10. Segment and Geographic Data
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts. The Securities and Exchange Commission has issued guidance that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of fiscal 2018.
The Company'sCompany’s operations are organized into three operatingfour reporting segments: Engineered Materials,Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Consumer Packaging.Engineered Materials. The structure is designed to align us with our customers, provide optimal service, and drive future growth, in a cost efficient manner. and to facilitate synergies realization.
Selected information by reportable segment is presented in the following tables:
| | Quarterly Period Ended | | | Quarterly Period Ended | | | Three Quarterly Periods Ended | |
| | December 30, 2017 | | | December 31, 2016 | | | July 1, 2023 | | | July 2, 2022 | | | July 1, 2023 | | | July 2, 2022 | |
Net sales: | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | | $ | 1,036 | | | $ | 1,096 | | | $ | 3,031 | | | $ | 3,290 | |
Consumer Packaging North America | | | | 798 | | | | 927 | | | | 2,335 | | | | 2,659 | |
Health, Hygiene & Specialties | | | | 657 | | | | 788 | | | | 1,997 | | | | 2,429 | |
Engineered Materials | | $ | 648 | | | $ | 383 | | | | 738 | | | | 915 | | | | 2,214 | | | | 2,696 | |
Health, Hygiene & Specialties | | | 577 | | | | 570 | | |
Consumer Packaging | | | 551 | | | | 549 | | |
Total net sales | | $ | 1,776 | | | $ | 1,502 | | | $ | 3,229 | | | $ | 3,726 | | | $ | 9,577 | | | $ | 11,074 | |
Operating income: | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | | $ | 68 | | | $ | 82 | | | $ | 190 | | | $ | 248 | |
Consumer Packaging North America | | | | 89 | | | | 104 | | | | 253 | | | | 235 | |
Health, Hygiene & Specialties | | | | 22 | | | | 56 | | | | 89 | | | | 186 | |
Engineered Materials | | $ | 88 | | | $ | 53 | | | | 88 | | | | 94 | | | | 246 | | | | 237 | |
Health, Hygiene & Specialties | | | 37 | | | | 59 | | |
Consumer Packaging | | | 38 | | | | 34 | | |
Total operating income | | $ | 163 | | | $ | 146 | | | $ | 267 | | | $ | 336 | | | $ | 778 | | | $ | 906 | |
Depreciation and amortization: | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | | $ | 79 | | | $ | 78 | | | $ | 230 | | | $ | 242 | |
Consumer Packaging North America | | | | 54 | | | | 53 | | | | 159 | | | | 160 | |
Health, Hygiene & Specialties | | | | 45 | | | | 44 | | | | 133 | | | | 133 | |
Engineered Materials | | $ | 29 | | | $ | 17 | | | | 29 | | | | 28 | | | | 84 | | | | 85 | |
Health, Hygiene & Specialties | | | 46 | | | | 44 | | |
Consumer Packaging | | | 54 | | | | 59 | | |
Total depreciation and amortization | | $ | 129 | | | $ | 120 | | | $ | 207 | | | $ | 203 | | | $ | 606 | | | $ | 620 | |
| | December 30, 2017 | | | September 30, 2017 | |
Total assets: | | | | | | |
Engineered Materials | | $ | 1,753 | | | $ | 1,803 | |
Health, Hygiene & Specialties | | | 3,475 | | | | 3,496 | |
Consumer Packaging | | | 3,192 | | | | 3,177 | |
Total assets | | $ | 8,420 | | | $ | 8,476 | |
Selected information by geographygeographical region is presented in the following tables:
| Quarterly Period Ended | |
| December 30, 2017 | | December 31, 2016 | |
Net sales: | | | | |
North America | | $ | 1,466 | | | $ | 1,204 | |
South America | | | 74 | | | | 80 | |
Europe | | | 170 | | | | 149 | |
Asia | | | 66 | | | | 69 | |
Total net sales | | $ | 1,776 | | | $ | 1,502 | |
| | | | | | | | |
| December 30, 2017 | | September 30, 2017 | |
Long-lived assets: | | | | | | | | |
North America | | $ | 5,313 | | | $ | 5,350 | |
South America | | | 358 | | | | 371 | |
Europe | | | 470 | | | | 467 | |
Asia | | | 298 | | | | 284 | |
Total long-lived assets: | | $ | 6,439 | | | $ | 6,472 | |
| | Quarterly Period Ended | | | Three Quarterly Periods Ended | |
| | July 1, 2023 | | | July 2, 2022 | | | July 1, 2023 | | | July 2, 2022 | |
Net sales: | | | | | | | | | | | | |
United States and Canada | | $ | 1,748 | | | $ | 2,030 | | | $ | 5,195 | | | $ | 5,978 | |
Europe | | | 1,184 | | | | 1,320 | | | | 3,470 | | | | 3,937 | |
Rest of world | | | 297 | | | | 376 | | | | 912 | | | | 1,160 | |
Total net sales | | $ | 3,229 | | | $ | 3,726 | | | $ | 9,577 | | | $ | 11,074 | |
Selected information by product line is presented in the following tables:
The changes in the carrying amount of goodwill by reportable segment are as follows: 11. Contingencies and Commitments
| | Engineered Materials | | | Health, Hygiene & Specialties | | | Consumer Packaging | | | Total | |
Balance as of September 30, 2017 | | $ | 545 | | | $ | 819 | | | $ | 1,411 | | | $ | 2,775 | |
Acquisitions, net | | | 4 | | | | — | | | | — | | | | 4 | |
Foreign currency translation adjustment | | | — | | | | (2 | ) | | | — | | | | (2 | ) |
Balance as of December 30, 2017 | | $ | 549 | | | $ | 817 | | | $ | 1,411 | | | $ | 2,777 | |
11. | Contingencies and Commitments |
The Company is party to various legal proceedings involving routine claims which are incidental to its business. Although the Company'sCompany’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, management believeswe believe that any ultimate liability would not be material to itsour financial statements.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.
13
12. Basic and Diluted Earnings Per Share12. | Basic and Diluted Net Income 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 net income per share is calculated by dividingEPS includes the net income attributable to common stockholders by the weighted-average numbereffects of common share equivalents outstanding for the period determined using the treasury-stock methodoptions and the if-converted method. For purposes of this calculation,restricted stock options are considered to be common stock equivalents and are only included in the calculation of diluted net income per share when their effect isunits, if dilutive. There were no shares excluded from the calculations as the effect of their conversion into shares of our common stock would be antidilutive.
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted net income per share calculations.EPS calculations:
| | Quarterly Period Ended | | | Quarterly Period Ended | | | Three Quarterly Periods Ended | |
(in millions, except per share amounts) | | December 30, 2017 | | | December 31, 2016 | | | July 1, 2023 | | | July 2, 2022 | | | July 1, 2023 | | | July 2, 2022 | |
Numerator | | | | | | | | | | | | | | | | | | |
Consolidated net income | | $ | 163 | | | $ | 51 | | | $ | 143 | | | $ | 207 | | | $ | 423 | | | $ | 533 | |
Denominator | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | 131.0 | | | | 122.0 | | | | 118.7 | | | | 128.6 | | | | 121.0 | | | | 132.6 | |
Dilutive shares | | | 5.0 | | | | 5.8 | | | | 2.4 | | | | 2.1 | | | | 0.9 | | | | 3.0 | |
Weighted average common and common equivalent shares outstanding - diluted | | | 136.0 | | | | 127.8 | | | | 121.1 | | | | 130.7 | | | | 121.9 | | | | 135.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Per common share income | | | | | | | | | |
Per common share earnings | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.24 | | | $ | 0.42 | | | $ | 1.20 | | | $ | 1.61 | | | $ | 3.50 | | | $ | 4.02 | |
Diluted | | $ | 1.20 | | | $ | 0.40 | | | $ | 1.18 | | | $ | 1.58 | | | $ | 3.47 | | | $ | 3.93 | |
1.2 million and 1.5 million shares were excluded from the diluted EPS calculation for the quarterly and three quarterly periods ended July 1, 2023 as their effect would be anti-dilutive. 1.2 million shares were excluded for the quarterly and three quarterly periods ended July 2, 2022.
13. Accumulated Other Comprehensive Loss
The components and activity of Accumulated other comprehensive loss are as follows:
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Interest Rate Swaps | | | Accumulated Other Comprehensive Loss | |
Balance at September 30, 2017 | | $ | (48 | ) | | $ | (16 | ) | | $ | (4 | ) | | $ | (68 | ) |
Other comprehensive income (loss) before reclassifications | | | (24 | ) | | | (1 | ) | | | 14 | | | | (11 | ) |
Net amount reclassified from accumulated other comprehensive income (loss) | | | — | | | | — | | | | 3 | | | | 3 | |
Provision for income taxes | | | — | | | | — | | | | (4 | ) | | | (4 | ) |
Balance at December 30, 2017 | | $ | (72 | ) | | $ | (17 | ) | | $ | 9 | | | $ | (80 | ) |
Quarterly Period Ended | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at April 1, 2023 | | $ | (254 | ) | | $ | (32 | ) | | $ | 52 | | | $ | (234 | ) |
Other comprehensive income (loss) before reclassifications | | | 23 | | | | — | | | | 40 | | | | 63 | |
Net amount reclassified | | | — | | | | — | | | | (9 | ) | | | (9 | ) |
Balance at July 1, 2023 | | $ | (231 | ) | | $ | (32 | ) | | $ | 83 | | | $ | (180 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Interest Rate Swaps | | | Accumulated Other Comprehensive Loss | |
Balance at October 1, 2016 | | $ | (82 | ) | | $ | (44 | ) | | $ | (22 | ) | | $ | (148 | ) |
Other comprehensive income (loss) before reclassifications | | | (45 | ) | | | — | | | | 12 | | | | (33 | ) |
Net amount reclassified from accumulated other comprehensive income (loss) | | | — | | | | — | | | | 5 | | | | 5 | |
Provision for income taxes | | | — | | | | — | | | | (6 | ) | | | (6 | ) |
Balance at December 31, 2016 | | $ | (127 | ) | | $ | (44 | ) | | $ | (11 | ) | | $ | (182 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at April 2, 2022 | | $ | (139 | ) | | $ | (67 | ) | | $ | 25 | | | $ | (181 | ) |
Other comprehensive income (loss) before reclassifications | | | (159 | ) | | | — | | | | 18 | | | | (141 | ) |
Net amount reclassified | | | — | | | | — | | | | 1 | | | | 1 | |
Balance at July 2, 2022 | | $ | (298 | ) | | $ | (67 | ) | | $ | 44 | | | $ | (321 | ) |
Three 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 | | | 224 | | | | — | | | | 24 | | | | 248 | |
Net amount reclassified | | | — | | | | — | | | | (25 | ) | | | (25 | ) |
Balance at July 1, 2023 | | $ | (231 | ) | | $ | (32 | ) | | $ | 83 | | | $ | (180 | ) |
| | 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 | | | (144 | ) | | | — | | | | 113 | | | | (31 | ) |
Net amount reclassified | | | — | | | | — | | | | 6 | | | | 6 | |
Balance at July 2, 2022 | | $ | (298 | ) | | $ | (67 | ) | | $ | 44 | | | $ | (321 | ) |
14. | Guarantor and Non-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 Note, "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 the 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 the 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 condensed consolidating financial information for the Parent, Issuer, guarantor subsidiaries and non-guarantor subsidiaries. The Issuer and guarantor financial information includes all of our domestic operating subsidiaries; our non-guarantor subsidiaries include our foreign subsidiaries, certain immaterial domestic subsidiaries and the unrestricted subsidiaries under the Issuer's indentures. The Parent uses the equity method to account for its ownership in the Issuer in the Condensed Consolidating Supplemental Financial Statements. The Issuer uses the equity method to account for its ownership in the guarantor and non-guarantor subsidiaries. All consolidating entries are included in the eliminations column along with the elimination of intercompany balances.
Condensed Supplemental Consolidated Balance Sheet
| | December 30, 2017 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non— Guarantor Subsidiaries | | | Eliminations | | | Total | |
Current assets | | | — | | | | 126 | | | | 1,127 | | | | 728 | | | | — | | | | 1,981 | |
Intercompany receivable | | | 334 | | | | 2,286 | | | | — | | | | — | | | | (2,620 | ) | | | — | |
Property, plant, and equipment, net | | | — | | | | 73 | | | | 1,564 | | | | 726 | | | | — | | | | 2,363 | |
Other assets | | | 1,152 | | | | 5,401 | | | | 4,555 | | | | 528 | | | | (7,560 | ) | | | 4,076 | |
Total assets | | $ | 1,486 | | | $ | 7,886 | | | $ | 7,246 | | | $ | 1,982 | | | $ | (10,180 | ) | | $ | 8,420 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | 24 | | | | 279 | | | | 560 | | | | 291 | | | | — | | | | 1,154 | |
Intercompany payable | | | — | | | | — | | | | 2,571 | | | | 49 | | | | (2,620 | ) | | | — | |
Other long-term liabilities | | | 288 | | | | 5,649 | | | | 90 | | | | 65 | | | | — | | | | 6,092 | |
Stockholders' equity | | | 1,174 | | | | 1,958 | | | | 4,025 | | | | 1,577 | | | | (7,560 | ) | | | 1,174 | |
Total liabilities and stockholders' equity | | $ | 1,486 | | | $ | 7,886 | | | $ | 7,246 | | | $ | 1,982 | | | $ | (10,180 | ) | | $ | 8,420 | |
| | September 30, 2017 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non— Guarantor Subsidiaries | | | Eliminations | | | Total | |
Current assets | | | — | | | | 116 | | | | 1,113 | | | | 775 | | | | — | | | | 2,004 | |
Intercompany receivable | | | 512 | | | | 2,217 | | | | — | | | | — | | | | (2,729 | ) | | | — | |
Property, plant and equipment, net | | | — | | | | 80 | | | | 1,564 | | | | 722 | | | | — | | | | 2,366 | |
Other assets | | | 992 | | | | 5,335 | | | | 4,583 | | | | 533 | | | | (7,337 | ) | | | 4,106 | |
Total assets | | $ | 1,504 | | | $ | 7,748 | | | $ | 7,260 | | | $ | 2,030 | | | $ | (10,066 | ) | | $ | 8,476 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | 36 | | | | 243 | | | | 537 | | | | 318 | | | | — | | | | 1,134 | |
Intercompany payable | | | — | | | | — | | | | 2,667 | | | | 62 | | | | (2,729 | ) | | | — | |
Other long-term liabilities | | | 453 | | | | 5,707 | | | | 99 | | | | 68 | | | | — | | | | 6,327 | |
Stockholders' equity | | | 1,015 | | | | 1,798 | | | | 3,957 | | | | 1,582 | | | | (7,337 | ) | | | 1,015 | |
Total liabilities and stockholders' equity | | $ | 1,504 | | | $ | 7,748 | | | $ | 7,260 | | | $ | 2,030 | | | $ | (10,066 | ) | | $ | 8,476 | |
Condensed Supplemental Consolidated Statements of Operations
| | Quarterly Period Ended December 30, 2017 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Eliminations | | | Total | |
Net sales | | $ | — | | | $ | 138 | | | $ | 1,225 | | | $ | 413 | | | $ | — | | | $ | 1,776 | |
Cost of goods sold | | | — | | | | 106 | | | | 989 | | | | 352 | | | | — | | | | 1,447 | |
Selling, general and administrative | | | — | | | | 12 | | | | 80 | | | | 25 | | | | — | | | | 117 | |
Amortization of intangibles | | | — | | | | — | | | | 31 | | | | 7 | | | | — | | | | 38 | |
Restructuring and impairment charges | | | — | | | | — | | | | 7 | | | | 4 | | | | — | | | | 11 | |
Operating income | | | — | | | | 20 | | | | 118 | | | | 25 | | | | — | | | | 163 | |
Other expense (income), net | | | — | | | | 5 | | | | 7 | | | | (3 | ) | | | — | | | | 9 | |
Interest expense, net | | | — | | | | 5 | | | | 43 | | | | 14 | | | | — | | | | 62 | |
Equity in net income of subsidiaries | | | (92 | ) | | | (72 | ) | | | — | | | | — | | | | 164 | | | | — | |
Income before income taxes | | | 92 | | | | 82 | | | | 68 | | | | 14 | | | | (164 | ) | | | 92 | |
Income tax expense | | | (71 | ) | | | (81 | ) | | | — | | | | 10 | | | | 71 | | | | (71 | ) |
Consolidated net income | | $ | 163 | | | $ | 163 | | | $ | 68 | | | $ | 4 | | | $ | (235 | ) | | $ | 163 | |
Comprehensive net income | | $ | 163 | | | $ | 160 | | | $ | 68 | | | $ | (5 | ) | | $ | (235 | ) | | $ | 151 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consolidating Statement of Cash Flows | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Operating Activities | | $ | — | | | $ | 35 | | | $ | 139 | | | $ | (21 | ) | | $ | — | | | $ | 153 | |
Cash Flow from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant, and equipment | | | — | | | | (3 | ) | | | (61 | ) | | | (30 | ) | | | — | | | | (94 | ) |
Proceeds from sale of assets | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | 3 | |
(Contributions) distributions to/from subsidiaries | | | (4 | ) | | | 4 | | | | — | | | | — | | | | — | | | | — | |
Intercompany advances (repayments) | | | — | | | | 69 | | | | — | | | | — | | | | (69 | ) | | | — | |
Net cash from investing activities | | | (4 | ) | | | 70 | | | | (61 | ) | | | (27 | ) | | | (69 | ) | | | (91 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Repayments on long-term borrowings | | | — | | | | (106 | ) | | | (2 | ) | | | — | | | | — | | | | (108 | ) |
Proceeds from issuance of common stock | | | 4 | | | | — | | | | — | | | | — | | | | — | | | | 4 | |
Payment of tax receivable agreement | | | (37 | ) | | | — | | | | — | | | | — | | | | — | | | | (37 | ) |
Changes in intercompany balances | | | 37 | | | | — | | | | (86 | ) | | | (20 | ) | | | 69 | | | | — | |
Net cash from financing activities | | | 4 | | | | (106 | ) | | | (88 | ) | | | (20 | ) | | | 69 | | | | (141 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net change in cash | | | — | | | | (1 | ) | | | (10 | ) | | | (67 | ) | | | — | | | | (78 | ) |
Cash and cash equivalents at beginning of period | | | — | | | | 18 | | | | 12 | | | | 276 | | | | — | | | | 306 | |
Cash and cash equivalents at end of period | | $ | — | | | $ | 17 | | | $ | 2 | | | $ | 209 | | | $ | — | | | $ | 228 | |
| | Quarterly Period Ended December 31, 2016 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non— Guarantor Subsidiaries | | | Eliminations | | | Total | |
Net sales | | $ | — | | | $ | 143 | | | $ | 979 | | | $ | 380 | | | $ | — | | | $ | 1,502 | |
Cost of goods sold | | | — | | | | 116 | | | | 789 | | | | 301 | | | | — | | | | 1,206 | |
Selling, general and administrative | | | — | | | | 42 | | | | 75 | | | | (4 | ) | | | — | | | | 113 | |
Amortization of intangibles | | | — | | | | 2 | | | | 25 | | | | 6 | | | | — | | | | 33 | |
Restructuring and impairment charges | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | 4 | |
Operating income (loss) | | | — | | | | (17 | ) | | | 86 | | | | 77 | | | | — | | | | 146 | |
Other income, net | | | — | | | | 4 | | | | — | | | | (5 | ) | | | — | | | | (1 | ) |
Interest expense, net | | | — | | | | 6 | | | | 45 | | | | 17 | | | | — | | | | 68 | |
Equity in net income of subsidiaries | | | (79 | ) | | | (92 | ) | | | — | | | | — | | | | 171 | | | | — | |
Income before income taxes | | | 79 | | | | 65 | | | | 41 | | | | 65 | | | | (171 | ) | | | 79 | |
Income tax expense | | | 28 | | | | 14 | | | | — | | | | 14 | | | | (28 | ) | | | 28 | |
Consolidated net income | | $ | 51 | | | $ | 51 | | | $ | 41 | | | $ | 51 | | | $ | (143 | ) | | $ | 51 | |
Comprehensive net income | | $ | 51 | | | $ | 62 | | | $ | 41 | | | $ | 6 | | | $ | (143 | ) | | $ | 17 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consolidating Statement of Cash Flows | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Operating Activities | | $ | — | | | $ | (19 | ) | | $ | 120 | | | $ | 42 | | | $ | — | | | $ | 143 | |
Cash Flow from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant, and equipment | | | — | | | | (2 | ) | | | (50 | ) | | | (13 | ) | | | — | | | | (65 | ) |
Proceeds from sale of assets | | | — | | | | 1 | | | | 1 | | | | — | | | | — | | | | 2 | |
(Contributions) distributions to/from subsidiaries | | | (5 | ) | | | 5 | | | | — | | | | — | | | | — | | | | — | |
Intercompany advances (repayments) | | | — | | | | 39 | | | | — | | | | — | | | | (39 | ) | | | — | |
Other investing activities, net | | | — | | | | (1 | ) | | | — | | | | — | | | | — | | | | (1 | ) |
Net cash from investing activities | | | (5 | ) | | | 42 | | | | (49 | ) | | | (13 | ) | | | (39 | ) | | | (64 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Repayments on long-term borrowings | | | — | | | | (9 | ) | | | (1 | ) | | | — | | | | — | | | | (10 | ) |
Proceeds from issuance of common stock | | | 5 | | | | — | | | | — | | | | — | | | | — | | | | 5 | |
Payment of tax receivable agreement | | | (60 | ) | | | — | | | | — | | | | — | | | | — | | | | (60 | ) |
Changes in intercompany balances | | | 60 | | | | — | | | | (67 | ) | | | (32 | ) | | | 39 | | | | — | |
Net cash from financing activities | | | 5 | | | | (9 | ) | | | (68 | ) | | | (32 | ) | | | 39 | | | | (65 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | — | | | | — | | | | — | | | | (6 | ) | | | — | | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net change in cash | | | — | | | | 14 | | | | 3 | | | | (9 | ) | | | — | | | | 8 | |
Cash and cash equivalents at beginning of period | | | — | | | | 102 | | | | 5 | | | | 216 | | | | — | | | | 323 | |
Cash and cash equivalents at end of period | | $ | — | | | $ | 116 | | | $ | 8 | | | $ | 207 | | | $ | — | | | $ | 331 | |
15. Subsequent Events
In January 2018, the Company issued $500 million aggregate principal amount of 4.50% second priority senior secured notes due 2026 (the "Notes") through a private placement offering. The net proceeds from the Notes were used to fund the acquisition of Clopay Plastic Products Company, Inc. ("Clopay").
In February 2018, the Company acquired Clopay for a purchase price of $475 million, which is preliminary and subject to adjustment. Clopay manufactures printed breathable films and is an innovator in the development of elastic films and laminates with product offerings uniquely designed for applications used in a number of markets including: hygiene, healthcare, construction and industrial protective apparel. Clopay will be operated within the Health, Hygiene and Specialties segment.
Item 2.Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in our most recent Form 10-K in the section titled "Risk Factors" and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission. As a result, our actual results may differ materially from those contained in any forward-looking statements. The forward-looking statements referenced within this report should be read with the explanation of the qualifications and limitations included herein. Fiscal 2017 and fiscal 2018 are fifty-two week periods.
Executive Summary
Business. The Company'sCompany’s operations are organized into threefour operating segments: Engineered Materials,Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Consumer Packaging.Engineered Materials. The structure is designed to align us with our customers, provide optimalimproved service, and drive future growth, in a cost efficient manner.and to facilitate synergies realization. The Engineered MaterialsConsumer Packaging International segment primarily consists of tapesclosures and adhesives, polyethylene based film products, can liners, printed films,dispensing systems, pharmaceutical devices and specialty coated,packaging, bottles and laminated products.canisters, and containers. The Consumer Packaging North America segment primarily consists of containers and pails, foodservice, closures, bottles, prescription vials, and tubes. The Health, Hygiene & Specialties segment primarily consists of nonwoven specialty materialshealthcare, hygiene, specialties, and films used in hygiene, infection prevention, personal care, industrial, construction and filtration applications.tapes. The Consumer PackagingEngineered Materials segment primarily consists of containers, foodservice items, closures, overcaps, bottles, prescription containers,stretch and tubes.shrink films, converter films, institutional can liners, food and consumer films, retail bags, and agriculture films.
Acquisitions. Our acquisition strategy is focused on improving our long-term financial performance, enhancing our market positions, and expanding our existing and complementary product lines. We seek to obtain businesses for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire. While the expected benefits on earnings is estimated at the commencement of each transaction, once the execution of the plan and integration occur, we are generally unable to accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to multiple facilities. As historical business combinations and restructuring plans have not allowed us to accurately separate realized synergies compared to what was initially identified, we measure the synergy realization based on the overall segment profitability post integration.
AEP Industries Inc.
In January 2017, the Company acquired AEP Industries Inc. ("AEP") for a purchase price of $791 million, net of cash acquired. A portion of the purchase price consisted of issuing 6.4 million of Berry common shares which were valued at $324 million at the time of closing. AEP manufactures and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products with consumer, industrial, and agricultural applications. The acquired business is operated in our Engineered Materials segment. To finance the purchase, the Company entered into an incremental assumption agreement to increase the commitments under the Company's existing term loan credit agreement by $500 million due 2024. The Company expects annual cost synergies of approximately $80 million from the AEP transaction with full realization expected in fiscal 2018.
Adchem Corp.
In June 2017, the Company acquired Adchem Corp.'s ("Adchem") tapes business for a purchase price of $49 million. Adchem is a leader in the development of high performance adhesive tape systems for the automotive, construction, electronics, graphic arts, medical and general tape markets. The acquired business is operated in our Engineered Materials segment. To finance the purchase, the Company used existing liquidity.
Clopay Plastic Products Company, Inc.
In February 2018, the Company acquired Clopay for a purchase price of $475 million, which is preliminary and subject to adjustment. Clopay manufactures printed breathable films and is an innovator in the development of elastic films and laminates with product offerings uniquely designed for applications used in a number of markets including: hygiene, healthcare, construction and industrial protective apparel. Clopay will be operated within the Health, Hygiene and Specialties segment. The Company expects to realize annual cost synergies of approximately $20 million from the completion of the Clopay transaction. To finance the purchase, the Company used the proceeds from the $500 million Notes (see footnote 15).
Raw Material Trends. Our primary raw material is plastic resin consisting primarilypolymer resin. In addition, we use other materials such as colorants, linerboard, and packaging materials in various manufacturing processes. While temporary industry-wide shortages of polypropyleneraw materials have occurred, we have historically been able to manage the supply chain disruption by working closely with our suppliers and polyethylene. Plastic resins are subject to price fluctuations, including those arising from supply shortages and changescustomers. Changes in the pricesprice of natural gas, crude oilraw materials are generally passed on to customers through contractual price mechanisms over time, during contract renewals and other petrochemical intermediates from which resins are produced. The three month simple average price per pound, as published by U.S. market indexes, was as follows:means.
| | Polyethylene Butene Film | | | Polypropylene | |
| | 2018 | | | 2017 | | | 2016 | | | 2018 | | | 2017 | | | 2016 | |
1st quarter | | $ | .87 | | | $ | .75 | | | $ | .69 | | | $ | .84 | | | $ | .69 | | | $ | .70 | |
2nd quarter | | | — | | | | .77 | | | | .66 | | | | — | | | | .80 | | | | .75 | |
3rd quarter | | | — | | | | .79 | | | | .73 | | | | — | | | | .74 | | | | .71 | |
4th quarter | | | — | | | | .81 | | | | .75 | | | | — | | | | .75 | | | | .71 | |
Due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs, segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted when plastic resin costs decrease. This timing lag in passing through raw material cost changes could affect our results as plastic resin costs fluctuate.
Outlook.The Company is impactedaffected by general economic and industrial growth, plastic resinraw material availability, and affordability,cost inflation, supply chain disruptions, and general industrial production. Our business has both geographic and end-marketend 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. We believe there are long term growth opportunities withinDespite global macro-economic challenges in the health, pharmaceuticals, personal careshort-term attributed to general market softness and food packaging markets existingcontinued inflation, particularly in developing countries, where expected per capita consumption increases should result in organic market growth. In addition, whileEurope, we continue to believe our underlying long-term demand fundamental in all divisions will remain strong as we focus on delivering protective solutions that long term dynamics of the resin markets will be an advantage to Berry, the short term challenges to regional transportation systemsenhance consumer safety and higher raw material pricesby providing advantaged products in part as a result of resin supply disruptions, as well as macroeconomic pressures in South America could create short-term headwinds for early fiscal 2018.targeted markets. For fiscal 2018, including the impact from the recent Clopay transaction,2023, we project cash flow from operations of $1.45 billion and adjusted free cash flow of $1,007 million and $630 million, respectively. Our$800 million. Projected fiscal 2018 projections assume negative $40 million in working capital due to the recent raw material inflation, $3402023 free cash flow assumes $650 million of capital spending and cash interest costs of $250 million. Within our adjusted free cash flow guidance, we are also assuming cash taxes to be $160 million, including the $37 million payment made in the first quarter under the Company's tax receivable agreement and an estimated $50 million of cash tax savings related to the Tax Cuts and Jobs Act ( the "Tax Act"), along with other cash uses of $50 million related to items such as acquisition integration expenses and costs to achieve synergies.spending. For the definitioncalculation of Adjusted free cash flow and further information related to Adjusted free cash flow as a non-GAAP financial measure, see "Liquidity“Liquidity and Capital Resources."”
Results of Operations
Comparison of the Quarterly Period Ended December 30, 2017July 1, 2023 (the "Quarter"“Quarter”) and the Quarterly Period Ended December 31, 2016July 2, 2022 (the "Prior Quarter"“Prior Quarter”)
Acquisition (businesses acquired in the last twelve months) sales and operating income disclosed within this section represents the results from acquisitions for the current period. Business integration expenses consist of restructuring and impairment charges, acquisitiondivestiture 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 | | $ | 1,776 | | | $ | 1,502 | | | $ | 274 | | | | 18 | % | | $ | 3,229 | | | $ | 3,726 | | | $ | (497 | ) | | | (13 | )% |
Cost of goods sold | | | | 2,649 | | | | 3,105 | | | | (456 | ) | | | (15 | )% |
Other operating expenses | | | | 313 | | | | 285 | | | | 28 | | | | 10 | % |
Operating income | | $ | 163 | | | $ | 146 | | | $ | 17 | | | | 12 | % | | $ | 267 | | | $ | 336 | | | $ | (69 | ) | | | (21 | )% |
Operating income percentage of net sales | | | 9 | % | | | 10 | % | | | | | | | | | |
Net Sales: The net sales increase of $274 million from Prior Quarterdecline is primarily attributed to acquisition net salesdecreased selling prices of $267$250 million an $18 million favorable impact from currency translation, and increases in selling prices due to the pass throughpass-through of higherlower resin prices. These increase arecosts and a 7% volume decline. The volume decline is primarily attributed to softer demand in much of our consumer and industrial markets, including destocking, partially offset by a 1% base volume decline.strong growth in foodservice.
Cost of goods sold:The operating income increasecost of $17 million from Prior Quartergoods sold decrease is primarily attributed to acquisition operating income of $26 million,lower raw material prices and an $11 million decrease in selling, general, and administrative expenses from cost reductions, and a $7 million decrease in depreciation and amortization. These increases arethe volume decline, partially offset by foreign currency changes.
Other operating expenses: The other operating expenses increase is primarily attributed to an $18 million unfavorable impact from under recovery of higher cost of goods sold, a $5 million increase in business integration and restructuring costs, andcosts.
Operating Income: The operating income decrease is primarily attributed to a $4$44 million unfavorable impact from the volume decline.
Engineered Materials | | | | | | | | |
| Quarter | | Prior Quarter | | $ Change | | % Change | |
Net sales | | $ | 648 | | | $ | 383 | | | $ | 265 | | | | 69 | % |
Operating income | | $ | 88 | | | $ | 53 | | | $ | 35 | | | | 66 | % |
Percentage of net sales | | | 14 | % | | | 14 | % | | | | | | | | |
decline, a $30 million increase in business integration costs, and a $10 million expense related to a third-party warehouse fire.
Consumer Packaging International | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 1,036 | | | $ | 1,096 | | | $ | (60 | ) | | | (5 | )% |
Operating income | | $ | 68 | | | $ | 82 | | | $ | (14 | ) | | | (17 | )% |
Net Sales: The net sales decline in the Engineered MaterialsConsumer Packaging International segment increased by $265 million from Prior Quarteris primarily attributed to acquisitiona 5% volume decline due to softer consumer and industrial market demand in Europe, including destocking.
Operating Income: The operating income decrease is primarily attributed to a $14 million unfavorable impact from increased business integration costs and a $10 million unfavorable impact from the volume decline. These items are partially offset by a favorable impact from price cost spread.
Consumer Packaging North America | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 798 | | | $ | 927 | | | $ | (129 | ) | | | (14 | )% |
Operating income | | $ | 89 | | | $ | 104 | | | $ | (15 | ) | | | (14 | )% |
Net Sales: The net sales decline in the Consumer Packaging North America segment is primarily attributed to decreased selling prices of $267$105 million and a 4% volume decline primarily attributed to softer consumer and industrial market demand, including destocking, partially offset by strong growth in foodservice.
Operating Income: The operating income decrease is primarily attributed to an $8 million unfavorable impact from the volume decline and a $6 million increase in selling prices due to the pass through of higher resin prices, partially offset by a 2% base volume decline.
The operating income increase of $35 million from Prior Quarter is primarily attributed to acquisition operating income of $26 million, a $4 million favorableunfavorable impact from improvement in price cost spread, and a $4 million decrease in depreciation and amortization.increased business integration costs.
Health, Hygiene & Specialties | | | | | | | | | | | | | | | | | |
| Quarter | | Prior Quarter | | $ Change | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 577 | | | $ | 570 | | | $ | 7 | | | | 1 | % | | $ | 657 | | | $ | 788 | | | $ | (131 | ) | | | (17 | )% |
Operating income | | $ | 37 | | | $ | 59 | | | $ | (22 | ) | | | (37 | %) | | $ | 22 | | | $ | 56 | | | $ | (34 | ) | | | (61 | )% |
Percentage of net sales | | | 6 | % | | | 10 | % | | | | | | | | | |
Net Sales: The net sales decline in the Health, Hygiene & Specialties segment increased by $7 million from Prior Quarteris primarily attributed to decreased selling prices of $83 million and a $16 million favorable impact from currency translation,7% volume decline primarily attributed to weaker demand in specialty markets, such as filtration and building and construction, including destocking, partially offset by a 1% base volume decline. growth in disinfectant wipe markets.
Operating Income: The operating income decrease of $22 million from Prior Quarter is primarily attributed to a $17$20 million negativeunfavorable impact from under recovery of higherprice cost of goods sold related to inflation and market pressure in South America,spread, a $6$9 million increase inunfavorable impact from increased business integration and restructuring costs, and a slight increasean unfavorable impact from the volume decline.
Engineered Materials | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 738 | | | $ | 915 | | | $ | (177 | ) | | | (19 | )% |
Operating income | | $ | 88 | | | $ | 94 | | | $ | (6 | ) | | | (6 | )% |
Net Sales: The net sales decline in depreciationthe Engineered Materials segment is primarily attributed to an 11% volume decline primarily attributed to destocking and amortization expense,weakness in European industrial markets and decreased selling prices of $77 million.
Operating Income: The operating income decrease is primarily attributed to an $18 million unfavorable impact from the volume decline, partially offset by a $4 million decrease in selling, general and administrative expenses.
Consumer Packaging | | | | | | | | |
| Quarter | | Prior Quarter | | $ Change | | % Change | |
Net sales | | $ | 551 | | | $ | 549 | | | $ | 2 | | | | 0 | % |
Operating income | | $ | 38 | | | $ | 34 | | | $ | 4 | | | | 12 | % |
Percentage of net sales | | | 7 | % | | | 6 | % | | | | | | | | |
Net sales in the Consumer Packaging segment increased by $2 million from Prior Quarter primarily attributed to an $8 millionfavorable impact from selling price increases due to the pass through of higher resin prices, partially offset by a 1% base volume decline.cost spread.
Interest expense | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Interest expense | | $ | 78 | | | $ | 70 | | | $ | 8 | | | | 11 | % |
The operating income increase of $4 million from Prior Quarter is primarily attributed to a $5 million decrease in depreciation and amortization expense and a $5 million decrease in selling, general and administrative expense, partially offset by a $5 million unfavorable impact from under recovery of higher cost of goods sold.
Other expense (income), net | | | | | | | | |
| Quarter | | Prior Quarter | | $ Change | | % Change | |
Other expense (income), net | | $ | 9 | | | $ | (1 | ) | | $ | 10 | | | | 1,000 | % |
The other expense (income), net increase of $10 million from Prior Quarter is primarily attributed to a $4 million tax receivable agreement revaluation as a result of tax reform, a $3 million loss on asset disposal in the Quarter and unfavorable foreign currency changes related to the remeasurement of non-operating intercompany balances.
Interest expense, net | | | | | | | | |
| Quarter | | Prior Quarter | | $ Change | | % Change | |
Interest expense, net | | $ | 62 | | | $ | 68 | | | $ | (6 | ) | | | (9 | %) |
The interest expense decrease of $6 million from Prior Quarterincrease is primarily attributed to lower interest rates on our term loans as athe result of term loan modifications and reduced indebtedness.higher interest rates.
Changes in Comprehensive Income
The $130 million improvement in comprehensive income tax expense (benefit) decrease of $99 million from the Prior Quarter is primarily attributed to the $95 million provisional transition benefit recorded in the Quarter as a result of the recent U.S. tax legislation more fully described in footnote 9. After exclusion of the transitional benefit, the effective tax rate was 26% for the Quarter and was positively impacted by 3% from the share-based compensation excess tax benefit deduction and a 2% benefit from the domestic manufacturing deduction. These favorable items were partially offset by increases of 3% from U.S. state income taxes, 2% from foreign valuation allowance, 1% from higher tax rates in foreign jurisdictions, and other discrete items.
Changes in Comprehensive Income (Loss)
The $134 million improvement in Comprehensive income (loss) from Prior Quarter is primarily attributed to a $112 million improvement in Net income and a $21$182 million favorable change in currency translation which isand an $12 million favorable change in the fair value of derivative instruments, net of tax, partially offset by a negative $15$64 million related to the cross-currency swap.decline in net income. Currency translation gains and losseschanges are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. Dollarsdollar 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 euroEuro and British pound sterling as thetheir functional currency. As part of the overall risk management, the Company uses derivative instruments to (i) reduce our exposure to (i) changes in interest rates attributed to the Company's floating-rateCompany’s borrowings and (ii) reduce foreign currency risk relatedexposure to net investmentstranslation of certain foreign operations. The Company records changes to the fair value of these instruments in foreign subsidiaries.Accumulated other comprehensive loss. The change in fair value of these instruments in fiscal 2023 versus fiscal 2022 is includedprimarily attributed to the change in the forward interest and foreign exchange curves between measurement dates.
Comparison of the Three Quarterly Periods Ended July 1, 2023 (the “YTD”) and the Three Quarterly Periods Ended July 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 | | $ | 9,577 | | | $ | 11,074 | | | $ | (1,497 | ) | | | (14 | )% |
Cost of goods sold | | | 7,873 | | | | 9,297 | | | | (1,424 | ) | | | (15 | )% |
Other operating expenses | | | 926 | | | | 871 | | | | 55 | | | | 6 | % |
Operating income | | $ | 778 | | | $ | 906 | | | $ | (128 | ) | | | (14 | )% |
Net Sales: The net sales decline is primarily attributed to a 6% volume decline, decreased selling prices of $536 million due to the pass-through of lower resin costs, a $174 million unfavorable impact from foreign currency changes, and Prior YTD divestiture sales of $94 million. The volume decline is primarily attributed to general market softness and customer destocking.
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 $112 million unfavorable impact from the volume decline, a $57 million unfavorable impact from increased business integration costs, a $36 million unfavorable impact from foreign currency changes, and an unfavorable impact from increased selling, general, and administrative expenses. These declines are partially offset by a $103 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 | | $ | 3,031 | | | $ | 3,290 | | | $ | (259 | ) | | | (8 | )% |
Operating income | | $ | 190 | | | $ | 248 | | | $ | (58 | ) | | | (23 | )% |
Net Sales: The net sales decline in the Consumer Packaging International segment is primarily attributed to a 5% volume decline, a $116 million unfavorable impact from foreign currency changes, and Prior YTD divestiture sales of $108 million, partially offset by increased selling prices of $131 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 $30 million unfavorable impact from the volume decline, a $24 million unfavorable impact from foreign currency changes, a $22 million unfavorable impact from increased business integration costs, an unfavorable impact from increased selling, general, and administrative expenses, and an unfavorable impact from Prior YTD divestiture. These declines are partially offset by a $33 million favorable impact from price cost spread.
Consumer Packaging North America | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 2,335 | | | $ | 2,659 | | | $ | (324 | ) | | | (12 | )% |
Operating income | | $ | 253 | | | $ | 235 | | | $ | 18 | | | | 8 | % |
Net Sales: The net sales decline in the Consumer Packaging North America segment is primarily attributed to decreased selling prices of $247 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 $17 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 | | $ | 1,997 | | | $ | 2,429 | | | $ | (432 | ) | | | (18 | )% |
Operating income | | $ | 89 | | | $ | 186 | | | $ | (97 | ) | | | (52 | )% |
Net Sales: The net sales decline in the Health, Hygiene & Specialties segment is primarily attributed to decreased selling prices of $219 million, an 8% volume decline, and an $18 million unfavorable impact from foreign currency changes. The volume decline is primarily attributed to general market softness and customer destocking.
Operating Income: The operating income decrease is primarily attributed to a $58 million unfavorable impact from price cost spread, a $25 million unfavorable impact from the volume decline, and an $18 million unfavorable impact from increased business integration costs, partially offset by a favorable impact from decreased selling, general, and administrative expenses.
Engineered Materials | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 2,214 | | | $ | 2,696 | | | $ | (482 | ) | | | (18 | )% |
Operating income | | $ | 246 | | | $ | 237 | | | $ | 9 | | | | 4 | % |
Net Sales: The net sales decline in the Engineered Materials segment is primarily attributed to a 9% volume decline, decreased selling prices of $201 million, and a $40 million unfavorable impact from foreign currency changes. The volume decline is primarily attributed to general market softness and customer destocking.
Operating Income: The operating income increase is primarily attributed to a $70 million favorable impact from price cost spread, partially offset by a $40 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 | | $ | 228 | | | $ | 212 | | | $ | 16 | | | | 8 | % |
The interest expense increase is primarily the result of higher interest rates.
Changes in Comprehensive Income
The $138 million improvement in comprehensive income from the Prior YTD was primarily attributed to a $368 million favorable change in currency translation, partially offset by a $120 million unfavorable change in the fair value of derivative instruments, net of tax, and a $110 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 $2 million favorable change in fair value of these instruments in the Quarterfiscal 2023 versus Prior Quarterfiscal 2022 is primarily attributed to an increasethe change in the forward interest curveand 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. We have a $750 million asset-based revolving line of credit that matures in May 2020. At the end of the Quarter, the Company had no outstanding balance on theits $1,000 million asset-based revolving line of credit facility.that matures in June 2028. The Company was in compliance with all covenants at the end of the Quarter (see footnote 7 to the Notes to the Consolidated Financial Statements incorporated herein).Quarter.
Cash Flows
Net cash from operating activities increased $10$145 million from the Prior QuarterYTD primarily attributed to improved net income before depreciation, amortization and the net impact of the recently announced U.S. tax legislation,working capital improvement partially offset by an increasea decline in working capital duenet income prior to higher raw material costs.non-cash activities.
Net cash fromused in investing activities increased $27$223 million from the Prior QuarterYTD primarily attributed to increased capital expendituresthe acquisition of Pro-Western in the YTD compared to the proceeds from business divestitures in the Prior Quarter.YTD.
Net cash fromused in financing activities increased $76$207 million from the Prior QuarterYTD primarily attributed to increasedhigher repayments on our term loansof long-term debt and initiation of a quarterly dividend in the YTD, partially offset by lower tax receivable agreement payments.share repurchases.
Adjusted Dividend Payments
The Company declared and paid a cash dividend of $0.25 per share during each of the first fiscal quarter that ended December 31, 2022, the second fiscal quarter that ended April 1, 2023, and the third fiscal quarter that ended July 1, 2023.
Share Repurchases
YTD fiscal 2023, the Company repurchased approximately 7 million shares for $415 million. Authorized share repurchases of $627 million remain available to the Company.
Free Cash Flow
We define "Adjusted free cash flow" as cash flow from operating activities less net additions to property, plant and equipment and payments of the tax receivable agreement.
Based on our definition, ourOur consolidated adjusted free cash flow isfor the YTD and Prior YTD are summarized as follows:
| | Quarterly Period Ended | | |
| | December 30, 2017 | | | December 31, 2016 | | | July 1, 2023 | | | July 2, 2022 | |
Cash flow from operating activities | | $ | 153 | | | $ | 143 | | | $ | 490 | | | $ | 345 | |
Additions to property, plant and equipment, net | | | (91 | ) | | | (63 | ) | | | (560 | ) | | | (556 | ) |
Payments of tax receivable agreement | | | (37 | ) | | | (60 | ) | |
Adjusted free cash flow | | $ | 25 | | | $ | 20 | | |
Free cash flow | | | $ | (70 | ) | | $ | (211 | ) |
Adjusted free cash flow, as presented in this document, is a supplemental financial measure that is not required by, or presented in accordance with, generally accepted accounting principles in the U.S. ("GAAP"). Adjusted free cash flow is not a GAAP financial measure and should not be considered as an alternative to cash flow from operating activities or any other measure determined in accordance with GAAP. We use Adjusted free cash flow as a supplemental measure of liquidity becauseas it assists us in assessing our company's ability to fund its growth through its generation of cash, and believe it is useful to investors for such purpose. In addition, Adjusted free cash flow and similar measures are widely used by investors, securities analysts and other interested parties in our industry to measure a company's liquidity. Adjusted freecash. Free cash flow may be calculated differently by other companies, including other companies in our industry or peer group, limiting its usefulness ason a comparative measure.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 December 30, 2017,July 1, 2023, our cash balance was $228$633 million, of which approximately 90% was primarily located outside the U.S. We believe our existing 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 overwith the next twelve months. We do not expect our free cash flow to be sufficientexception of funds needed to cover all long-term debt obligations, andwhich we intend to refinance these obligations prior to maturity. However, we cannot predict our future results of operations and ourThe Company has the ability to repatriate the cash located outside the U.S. to the extent not needed to meet our obligations involves numerous risksoperational and uncertainties, including, butcapital 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 limited to, those describedbeen 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 "Risk Factors" sectioncase 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 most recent Form 10-K filedterm 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.
| | Three Quarterly Periods Ended | |
| | July 1, 2023 | |
Net sales | | $ | 5,021 | |
Gross profit | | | 986 | |
Earnings from continuing operations | | | 363 | |
Net income | | $ | 363 | |
Includes $4 million of income associated with the Securities and Exchange Commission and in this Form 10-Q, if any.intercompany activity with non-guarantor subsidiaries.
| | July 1, 2023 | | | October 1, 2022 | |
Assets | | | | | | |
Current assets | | $ | 1,562 | | | $ | 2,432 | |
Noncurrent assets | | | 6,012 | | | | 6,137 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current liabilities | | $ | 891 | | | $ | 1,536 | |
Intercompany payable | | | 725 | | | | 634 | |
Noncurrent liabilities | | | 10,613 | | | | 10,630 | |
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Interest Rate SensitivityRisk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities. At December 30, 2017, ourOur senior secured credit facilities are comprised of (i) $3.9$3.3 billion term loans and (ii) a $750$1,000 million revolving credit facility with no borrowingsbalance outstanding. Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus LIBOR. The applicable margin for LIBOR rate borrowings under the revolving credit facility ranges from 1.25% to 1.75%1.50%, and the margin for the term loans range from 2.00% to 2.25%is 1.75% per annum with a 0% LIBOR floor. At December 30, 2017,annum. As of period end, the LIBOR rate of approximately 1.56%5.22% was applicable to the term loans. AFor the portion of our term loans that are not hedged by interest rate swaps, a 0.25% change in LIBOR would increase our annual interest expense by $4$1 million on variable rate term loans.
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.)
As of December 30, 2017, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.00%, with an effective date in May 2017 and expiration in May 2022, (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.5190% with an effective date in March 2017 and expiration in June 2019, (iii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.0987% with an effective date in February 2017 and expiration in September 2021.
Foreign Currency Exchange RatesRisk
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, Argentine peso, Chinese yuan,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 a negative $6had an $18 million unfavorable impact on our Net Income.income for the three quarterly periods ended July 1, 2023. (See Note 8.)
In November 2017, the Company entered into certain cross-currency swap agreements with a notional amountItem 4. Controls and Procedures
(a) Evaluation of 250 million euro to effectively convert a portion of our fixed-rate U.S. dollar denominated term loans, including the monthly interest payments, to fixed rate euro-denominated debt. The swap agreements mature May 2022. The risk management objective is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currenciesdisclosure controls and reduce the variability in the functional currency cash flows of a portion of the Company's term loans. In the future, we may attempt to manage our foreign currency risk on our anticipated cash movements by entering into foreign currency forward contracts to offset potential foreign exchange gains or losses.
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 "disclosurecompany’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'sCompany’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 December 30, 2017.the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 30, 2017, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.level as of the end of the period covered by this report.
(b) | Changes in internal controls. |
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 30, 2017Quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. | 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"“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. In addition to
Additionally, we caution readers that the Company'slist of risk factors described discussed in our most recent Form 10-K filed with the Securities and Exchange Commission, investors should consider the following risk factor.
The final impacts of the Tax Cuts and Jobs Act could be materially different from our current estimates.
The Tax Cuts and Jobs Act was signed into law in December 2017. The new law made numerous changes to federal corporate tax law that we expect will significantly reduce our effective tax rate in future periods. The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from our current estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts.
Forward-looking Statements and Other Factors Affecting Future Results.
All forward-looking information and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include:
● | risks associated with our substantial indebtedness and debt service; |
● | changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices on a timely basis; |
● | performance of our business and future operating results; |
● | risks related to our acquisition strategy and integration of acquired businesses; |
● | reliance on unpatented know-how and trade secrets; |
● | increases in the cost of compliance with laws and regulations, including environmental, safety, and production and product laws and regulations; |
● | risks related to disruptions in the overall economy and the financial markets that may adversely impact our business; |
● | catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions; |
● | risks of competition, including foreign competition, in our existing and future markets; |
● | risks related to the market acceptance of our developing technologies and products; |
● | general business and economic conditions, particularly an economic downturn; |
● | risks that our restructuring program may entail greater implementation costs or result in lower cost savings than anticipated; |
● | the ability of our insurance to cover fully our potential exposures; |
● | new legislation or new regulations and the Company's corresponding interpretations of either may affect our business and consolidated financial condition and results of operations; and |
● | the other factors discussed in our most recent Form 10-K and in this Form 10-Q in the section titled "Risk Factors." |
We caution readers that the foregoing list of important factors 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 Form 10-Qreport may not in fact occur. Accordingly, investorsreaders should not place undue reliance on those statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result
Item 2. Unregistered Sales of
new information, future events or otherwise, except as otherwise required by law.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 July 1, 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) | |
April | | | 51,500 | | | $ | 57.73 | | | | 51,500 | | | $ | 707 | |
May | | | 964,654 | | | | 58.47 | | | | 964,654 | | | | 650 | |
June | | | 380,325 | | | | 62.15 | | | | 380,325 | | | | 627 | |
Total | | | 1,396,479 | | | $ | 59.45 | | | | 1,396,479 | | | $ | 627 | |
(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
During the quarter, Director Evan Bayh terminated a 10b5-1 Plan that was adopted August 2022 providing for the exercise and sale of up to 14,000 stock options and adopted a new 10b5-1 Plan with an August 2023 start date and a November 2023 end date providing for the exercise and sale of up to 14,000 stock options.
Item 6. Exhibits
Item 6.Exhibit No. | Exhibits | Description of Exhibit |
| |
3.1 | |
4.1 | Indenture,June 22, 2023, by and betweenamong Berry Global, Inc., Berry Global Group, Inc., Berry Plastics Canada Inc., RPC Group Limited, the subsidiaries of Berry Global, Inc.lenders party thereto, Bank of America, N.A., as collateral agent and U.S. Bank National Association, as Trustee, relating toadministrative agent, and the 4.500% second priority senior secured notes due 2026, dated January 26, 2018 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on January 29, 2018).financial institutions party thereto. |
10.1* | U.S. $900,000,000 and $814,375,000 Incremental Assumption Agreement, dated as of November 27, 2017, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term O lender and Citibank, N.A., as initial Term P lender therein. | Subsidiary Guarantors. |
10.2* | |
31.1* | |
31.2* | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
32.1* | | Section 1350 Certification of the Chief Executive Officer. |
32.2* | | Section 1350 Certification of the Chief Financial Officer. |
101. 101.INS | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data Files.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). |
SIGNATURE
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. | |
| | | |
February 7, 2018August 9, 2023 | By: | /s/ Mark W. Miles | |
| | Mark W. Miles | |
| | Chief Financial Officer | |