. Aluminum prices have been historically volatile as aluminum is a cyclical commodity with prices subject to global market factors. Resin prices have also historically fluctuated with changes in crude oil and natural gas prices as well as changes in refining capacity and the demand for other petroleum-based products. Raw material costs are also impacted by governmental actions, such as tariffs and trade sanctions. For example, the recent imposition by the U.S. government of tariffs on products imported from certain countries and trade sanctions against certain countries have introduced greater

 

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uncertainty with respect to policies affecting trade between the United States and other countries and have impacted the cost of certain raw materials, including aluminum and resin. Major developments in trade relations, including the imposition of new or increased tariffs by the United States and/or other countries, could have a material adverse effect on our business, financial condition and results of operations.

We typically do not enter into long-term fixed price purchase contracts for our principal raw materials. Sales contracts for our products generally do not contain cost pass-through mechanisms for raw material costs. Where our contracts use such pass-through mechanisms, differences in timing between purchases of raw materials and sales to customers can create a “lead lag” effect during which margins are negatively impacted when raw material costs rise and positively impacted when raw material costs fall. We adjust prices, where possible, to mitigate the effect of production cost increases, including raw materials, but these increases are not always possible or may not cover the increased raw material costs.

In addition, we distribute our products and receive raw materials primarily by rail and truck. Reduced availability of rail or trucking capacity has caused us, and may continue to cause us, to incur unanticipated expenses and impair our ability to distribute our products or receive our raw materials in a timely manner, which could disrupt our operations, strain our customer relations and adversely affect our operating profits. In particular, the recent reduced trucking capacity, due to a shortage of drivers, the recent enforcement deadline for a federal regulation requiring drivers to electronically log their driving hours and adverse weather conditions, among other reasons, has caused an increase in the cost of transportation for us and many other companies.

Our brands are critical to our success.

Our ability to compete successfully depends on our ability to develop and maintain brands that are meaningful to consumers. The development and maintenance of such brands requires significant investment in product innovation, brand-building, advertising and marketing. We focus on developing innovative products to address consumers’ unmet needs and introducing store brand products that emulate other popular branded consumer products, and, as a result, may increase our expenditures for advertising and other brand-building or marketing initiatives. However, these initiatives may not deliver the desired results, which could adversely affect our business and the recoverability of the trade names recorded in our balance sheet, which could materially and adversely affect our business, financial condition and results of operations.

Our business could be impacted by changes in consumer lifestyle and environmental concerns.

We are a consumer products company and any reduction in consumer demand for the types of products we offer as a result of changes in consumer lifestyle, environmental concerns or other considerations could have a significant impact on our business, financial condition and results of operations. For example, there have been recent concerns about the environmental impact of single-use disposable products and products made from plastic, particularly polystyrene foam. These concerns, and the actions taken in response (including regulations banning the sale of polystyrene foam in certain jurisdictions), impact several of our products, especially our Hefty Tableware segment. Sustainability concerns, including the recycling of products, have received increased focus in recent years and may play an increasing role in brand management and consumer purchasing decisions. In addition, changes in consumer lifestyle may decrease the demand for certain of our products, which in turn could materially and adversely affect our business, financial condition and results of operations.

Our business may be affected by economic downturns in the markets that we serve and in the regions that supply our raw materials.

Our business is impacted by market conditions in the retail industry and consumer demand for our products, which in turn are affected by general economic conditions. Downturns or periods of economic weakness or increased prices in these consumer markets have resulted in the past, and could result in the future, in decreased demand for our products. For example, uncertainty about future economic conditions globally, and in the United

 

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States in particular, could lead to declines in consumer spending and consumption and cause our customers to purchase less of our products.

Our profitability and cash flows could suffer if we are unable to continue to generate cost savings in our manufacturing and distribution processes.

We anticipate that cost savings will result from reducing material costs and manufacturing inefficiencies and from realizing productivity gains, distribution efficiencies and overhead reductions. However, if we cannot successfully develop and implement cost savings plans, or if the cost of making these changes increases, we will not realize all anticipated benefits, which could materially and adversely affect our business, financial condition and results of operations.

Our hedging activities may result in significant losses and period-to-period earnings volatility.

We may enter into hedging transactions to limit our exposure to raw material price risks. Historically, our commodity hedges are primarily related to diesel, resin and aluminum. If we fail to effectively monitor and manage our hedging activities or if we execute a position and raw material prices subsequently decline, we could incur significant losses, which could in turn materially and adversely affect our business, financial condition and results of operations, and we could experience significant fluctuations in our earnings from period to period. Factors that could affect the impact and effectiveness of our hedging activities include the accuracy of our operational forecasts of raw material needs and volatility of the commodities and raw materials pricing markets.

Sales growth objectives may be difficult to achieve, and we may not be able to achieve our innovation goals, develop and introduce new products and line extensions or expand into adjacent categories and countries.

We operate in mature markets that are subject to high levels of competition. Our future performance and growth, including our ability to meet our internal objectives of generating 20% of our revenue each year from products that are less than three years old, depends on innovation and our ability to successfully develop or license capabilities to introduce new products, brands, line extensions and product innovations or enter into or expand into adjacent product categories, sales channels or countries. Our ability to quickly innovate in order to adapt our products to meet changing consumer demands is essential, especially in light of eCommerce and direct-to-consumer channels significantly reducing the barriers for even small competitors to quickly introduce new brands and products directly to consumers. The development and introduction of new products require substantial and effective research and development and demand creation expenditures, which we may be unable to recoup if the new products do not gain widespread market acceptance.

In addition, effective and integrated systems are required for us to gather and use consumer data and information to successfully market our products. New product development and marketing efforts, including efforts to enter markets or product categories in which we have limited or no prior experience, have inherent risks, including product development or launch delays. These could result in us not being the first to market and the failure of new products, brands or line extensions to achieve anticipated levels of market acceptance. If product introductions or new or expanded adjacencies are not successful, costs associated with these efforts may not be fully recouped and our results of operations could be adversely affected. In addition, if sales generated by new products cause a decline in sales of our existing products, our financial condition and results of operations could be materially adversely affected. Even if we are successful in increasing market share within particular product categories, a decline in the markets for such product categories could have a negative impact on our financial results. In addition, in the future, our growth strategy may include expanding our international operations, which could be subject to foreign market risks, including, among others, foreign currency fluctuations, economic or political instability and the imposition of tariffs and trade restrictions, which could adversely affect our financial results.

 

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We are subject to governmental regulation and we may incur material liabilities under, or costs in order to comply with, existing or future laws and regulations.

Many of our products come into contact with food when used, and the manufacture, packaging, labeling, storage, distribution, advertising and sale of such products are subject to various laws designed to protect human health and the environment. For example, in the United States, many of our products are regulated by the Food and Drug Administration (including applicable current good manufacturing practice regulations) and/or the Consumer Product Safety Commission, and our product claims and advertising are regulated by the Federal Trade Commission. Most states have agencies that regulate in parallel to these federal agencies. Liabilities under, and/or costs of compliance, and the impact on us of any non-compliance with any such laws and regulations could materially and adversely affect our business, financial condition and results of operations. In addition, changes in the laws and regulations which we are subject to could impose significant limitations and require changes to our business, which in turn may increase our compliance expenses, make our business more costly and less efficient to conduct, and compromise our growth strategy.

We could incur significant liabilities related to, and significant costs in complying with, environmental, health and safety laws, regulations and permits.

Our operations are subject to various national, state, local, foreign and international environmental, health and safety laws, regulations and permits that govern, among other things, the emission or discharge of materials into the environment; the use, storage, treatment, disposal, management and release of hazardous substances and wastes; the health and safety of our employees and the end-users of our products; and the materials used in, and the recycling of, our products. These laws and regulations impose liability, which can be strict, joint and several, for the costs of investigating and remediating, and damages resulting from, present and past releases of hazardous substances related to our current and former sites, as well as at third party sites where we or our predecessors have sent waste for disposal. Non-compliance with, or liability related to, these laws, regulations and permits, which tend to become more stringent over time, could result in substantial fines or penalties, injunctive relief, requirements to install pollution control devices or other controls or equipment, civil or criminal sanctions, permit revocations or modifications and/or facility shutdowns, and could expose us to costs of investigation or remediation, as well as tort claims for property damage or personal injury.

In addition, a number of governmental authorities, both in the United States and abroad, have considered, and are expected to consider, legislation aimed at reducing the amount of plastic waste. Programs have included banning certain types of products, mandating certain rates of recycling and/or the use of recycled materials, imposing deposits or taxes on plastic bags and packaging material, and requiring retailers or manufacturers to take back packaging used for their products. Such legislation, as well as voluntary initiatives, aimed at reducing the level of plastic wastes, could reduce the demand for certain plastic products, result in greater costs for manufacturers of plastic products or otherwise impact our business, financial condition and results of operations. Additional regulatory efforts addressing other environmental or safety concerns in the future could similarly impact our operations and results.

We may incur liabilities, experience harm to our reputation and brands, or be forced to recall products as a result of real or perceived product quality or other product-related issues.

Although we have control measures and systems in place to ensure the safety and quality of our products are maintained, the consequences of not being able to do so could be severe, including adverse effects on consumer health, our reputation, the loss of customers and market share, financial costs and loss of revenue. If any of our products are found to be defective, we could be required to or may voluntarily recall such products, which could result in adverse publicity, significant expenses and a disruption in sales and could affect our reputation and that of our products. For instance, in 2015, we voluntarily withdrew certain of our Hefty disposable cups when we identified that an incorrect grade of colorant was used on some of our disposable cups, causing small amounts of ink to transfer from the cup to other surfaces. The colorant presented no health or safety risks to consumers

 

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which was determined through both internal assessment and an external toxicology audit and we effectively remediated this situation. However, if a similar event occurs in the future, it could cause long-term damage to our brands. In addition, if any of our competitors or customers supply faulty or contaminated products to the market, our industry could be negatively impacted, which in turn could have adverse effects on our business.

The widespread use of social media and networking sites by consumers has greatly increased the speed and accessibility of information dissemination. Negative publicity, posts or comments on social media or networking sites about us or our brands, whether accurate or inaccurate, or disclosure of non-public sensitive information about us, could be widely disseminated through the use of social media. Such events, if they were to occur, could harm our image and adversely affect our business, as well as require resources to rebuild our reputation.

We are affected by seasonality.

Portions of our business are 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. As a result of this seasonality, any factors negatively affecting us during these periods of any year, including unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. Because of quarterly fluctuations caused by these and other factors, comparisons of our operating results across different fiscal quarters may not be accurate indicators of our future performance.

Loss of our key management and other personnel, or an inability to attract new management and other personnel, could negatively impact our business, financial condition and results of operations.

We depend on our senior executive officers and other key personnel to operate our businesses, develop new products and technologies and service our customers. The loss of any of these key personnel could adversely affect our operations. Competition is intense for qualified personnel and the loss of them or an inability to attract, retain and motivate additional highly skilled personnel required for the operation and expansion of our business could hinder our ability to successfully conduct research and development activities or develop and support marketable products. Additionally, the high U.S. employment levels in recent years have increased turnover as compared to prior periods at some of our facilities and made hiring and retaining hourly employees more difficult. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

We may have difficulty acquiring product lines or businesses, which could impact our business, financial condition and results of operations.

We may pursue acquisitions of product lines or businesses from third parties. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, services and products of the acquired product lines or businesses, estimation and assumption of liabilities and contingencies, personnel turnover and the diversion of management’s attention from other business operations. We may be unable to successfully integrate and manage certain product lines or businesses that we may acquire in the future, or be unable to achieve anticipated benefits or cost savings from acquisitions in the time frame we anticipate, or at all.

We may not be successful in obtaining, maintaining and enforcing sufficient intellectual property rights to protect our business, or in avoiding claims that we infringe on the intellectual property rights of others.

We rely on intellectual property rights such as patents, trademarks and copyrights, as well as unpatented proprietary knowledge and trade secrets, to protect our business. However, these rights do not afford complete protection against third parties. For example, patents, trademarks and copyrights are territorial; thus, our business

 

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will only be protected by these rights in those jurisdictions in which we have been issued patents or have trademarks or copyrights, or have obtained licenses to use such patents, trademarks or copyrights. Even so, the laws of certain countries may not protect our intellectual property rights to the same extent as do the laws of the United States. Additionally, there can be no assurance that others will not independently develop knowledge and trade secrets that are similar to ours, or develop products or brands that compete effectively with our products and brands without infringing, misusing or otherwise violating any of our intellectual property rights.

We cannot be certain that any of our current or pending patents, trademarks and copyrights will provide us with sufficient protection from competitors, or that any intellectual property rights we do hold will not be invalidated, circumvented or challenged in the future. In the event of such a challenge, we could incur significant costs to defend our intellectual property rights, even if we are ultimately successful. Additionally, there is a risk that we will not be able to obtain and perfect or, where appropriate, license, the intellectual property rights necessary to support new product introductions and product innovations. Additionally, we have licensed, and may license in the future, patents, trademarks, trade secrets and other intellectual property rights to third parties. While we attempt to ensure that our intellectual property rights are protected when entering into business relationships, third parties may take actions that could materially and adversely affect our rights or the value of our intellectual property rights.

Third parties may copy or otherwise obtain and use our proprietary knowledge or trade secrets without authorization or infringe, misuse or otherwise violate our other intellectual property rights. For example, our brand names, especially Reynolds, Hefty, Diamond and Presto, are well-established in the market and have attracted infringers in the past. Additionally, we may not be able to prevent current and former employees, contractors and other parties from misappropriating our confidential and proprietary knowledge. Infringement, misuse or other violation of any of our intellectual property rights may dilute or diminish the value of our brands and products in the marketplace, which could adversely affect our results of operations and make it more difficult for us to maintain a strong market position. While we protect our intellectual property rights, including through litigation, where necessary, we cannot economically prevent all infringement, misuse or other violations, and any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

Although we believe that our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products and brands may infringe on the intellectual property rights of others, and in the past we have been, and in the future we may be, subject to claims asserting infringement, misuse or other violation of intellectual property rights and seeking damages, the payment of royalties or licensing fees, and/or injunctions against the sales of our products. If we are found to have infringed, misused or otherwise violated the intellectual property rights of others, we could be forced to pay damages, cease use of such intellectual property or, if we are given the opportunity to continue to use the intellectual property rights of others, we could be required to pay a substantial amount for continued use of those rights. Even if we are not found to infringe, misuse or otherwise violate a third party’s intellectual property rights, we could incur material legal costs and related expenses to defend against such claims and we could incur significant costs associated with discontinuing to use, provide or manufacture certain products, services or brands. In any case, such claims could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of their outcome.

We depend on intellectual property rights licensed from third parties, and disputes regarding or termination of these licenses could result in loss of rights, which could harm our business.

We are dependent in part on intellectual property rights licensed from third parties. Our licenses to such intellectual property rights may not provide exclusive or unrestricted rights in all fields of use and in all territories in which we may wish to develop or commercialize our products in the future and may restrict our rights to offer certain products in certain markets or impose other obligations on us in exchange for our rights to the licensed intellectual property. In addition, we may not have full control over the maintenance, protection or

 

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use of in-licensed intellectual property rights, and therefore we may be reliant on our licensors to conduct such activities.

Disputes may arise between us and our licensors regarding the scope of rights or obligations under our intellectual property license agreements, including the scope of our rights to use the licensed intellectual property, our rights with respect to third parties, our and our licensors’ obligations with respect to the maintenance and protection of the licensed intellectual property, and other interpretation-related issues. The agreements under which we license intellectual property rights from others are complex, and the provisions of such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the intellectual property being licensed, or increase what we believe to be our financial or other obligations under the relevant agreement. Termination of or disputes over such licenses could result in the loss of significant rights.

We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own. Any failure on our part or the part of our licensors to adequately protect this intellectual property could have a material adverse effect on our business and results of operations.

Breaches of our information systems security measures could disrupt our internal operations.

We depend on information technology for processing and distributing information in our business, including to and from our customers and suppliers. This information technology could be subject to theft, damage or interruption from a variety of sources, including malicious computer viruses, security breaches, defects in design, employee malfeasance or human or technical errors. Additionally, we could be at risk if a customer’s or supplier’s information technology system is attacked or compromised. Cybersecurity incidents have increased in number and severity, and it is expected that these trends will continue. Although we have taken measures to protect our data and to protect our computer systems from attacks, they may not be sufficient to prevent unauthorized access to our systems or theft of our data. If we or third parties with whom we do business were to fall victim to cyber-attacks or experience other cybersecurity incidents, such incidents could result in unauthorized access to, disclosure or loss of or damage to company, customer or other third party data; theft of confidential data, including personal information and intellectual property; loss of access to critical data or systems; and other business delays or disruptions. The loss or disclosure of personal information could also expose us to liability or penalties under laws, rules and regulations related to solicitation, collection, processing or use of consumer, customer, vendor or employee information or related data. In addition, we may incur large expenditures to investigate or remediate, to recover data, to repair or replace networks or information technology systems, or to protect against similar future events. If these events were to occur, we could incur substantial costs or suffer other consequences that negatively impact our business, financial condition and results of operations.

We have significant debt, which could adversely affect our financial condition and ability to operate our business.

Upon closing of this offering, we expect to have approximately $2,475 million of outstanding indebtedness under the New Term Loan Facility, and we expect to have material additional borrowing capacity under the New Revolving Facility. For a description of this indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sources of Liquidity.” Our debt level and related debt service obligations:

 

   

will require us to dedicate significant cash flow to the payment of principal of, and interest on, our debt, which will reduce the funds we have available for other purposes, including working capital, capital expenditures and general corporate purposes;

 

   

may limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan;

 

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will impose on us financial and operational restrictions; and

 

   

will expose us to interest rate risk on our debt obligations bearing interest at variable rates.

These restrictions could adversely affect our financial condition and limit our ability to successfully implement our growth strategy.

In addition, we may need additional financing to support our business and pursue our growth strategy, including for strategic acquisitions. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets and other factors. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock, and, in the case of equity and equity-linked securities, our existing stockholders may experience dilution.

An increase in market interest rates could increase our interest costs on future debt.

Borrowings under our New Credit Facilities will be at variable rates of interest and we may incur additional variable interest rate indebtedness in the future. This exposes us to interest rate risk, and any interest rate swaps we enter into in order to reduce interest rate volatility may not fully mitigate our interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.

Goodwill and indefinite-lived intangible assets are a material component of our balance sheet and impairments of these assets could have a significant impact on our results.

We have recorded a significant amount of goodwill and indefinite-lived intangible assets, representing our Reynolds and Hefty trade names, on our balance sheet. We test the carrying values of goodwill and indefinite-lived intangible assets for impairment at least annually and whenever events or circumstances indicate the carrying value may not be recoverable. The estimates and assumptions about future results of operations and cash flows made in connection with impairment testing could differ from future actual results of operations and cash flows. While we have concluded that our goodwill and indefinite-lived intangible assets are not impaired, future events could cause us to conclude that the goodwill associated with a given segment, or one of our indefinite- lived intangible assets, may have become impaired. Any resulting impairment charge, although non-cash, could have a material adverse effect on our results of operations and financial condition.

We could be jointly and severally liable for certain pension obligations of our affiliates.

Two members of RGHL Group, Pactiv LLC (“Pactiv”) and Evergreen Packaging LLC (“Evergreen”), sponsor defined benefit pension plans covering a portion of their U.S. employees and retirees. As of September 30, 2019, the combined benefit obligation of these plans was $4,768 million and the combined plan asset value was $3,868 million for a combined underfunding of $900 million, in each case on an accounting basis. If we remain in the same “controlled group” as Pactiv and Evergreen following this offering, third parties may seek to hold us jointly and severally liable for their pension liabilities as long as we remain members of the same controlled group. These pension liabilities could include an obligation to make ongoing contributions to fund the pension plans sponsored by Pactiv and Evergreen and for any unfunded liabilities that may exist at the time Pactiv or Evergreen terminates an underfunded pension plan. Under this theory, we could incur significant liabilities for events beyond our control that are not related to or known by us. As of the date of this prospectus, Pactiv’s and Evergreen’s pension plans are in compliance with the minimum funding standards of the Employee Retirement Income Security Act of 1974 (“ERISA”).

 

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Some of our workforce is covered by collective bargaining agreements, and our business could be harmed in the event of a prolonged work stoppage.

Approximately 24% of our employees are covered by collective bargaining agreements. While we believe we have good relationships with our unionized employees and we have not experienced a significant union-related work stoppage over the last ten years, if we encounter difficulties with renegotiations or renewals of collective bargaining arrangements or are unsuccessful in those efforts, we could incur additional costs and experience work stoppages. We cannot predict how stable our union relationships will be or whether we will be able to successfully negotiate successor collective bargaining agreements without impacting our financial condition. In addition, the presence of unions may limit our flexibility in dealing with our workforce. Work stoppages could negatively impact our ability to manufacture our products on a timely basis, which could have a material adverse effect on our results of operations and financial condition.

Tax legislation initiatives or challenges to our tax positions could adversely affect our operations and financial condition.

We are subject to the tax laws and regulations of the U.S. federal, state and local governments. From time to time, legislative measures may be enacted that could adversely affect our overall tax positions regarding income or other taxes. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these legislative measures.

For example, the United States federal government recently enacted tax reform that, among other things, reduced U.S. federal corporate income tax rates, imposed limits on tax deductions for interest expense, changed the rules related to capital expenditure cost recovery and changed many of the rules related to the taxation of business income generated outside of the United States. There are a number of uncertainties and ambiguities as to the interpretation and application of many of the provisions of the newly enacted tax reform measure. Given the unpredictability of these possible changes and their potential interdependency, it remains difficult to assess the overall effect such tax changes will have on our earnings and cash flow, and the extent to which such changes could adversely impact our results of operations. As the impacts of the new law are determined, and as regulations and other guidance interpreting the new law are issued and finalized, our financial results could be impacted.

In addition, U.S. federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax positions will be sustained if challenged by relevant tax authorities and if not sustained, there could be a material adverse effect on our results of operations, financial condition and cash flows.

Our insurance coverage may not adequately protect us against business and operating risks.

We maintain insurance for some, but not all, of the potential risks and liabilities associated with our business. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive in relation to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance policies are economically unavailable or available only for reduced amounts of coverage. For example, we will not be fully insured against all risks associated with pollution and other environmental incidents or impacts. Moreover, we may face losses and liabilities that are uninsurable by their nature, or that are not covered, fully or at all, under our existing insurance policies. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

Legal claims and proceedings could adversely impact our business.

As a large company with a long history of serving consumers, we may be subject to a wide variety of legal claims and proceedings, including disputes relating to intellectual property, contracts, product liability,

 

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marketing, advertising, foreign exchange controls, antitrust and trade regulation, as well as labor and employment, pension, data privacy and security, environmental and tax matters and consumer class actions. Regardless of their merit, these claims can require significant time and expense to investigate and defend. Since litigation is inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such claims or proceedings, or that our assessment of the materiality of these matters, including any reserves taken in connection therewith, will be consistent with the ultimate outcome of such matters. The resolution of, or increase in the reserves taken in connection with, one or more of these matters could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Risks Relating to Our Common Stock and this Offering

There may not be an active, liquid trading market for our common stock.

Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on Nasdaq or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you purchase. The initial public offering price of our common stock was determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail following the closing of this offering. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial public offering price.

We expect that our common stock price will fluctuate significantly, and you may not be able to resell your common stock at or above the initial public offering price.

The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including those described above in “—Risks Relating to Our Business and Industry.” In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your common stock at or above the initial public offering price, if at all. In addition to the factors described above in “—Risks Relating to Our Business and Industry,” some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

 

   

market conditions in the broader stock market in general, or in our industry in particular;

 

   

actual or anticipated fluctuations in our quarterly financial and operating results;

 

   

introduction of new products and services by us or our competitors;

 

   

issuance of new or changes in securities analysts’ reports or recommendations;

 

   

our inability to meet the financial estimates of analysts who follow our company;

 

   

strategic actions by us or our competitors, such as acquisitions, restructurings, significant contracts, joint marketing relationships, joint ventures or capital commitments;

 

   

sales of large blocks of our common stock;

 

   

additions or departures of key personnel;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;

 

   

the public reactions to our press releases, other public announcements and filings with the SEC;

 

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any increased indebtedness we may incur in the future;

 

   

regulatory developments;

 

   

actions by institutional stockholders;

 

   

litigation and governmental investigations; and

 

   

economic and political conditions or events.

These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. The stock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

If securities or industry analysts do not publish research or reports about our business, or they publish inaccurate or unfavorable reports about our business, the price of our common stock and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares of common stock or change their opinion of our common stock, our common stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our common stock price or trading volume to decline.

Substantial future sales by PFL or others of our common stock, or the perception that such sales may occur, could depress the price of our common stock.

Following the closing of this offering, PFL will control a majority of the voting power of our outstanding common stock. Subject to the restrictions described in the paragraph below, future sales of PFL’s shares in the public market will be subject to the volume and other restrictions of Rule 144 under the Securities Act of 1933 (“Securities Act”) for so long as PFL is deemed to be our affiliate, unless the shares to be sold are registered with the SEC. We do not know whether or when PFL will sell shares of our common stock following this offering. The sale by PFL or others of a substantial number of shares of our common stock after this offering, or a perception that such sales could occur, could significantly reduce the market price of our common stock. Subject to the lock-up agreements discussed below and our agreements with RGHL Group described in “Certain Relationships and Related Party Transactions,” we are not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or any substantially similar securities. The perception of a potential sell-down by PFL could depress the market price of our common stock and make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon the closing of this offering, except as otherwise described herein, all shares of common stock that are being offered hereby will be freely tradable without restriction, assuming they are not held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. In addition, we intend to grant registration rights to PFL, pursuant to which PFL will have the right to demand that we register common stock held by PFL under the Securities Act as well as the right to demand that we include any such common stock in any registration statement that we file with the SEC, subject to certain exceptions. See “Shares Eligible for Future Sale—Registration Rights.” Any common stock registered pursuant to the registration rights agreement described in “Certain Relationships and Related Party Transactions” will be freely tradable in the public market, subject to

 

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applicable lock-up periods, if any. In addition, in connection with this offering, we, our directors and our executive officers and PFL have each agreed, subject to certain exceptions, to be subject to a 180-day lock-up restriction. See “Shares Eligible for Future Sale—Lock-up Agreements.” Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC may waive these restrictions at their discretion. The market price of our common stock may decline significantly when this lock-up restriction lapses.

Investors purchasing common stock in this offering will experience immediate and substantial dilution as a result of this offering and any future equity issuances.

The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock. Dilution is the difference between the initial public offering price per share of common stock and the pro forma net tangible book value per share of common stock after this offering. If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $34.78 per share of common stock. In addition, if we issue additional equity securities in the future, including to our employees and directors under our equity incentive plan, investors purchasing shares of common stock in this offering will experience additional dilution. See “Dilution.”

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our amended and restated certificate of incorporation and bylaws, as will be amended and restated prior to the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that:

 

   

provide for a staggered board;

 

   

require at least 662/3% of the votes that all of our stockholders would be entitled to cast in an annual election of directors in order to amend our certificate of incorporation and bylaws after the date on which PFL and all other entities beneficially owned by Mr. Graeme Richard Hart or his estate, heirs, executor, administrator or other personal representative, or any of his immediate family members or any trust, fund or other entity which is controlled by his estate, heirs, any of his immediate family members or any of their respective affiliates (PFL and all of the foregoing, collectively, the “Hart Entities”) and any other transferee of all of the outstanding shares of common stock held at any time by the Hart Entities which are transferred other than pursuant to a widely distributed public sale (“Permitted Assigns”) beneficially own less than 50% of the outstanding shares of our common stock;

 

   

eliminate the ability of our stockholders to call special meetings of stockholders after the date on which the Hart Entities or Permitted Assigns beneficially own less than 50% of the outstanding shares of our common stock;

 

   

prohibit stockholder action by written consent, instead requiring stockholder actions to be taken solely at a duly convened meeting of our stockholders, after the date on which the Hart Entities or Permitted Assigns beneficially own less than 50% of the outstanding shares of our common stock;

 

   

permit our board of directors, without further action by our stockholders, to fix the rights, preferences, privileges and restrictions of preferred stock, the rights of which may be greater than the rights of our common stock;

 

   

restrict the forum for certain litigation against us to Delaware; and

 

   

establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. As a result, these provisions may adversely affect the market price and market for our common stock if they are viewed as limiting the liquidity of our stock. These provisions may also make it more difficult for a third party to acquire us in the future, and, as a result, our

 

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stockholders may be limited in their ability to obtain a premium for their shares of common stock. See “Description of Capital Stock.”

Furthermore, in connection with this offering, we will enter into a stockholders agreement with PFL. The stockholders agreement will provide PFL with the right to nominate a certain number of directors to our board of directors so long as the Hart Entities beneficially own at least 10% of the outstanding shares of our common stock. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Notwithstanding the foregoing, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities and Exchange Act of 1934 (“Exchange Act”), the Securities Act or any other claim for which the federal courts have exclusive jurisdiction. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and stock exchange rules promulgated in response to the Sarbanes-Oxley Act. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. After the closing of this offering, we will be obligated to file with the SEC annual and quarterly information and other reports that are specified in the Exchange Act, and therefore will need to have the ability to prepare financial statements that are compliant with all SEC reporting requirements on a timely basis. In addition, we will be subject to other reporting and corporate governance requirements, including certain requirements of Nasdaq and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which will impose significant compliance obligations upon us. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required, and management’s attention may be diverted from other business concerns. These rules and regulations could also make it more difficult for us to attract and retain qualified independent members of our board of directors. Additionally, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Furthermore, because we have not operated as a company with equity listed on a national securities exchange in the past, we might not be successful in implementing these requirements. The increased costs of compliance with public company reporting requirements and our potential

 

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failure to satisfy these requirements could have a material adverse effect on our operations, business, financial condition and results of operations.

Failure to establish and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and reputation.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting.

When evaluating our internal controls over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. Moreover, any material weakness or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.

We intend to pay regular dividends on our common stock, but our ability to do so may be limited.

Following the closing of this offering, we intend to pay cash dividends on our common stock on a quarterly basis, subject to the discretion of our board of directors and our compliance with applicable law, and depending on our results of operations, capital requirements, financial condition, business prospects, contractual restrictions, restrictions imposed by applicable laws and other factors that our board of directors deems relevant. See “Dividend Policy.”

Our ability to pay dividends may also be restricted by the terms of any future credit agreement, including the New Credit Facilities, or any future debt or preferred equity securities. Our dividend policy entails certain risks and limitations, particularly with respect to our liquidity. By paying cash dividends rather than investing that cash in our business or repaying any outstanding debt, we risk, among other things, slowing the expansion of our business, having insufficient cash to fund our operations or make capital expenditures or limiting our ability to incur borrowings. Our board of directors will periodically review the cash generated from our business and the capital expenditures required to finance our growth plans and determine whether to modify the amount of regular dividends and/or declare any periodic special dividends. There can be no assurance that our board of directors will not reduce the amount of regular cash dividends or cause us to cease paying dividends altogether.

 

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We could incur significant liabilities if we take certain actions that result in assessment of U.S. federal income tax on certain internal transactions undertaken by RGHL Group in preparation for this offering.

We historically operated as part of RGHL Group. In preparation for this offering, RGHL Group will effect certain distributions pursuant to the Corporate Reorganization to transfer its interests in us to PFL in a manner that is intended to qualify as tax-free to PFL, RGHL and RGHI under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (“Code”). RGHL will receive a tax opinion as to the tax treatment of these distributions, which will rely on certain facts, assumptions, representations and undertakings from Mr. Graeme Hart, RGHL Group and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, RGHL may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities. Notwithstanding the opinion of tax counsel, the Internal Revenue Service (“IRS”) could determine on audit that these distributions are taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of certain significant changes in the stock ownership of RGHL, RGHI or us after the distributions. If the distributions are determined to be taxable for U.S. federal income tax purposes, PFL, RGHL and RGHI could incur significant U.S. federal income tax liabilities, and we could also incur significant liabilities. Under the tax matters agreement between RGHL and us (“Tax Matters Agreement”), we will generally be required to indemnify RGHL Group against taxes incurred by them that arise as a result of, among other things, a breach of any representation made by us, including those provided in connection with the opinion of tax counsel or us taking or failing to take, as the case may be, certain actions, in each case, that result in any of the distributions failing to meet the requirements of a tax-free distribution under Sections 355 and 368(a)(1)(D) of the Code. For a discussion of the Tax Matters Agreement, please refer to the section entitled “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

We may be affected by significant restrictions, including on our ability to engage in certain corporate transactions for a two-year period after the Corporate Reorganization, in order to avoid triggering significant tax-related liabilities.

To preserve the tax-free treatment for U.S. federal income tax purposes to RGHL Group of the distributions to be effected pursuant to the Corporate Reorganization, under the Tax Matters Agreement that we will enter into with RGHL, we will be restricted from taking any action that prevents these distributions from being tax-free for U.S. federal income tax purposes. Under the Tax Matters Agreement, for the two-year period following these distributions, we will be subject to specific restrictions on our ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions with respect to our stock. These restrictions may limit our ability to pursue certain strategic transactions or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business. These restrictions will not limit the acquisition of other businesses by us for cash consideration. Furthermore, we will be subject to specific restrictions on discontinuing the active conduct of our trade or business and the issuance or sale of stock or other securities (including securities convertible into our stock but excluding certain compensatory arrangements), which may limit our ability to effect certain anti-takeover provisions related to the issuance of preferred stock. Such restrictions may reduce our strategic and operating flexibility, including our options for raising equity capital. For a discussion of the Tax Matters Agreement, please refer to the section entitled “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

Risks Relating to Our Relationship with RGHL Group, PFL and Rank

PFL controls the direction of our business and PFL’s concentrated ownership of our common stock will prevent you and other stockholders from influencing significant decisions.

Upon closing of this offering, PFL will own, and control the voting power of, approximately 77% of our outstanding shares of common stock (or approximately 74% if the underwriters’ option to purchase additional shares of common stock is exercised in full). As long as PFL continues to control a majority of the voting power

 

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of our outstanding common stock, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval, including the election and removal of directors.

PFL and its affiliates engage in a broad spectrum of activities. In the ordinary course of their business activities, PFL and its affiliates may engage in activities where their interests may not be the same as, or may conflict with, the interests of our other stockholders. Investors in this offering will not be able to affect the outcome of any stockholder vote while PFL controls the majority of the voting power of our outstanding common stock. As a result, PFL will be able to control, directly or indirectly and subject to applicable law, the composition of our board of directors, which in turn will be able to control all matters affecting us, including, among others:

 

   

any determination with respect to our business direction and policies, including the appointment and removal of officers and directors;

 

   

the adoption of amendments to our amended and restated certificate of incorporation;

 

   

any determinations with respect to mergers, business combinations or disposition of assets;

 

   

compensation and benefit programs and other human resources policy decisions;

 

   

the payment of dividends on our common stock; and

 

   

determinations with respect to tax matters.

In addition, the concentration of PFL’s ownership could also discourage others from making tender offers, which could prevent holders from receiving a premium for their common stock.

Because PFL’s interests may differ from ours or from those of our other stockholders, actions that PFL takes with respect to us, as our controlling stockholder, may not be favorable to us or our other stockholders, including holders of our common stock.

If we are no longer affiliated with RGHL Group, we may be unable to continue to benefit from that relationship, which may adversely affect our operations and have a material adverse effect on us.

Our affiliation with RGHL Group provides us with increased scale and reach. We leverage our combined scale to coordinate purchases across our operations to reduce costs. If we no longer benefit from this relationship, whether because we are no longer affiliated with RGHL Group or otherwise, it may result in increased costs for us and higher prices to our customers because we may be unable to obtain goods, services, and technology from unaffiliated third parties on terms as favorable as those previously obtained. As a result of any the above factors, we may be precluded from pursuing certain opportunities that we would otherwise pursue, including growth opportunities, which in turn may adversely affect our business, financial condition and results of operations.

We have entered, and may continue to enter, into certain related party transactions. There can be no assurance that we could not have achieved more favorable terms if such transactions had not been entered into with related parties, or that we will be able to maintain existing terms in the future.

We have entered into various transactions with Rank and other related parties that are members of RGHL Group, including, among others, agreements relating to:

 

   

the lease for our corporate headquarters in Lake Forest, Illinois;

 

   

the lease for a facility used for certain research and development activities in Canandaigua, New York;

 

   

the RGHI TSA whereby RGHL Group will continue to provide certain administrative services to us, including information technology service; accounting, treasury, financial reporting and transaction support; human resources; procurement; tax, legal and compliance related services; and other corporate services, and we will provide certain services to RGHL Group, including human resources; compliance; and procurement, in each case for up to 24 months;

 

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the Rank TSA whereby, upon our request, Rank 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;

 

   

a transition and support agreement for our Red Bluff, California and Huntersville, North Carolina facilities;

 

   

supply agreements where we sell certain products (primarily aluminum foil containers and roll foil) to, and purchase certain products (primarily tableware), from Pactiv; and

 

   

a warehousing and freight services agreement whereby Pactiv provides certain logistics services to us.

While we believe that all such transactions have been negotiated on an arm’s length basis and contain commercially reasonable terms, we may have been able to achieve more favorable terms had such transactions been entered into with unrelated parties. In addition, while these services are being provided to us by related parties, our operational flexibility to modify or implement changes with respect to such services or the amounts we pay for them may be limited. At the conclusion of the RGHI TSA, the Rank TSA and the logistics agreement, we will have to perform such services with internal resources or contract with third party providers. There could be disruptions upon transition, and there can be no assurance that we will be able to perform or obtain the necessary services at the same or lower cost. Such related party transactions may also potentially involve conflicts of interest. In the event of a dispute under any of these related party agreements, RGHL Group could decide the matter in a way adverse to us, and our ability to enforce our contractual rights may be limited.

It is also likely that we may enter into related party transactions in the future. Although material related party transactions that we may enter into will be subject to approval or ratification of a designated committee of our board of directors (which will initially be the audit committee) or other committee designated by our board of directors made up solely of independent directors, there can be no assurance that such transactions, individually or in the aggregate, will not have an adverse effect on our financial condition and results of operations, or that we could not have achieved more favorable terms if such transactions had not been entered into with related parties.

For additional information, see “Certain Relationships and Related Party Transactions.”

We have no operating history as a stand-alone public company, and our historical and pro forma combined financial data is not necessarily representative of the results we would have achieved as a stand-alone public company and may not be a reliable indicator of our future results.

We have historically operated as part of RGHL Group and not as a stand-alone entity. We have no operating history as a separate publicly traded company. The combined historical information in this prospectus refers to our business as part of RGHL Group. We derived the historical and pro forma combined financial data included in this prospectus from the consolidated financial statements and accounting records of RGHL Group. This information does not necessarily reflect the financial position, results of operations, and cash flows we would have achieved as a public company during the periods presented, or those that we will achieve in the future.

This is primarily because of the following factors:

 

   

RGHL Group historically 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. Our historical and pro forma combined financial data reflects allocations of corporate expenses from RGHL Group for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as a public company.

 

   

We will have entered into certain agreements with RGHL Group (including Pactiv, which will remain one of our largest customers) and Rank, including supply agreements to sell products (mostly aluminum foil containers and aluminum foil) and purchase products (mostly tableware). Upon the expiration of these agreements, we will be required to negotiate new arrangements with RGHL Group, Rank and/or unaffiliated third parties, and these new arrangements may not reflect terms as favorable as those

 

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previously obtained from RGHL Group and Rank. For additional information, see “Certain Relationships and Related Party Transactions.”

 

   

We have relied upon RGHL Group for working capital requirements and other cash requirements. Subsequent to this offering, RGHL Group will not be providing us with funds to finance our working capital or other cash requirements. After this offering, our access to and cost of debt financing may be different from the historical access to and cost of debt financing under RGHL Group. Differences in access to and cost of debt financing may result in differences in the interest rate charged to us on financings, as well as the amounts of indebtedness, types of financing structures and debt markets that may be available to us, which could have an adverse effect on our business, financial condition and results of operations and cash flows.

 

   

Historically, we have sold substantially all of our U.S. trade receivables through RGHL Group’s securitization facility. This non-recourse factoring arrangement satisfied all of the conditions that result in the derecognition of our trade receivables. Prior to the closing of this offering, we will repurchase all U.S. trade receivables outstanding as of the time of the repurchase of such trade receivables. After the closing of this offering, we will collect our trade receivables in the ordinary course of business.

 

   

Our historical and pro forma combined financial data has not been adjusted and does not reflect changes that we expect to experience as a result of our transition to becoming a public company. These changes include (1) changes in our cost structure, personnel needs, tax structure, and business operations, (2) changes in our management, (3) potential increased costs associated with reduced economies of scale, and (4) increased costs associated with corporate governance, investor and public relations, and public company reporting and compliance.

Therefore, our historical and pro forma combined financial data may not necessarily be indicative of our future financial position, results of operations, or cash flows, and the occurrence of any of the risks discussed in this “Risk Factors” section, or any other event, could cause our future financial position, results of operations, or cash flows to materially differ from our historical and pro forma combined financial data. While we have been profitable as part of RGHL Group, we cannot assure you that our profits will continue at a similar level when we are a stand-alone public company.

For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma combined financial statements of our business, see the sections entitled “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined financial statements and accompanying notes included elsewhere in this prospectus.

Our ability to operate our business effectively may suffer if we do not, quickly and cost effectively, establish our own financial, administrative, and other support functions, and we cannot assure you that the transitional services RGHL Group and Rank have agreed to provide us will be sufficient for our needs.

Historically, we have relied on financial, administrative, and other resources of RGHL Group to operate our business. In conjunction with our anticipated separation from RGHL Group, we intend to create our own financial, administrative and other support systems or contract with third parties to replace RGHL Group’s systems. Prior to the closing of this offering, we will enter into agreements with RGHL Group and Rank under which RGHL Group and Rank will provide certain transitional services to us, such as supply chain, information technology, legal, finance and accounting, human resources, tax, treasury and other services, as well as access to certain information technology systems shared with RGHL Group and subject to data access controls. See “Certain Relationships and Related Party Transactions—Transactions to be Entered into in Connection with this Offering” for a description of these services. These services and data access controls may not be sufficient to meet our needs. After our agreements with RGHL Group and Rank expire, we may not be able to obtain these services at prices or on terms that are as favorable. Any failure or significant downtime in our own financial,

 

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administrative or other support systems or in RGHL Group’s or Rank’s financial, administrative or other support systems during the transitional period could negatively impact our results of operations.

If PFL sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our common stock and we may become subject to the control of a presently unknown third party.

Upon closing of this offering, PFL will own, and control the voting power of, approximately 77% of our outstanding shares of common stock (or approximately 74% if the underwriters’ option to purchase additional shares of common stock is exercised in full). PFL will have the ability, should it choose to do so, to sell some or all of its shares of our common stock in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company.

The ability of PFL to privately sell its shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares of our common stock that will be publicly traded hereafter, could prevent you from realizing any change-of-control premium on your shares of our common stock that may otherwise accrue to PFL on its private sale of our common stock. Additionally, if PFL privately sells its significant equity interest in our company, we may become subject to the control of a presently unknown third party. Such third party may have conflicts of interest with those of other stockholders. In addition, if PFL sells a controlling interest in our company to a third party, our liquidity could be impaired, our outstanding indebtedness may be subject to acceleration and our commercial agreements and relationships could be impacted, all of which may adversely affect our ability to run our business as described herein and may have a material adverse effect on our results of operations and financial condition.

We will be a “controlled company” within the meaning of the rules of Nasdaq and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Upon closing of this offering, PFL will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of the board of directors consist of independent directors;

 

   

the requirement that our compensation, nominating and corporate governance committee be composed entirely of independent directors; and

 

   

the requirement for an annual performance evaluation of our compensation, nominating and corporate governance committee.

While PFL controls a majority of the voting power of our outstanding common stock, we intend to rely on these exemptions and, as a result, will not have a majority of independent directors on our board of directors or a compensation, nominating and corporate governance committee consisting entirely of independent directors. Upon the closing of this offering, we expect that four of our six directors will not qualify as “independent directors” under the applicable rules of Nasdaq. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

RGHL Group may compete with us, and its competitive position in certain markets may constrain our ability to build and maintain partnerships.

We may face competition from a variety of sources, including Pactiv and other members of the RGHL Group, both today and in the future. For example, while we do have supply agreements in place with Pactiv,

 

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Pactiv may still compete with us in certain products and/or in certain channels. In addition, while none of the other members of the RGHL Group currently manufacture or sell products that compete with our products, they may do so in the future, including as a result of acquiring a company that operates as a manufacturer of consumer products. Due to the significant resources of RGHL Group, including financial resources and know-how resulting from the previous management of our business, RGHL Group could have a significant competitive advantage should it decide to engage in the type of business we conduct, which may materially and adversely affect our business, financial condition and results of operations. Although Pactiv has historically sold the products (primarily tableware and cups) that we purchase from it in the foodservice business-to-business channel, after the termination of our supply agreement with Pactiv it could seek to sell such products in the retail channel or otherwise compete with us, especially where we sell private label or store brand products. As our former supplier, Pactiv would have information about products, including pricing, that could give it a competitive advantage.

In addition, we may partner with companies that compete with RGHL Group in certain markets. Our affiliation with RGHL Group may affect our ability to effectively partner with these companies. These companies may favor our competitors because of our relationship with RGHL Group.

Conflicts of interest may arise because certain of our directors will hold a management or board position with RGHL Group entities.

Three of our directors are also directors of RGHL and other RGHL Group entities. The interests of these directors in RGHL, other RGHL Group entities and us could create, or appear to create, conflicts of interest with respect to decisions involving both us and RGHL or RGHL Group entities that could have different implications for RGHL or RGHL Group entities and us. These decisions could, for example, relate to:

 

   

disagreement over corporate opportunities;

 

   

competition between us and RGHL Group;

 

   

employee retention or recruiting;

 

   

our dividend policy; and

 

   

the services and arrangements from which we benefit as a result of our relationship with RGHL Group.

Conflicts of interest could also arise if we enter into any new commercial arrangements with RGHL Group in the future, or if RGHL Group decides to compete with us in any of our product categories. The presence of directors or officers of entities affiliated with RGHL on our board of directors could create, or appear to create, conflicts of interest and conflicts in allocating their time with respect to matters involving both us and any one of them, or involving us and RGHL, that could have different implications for any of these entities than they do for us. Provisions of our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect prior to the closing of this offering address corporate opportunities that are presented to our directors who are also directors or officers of RGHL and certain of its subsidiaries. See “Description of Capital Stock.” We cannot assure you that our amended and restated certificate of incorporation will adequately address potential conflicts of interest or that potential conflicts of interest will be resolved in our favor or that we will be able to take advantage of corporate opportunities presented to individuals who are directors of both us and entities affiliated with RGHL. As a result, we may be precluded from pursuing certain advantageous transactions or growth initiatives.

 

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Our inability to resolve in a manner favorable to us any potential conflicts or disputes that arise between us and RGHL Group, PFL or Rank with respect to our past and ongoing relationships may adversely affect our business and prospects.

Potential conflicts or disputes may arise between RGHL Group, PFL or Rank and us in a number of areas relating to our past or ongoing relationships, including:

 

   

tax, employee benefit, indemnification and other matters arising from our relationship with RGHL Group, PFL or Rank;

 

   

business combinations involving us;

 

   

the nature, quality and pricing of services RGHL Group and Rank have agreed to provide us;

 

   

business opportunities that may be attractive to us and RGHL Group;

 

   

intellectual property or other proprietary rights; and

 

   

joint sales and marketing activities with RGHL Group.

The resolution of any potential conflicts or disputes between us, RGHL Group, PFL or Rank or their subsidiaries over these or other matters may be less favorable to us than the resolution we might achieve if we were dealing with an unaffiliated third party.

The agreements we have entered into with RGHL Group and Rank, which are described in this prospectus, are of varying durations and may be amended upon agreement of the parties. PFL will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors, and could preclude any acquisition of our company. For so long as we are controlled by PFL, we may be unable to negotiate renewals or amendments to these agreements, if required, on terms as favorable to us as those we would be able to negotiate with an unaffiliated third party. For more information, see “Certain Relationships and Related Party Transactions.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Unaudited Pro Forma Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.” These risks and uncertainties include factors related to:

 

   

changes in consumer preferences, lifestyle and environmental concerns;

 

   

relationships with our major customers, consolidation of our customer bases and loss of a significant customer;

 

   

competition and pricing pressures;

 

   

loss of any of our key manufacturing facilities;

 

   

our suppliers of raw materials and any interruption in our supply of raw materials;

 

   

costs of raw materials, energy and freight, including the impact of tariffs, trade sanctions and similar matters affecting our importation of certain raw materials;

 

   

our ability to develop and maintain brands that are critical to our success;

 

   

economic downturns in our target markets; and

 

   

difficulty meeting our sales growth objectives and innovation goals.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $1,161 million, or approximately $1,336 million if the underwriters exercise their option to purchase additional shares in full, at the initial public offering price set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

We intend to use the net proceeds from this offering to repay amounts owed under the IPO Settlement Facility incurred as part of the Corporate Reorganization. The IPO Settlement Facility is scheduled to mature on the first business day after the closing date of this offering and will accrue interest at a rate equal to the LIBOR rate for an interest period of one month, determined as of approximately 11:00 a.m. (London time) one business day prior to the closing date. We intend to use the net proceeds of the New Term Loan Facility to settle certain related party borrowings, including amounts arising as part of the Corporate Reorganization prior to the closing of this offering. Related party borrowings owed to RGHL Group will be settled as part of the Corporate Reorganization prior to this offering.

Should the underwriters exercise their option to purchase additional shares of common stock, and the closing of such option exercise occurs on the closing date of this offering, the debt incurred under the IPO Settlement Facility as part of the Corporate Reorganization will be increased to equal the net proceeds from this offering as at such closing date (including all or a portion of the exercise of the option), and accordingly, we intend to use the net proceeds from the exercise of such option to repay amounts owed under the IPO Settlement Facility incurred as part of the Corporate Reorganization, repay a portion of the New Term Loan Facility and/or for general corporate purposes. Should the underwriters exercise their option to purchase additional shares of common stock, and the closing of such option exercise occurs after the closing date of this offering, the debt incurred under the IPO Settlement Facility will be equal to the net proceeds from this offering as of such closing date and we intend to use the net proceeds from the exercise of such option to repay a portion of the New Term Loan Facility or for general corporate purposes. The New Term Loan Facility is scheduled to mature in the first quarter of 2027 and will bear interest, at our option, at a rate per annum equal to a margin of 1.75% over either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime lending rate, (2) the federal funds effective rate plus 0.5% and (3) the LIBOR rate for a one month interest period plus 1.00% or (b) a LIBOR rate determined by reference to the LIBOR rate as set forth by any service selected by the administrative agent that has been nominated by the ICE Benchmark Administration Limited (or any successor administrator) as an authorized information vendor for the purpose of displaying such rates (or, if the ICE Benchmark Administration Limited no longer administers such rate, the equivalent rate for deposits in dollars administered by any successor administrator of such rate for the interest period relevant to such borrowing), in each case, subject to interest rate floors. See “Unaudited Pro Forma Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sources of Liquidity—New Credit Facilities” for additional details regarding the New Term Loan Facility.

An affiliate of Goldman Sachs & Co. LLC, which is an underwriter in this offering, is the lender under the IPO Settlement Facility. The net proceeds from this offering will be used to repay the IPO Settlement Facility. Because of the manner in which the proceeds will be used, this offering will be conducted in accordance with Financial Industry Regulatory Authority, Inc., or FINRA, Rule 5121. This rule requires, among other things, that a qualified independent underwriter has participated in the preparation of, and has exercised the usual standards of ‘‘due diligence’’ with respect to, this prospectus and the registration statement of which this prospectus forms a part. Credit Suisse Securities (USA) LLC has agreed to act as qualified independent underwriter for the offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act, specifically including those inherent in Section 11 of the Securities Act. We will agree to indemnify Credit Suisse Securities (USA) LLC against liabilities incurred in connection with acting as qualified independent underwriter, including liabilities under the Securities Act. Moreover, Goldman Sachs & Co. LLC is not permitted to sell common stock in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder. See “Underwriting (Conflicts of Interest).”

 

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DIVIDEND POLICY

Following the closing of this offering and subject to legally available funds, we intend to pay quarterly cash dividends on our common stock. For fiscal year 2020, we expect to pay a quarterly cash dividend of $0.223 per share. However, we expect the initial dividend for the quarter ending on March 31, 2020 to be a prorated cash dividend for the period beginning on the first day of trading of our common stock on Nasdaq and ending on the last day of that period. We expect this initial dividend to be approximately $0.15 per share. This initial dividend is expected to be paid in mid-April 2020. Thereafter, the quarterly dividend will be paid subsequent to the close of each fiscal quarter.

Any declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, including restrictive covenants contained in our financing agreements and such other factors as our board of directors may deem relevant. See “Risk Factors—Risks Relating to Our Common Stock and this Offering—We intend to pay regular dividends on our common stock, but our ability to do so may be limited.”

Under Delaware law, dividends may be payable only out of surplus, which is calculated as our net assets less our liabilities and our capital, or, if we have no surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and capitalization as of September 30, 2019:

 

   

on an actual basis; and

 

   

on a pro forma basis to reflect:

 

   

the legal entity reorganization of our companies so that they are all under a single parent entity, RCPI;

 

   

the execution of the RGHI TSA and the Rank TSA;

 

   

the execution of plant and asset transfer agreements (and related support agreements), manufacturing and supply agreements and certain other agreements to be entered into with RGHL Group that document and/or amend ongoing commercial arrangements that we have with RGHL Group;

 

   

the reallocation to an entity within RGHL Group of our portion of outstanding borrowings under the RGHL Group Credit Agreement and our subsequent legal release from the RGHL Group Credit Agreement and the legal release from the guarantees of all the senior notes issued by entities of RGHL Group;

 

   

the repurchase, for cash, of the U.S. trade receivables that we previously sold through RGHL Group’s securitization facility that are outstanding as of the time of the repurchase of such trade receivables;

 

   

the reclassification of RGHL Group’s historical net investment in us to additional paid-in capital and the establishment of share capital consisting of shares of common stock;

 

   

the consummation of the Stock Split;

 

   

the entry into the New Credit Facilities and the incurrence of debt under the New Term Loan Facility and the IPO Settlement Facility;

 

   

the repayment of certain related party borrowings owing to RGHL Group and the capitalization, as additional paid-in capital without the issuance of any additional shares, of the remaining balance of the related party borrowings owing to RGHL Group;

 

   

the reorganization of our equity holdings such that RGHL Group will transfer its interests in us to PFL and, as such, ownership of our common stock will be held outside of the group of entities that will represent RGHL Group after this offering;

 

   

the sale by us of 47,170,000 shares of common stock in this offering, at the initial public offering price of $26.00 per share, as set forth on the cover page of this prospectus, representing the receipt of $1,161 million in net proceeds after deducting the underwriting discount and the estimated offering expenses payable by us, as well as the application of such net proceeds as described in “Use of Proceeds”;

 

   

the issuance of the IPO Grants and payment of certain one-time cash settled transaction bonuses; and

 

   

the initial funding of a new defined benefit pension plan.

 

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The pro forma information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. This table should be read in conjunction with “Use of Proceeds,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our annual and interim combined financial statements and notes thereto included elsewhere in this prospectus.

 

     September 30,
2019

(In millions except
share and per
share data)
 
     Actual     Pro
forma
 

Cash and cash equivalents

   $ 15     $ 8  
  

 

 

   

 

 

 

Debt, including current and long-term:

    

RGHL Group Credit Agreement—U.S. term loan(1)

   $ 2,016     $ —    

Related party borrowings(2)

     2,148       —    

New Credit Facilities(3)

     —         2,447  
  

 

 

   

 

 

 

Total debt

   $ 4,164     $ 2,447  
  

 

 

   

 

 

 

Equity:

    

Common stock, $0.001 par value per share, 2,000,000,000 shares authorized, 202,625,000 shares outstanding on a pro forma basis

     —         —    

Additional paid-in capital

     —         1,229  

Net Parent deficit

     (807     —    

Accumulated other comprehensive income

     9       9  

Retained earnings (deficit)

     —         (7
  

 

 

   

 

 

 

Total stockholders’ (deficit) equity(4)

   $ (798   $ 1,231  
  

 

 

   

 

 

 

Total capitalization

   $ 3,366     $ 3,678  
  

 

 

   

 

 

 

 

(1)

Our portion of the RGHL Group Credit Agreement consists of a U.S. term loan of $2,021 million of principal amount, net of deferred financing transaction costs and original issue discounts of $5 million.

(2)

Related party borrowings consist of $2,148 million of principal amount.

(3)

New Credit Facilities consist of a $2,475 million New Term Loan Facility and a $250 million New Revolving Facility (which New Revolving Facility is expected to be undrawn upon the closing of this offering), net of $30 million of deferred financing transaction costs and original issue discount (of which $28 million is related to the New Term Loan Facility and is reflected as a reduction in long-term debt and $2 million is related to the New Revolving Facility and is reflected in other assets).

(4)

As described in “Use of Proceeds,” we intend to use the net proceeds from this offering to repay amounts owed under the IPO Settlement Facility incurred as part of the Corporate Reorganization. We intend to use the net proceeds of the New Term Loan Facility to settle certain related party borrowings, including amounts arising as part of the Corporate Reorganization prior to the closing of this offering. Related party borrowings owed to RGHL Group will be settled as part of the Corporate Reorganization prior to this offering.

 

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DILUTION

If you invest in shares of our common stock, your investment will be immediately diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma net tangible book value per share of common stock after this offering. Dilution results from the fact that the per share offering price of the shares of common stock is substantially in excess of the pro forma net tangible book value (deficit) per share after this offering.

Our net tangible book value (deficit) as of September 30, 2019 was $(2,933) million or $(18.87) per share of common stock after giving pro forma effect to the Corporate Reorganization. Net tangible book value (deficit) represents total tangible assets less total liabilities. Tangible assets represent total assets excluding goodwill and other intangible assets. Net tangible book value (deficit) per share represents net tangible book value (deficit) divided by the aggregate number of shares of common stock outstanding immediately prior to this offering (after giving pro forma effect to the Corporate Reorganization).

After giving further effect to the sale by us of the shares of our common stock in this offering, at the initial public offering price of $26.00 per share, as set forth on the cover page of this prospectus, and the receipt and application of the net proceeds, our pro forma net tangible book value (deficit) as of September 30, 2019 would have been $(1,779) million or $(8.78) per share. This represents an immediate increase in pro forma net tangible book value (deficit) to the existing stockholder of $10.09 per share and an immediate dilution to new investors of $(34.78) per share. Dilution per share represents the difference between the price per share to be paid by new investors for the shares of our common stock sold in this offering and the pro forma net tangible book value (deficit) per share immediately after this offering. The following table illustrates this per share dilution:

 

Initial public offering price

   $ 26.00  

Pro forma net tangible book value (deficit) per share as of September 30, 2019 (after giving effect to the Corporate Reorganization)

   $ (18.87

Increase in pro forma net tangible book value (deficit) per share attributable to the existing stockholder

     10.09  
  

 

 

 

Pro forma net tangible book value (deficit) per share after offering

     (8.78
  

 

 

 

Dilution per share to new investors

   $ 34.78  
  

 

 

 

The following table sets forth, on a pro forma basis, as of September 30, 2019, the number of shares of our common stock purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by the existing stockholder and by the new investors, at the initial public offering price of $26.00 per share, as set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing stockholder

     155,455,000        77   $ 77,235,000        6   $ 0.50  

New investors

     47,170,000        23     1,226,420,000        94     26.00  

Total

     202,625,000        100   $ 1,303,655,000        100   $ 6.43  

The foregoing tables assume no exercise of the underwriters’ option to purchase additional shares of common stock.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following table presents our selected historical combined financial data. As detailed in our annual and interim combined financial statements included elsewhere in this prospectus, prior to this offering, our operations are not structured under a single consolidating parent entity.

The combined statement of income data and summary cash flow data for each of the years ended December 31, 2018, 2017, and 2016, and the combined balance sheet data as of December 31, 2018 and 2017, are derived from our annual combined financial statements included elsewhere in this prospectus. The unaudited combined statement of income data and summary cash flow data for the years ended December 31, 2015 and 2014, and the unaudited combined balance sheet data as of December 31, 2016, 2015, and 2014, are derived from our financial records, which were derived from the financial records of RGHL Group, and are not included in this prospectus. The unaudited combined financial data as of December 31, 2016, 2015 and 2014 and for the years ended December 31, 2015 and 2014 were prepared on the same basis as our annual combined financial statements.

The combined statement of income data and summary cash flow data for the nine months ended September 30, 2019 and 2018, and the combined balance sheet data as of September 30, 2019, have been derived from our interim condensed combined financial statements included elsewhere in this prospectus. The selected combined balance sheet data as of September 30, 2018 has been derived from our financial records, which were derived from the financial records of RGHL Group, and are not included in this prospectus.

The interim condensed combined financial statements as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018 were prepared on the same basis as our annual combined financial statements. In our opinion, such financial statements include all normal and recurring adjustments considered necessary for a fair statement of the financial information set forth in those statements.

 

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Our historical combined financial statements have been prepared on a stand-alone basis in accordance with GAAP and are derived from RGHL Group’s consolidated financial statements and accounting records using the historical results of operations and assets and liabilities attributed to our operations, and include allocations of expenses from RGHL Group. We believe these allocations were made on a reasonable basis. Our historical results are not necessarily indicative of our results in any future period. You should read the following selected historical combined financial data together with our combined annual and interim financial statements and the related notes included elsewhere in this prospectus and the “Capitalization,” “Unaudited Pro Forma Combined Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.

 

     Nine months ended
September 30,
    Year ended December 31,  
     2019     2018     2018     2017     2016     2015     2014  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (In millions)  

Statement of Income Data:

 

Net revenues(1),(3)

  $ 2,083     $ 2,113     $ 2,981     $ 2,809     $ 2,792     $ 2,798     $ 2,719  

Related party net revenues(2),(3)

    114       122       161       148       143       170       159  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues(3)

    2,197       2,235       3,142       2,957       2,935       2,968       2,878  

Cost of sales(2)

    (1,580     (1,669     (2,310     (2,095     (2,048     (2,193     (2,241
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    617       566       832       862       887       775       637  

Selling, general and administrative expenses(2),(4)

    (231     (218     (288     (294     (325     (268     (244

Other expense, net(4)

    (34     (20     (31     (28     (28     (33     (28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    352       328       513       540       534       474       365  

Non-operating income (expense), net

    1       —         —         —         (10     (2     (1

Interest expense, net(5),(6)

    (174     (212     (280     (322     (391     (363     (349
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    179       116       233       218       133       109       15  

Income tax (expense) benefit

    (44     (24     (57     84       (54     (41     (6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 135     $ 92     $ 176     $ 302     $ 79     $ 68     $ 9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (non-GAAP)(7)

  $ 441     $ 423     $ 647     $ 656     $ 647     $ 583     $ 523  

Balance Sheet Data (as of end of period):

             

Accounts receivable, net

  $ 15       $ 16     $ 9     $ 52     $ 55     $ 64  

Inventories

    478         429       371       298       289       339  

Related party receivables—non-current(6)

    —           2,401       1,929       1,784       1,243       792  

Total assets(8)

    4,130         6,421       5,911       5,738       5,236       4,901  

Accounts payable

    119         136       121       124       119       114  

Long-term debt, including current portion(5)

    2,016         2,030       2,049       2,067       891       915  

Related party borrowings, including current portion(6)

    2,148         3,950       3,927       3,957       4,913       4,683  

Total equity (deficit)

    (798       (1,027     (1,298     (1,517     (1,640     (1,765

Cash Flow Data:(9)

             

Net cash provided by (used in):

             

Operating activities

  $ 158     $ 347     $ 530     $ 395     $ 393     $ 280     $ (43

Investing activities

    (93     (235     (554     (364     (584     (481     (280

Financing activities

    (73     (129     24       (40     180       232       296  

 

(1)

Our net revenues are derived primarily from sales of our cooking, waste & storage and tableware products to third-party customers, primarily in the United States. Revenues are reported net of estimated sales incentives.

 

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(2)

Related party net revenues represent the sale of our finished products to RGHL Group. Those transactions have historically taken place at an agreed upon price, which may not be equivalent to the terms that would prevail in an arm’s length transaction. In connection with this offering, we have entered, or will enter, into agreements that document and/or amend certain ongoing commercial arrangements we have with certain RGHL Group subsidiaries. These manufacturing and supply agreements will become effective no later than the closing of this offering. Following the closing of this offering, these agreements will impact our related party net revenues, our cost of sales and our selling, general and administrative expenses. For further information, see “Certain Relationships and Related Party Transactions,” “Unaudited Pro Forma Combined Financial Data” and Note 14—Related Party Transactions of our annual combined financial statements included elsewhere in this prospectus.

Following the closing of this offering, the RGHI TSA and the Rank TSA will take effect to cover certain corporate services currently provided by RGHL Group.

Due to these and other changes we anticipate in connection with this offering, the historical combined financial data included in this prospectus may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been a stand-alone public company during the periods presented. See the notes to our unaudited pro forma combined financial data.

 

(3)

On January 1, 2018, we adopted ASC 606, using the modified retrospective method for all contracts not completed as of the date of adoption, resulting in a $5 million adjustment to Net Parent deficit. There was no other material financial impact from adopting the new revenue recognition standard. See Note 2—Summary of Significant Accounting Policies of our annual combined financial statements included elsewhere in this prospectus for an explanation of the impact of the adoption of ASC 606. Results as of and for the year ended December 31, 2018 and periods thereafter are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under ASC 605, Revenue Recognition, the accounting standard in effect for those periods presented.

(4)

RGHL Group currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. Our historical combined financial statements included elsewhere in this prospectus reflect these costs primarily in selling, general and administrative expenses and other expense, net. These allocations include costs related to corporate services such as executive management, finance, legal, tax, information technology and a portion of a related party management fee incurred by RGHL Group. The total amount of these allocations from RGHL Group was $40 million, $37 million, $39 million, $42 million and $39 million in the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively, and $29 million for each of the nine months ended September 30, 2019 and 2018. See Note 1—Description of Business and Basis of Presentation in our annual combined financial statements included elsewhere in this prospectus for additional information.

(5)

During the periods presented above, we had between $734 million and $2,084 million of borrowings under the RGHL Group Credit Agreement. Interest expense has been recognized based on the historical interest rates of the RGHL Group Credit Agreement and totaled $97 million, $85 million, $51 million, $40 million and $37 million in the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively, and $78 million and $71 million in the nine months ended September 30, 2019 and 2018, respectively. Deferred financing transaction costs and original issue discounts have been recognized in the same proportion as debt and are recorded as a reduction to the outstanding borrowings included in our combined balance sheets. As part of the Corporate Reorganization prior to the closing of this offering, our borrowings under the RGHL Group Credit Agreement will be reallocated to RGHL Group and we will be legally released from the RGHL Group Credit Agreement and from the guarantees of all the senior notes issued by entities of RGHL Group. See “Unaudited Pro Forma Combined Financial Data” for additional information.

(6)

Historically, we have reported significant interest bearing related party receivables and interest bearing long-term related party borrowings. These balances arose as part of wider RGHL Group cash management activities. In June 2019, the outstanding related party receivables were used to reduce the balances outstanding under various related party borrowings and accrued interest payable. As part of the Corporate

 

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Reorganization prior to the closing of this offering, any remaining balances will be settled. See “Unaudited Pro Forma Combined Financial Data” for additional information.

 

(7)

We define “Adjusted EBITDA” as our 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 unrealized gains and losses on derivatives, costs associated with rationalizing operations and administrative functions, factoring discounts, defined benefit plan settlement losses, amortization of actuarial gains, operational process engineering related consultancy costs, the allocated related party management fee and transaction-related costs.

We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.

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

 

     Nine months ended
September 30,
    Year ended December 31,  
       2019         2018       2018     2017     2016     2015     2014  
     (In millions)  

Net income (GAAP)

   $ 135     $ 92     $ 176     $ 302     $ 79     $ 68     $ 9  

Income tax expense (benefit)

     44       24       57       (84     54       41       6  

Interest expense, net

     174       212       280       322       391       363       349  

Depreciation and amortization

     63       66       87       90       97       100       102  

Factoring discount(a)

     15       14       22       19       15       17       18  

Allocated related party management fee(b)

     7       6       10       10       13       17       9  

Transaction-related costs(c)

     12       —         —         —         —         —         —    

Unrealized (gains) losses on derivatives(d)

     (9     8       14       (4     (8     (21     25  

Business rationalization costs(e)

     1       4       4       2       1       —         3  

Defined benefit plan settlement loss(f)

     —         —         —         —         9       —         —    

Other(g)

     (1     (3     (3     (1     (4     (2     2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (Non-GAAP)

   $ 441     $ 423     $ 647     $ 656     $ 647     $ 583     $ 523  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  a)

Reflects the loss on sale that we incur when we sell our U.S. trade receivables through RGHL Group’s securitization facility. For further information, refer to Note 9—Other Expense, Net in our annual combined financial statements and Note 11—Other Expense, Net in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus. In conjunction with this offering, we will cease to participate in this facility.

  b)

Reflects our allocation, from RGHL Group, of a management fee that is charged by Rank to RGHL Group. We will not be required to pay any portion of this management fee after closing of this offering. For further information, refer to Note 9—Other Expense, Net in our annual combined financial statements and Note 11—Other Expense, Net in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

  c)

Reflects allocated costs during the nine months ended September 30, 2019 related to the IPO process that cannot be offset against the expected future IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company.

  d)

Reflects the mark-to-market movements in our commodity derivatives. For further information, refer to Note 7—Financial Instruments in our annual combined financial statements and Note 8—Financial Instruments in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

  e)

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

 

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  f)

Reflects the settlement loss recognized on merging our defined benefit plan into a plan sponsored by RGHL Group. For further information, refer to Note 8—Benefit Plans in our annual combined financial statements included elsewhere in this prospectus.

  g)

Includes the amortization of actuarial gains related to our postretirement benefit plan. For further information, refer to Note 8—Benefit Plans in our annual combined financial statements and Note 9—Benefit Plans in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

 

(8)

On January 1, 2019, we adopted ASC 842, using the modified retrospective method without the recasting of comparative periods’ financial information, as permitted by the transition guidance. Results as of and for the nine months ended September 30, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported under ASC 840, Leases, the accounting standard in effect for those periods presented.

 

(9)

We have historically operated as part of RGHL Group and not as a stand-alone public company. RGHL Group centrally managed substantially all of our financial resources for all of the periods presented. Accordingly, our historical operating, investing and financing cash flow data each includes significant related party transactions which may not have arisen had we been a stand-alone public company.

Our net cash provided by operating activities includes the impact of changes in related party receivables and payables that are not representative of the timing of settlement of trade balances on terms consistent with third party arrangements entered into in the normal course of business. Our net cash provided by operating activities also includes historical related party interest paid, net, related to arrangements with RGHL Group that will cease on or prior to the closing of this offering. Furthermore, as detailed in Note 2—Summary of Significant Accounting Policies of our annual combined financial statements included elsewhere in this prospectus, our U.S. operations were included in a consolidated U.S. federal tax return and the settlement of our U.S. federal current tax is recognized directly as a movement in Net Parent deficit. As a result, our net cash provided by operating activities does not include any cash outflow associated with the payment of U.S. federal tax.

The following table illustrates the impact of the timing of settlement of related party receivables and payables, as well as the settlement of our U.S. federal current tax directly through Net Parent deficit, on our net cash provided by operating activities.

 

     Nine months ended
September 30,
    Year ended December 31,  
         2019             2018             2018             2017             2016      
     (In millions)  

Change in related party accounts payable

   $ (72   $ 163     $ 22     $ (7   $ 64  

Change in related party accounts receivable (excluding related party interest receivable)

     (28     (32     (3     (10     —    

Change in income tax payable

     50       42       71       67       54  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in net cash provided by operating activities due to the above items

   $ (50   $ 173     $ 90     $ 50     $ 118  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table illustrates the impact of historical related party interest expense paid, net of related party interest income received on our net cash provided by operating activities.

 

     Nine months ended
September 30,
     Year ended December 31,  
         2019             2018              2018              2017             2016      
     (In millions)  

Related party interest received (paid), net

   $ (2   $ 16      $ 65      $ (56   $ (207

For further information regarding related party transactions reported within our cash flows from investing and financing activities, refer to our combined statements of cash flows in our annual combined financial statements and interim condensed combined financial statements, each of which is included elsewhere in this prospectus.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following unaudited pro forma combined financial data of RCP consist of unaudited pro forma combined statements of income for the nine months ended September 30, 2019 and for the year ended December 31, 2018, and an unaudited pro forma combined balance sheet as of September 30, 2019. The unaudited pro forma combined financial statements and the related notes should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Party Transactions,” and our audited and unaudited combined financial statements and the related notes included elsewhere in this prospectus.

The unaudited pro forma combined statements of income give effect to the Pro Forma Transactions (as defined below) as if the Pro Forma Transactions had occurred or had become effective as of January 1, 2018. The unaudited pro forma combined balance sheet gives effect to the Pro Forma Transactions as if the Pro Forma Transactions had occurred or had become effective as of September 30, 2019.

The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The unaudited pro forma combined financial statements are for illustrative and informational purposes only and do not purport to represent what our financial position or results of operations would have been if we had operated as a stand-alone public company during the periods presented or if the transactions described below had actually occurred as of the dates indicated, nor does it project our financial position at any future date or our results of operations or cash flows for any future period.

The unaudited pro forma statements of income and balance sheet have been derived from the historical annual combined and interim condensed combined financial statements included elsewhere in this prospectus. Our unaudited pro forma combined financial statements have been prepared to reflect adjustments to our historical combined financial statements that are: (1) directly attributable to the Pro Forma Transactions, (2) factually supportable and (3) with respect to the unaudited pro forma combined statements of income, expected to have a continuing impact on our results. The unaudited pro forma combined financial statements do not include non-recurring items, including, but not limited to, costs we expect to incur in connection with our separation from RGHL Group.

The unaudited pro forma combined financial statements give effect to the following pro forma transactions (“Pro Forma Transactions”):

 

   

the legal entity reorganization of our companies so that they are all under a single parent entity, RCPI;

 

   

the execution of the RGHI TSA and the Rank TSA;

 

   

the execution of plant and asset transfer agreements (and related support agreements), manufacturing and supply agreements and certain other agreements to be entered into with RGHL Group that document and/or amend ongoing commercial arrangements that we have with RGHL Group;

 

   

the reallocation to an entity within RGHL Group of our portion of outstanding borrowings under the RGHL Group Credit Agreement and our subsequent legal release from the RGHL Group Credit Agreement and the legal release from the guarantees of all the senior notes issued by entities of RGHL Group;

 

   

the repurchase, for cash, of the U.S. trade receivables that we previously sold through RGHL Group’s securitization facility that are outstanding as of the time of the repurchase of such trade receivables;

 

   

the reclassification of RGHL Group’s historical net investment in us to additional paid-in capital and the establishment of share capital consisting of shares of common stock;

 

   

the consummation of the Stock Split;

 

   

the entry into the New Credit Facilities and the incurrence of debt under the New Term Loan Facility and the IPO Settlement Facility;

 

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the repayment of certain related party borrowings owing to RGHL Group and the capitalization, as additional paid-in capital without the issuance of any additional shares, of the remaining balance of the related party borrowings owing to RGHL Group;

 

   

the reorganization of our equity holdings such that RGHL Group will transfer its interests in us to PFL and, as such, ownership of our common stock will be held outside the group of entities that will represent RGHL Group after this offering;

 

   

the sale by us of shares of common stock in this offering, at the initial public offering price of $26.00 per share, as set forth on the cover page of this prospectus, representing the receipt of $1,161 million in net proceeds after deducting the underwriting discount and the estimated offering expenses payable by us, as well as the application of such net proceeds as described in “Use of Proceeds”;

 

   

the issuance of the IPO Grants and payment of certain one-time cash settled transaction bonuses; and

 

   

the initial funding of a new defined benefit pension plan.

RGHL Group currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, information technology, legal, finance and accounting, human resources, risk management, tax, treasury and other services. Following the closing of this offering, we expect RGHL Group and Rank to continue to provide many of these services on a fee basis under the RGHI TSA and the Rank TSA described in “Certain Relationships and Related Party Transactions—Transactions to be Entered into in Connection with this Offering.”

Upon the closing of this offering, we will assume responsibility for all of our stand-alone public company costs, including the costs of certain corporate services currently provided by RGHL Group. We estimate that our annual selling, general and administrative expenses for these costs will be approximately $42 million (representing approximately $12 million of annual costs incremental to the 2018 allocated costs referred to above). In addition, as we transition away from the corporate services currently provided by RGHL Group, we believe that we may incur $45 million to $50 million of non-recurring transitional costs during fiscal year 2019 to fiscal year 2022, with the majority of these costs expected to be incurred during fiscal year 2020.

In addition, in connection with this offering, we will establish the Incentive 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. The maximum number of shares of common stock initially available for issuance under the equity incentive awards granted pursuant to the plan is expected to equal 10,485,025 shares. Upon the granting of stock-based compensation awards, and the vesting of such awards, we will recognize stock-based compensation expense. Historically, we have not granted any stock-based compensation awards. No adjustment has been made for these future equity incentive plan awards because the timing and amount of the awards to be granted is uncertain.

The unaudited pro forma combined statements of income also exclude certain non-recurring items that we expect to incur in connection with the Corporate Reorganization and this offering, including costs related to legal, accounting and other professional fees. We have incurred costs totaling $12 million for transaction-related services during the nine months ended September 30, 2019 and we estimate an additional $18 million to $19 million will be incurred in 2019. We expect all of these costs to be expensed, as incurred.

Due to the scope and complexity of these activities, the amount of these estimated costs could increase or decrease materially and the timing of when they are incurred could change.

The above incremental stand-alone public company costs and non-recurring transition costs are not reflected in our unaudited pro forma combined financial statements as such amounts are estimates and not factually supportable.

 

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Unaudited Pro Forma Combined

Balance Sheet As of September 30, 2019

(In Millions, Except Share and Per Share Data)

 

     Historical
Combined
    Pro Forma
Adjustments
    Pro Forma
Consolidated
 

Assets

      

Cash and cash equivalents

   $ 15     $ (7 )(d)    $ 8  

Accounts receivable, net

     15       271 (e)      286  

Other receivables

     4       —         4  

Related party receivables

     44       (40 )(e)      4  

Inventories

     478       —         478  

Other current assets

     8       (2 )(g)      6  
  

 

 

   

 

 

   

 

 

 

Total current assets

     564       222       786  

Property, plant and equipment, net

     513       —         513  

Operating lease right-of-use assets, net

     35       —         35  

Goodwill

     1,879       —         1,879  

Intangible assets, net

     1,131       —         1,131  

Deferred income taxes

     1       —         1  

Other assets

     7       2 (c)      9  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,130     $ 224     $ 4,354  
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Accounts payable

   $ 119     $ —       $ 119  

Related party payables

     93       (51 )(e)      42  

Related party accrued interest payable

     42       (42 )(b)      —    

Current portion of long-term debt

     21       4 (a),(c)      25  

Current portion of related party borrowings

     1       (1 )(b)      —    

Income taxes payable

     13       —         13  

Accrued and other current liabilities

     120       5 (e)      125  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     409       (85     324  

Long-term debt

     1,995       427 (a),(c)      2,422  

Long-term related party borrowings

     2,147       (2,147 )(b)      —    

Long-term operating lease liabilities

     30       —         30  

Deferred income taxes

     288       —         288  

Long-term postretirement benefit obligation

     44       —         44  

Other liabilities

     15       —         15  
  

 

 

   

 

 

   

 

 

 

Total liabilities

   $ 4,928     $ (1,805   $ 3,123  
  

 

 

   

 

 

   

 

 

 

Net Parent (deficit)

     (807     807 (g)      —    

Accumulated other comprehensive income

     9       —         9  

Stockholders’ Equity:

      

Common stock, 2,000,000,000 shares authorized, $0.001 par value; 202,625,000 shares issued and outstanding on a pro forma basis

     —         —         —    

Additional paid-in capital

     —         1,229 (g)      1,229  

Retained earnings (deficit)

     —         (7 )(g)      (7
  

 

 

   

 

 

   

 

 

 

Total equity (deficit)

     (798     2,029       1,231  
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity (deficit)

   $ 4,130     $ 224     $ 4,354  
  

 

 

   

 

 

   

 

 

 

See accompanying Notes to Unaudited Pro Forma Combined Financial Data.

 

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Unaudited Pro Forma Combined Statement of

Income For the Nine Months Ended

September 30, 2019

(In Millions, Except Share and Per Share Data)

 

     Historical
Combined
    Pro Forma
Adjustments
    Pro Forma
Consolidated
 

Net revenues

   $ 2,083     $ —       $ 2,083  

Related party net revenues

     114       —         114  
  

 

 

   

 

 

   

 

 

 

Total net revenues

     2,197       —         2,197  

Cost of sales

     (1,580     —         (1,580
  

 

 

   

 

 

   

 

 

 

Gross profit

     617       —         617  

Selling, general and administrative expenses

     (231     (1 )(e)      (232

Other expense, net

     (34     22 (e)      (12
  

 

 

   

 

 

   

 

 

 

Income from operations

     352       21       373  

Non-operating income (expense), net

     1       —         1  

Interest expense, net

     (174     104 (c)      (70
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     179       125       304  

Income tax expense

     (44     (29 )(f)      (73
  

 

 

   

 

 

   

 

 

 

Net income

   $ 135     $ 96     $ 231  
  

 

 

   

 

 

   

 

 

 

Earnings per Share, Basic and Diluted:

      

Basic

       $ 1.14  

Diluted

       $ 1.14  

Weighted Average Shares Outstanding:

      

Basic

         202,680,331  

Diluted

         202,751,471  

Unaudited Pro Forma Combined Statement of

Income For the Year Ended December 31, 2018

(In Millions, Except Share and Per Share Data)

 

     Historical
Combined
    Pro Forma
Adjustments
    Pro Forma
Consolidated
 

Net revenues

   $ 2,981     $ —       $ 2,981  

Related party net revenues

     161       —         161  
  

 

 

   

 

 

   

 

 

 

Total net revenues

     3,142       —         3,142  

Cost of sales

     (2,310     —         (2,310
  

 

 

   

 

 

   

 

 

 

Gross profit

     832       —         832  

Selling, general and administrative expenses

     (288     (3 )(e)      (291

Other income (expense), net

     (31     32 (e)      1  
  

 

 

   

 

 

   

 

 

 

Income from operations

     513       29       542  

Non-operating expense, net

     —         —         —    

Interest expense, net

     (280     187 (c)      (93
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     233       216       449  

Income tax (expense) benefit

     (57     (49 )(f)      (106
  

 

 

   

 

 

   

 

 

 

Net income

   $ 176     $ 167     $ 343  
  

 

 

   

 

 

   

 

 

 

Earnings per Share, Basic and Diluted:

      

Basic

       $ 1.69  

Diluted

       $ 1.69  

Weighted Average Shares Outstanding:

      

Basic

         202,625,000  

Diluted

         202,681,121  

See accompanying Notes to Unaudited Pro Forma Combined Financial Data.

 

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Notes to Unaudited Pro Forma Combined Financial Data

(a)    Existing External Indebtedness

An adjustment to the unaudited pro forma combined balance sheet as of September 30, 2019 has been made to reflect (i) the reallocation of $2,016 million of long-term debt, net of $5 million of deferred financing transaction costs and original issue discounts, that is outstanding under the RGHL Group Credit Agreement, and our subsequent release as a borrower and guarantor of this facility, in exchange for an increase in our related party borrowings, and (ii) the subsequent settlement of the related party borrowings. Refer to (c) for further details.

An adjustment to the unaudited pro forma combined statements of income for the nine months ended September 30, 2019 and the year ended December 31, 2018 has been made to eliminate the interest expense and amortization of deferred financing transaction costs related to our existing external indebtedness, as if it had been reallocated on January 1, 2018. Refer to (c) for further details.

(b)    Existing Related Party Borrowings and Related Party Accrued Interest Payable

An adjustment to the unaudited pro forma combined balance sheet as of September 30, 2019 has been made to reflect the settlement of $2,148 million of related party borrowings and $42 million of related party accrued interest payable to RGHL Group as part of the Corporate Reorganization.

An adjustment to the unaudited pro forma combined statements of income for the nine months ended September 30, 2019 and the year ended December 31, 2018 has been made to eliminate the interest expense, net related to our related party borrowings and receivables, as if they had been settled on January 1, 2018. Refer to (c) for further details.

The following table presents the pro forma adjustments to related party borrowings:

 

     (in millions)  

Increase in related party borrowings as a result of the reallocation of indebtedness outstanding under the RGHL Group Credit Agreement, as described in (a)

   $ 2,016  

Increase in related party borrowings to fund the purchase of U.S. trade receivables previously sold through RGHL Group’s securitization facility, as described in (e)

     271  

Increase in related party borrowings in conjunction with plant and asset transfers, as described in (e)

     113  

Increase in related party borrowings in conjunction with the legal entity reorganization, as described in (g)

     15  

Increase in related party borrowings from the offset with related party trade receivables and payables, as described in (e)

     11  

Increase in related party borrowings from reimbursement to RGHL Group of transaction-related amounts incurred on our behalf, as described in (g)

     14  

Decrease in related party borrowings from the use of cash, as described in (d)

     (3,570

Decrease in related party borrowings from the capitalization of the remaining balance, as additional paid-in capital without the issuance of any additional shares, as described in (g)

     (1,018
  

 

 

 

Net adjustment to related party borrowings, comprising $1 million current and $2,147 million non-current

   $ (2,148
  

 

 

 

(c)    New Credit Facilities

Prior to the closing of this offering, we will enter into the New Credit Facilities and incur an estimated $30 million of deferred financing transaction costs and original issue discount. Of this amount, $28 million is related to the New Term Loan Facility and is reflected as a reduction in long-term debt, and $2 million is related

 

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to the New Revolving Facility and is reflected in other assets. Prior to the closing of this offering we will incur $2,475 million of indebtedness under the New Term Loan Facility resulting in annual interest expense of $93 million, based on an assumed constant interest rate of 3.59% per annum for the period, including annual amortization of $4 million of deferred financing transaction costs and original issue discount. The assumed constant interest rate is based on the three-month LIBO rate in effect on January 15, 2020, plus an applicable margin of 1.75%. A change of 12.5 basis points to the assumed annual interest rate of the New Term Loan Facility would change pro forma interest expense by $3 million annually, holding the principal balance of the New Term Loan Facility constant.

We expect the New Revolving Facility to be undrawn upon closing of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sources of Liquidity” for a more detailed description of the New Credit Facilities. In addition, the IPO Settlement Facility will be funded immediately prior to the closing of this offering and will be repaid immediately following the closing of this offering. See “Use of Proceeds.”

The following table presents the pro forma adjustments to long-term debt:

 

     (In millions)  

Reallocation of outstanding debt incurred under the RGHL Group Credit Agreement, comprising the current portion of $21 million and the non-current portion of $1,995 million

   $ (2,016

Incurrence of debt under the New Term Loan Facility, presented as a current portion of $25 million and a non-current portion of $2,450 million

     2,475  

Incurrence of debt under the IPO Settlement Facility 

     1,168  

Repayment of the IPO Settlement Facility

     (1,168

Deferred financing transaction costs and original issue discount associated with the New Credit Facilities

     (28
  

 

 

 

Net adjustment to long-term debt, presented as the current portion of $4 million and the non-current portion of $427 million

   $ 431  
  

 

 

 

The following table presents the pro forma adjustments to interest expense, net:

 

     Nine months
ended
September 30,
2019
    Year ended
December 31,
2018
 
     (In millions)  

New Term Loan Facility

   $ (67   $ (89

RGHL Group Credit Agreement—U.S. Term Loan

     78       97  

Interest expense, related party borrowings

     128       233  

Interest income, related party receivables

     (33     (52

Amortization of deferred financing transaction costs, net of the elimination of historical amortization of $1 million and $2 million

     (2     (2
  

 

 

   

 

 

 

Net adjustment to interest expense, net

   $ 104     $ 187  
  

 

 

   

 

 

 

 

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(d)    Cash and Cash Equivalents

The following table presents the pro forma adjustments to cash and cash equivalents:

 

     (In millions)  

Cash received from additional related party borrowings to repurchase U.S. trade receivables sold through RGHL Group’s securitization facility

   $ 271  

Cash received from proceeds of the New Term Loan Facility

     2,475  

Cash received from proceeds of the IPO Settlement Facility

     1,168  

Cash paid for the New Credit Facilities financing transaction costs and original issue discount

     (30

Cash paid to settle related party borrowings and related party accrued interest payable

     (3,612

Cash paid to repurchase U.S. trade receivables sold through RGHL Group’s securitization facility

     (271

Cash received from the issuance of 47,170,000 shares

     1,226  

Cash paid for costs associated with issuance of shares

     (63

Cash paid to settle the IPO Settlement Facility

     (1,168

Cash paid to fund new defined benefit pension plan

     (2

Cash paid for IPO Settlement Facility fees, including interest

     (1
  

 

 

 

Net adjustment to cash and cash equivalents

   $ (7
  

 

 

 

(e)    Operational Changes and Separation Adjustments

In connection with this offering, we have entered, or will enter, into agreements that document and/or amend ongoing commercial arrangements we have with RGHL Group and Rank. These agreements will become effective no later than the closing of this offering.

Supply, warehousing and freight agreements and related plant and asset transfers

We will enter into supply agreements with Pactiv to continue selling products to and buying products from Pactiv. These agreements will expire on December 31, 2024. We will also enter into a warehousing and freight services agreement with Pactiv to continue storing many of our finished goods in warehouses operated by Pactiv and for them to continue to provide us with certain freight services. The term of the warehousing services under the agreement will vary by location. The term of the freight services under the agreement is for approximately three years.

In conjunction with entering into new supply, warehousing and freight agreements with Pactiv, the ownership or lease of certain plants, warehouses, equipment (including manufacturing lines), information technology assets and inventory will be transferred to us from RGHL Group. These items are already reflected in our historical combined financial statements included elsewhere in this prospectus. An adjustment to the unaudited pro forma combined balance sheet as of September 30, 2019 has been made to reflect the increase in related party borrowings of $113 million to finance the transfer of these items, with a corresponding decrease in additional paid-in capital, as described in (b) and (g), respectively.

The net effects of the supply, warehousing and freight agreements and related plant and asset transfers are not material as compared to the amounts reflected in our historical combined financial statements and, accordingly, no adjustments have been made in the unaudited pro forma combined statements of income for the nine months ended September 30, 2019 and the year ended December 31, 2018.

Transition services agreements

In connection with this offering, we will enter into the RGHI TSA whereby RGHL Group will continue to provide certain administrative services to us, including information technology service; accounting, treasury,

 

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financial reporting and transaction support; human resources; procurement; tax, legal and compliance related services and other corporate services for up to 24 months. These services will be consistent with administrative services provided to us by RGHL Group prior to this offering, and the charges will be at forecasted cost or current cost plus margin. In addition, under the RGHI TSA, we will provide certain services to RGHL Group, including human resources; compliance; and procurement consistent with services provided by us to RGHL Group prior to this offering, which will also be charged at current cost plus margin and provided for a period of up to 24 months, and at each other’s request, certain tax, financial and other information will be provided to enable preparation of financial and tax reports of the respective parties and for other business purposes.

Also, in connection with this offering, we will enter into the Rank TSA whereby, upon our request, Rank 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, to be charged at an agreed hourly rate. In addition, we will provide, at Rank’s request, certain historical tax and financial information to enable Rank to prepare certain of its tax and financial reports.

Our historical combined financial statements include amounts in relation to historical administrative services provided by RGHL Group to us. No adjustment is reflected in our unaudited pro forma combined financial statements in relation to services that may be provided under the RGHI TSA and Rank TSA, as such amounts will ultimately depend upon the actual assistance requested which is not factually supportable.

Removal of historical related party management fee

As part of RGHL Group, our historical combined statements of income include an allocation of RGHL Group’s related party management fee. For further information refer to Note 9—Other Expense, Net of our annual combined financial statements included elsewhere in this prospectus. The allocation of this expense will cease in conjunction with this offering. An adjustment has been made to the unaudited pro forma combined statements of income to remove the allocated expense of $7 million and $10 million for the nine months ended September 30, 2019, and the year ended December 31, 2018, respectively.

Release from RGHL Group securitization facility

Historically, we have sold substantially all of our U.S. trade receivables through RGHL Group’s securitization facility. This non-recourse factoring arrangement satisfied all of the conditions that result in the derecognition of our U.S. trade receivables. For further information refer to Note 2—Summary of Significant Accounting Policies of our annual combined financial statements included elsewhere in this prospectus. Prior to the closing of this offering, we will repurchase, for cash, the U.S. trade receivables that we previously sold through RGHL Group’s securitization facility that are outstanding as of the time of the repurchase of such trade receivables and end our participation in this facility. The repurchase will be financed through additional related party borrowings from RGHL Group, which will be settled as described above at (b). After the closing of this offering, we will collect our trade receivables in the ordinary course of business.

An adjustment of $271 million has been made to the unaudited pro forma combined balance sheet as of September 30, 2019 to reinstate the trade receivables as if the repurchase had occurred as of that date.

An adjustment to the unaudited pro forma combined statements of income for the nine months ended September 30, 2019 and for the year ended December 31, 2018 has been made to eliminate the loss recognized on the sale of trade receivables as if participation in the RGHL Group securitization facility had ceased as of January 1, 2018. No adjustment has been made to the unaudited pro forma combined statements of income for the nine months ended September 30, 2019 and for the year ended December 31, 2018 to eliminate the historical servicing income earned on the collection of these trade receivables on behalf of the RGHL Group as such amounts were immaterial.

 

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Restricted stock unit awards—IPO Grants

Adjustments to the unaudited pro forma combined balance sheet and the pro forma combined statements of income have been made related to the granting of restricted stock units to certain of our employees at the closing of this offering. The IPO Grants are classified as an equity settled stock based payment arrangement and will vest on a pro rata basis over a three-year period commencing from the closing date of this offering.

The adjustments to the unaudited pro forma combined statements of income reflect an increase in selling, general and administrative expenses of $1 million for the nine months ended September 30, 2019 and $3 million for the year ended December 31, 2018.

An adjustment of $1 million has been recognized in the unaudited pro forma combined balance sheet as of September 30, 2019 to increase additional paid-in capital and reduce retained earnings (deficit) to recognize a pro rata portion of the compensation expense based on service performed as of the date of this offering.

Cash transaction bonus

In conjunction with this offering, certain members of our management will be entitled to a one-time cash settled transaction bonus. Entitlement to the bonus is contingent upon the individual’s ongoing employment at the time of payment. The aggregate $7 million bonus will be paid in two installments, 50% will be paid 30 days after the completion of this offering and 50% will be paid six months after the completion of this offering. The pro forma combined balance sheet includes an adjustment of $5 million to accrued and other current liabilities to recognize a pro rata portion of this liability based on service performed as of the date of this offering, with a corresponding reduction to retained earnings (deficit).

Initial funding of a new defined benefit pension plan

In conjunction with this offering, we will establish a new defined benefit plan for certain of our employees and assume the responsibility for certain defined benefit obligations with an unfunded value of $2 million. Shortly following this offering we will fund this plan. A pro forma adjustment has been recognized in the unaudited pro forma combined balance sheet to reduce cash and additional paid-in capital.

Settlement of certain related party trade receivables and related party payables

In conjunction with the Corporate Reorganization, we will settle a portion of our related party trade receivables and related party payables. Other related party trade receivables and payables will remain outstanding and will be settled in the normal course of business. A pro forma adjustment has been recognized in the unaudited pro forma combined balance sheet to reduce related party trade receivables by $40 million and reduce related party payables by $51 million, with a corresponding net increase of $11 million to related party borrowings.

 

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As a result of the adjustments described above in (e), the following table presents the pro forma adjustments to other income (expense), net:

 

     Nine months
ended September 30,
2019
     Year ended
December 31,
2018
 
     (in millions)  

Elimination of the loss recognized on the sale of trade receivables under the RGHL Group securitization facility

   $ 15      $ 22  

Elimination of the historical related party management fee

     7        10  
  

 

 

    

 

 

 

Net adjustment to other income (expense), net

   $ 22      $ 32  
  

 

 

    

 

 

 

(f)    Resulting Tax Effects

Adjustments to the unaudited pro forma combined statements of income have been made to reflect the income tax expense for the items described in (a) through (e) above, calculated at the U.S. federal statutory rate of 21% and the blended state rate of 3.5%.

At the completion of this offering we will exit the RGHI U.S. federal tax consolidated group and become a separate taxable entity. At the time of our exit, we will assume the tax base and certain tax attributes of the RGHI tax consolidated group. These amounts may differ materially from the tax base and attributes that are reflected in our historical combined financial statements included elsewhere in this prospectus.

(g)    Corporate Equity Structure

In conjunction with the Corporate Reorganization, we will acquire from RGHL Group the issued capital of certain non-U.S. entities that are part of RCP. This adjustment includes an increase in related party borrowings of $15 million with an offsetting reduction in additional paid-in capital. Refer to (b) for further details of the settlement of the related party borrowings.

In conjunction with this offering, we will reimburse RGHL Group for transaction-related amounts that it has incurred on our behalf. These amounts are reflected in our historical interim condensed combined financial statements included elsewhere in this prospectus, comprising $12 million of transaction-related costs recognized as an expense during the nine months ended September 30, 2019, and $2 million of deferred costs as of September 30, 2019, that will be offset against the proceeds from this offering. As of September 30, 2019, these costs were reflected in our historical interim condensed combined financial statements with a corresponding adjustment to Net Parent (deficit) as no decision had been made by RGHL Group regarding reimbursement. This adjustment increases related party borrowings by $14 million with a corresponding increase in Net Parent (deficit).

The proceeds from this offering reflects the issuance of 47,170,000 shares at $26.00 per share, net of $65 million of transaction costs, of which $2 million was incurred prior to September 30, 2019 and is included in other current assets in the historical combined balance sheet.

 

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The following table presents the adjustments to our equity after giving effect to the Pro Forma Transactions:

 

     Net
Parent
(deficit)
    Accumulated
other
comprehensive
income
     Common
stock
     Additional
paid-in
capital
    Retained
earnings
(deficit)
 
     (in millions)  

Acquisition of the issued capital of certain non-U.S. entities

   $ —       $ —        $ —        $ (15   $ —    

Reimbursement to RGHL Group of transaction-related amounts incurred on our behalf up to September 30, 2019

     (14     —          —          —         —    

Legal entity reorganization

     821       —          —          (821     —    

Capitalization of related party borrowings, as described in (b)

     —         —          —          1,018       —    

Plant and asset transfers, as described in (e)

     —         —          —          (113     —    

IPO Settlement Facility fees, including interest, as described in (c)

     —         —          —          —         (1

Net proceeds from this offering

     —         —          —          1,161       —    

IPO Grants, as described in (e)

     —         —          —          1       (1

Cash transaction bonus, as described in (e)

     —         —          —          —         (5

Defined benefit pension liability, as described in (e)

     —         —          —          (2     —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net adjustment

   $ 807     $ —        $ —        $ 1,229     $ (7
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Pro Forma Earnings Per Share

Pro forma earnings per share has been calculated based on the number of shares outstanding after completion of this offering, assuming such shares were outstanding for the full periods presented. The following table sets forth the computation of unaudited pro forma basic and diluted earnings per share (in $ millions, except for share and per share data):

 

     Nine months ended
September 30, 2019
     Year ended

December 31, 2018
 

Pro forma net income

   $ 231      $ 343  

Pro forma weighted average shares of common stock outstanding, following the Corporate Reorganization—basic

     155,455,000        155,455,000  

Pro forma adjustment to reflect the issuance of common stock in this offering

     47,170,000        47,170,000  

Pro forma adjustment for the weighted average number of vested shares associated with the IPO Grants—basic

     55,331        —    
  

 

 

    

 

 

 

Weighted average shares of common stock outstanding used in computing pro forma net income per share—basic

     202,680,331        202,625,000  

Pro forma adjustment for the weighted average number of shares outstanding associated with the IPO Grants—diluted

     71,140        56,121  
  

 

 

    

 

 

 

Weighted average shares of common stock outstanding used in computing pro forma net income per share—diluted

     202,751,471        202,681,121  
  

 

 

    

 

 

 

Pro forma net income per share—basic

   $ 1.14      $ 1.69  

Pro forma net income per share—diluted

     1.14        1.69  

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our combined financial statements and the notes thereto and the unaudited pro forma combined financial data and notes thereto, each included elsewhere in this prospectus, as well as the information presented under “Selected Historical Combined Financial Data” and “Unaudited Pro Forma Combined Financial Data.” This discussion and analysis contains forward-looking statements. These forward-looking statements are subject to risk, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed elsewhere in this prospectus. See in particular “Special Note Regarding Forward–Looking Statements” and “Risk Factors.”

We believe the assumptions underlying the combined financial statements are reasonable. However, the combined financial statements included herein may not necessarily reflect our results of operations, financial position and cash flows in the future or what they would have been had we been a separate, stand-alone company during the periods presented.

Overview

We are a market-leading consumer products company with a presence in 95% of households across the United States. We produce and sell products across three broad categories: cooking products, waste & 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. Overall, across both our branded and store brand offerings, over 65% of our revenue for the year ended December 31, 2018 came from products where we hold the #1 U.S. market share position in the category, and in virtually all of our major product categories we hold either a #1 or #2 U.S. market share position by revenue. 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 Reynolds and Hefty brands have preeminent positions in their categories and carry strong brand recognition in household aisles. The combination of our store brand offerings, the shared goal of category growth and indispensable support in marketing, innovation, branding and promotions has enabled us to achieve the position of category captain level advisor across 29 customers, which represent 73% of U.S. category sales, based on Nielsen ACV in 2018.

We manage our operations in four operating and reportable segments: Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware and Presto Products:

 

   

Reynolds Cooking & Baking: Through our Reynolds Cooking & Baking segment, we produce branded and store brand foil, parchment paper, disposable aluminum pans and slow cooker liners. Our branded products are sold under the Reynolds Wrap, Reynolds KITCHENS and E-Z Foil brands in the United States, the Diamond brand outside of North America and the ALCAN brand in Canada.

 

   

Hefty Waste & Storage: Through our Hefty Waste & Storage segment, we produce both branded and store brand trash and food storage bags. Our products are sold under brand names such as Hefty Ultra Strong, Hefty Strong Trash Bags and Hefty Slider Bags.

 

   

Hefty Tableware: Through our Hefty Tableware segment, we sell both branded and store brand disposable plates, bowls, platters, cups and cutlery. Our branded products, which include dishes and party cups, are sold under the Hefty brand.

 

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Presto Products: Through our Presto Products segment, we primarily sell store brand food storage bags, trash bags, disposable storage containers and plastic wrap.

Trends and Factors Impacting Our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this prospectus titled “Risk Factors.”

Consumer Demand for our Products

Our business is largely impacted by the demands of our customers, and our success depends on our ability to anticipate and respond to changes in consumer preferences. Our products are household staples with a presence in 95% of households across the United States. We expect our household penetration to continue to increase with the underlying growth in the number of households in the United States and Canada, which is estimated to be approximately 1% from 2018 to 2023.

We also expect that consumers’ desire for convenience will continue to sustain demand for our products. Today’s consumers are focused on convenience, which extends into household products that improve ease of use and provide time savings, and they are willing to pay a higher price for innovative features and functionality. 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, particularly through our Reyvolution initiatives.

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 57% and 43% of our revenue, excluding business-to-business revenue, respectively, in the year ended December 31, 2018. Penetration of store brand products is growing at 0.9% per year across our categories in the aggregate, driven by retailer investment in quality and tiered product offerings. However, penetration and growth does vary by product category, with higher store brand growth and penetration in our disposable tableware than in our bakeware, storage and trash bag and foil product offerings. 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. 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. 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.

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. Aluminum prices have

 

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historically been volatile, as aluminum is a cyclical commodity with prices subject to global market factors. Raw material costs have also been impacted by governmental actions, such as tariffs and trade sanctions.

Purchases of most of our raw materials are based on negotiated rates with suppliers, which are linked to published indices. Typically, we do not enter into long-term purchase contracts that provide for fixed quantities or prices for our principal raw materials.

We use various strategies to manage our cost exposures on certain raw material purchases, and we use naturally established forecast cycles to influence the purchase of raw materials. In addition, from time to time we have entered into hedging agreements, including commodity derivative contracts, to hedge commodity prices primarily related to aluminum, diesel and benzene with the objective of obtaining more predictable costs for these commodities. The realized and unrealized gains or losses arising from 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 prior periods. Where applicable, we also adjust the prices of our products in response to fluctuations in production and distribution costs.

Our operating results are also sensitive to energy-related cost movements, including those impacting both our manufacturing operations and transportation and utility costs.

Competitive Environment

We operate in a marketplace influenced by large retailers with strong negotiating power over their suppliers. Current trends among these large retailers include increased demand for innovative new products from suppliers, requiring suppliers to maintain or reduce product prices and to deliver products within shorter lead times. We also face the threat of competition from new entrants to our markets as well as from existing competitors, including those overseas who may have lower production costs. In addition, the timing and amount in which our competitors invest in advertising and promotional spending may vary from quarter to quarter and impact our sales volumes and financial results. See “Business—Competition” for more detail on our competitors.

Reyvolution

We intend to continually reinvent and optimize our business through Reyvolution—an all-encompassing way of thinking, planning and evaluating our operations to accelerate future growth through product innovation, process automation and cost reduction. Through this program, we have made significant investment focused on reinforcing our existing product portfolio with new and on-trend products, reducing costs to drive increased profitability and refining automation and our manufacturing base to increase efficiency. From January 1, 2017 to September 30, 2019, the impact of Reyvolution was approximately $246 million of Adjusted EBITDA benefit. Of the total, $179 million was generated through cost savings across our businesses, with $67 million of Adjusted EBITDA being generated through revenue initiatives. While impacting our entire business, Reyvolution has been predominantly centered around: (i) growth and product innovation; (ii) operational cost reduction through automation and manufacturing process optimization initiatives; and (iii) materials cost reduction through strategic sourcing initiatives. The impact of Reyvolution has been instrumental in mitigating the cost increases we have incurred related to operational cost inflation (primarily labor and benefits), increased raw material costs (primarily resin and aluminum) and the market driven cost increases we have incurred in logistics.

Reyvolution is expected to continue to positively impact our business going forward, as we are focused on making significant investment across our business to drive revenue growth, market share increases and Adjusted EBITDA margin expansion. In fiscal year 2018, 21% of our revenue was generated from products that were less than three years old. We are also focused on increasing automation through Reyvolution and utilizing digital

 

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capabilities to improve our operational efficiency in our intelligent manufacturing facilities. As a result, we anticipate a temporary increase in capital expenditures in future years associated with these growth and cost saving initiatives and expanding our capacity.

Seasonality

Portions of our business are 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.

Sustainability

Interest in environmental sustainability has increased over the past decade, and we expect that this may play an increasing role in consumer purchasing decisions. For instance, there have been recent concerns about the environmental impact of single-use disposable products and products made from plastic, particularly polystyrene foam, affecting our products, especially our Hefty Tableware segment. While there is a focus on environmentally friendly products, survey results indicate that in most of our product categories, consumers continue to rank performance-related purchase criteria, such as durability and ease of use, followed by price, as top considerations, rather than sustainability. 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. For instance, we recently launched 75% Unbleached Compostable Parchment Paper and redesigned our Hefty party cups to reduce the plastic by 10% while maintaining strength. We intend to continue sustainability innovation to ensure that we are at the leading edge of recyclability, renewability and compostability in order to offer our customers environmentally sustainable choices.

eCommerce

We expect that the trend of using eCommerce platforms to shop for household products will continue to affect our business due to the convenience of online ordering and subscription delivery. Overall, U.S. eCommerce revenues have grown at 14 to 15% per year since 2016, to 14% of retail sales in 2018, with growth expected to continue at a comparable rate over the next three years. We believe that our products are well-suited to sales through eCommerce channels, as they are shelf stable, inexpensive to ship due to most products being light in weight, and easy to transport. Additionally, the recurring purchase cycles for our products well position them to capitalize on continued growth of grocery pickup and subscription services.

Our Separation from RGHL Group

We have historically operated as part of RGHL Group’s broader corporate organization rather than as a stand-alone public company. RGHL 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, RGHL Group. Historically, these transactions involving RGHL Group may not have always been consummated on terms equivalent to those in an arm’s-length transaction. Sales to RGHL Group of products that we manufacture have been reflected as related party net revenues in our combined financial statements. Certain related party transactions are settled in cash and are reflected as related party receivables and payables in our combined balance sheets. The remaining related party transactions with RGHL Group are settled by either non-cash capital contributions from RGHL Group to us or non-cash capital distributions from us. These related party transactions are included as part of RGHL Group’s net investment in our combined balance sheets. We also utilize manufacturing and warehousing facilities and resources managed by RGHL Group to conduct our

 

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business. The expenses associated with these transactions are included in cost of sales in our combined statements of income. We believe that the assumptions and methodologies underlying the allocation of these expenses from RGHL 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 anticipated separation from RGHL Group, we will enter into the RGHI TSA whereby RGHL Group will continue to provide certain administrative services to us, including information technology services; accounting, treasury, financial reporting and transaction support; human resources; procurement; tax, legal and compliance related services; and other corporate services for up to 24 months. In addition, we will enter into the Rank TSA whereby, upon our request, Rank 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. See “Certain Relationships and Related Party Transactions—Transactions to be Entered into in Connection with this Offering—Transition Services Agreements” for a description of these services. 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 RGHL Group, as reflected in our combined financial statements included elsewhere in this prospectus, may be materially different from the arrangements that we have entered into, or will enter into, as part of our separation from RGHL Group.

Immediately prior to the closing of this offering, as part of the Corporate Reorganization, we will enter into the New Credit Facilities and portions of the related party borrowings owed to RGHL Group that are reflected on our combined balance sheets will be repaid. RGHL Group will contribute the remaining balance of related party borrowings owed by us to RGHL Group, if any, as a contribution of capital prior to the closing of this offering. In addition, $2,021 million of indebtedness that is outstanding under RGHL Group’s Credit Agreement will be reallocated and we will be released as a borrower and guarantor from such facilities and released as a guarantor of RGHL Group’s outstanding senior notes. As a result, on a pro forma basis, as of September 30, 2019, our indebtedness will decrease by $1,717 million and our interest expense will decrease by $239 million for the year ended December 31, 2018 and $137 million for the nine months ended September 30, 2019.

Post-Offering Public Company Expenses

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In particular, we expect our accounting, legal and personnel-related expenses and directors’ and officers’ insurance costs to increase as we establish more comprehensive compliance and governance functions, establish, maintain and review internal controls over financial reporting in accordance with the Sarbanes-Oxley Act, and prepare and distribute periodic reports in accordance with SEC rules. Our financial statements following this offering will reflect the impact of these expenses.

In addition, in connection with this offering, we intend to establish the Incentive 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. The maximum number of shares of common stock initially available for issuance under the Incentive Plan granted pursuant to the plan is expected to equal 10,485,025 shares, which includes 165,993 shares of common stock underlying restricted stock units expected to be issued pursuant to the IPO Grants. Upon the granting of stock-based compensation awards, and the vesting of such awards, we will recognize stock-based compensation expense. Accordingly, we expect to recognize a stock compensation charge of approximately $1 million in the quarter in which this offering is consummated. Historically, we have not granted any stock-based compensation awards.

 

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Components of the Combined Statements of Income

Net Revenues

Our revenues are derived primarily from the sale of our products to third parties, net of any sales incentives. Sales incentives include discounts, allowances and trade promotions. Revenue is recognized when control over products transfers to our customers, which generally occurs upon delivery or shipment of the products.

Related Party Net Revenues

Related party net revenues are derived from the sale of our products to RGHL Group. Our related party revenues are recognized primarily in our Reynolds Cooking & Baking segment.

Cost of Sales

Cost of sales consists primarily of the cost of materials, packaging, labor and overhead associated with our manufacturing operations. Also included within cost of sales are the freight and logistics-related costs of delivering our products to our customers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of general and administrative costs associated with all of our non-manufacturing personnel and advertising costs. The general and administrative costs include wages, benefits, travel expenses, legal fees, R&D costs and any professional fees or consulting services. Advertising costs include programs to support new and existing product lines. Our selling, general and administrative expenses include amounts that are allocated to us for services provided by RGHL Group, including, but not limited to, general corporate expenses related to group wide functions such as executive management, finance, legal, tax and information technology. For further information, refer to Note 1– Description of Business and Basis of Presentation in our annual combined financial statements included elsewhere in this prospectus.

Other Expense, Net

Other expense, net includes the factoring discount on the sale of our U.S. trade receivables through RGHL Group’s securitization facility and the allocated related party management fee.

Non-Operating Income (Expense), Net

Non-operating income (expense), net includes the non-service cost component of net periodic postretirement costs and the defined benefit plan settlement loss that was recognized during fiscal year 2016.

Interest Expense, Net

Interest expense, net consists primarily of interest on external debt and related party borrowings, net of interest income primarily on related party receivables. In conjunction with the Corporate Reorganization and this offering, these historical items of interest expense and interest income will be replaced with interest expense associated with the New Credit Facilities.

Income Tax (Expense) Benefit

Income tax (expense) benefit consists of an estimate of federal, state and foreign income taxes based on enacted tax rates, as adjusted for allowable credits, deductions and uncertain tax positions. During the periods

 

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presented, our U.S. operations were included in a consolidated U.S. federal return as well as certain state and local tax returns filed by RGHL Group. The income tax (expense) benefit has been calculated on a separate return basis. In the future, as a stand-alone entity, we will file tax returns on our own behalf and our effective tax rate and deferred taxes may be different from those in the historical periods.

How We Assess the Performance of Our Business

In addition to financial measures determined in accordance with GAAP, we make use of the non-GAAP financial measure Adjusted EBITDA in evaluating our past results and future prospects.

Adjusted EBITDA

Adjusted EBITDA is defined 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 unrealized gains and losses on derivatives, costs associated with rationalizing operations and administrative functions, factoring discounts, defined benefit plan settlement losses, amortization of actuarial gains, operational process engineering related consultancy costs, the allocated related party management fee and transaction-related costs.

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. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. In addition, our chief operating decision maker uses Adjusted EBITDA of each reportable segment to evaluate the operating performance of such segments.

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:

 

     Historical  
     Nine months
ended
September 30,
    Year ended
December 31,
 
     2019     2018     2018     2017     2016  
     (In millions)  

Net income—GAAP

   $ 135     $ 92     $ 176     $ 302     $ 79  

Income tax expense (benefit)

     44       24       57       (84     54  

Interest expense, net

     174       212       280       322       391  

Depreciation and amortization

     63       66       87       90       97  

Factoring discount(1)

     15       14       22       19       15  

Allocated related party management fee(2)

     7       6       10       10       13  

Transaction-related costs(3)

     12       —         —         —         —    

Unrealized losses (gains) on derivatives(4)

     (9     8       14       (4     (8

Business rationalization costs(5)

     1       4       4       2       1  

Defined benefit plan settlement loss(6)

     —         —         —         —         9  

Other(7)

     (1     (3     (3     (1     (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (Non-GAAP)

   $ 441     $ 423     $ 647     $ 656     $ 647  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Reflects the loss on sale that we incur when we sell our U.S. trade receivables through RGHL Group’s securitization facility. For further information, refer to Note 9—Other Expense, Net in our annual combined financial statements and Note 11—Other Expense, Net in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

 

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(2)

Reflects our allocation, from RGHL Group, of a management fee that is charged by Rank to RGHL Group. We will not incur any portion of this management fee after closing of this offering. For further information, refer to Note 9—Other Expense, Net in our annual combined financial statements and Note 11—Other Expense, Net in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

(3)

Reflects allocated costs during the nine months ended September 30, 2019 related to the IPO process that cannot be offset against the expected future IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company.

(4)

Reflects the mark-to-market movements in our commodity derivatives. For further information, refer to Note 7—Financial Instruments in our annual combined financial statements and Note 8—Financial Instruments in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

(5)

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

(6)

Reflects the settlement loss recognized on merging our defined benefit plan into a plan sponsored by RGHL Group. For further information, refer to Note 8—Benefit Plans in our annual combined financial statements included elsewhere in this prospectus.

(7)

Includes the amortization of actuarial gains related to our postretirement benefit plan. For further information, refer to Note 8—Benefit Plans in our annual combined financial statements and Note 9—Benefit Plans in our interim condensed combined financial statements, each of which are included elsewhere in this prospectus.

Results of Operations

The following discussion should be read in conjunction with our combined financial statements included elsewhere in this prospectus. Detailed comparisons of revenue and results are presented in the discussions of the operating segments, which follow our combined results discussion.

Aggregation of Segment Revenue and Adjusted EBITDA

 

(In millions)    Reynolds
Cooking &
Baking
     Hefty
Waste &
Storage
     Hefty
Tableware
     Presto
Products
     Unallocated(2)     Total
Reynolds
Consumer
Products
 

Net revenues

                

2018

   $ 1,159      $ 696      $ 757      $ 539      $ (9   $ 3,142  

2017

     1,068        638        731        531        (11     2,957  

2016

     1,057        671        710        510        (13     2,935  

Adjusted EBITDA(1)

                

2018

   $ 234      $ 172      $ 168      $ 85      $ (12   $ 647  

2017

     251        149        183        83        (10     656  

2016

     244        151        185        78        (11     647  

 

(1)

Adjusted EBITDA for Reynolds Consumer Products is a non-GAAP measure. See “—How We Assess the Performance of Our Business” for details, including a reconciliation between net income and Adjusted EBITDA.

(2)

The unallocated net revenues represent the elimination of revenue on intercompany transactions. These transactions arise primarily from sales by Hefty Waste & Storage to Presto Products.

 

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Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018

Total Reynolds Consumer Products

 

     For the nine months ended September 30,  
(In millions, except for %)    2019     % of
revenue
    2018     % of
revenue
    Change     % of
change
 

Net revenues

   $ 2,083       95   $ 2,113       95   $ (30     (1 )% 

Related party net revenues

     114       5     122       5     (8     (7 )% 
  

 

 

     

 

 

       

Total net revenues

     2,197       100     2,235       100     (38     (2 )% 

Cost of sales

     (1,580     (72 )%      (1,669     (75 )%      89       (5 )% 
  

 

 

     

 

 

       

Gross profit

     617       28     566       25     51       9

Selling, general and administrative expenses

     (231     (11 )%      (218     (10 )%      (13     6

Other expense, net

     (34     (2 )%      (20     (1 )%      (14     70
  

 

 

     

 

 

       

Income from operations

     352       16     328       15     24       7

Non-operating income, net

     1       0     —         —       1    

Interest expense, net

     (174     (8 )%      (212     (9 )%      38       (18 )% 
  

 

 

     

 

 

       

Income before income taxes

     179       8     116       5     63       54

Income tax (expense) benefit

     (44     (2 )%      (24     (1 )%      (20     83
  

 

 

     

 

 

       

Net income

   $ 135       6   $ 92       4   $ 43       47
  

 

 

     

 

 

       

Adjusted EBITDA(1)

   $ 441       20   $ 423       19   $ 18       4
  

 

 

     

 

 

       

 

(1)

Adjusted EBITDA for Reynolds Consumer Products is a non-GAAP measure. See “—How We Assess the Performance of Our Business” for details, including a reconciliation between net income and Adjusted EBITDA.

Components of Change in Net Revenues for the Nine Months Ended September 30, 2019 vs. the Nine Months Ended September 30, 2018

     Price     Volume/Mix     Total  

Reynolds Cooking & Baking

     (1 )%      (4 )%      (5 )% 

Hefty Waste & Storage

     1     4     5

Hefty Tableware

     2     (3 )%      (1 )% 

Presto Products

     —       (4 )%      (4 )% 

Total RCP

     —       (2 )%      (2 )% 

Total Net Revenues. Total net revenues for the nine months ended September 30, 2019 decreased by $38 million, or 2%, to $2,197 million compared to the nine months ended September 30, 2018. The decrease was primarily driven by a $43 million decline in volume across all segments with the exception of Hefty Waste & Storage, partially offset by the continuing impact of price increases taken in 2018.

Cost of Sales. Cost of sales for the nine months ended September 30, 2019 decreased by $89 million, or 5%, to $1,580 million compared to the nine months ended September 30, 2018. The decrease was primarily due to a $65 million decrease in material costs, primarily due to market driven price declines in resin, and the impact of lower volume, partially offset by $22 million of higher manufacturing costs primarily due to inflationary increases.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2019 increased by $13 million, or 6%, to $231 million, compared to the nine months ended September 30, 2018. The increase was due to increased personnel-related costs.

 

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Other Expense, Net. Other expense, net for the nine months ended September 30, 2019 increased by $14 million, or 70%, to $34 million, compared to the nine months ended September 30, 2018. The increase was primarily attributable to $12 million of transaction-related costs incurred during the nine months ended September 30, 2019. These costs comprise amounts associated with the IPO process that cannot be offset against the anticipated IPO proceeds, as well as costs related to our preparations to operate as a stand-alone public company. For both periods, other expense, net, also included the factoring discount on the sale of U.S. trade receivables and the allocation of RGHL Group’s related party management fee. We have sold substantially all of our U.S. trade receivables through RGHL Group’s securitization facility. Prior to the closing of this offering, we will repurchase the U.S. trade receivables previously sold that are outstanding at the end of our participation in this facility, and the allocation of RGHL Group’s related party management fee will cease.

Interest Expense, Net. Interest expense, net for the nine months ended September 30, 2019 decreased by $38 million, or 18%, to $174 million, compared to the nine months ended September 30, 2018. The decrease was primarily due to a $47 million decrease in related party interest expense, partially offset by a $7 million increase in interest expense on external debt. The decrease in related party interest expense was primarily the result of a reduction in amounts outstanding under various related party borrowings. In June 2019, our interest bearing related party receivables were used to reduce amounts outstanding under various related party borrowings by $1,802 million. Partially offsetting the overall decrease in interest expense, net was an increase in interest expense on borrowings outstanding under the RGHL Group Credit Agreement, reflective of an increase in the LIBO reference rate during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 from 1.87% to 2.41%.

Immediately prior to the consummation of this offering, we will replace our outstanding borrowings, which comprise amounts outstanding under the RGHL Group Credit Agreement and related party borrowings, with the New Credit Facilities. For further details regarding the New Credit Facilities refer to “—Sources of Liquidity.”

Income Tax (Expense) Benefit. We recognized income tax expense of $44 million on income before income taxes of $179 million (an effective tax rate of 25%) for the nine months ended September 30, 2019 compared to income tax expense of $24 million on income before income taxes of $116 million (an effective tax rate of 21%) for the nine months ended September 30, 2018. The increase in the effective tax rate was a result of the favorable impact of U.S. state legislative changes enacted in the nine months ended September 30, 2018 and certain non-deductible transaction-related costs recognized in the nine months ended September 30, 2019.

Adjusted EBITDA. Adjusted EBITDA for the nine months ended September 30, 2019 increased by $18 million, or 4%, to $441 million, compared to the nine months ended September 30, 2018. Lower material costs of $65 million due to market driven price declines in resin were partially offset by higher manufacturing costs of $22 million primarily due to inflationary cost increases, higher personnel-related costs and the impact of lower volume.

Segment Information

Reynolds Cooking & Baking

 

     For the nine months ended
September 30,
 
(In millions, except for %)    2019     2018     Change     % change  

Total segment net revenues

   $ 744     $ 780     $ (36     (5 )% 

Segment Adjusted EBITDA

     116       139       (23     (17 )% 

Segment Adjusted EBITDA Margin

     16     18    

Total Segment Net Revenues. Reynolds Cooking & Baking total segment net revenues for the nine months ended September 30, 2019 decreased by $36 million, or 5%, to $744 million compared to the nine months ended

 

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September 30, 2018. The decline in net revenues was due to $28 million of lower volume, largely attributable to lower foodservice and reroll sales, and decreased pricing driven by increased trade promotion spending.

Adjusted EBITDA. Reynolds Cooking & Baking Adjusted EBITDA for the nine months ended September 30, 2019 decreased $23 million, or 17%, to $116 million compared to the nine months ended September 30, 2018. The decrease in Adjusted EBITDA was primarily driven by $7 million of higher manufacturing costs due to inflationary increases and lower production volume, decreased pricing, the impact of lower volume and higher personnel-related costs.

Hefty Waste & Storage

 

     For the nine months ended September 30,  
(In millions, except for %)      2019         2018       Change      % change  

Total segment net revenues

   $ 533     $ 508     $ 25        5

Segment Adjusted EBITDA

     142       113       29        26

Segment Adjusted EBITDA Margin

     27     22     

Total Segment Net Revenues. Hefty Waste & Storage total segment net revenues for the nine months ended September 30, 2019 increased by $25 million, or 5%, to $533 million compared to the nine months ended September 30, 2018. The increase was primarily due to an $18 million increase in volume resulting largely from strong sales of both branded and store brand trash bags as we gained incremental business and experienced strong growth with existing customers.

Adjusted EBITDA. Hefty Waste & Storage Adjusted EBITDA for the nine months ended September 30, 2019 increased $29 million, or 26%, to $142 million compared to the nine months ended September 30, 2018. The increase in Adjusted EBITDA was primarily driven by higher net revenues as well as $35 million in lower material costs due to market driven price declines in resin. These increases were partially offset by higher manufacturing costs and increased personnel-related costs.

Hefty Tableware

 

     For the nine months ended September 30,  
(In millions, except for %)      2019         2018       Change     % change  

Total segment net revenues

   $ 545     $ 552     $ (7     (1 )% 

Segment Adjusted EBITDA

     126       118       8       7

Segment Adjusted EBITDA Margin

     23     21    

Total Segment Net Revenues. Hefty Tableware total segment net revenues for the nine months ended September 30, 2019 decreased by $7 million, or 1%, to $545 million compared to the nine months ended September 30, 2018. The decrease was primarily due to $16 million in lower volume due to the exit of certain store branded business, partially offset by new product growth at several of our major customers. The decrease was partially offset by $10 million of higher pricing primarily due to the continuing impact of the price increases taken in 2018.

Adjusted EBITDA. Hefty Tableware Adjusted EBITDA for the nine months ended September 30, 2019 increased $8 million, or 7%, to $126 million compared to the nine months ended September 30, 2018. The increase in Adjusted EBITDA was primarily attributable to $16 million of lower material costs due to market driven price declines in resin and increased pricing, partially offset by higher manufacturing costs and the impact of lower volume.

 

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Presto Products

 

     For the nine months ended September 30,  
(In millions, except for %)      2019         2018       Change     % change  

Total segment net revenues

   $ 387     $ 402     $ (15     (4 )% 

Segment Adjusted EBITDA

     67       61       6       10

Segment Adjusted EBITDA Margin

     17     15    

Total Segment Net Revenues. Presto Products total segment net revenues for the nine months ended September 30, 2019 decreased by $15 million, or 4%, to $387 million compared to the nine months ended September 30, 2018. The decrease was primarily due to $17 million in lower volume driven by the discontinuation of several non-core products, partially offset by strong sales with existing customers and growth within our eCommerce business as we have become the sole supplier for certain store brand products.

Adjusted EBITDA. Presto Products Adjusted EBITDA for the nine months ended September 30, 2019 increased $6 million, or 10%, to $67 million compared to the nine months ended September 30, 2018. The increase in Adjusted EBITDA was primarily driven by $14 million of lower material costs due to market driven price declines in resin, partially offset by $5 million impact of lower volume.

Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017

Total Reynolds Consumer Products

 

     For the year ended December 31,  
(In millions, except for %)    2018     % of
revenue
    2017     % of
revenue
    Change     % change  

Net revenues

   $ 2,981       95   $ 2,809       95   $ 172       6

Related party net revenues

     161       5     148       5     13       9
  

 

 

     

 

 

       

Total net revenues

     3,142       100     2,957       100     185       6

Cost of sales

     (2,310     (74 )%      (2,095     (71 )%      (215     (10 )% 
  

 

 

     

 

 

       

Gross profit

     832       26     862       29     (30     (3 )% 

Selling, general and administrative expenses

     (288     (9 )%      (294     (10 )%      6       2

Other expense, net

     (31     (1 )%      (28     (1 )%      (3     (11 )% 
  

 

 

     

 

 

       

Income from operations

     513       16     540       18     (27     (5 )% 

Non-operating expense, net

     —         —         —         —         —         NM (1) 

Interest expense, net

     (280     (9 )%      (322     (11 )%      42       13
  

 

 

     

 

 

       

Income before income taxes

     233       7     218       7     15       7

Income tax (expense) benefit

     (57     (1 )%      84       3     (141     NM (1) 
  

 

 

     

 

 

       

Net income

   $ 176       6   $ 302       10   $ (126     (42 )% 
  

 

 

     

 

 

       

Adjusted EBITDA(2)

   $ 647       21   $ 656       22   $ (9     (1 )% 
  

 

 

     

 

 

       

 

(1)

Not meaningful.

(2)

Adjusted EBITDA for Reynolds Consumer Products is a non-GAAP measure. See “—How We Assess the Performance of Our Business” for details, including a reconciliation between net income and Adjusted EBITDA.

 

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Components of Change in Net Revenues for the Year Ended December 31, 2018 vs. the Year Ended December 31, 2017

 

     Price     Volume/Mix     Total  

Reynolds Cooking & Baking

     9             —       9

Hefty Waste & Storage

     3     6     9

Hefty Tableware

     3     1     4

Presto Products

     2     —       2

Total RCP

     5     1     6

Total Net Revenues. Total net revenues for the year ended December 31, 2018 increased by $185 million, or 6%, to $3,142 million compared to the year ended December 31, 2017. The increase was primarily driven by a $149 million increase in pricing across all segments and $36 million in higher volume primarily in branded trash bag sales in our Hefty Waste & Storage segment. The price increases, most significant in Reynolds Cooking & Baking, were taken in response to increased material costs, primarily aluminum and resin, and lower trade promotion spending.

Cost of Sales. Cost of sales for the year ended December 31, 2018 increased by $215 million, or 10%, to $2,310 million compared to the year ended December 31, 2017. The increase was primarily due to a $119 million increase in material costs, primarily aluminum and resin, a $30 million increase in logistics costs impacting all of our segments due to higher market driven freight rates, an $18 million increase related to unrealized losses on derivative contracts, a $15 million increase in manufacturing costs primarily due to inflationary increases and the impact of higher volume on variable costs. These cost increases were partially mitigated by cost savings driven by our Reyvolution initiatives which offset material cost increases, primarily aluminum and resin, and inflationary cost increases throughout our operations.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2018 decreased by $6 million, or 2%, to $288 million, compared to the year ended December 31, 2017. The decrease was primarily due to a $6 million decrease in depreciation due to certain technology assets becoming fully depreciated during the fiscal year 2018 and a $4 million decrease in advertising costs, partially offset by increased personnel-related costs.

Other Expense, Net. Other expense, net for the year ended December 31, 2018 increased by $3 million, or 11%, to $31 million, compared to the year ended December 31, 2017. For both periods, other expense, net, was primarily attributable to the factoring discount on the sale of U.S. trade receivables and the allocation of RGHL Group’s related party management fee. We have sold substantially all of our U.S. trade receivables through RGHL Group’s securitization facility. Prior to the closing of this offering, we will repurchase the U.S. trade receivables previously sold that are outstanding at the end of our participation in this facility, and the allocation of RGHL Group’s related party management fee will cease.

Interest Expense, Net. Interest expense, net for the year ended December 31, 2018 decreased by $42 million, or 13%, to $280 million, compared to the year ended December 31, 2017. The decrease was primarily due to a $26 million increase in related party interest income and a $25 million decrease in related party interest expense, partially offset by a $12 million increase in interest expense on external debt. The $26 million increase in related party interest income is attributable to the combination of increases in the weighted average interest rate, which increased from 1.7% as of December 31, 2017 to 2.9% as of December 31, 2018, and a $472 million increase in the balance of related party receivables. The $25 million decrease in related party interest expense is attributable to the combination of an overall decrease in the weighted average interest rate, which decreased from 6.3% as of December 31, 2017 to 6.0% as of December 31, 2018, and the timing of repayments and new related party borrowings. The interest rates on related party receivables and related party borrowings reflect contractually agreed amounts that were established at the time that the various agreements were entered into. The $12 million increase in interest expense on external debt is primarily attributable to the increase in the LIBO reference rate, which increased from 1.6% as of December 31, 2017 to 2.5% as of December 31, 2018.

 

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In June 2019, our interest bearing related party receivables were used to reduce amounts outstanding under various related party borrowings. Furthermore, immediately prior to the consummation of this offering, we will replace our outstanding borrowings, which comprise amounts outstanding under the RGHL Group Credit Agreement and related party borrowings, with the New Credit Facilities. For further details regarding the New Credit Facilities refer to “—Sources of Liquidity.”

Income Tax (Expense) Benefit. We recognized income tax expense of $57 million on income before income taxes of $233 million (an effective tax rate of 24%) for the year ended December 31, 2018 compared to an income tax benefit of $84 million on income before income taxes of $218 million (an effective tax rate of (39)%) for the year ended December 31, 2017. The effective tax rate in the current year reflects the U.S. federal tax rate of 21%. The unusual effective tax rate during the year ended December 31, 2017, reflects the impact of U.S. tax legislative changes enacted in late 2017 requiring the remeasurement of net deferred tax liabilities from 35% to 21%.

Adjusted EBITDA. Adjusted EBITDA for the year ended December 31, 2018 decreased by $9 million, or 1%, to $647 million, compared to the year ended December 31, 2017. Logistics costs increased by $30 million, due to increased market driven freight rates, and manufacturing costs increased by $15 million, primarily due to inflationary increases, partially offset by an increase of $24 million in pricing due to fewer trade promotions and the Adjusted EBITDA impact of higher volume, primarily in our Hefty Waste & Storage segment.

 

Segment Information

Reynolds Cooking & Baking

 

     For the year ended December 31,  
(In millions, except for %)    2018     2017     Change     % change  

Total segment net revenues

   $ 1,159     $ 1,068     $ 91       9

Segment Adjusted EBITDA

     234       251       (17     (7 )% 

Segment Adjusted EBITDA Margin

     20     24    

Total Segment Net Revenues. Reynolds Cooking & Baking total segment net revenues for the year ended December 31, 2018 increased by $91 million, or 9%, to $1,159 million compared to the year ended December 31, 2017. The increase was primarily due to $93 million in price increases taken in response to increased material costs, primarily aluminum, and lower trade promotion spending, partially offset by lower volume.

Adjusted EBITDA. Reynolds Cooking & Baking Adjusted EBITDA for the year ended December 31, 2018 decreased $17 million, or 7%, to $234 million compared to the year ended December 31, 2017. The decrease in Adjusted EBITDA was primarily driven by $88 million of higher material and manufacturing costs due to increased aluminum prices and inflationary cost increases as well as higher logistics costs due to market driven increases in freight rates and the impact of lower volume. The effects of these unfavorable changes in Adjusted EBITDA were partially offset by $93 million in price increases, as discussed above.

Hefty Waste & Storage

 

     For the year ended December 31,  
(In millions, except for %)    2018     2017     Change      % change  

Total segment net revenues

   $ 696     $ 638     $ 58        9

Segment Adjusted EBITDA

     172       149       23        15

Segment Adjusted EBITDA Margin

     25     23     

 

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Total Segment Net Revenues. Hefty Waste & Storage total segment net revenues for the year ended December 31, 2018 increased by $58 million, or 9%, to $696 million compared to the year ended December 31, 2017. The increase was primarily due to a $38 million increase in volume primarily due to strong sales of our branded trash bags and $22 million in price increases taken in response to higher material costs, primarily resin, and lower trade promotion spending.

Adjusted EBITDA. Hefty Waste & Storage Adjusted EBITDA for the year ended December 31, 2018 increased $23 million, or 15%, to $172 million compared to the year ended December 31, 2017. The increase in Adjusted EBITDA was primarily driven by $22 million in price increases, as discussed above, $17 million attributable to the higher volume noted above and $6 million in lower advertising spending. The effects of these favorable changes in Adjusted EBITDA were partially offset by $18 million of higher material and manufacturing costs, driven by increased resin prices and inflationary cost increases.

Hefty Tableware

 

     For the year ended December 31,  
(In millions, except for %)    2018     2017     Change     % change  

Total segment net revenues

   $ 757     $ 731