SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 1,December 30, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number 001-35672
BERRY GLOBAL GROUP, INC.
A Delaware corporation | 101 Oakley Street, Evansville, Indiana, 47710 (812) 424-2904 | IRS employer identification number 20-5234618 |
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | BERY | New York Stock Exchange LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ | Accelerated Filer ☐ | Non-Accelerated Filer ☐ | Smaller Reporting Company ☐ | Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 119.2115.9 million shares of common stock outstanding at May 4, 2023.February 7, 2024.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in Berry Global Group, Inc.’s filings with the U.S. Securities and Exchange Commission (the “SEC”) and press releases or other public statements contains or may contain forward-looking statements. This report includes “forward-looking” statements with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. These statements contain words such as “believes,” “expects,” “may,” “will,” “should,” “would,” “could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “project,” “outlook,” “anticipates” or “looking forward” or similar expressions that relate to our strategy, plans, intentions, or expectations. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates, and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. All forward-looking statements are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Additionally, we caution readers that the list of important factors discussed in our most recent Form 10-K in the section titled “Risk Factors” and subsequent periodic reports filed with the SEC may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.
Form 10-Q Index
For Quarterly Period Ended April 1,December 30, 2023
Part I. | Financial Information | Page No. |
| Item 1. | Financial Statements: | |
| | | 4 |
| | | 5 |
| | | 6 |
| | | 7 |
| | | 8 |
| Item 2. | | 1514 |
| Item 3. | | 2117 |
| Item 4. | | 2118 |
Part II. | Other Information | |
| Item 1. | | 2219 |
| Item 1A. | | 2219 |
| Item 2. | | 2219 |
| Item 5. | | 20 |
| Item 6. | | 2320 |
| | 2421 |
Part I. Financial Information
Item 1. | Financial Statements |
Consolidated Statements of Income
(Unaudited)
(in millions of dollars, except per share amounts)
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
| | April 1, 2023 | | | April 2, 2022 | | | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | |
Net sales | | $ | 3,288 | | | $ | 3,775 | | | $ | 6,348 | | | $ | 7,348 | | | $ | 2,853 | | | $ | 3,060 | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of goods sold | | | 2,682 | | | | 3,154 | | | | 5,224 | | | | 6,192 | | | | 2,379 | | | | 2,542 | |
Selling, general and administrative | | | 220 | | | | 207 | | | | 456 | | | | 442 | | | | 235 | | | | 236 | |
Amortization of intangibles | | | 60 | | | | 65 | | | | 120 | | | | 133 | | | | 60 | | | | 60 | |
Restructuring and transaction activities | | | 25 | | | | 8 | | | | 37 | | | | 11 | | | | 22 | | | | 12 | |
Operating income | | | 301 | | | | 341 | | | | 511 | | | | 570 | | | | 157 | | | | 210 | |
Other expense | | | 1 | | | | 6 | | | | 2 | | | | 6 | | | | 12 | | | | 1 | |
Interest expense | | | 79 | | | | 71 | | | | 150 | | | | 142 | | | | 72 | | | | 71 | |
Income before income taxes | | | 221 | | | | 264 | | | | 359 | | | | 422 | | | | 73 | | | | 138 | |
Income tax expense | | | 47 | | | | 59 | | | | 79 | | | | 96 | | | | 14 | | | | 32 | |
Net income | | $ | 174 | | | $ | 205 | | | $ | 280 | | | $ | 326 | | | $ | 59 | | | $ | 106 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.44 | | | $ | 1.53 | | | $ | 2.29 | | | $ | 2.42 | | | $ | 0.51 | | | $ | 0.86 | |
Diluted | | | 1.42 | | | | 1.50 | | | | 2.27 | | | | 2.36 | | | | 0.50 | | | | 0.85 | |
Consolidated Statements of Comprehensive Income
(Unaudited)
(in millions of dollars)
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
| | April 1, 2023 | | | April 2, 2022 | | | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | |
Net income | | $ | 174 | | | $ | 205 | | | $ | 280 | | | $ | 326 | | | $ | 59 | | | $ | 106 | |
Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation | | | 60 | | | | 37 | | | | 201 | | | | 15 | | | | 139 | | | | 141 | |
Derivative instruments | | | (31 | ) | | | 71 | | | | (32 | ) | | | 100 | | | | (77 | ) | | | (1 | ) |
Other comprehensive income | | | 29 | | | | 108 | | | | 169 | | | | 115 | | | | 62 | | | | 140 | |
Comprehensive income | | $ | 203 | | | $ | 313 | | | $ | 449 | | | $ | 441 | | | $ | 121 | | | $ | 246 | |
See notes to consolidated financial statements.
Consolidated Balance Sheets
(in millions of dollars)
| | April 1, 2023 | | | October 1, 2022 | | | December 30, 2023 | | | September 30, 2023 | |
| | (Unaudited) | | | | | | (Unaudited) | | | | |
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 696 | | | $ | 1,410 | | | $ | 507 | | | $ | 1,203 | |
Accounts receivable | | | 1,751 | | | | 1,777 | | | | 1,497 | | | | 1,568 | |
Finished goods | | | 1,128 | | | | 1,010 | | | | 1,038 | | | | 933 | |
Raw materials and supplies | | | 736 | | | | 792 | | | | 651 | | | | 624 | |
Prepaid expenses and other current assets | | | 220 | | | | 175 | | | | 257 | | | | 205 | |
Total current assets | | | 4,531 | | | | 5,164 | | | | 3,950 | | | | 4,533 | |
Noncurrent assets: | | | | | | | | | | | | | | | | |
Property, plant and equipment | | | 4,612 | | | | 4,342 | | | | 4,662 | | | | 4,576 | |
Goodwill and intangible assets | | | 6,866 | | | | 6,685 | | | | 6,758 | | | | 6,684 | |
Right-of-use assets | | | 507 | | | | 521 | | | | 645 | | | | 625 | |
Other assets | | | 97 | | | | 244 | | | | 129 | | | | 169 | |
| | $ | 16,613 | | | $ | 16,956 | | | $ | 16,144 | | | $ | 16,587 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities and stockholders’ equity | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 1,350 | | | $ | 1,795 | | | $ | 1,131 | | | $ | 1,528 | |
Accrued employee costs | | | 243 | | | | 253 | | | | 243 | | | | 273 | |
Other current liabilities | | | 715 | | | | 783 | | | | 971 | | | | 902 | |
Current portion of long-term debt | | | 12 | | | | 13 | | | | 25 | | | | 10 | |
Total current liabilities | | | 2,320 | | | | 2,844 | | | | 2,370 | | | | 2,713 | |
Noncurrent liabilities: | | | | | | | | | | | | | | | | |
Long-term debt | | | 9,295 | | | | 9,242 | | | | 8,703 | | | | 8,970 | |
Deferred income taxes | | | 575 | | | | 707 | | | | 492 | | | | 573 | |
Employee benefit obligations | | | 162 | | | | 160 | | | | 202 | | | | 193 | |
Operating lease liabilities | | | 414 | | | | 429 | | | | 537 | | | | 525 | |
Other long-term liabilities | | | 552 | | | | 378 | | | | 512 | | | | 397 | |
Total liabilities | | | 13,318 | | | | 13,760 | | | | 12,816 | | | | 13,371 | |
| | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | |
Common stock (119.2 and 124.2 million shares issued, respectively) | | | 1 | | | | 1 | | |
Common stock (116.0 and 115.5 million shares issued, respectively) | | | | 1 | | | | 1 | |
Additional paid-in capital | | | 1,214 | | | | 1,177 | | | | 1,265 | | | | 1,231 | |
Retained earnings | | | 2,314 | | | | 2,421 | | | | 2,336 | | | | 2,320 | |
Accumulated other comprehensive loss | | | (234 | ) | | | (403 | ) | | | (274 | ) | | | (336 | ) |
Total stockholders’ equity | | | 3,295 | | | | 3,196 | | | | 3,328 | | | | 3,216 | |
Total liabilities and stockholders’ equity | | $ | 16,613 | | | $ | 16,956 | | | $ | 16,144 | | | $ | 16,587 | |
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
(in millions of dollars)
| | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
| | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | |
Cash Flows from Operating Activities: | | | | | | | | | | | | |
Net income | | $ | 280 | | | $ | 326 | | | $ | 59 | | | $ | 106 | |
Adjustments to reconcile net cash from operating activities: | | | | | | | | | | | | | | | | |
Depreciation | | | 279 | | | | 284 | | | | 154 | | | | 139 | |
Amortization of intangibles | | | 120 | | | | 133 | | | | 60 | | | | 60 | |
Non-cash interest (income) expense, net | | | (27 | ) | | | 8 | | | | (19 | ) | | | (13 | ) |
Settlement of derivatives | | | 36 | | | | — | | | | 19 | | | | — | |
Deferred income tax | | | (51 | ) | | | (43 | ) | | | (23 | ) | | | (33 | ) |
Share-based compensation expense | | | 30 | | | | 28 | | | | 21 | | | | 23 | |
Other non-cash operating activities, net | | | 8 | | | | (14 | ) | | | 11 | | | | (3 | ) |
Changes in working capital | | | (495 | ) | | | (714 | ) | | | (490 | ) | | | (508 | ) |
Changes in other assets and liabilities | | | (12 | ) | | | (22 | ) | | | 9 | | | | (4 | ) |
Net cash from operating activities | | | 168 | | | | (14 | ) | | | (199 | ) | | | (233 | ) |
| | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment, net | | | (385 | ) | | | (367 | ) | | | (183 | ) | | | (211 | ) |
Acquisition of a business and other | | | (88 | ) | | | 3 | | |
Net cash from investing activities | | | (473 | ) | | | (364 | ) | | | (183 | ) | | | (211 | ) |
| | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | 500 | | | | 244 | | | | 1,550 | | | | — | |
Repayments on long-term borrowings | | | (583 | ) | | | (9 | ) | | | (1,858 | ) | | | (84 | ) |
Proceeds from issuance of common stock | | | 18 | | | | 22 | | | | 13 | | | | 5 | |
Repurchase of common stock | | | (333 | ) | | | (351 | ) | | | (7 | ) | | | (166 | ) |
Dividends paid | | | (65 | ) | | | — | | | | (36 | ) | | | (33 | ) |
Other, net | | | 11 | | | | — | | | | (4 | ) | | | — | |
Net cash from financing activities | | | (452 | ) | | | (94 | ) | | | (342 | ) | | | (278 | ) |
Effect of currency translation on cash | | | 43 | | | | 3 | | | | 28 | | | | 29 | |
Net change in cash and cash equivalents | | | (714 | ) | | | (469 | ) | | | (696 | ) | | | (693 | ) |
Cash and cash equivalents at beginning of period | | | 1,410 | | | | 1,091 | | | | 1,203 | | | | 1,410 | |
Cash and cash equivalents at end of period | | $ | 696 | | | $ | 622 | | | $ | 507 | | | $ | 717 | |
See notes to consolidated financial statements.
BerryBerry Global Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in millions of dollars)
Quarterly Period Ended | | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | |
Balance at December 31, 2022 | | $ | 1 | | | $ | 1,199 | | | $ | (263 | ) | | $ | 2,322 | | | $ | 3,259 | |
Net income | | | — | | | | — | | | | — | | | | 174 | | | | 174 | |
Other comprehensive income | | | — | | | | — | | | | 29 | | | | — | | | | 29 | |
Share-based compensation | | | — | | | | 7 | | | | — | | | | — | | | | 7 | |
Proceeds from issuance of common stock | | | — | | | | 13 | | | | — | | | | — | | | | 13 | |
Common stock repurchased and retired | | | — | | | | (5 | ) | | | — | | | | (150 | ) | | | (155 | ) |
Dividends paid | | | — | | | | — | | | | — | | | | (32 | ) | | | (32 | ) |
Balance at April 1, 2023 | | $ | 1 | | | $ | 1,214 | | | $ | (234 | ) | | $ | 2,314 | | | $ | 3,295 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2022 | | $ | 1 | | | $ | 1,170 | | | $ | (289 | ) | | $ | 2,412 | | | $ | 3,294 | |
Net income | | | — | | | | — | | | | — | | | | 205 | | | | 205 | |
Other comprehensive income | | | — | | | | — | | | | 108 | | | | — | | | | 108 | |
Share-based compensation | | | — | | | | 7 | | | | — | | | | — | | | | 7 | |
Proceeds from issuance of common stock | | | — | | | | 6 | | | | — | | | | — | | | | 6 | |
Common stock repurchased and retired | | | — | | | | (9 | ) | | | — | | | | (291 | ) | | | (300 | ) |
Balance at April 2, 2022 | | $ | 1 | | | $ | 1,174 | | | $ | (181 | ) | | $ | 2,326 | | | $ | 3,320 | |
Two Quarterly Periods Ended | | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | |
Balance at October 1, 2022 | | $ | 1 | | | $ | 1,177 | | | $ | (403 | ) | | $ | 2,421 | | | $ | 3,196 | |
Net income | | | — | | | | — | | | | — | | | | 280 | | | | 280 | |
Other comprehensive income | | | — | | | | — | | | | 169 | | | | — | | | | 169 | |
Share-based compensation | | | — | | | | 30 | | | | — | | | | — | | | | 30 | |
Proceeds from issuance of common stock | | | — | | | | 18 | | | | — | | | | — | | | | 18 | |
Common stock repurchased and retired | | | — | | | | (11 | ) | | | — | | | | (322 | ) | | | (333 | ) |
Dividends paid | | | — | | | | — | | | | — | | | | (65 | ) | | | (65 | ) |
Balance at April 1, 2023 | | $ | 1 | | | $ | 1,214 | | | $ | (234 | ) | | $ | 2,314 | | | $ | 3,295 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at October 2, 2021 | | $ | 1 | | | $ | 1,134 | | | $ | (296 | ) | | $ | 2,341 | | | $ | 3,180 | |
Net income | | | — | | | | — | | | | — | | | | 326 | | | | 326 | |
Other comprehensive income | | | — | | | | — | | | | 115 | | | | — | | | | 115 | |
Share-based compensation | | | — | | | | 28 | | | | — | | | | — | | | | 28 | |
Proceeds from issuance of common stock | | | — | | | | 22 | | | | — | | | | — | | | | 22 | |
Common stock repurchased and retired | | | — | | | | (10 | ) | | | — | | | | (341 | ) | | | (351 | ) |
Balance at April 2, 2022 | | $ | 1 | | | $ | 1,174 | | | $ | (181 | ) | | $ | 2,326 | | | $ | 3,320 | |
| | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | |
Balance at September 30, 2023 | | $ | 1 | | | $ | 1,231 | | | $ | (336 | ) | | $ | 2,320 | | | $ | 3,216 | |
Net income | | | — | | | | — | | | | — | | | | 59 | | | | 59 | |
Other comprehensive income | | | — | | | | — | | | | 62 | | | | — | | | | 62 | |
Share-based compensation | | | — | | | | 21 | | | | — | | | | — | | | | 21 | |
Proceeds from issuance of common stock | | | — | | | | 13 | | | | — | | | | — | | | | 13 | |
Common stock repurchased and retired | | | — | | | | — | | | | — | | | | (7 | ) | | | (7 | ) |
Dividends paid | | | — | | | | — | | | | — | | | | (36 | ) | | | (36 | ) |
Balance at December 30, 2023 | | $ | 1 | | | $ | 1,265 | | | $ | (274 | ) | | $ | 2,336 | | | $ | 3,328 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at October 1, 2022 | | $ | 1 | | | $ | 1,177 | | | $ | (403 | ) | | $ | 2,421 | | | $ | 3,196 | |
Net income | | | — | | | | — | | | | — | | | | 106 | | | | 106 | |
Other comprehensive income | | | — | | | | — | | | | 140 | | | | — | | | | 140 | |
Share-based compensation | | | — | | | | 23 | | | | — | | | | — | | | | 23 | |
Proceeds from issuance of common stock | | | — | | | | 5 | | | | — | | | | — | | | | 5 | |
Common stock repurchased and retired | | | — | | | | (6 | ) | | | — | | | | (172 | ) | | | (178 | ) |
Dividends paid | | | — | | | | — | | | | — | | | | (33 | ) | | | (33 | ) |
Balance at December 31, 2022 | | $ | 1 | | | $ | 1,199 | | | $ | (263 | ) | | $ | 2,322 | | | $ | 3,259 | |
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
(tables in millions of dollars, except per share data)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Berry Global Group, Inc. (“the Company,” “we,” or “Berry”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. statements. In preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts and disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included, and all subsequent events up to the time of the filing have been evaluated. For further information, refer to the Company’s most recent Form 10-K filed with the SEC.
In fiscal 2023, the Company announced that it initiated a formal process to evaluate strategic alternatives for its Health, Hygiene and Specialties segment and has determined the segment does not meet the criteria of Held for Sale as of December 30, 2023.
2. Critical Accounting Policies and Recent Accounting Pronouncements
There have been no material changes in critical accounting policies from those described in our most recent Form 10-K.
Reference Rate Reform
In 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This standard provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. In 2022, the FASB issued ASU 2022-06, which deferred the sunset date of Topic 848 to December 31, 2024. The Company is evaluating timing of adoption, but does not expect a material change to our consolidated financial statements or disclosures.
3. Revenue and Accounts Receivable
Our revenues are primarily derived from the sale of non-woven, flexible and rigid products to customers.products. Revenue is recognized when performance obligations are satisfied, in an amount reflecting the consideration to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable amount, we estimate the amount of considerationconsideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main sourcesources of variable consideration isare customer rebates. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Generally, our revenue is recognized at a point in time for standard promised goods at the time of shipment, when title and risk of loss pass to the customer. The accrual for customer rebates was $95$113 million and $103$106 million at April 1,December 30, 2023 and October 1, 2022,September 30, 2023, respectively, and is included in Other current liabilities on the Consolidated Balance Sheets. The Company disaggregates revenue based on reportable business segment, geography, and significant product line. Refer to Note 10.8. Segment and Geographic Data for further information.
Accounts receivable are presented net of allowance for credit losses of $18 million and $18$19 million at April 1,December 30, 2023 and October 1, 2022, respectively.September 30, 2023. The Company records its current expected credit losses based on a variety of factors including historical loss experience and current customer financial condition. The changes to our current expected credit losses, write-off activity, and recoveries were not material for any of the periods presented.
The Company has entered into various factoring agreements, including customer-based supply chain financing programs, to sell certain receivables to third-party financial institutions. Agreements which result in true sales of the transferred receivables, which occur when receivables are transferred without recourse to the Company, are reflected as a reduction of accounts receivabletrade receivables, net on the consolidated balance sheets and the proceeds are included in the cash flows from operating activities in the consolidated statements of cash flows. The fees associated with the transfer of receivables for all programs were not material for any of the periods presented.
4. Acquisition3. Restructuring and Transaction Activities
Pro-Western Plastics
In Marchfiscal 2023, the Company acquired Pro-Western Plastics Ltd. (“Pro-Western”), a leading plastics injection molding company, for a purchase priceinitiated cost savings initiatives including plant rationalization in all four segments as part of $88 million. The acquired business will be operated within the Consumer Packaging North America segment. To finance the purchase, the Company used existing liquidity. The acquisition has been accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on preliminary values at the acquisition date.2023 restructuring plan. The Company has recognized $35 millionexpects total cash and non-cash expense of goodwill on this transaction primarily as a result of expected cost synergies and expects goodwillthe plan to be deductible for tax purposes.
5. Restructuring and Transaction Activitiesapproximately $200 million, with the operations savings intended to counter general economic softness. All initiatives are expected to be fully implemented by the end of fiscal 2025.
The table below includes the significant components of ourthe restructuring and transaction activities, by reporting segment:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | | | Restructuring Plan | |
| | April 1, 2023 | | | April 2, 2022 | | | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | | | Life to Date | |
Consumer Packaging International | | $ | 12 | | | $ | 5 | | | $ | 15 | | | $ | 7 | | | $ | 3 | | | $ | 3 | | | $ | 53 | |
Consumer Packaging North America | | | 7 | | | | 2 | | | | 8 | | | | 3 | | | | 4 | | | | 1 | | | | 27 | |
Health, Hygiene & Specialties | | | 5 | | | | — | | | | 8 | | | | (1 | ) | | | 13 | | | | 3 | | | | 35 | |
Engineered Materials | | | 1 | | | | 1 | | | | 6 | | | | 2 | | |
Flexibles | | | | 2 | | | | 5 | | | | 9 | |
Consolidated | | $ | 25 | | | $ | 8 | | | $ | 37 | | | $ | 11 | | | $ | 22 | | | $ | 12 | | | $ | 124 | |
The table below sets forth the activity with respect to the restructuring and transaction activities accrual at April 1,December 30, 2023:
| | Restructuring | | | | | | | |
| | Employee Severance and Benefits | | | Facility Exit Costs | | | Non-cash Impairment Charges | | | Transaction Activities | | | Total | |
Balance as of October 1, 2022 | | $ | 2 | | | $ | 3 | | | $ | — | | | $ | — | | | $ | 5 | |
Charges | | | 16 | | | | 8 | | | | 4 | | | | 9 | | | | 37 | |
Non-cash items | | | — | | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
Cash | | | (5 | ) | | | (9 | ) | | | — | | | | (9 | ) | | | (23 | ) |
Balance as of April 1, 2023 | | $ | 13 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 15 | |
| | Restructuring | | | | | | | |
| | Employee Severance and Benefits | | | Facility Exit Costs | | | Transaction Activities | | | Total | |
Balance at September 30, 2023 | | $ | 10 | | | $ | 1 | | | $ | — | | | $ | 11 | |
Charges | | | 9 | | | | 4 | | | | 9 | | | | 22 | |
Cash payments | | | (6 | ) | | | (5 | ) | | | (9 | ) | | | (20 | ) |
Balance at December 30, 2023 | | $ | 13 | | | $ | — | | | $ | — | | | $ | 13 | |
6.4. Leases
The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles.
Supplemental lease information is as follows:
Leases | Classification | | April 1, 2023 | | | October 1, 2022 | | Classification | | December 30, 2023 | | | September 30, 2023 | |
Operating leases: | | | | | | | | | | | | | | |
Operating lease right-of-use assets | Right-of-use assets | | $ | 507 | | | $ | 521 | | Right-of-use asset | | $ | 645 | | | $ | 625 | |
Current operating lease liabilities | Other current liabilities | | | 109 | | | | 108 | | Other current liabilities | | | 125 | | | | 116 | |
Noncurrent operating lease liabilities | Operating lease liability | | | 414 | | | | 429 | | Operating lease liability | | | 537 | | | | 525 | |
Finance leases: | | | | | | | | | | | | | | | | | | |
Finance lease right-of-use assets | Property, plant, and equipment, net | | $ | 34 | | | $ | 38 | | Property, plant, and equipment, net | | $ | 32 | | | $ | 32 | |
Current finance lease liability | Current portion of long-term debt | | | 9 | | | | 9 | | |
Current finance lease liabilities | | Current portion of long-term debt | | | 8 | | | | 9 | |
Noncurrent finance lease liabilities | Long-term debt, less current portion | | | 21 | | | | 24 | | Long-term debt, less current portion | | | 19 | | | | 19 | |
7.5. Long-Term Debt
Long-term debt consists of the following:
Facility | Maturity Date | | April 1, 2023 | | | October 1, 2022 | | Maturity Date | | December 30, 2023 | | | September 30, 2023 | |
Term loan (a) | | July 2026 | | $ | 1,240 | | | | 3,090 | |
Term loan (a) | July 2026 | | $ | 3,390 | | | | 3,440 | | July 2029 | | | 1,546 | | | | — | |
Revolving line of credit | May 2024 | | | — | | | | — | | June 2028 | | | — | | | | — | |
0.95% First Priority Senior Secured Notes (b) | February 2024 | | | 279 | | | | 800 | | February 2024 | | | 279 | | | | 279 | |
1.00% First Priority Senior Secured Notes (c) | July 2025 | | | 761 | | | | 686 | | July 2025 | | | 773 | | | | 741 | |
1.57% First Priority Senior Secured Notes | January 2026 | | | 1,525 | | | | 1,525 | | January 2026 | | | 1,525 | | | | 1,525 | |
4.875% First Priority Senior Secured Notes | July 2026 | | | 1,250 | | | | 1,250 | | July 2026 | | | 1,250 | | | | 1,250 | |
1.65% First Priority Senior Secured Notes | January 2027 | | | 400 | | | | 400 | | January 2027 | | | 400 | | | | 400 | |
1.50% First Priority Senior Secured Notes (c) | July 2027 | | | 408 | | | | 367 | | July 2027 | | | 415 | | | | 397 | |
5.50% First Priority Senior Secured Notes | April 2028 | | | 500 | | | | — | | April 2028 | | | 500 | | | | 500 | |
4.50% Second Priority Senior Secured Notes | February 2026 | | | 291 | | | | 298 | | February 2026 | | | 291 | | | | 291 | |
5.625% Second Priority Senior Secured Notes | July 2027 | | | 500 | | | | 500 | | July 2027 | | | 500 | | | | 500 | |
Debt discounts and deferred fees | | | | (42 | ) | | | (60 | ) | | | | (31 | ) | | | (34 | ) |
Finance leases and other | Various | | | 45 | | | | 49 | | Various | | | 40 | | | | 41 | |
Total long-term debt | | | | 9,307 | | | | 9,255 | | | | | 8,728 | | | | 8,980 | |
Current portion of long-term debt | | | | (12 | ) | | | (13 | ) | | | | (25 | ) | | | (10 | ) |
Long-term debt, less current portion | | | $ | 9,295 | | | | 9,242 | | | | $ | 8,703 | | | | 8,970 | |
(a) | Effectively 80%98% fixed interest rate with interest rate swaps (see Note 8)6). |
(b) | Indicates debt which has been classified as long-term debt in accordance with the Company's ability and intention to refinance such obligations on a long-term basis. As of February 2024, the Company will pay these Notes in full (see Note 12). |
During the quarter ended April 1,December 30, 2023, the Company issued $500extended the maturity date of $1,550 million aggregate principal amount of 5.50% first priority senior secured notes due 2028. The proceeds were usedits outstanding term loans to repurchase a portion of the Company’s 0.95% first priority senior secured notes due 2024.July 2029.
Debt discounts and deferred financing fees are presented net of Long-term debt, less the current portion on the Consolidated Balance Sheets and are amortized to Interest expense, net on the Consolidated Statements of Income through maturity.
8.6. Financial Instruments and Fair Value Measurements
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. The Company may use derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes.
Cross-Currency Swaps
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature June 2024 (€1,625 million) and July 2027 (£700 million). In addition to the cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of April 1,December 30, 2023, we had outstanding long-term debt of €785€379 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries. When valuing cross-currency swaps the Company utilizes Level 2 inputs (substantially observable).
Interest Rate Swaps
The primary purpose of the Company’s interest rate swap activities is to manage interest expense variability associated with our outstanding variable rate term loan debt. When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).
During fiscal 2023,2024, the Company elected to cash settle two existing interest rate swaps and received net proceeds of $36$19 million. The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense through the term of the original swaps. Following the settlement, the Company entered into a $450 million and a $500 million interest rate swaps with matching notional amountsswap transaction with expiration in June 2026.2029.
As of April 1,December 30, 2023, the Company effectively had (i) a $400 million interest rate swap transaction that swaps a one-month variableSOFR contract for a fixed annual rate of 4.451%, with an expiration in June 2026, (ii) an $884 million interest rate swap transaction that swaps a one-month variable SOFR contract for a fixed annual rate of 4.451% with an expiration in June 2026, (iii) a $500 million interest rate swap transaction that swaps a one-month variable SOFR contract for a fixed annual rate of 3.602%, with an expiration in June 2026 (see Note. 12), (iv) a $450 million interest rate swap transaction that swaps a one-month variable LIBORSOFR contract for a fixed annual rate of 4.128%4.553%, (ii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 4.522%, (iii) a $473 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 3.961%, (iv)with an $884 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 4.522%,expiration in June 2029, and (v) a $500 million interest rate swap transaction that swaps a one-month variable LIBORSOFR contract for a fixed annual rate of 3.672%. The Company's interest rate swap transactions all expire4.648%, with an expiration in June 2026.2029.
The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized. Balances on a gross basis are as follows:
Derivative Instruments | Hedge Designation | Balance Sheet Location | | April 1, 2023 | | | October 1, 2022 | | Hedge Designation | Balance Sheet Location | | December 30, 2023 | | | September 30, 2023 | |
Cross-currency swaps | Designated | Other assets | | $ | — | | | $ | 147 | | Designated | Other current liabilities | | | 142 | | | | 66 | |
Cross-currency swaps | Designated | Other long-term liabilities | | | 125 | | | | — | | Designated | Other long-term liabilities | | | 68 | | | | 19 | |
Interest rate swaps | Designated | Other assets | | | 1 | | | | 11 | | Designated | Other assets | | | 3 | | | | 36 | |
Interest rate swaps | Designated | Other long-term liabilities | | | 39 | | | | 3 | | Designated | Other long-term liabilities | | | 72 | | | | — | |
Interest rate swaps | Not designated | Other long-term liabilities | | | 113 | | | | 117 | | Not designated | Other assets | | | — | | | | 8 | |
Interest rate swaps | | Not designated | Other long-term liabilities | | | 88 | | | | 104 | |
The effect of the Company’s derivative instruments, including the amortization of previously settled swaps, on the Consolidated Statements of Income is as follows:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
Derivative Instruments | Statements of Income Location | | April 1, 2023 | | | April 2, 2022 | | | April 1, 2023 | | | April 2, 2022 | | Statements of Income Location | | December 30, 2023 | | | December 31, 2022 | |
Cross-currency swaps | Interest expense | | $ | (10 | ) | | $ | (4 | ) | | $ | (21 | ) | | $ | (7 | ) | Interest expense | | $ | (10 | ) | | $ | (11 | ) |
Interest rate swaps | Interest expense | | | (11 | ) | | | 12 | | | | (17 | ) | | | 24 | | Interest expense | | | (21 | ) | | | (6 | ) |
Non-recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis when impairment indicators are present or when the Company completes an acquisition. The Company adjusts certain long-lived assets to fair value only when the carrying values exceed the fair values. The categorization of the framework used to value the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. These assets that are subject to our annual impairment analysis primarily include our definite lived and indefinite lived intangible assets, including Goodwill and our property, plant and equipment. The Company reviews Goodwill and other indefinite lived assets for impairment as of the first day of the fourth fiscal quarter each year and more frequently if impairment indicators exist. The Company determined Goodwill and other indefinite lived assets were not impaired in our annual fiscal 20222023 assessment. No impairment indicators were identified in the current quarter.
Included in the following tabletables are the major categories of assets measured at fair value on a non-recurring basis as of April 1, 2023 and October 1, 2022,their current carrying values, along with the impairment loss recognized on the fair value measurement duringfor the period:period then ended:
| | As of April 1, 2023 | | | December 30, 2023 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | |
Goodwill | | | — | | | | — | | | | 5,032 | | | | 5,032 | | | | — | | | | — | | | | — | | | | 5,086 | | | | 5,086 | | | | — | |
Definite lived intangible assets | | | — | | | | — | | | | 1,586 | | | | 1,586 | | | | — | | | | — | | | | — | | | | 1,424 | | | | 1,424 | | | | — | |
Property, plant, and equipment | | | — | | | | — | | | | 4,612 | | | | 4,612 | | | | 4 | | | | — | | | | — | | | | 4,662 | | | | 4,662 | | | | — | |
Total | | $ | — | | | $ | — | | | $ | 11,478 | | | $ | 11,478 | | | $ | 4 | | | $ | — | | | $ | — | | | $ | 11,420 | | | $ | 11,420 | | | $ | — | |
| | As of October 1, 2022 | | | September 30, 2023 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | — | | | $ | — | | | $ | 247 | | | $ | 247 | | | $ | — | | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | |
Goodwill | | | — | | | | — | | | | 4,832 | | | | 4,832 | | | | — | | | | — | | | | — | | | | 4,981 | | | | 4,981 | | | | — | |
Definite lived intangible assets | | | — | | | | — | | | | 1,606 | | | | 1,606 | | | | — | | | | — | | | | — | | | | 1,455 | | | | 1,455 | | | | — | |
Property, plant, and equipment | | | — | | | | — | | | | 4,342 | | | | 4,342 | | | | — | | | | — | | | | — | | | | 4,576 | | | | 4,576 | | | | 8 | |
Total | | $ | — | | | $ | — | | | $ | 11,027 | | | $ | 11,027 | | | $ | — | | | $ | — | | | $ | — | | | $ | 11,260 | | | $ | 11,260 | | | $ | 8 | |
The Company’s financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate and cross-currency swap agreements, and finance lease obligations. The book value of our marketable long-term indebtedness exceeded fair value by $336$221 million as of April 1, 2023.December 30, 2023. The Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable).
9.7. Income Taxes
On a year-to-dateIn comparison to the statutory rate, the higherlower effective tax rate for the quarter was negativelypositively impacted by state taxes and global intangible low-taxed income provisions, partially offset by other discrete items.share-based stock compensation.
10.8. Segment and Geographic Data
The Company’s operations are organized into four reporting segments: Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Flexibles, formerly known as Engineered Materials. The structure is designed to align us with our customers, provide optimalimproved service, and drive future growth and to facilitate synergies realization.in a cost efficient manner.
Selected information by reportable segment is presented in the following tables:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
| | April 1, 2023 | | | April 2, 2022 | | | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | |
Net sales: | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 1,059 | | | $ | 1,139 | | | $ | 1,995 | | | $ | 2,195 | | | $ | 917 | | | $ | 936 | |
Consumer Packaging North America | | | 774 | | | | 880 | | | | 1,537 | | | | 1,732 | | | | 699 | | | | 764 | |
Health, Hygiene & Specialties | | | 677 | | | | 822 | | | | 1,340 | | | | 1,640 | | | | 603 | | | | 663 | |
Engineered Materials | | | 778 | | | | 934 | | | | 1,476 | | | | 1,781 | | |
Flexibles | | | | 634 | | | | 697 | |
Total net sales | | $ | 3,288 | | | $ | 3,775 | | | $ | 6,348 | | | $ | 7,348 | | | $ | 2,853 | | | $ | 3,060 | |
Operating income: | | | | | | | | | | | | | | | | | |
Operating income (loss): | | | | | | | | | |
Consumer Packaging International | | $ | 75 | | | $ | 97 | | | $ | 121 | | | $ | 166 | | | $ | 31 | | | $ | 47 | |
Consumer Packaging North America | | | 93 | | | | 85 | | | | 164 | | | | 131 | | | | 63 | | | | 71 | |
Health, Hygiene & Specialties | | | 34 | | | | 69 | | | | 68 | | | | 131 | | | | (3 | ) | | | 34 | |
Engineered Materials | | | 99 | | | | 90 | | | | 158 | | | | 142 | | |
Flexibles | | | | 66 | | | | 58 | |
Total operating income | | $ | 301 | | | $ | 341 | | | $ | 511 | | | $ | 570 | | | $ | 157 | | | $ | 210 | |
Depreciation and amortization: | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 77 | | | $ | 82 | | | $ | 151 | | | $ | 164 | | | $ | 81 | | | $ | 74 | |
Consumer Packaging North America | | | 54 | | | | 53 | | | | 105 | | | | 107 | | | | 57 | | | | 51 | |
Health, Hygiene & Specialties | | | 44 | | | | 44 | | | | 88 | | | | 89 | | | | 46 | | | | 44 | |
Engineered Materials | | | 25 | | | | 27 | | | | 55 | | | | 57 | | |
Flexibles | | | | 30 | | | | 30 | |
Total depreciation and amortization | | $ | 200 | | | $ | 206 | | | $ | 399 | | | $ | 417 | | | $ | 214 | | | $ | 199 | |
Selected information by geographical region is presented in the following tables:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
| | April 1, 2023 | | | April 2, 2022 | | | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | |
Net sales: | | | | | | | | | | | | | | | | | | |
United States and Canada | | $ | 1,751 | | | $ | 1,996 | | | $ | 3,447 | | | $ | 3,948 | | | $ | 1,560 | | | $ | 1,695 | |
Europe | | | 1,237 | | | | 1,399 | | | | 2,286 | | | | 2,616 | | | | 1,011 | | | | 1,050 | |
Rest of world | | | 300 | | | | 380 | | | | 615 | | | | 784 | | | | 282 | | | | 315 | |
Total net sales | | $ | 3,288 | | | $ | 3,775 | | | $ | 6,348 | | | $ | 7,348 | | | $ | 2,853 | | | $ | 3,060 | |
11.9. Contingencies and Commitments
The Company is party to various legal proceedings involving routine claims which are incidental to its business. Although the Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate liability would not be material to our financial position, results of operations or cash flows.
The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of business.
12.10. Basic and Diluted Earnings Per Share
Basic net income or earnings per share ("EPS") is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.
Diluted EPS includes the effects of options and restricted stock units, if dilutive.
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted EPS calculations:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
(in millions, except per share amounts) | | April 1, 2023 | | | April 2, 2022 | | | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | |
Numerator | | | | | | | | | | | | | | | | | | |
Consolidated net income | | $ | 174 | | | $ | 205 | | | $ | 280 | | | $ | 326 | | | $ | 59 | | | $ | 106 | |
Denominator | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | 120.7 | | | | 133.8 | | | | 122.2 | | | | 134.6 | | | | 115.6 | | | | 123.7 | |
Dilutive shares | | | 1.8 | | | | 3.1 | | | | 1.1 | | | | 3.4 | | | | 2.7 | | | | 1.5 | |
Weighted average common and common equivalent shares outstanding - diluted | | | 122.5 | | | | 136.9 | | | | 123.3 | | | | 138.0 | | | | 118.3 | | | | 125.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Per common share earnings | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.44 | | | $ | 1.53 | | | $ | 2.29 | | | $ | 2.42 | | | $ | 0.51 | | | $ | 0.86 | |
Diluted | | $ | 1.42 | | | $ | 1.50 | | | $ | 2.27 | | | $ | 2.36 | | | $ | 0.50 | | | $ | 0.85 | |
1.2For the three months ended December 30, 2023 and December 31, 2022, 2.4 million and 2.65.8 million shares, respectively, were excluded from the diluted EPS calculation for the quarterly and two quarterly periods ended April 1, 2023 as their effect would be anti-dilutive. 1.2 million and 1.3 million shares were excluded for the quarterly and two quarterly periods ended April 2, 2022.
13.11. Accumulated Other Comprehensive Loss
The components and activity of Accumulated other comprehensive loss are as follows:
Quarterly Period Ended | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at December 31, 2022 | | $ | (314 | ) | | $ | (32 | ) | | $ | 83 | | | $ | (263 | ) |
Other comprehensive income (loss) before reclassifications | | | 60 | | | | — | | | | (21 | ) | | | 39 | |
Net amount reclassified | | | — | | | | — | | | | (10 | ) | | | (10 | ) |
Balance at April 1, 2023 | | $ | (254 | ) | | $ | (32 | ) | | $ | 52 | | | $ | (234 | ) |
Quarterly Period Ended | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at September 30, 2023 | | $ | (340 | ) | | $ | (84 | ) | | $ | 88 | | | $ | (336 | ) |
Other comprehensive income before reclassifications | | | 139 | | | | — | | | | (65 | ) | | | 74 | |
Net amount reclassified from accumulated other comprehensive loss | | | — | | | | — | | | | (12 | ) | | | (12 | ) |
Balance at December 30, 2023 | | $ | (201 | ) | | $ | (84 | ) | | $ | 11 | | | $ | (274 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at January 1, 2022 | | $ | (176 | ) | | $ | (67 | ) | | $ | (46 | ) | | $ | (289 | ) |
Other comprehensive income (loss) before reclassifications | | | 37 | | | | — | | | | 69 | | | | 106 | |
Net amount reclassified | | | — | | | | — | | | | 2 | | | | 2 | |
Balance at April 2, 2022 | | $ | (139 | ) | | $ | (67 | ) | | $ | 25 | | | $ | (181 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at October 1, 2022 | | $ | (455 | ) | | $ | (32 | ) | | $ | 84 | | | $ | (403 | ) |
Other comprehensive income before reclassifications | | | 141 | | | | — | | | | 5 | | | | 146 | |
Net amount reclassified from accumulated other comprehensive loss | | | — | | | | — | | | | (6 | ) | | | (6 | ) |
Balance at December 31, 2022 | | $ | (314 | ) | | $ | (32 | ) | | $ | 83 | | | $ | (263 | ) |
Two Quarterly Periods Ended | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at October 1, 2022 | | $ | (455 | ) | | $ | (32 | ) | | $ | 84 | | | $ | (403 | ) |
Other comprehensive income (loss) before reclassifications | | | 201 | | | | — | | | | (16 | ) | | | 185 | |
Net amount reclassified | | | — | | | | — | | | | (16 | ) | | | (16 | ) |
Balance at April 1, 2023 | | $ | (254 | ) | | $ | (32 | ) | | $ | 52 | | | $ | (234 | ) |
12. Subsequent Events
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at October 2, 2021 | | $ | (154 | ) | | $ | (67 | ) | | $ | (75 | ) | | $ | (296 | ) |
Other comprehensive income (loss) before reclassifications | | | 15 | | | | — | | | | 95 | | | | 110 | |
Net amount reclassified | | | — | | | | — | | | | 5 | | | | 5 | |
Balance at April 2, 2022 | | $ | (139 | ) | | $ | (67 | ) | | $ | 25 | | | $ | (181 | ) |
During January 2024, the Company issued $800 million aggregate principal amount of 5.650% first priority senior secured notes due 2034. The proceeds were used to prepay the 0.95% First Priority Senior Secured Notes due in February 2024 and a portion of the existing term loan due in July 2026. As a result of the transaction, the Company also terminated its $500 million interest rate swap due in June 2026 for proceeds of $4 million.
In February 2024, the Company announced plans for a spin-off and merger of its Health, Hygiene & Specialties segment (excluding Tapes) with Glatfelter Corporation (“GLT”). Upon the completion of the transaction, shareholders of Berry will own approximately ninety percent of the new combined company in addition to their continuing interest in Berry. The transaction is expected to be tax-free to Berry and its shareholders. The transaction is subject to certain customary closing conditions including, but not limited to, approval by GLT shareholders, the effective filing of related registration statements, completion of a tax-free spin-off and receipt of certain required foreign anti-trust approvals.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Business. The Company’s operations are organized into four operating segments: Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Flexibles, formerly known as Engineered Materials. The structure is designed to align us with our customers, provide improvedoptimal service, drive future growth, and to facilitate synergiessynergy realization. The Consumer Packaging International segment primarily consists of closures and dispensing systems, pharmaceutical devices and packaging, bottles and canisters, containers, and containers.technical components. The Consumer Packaging North America segment primarily consists of containers and pails, foodservice, closures, bottles and prescription vials, and tubes. The Health, Hygiene & Specialties segment, which is being evaluated for strategic alternatives, primarily consists of healthcare, hygiene, specialties, and tapes. The Engineered MaterialsFlexibles segment primarily consists of stretch and shrink films, converter films, institutional can liners, food and consumer films, retail bags, and agriculture films.
Raw Material Trends. Our primary raw material is polymer resin. In addition, we use other materials such as colorants, linerboard,butyl rubber, adhesives, paper and packaging materials, linerboard, rayon, polyester fiber, and foil, in various manufacturing processes. While temporary industry-wide shortages of raw materials have occurred, we have historically been able to manage the supply chain disruption by working closely with our suppliers and customers. Changes in the price of raw materials are generally passed on to customers through contractual price mechanisms over time, during contract renewals and other means.
Outlook. The Company is affected by general economic and industrial growth, raw material availability, cost inflation, supply chain disruptions, and general industrial production.consumption levels. Our business has both geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes to our customers, improve manufacturing productivity, and adapt to volume changes of our customers. Despite global macro-economic challenges in the short-term attributed to continued rising inflation and general market softness, and continued inflation, particularly in Europe, we continue to believe our underlying long-term demand fundamentalfundamentals in all divisions will remain strong as we focus on delivering protective solutions that enhance consumer safety and by providing advantaged products in targeted markets.strong. For fiscal 2023,2024, we project cash flow from operations between $1.4$1.35 to $1.5$1.45 billion and free cash flow between $800 to $900 million. Projected fiscal 20232024 free cash flow assumes $600$550 million of capital spending. For the calculationdefinition of free cash flow and further information related to free cash flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.”
Results of Operations
Comparison of the Quarterly Period Ended April 1,December 30, 2023 (the “Quarter”) and the Quarterly Period Ended April 2,December 31, 2022 (the “Prior Quarter”)
Business integration expenses consist of restructuring and impairment charges, divestiture related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 3,288 | | | $ | 3,775 | | | $ | (487 | ) | | | (13 | )% | | $ | 2,853 | | | $ | 3,060 | | | $ | (207 | ) | | | (7 | )% |
Cost of goods sold | | | 2,682 | | | | 3,154 | | | | (472 | ) | | | (15 | )% | | | 2,379 | | | | 2,542 | | | | (163 | ) | | | (6 | )% |
Other operating expenses | | | 305 | | | | 280 | | | | 25 | | | | 9 | % | | | 317 | | | | 308 | | | | 9 | | | | 3 | % |
Operating income | | $ | 301 | | | $ | 341 | | | $ | (40 | ) | | | (12 | )% | | $ | 157 | | | $ | 210 | | | $ | (53 | ) | | | (25 | )% |
Net Sales: sales:The net sales decline is primarily attributed to a 6% volume decline, decreased selling prices of $143$189 million due to the pass-throughpass through of lower resinpolymer costs an $80and a 3% volume decline from continued general market softness, partially offset by a $64 million unfavorablefavorable impact from foreign currency changes, and Prior Quarter divestiture sales of $42 million. The volume decline is primarily attributed to general market softness and ongoing inventory destocking.changes.
Cost of goods sold: The cost of goods sold decrease is primarily attributed to lower raw material prices,costs and the volume decline, partially offset by foreign currency changes, and Prior Quarter divestiture cost of goods sold.changes.
Other operating expenses: The other operating expenses increase is primarily attributed to an increase in business integration costs and selling, general, and administrative expenses.costs.
Operating Income:income: The operating income decrease is primarily attributed to a $35$20 million unfavorable impact from price cost spread related to the timing of passing through resin costs, a $16 million unfavorable impact from the volume decline, an $18a $15 million increase in business integration costs,depreciation and amortization expense, a $15 million unfavorable impact from foreign currency changes,hyperinflation in our Argentinian subsidiary and an unfavorable impact from increased selling, general, and administrative expenses.business integration costs. These declines arewere partially offset by acquisition operating income and a $40$10 million favorable impact from price cost spread as a result of cost reduction and improved product mix.foreign currency changes.
Consumer Packaging International | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 1,059 | | | $ | 1,139 | | | $ | (80 | ) | | | (7 | )% | | $ | 917 | | | $ | 936 | | | $ | (19 | ) | | | (2 | )% |
Operating income | | $ | 75 | | | $ | 97 | | | $ | (22 | ) | | | (23 | )% | | $ | 31 | | | $ | 47 | | | $ | (16 | ) | | | (34 | )% |
Net Sales: sales:The net sales decline in the Consumer Packaging International segment is primarily attributed to decreased selling prices of $31 million and a $573% volume decline from general market softness, partially offset by a $40 million unfavorablefavorable impact from foreign currency changes, a 5% volume decline, and Prior Quarter divestiture sales of $42 million, partially offset by increased selling prices of $76 million due to the pass-through of European inflation. The volume decline is primarily attributed to general market softness.changes.
Operating Income:income: The operating income decrease is primarily attributed to an $11 million unfavorable impact from price cost spread, a $10$7 million unfavorableincrease in depreciation and amortization expense, and an unfavorable impact from the volume decline, partially offset by a $9 million unfavorablefavorable impact from foreign currency changes, a $7 million unfavorable impact from increased business integration costs, and increased selling, general, and administrative expenses. These items are partially offset by a $10 million favorable impact from price cost spread.changes.
Consumer Packaging North America | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 774 | | | $ | 880 | | | $ | (106 | ) | | | (12 | )% |
Operating income | | $ | 93 | | | $ | 85 | | | $ | 8 | | | | 9 | % |
Consumer Packaging North America | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 699 | | | $ | 764 | | | $ | (65 | ) | | | (9 | )% |
Operating income | | $ | 63 | | | $ | 71 | | | $ | (8 | ) | | | (11 | )% |
Net Sales: sales:The net sales decline in the Consumer Packaging North America segment is primarily attributed to decreased selling prices of $80$45 million and a 3% volume decline. The4% volume decline is primarily attributed tofrom general market softness particularly in industrials, partially offset by growth in our foodservice market.acquisition sales of $11 million.
Operating Income:income: The operating income increasedecrease is primarily attributed to a $24$6 million favorableunfavorable impact from price cost spread, partially offset by unfavorable impacts from the volume decline increased business integration costs, and increased selling, general,a $5 million increase in depreciation and administrative expenses.amortization expense, partially offset by acquisition operating income.
Health, Hygiene & Specialties | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 677 | | | $ | 822 | | | $ | (145 | ) | | | (18 | )% | | $ | 603 | | | $ | 663 | | | $ | (60 | ) | | | (9 | )% |
Operating income | | $ | 34 | | | $ | 69 | | | $ | (35 | ) | | | (51 | )% | |
Operating income (loss) | | | $ | (3 | ) | | $ | 34 | | | $ | (37 | ) | | | (109 | )% |
Net Sales: sales:The net sales decline in the Health, Hygiene & Specialties segment is primarily attributed to a 9% volume decline and decreased selling prices of $64 million. Themillion and a 2% volume decline is primarily attributed to general marketfrom softness in our specialtieshygiene and specialty markets, and ongoing inventory destocking.partially offset by a $17 million favorable impact from foreign currency changes.
Operating Income:income (loss): The operating income decrease is primarily attributed to a $19$15 million unfavorable impact from price cost spread, a $15 million unfavorable impact from hyperinflation in our Argentinian subsidiary, and a $9 million unfavorable impact fromincrease in business optimization expense related to both plant rationalizations and costs associated with the volume decline.formal process to evaluate strategic alternatives of the segment.
Engineered Materials | | | | | | | | | | |
Flexibles | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 778 | | | $ | 934 | | | $ | (156 | ) | | | (17 | )% | | $ | 634 | | | $ | 697 | | | $ | (63 | ) | | | (9 | )% |
Operating income | | $ | 99 | | | $ | 90 | | | $ | 9 | | | | 10 | % | | $ | 66 | | | $ | 58 | | | $ | 8 | | | | 14 | % |
Net Sales: sales:The net sales decline in the Engineered MaterialsFlexibles segment is primarily attributed to decreased selling prices of $75$49 million and a 7%3% volume decline andin our industrial markets partially offset by growth in our premium protection film products in North America, partially offset by a $16 million unfavorablefavorable impact from foreign currency changes.The volume decline is primarily attributed to general market softness in European industrial markets and ongoing inventory destocking.
Operating Income:income: The operating income increase is primarily attributed to a $25an $8 million favorable impact from price cost spread, partially offset by an $11 million unfavorable impact from the volume decline.spread.
Interest expense | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Interest expense | | $ | 79 | | | $ | 71 | | | $ | 8 | | | | 11 | % |
Other expense | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Other expense | | $ | 12 | | | $ | 1 | | | $ | 11 | | | | 1,100 | % |
The interestother expense increase is primarily attributed to higher debt extinguishment and foreign currency changes related to the resultremeasurement of higher interest rates.non-operating intercompany balances in the Quarter.
Changes in Comprehensive Income
The $110$125 million decline in comprehensiveComprehensive income from the Prior Quarter is primarily attributed to a $102$76 million unfavorable change in the fair value of derivative instruments, net of tax, and a $31$47 million decline in net income, partially offset by a $23 million favorable change in currency translation.Net income. Currency translation changes are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollarDollar whereby assets and liabilities are translated from the respective functional currency into U.S. dollarsDollars using period-end exchange rates. The change in currency translation in the Quarter was primarily attributed to locations utilizing the Euro and British pound sterling as their functional currency. As part of the overall risk management, the Company uses derivative instruments to (i) reduce our exposure to changes in interest rates attributed to the Company’s floating-rate borrowings and (ii) reduce foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in fiscal 20232024 versus fiscal 20222023 is primarily attributed to thea change in the forward interest and foreign exchange curves between measurement dates.
Comparison of the Two Quarterly Periods Ended April 1, 2023 (the “YTD”) and the Two Quarterly Periods Ended April 2, 2022 (the “Prior YTD”)
Business integration expenses consist of restructuring and impairment charges, divestiture related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 6,348 | | | $ | 7,348 | | | $ | (1,000 | ) | | | (14 | )% |
Cost of goods sold | | | 5,224 | | | | 6,192 | | | | (968 | ) | | | (16 | )% |
Other operating expenses | | | 613 | | | | 586 | | | | 27 | | | | 5 | % |
Operating income | | $ | 511 | | | $ | 570 | | | $ | (59 | ) | | | (10 | )% |
Net Sales: The net sales decline is primarily attributed to a 6% volume decline, decreased selling prices of $286 million due to the pass-through of lower resin costs, a $188 million unfavorable impact from foreign currency changes, and Prior YTD divestiture sales of $81 million. The volume decline is primarily attributed to general market softness and customer destocking as supply chains normalize.
Cost of goods sold: The cost of goods sold decrease is primarily attributed to lower raw material prices, the volume decline, foreign currency changes, and Prior YTD divestiture cost of goods sold.
Other operating expenses: The other operating expenses increase is primarily attributed to an increase in business integration costs.
Operating Income: The operating income decrease is primarily attributed to a $68 million unfavorable impact from the volume decline, a $37 million unfavorable impact from foreign currency changes, and a $26 million unfavorable impact from increased business integration costs. These declines are partially offset by a $90 million favorable impact from price cost spread as a result of cost reduction and improved product mix.
Consumer Packaging International | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 1,995 | | | $ | 2,195 | | | $ | (200 | ) | | | (9 | )% |
Operating income | | $ | 121 | | | $ | 166 | | | $ | (45 | ) | | | (27 | )% |
Net Sales: The net sales decline in the Consumer Packaging International segment is primarily attributed to a $122 million unfavorable impact from foreign currency changes, a 5% volume decline, and Prior Quarter divestiture sales of $81 million, partially offset by increased selling prices of $116 million due to the pass-through of European inflation. The volume decline is primarily attributed to general market softness.
Operating Income: The operating income decrease is primarily attributed to a $25 million unfavorable impact from foreign currency changes, a $20 million unfavorable impact from the volume decline, and an $8 million unfavorable impact from increased business integration costs. These declines are partially offset by a $16 million favorable impact from price cost spread.
Consumer Packaging North America | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 1,537 | | | $ | 1,732 | | | $ | (195 | ) | | | (11 | )% |
Operating income | | $ | 164 | | | $ | 131 | | | $ | 33 | | | | 25 | % |
Net Sales: The net sales decline in the Consumer Packaging North America segment is primarily attributed to decreased selling prices of $142 million and a 3% volume decline. The volume decline is primarily attributed to general market softness partially offset by growth in our foodservice market.
Operating Income: The operating income increase is primarily attributed to a $58 million favorable impact from price cost spread, partially offset by a $9 million unfavorable impact from the volume decline and an unfavorable impact from increased selling, general, and administrative expenses.
Health, Hygiene & Specialties | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 1,340 | | | $ | 1,640 | | | $ | (300 | ) | | | (18 | )% |
Operating income | | $ | 68 | | | $ | 131 | | | $ | (63 | ) | | | (48 | )% |
Net Sales: The net sales decline in the Health, Hygiene & Specialties segment is primarily attributed to a 9% volume decline, decreased selling prices of $136 million, and a $25 million unfavorable impact from foreign currency changes. The volume decline is primarily attributed to general market softness and customer destocking as supply chains normalize.
Operating Income: The operating income decrease is primarily attributed to a $38 million unfavorable impact from price cost spread, a $17 million unfavorable impact from the volume decline, and an $8 million unfavorable impact from foreign currency changes.
Engineered Materials | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 1,476 | | | $ | 1,781 | | | $ | (305 | ) | | | (17 | )% |
Operating income | | $ | 158 | | | $ | 142 | | | $ | 16 | | | | 11 | % |
Net Sales: The net sales decline in the Engineered Materials segment is primarily attributed to an 8% volume decline, decreased selling prices of $124 million, and a $41 million unfavorable impact from foreign currency changes. The volume decline is primarily attributed to general market softness and customer destocking as supply chains normalize.
Operating Income: The operating income increase is primarily attributed to a $54 million favorable impact from price cost spread, partially offset by a $22 million unfavorable impact from the volume decline, an unfavorable impact from increased selling, general, and administrative expenses, and an unfavorable impact from increased business integration costs.
Interest expense | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Interest expense | | $ | 150 | | | $ | 142 | | | $ | 8 | | | | 6 | % |
The interest expense increase is primarily the result of higher interest rates.
Changes in Comprehensive Income
The $8 million improvement in comprehensive income from the Prior YTD was primarily attributed to a $186 million favorable change in currency translation, partially offset by a $132 million unfavorable change in the fair value of derivative instruments, net of tax, and a $46 million decline in net income. Currency translation changes are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollar whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates. The change in currency translation in the YTD was primarily attributed to locations utilizing the Euro and British pound sterling as their functional currency. As part of the overall risk management, the Company uses derivative instruments to (i) reduce our exposure to changes in interest rates attributed to the Company’s borrowings and (ii) reduce foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in fiscal 2023 versus fiscal 2022 is primarily attributed to the change in the forward interest and foreign exchange curves between measurement dates.
Liquidity and Capital Resources
Senior Secured Credit Facility
We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. At the end of the Quarter, the Company had no outstanding balance on its $1,050 million$1.0 billion asset-based revolving line of credit that matures in May 2024.June 2028. The Company was in compliance with all covenants at the end of the Quarter.
Cash Flows
Net cash from operating activities increased $182$34 million from the Prior YTDQuarter primarily attributed to working capital improvement.improvement and the settlement of derivatives in the Quarter, partially offset by a decline in net income prior to non-cash activities.
Net cash used in investing activities increased $109decreased $28 million from the Prior YTDQuarter primarily attributed to the acquisition of Pro-Westerndecreased investments in the YTD.property, plant and equipment.
Net cash used in financing activities increased $358$64 million from the Prior YTDQuarter primarily attributed to higher net repayments ofon long-term debt, and initiation of a quarterly dividend in the YTD.partially offset by lower share repurchases.
Dividend Payments
TheDuring the quarter, the Company declared and paid a cash dividenddividends of $0.25 per share during both the first fiscal quarter that ended December 31, 2022 and the second fiscal quarter that ended April 1, 2023.$36 million.
Share Repurchases
YTD fiscal 2023,During the quarter, the Company repurchased approximately 6 million106 thousand shares for $333$7 million. Authorized share repurchases of $710The Company has $435 million remain available to the Company.remaining under its repurchase plan.
Free Cash Flow
Our consolidated free cash flow for the YTDQuarter and Prior YTDQuarter are summarized as follows:
| | April 1, 2023 | | | April 2, 2022 | | | December 30, 2023 | | | December 31, 2022 | |
Cash flow from operating activities | | $ | 168 | | | $ | (14 | ) | | $ | (199 | ) | | $ | (233 | ) |
Additions to property, plant and equipment, net | | | (385 | ) | | | (367 | ) | | | (183 | ) | | | (211 | ) |
Free cash flow | | $ | (217 | ) | | $ | (381 | ) | | $ | (382 | ) | | $ | (444 | ) |
We use free cash flow as a supplemental measure of liquidity as it assists us in assessing our ability to fund growth through generation of cash. Free cash flow may be calculated differently by other companies, including other companies in our industry or peer group, limiting its usefulness on a comparative basis. Free cash flow is not a financial measure presented in accordance with generally accepted accounting principles ("GAAP") and should not be considered as an alternative to any other measure determined in accordance with GAAP.
Liquidity Outlook
At April 1,December 30, 2023, our cash balance was $696$507 million, which was primarily located outside the U.S. We believe our existing and future U.S. based cash and cash flow from U.S. operations, together with available borrowings under our senior secured credit facilities, will be adequate to meet our short-term and long-term liquidity needs with the exception of funds needed to cover all long-term debt obligations, which we intend to refinance prior to maturity. The Company has the ability to repatriate the cash located outside the U.S. to the extent not needed to meet operational and capital needs without significant restrictions.
Summarized Guarantor Financial Information
Berry Global, Inc. (“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by its parent, Berry Global Group, Inc. (for purposes of this section, “Parent”) and substantially all of Issuer’s domestic subsidiaries. Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by Parent and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis. A guarantee of a guarantor subsidiary of the securities will terminate upon the following customary circumstances: the sale of the capital stock of such guarantor if such sale complies with the indentures, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture or in the case of a restricted subsidiary that is required to guarantee after the relevant issuance date, if such guarantor no longer guarantees certain other indebtedness of Issuer. The guarantees of the guarantor subsidiaries are also limited as necessary to prevent them from constituting a fraudulent conveyance under applicable law and any guarantees guaranteeing subordinated debt are subordinated to certain other of the Company’s debts. Parent also guarantees Issuer’s term loans and revolving credit facilities. The guarantor subsidiaries guarantee our term loans and are co-borrowers under our revolving credit facility.
Presented below is summarized financial information for the Parent, Issuer and guarantor subsidiaries on a combined basis, after intercompany transactions have been eliminated.
| | Two Quarterly Periods Ended | | | Quarterly Period Ended | |
| | April 1, 2023 | | | December 30, 2023 | |
Net sales | | $ | 3,346 | | | $ | 1,506 | |
Gross profit | | | 653 | | | | 297 | |
Earnings from continuing operations | | | 231 | | | | 67 | |
Net income | | $ | 231 | | | $ | 67 | |
Includes $4$5 million of incomeexpense associated with intercompany activity with non-guarantor subsidiaries.
| | April 1, 2023 | | | October 1, 2022 | | | December 30, 2023 | | | September 30, 2023 | |
Assets | | | | | | | | | | | | |
Current assets | | $ | 1,618 | | | $ | 2,432 | | | $ | 1,443 | | | $ | 1,975 | |
Noncurrent assets | | | 5,961 | | | | 6,137 | | | | 5,944 | | | | 5,997 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Current liabilities | | $ | 915 | | | $ | 1,536 | | | $ | 1,231 | | | $ | 1,363 | |
Intercompany payable | | | 636 | | | | 634 | | |
Noncurrent liabilities | | | 10,676 | | | | 10,630 | | | | 10,035 | | | | 10,271 | |
Includes $754 million of intercompany payables due to non-guarantor subsidiaries as of December 30, 2023 and September 30, 2023, respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities.facilities and accounts receivable supply chain finance factoring programs. Our senior secured credit facilities are comprised of (i) $3.4$2.8 billion term loans and (ii) a $1,050 million$1.0 billion revolving credit facility with no balanceborrowings outstanding. Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus LIBOR or SOFR. The applicable margin for SOFR rate borrowings under the revolving credit facility ranges from 1.25% to 1.50%, and the margin for the term loans is 1.75% per annum. As of period end, the LIBORSOFR rate of approximately 4.86%5.38% was applicable to the term loans. For the portionA change of our term loans that are not hedged by0.25% on these floating interest rate swaps, a 0.25% change in LIBORexposures would increase our annual interest expense by $2 million on variable rate term loans.approximately $1 million.
We seek to minimize interest rate volatility risk through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. These financial instruments are not used for trading or other speculative purposes. (See Note 8.6.)
Foreign Currency Risk
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, British pound sterling, Brazilian real, Chinese renminbi, Canadian dollar and Mexican peso. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses. Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates and impact our Comprehensive income. A 10% decline in foreign currency exchange rates would have had a $12an $4 million unfavorable impact on our Net income for the two quarterly periodsperiod ended April 1,December 30, 2023. (See Note 8.6.)
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under applicable Securities and Exchange Commission regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the commission (such as this Form 10-Q) is recorded, processed, summarized, and reported on a timely basis.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the Quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
There have been no material changes in legal proceedings from the items disclosed in our most recent Form 10-K filed with the Securities and Exchange Commission.
Before investing in our securities, we recommend that investors carefully consider the risks described in our most recent Form 10-K and subsequent periodic reports filed with the Securities and Exchange Commission, including those under the heading “Risk Factors” and other information contained in this Quarterly Report. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Additionally, we caution readers that the list of risk factors discussed in our most recent Form 10-K and subsequent periodic reports may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
The following table summarizes the Company's repurchases of its common stock during the Quarterly Period ended April 1,December 30, 2023.
Fiscal Period | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | Dollar Value of Shares that May Yet be Purchased Under the Program (in millions) (a) | |
January | | | 80,000 | | | $ | 64.50 | | | | 80,000 | | | $ | 859 | |
February | | | 1,519,597 | | | | 62.50 | | | | 1,519,597 | | | | 764 | |
March | | | 944,808 | | | | 58.06 | | | | 944,808 | | | | 710 | |
Total | | | 2,544,405 | | | $ | 60.92 | | | | 2,544,405 | | | $ | 710 | |
Fiscal Period | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | Dollar Value of Shares that May Yet be Purchased Under the Program (in millions) (a) | |
October | | | — | | | $ | — | | | | — | | | $ | 442 | |
November | | | 69,755 | | | | 64.48 | | | | 69,755 | | | | 437 | |
December | | | 35,934 | | | | 65.40 | | | | 35,934 | | | | 435 | |
Total | | | 105,689 | | | $ | 64.79 | | | | 105,689 | | | $ | 435 | |
(a) | All open market purchases during the quarter were made under the 2023 authorization from our board of directors. |
Item 5. Other Information
Rule 10b5-1 Plan Elections
No officers or directors, as defined in Rule 16a-1(f), adopted, modified and/or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as defined in Regulation S-K Item 408, during the first quarter of fiscal 2024.
Exhibit No. | | Description of Exhibit |
| | Indenture, among Berry Global, Inc., certain guarantors party thereto, U.S. Bank Trust Company, National Association, as Trustee and Collateral Agent, relating to the 5.50% First Priority Senior Secured Notes due 2028, dated March 30, 2023 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 30, 2023). |
| | Registration Rights Agreement, by and between Berry Global, Inc., Berry Global Group, Inc., each subsidiary of Berry Global, Inc. identified therein, and Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC, on behalf of themselves and as representatives of the initial purchasers, relating to the 5.50% First Priority Senior Secured Notes due 2028 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 30, 2023). |
| | Subsidiary Guarantors. |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
| | Section 1350 Certification of the Chief Executive Officer. |
| | Section 1350 Certification of the Chief Financial Officer. |
101.INS | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Berry Global Group, Inc. | |
| | | |
May 4, 2023February 7, 2024 | By: | /s/ Mark W. Miles | |
| | Mark W. Miles | |
| | Chief Financial Officer | |