Reynolds Consumer Products, Inc.  REYN    $25.00-$28.00 47.2 million shares Underwriters: Credit Suisse, Goldman Sachs, JP Morgan, Barclays, Citigroup, Evercore ISI, RBC, HSBC   Co-Managers:  SunTrust Robinson, Stifel, Academy Securities Proposed trade date of 1/31. They are market-leading consumer products company with a presence in 95% of households across the United States.

Reynolds Consumer Products, Inc.  REYN

• 47,170,000 shares to be offered between $25.00 and $28.00 per share
• Underwriters: Credit Suisse, Goldman Sachs, JP Morgan, Barclays, Citigroup, Evercore ISI, RBC, HSBC Co-Managers: SunTrust Robinson, Stifel, Academy Securities
• Proposed trade date of 1/31
• Rating = 3

Click here to view the prospectus.

https://www.sec.gov/Archives/edgar/data/1786431/000119312520010446/d769843ds1a.htm

Company Overview

They are a market-leading consumer products company with a presence in 95% of households across the United States. They produce and sell products across three broad categories: cooking products, waste & storage products and tableware. They sell their products under iconic brands such as Reynolds® and Hefty® and also under store brands that are strategically important to their customers. Overall, across both their branded and store brand offerings, over 65% of their revenue for the year ended December 31, 2018 came from products where they hold the #1 U.S. market share position in the category, and in virtually all of their major product categories they hold either a #1 or #2 U.S. market share position by revenue. They have developed their market-leading position by investing in their product categories and consistently developing innovative products that meet the evolving needs and preferences of the modern consumer.

Their mix of branded and store brand products is a key competitive advantage that aligns their goal of growing the overall product category with their customers’ goals and positions them as a trusted strategic partner to their retailers. Their Reynolds and Hefty brands have preeminent positions in their categories and carry strong brand recognition in household aisles. The combination of their store brand offerings, the shared goal of category growth and indispensable support in marketing, innovation, branding and promotions has enabled them 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.

Their diverse product portfolio includes aluminum foil, disposable bakeware, trash bags, food storage bags and disposable tableware. Their products are known for their quality, which is recognized by their consumers and retail partners alike. Their consumers know they can rely on their trusted brands. These factors generate loyalty which empowers them to develop and launch new products that expand usage occasions and transition their portfolio into adjacent categories.

They 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. Their customer relationships have been built on a long history of trust. Their portfolio of branded and store brand products allows their retail partners to manage multiple household aisles with a single vendor. Many of their products have had a prominent position on the shelves of major retailers for decades and have become an integral part of household aisles. They believe their strong brand recognition and customer loyalty lead to robust product performance.

While their products have been trusted for generations, they place significant emphasis on constantly improving them. Innovation is a key component of their corporate culture and they aim to continually evolve across their segments through both the introduction of new features on their existing product portfolio and the development of new product solutions. Their objective is to generate 20% of their revenue each year from new products introduced within the prior three years. All of their key product lines include newly developed innovative products such as their 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 their Presto store brand square-shaped snack bags. They believe their commitment to innovation has driven their growth and is a key reason why consumers continue to choose their products.

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

• Reynolds Cooking & Baking: Their 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 their Reynolds Cooking & Baking segment, they 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. Their 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 their flagship Reynolds Wrap products, they hold the #1 market position in the U.S. consumer foil market measured by revenue and volume. They 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 them 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: Their 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 their Hefty segment, they produce both branded and store brand trash and food storage bags. Their 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. They have the #1 market share in U.S. outdoor trash bags. Their 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: Their 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 their Tableware segment, they sell both branded and store brand disposable and compostable plates, bowls, platters, cups and cutlery. Their 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. Their branded products use their Hefty brand to represent both quality and great price, and they bring this same quality and value promise to all of their store brands as well. They sell across a broad range of materials and price points in all retail channels, allowing their consumers to select the product that best suits their price, function and aesthetic needs.
• Presto Products: Their 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 their Presto segment, they 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 they 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. Their store brand products are national brand equivalent (or better) and they offer consumer-desired features, including compostable bags and products made with plant-based and recycled materials. Their Presto segment also includes their growing specialty business, which serves other consumer products companies by providing Fresh-Lock® and Slide-Rite® resealable closure systems. They have extended their innovative product technology from their food storage bag products and are growing it through this unique channel.

Dividend Policy

Following closing of this offering and subject to legally available funds, they intend to pay quarterly cash dividends on their common stock. For fiscal year 2020, they expect to pay a quarterly cash dividend of $0.223 per share. However, they 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 their common stock on Nasdaq and ending on the last day of that period. They 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.

IPO Detail

This is the initial public offering of Reynolds Consumer Products, Inc. and no public market currently exists for its common stock. Reynolds Consumer Products, Inc. is offering 47,170,000 shares of common stock as described in the prospectus. The company expects the initial public offering price of its common stock to be between $25.00 and $28.00 per share. The company has applied to list its common stock on the NASDAQ Global Market under the symbol “REYN.”

An affiliate of Goldman Sachs & Co. LLC, which is an underwriter in this offering, is the lender under the IPO Settlement Facility.

Upon closing of this offering, Packaging Finance Limited (PFL)  will own a majority of the voting power of their common stock

Use of Proceeds

They estimate that the net proceeds to them from this offering will be approximately $1,190 million, or approximately $1,369 million if the underwriters exercise their option to purchase additional shares in full. They 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. They 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. Each $1 increase (decrease) in the public offering price per share would increase (decrease) their net proceeds, after deducting estimated underwriting discounts and commissions, by $45 million (assuming no exercise of the underwriters’ option to purchase additional shares of common stock) and would reduce (increase) the amount of related party borrowings that would otherwise be capitalized as additional paid-in capital.

Competition

Market Opportunity

Waste & Storage Products

The U.S. waste and storage products category generated $4.3 billion of sales across Nielsen tracked channels in the last 52 weeks ended September 28, 2019. Waste and storage products include branded and store brand trash bags and food storage bags sold through their Hefty and Presto segments. The table below shows overall category size, recent growth and category share of store brand and branded in the waste and storage products category within the United States. They have leading market shares across the full suite of their trash and food storage bag products. Hefty trash bags can be found in 59% of all U.S. households. Through their Presto segment, they are the largest supplier of store brand food storage bags in the United States with a 57% share of the store brand market. Additionally, they have a 35% share of the overall branded and store brand market. Hefty led the slider bag segment with a 34% share. 

Cooking Products

Cooking products includes branded and store brand aluminum foil, aluminum bakeware and convenience cooking products, primarily sold through their Reynolds Cooking & Baking segment. Within the convenience cooking category, they sell parchment paper, slow cooker liners, oven bags, wax paper, freezer paper and baking cups. The overall cooking products category generated approximately $1.1 billion of sales in the U.S. across Nielsen tracked channels in the last 52 weeks ended September 28, 2019. They have leading market shares in the U.S. across the cooking products category. Reynolds Wrap is the largest brand within the U.S. foil market and is nearly 50 times the size of all other foil brands combined. It is a renowned cooking aide, found in 82% of U.S. households according to a 1Q Panel survey fielded in July 2019. They have a leadership position within virtually all of their convenience cooking subcategories including a 93% share in branded oven bags, an 83% share in slow cooker liners, a 94% share in freezer paper and a 60% share in wax paper. Additionally, they compete on a limited basis in the growing $612 million bakeware category where they expect meaningful opportunities to grow. 

Tableware

Their Tableware products include branded and store brand disposable plates, cups, bowls, platters and cutlery. The disposable tableware category generated $4.5 billion of sales in the U.S. across Nielsen tracked channels in the last 52 weeks ended September 28, 2019 across disposable dishes, cups and cutlery. Within this group, they have leading market shares in plastic cups and foam dishes, which together accounted for $1.3 billion of sales in this category in the last 52 weeks ended September 28, 2019. They have significant space to grow in this category, and their strong brand equity in foam plates and plastic cups positions them well to grow in other category adjacencies by leveraging their customer relationships and innovation, as demonstrated by their recent launches of hot cup and compostable molded fiber products.

Target Markets

Champion their categories and grow with their customers  They participate in large consumer categories with strong household penetration. Their combined branded and store brand share is significant in their categories. Their products appeal to consumers of all demographics and have a multitude of usage occasions. Their scale across household aisles and ability to offer trusted branded and store brand products enable them to grow the overall category and has earned them the opportunity to provide category captain level advisor insights at the majority of their retail partners. Their respected and trusted category managers provide their 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, they expand usage occasions and stimulate consumption. Their new product innovation drives incremental growth within their categories. These factors and their focus on offering a high quality portfolio of branded and store brand products provide tremendous value to their retailers versus their competition.

Continued investment behind their market-leading brand portfolio They have iconic brands and a proven ability to innovate, which enable them to approach adjacencies strategically and enhance their brand relevance with consumers. They plan to continue their investment in marketing and advertising to grow the revenues of their product offerings and the categories in which they participate. Their 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 their more mature categories. For example, they 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, their successful Hefty advertising campaigns have driven a 5% market share growth in the trash bag category over the last four years. They have a strong competency in measuring, monitoring and improving the efficiency of their marketing spending through internal proprietary analytical techniques. They believe there is a significant opportunity to use their existing brand equity and expand into adjacent categories.

Strengthen presence across distribution channels In addition to traditional grocery, they believe there is significant opportunity to expand within the club, home improvement, dollar-store and eCommerce channels across their full product portfolio. Building on Hefty’s brand dominance in large trash bags, they 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, they see opportunity for their 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 their strong relationship with online retailers, they are well-positioned to compete profitably and gain share in this growing channel. They provide both branded and private brand products through this channel to address the consumer’s need for convenience and value. Furthering their eCommerce strategy, they 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 their products are compatible with the eCommerce channel because they are shelf stable and efficient to transport. The recurring nature of consumer purchase cycles for their products positions them well to capitalize on continued growth of grocery pickup and subscription services.

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

Drive growth through new and innovative products They are an innovation driven company, and through Reyvolution, new product development plays a significant role in their growth strategy. Their innovation capabilities, combined with their investments in consumer-focused market research, will allow them to continue their track record of successful new product launches. They proactively collaborate with their retail partners on customized product innovation. Their product innovation pipeline focuses on use occasions including meals and snacks on-the-go as well as sustainability and the needs of the millennial consumer. Their objective is to generate 20% of their revenue each year from new products introduced within the prior three years. In fiscal year 2018, 21% of their revenue was generated from products that were less than three years old.

More recently, through Hefty, they launched a new Ultra Strong product line that takes advantage of their triple action technology, which Nielsen awarded the 2018 Innovation Award (one of only 25 nationally). Their 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.

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

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

Drive shareholder returns through balanced capital allocation They believe their strong free cash flow enables them to invest in and grow their business organically, reduce their indebtedness and pursue strategic M&A to create value for their stockholders. They also expect to return capital to their stockholders through regular dividend payments. They expect to pay a regular quarterly cash dividend on their common stock, subject to declaration by their board of directors. For fiscal year 2020, they expect to pay a quarterly cash dividend of $0.223 per share. However, they 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 their common stock on Nasdaq and ending on the last day of that period. They expect this initial dividend to be approximately $0.15 per share. 

Company's Unique Strengths

Leading market positions in attractive consumer categories reinforced by well-recognized, iconic brands that resonate with consumers They hold the #1 or #2 market position by revenue in virtually all of their product categories and are well positioned to capitalize on their growth. Over 65% of their revenue comes from products that are #1 in their respective categories. They invest in both their branded and store brand products, which allows them to focus on growing the entire product category. They have preeminent market positions across both branded and store brand products with total market share of 44% across all of their major product categories for the 52 weeks ended September 28, 2019. They 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. Their 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. Their categories are supported by strong demographic profiles, consumer demand for convenience and evolving consumer needs. They continue to drive category growth through their innovation driven new product development and relationships with leading retailers. 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.

Long-term strategic relationships with a diverse set of leading customers Their 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 their customers, they have maintained an ongoing relationship since the inception of their Reynolds brand over 70 years ago. Their experienced sales force, which averages over 10 years of experience at RCP, and the superb service they provide their customers drive their superior levels of ongoing customer satisfaction. The majority of their products are made in the United States, and their strategically located national manufacturing footprint provides logistics advantages and certainty of supply for their retail partners. Their short supply chain relative to competitors and the vendor-managed inventory they offer their major customers are highly valued by their customers because it reduces the inventory they have to carry and limits product shortages.

They have over 70 years of technical knowledge about their products. They deploy this experience across their business segments to deliver custom innovation solutions. This, together with their low cost manufacturing capabilities and consistent product quality, enables them to provide their customers with a compelling value proposition. For example, in addition to their renowned branded products, their 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.

Demonstrated track record of new product development They have a strong track record of innovation, focused on the addition of innovative features to their existing products and the development of new products that address consumers’ unmet needs. Additionally, they strive to further enhance their core product portfolio. They are able to identify emerging consumer trends through their extensive consumer insights, allowing them to develop products with the features and functions that consumers are looking for. They believe they 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. They have a robust track record of developing and launching successful new products. As sustainability becomes more central to the consumer’s purchasing decision, they remain focused on developing new eco-friendly products, and they are continuously investing in their capabilities to improve their ability to utilize recycled materials. They currently have environmentally friendly options across the vast majority of their product categories, such as compostable trash bags and store brand bags made from plant-based resins and recyclable materials. They have a strong pipeline of new products in development, many of which are part of their broader sustainability initiatives.

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

Through Reyvolution, they are focused on lean manufacturing initiatives to reduce material usage, improve uptime and increase productivity across every site. They 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 themselves from labor fluctuations. Their automation processes and proprietary manufacturing technologies are difficult for competitors to replicate.

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

Attractive financial performance with strong free cash flow generation They have an attractive financial profile with steady organic revenue growth, strong margins and disciplined capital expenditures. These attributes allow them to generate robust free cash flow.

Since 2014, their 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. They have driven margin expansion mainly by managing costs, increasing their volumes and manufacturing efficiency and driving innovation. They are able to deliver attractive Adjusted EBITDA margins due to the high value-added nature of their products. They defend their margin position through innovation driven growth, cost savings and effective purchasing. The vertically integrated nature of their business provides further insulation for their margin profile.

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

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

They strive to operate with respect for the environment and are committed to sustainability across three key areas: their product portfolio, supply chain and communities. They engage with their employees and partner with their customers to explore sustainability topics like plant and distribution route efficiency. They participate at the forefront of emerging municipal programs that generate new community based solutions and also end-to-end recycling solutions with their Hefty EnergyBag Program in partnership with a key supplier. They 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. They are committed to using recycled, renewable, recyclable, compostable and other sustainable materials in their products, which drives their product-oriented sustainability initiatives. In 2018, 43% of the products that they sold in the United States were compostable, recyclable and/or made from recyclable material.

Company's Unique Risks

They are dependent on maintaining satisfactory relationships with their major customers, and significant consolidation among their customers, or the loss of a significant customer, could decrease demand for their products or reduce their profitability. Many of their customers are large and possess significant market leverage, which results in significant downward pricing pressure, and can constrain their ability to pass through price increases

Loss of any of their key manufacturing facilities or of those of their key suppliers could have an adverse effect on their business. Some of their products are manufactured at a single location. For example, their Malvern, Arkansas plant is their sole producer of foil reroll for their Louisville, Kentucky plant, which in turn is their sole producer of household foil. The loss of the use of all or a portion of any of their 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 their business, financial condition and results of operations.

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

Their business could be impacted by changes in consumer lifestyle and environmental concerns. They are a consumer products company and any reduction in consumer demand for the types of products they offer as a result of changes in consumer lifestyle, environmental concerns or other considerations could have a significant impact on their 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 their products, especially their 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

They are affected by seasonality. Portions of their business are moderately seasonal. Overall, their strongest sales are in their fourth quarter and their weakest sales are in their first quarter. This is driven by higher levels of sales of cooking products around major U.S. holidays in their fourth quarter, primarily due to the holiday use of Reynolds Wrap, Reynolds Oven Bags and Reynolds Parchment Paper.

They have significant debt, which could adversely affect their financial condition and ability to operate their business. Upon closing of this offering, they expect to have approximately $2,475 million of outstanding indebtedness under the New Term Loan Facility, and they expect to have material additional borrowing capacity under the New Revolving Facility

They could be jointly and severally liable for certain pension obligations of their 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 they remain in the same “controlled group” as Pactiv and Evergreen following this offering, third parties may seek to hold them jointly and severally liable for their pension liabilities as long as they 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, they could incur significant liabilities for events beyond their control that are not related to or known by them. 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”).

Some of their workforce is covered by collective bargaining agreements, and their business could be harmed in the event of a prolonged work stoppage. Approximately 24% of their employees are covered by collective bargaining agreements. While they believe they have good relationships with their unionized employees and they have not experienced a significant union-related work stoppage over the last ten years, if they encounter difficulties with renegotiations or renewals of collective bargaining arrangements or are unsuccessful in those efforts, they could incur additional costs and experience work stoppages.

They may be affected by significant restrictions, including on their 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 they will enter into with RGHL, they 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, they will be subject to specific restrictions on their ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions with respect to their stock. These restrictions may limit their ability to pursue certain strategic transactions or other transactions that they may believe to be in the best interests of their stockholders or that might increase the value of their business.

PFL controls the direction of their business and PFL’s concentrated ownership of their 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 their 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 of their 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 their other stockholders.

If they are no longer affiliated with RGHL Group, they may be unable to continue to benefit from that relationship, which may adversely affect their operations and have a material adverse effect on them. Their affiliation with RGHL Group provides them with increased scale and reach. They leverage their combined scale to coordinate purchases across their operations to reduce costs. If they no longer benefit from this relationship, whether because they are no longer affiliated with RGHL Group or otherwise, it may result in increased costs for them and higher prices to their customers because they may be unable to obtain goods, services, and technology from unaffiliated third parties on terms as favorable as those previously obtained.

RGHL Group may compete with them, and its competitive position in certain markets may constrain their ability to build and maintain partnerships. They 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 they do have supply agreements in place with Pactiv, Pactiv may still compete with them 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 their products, they may do so in the future, including as a result of acquiring a company that operates as a manufacturer of consumer products.

Bottom Line

 In the year ended December 31, 2018, they 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, they generated $2.2 billion in revenue, $135 million in net income and $441 million in Adjusted EBITDA. Since 2014, their 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. They have driven margin expansion mainly through their consistent focus on improving operational efficiency, managing costs throughout the cycle and driving innovation. Their 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, they generated $530 million of net cash provided by operating activities and spent $82 million on capital expenditures.

They are a market-leading consumer products company with a presence in 95% of households across the United States. They sell their products under iconic brands such as Reynolds® and Hefty® and also under store brands that are strategically important to their customers. In virtually all of their major product categories they hold either a #1 or #2 U.S. market share position by revenue. Their diverse product portfolio includes aluminum foil, disposable bakeware, trash bags, food storage bags and disposable tableware. Innovation is a key component of their corporate culture and they aim to continually evolve across their segments through both the introduction of new features on their existing product portfolio and the development of new product solutions. Their 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. Their 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. Their 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 their Tableware segment, they sell both branded and store brand disposable and compostable plates, bowls, platters, cups and cutlery. Their 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 their Presto segment, they primarily sell store brand products in four main categories: food storage bags, trash bags, reusable storage containers and plastic wrap. . Their Presto segment also includes their growing specialty business, which serves other consumer products companies by providing Fresh-Lock® and Slide-Rite® resealable closure systems. For fiscal year 2020, they expect to pay a quarterly cash dividend of $0.223 per share.

The U.S. waste and storage products category generated $4.3 billion of sales across Nielsen tracked channels in the last 52 weeks ended September 28, 2019. They have leading market shares across the full suite of their trash and food storage bag products. Through their Presto segment, they are the largest supplier of store brand food storage bags in the United States with a 57% share of the store brand market. Additionally, they have a 35% share of the overall branded and store brand market. Hefty led the slider bag segment with a 34% share. Within the convenience cooking category, they sell parchment paper, slow cooker liners, oven bags, wax paper, freezer paper and baking cups. The overall cooking products category generated approximately $1.1 billion of sales in the U.S. across Nielsen tracked channels in the last 52 weeks ended September 28, 2019. They have leading market shares in the U.S. across the cooking products category. Reynolds Wrap is the largest brand within the U.S. foil market and is nearly 50 times the size of all other foil brands combined. They have a leadership position within virtually all of their convenience cooking subcategories including a 93% share in branded oven bags, an 83% share in slow cooker liners, a 94% share in freezer paper and a 60% share in wax paper. Additionally, they compete on a limited basis in the growing $612 million bakeware category where they expect meaningful opportunities to grow. The disposable tableware category generated $4.5 billion of sales in the U.S. across Nielsen tracked channels in the last 52 weeks ended September 28, 2019 across disposable dishes, cups and cutlery. Within this group, they have leading market shares in plastic cups and foam dishes, which together accounted for $1.3 billion of sales in this category in the last 52 weeks ended September 28, 2019. They have significant space to grow in this category, and their strong brand equity in foam plates and plastic cups positions them well to grow in other category adjacencies by leveraging their customer relationships and innovation, as demonstrated by their recent launches of hot cup and compostable molded fiber products.

Their scale across household aisles and ability to offer trusted branded and store brand products enable them to grow the overall category and has earned them the opportunity to provide category captain level advisor insights at the majority of their retail partners. Their new product innovation drives incremental growth within their categories. They plan to continue their investment in marketing and advertising to grow the revenues of their product offerings and the categories in which they participate. They believe there is a significant opportunity to use their existing brand equity and expand into adjacent categories. In addition to traditional grocery, they believe there is significant opportunity to expand within the club, home improvement, dollar-store and eCommerce channels across their full product portfolio. Additionally, they see opportunity for their 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. During fiscal year 2018, North America represented 99% of their total sales. They estimate their addressable market outside the United States and Canada to be approximately $7.3 billion. . They proactively collaborate with their retail partners on customized product innovation. Their product innovation pipeline focuses on use occasions including meals and snacks on-the-go as well as sustainability and the needs of the millennial consumer. Their objective is to generate 20% of their revenue each year from new products introduced within the prior three years. In fiscal year 2018, 21% of their revenue was generated from products that were less than three years old. They have focused much of their innovation efforts around sustainability, and they offer a broad line of products that are better for the planet. They are focusing on products made with recycled, renewable, recyclable and compostable materials. They have cultivated a continuous improvement mindset oriented towards cost reduction, productivity improvements and lean manufacturing. They believe their strong free cash flow enables them to invest in and grow their business organically, reduce their indebtedness and pursue strategic M&A to create value for their stockholders.

They hold the #1 or #2 market position by revenue in virtually all of their product categories and are well positioned to capitalize on their growth. Over 65% of their revenue comes from products that are #1 in their respective categories. They continue to drive category growth through their innovation driven new product development and relationships with leading retailers. The majority of their products are made in the United States, and their strategically located national manufacturing footprint provides logistics advantages and certainty of supply for their retail partners. Their short supply chain relative to competitors and the vendor-managed inventory they offer their major customers are highly valued by their customers because it reduces the inventory they have to carry and limits product shortages. They have a strong track record of innovation, focused on the addition of innovative features to their existing products and the development of new products that address consumers’ unmet needs. Additionally, they strive to further enhance their core product portfolio. As sustainability becomes more central to the consumer’s purchasing decision, they remain focused on developing new eco-friendly products, and they are continuously investing in their capabilities to improve their ability to utilize recycled materials. They have a robust and well invested manufacturing footprint which includes 17 manufacturing facilities and over 5,000 employees. Their facilities are strategically located across the United States and Canada, and the majority of their products are proudly made in the United States. They 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 themselves from labor fluctuations. Their operations have significant scale and substantial vertical integration, which provides them with competitive advantages. They have an attractive financial profile with steady organic revenue growth, strong margins and disciplined capital expenditures. These attributes allow them to generate robust free cash flow. Historically their business has relatively low capital expenditure requirements, averaging $60 million per year over the past three fiscal years, which drives their high rate of free cash flow conversion. They are committed to using recycled, renewable, recyclable, compostable and other sustainable materials in their products, which drives their product-oriented sustainability initiatives. In 2018, 43% of the products that they sold in the United States were compostable, recyclable and/or made from recyclable material.

Many of their customers are large and possess significant market leverage, which results in significant downward pricing pressure, and can constrain their ability to pass through price increases. Some of their products are manufactured at a single location. The loss of the use of all or a portion of any of their 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 their business, financial condition and results of operations. Their business is impacted by fluctuations in raw material, energy and freight costs, including the impact of tariffs and similar matters. 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 their products, especially their 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. Portions of their business are moderately seasonal. Overall, their strongest sales are in their fourth quarter and their weakest sales are in their first quarter. Upon closing of this offering, they expect to have approximately $2,475 million of outstanding indebtedness under the New Term Loan Facility, and they expect to have material additional borrowing capacity under the New Revolving Facility. 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 they remain in the same “controlled group” as Pactiv and Evergreen following this offering, third parties may seek to hold them jointly and severally liable for their pension liabilities as long as they remain members of the same controlled group. 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”). Approximately 24% of their employees are covered by collective bargaining agreements. If they encounter difficulties with renegotiations or renewals of collective bargaining arrangements or are unsuccessful in those efforts, they could incur additional costs and experience work stoppages. . 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 they will enter into with RGHL, they will be restricted from taking any action that prevents these distributions from being tax-free for U.S. federal income tax purposes. These restrictions may limit their ability to pursue certain strategic transactions or other transactions that they may believe to be in the best interests of their stockholders or that might increase the value of their business. Upon closing of this offering, PFL will own, and control the voting power of, approximately 77% of their 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 of their outstanding common stock, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval. Their affiliation with RGHL Group provides them with increased scale and reach. If they no longer benefit from this relationship, whether because they are no longer affiliated with RGHL Group or otherwise, it may result in increased costs for them and higher prices to their customers because they may be unable to obtain goods, services, and technology from unaffiliated third parties on terms as favorable as those previously obtained. They 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 they do have supply agreements in place with Pactiv, Pactiv may still compete with them 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 their products, they may do so in the future, including as a result of acquiring a company that operates as a manufacturer of consumer products. Rating = 3