BERRY GLOBAL GROUP, INC.
10-Ks and 10-Qs
PROXIES
UNITED STATES
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 December 29, 2018
Commission File Number 001-35672
BERRY GLOBAL GROUP, INC.
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A Delaware corporation
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101 Oakley Street, Evansville, Indiana, 47710
(812) 424-2904
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IRS employer identification number
20-5234618
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the "Exchange Act"):
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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, accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See 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 12b-2 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 ☒
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Class
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Outstanding at February 1, 2019
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Common Stock, $.01 par value per share
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130.3 million shares
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1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. The forward-looking statements include, in particular, statements
about our plans, strategies and prospects under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements contain words such as “believes,” “expects,” “may,” “will,” “should,” “would,”
“could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “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. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our
assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon
information available to us on the date of this Form 10-Q.
Readers should carefully review the factors discussed 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.
2
Berry Global Group, Inc.
Form 10-Q Index
For Quarterly Period Ended December 29, 2018
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Part I.
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Financial Information
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Page No.
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Consolidated Statements of Income and Comprehensive Income
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4
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Part II.
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Other Information
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3
Part I. Financial Information
Berry Global Group, Inc.
(Unaudited)
(in millions of dollars, except per share amounts)
|
|
Quarterly Period Ended
|
|||||||
|
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December 29, 2018
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December 30, 2017
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||||||
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Net sales
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$
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1,972
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$
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1,776
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||||
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Costs and expenses:
|
||||||||
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Cost of goods sold
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1,619
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1,447
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||||||
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Selling, general and administrative
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124
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117
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||||||
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Amortization of intangibles
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42
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38
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||||||
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Restructuring and impairment charges
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11
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11
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||||||
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Operating income
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176
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163
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||||||
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Other (income) expense, net
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—
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9
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||||||
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Interest expense, net
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64
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62
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||||||
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Income before income taxes
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112
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92
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||||||
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Income tax expense (benefit)
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24
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(71
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)
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|||||
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Net income
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$
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88
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$
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163
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||||
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||||||||
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Net income per share:
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||||||||
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Basic
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$
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0.67
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$
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1.24
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||||
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Diluted
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0.66
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1.20
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||||||
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Outstanding weighted-average shares:
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||||||||
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Basic
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131.1
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131.0
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||||||
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Diluted
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133.8
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136.0
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||||||
Consolidated Statements of Comprehensive Income
(Unaudited)
(in millions of dollars)
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Quarterly Period Ended
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|||||||
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December 29, 2018
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December 30, 2017
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||||||
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Net income
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$
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88
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$
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163
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||||
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Currency translation
|
(4
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)
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(24
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)
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||||
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Pension and other postretirement benefits
|
—
|
(1
|
)
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|||||
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Interest rate hedges
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(24
|
)
|
17
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|||||
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Provision for income taxes
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7
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(4
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)
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|||||
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Other comprehensive loss, net of tax
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(21
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)
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(12
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)
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||||
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Comprehensive income
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$
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67
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$
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151
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||||
See notes to consolidated financial statements.
4
Berry Global Group, Inc.
(in millions of dollars)
|
|
December 29, 2018
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September 29, 2018
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||||||
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Assets
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(Unaudited)
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|||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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293
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$
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381
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||||
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Accounts receivable (less allowance of $13)
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879
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941
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||||||
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Inventories:
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||||||||
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Finished goods
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545
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503
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||||||
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Raw materials and supplies
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411
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384
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||||||
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956
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887
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||||||
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Prepaid expenses and other current assets
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78
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76
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||||||
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Total current assets
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2,206
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2,285
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||||||
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Property, plant, and equipment, net
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2,457
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2,488
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||||||
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Goodwill and intangible assets, net
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4,243
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4,284
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||||||
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Other assets
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66
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74
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||||||
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Total assets
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$
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8,972
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$
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9,131
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||||
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Liabilities
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$
|
715
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$
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783
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||||
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Accrued expenses and other current liabilities
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427
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416
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||||||
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Current portion of long-term debt
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37
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38
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||||||
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Total current liabilities
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1,179
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1,237
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||||||
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Long-term debt, less current portion
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5,700
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5,806
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||||||
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Deferred income taxes
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357
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365
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||||||
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Other long-term liabilities
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281
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289
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||||||
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Total liabilities
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7,517
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7,697
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||||||
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Stockholders' equity
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||||||||
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||||||||
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Common stock (130.6 and 131.4 million shares issued, respectively)
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1
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1
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||||||
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Additional paid-in capital
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873
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867
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||||||
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Non-controlling interest
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3
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3
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||||||
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Retained earnings
|
755
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719
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||||||
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Accumulated other comprehensive loss
|
(177
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)
|
(156
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)
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||||
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Total stockholders' equity
|
1,455
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1,434
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||||||
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Total liabilities and stockholders' equity
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$
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8,972
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$
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9,131
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||||
See notes to consolidated financial statements.
5
Berry Global Group, Inc.
(Unaudited)
(in millions of dollars)
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Common Stock
|
Additional Paid-in Capital
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Non-Controlling Interest
|
Accumulated Other
Comprehensive Loss
|
Retained Earnings
|
Total
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|||||||||||||||||||
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Balance at September 30, 2017
|
$
|
1
|
$
|
823
|
$
|
3
|
$
|
(68
|
)
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$
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256
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$
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1,015
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|||||||||||
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Share-based compensation expense
|
—
|
4
|
—
|
—
|
—
|
4
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||||||||||||||||||
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Proceeds from issuance of common stock
|
—
|
4
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—
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—
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—
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4
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||||||||||||||||||
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Interest rate hedges, net of tax
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—
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—
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—
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13
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—
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13
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||||||||||||||||||
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Net income attributable to the Company
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—
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—
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—
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—
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163
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163
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||||||||||||||||||
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Currency translation
|
—
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—
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—
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(24
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)
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—
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(24
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)
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||||||||||||||||
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Pension
|
—
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—
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—
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(1
|
)
|
—
|
(1
|
)
|
||||||||||||||||
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Balance at December 30, 2017
|
$
|
1
|
$
|
831
|
$
|
3
|
$
|
(80
|
)
|
$
|
419
|
$
|
1,174
|
|||||||||||
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Balance at September 29, 2018
|
$
|
1
|
$
|
867
|
$
|
3
|
$
|
(156
|
)
|
$
|
719
|
$
|
1,434
|
|||||||||||
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Share-based compensation expense
|
—
|
3
|
—
|
—
|
—
|
3
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||||||||||||||||||
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Proceeds from issuance of common stock
|
—
|
5
|
—
|
—
|
—
|
5
|
||||||||||||||||||
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Common stock repurchased and retired
|
—
|
(2
|
)
|
—
|
—
|
(52
|
)
|
(54
|
)
|
|||||||||||||||
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Interest rate hedges, net of tax
|
—
|
—
|
—
|
(17
|
)
|
—
|
(17
|
)
|
||||||||||||||||
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Net income attributable to the Company
|
—
|
—
|
—
|
—
|
88
|
88
|
||||||||||||||||||
|
Currency translation
|
—
|
—
|
—
|
(4
|
)
|
—
|
(4
|
)
|
||||||||||||||||
|
Balance at December 29, 2018
|
$
|
1
|
$
|
873
|
$
|
3
|
$
|
(177
|
)
|
$
|
755
|
$
|
1,455
|
|||||||||||
See notes to consolidated financial statements.
6
Berry Global Group, Inc.
(Unaudited)
(in millions of dollars)
|
|
Quarterly Period Ended
|
|||||||
|
|
December 29, 2018
|
December 30, 2017
|
||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net income
|
$
|
88
|
$
|
163
|
||||
|
Adjustments to reconcile net cash provided by operating activities:
|
||||||||
|
Depreciation
|
96
|
91
|
||||||
|
Amortization of intangibles
|
42
|
38
|
||||||
|
Non-cash interest expense
|
(1
|
)
|
3
|
|||||
|
Deferred income tax
|
4
|
(121
|
)
|
|||||
|
Share-based compensation expense
|
3
|
4
|
||||||
|
Other non-cash operating activities, net
|
4
|
6
|
||||||
|
Changes in working capital
|
(71
|
)
|
(66
|
)
|
||||
|
Changes in other assets and liabilities
|
(4
|
)
|
35
|
|||||
|
Net cash from operating activities
|
161
|
153
|
||||||
|
Cash Flows from Investing Activities:
|
||||||||
|
Additions to property, plant and equipment
|
(75
|
)
|
(94
|
)
|
||||
|
Proceeds from sale of assets
|
—
|
3
|
||||||
|
Net cash from investing activities
|
(75
|
)
|
(91
|
)
|
||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Repayments on long-term borrowings
|
(110
|
)
|
(108
|
)
|
||||
|
Proceeds from issuance of common stock
|
5
|
4
|
||||||
|
Repurchase of common stock
|
(52
|
)
|
—
|
|||||
|
Payment of tax receivable agreement
|
(16
|
)
|
(37
|
)
|
||||
|
Net cash from financing activities
|
(173
|
)
|
(141
|
)
|
||||
|
Effect of exchange rate changes on cash
|
(1
|
)
|
1
|
|||||
|
Net change in cash
|
(88
|
)
|
(78
|
)
|
||||
|
Cash and cash equivalents at beginning of period
|
381
|
306
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
293
|
$
|
228
|
||||
See notes to consolidated financial statements.
7
Berry Global Group, Inc.
(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 for interim reporting. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial 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. Certain reclassifications have been made to prior periods to conform to current reporting. 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 Securities and Exchange Commission.
2. Recently Issued Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting standards updates to the FASB's
Accounting Standards Codification. During fiscal 2019, with the exception of the below, there have been no developments to the recently adopted accounting pronouncements from those disclosed in the Company's 2018 Annual Report on Form 10-K that
are considered to have a material impact on our unaudited consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued a final standard on revenue recognition. Under the new standard, an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public entities, the provisions of the new standard are
effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. An entity can apply the new revenue standard on a full retrospective approach to each prior reporting period presented or on a modified
retrospective approach with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings. The Company adopted the new standard effective for fiscal 2019 using the modified
retrospective approach. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which increases transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new standard, the lessee of an operating lease will be required to do the following: 1) recognize a
right-of-use asset and a lease liability in the statement of financial position, 2) recognize a single lease cost allocated over the lease term generally on a straight-line basis, and 3) classify all cash payments within operating activities on the
statement of cash flows. Companies are required to adopt this standard using a modified retrospective transition method. Amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. The Company is currently evaluating the impact of this standard, which will be effective for the Company beginning fiscal 2020.
3. Revenue Recognition
Our revenues are primarily derived from the sale of plastic packaging products to customers. Revenue is recognized when
performance obligations are satisfied, in an amount reflecting the consideration 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 consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main sources of variable consideration are
customer rebates and cash discounts. 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. A small number of our contracts are for sales of products which are customer specific and cannot be repurposed. Sales for these products qualify for over time recognition and
are immaterial to the Company.
8
Our rebate programs are individually negotiated with customers and contain a variety of different terms and conditions.
Certain rebates are calculated as flat percentages of purchases, while others included tiered volume incentives. These rebates may be payable monthly, quarterly, or annually. The calculation of the accrued rebate balance involves management
estimates, especially where the terms of the rebate involve tiered volume levels that require estimates of expected annual sales. These provisions are based on estimates derived from current program requirements and historical experience. The
accrual for customer rebates was $64 million and $58 million at December 29, 2018 and September 29, 2018, respectively, and is included in Accrued expenses and other current liabilities.
Due to the nature of our sales transactions, we have elected the following practical expedients: (i) Shipping and handling
costs are treated as fulfillment costs. Accordingly, shipping and handling costs are classified as a component of Cost of goods sold while amounts billed to customers are classified as a component of Net Sales; (ii) We exclude sales and similar
taxes that are imposed on our sales and collected from customers; (iii) As our standard payment terms are less than one year, we did not assess whether a contract has a significant financing component.
The Company disaggregates revenue based on reportable business segment, geography, and significant product line. Refer to
Note 11. Operating Segments for further information.
4. Acquisitions
Laddawn, Inc.
In August 2018, the Company acquired Laddawn, Inc. ("Laddawn") for a purchase price of $242 million, which is preliminary and subject to
adjustment. Laddawn is a custom bag and film manufacturer with a unique-to-industry e-commerce sales platform. The acquired business is operated in our Engineered Materials 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 estimates of fair value at the acquisition date. The results of Laddawn have been included in the consolidated results of the Company since the date of the acquisition. The Company has not
finalized the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed. The assets acquired and liabilities assumed consisted of working capital of $26 million, property and equipment of $39 million,
intangible assets of $98 million, and goodwill of $79 million. The working capital includes a $2 million step up of inventory to fair value. The Company has recognized goodwill on this transaction primarily as a result of expected cost synergies,
and expects goodwill to be deductible for tax purposes.
Clopay Plastic Products Company, Inc.
In February 2018, the Company acquired Clopay Plastic Products Company, Inc. ("Clopay") for a purchase price of $475 million. Clopay is an
innovator in the development of printed breathable films, 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. The acquired business is operated within our Health, Hygiene & Specialties segment. To finance the purchase, the Company issued $500 million aggregate principal amount of 4.5% second priority notes through a private placement
offering.
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 fair values at the acquisition date. The results of Clopay have been included in the consolidated results of the Company since the date of the acquisition. The Company has recognized goodwill on this
transaction primarily as a result of expected cost synergies, and expects goodwill to be deductible for tax purposes. The following table summarizes the purchase price allocation and estimated fair values of the assets acquired and liabilities
assumed at the date of the acquisition:
|
Working capital (a)
|
$
|
70
|
||
|
Property and equipment
|
164
|
|||
|
Intangible assets
|
125
|
|||
|
Goodwill
|
111
|
|||
|
Other assets and long-term liabilities
|
5
|
(a) Includes a $3 million step up of inventory to fair value
9
5. Accounts Receivable Factoring Agreements
The Company has entered into various factoring agreements, both in the U.S. and at a number of foreign subsidiaries, to sell certain receivables
to unrelated third-party financial institutions. The Company accounts for these transactions in accordance with ASC 860, "Transfers and Servicing" ("ASC 860"). ASC 860 allows for the ownership transfer of accounts receivable to qualify for sale
treatment when the appropriate criteria is met, which permits the Company to present the balances sold under the program to be excluded from Accounts receivable, net on the Consolidated Balance Sheets. Receivables are considered sold when (i) they
are transferred beyond the reach of the Company and its creditors, (ii) the purchaser has the right to pledge or exchange the receivables, and (iii) the Company has surrendered control over the transferred receivables. In addition, the Company
provides no other forms of continued financial support to the purchaser of the receivables once the receivables are sold.
There were no amounts outstanding from financial institutions related to U.S. based programs at December 29, 2018 or September 29, 2018. Gross
amounts factored under these U.S. based programs at December 29, 2018 and September 29, 2018 were $212 million and $162 million, respectively. The fees associated with transfer of receivables for all programs were not material for any of the
periods presented.
6. Restructuring and Impairment Charges
The Company incurred restructuring costs of $11 million for both the quarterly period ended December 29, 2018 and December 30, 2017,
respectively. The tables below set forth the significant components of the restructuring charges recognized, by segment:
|
|
Quarterly Period Ended
|
|||||||
|
December 29, 2018
|
December 30, 2017
|
|||||||
|
Consumer Packaging
|
$
|
—
|
$
|
1
|
||||
|
Health, Hygiene & Specialties
|
10
|
10
|
||||||
|
Engineered Materials
|
1
|
—
|
||||||
|
Consolidated
|
$
|
11
|
$
|
11
|
||||
The table below sets forth the activity with respect to the restructuring accrual at December 29, 2018:
|
|
Employee Severance and Benefits
|
Facility Exit
Costs
|
Non-cash Impairment Charges
|
Total
|
||||||||||||
|
Balance at September 29, 2018
|
$
|
9
|
4
|
—
|
$
|
13
|
||||||||||
|
Charges
|
3
|
1
|
7
|
11
|
||||||||||||
|
Non-cash asset impairment
|
—
|
—
|
(7
|
)
|
(7
|
)
|
||||||||||
|
Cash payments
|
(6
|
)
|
(1
|
)
|
—
|
(7
|
)
|
|||||||||
|
Balance at December 29, 2018
|
$
|
6
|
4
|
—
|
$
|
10
|
||||||||||
7. Accrued Expenses, Other Current Liabilities and Other Long-Term Liabilities
The following table sets forth the totals included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets:
|
|
December 29, 2018
|
September 29, 2018
|
||||||
|
Employee compensation
|
$
|
106
|
$
|
113
|
||||
|
Accrued taxes
|
79
|
72
|
||||||
|
Rebates
|
64
|
58
|
||||||
|
Interest
|
43
|
49
|
||||||
|
Tax receivable agreement obligation
|
12
|
16
|
||||||
|
Restructuring
|
10
|
13
|
||||||
|
Accrued operating expenses
|
113
|
95
|
||||||
|
$
|
427
|
$
|
416
|
|||||
The following table sets forth the totals included in Other long-term liabilities on the Consolidated Balance Sheets:
|
|
December 29, 2018
|
September 29, 2018
|
||||||
|
Uncertain tax positions
|
$
|
68
|
$
|
67
|
||||
|
Deferred purchase price
|
43
|
40
|
||||||
|
Pension liability
|
42
|
45
|
||||||
|
Lease retirement obligation
|
40
|
39
|
||||||
|
Sale-lease back deferred gain
|
21
|
21
|
||||||
|
Transition tax
|
18
|
18
|
||||||
|
Derivative instruments
|
13
|
12
|
||||||
|
Tax receivable agreement obligation
|
12
|
23
|
||||||
|
Other
|
24
|
24
|
||||||
|
|
$
|
281
|
$
|
289
|
||||
10
8. Long-Term Debt
Long-term debt consists of the following:
|
|
Maturity Date |
December 29, 2018
|
September 29, 2018
|
||||||
|
Term loan
|
February 2020
|
$
|
700
|
$
|
800
|
||||
|
Term loan
|
January 2021
|
814
|
814
|
||||||
|
Term loan
|
October 2022
|
1,545
|
1,545
|
||||||
|
Term loan
|
January 2024
|
493
|
493
|
||||||
|
Revolving line of credit
|
May 2020
|
—
|
—
|
||||||
|
5
1
/
2
%
Second Priority Senior Secured Notes
|
May 2022
|
500
|
500
|
||||||
|
6% Second Priority Senior Secured Notes
|
October 2022
|
400
|
400
|
||||||
|
5
1
/
8
%
Second Priority Senior Secured Notes
|
July 2023
|
700
|
700
|
||||||
|
4
1
/
2
%
Second Priority Senior Secured Notes
|
February 2026
|
500
|
500
|
||||||
|
Debt discounts and deferred fees
|
(40
|
)
|
(43
|
)
|
|||||
|
Capital leases and other
|
Various
|
125
|
135
|
||||||
|
Total long-term debt
|
|
5,737
|
5,844
|
||||||
|
Current portion of long-term debt
|
|
(37
|
)
|
(38
|
)
|
||||
|
Long-term debt, less current portion
|
|
$
|
5,700
|
$
|
5,806
|
||||
The Company was in compliance with all debt covenants for all periods presented.
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 through maturity.
Term Loans
The term loans with a maturity date of February 2020 and January 2021 bear interest at LIBOR plus 1.75%. The term loans
with a maturity date of October 2022 and January 2024 bear interest at LIBOR plus 2.00%.
During fiscal 2019, the Company has made $110 million of repayments on long-term borrowings using existing liquidity.
9. 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. For those
derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a
foreign operation.
To the extent hedging relationships are found to be effective, as determined by FASB guidance, changes in the fair value of the derivatives are
offset by changes in the fair value of the related hedged item and recorded to Accumulated other comprehensive loss. Any identified ineffectiveness, or changes in the fair value of a derivative not designated as a hedge, is recorded to the
Consolidated Statements of Income.
Cross-Currency Swaps
The Company is party to certain cross-currency swap agreements with a notional amount 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 in May 2022. The risk management objective is to manage foreign currency risk relating to
net investments in certain European subsidiaries denominated in foreign currencies and reduce the variability in the functional currency cash flows of a portion of the Company’s term loans. Changes in fair value of the derivative instruments are
recognized in a component of Accumulated other comprehensive loss, to offset the changes in the values of the net investments being hedged.
11
Interest Rate Swaps
The primary purpose of the Company’s interest rate swap activities is to manage cash flow variability associated with our outstanding variable
rate term loan debt.
During fiscal 2017 the Company modified various term loan rates and maturities. In conjunction with these modifications the Company realigned
existing swap agreements which resulted in the de-designation of the original hedge and re-designation of the modified swaps as effective cash flow hedges. The amounts included in Accumulated other comprehensive loss at the date of de-designation
are being amortized to Interest expense through the terms of the original swaps.
As of December 29, 2018, 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 2.000%, with an effective date in May 2017 and expiration in May 2022 and (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.808% with an
effective date in June 2018 and expiration in September 2021.
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:
|
Derivatives Instruments
|
Hedge Designation
|
Balance Sheet Location
|
December 29, 2018
|
September 29, 2018
|
||||||
|
Cross-currency swaps
|
Designated
|
Other long-term liabilities
|
$
|
3
|
$
|
11
|
||||
|
Interest rate swaps
|
Designated
|
Other assets
|
7
|
16
|
||||||
|
Interest rate swaps
|
Designated
|
Other long-term liabilities
|
10
|
—
|
||||||
|
Interest rate swaps
|
Not designated
|
Other long-term liabilities
|
—
|
1
|
||||||
The effect of the Company's derivative instruments on the Consolidated Statements of Income is as follows:
|
|
|
Quarterly Period Ended
|
|||||||
|
Derivatives instruments
|
Statement of Operations Location
|
December 29, 2018
|
December 30, 2017
|
||||||
|
Foreign currency swaps
|
Other (income) expense, net
|
$
|
(4
|
)
|
$
|
2
|
|||
|
Interest rate swaps
|
Interest expense, net
|
(2
|
)
|
(1
|
)
|
||||
The amortization related to unrealized losses in Accumulated other comprehensive loss is expected to be $9 million in the next 12 months.
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 2018 assessment. No impairment indicators were identified in the current quarter.
Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of December 29, 2018 and
September 29, 2018, along with the impairment loss recognized on the fair value measurement during the period:
|
|
As of December 29, 2018
|
|||||||||||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Impairment
|
|||||||||||||||
|
Indefinite-lived trademarks
|
$
|
—
|
$
|
—
|
$
|
248
|
$
|
248
|
$
|
—
|
||||||||||
|
Goodwill
|
—
|
—
|
2,941
|
2,941
|
—
|
|||||||||||||||
|
Definite lived intangible assets
|
—
|
—
|
1,054
|
1,054
|
—
|
|||||||||||||||
|
Property, plant, and equipment
|
—
|
—
|
2,457
|
2,457
|
7
|
|||||||||||||||
|
Total
|
$
|
—
|
$
|
—
|
$
|
6,700
|
$
|
6,700
|
$
|
7
|
||||||||||
12
|
|
As of September 29, 2018
|
|||||||||||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Impairment
|
|||||||||||||||
|
Indefinite-lived trademarks
|
$
|
—
|
$
|
—
|
$
|
248
|
$
|
248
|
$
|
—
|
||||||||||
|
Goodwill
|
—
|
—
|
2,944
|
2,944
|
—
|
|||||||||||||||
|
Definite lived intangible assets
|
—
|
—
|
1,092
|
1,092
|
—
|
|||||||||||||||
|
Property, plant, and equipment
|
—
|
—
|
2,488
|
2,488
|
—
|
|||||||||||||||
|
Total
|
$
|
—
|
$
|
—
|
$
|
6,772
|
$
|
6,772
|
$
|
—
|
||||||||||
The Company's financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate and cross-currency swap
agreements, and capital lease obligations. The book value of our long-term indebtedness exceeded fair value by $45 million as of December 29, 2018. The Company's long-term debt fair values were determined using Level 2 inputs as other significant
observable inputs were not available.
10. Income Taxes
In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).
The transitional impacts of the Tax Act resulted in a transition benefit of $95 million in the quarterly period ended December 30, 2017. During the Quarter, the Company completed the accounting for the Tax Act, resulting in an immaterial change
from fiscal 2018.
The effective tax rate was 21% for the quarterly period ended December 29, 2018 and was positively impacted by 2% from the share-based
compensation excess tax benefit deduction, 1% from research and development credits, and other discrete items. These favorable items were offset by increases of 4% from U.S. state income taxes and other discrete items.
11. Operating Segments
The Company's operations are organized into three operating segments: Engineered Materials, Health, Hygiene & Specialties, and Consumer
Packaging. The structure is designed to align us with our customers, provide optimal service, and drive future growth in a cost efficient manner. Selected information by reportable segment is presented in the following tables:
|
|
Quarterly Period Ended
|
|||||||
|
|
December 29, 2018
|
December 30, 2017
|
||||||
|
Net sales:
|
||||||||
|
Engineered Materials
|
$
|
669
|
$
|
648
|
||||
|
Health, Hygiene & Specialties
|
702
|
577
|
||||||
|
Consumer Packaging
|
601
|
551
|
||||||
|
Total net sales
|
$
|
1,972
|
$
|
1,776
|
||||
|
Operating income:
|
||||||||
|
Engineered Materials
|
$
|
94
|
$
|
88
|
||||
|
Health, Hygiene & Specialties
|
49
|
37
|
||||||
|
Consumer Packaging
|
33
|
38
|
||||||
|
Total operating income
|
$
|
176
|
$
|
163
|
||||
|
Depreciation and amortization:
|
||||||||
|
Engineered Materials
|
$
|
31
|
$
|
29
|
||||
|
Health, Hygiene & Specialties
|
54
|
46
|
||||||
|
Consumer Packaging
|
53
|
54
|
||||||
|
Total depreciation and amortization
|
$
|
138
|
$
|
129
|
||||
|
|
December 29, 2018
|
September 29, 2018
|
||||||
|
Total assets:
|
||||||||
|
Engineered Materials
|
$
|
1,964
|
$
|
1,998
|
||||
|
Health, Hygiene & Specialties
|
3,811
|
3,913
|
||||||
|
Consumer Packaging
|
3,197
|
3,220
|
||||||
|
Total assets
|
$
|
8,972
|
$
|
9,131
|
||||
|
Total goodwill:
|
||||||||
|
Engineered Materials
|
$
|
630
|
$
|
633
|
||||
|
Health, Hygiene & Specialties
|
903
|
902
|
||||||
|
Consumer Packaging
|
1,408
|
1,409
|
||||||
|
Total goodwill
|
$
|
2,941
|
$
|
2,944
|
||||
13
Selected information by geography is presented in the following tables:
|
|
Quarterly Period Ended
|
|||||||
|
|
December 29, 2018
|
December 30, 2017
|
||||||
|
Net sales:
|
||||||||
|
North America
|
$
|
1,605
|
$
|
1,466
|
||||
|
South America
|
96
|
74
|
||||||
|
Europe
|
204
|
170
|
||||||
|
Asia
|
67
|
66
|
||||||
|
Total net sales
|
$
|
1,972
|
$
|
1,776
|
||||
|
December 29, 2018
|
September 29, 2018
|
|||||||
|
Long-lived assets:
|
||||||||
|
North America
|
$
|
5,685
|
$
|
5,764
|
||||
|
South America
|
332
|
320
|
||||||
|
Europe
|
451
|
463
|
||||||
|
Asia
|
298
|
299
|
||||||
|
Total long-lived assets:
|
$
|
6,766
|
$
|
6,846
|
||||
Selected information by product line is presented in the following tables:
|
|
Quarterly Period Ended
|
|||||||
|
|
December 29, 2018
|
December 30, 2017
|
||||||
|
Net sales:
|
||||||||
|
Performance Materials
|
39
|
43
|
||||||
|
Engineered Products
|
61
|
57
|
||||||
|
Engineered Materials
|
100
|
%
|
100
|
%
|
||||
|
Health
|
18
|
19
|
||||||
|
Hygiene
|
52
|
44
|
||||||
|
Specialties
|
30
|
37
|
||||||
|
Health, Hygiene & Specialties
|
100
|
%
|
100
|
%
|
||||
|
Rigid Open Top
|
44
|
43
|
||||||
|
Rigid Closed Top
|
56
|
57
|
||||||
|
Consumer Packaging
|
100
|
%
|
100
|
%
|
||||
12. 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, management believes that any ultimate liability would not be material to its financial statements.
The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of
business.
14
13. Share Repurchase Program
In fiscal 2018, the Company announced a $500 million share repurchase program. Berry may repurchase shares through the open market, privately
negotiated transactions, or other programs, subject to market conditions. This authorization has no expiration date and may be suspended at any time.
During the quarterly period ended December 29, 2018, the Company repurchased approximately 1,132 thousand shares for $54 million. As of
December 29, 2018, $412 million of authorized share repurchases remain available to the Company.
14. Basic and Diluted Net Income Per Share
Basic net income per share 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 dividing the net income attributable to common stockholders by the weighted-average number of common share
equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. For purposes of this calculation, 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 is dilutive. For the three months ended December 29, 2018, 3 million shares were excluded from the diluted net income per share calculation as their effect would be anti-dilutive.
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted net income per share calculations:
|
|
Quarterly Period Ended
|
|||||||
|
(in millions, except per share amounts)
|
December 29, 2018
|
December 30, 2017
|
||||||
|
Numerator
|
||||||||
|
Consolidated net income
|
$
|
88
|
$
|
163
|
||||
|
Denominator
|
||||||||
|
Weighted average common shares outstanding - basic
|
131.1
|
131.0
|
||||||
|
Dilutive shares
|
2.7
|
5.0
|
||||||
|
Weighted average common and common equivalent shares outstanding - diluted
|
133.8
|
136.0
|
||||||
|
Per common share income
|
||||||||
|
Basic
|
$
|
0.67
|
$
|
1.24
|
||||
|
Diluted
|
$
|
0.66
|
$
|
1.20
|
||||
15. 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 29, 2018
|
$
|
(175
|
)
|
$
|
(13
|
)
|
$
|
32
|
$
|
(156
|
)
|
|||||
|
Other comprehensive income (loss) before reclassifications
|
(4
|
)
|
—
|
(22
|
)
|
(26
|
)
|
|||||||||
|
Net amount reclassified from accumulated other comprehensive income (loss)
|
—
|
—
|
(2
|
)
|
(2
|
)
|
||||||||||
|
Provision for income taxes
|
—
|
—
|
7
|
7
|
||||||||||||
|
Balance at December 29, 2018
|
$
|
(179
|
)
|
$
|
(13
|
)
|
$
|
15
|
$
|
(177
|
)
|
|||||
|
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
|
)
|
|||||
15
16. 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 Statements of Income
|
|
Quarterly Period Ended December 29, 2018
|
|||||||||||||||||||||||
|
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
||||||||||||||||||
|
Net sales
|
$
|
—
|
$
|
141
|
$
|
1,377
|
$
|
454
|
$
|
—
|
$
|
1,972
|
||||||||||||
|
Cost of goods sold
|
—
|
85
|
1,142
|
392
|
—
|
1,619
|
||||||||||||||||||
|
Selling, general and administrative
|
—
|
13
|
87
|
24
|
—
|
124
|
||||||||||||||||||
|
Amortization of intangibles
|
—
|
—
|
36
|
6
|
—
|
42
|
||||||||||||||||||
|
Restructuring and impairment charges
|
—
|
—
|
7
|
4
|
—
|
11
|
||||||||||||||||||
|
Operating income
|
—
|
43
|
105
|
28
|
—
|
176
|
||||||||||||||||||
|
Other expense (income), net
|
—
|
1
|
1
|
(2
|
)
|
—
|
—
|
|||||||||||||||||
|
Interest expense, net
|
—
|
5
|
45
|
14
|
—
|
64
|
||||||||||||||||||
|
Equity in net income of subsidiaries
|
(112
|
)
|
(67
|
)
|
—
|
—
|
179
|
—
|
||||||||||||||||
|
Income before income taxes
|
112
|
104
|
59
|
16
|
(179
|
)
|
112
|
|||||||||||||||||
|
Income tax expense
|
24
|
16
|
—
|
8
|
(24
|
)
|
24
|
|||||||||||||||||
|
Net income
|
$
|
88
|
$
|
88
|
$
|
59
|
$
|
8
|
$
|
(155
|
)
|
$
|
88
|
|||||||||||
|
Comprehensive net income
|
$
|
88
|
$
|
79
|
$
|
59
|
$
|
(4
|
)
|
$
|
(155
|
)
|
$
|
67
|
||||||||||
|
|
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 (loss)
|
—
|
20
|
118
|
25
|
—
|
163
|
||||||||||||||||||
|
Other 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
|
)
|
|||||||||||||||
|
Net income
|
$
|
163
|
$
|
163
|
$
|
68
|
$
|
4
|
$
|
(235
|
)
|
$
|
163
|
|||||||||||
|
Comprehensive net income
|
$
|
163
|
$
|
160
|
$
|
68
|
$
|
(5
|
)
|
$
|
(235
|
)
|
$
|
151
|
||||||||||
16
Condensed Supplemental Consolidated Balance Sheets
|
|
December 29, 2018
|
|||||||||||||||||||||||
|
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
||||||||||||||||||
|
Current assets
|
—
|
214
|
1,243
|
749
|
—
|
2,206
|
||||||||||||||||||
|
Intercompany receivable
|
248
|
1,878
|
—
|
28
|
(2,154
|
)
|
—
|
|||||||||||||||||
|
Property, plant, and equipment, net
|
—
|
79
|
1,660
|
718
|
—
|
2,457
|
||||||||||||||||||
|
Other assets
|
1,593
|
6,326
|
4,808
|
486
|
(8,904
|
)
|
4,309
|
|||||||||||||||||
|
Total assets
|
$
|
1,841
|
$
|
8,497
|
$
|
7,711
|
$
|
1,981
|
$
|
(11,058
|
)
|
$
|
8,972
|
|||||||||||
|
|
||||||||||||||||||||||||
|
Current liabilities
|
18
|
248
|
621
|
292
|
—
|
1,179
|
||||||||||||||||||
|
Intercompany payable
|
—
|
—
|
2,154
|
—
|
(2,154
|
)
|
—
|
|||||||||||||||||
|
Other long-term liabilities
|
368
|
5,851
|
58
|
61
|
—
|
6,338
|
||||||||||||||||||
|
Stockholders' equity
|
1,455
|
2,398
|
4,878
|
1,628
|
(8,904
|
)
|
1,455
|
|||||||||||||||||
|
Total liabilities and stockholders' equity
|
$
|
1,841
|
$
|
8,497
|
$
|
7,711
|
$
|
1,981
|
$
|
(11,058
|
)
|
$
|
8,972
|
|||||||||||
|
|
September 29, 2018
|
|||||||||||||||||||||||
|
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
||||||||||||||||||
|
Current assets
|
—
|
249
|
1,240
|
796
|
—
|
2,285
|
||||||||||||||||||
|
Intercompany receivable
|
296
|
1,907
|
—
|
49
|
(2,252
|
)
|
—
|
|||||||||||||||||
|
Property, plant and equipment, net
|
—
|
79
|
1,684
|
725
|
—
|
2,488
|
||||||||||||||||||
|
Other assets
|
1,544
|
6,247
|
4,849
|
487
|
(8,769
|
)
|
4,358
|
|||||||||||||||||
|
Total assets
|
$
|
1,840
|
$
|
8,482
|
$
|
7,773
|
$
|
2,057
|
$
|
(11,021
|
)
|
$
|
9,131
|
|||||||||||
|
|
||||||||||||||||||||||||
|
Current liabilities
|
18
|
218
|
635
|
366
|
—
|
1,237
|
||||||||||||||||||
|
Intercompany payable
|
—
|
—
|
2,252
|
—
|
(2,252
|
)
|
—
|
|||||||||||||||||
|
Other long-term liabilities
|
388
|
5,945
|
68
|
59
|
—
|
6,460
|
||||||||||||||||||
|
Stockholders' equity
|
1,434
|
2,319
|
4,818
|
1,632
|
(8,769
|
)
|
1,434
|
|||||||||||||||||
|
Total liabilities and stockholders' equity
|
$
|
1,840
|
$
|
8,482
|
$
|
7,773
|
$
|
2,057
|
$
|
(11,021
|
)
|
$
|
9,131
|
|||||||||||
Condensed Supplemental Consolidated Statements of Cash Flows
|
Quarterly Period Ended December 29, 2018
|
||||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
Cash Flow from Operating Activities
|
$
|
—
|
$
|
55
|
$
|
155
|
$
|
(49
|
)
|
$
|
—
|
$
|
161
|
|||||||||||
|
Cash Flow from Investing Activities
|
||||||||||||||||||||||||
|
Additions to property, plant, and equipment
|
—
|
—
|
(59
|
)
|
(16
|
)
|
—
|
(75
|
)
|
|||||||||||||||
|
Proceeds from sale of assets
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
(Contributions) distributions to/from subsidiaries
|
47
|
(47
|
)
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Intercompany advances (repayments)
|
—
|
38
|
—
|
—
|
(38
|
)
|
—
|
|||||||||||||||||
|
Net cash from investing activities
|
47
|
(9
|
)
|
(59
|
)
|
(16
|
)
|
(38
|
)
|
(75
|
)
|
|||||||||||||
|
|
||||||||||||||||||||||||
|
Cash Flow from Financing Activities
|
||||||||||||||||||||||||
|
Repayments on long-term borrowings
|
—
|
(108
|
)
|
(2
|
)
|
—
|
—
|
(110
|
)
|
|||||||||||||||
|
Proceeds from issuance of common stock
|
5
|
—
|
—
|
—
|
—
|
5
|
||||||||||||||||||
|
Repurchase of common stock
|
(52
|
)
|
—
|
—
|
—
|
—
|
(52
|
)
|
||||||||||||||||
|
Payment of tax receivable agreement
|
(16
|
)
|
—
|
—
|
—
|
—
|
(16
|
)
|
||||||||||||||||
|
Changes in intercompany balances
|
16
|
—
|
(93
|
)
|
39
|
38
|
—
|
|||||||||||||||||
|
Net cash from financing activities
|
(47
|
)
|
(108
|
)
|
(95
|
)
|
39
|
38
|
(173
|
)
|
||||||||||||||
|
|
||||||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
—
|
—
|
—
|
(1
|
)
|
—
|
(1
|
)
|
||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net change in cash
|
—
|
(62
|
)
|
1
|
(27
|
)
|
—
|
(88
|
)
|
|||||||||||||||
|
Cash and cash equivalents at beginning of period
|
—
|
133
|
4
|
244
|
—
|
381
|
||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$
|
—
|
$
|
71
|
$
|
5
|
$
|
217
|
$
|
—
|
$
|
293
|
||||||||||||
17
|
Quarterly Period Ended December 30, 2017
|
||||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
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
|
)
|
—
|
|||||||||||||||||
|
Other investing activities, net
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
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
|
||||||||||||
18
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 2018 and fiscal 2019
are fifty-two week periods.
Executive Summary
Business.
The
Company's operations are organized into three operating segments: Engineered Materials, Health, Hygiene & Specialties, and Consumer Packaging. The structure is designed to align us with our customers, provide optimal service, and drive future
growth in a cost efficient manner. The Engineered Materials segment primarily consists of tapes and adhesives, polyethylene based film products, can liners, printed films, and specialty coated, and laminated products. The Health, Hygiene &
Specialties segment primarily consists of nonwoven specialty materials and films used in hygiene, infection prevention, personal care, industrial, construction and filtration applications. The Consumer Packaging segment primarily consists of
containers, foodservice items, closures, overcaps, bottles, prescription containers, and tubes.
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.
Laddawn, Inc.
In August 2018, the Company acquired Laddawn, Inc. ("Laddawn") for a purchase price of $242 million, which is preliminary and subject to
adjustment. Laddawn is a custom bag and film manufacturer with a unique-to-industry e-commerce sales platform. Laddawn reported $145 million in net sales for the twelve months ended July 31, 2018, and is operated in our Engineered Materials
segment. The Company expects to realize annual cost synergies of $5 million with full realization in fiscal 2019. To finance the purchase, the Company used existing liquidity.
Clopay Plastic Products Company, Inc.
In February 2018, the Company acquired Clopay Plastic Products Company, Inc. ("Clopay") for a purchase price of $475 million. Clopay is an
innovator in the development of printed breathable films, 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. The acquired business is operated in our Health, Hygiene & Specialties segment. The Company expects to realize annual cost synergies of $40 million with full realization expected in fiscal 2019. To finance the purchase, the Company
issued $500 million aggregate principle amount of 4.5% second priority notes through a private placement offering.
Raw Material Trends.
Our primary raw material is plastic resin consisting primarily of polypropylene and polyethylene. Plastic resins are subject to price fluctuations,
including those arising from supply shortages and changes in the prices of natural gas, crude oil 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:
|
|
Polyethylene Butene Film
|
Polypropylene
|
||||||||||||||||||||||
|
|
2019
|
2018
|
2017
|
2019
|
2018
|
2017
|
||||||||||||||||||
|
1st quarter
|
$
|
.64
|
$
|
.68
|
$
|
.56
|
$
|
.76
|
$
|
.71
|
$
|
.56
|
||||||||||||
|
2nd quarter
|
—
|
.69
|
.58
|
—
|
.75
|
.67
|
||||||||||||||||||
|
3rd quarter
|
—
|
.68
|
.60
|
—
|
.76
|
.61
|
||||||||||||||||||
|
4th quarter
|
—
|
.66
|
.62
|
—
|
.85
|
.62
|
||||||||||||||||||
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.
19
Outlook.
The Company
is affected by general economic and industrial growth, plastic resin availability and affordability, and general industrial production. 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. We believe there are long
term growth opportunities within the health, pharmaceuticals, personal care and food packaging markets existing outside of North America, especially in Asia, where expected per capita consumption increases should result in organic market growth.
We continue to believe that long term dynamics of resin markets will be advantageous. Planned capacity expansions in polyethylene in North America and recent declines in global oil should benefit the Company. For fiscal 2019, we project cash flow
from operations and adjusted free cash flow of $1,036 million and $670 million, respectively. The $670 million of adjusted free cash flow includes $350 million of capital spending and $16 million of payments under our tax receivable agreement.
Within our adjusted free cash flow guidance, we are also assuming cash taxes of $149 million, cash interest costs of $270 million, and other cash uses of $45 million related to changes in working capital and items such as acquisition integration
expenses and costs to achieve synergies. For the definition of Adjusted free cash flow and further information related to Adjusted free cash flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.”
Results of Operations
Comparison of the Quarterly Period Ended December 29, 2018 (the "Quarter") and the Quarterly Period Ended December 30, 2017
(the "Prior Quarter")
Acquisition 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, acquisition related costs, and other business optimization costs. Tables present dollars in millions.
|
Consolidated Overview
|
||||||||||||||||
|
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
||||||||||||
|
Net sales
|
$
|
1,972
|
$
|
1,776
|
$
|
196
|
11
|
%
|
||||||||
|
Operating income
|
$
|
176
|
$
|
163
|
$
|
13
|
8
|
%
|
||||||||
|
Operating income percentage of net sales
|
9
|
%
|
9
|
%
|
||||||||||||
The net sales increase of $196 million from Prior Quarter is primarily attributed to acquisition net sales of $158 million and organic sales
growth of $49 million, partially offset by an $11 million unfavorable impact from foreign currency changes. The organic sales growth is primarily attributed to increased selling prices of $82 million due to the pass through of higher cost of goods
sold, partially offset by a 2% volume decline.
The operating income increase of $13 million from Prior Quarter is primarily attributed to a $10 million decrease in business integration costs,
a $6 million decrease in depreciation and amortization, acquisition operating income of $3 million, and a $3 million impact from improvement in price cost spread. These increases are partially offset by a $4 million unfavorable impact from volume
and a $4 million unfavorable impact from foreign currency changes.
|
Engineered Materials
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
669
|
$
|
648
|
$
|
21
|
3
|
%
|
||||||||
|
Operating income
|
$
|
94
|
$
|
88
|
$
|
6
|
7
|
%
|
||||||||
|
Percentage of net sales
|
14
|
%
|
14
|
%
|
||||||||||||
Net sales in the Engineered Materials segment increased by $21 million from Prior Quarter primarily attributed to acquisition net sales of $35
million, partially offset by an organic sales decline of $13 million. The organic sales decline is primarily attributed to a 3% volume decline as the result of strong volumes in the Prior Quarter, offset by increased selling prices of $8 million
due to the pass through of higher cost of goods sold.
The operating income increase of $6 million from Prior Quarter is primarily attributed to a $6 million impact from improvement in price cost
spread and a $3 million decrease in depreciation and amortization, partially offset by a negative $3 million impact from volume.
|
Health, Hygiene & Specialties
|
||||||||||||||||
|
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
||||||||||||
|
Net sales
|
$
|
702
|
$
|
577
|
$
|
125
|
22
|
%
|
||||||||
|
Operating income
|
$
|
49
|
$
|
37
|
$
|
12
|
32
|
%
|
||||||||
|
Percentage of net sales
|
7
|
%
|
6
|
%
|
||||||||||||
20
Net sales in the Health, Hygiene & Specialties segment increased by $125 million from Prior Quarter primarily attributed to acquisition net
sales of $123 million and organic sales growth of $12 million, partially offset by a $10 million unfavorable impact from foreign currency changes. The organic sales growth is primarily attributed to increased selling prices of $39 million due to
the pass through of higher cost of goods sold, partially offset by a 5% volume decline as a result of general market softness in hygiene and specialties.
The operating income increase of $12 million from Prior Quarter is primarily attributed to a $10 million decrease in business integration costs,
a $6 million impact from improvement in price cost spread, acquisition operating income of $3 million, and a $2 million decrease in depreciation and amortization. These increases are partially offset by a negative $5 million impact from volume and
a $3 million unfavorable impact from foreign currency changes.
|
Consumer Packaging
|
||||||||||||||||
|
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
||||||||||||
|
Net sales
|
$
|
601
|
$
|
551
|
$
|
50
|
9
|
%
|
||||||||
|
Operating income
|
$
|
33
|
$
|
38
|
$
|
(5
|
)
|
(13
|
%)
|
|||||||
|
Percentage of net sales
|
5
|
%
|
7
|
%
|
||||||||||||
Net sales in the Consumer Packaging segment increased by $50 million from Prior Quarter primarily attributed to organic sales growth. The
organic sales growth is primarily attributed to increased selling prices of $35 million due to the pass through of higher cost of goods sold and a 3% volume improvement.
The operating income decrease of $5 million from Prior Quarter is primarily attributed to a negative $9 million impact from under recovery of
higher cost of goods sold, partially offset by a favorable $4 million impact from volume.
|
Other (income) expense, net
|
||||||||||||||||
|
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
||||||||||||
|
Other (income) expense, net
|
$
|
—
|
$
|
9
|
$
|
(9
|
)
|
100
|
%
|
|||||||
The other (income) expense, net decrease of $9 million from Prior Quarter is primarily attributed to favorable foreign currency changes related
to the remeasurement of non-operating intercompany balances.
|
Interest expense, net
|
||||||||||||||||
|
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
||||||||||||
|
Interest expense, net
|
$
|
64
|
$
|
62
|
$
|
2
|
3
|
%
|
||||||||
The interest expense increase of $2 million from Prior Quarter is primarily attributed to additional expenses from the $500 million 4.5% second
priority senior secured notes used to fund the Clopay acquisition, partially offset by lower interest as a result of repayments on long-term borrowings in fiscal 2018.
|
Income tax expense (benefit)
|
||||||||||||||||
|
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
||||||||||||
|
Income tax expense (benefit)
|
$
|
24
|
$
|
(71
|
)
|
$
|
95
|
(134
|
%)
|
|||||||
The income tax expense (benefit) decrease of $95 million from Prior Quarter is primarily attributed to an increase in income before taxes and
the $95 million provisional transition benefit recorded in the Prior Quarter as a result of U.S. tax reform. The effective tax rate was 21% for the Quarter and was positively impacted by 2% from the share-based compensation excess tax benefit
deduction, 1% from research and development credits, and other discrete items. These favorable items were offset by increases of 4% from U.S. state income taxes and other discrete items.
Changes in Comprehensive Income
The $84 million decrease in Comprehensive income from Prior Quarter is primarily attributed to a $75 million decline in Net income and a $30
million decrease in the fair value of interest rate hedges, net of tax, partially offset by a $20 million increase in currency translation. Currency translation gains 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 was primarily attributed to locations utilizing the
Euro, Brazilian Real, and Canadian Dollar as their functional currency. As part of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest rates attributed to the Company’s floating-rate
borrowings and records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in fiscal 2019 versus fiscal 2018 is primarily attributed to a change in the forward
interest curve between measurement dates.
21
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 the revolving credit facility. The Company was in compliance with all covenants at the end of the Quarter (see Note 8).
Cash Flows
Net cash from operating activities increased $8 million from the Prior Quarter primarily attributed to improved net income before depreciation,
amortization and deferred income taxes, partially offset by an increase in working capital.
Net cash used in investing activities decreased $16 million from the Prior Quarter primarily attributed to decreased capital expenditures
compared to the Prior Quarter.
Net cash used in financing activities increased $32 million from the Prior Quarter primarily attributed to share repurchases, partially offset
by lower tax receivable agreement payments.
Share Repurchases
We repurchased $54 million of our common stock in the Quarter. Share repurchases were completed using existing liquidity.
Adjusted 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, our consolidated adjusted free cash flow is summarized as follows:
|
Quarterly Period Ended
|
||||||||
|
December 29, 2018
|
December 30, 2017
|
|||||||
|
Cash flow from operating activities
|
$
|
161
|
$
|
153
|
||||
|
Additions to property, plant and equipment, net
|
(75
|
)
|
(91
|
)
|
||||
|
Payments of tax receivable agreement
|
(16
|
)
|
(37
|
)
|
||||
|
Adjusted free cash flow
|
$
|
70
|
$
|
25
|
||||
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 measure of liquidity because 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 free cash flow may be calculated differently by other
companies, including other companies in our industry, limiting its usefulness as a comparative measure.
Liquidity Outlook
At December 29, 2018, our cash balance was $293 million, of which approximately 75% was 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 liquidity needs over the next twelve months. We do not expect our free cash flow to be
sufficient to cover all long-term debt obligations and intend to refinance these obligations prior to maturity. However, we cannot predict our future results of operations and our ability to meet our obligations involves numerous risks and
uncertainties, including, but not limited to, those described in the “Risk Factors” section of our most recent Form 10-K filed with the Securities and Exchange Commission and in this Form 10-Q, if any.
22
Interest Rate Sensitivity
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities. As of December 29, 2018,
our senior secured credit facilities are comprised of (i) $3.6 billion term loans and (ii) a $750 million revolving credit facility with no borrowings 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%, and the margin for the term loans range from 1.75% to 2.00% per annum. As of December 29, 2018,
the LIBOR rate of approximately 2.50% was applicable to the term loans. A 0.25% change in LIBOR would increase our annual interest expense by $5 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. As of December 29, 2018, 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 2.000%, with an effective date in May 2017 and expiration in May 2022 and (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed
annual rate of 2.808% with an effective date in June 2018 and expiration in September 2021.
Foreign Currency Exchange Rates
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the
euro, Brazilian real, Argentine peso, 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 a negative $6 million impact on our annual Net income.
The Company is party to certain cross-currency swap agreements with a notional amount 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 currencies 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.
23
(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 December 29, 2018. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 29, 2018, the design
and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes in internal controls.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 29, 2018 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
Part II. Other Information
There have been no material changes in legal proceedings from the items disclosed in our 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 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. There were not material changes to the Company's risk factors as described in our most recent Form 10-K filed with the Securities and Exchange Commission.
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 acquisitions and integration of acquired businesses;
|
| ● |
reliance on unpatented proprietary 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;
|
| ● |
risk of catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions;
|
| ● |
risks related to market acceptance of our developing technologies and products;
|
| ● |
general business and economic conditions, particularly an economic downturn;
|
| ● |
risks that our restructuring programs may entail greater implementation costs or result in lower cost savings than anticipated;
|
| ● |
ability of our insurance to fully cover potential exposures;
|
| ● |
risks of competition, including foreign competition, in our existing and future markets;
|
| ● |
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 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-Q may not in fact occur. Accordingly, investors should not place undue reliance on those statements. 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.
25
Issuer Repurchases of Equity Securities
In August 2018, the Company announced a $500 million share repurchase program that has no expiration date and may be suspended at any time. The
following table summarizes the Company's repurchases of its common stock during the Quarterly Period ended December 29, 2018.
|
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)
|
||||||||||||
|
Fiscal October
|
212,328
|
$
|
44.02
|
212,328
|
$
|
456
|
||||||||||
|
Fiscal November
|
139,094
|
49.72
|
139,094
|
449
|
||||||||||||
|
Fiscal December
|
781,015
|
47.86
|
781,015
|
412
|
||||||||||||
|
Total
|
1,132,437
|
$
|
47.37
|
1,132,437
|
$
|
412
|
||||||||||
26
|
Exhibit No.
|
Description of Exhibit
|
|
|
31.1*
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
|
|
|
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.
|
Interactive Data Files.
|
| * |
Filed herewith
|
27
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 1, 2019
|
By:
|
/s/ Mark W. Miles
|
|
|
|
|
Mark W. Miles
|
|
|
|
|
Chief Financial Officer
|
|
28
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint