BERRY GLOBAL GROUP, INC.
10-Ks and 10-Qs
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
December 28, 2019
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
Commission File Number
001-35672
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A
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(
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IRS employer identification number
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Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 every Interactive Data File required to be submitted 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.
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Accelerated Filer
☐
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Non-accelerated Filer
☐
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Smaller Reporting Company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
There were
132.4
million shares of common stock outstanding at January 31, 2020.
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, as amended, 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, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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 28, 2019
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Part I.
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Financial Information
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Page No.
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Item 1.
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Financial Statements:
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4
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5
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6
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7
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8
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Item 2.
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18
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Item 3.
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22
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Item 4.
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22
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Part II.
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Other Information
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Item 1.
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23
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Item 1A.
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23
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Item 2.
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23
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Item 6.
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24
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25
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3
| Item 1. |
Financial Statements
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Consolidated Statements of Income
(Unaudited)
(in millions of dollars, except per share amounts)
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Quarterly Period Ended
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December 28, 2019
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December 29, 2018
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|||||||
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Net sales
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$
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$
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Costs and expenses:
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Cost of goods sold
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Selling, general and administrative
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Amortization of intangibles
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Restructuring and transaction activities
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Operating income
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Other expense, net
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Interest expense, net
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Income before income taxes
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Income tax expense
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Net income
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$
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$
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Net income per share:
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Basic
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$
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$
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Diluted
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Outstanding weighted-average shares:
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Basic
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Diluted
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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 28, 2019
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December 29, 2018
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|||||||
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Net income
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$
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$
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Other comprehensive income (loss), net of tax:
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||||||||
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Currency translation
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(
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)
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|||||
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Derivative instruments
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(
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)
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|||||
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Other comprehensive income (loss)
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(
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)
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|||||
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Comprehensive income
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$
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$
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||||
See notes to consolidated financial statements.
4
Consolidated Balance Sheets
(in millions of dollars)
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December 28, 2019
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September 28, 2019
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|||||||
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(Unaudited)
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||||||||
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Assets
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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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$
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||||
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Accounts receivable (less allowance of
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Finished goods
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Raw materials and supplies
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Prepaid expenses and other current assets
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Total current assets
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Noncurrent assets:
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Property, plant, and equipment
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Goodwill and intangible assets
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Right-of-use assets
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Other assets
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Total assets
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$
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$
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Liabilities and stockholders' equity
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||||||||
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Current liabilities:
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Accounts payable
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$
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$
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Accrued employee costs
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Other current liabilities
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Current portion of long-term debt
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Total current liabilities
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Noncurrent liabilities:
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Long-term debt, less current portion
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Deferred income taxes
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Employee benefit obligations
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Operating lease liabilities
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Other long-term liabilities
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Total liabilities
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Stockholders' equity:
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Common stock (
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Additional paid-in capital
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Retained earnings
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Accumulated other comprehensive loss
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(
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)
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(
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Total stockholders' equity
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Total liabilities and stockholders' equity
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$
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$
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||||
See notes to consolidated financial statements.
5
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(in millions of dollars)
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Quarterly Period Ended
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Common Stock
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Additional
Paid-in Capital
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Accumulated Other
Comprehensive Loss
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Retained
Earnings
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Total
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|||||||||||||||
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Balance at September 28, 2019
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$
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$
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$
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(
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)
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$
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$
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|||||||||
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Net income
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Other comprehensive income
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Share-based compensation
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Proceeds from issuance of common stock
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|||||||||||||||
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Adoption of lease accounting standard
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(
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)
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(
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)
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|||||||||||||
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Balance at December 28, 2019
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$
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$
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$
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(
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)
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$
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$
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|||||||||
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Balance at September 29, 2018
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$
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$
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$
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(
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)
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$
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$
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|||||||||
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Net income
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Other comprehensive loss
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(
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)
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(
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)
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Share-based compensation
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Proceeds from issuance of common stock
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Common stock repurchased and retired
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(
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)
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(
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)
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(
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)
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||||||||||||
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Balance at December 29, 2018
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$
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$
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$
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(
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)
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$
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$
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|||||||||
See notes to consolidated financial statements.
6
Consolidated Statements of Cash Flows
(Unaudited)
(in millions of dollars)
|
Quarterly Period Ended
|
||||||||
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December 28, 2019
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December 29, 2018
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|||||||
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Cash Flows from Operating Activities:
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||||||||
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Net income
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$
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$
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||||
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Adjustments to reconcile net cash provided by operating activities:
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||||||||
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Depreciation
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||||||
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Amortization of intangibles
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||||||
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Non-cash interest
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(
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)
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|||||
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Deferred income tax
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(
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)
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|||||
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Share-based compensation expense
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||||||
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Other non-cash operating activities, net
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||||||
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Changes in working capital
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(
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)
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(
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)
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||||
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Changes in other assets and liabilities
|
(
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)
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(
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)
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||||
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Net cash from operating activities
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||||||
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Cash Flows from Investing Activities:
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||||||||
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Additions to property, plant and equipment, net
|
(
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)
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(
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)
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||||
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Net cash from investing activities
|
(
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)
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(
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)
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||||
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Cash Flows from Financing Activities:
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||||||||
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Repayments on long-term borrowings
|
(
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)
|
(
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)
|
||||
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Proceeds from issuance of common stock
|
|
|
||||||
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Repurchase of common stock
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|
(
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)
|
|||||
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Payment of tax receivable agreement
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|
(
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)
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|||||
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Debt financing costs
|
(
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)
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|||||
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Net cash from financing activities
|
(
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)
|
(
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)
|
||||
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Effect of exchange rate changes on cash
|
|
(
|
)
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|||||
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Net change in cash
|
(
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)
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(
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)
|
||||
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Cash and cash equivalents at beginning of period
|
|
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||||||
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Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
See notes to consolidated financial statements.
7
Notes to Consolidated Financial Statements
(Unaudited)
(tables in millions of dollars, except per share data)
1. Basis of Presentation
2. Recent 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 2020, with the exception of the below, there have been no developments to the recently adopted accounting pronouncements from those disclosed in the Company's 2019 Annual Report on Form 10-K that are considered to have a material impact on our unaudited consolidated financial statements.
Leases
Effective September 29, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), including all related amendments, using the modified retrospective approach and recognized the cumulative effect of adoption to retained earnings. Under the new standard, the lessee of an operating lease is required to: 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. See Note 6. Leases for more information.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) and issued subsequent amendments to the initial guidance. The new standard requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which includes historical experience, current conditions, and reasonable and supportable forecasts. The new standard also requires enhanced disclosure. The new standard is effective for interim and annual periods beginning after December 15, 2019. The Company is in the process of evaluating this new standard, however, the Company does not anticipate this to have a material impact.
Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point changes in assumed health care cost trend rates. The standard also adds requirements to disclose the reasons for significant gains and losses related to changes in the benefit obligations for the period and the accumulated benefit obligation ("ABO") for plans with ABOs in excess of plan assets. The new standard will be effective for fiscal years ending after December 15, 2020. The Company is currently evaluating the impact of the adoption of this standard to our disclosures.
Income Taxes
8
3. Revenue and Accounts Receivable
Our revenues are primarily derived from the sale of plastic packaging products to customers. 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 source of variable consideration are customer rebates. The accrual for customer rebates was $
127
million and $
114
million at December 28, 2019 and September 28, 2019, respectively, and is included in Other current liabilities on the Consolidated Balance Sheets. The Company disaggregates revenue based on reportable business segment, geography, and significant product line. Refer to Note 10. Segment and Geographic Data for further information.
The Company has entered into various qualifying factoring agreements to sell certain receivables to third-party financial institutions. The transfer of receivables is accounted for as a sale, without recourse. Net sales available under qualifying U.S. based programs were $
222
million and $
212
million for the three months ended December 28, 2019 and December 29, 2018, respectively. There were
no
amounts outstanding from financial institutions related to these programs. The fees associated with the transfer of receivables for all programs were not material for any of the periods presented.
4. Acquisitions and Dispositions
RPC Group Plc
In July 2019, the Company completed the acquisition of the entire outstanding share capital of RPC Group Plc (“RPC”), for aggregate consideration of $
6.1
billion. RPC is a leading plastic product design and engineering company for packaging and select non-packaging markets, with
189
sites in
34
countries. RPC develops and manufactures a diverse range of products for a wide variety of customers, including many household names, and enjoys strong market positions in many of the end markets it serves and the geographical areas in which it operates. It uses a wide range of polymer conversion techniques in both rigid and flexible plastics manufacture, and is one of the largest plastic converters in Europe. The international based facilities are operated within the Consumer Packaging International segment with the remaining U.S. based facilities operated within the Consumer Packaging North America segment. The results of RPC have been included in the consolidated results of the Company since the date of the acquisition.
The acquisition has been accounted for under the purchase method of accounting. Under this method, the assets acquired and liabilities assumed have been recorded based on preliminary estimates of fair value. The preliminary fair value estimates were determined based on our historical acquisition experience. The final purchase accounting allocations for the RPC acquisition will depend on a number of factors, including the final valuation of our long-lived tangible and identified intangible assets acquired and liabilities assumed, and finalization of income tax effects of the opening balance sheet. The actual fair values of RPC’s assets acquired, liabilities assumed and resulting goodwill may differ materially once finalized. The preliminary estimated fair value of assets acquired and liabilities assumed consisted of working capital of $
700
million, property and equipment of $
2,375
million, intangible assets of $
1,712
million, goodwill of $
2,205
million and other assets and long-term liabilities of $
922
million. The working capital includes a $
39
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 partially deductible for tax purposes.
To finance the purchase, the Company issued $
1,250
million aggregate principal amount of
4.875
% first priority senior secured notes due 2026, $
500
million aggregate principal amount of
5.625
% second priority senior secured notes due 2027, and entered into incremental term loans due July 2026, to fund the remainder of the purchase price.
When including RPC results for the periods prior to the acquisition date, unaudited pro forma net sales and net income were $
3.2
billion and $
97
million, respectively, for the quarterly period ended December 29, 2018. The unaudited pro forma net sales and net income assume that the RPC acquisition had occurred as of the beginning of the period.
Seal For Life
In July 2019, the Company completed the sale of its Seal For Life ("SFL") business which was operated in our Health, Hygiene & Specialties reporting segment for net proceeds of $
325
million. SFL recorded $
96
million in net sales during fiscal 2019.
5. Restructuring and Transaction Activities
|
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Quarterly Period Ended
|
|||||||
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December 28, 2019
|
December 29, 2018
|
|||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Engineered Materials
|
|
|
||||||
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Health, Hygiene & Specialties
|
|
|
||||||
|
Consolidated
|
$
|
|
$
|
|
||||
9
|
|
Restructuring
|
|||||||||||||||||||
|
Employee Severance
and Benefits
|
Facility
Exit Costs
|
Non-cash
Impairment Charges
|
Transaction
Activities
|
Total
|
||||||||||||||||
|
Balance at September 28, 2019
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Charges
|
|
|
|
|
|
|||||||||||||||
|
Non-cash asset impairment
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||
|
Cash payments
|
(
|
)
|
|
|
(
|
)
|
(
|
)
|
||||||||||||
|
Balance at December 28, 2019
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
6. Leases
During the first quarter of fiscal 2020, the Company adopted ASU 2016-02, Leases (Topic 842). The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles.
Under the new standard, we recognize right-of-use assets and lease liabilities for leases with original lease terms greater than one year based on the present value of lease payments over the lease term using our incremental borrowing rate on a collateralized basis. Short-term leases, with original lease terms of less than one year, are not recognized on the balance sheet. We are party to certain leases, namely for manufacturing facilities, which offer renewal options to extend the original lease term. Renewal options are included in the right-of-use asset and lease liability based on our assessment of the probability that the options will be exercised.
We have elected the package of practical expedients which allows the Company to not reassess: (i) whether any expired or existing contracts are or contain leases (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. Additionally, we have elected the practical expedient to not separate lease and non-lease components for all asset classes.
|
Leases
|
Classification
|
December 28, 2019
|
|||
|
Assets
|
|||||
|
Operating lease right-of-use assets
|
Right-of-use assets
|
$
|
|
||
|
Finance lease right-of-use assets
|
Property, plant, and equipment
|
|
|||
|
Current liabilities
|
|||||
|
Operating lease liabilities
|
Other current liabilities
|
$
|
|
||
|
Finance lease liabilities
|
Current portion of long-term debt
|
|
|||
|
Non-current liabilities
|
|||||
|
Operating lease liabilities
|
Operating lease liabilities
|
$
|
|
||
|
Finance lease liabilities
|
Long-term debt, less current portion
|
|
|||
|
Lease cost
|
Quarterly Period Ended
December 28, 2019
|
|||
|
Operating lease cost
|
$
|
|
||
|
Finance lease cost:
|
||||
|
Amortization of right-of-use assets
|
|
|||
|
Interest on lease liabilities
|
|
|||
|
Total finance lease cost
|
|
|||
|
Short-term lease cost
|
|
|||
|
Total lease cost
|
$
|
|
||
|
Cash paid for amounts included in lease liabilities
|
Quarterly Period Ended
December 28, 2019
|
|||
|
Operating cash flows from operating leases
|
$
|
|
||
|
Operating cash flows from finance leases
|
|
|||
|
Financing cash flows from finance leases
|
|
|||
|
|
December 28, 2019
|
|||
|
Weighted-average remaining lease term - operating leases
|
|
|||
|
Weighted-average remaining lease term - finance leases
|
|
|||
|
Weighted-average discount rate - operating leases
|
|
%
|
||
|
Weighted-average discount rate - finance leases
|
|
%
|
||
10
|
Fiscal Year
|
Operating Leases
|
Finance Leases
|
||||||
|
Remainder of 2020
|
$
|
|
$
|
|
||||
|
2021
|
|
|
||||||
|
2022
|
|
|
||||||
|
2023
|
|
|
||||||
|
2024
|
|
|
||||||
|
Thereafter
|
|
|
||||||
|
Total lease payments
|
|
|
||||||
|
Less: Interest
|
(
|
)
|
(
|
)
|
||||
|
Present value of lease liabilities
|
$
|
|
$
|
|
||||
7. Long-Term Debt
Long-term debt consists of the following:
|
Facility
|
Maturity Date
|
December 28, 2019
|
September 28, 2019
|
||||||
|
Term loan
|
October 2022
|
$
|
|
$
|
|
||||
|
Term loan
|
January 2024
|
|
|
||||||
|
Term loan
|
July 2026
|
|
|
||||||
|
Term loan - euro denominated
|
July 2026
|
|
|
||||||
|
Revolving line of credit
|
May 2024
|
|
|
||||||
|
|
May 2022
|
|
|
||||||
|
|
October 2022
|
|
|
||||||
|
|
July 2023
|
|
|
||||||
|
|
February 2026
|
|
|
||||||
|
|
July 2026
|
|
|
||||||
|
|
July 2027
|
|
|
||||||
|
Debt discounts and deferred fees
|
(
|
)
|
(
|
)
|
|||||
|
Finance leases and other
|
Various
|
|
|
||||||
|
Total long-term debt
|
|
|
|||||||
|
Current portion of long-term debt
|
(
|
)
|
(
|
)
|
|||||
|
Long-term debt, less current portion
|
$
|
|
$
|
|
|||||
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, net on the Consolidated Statements of Income through maturity.
8. Financial Instruments and Fair Value Measurements
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. The Company may use derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes.
Cross-Currency Swaps
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€
250
million) and June 2024 (€
1,625
million and £
700
million). In addition to the cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of December 28, 2019, we had outstanding long-term debt of €
1,072
million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries. When valuing cross-currency swaps the Company utilizes Level 2 inputs (substantially observable).
Interest Rate Swaps
The primary purpose of the Company’s interest rate swap activities is to manage interest expense variability associated with our outstanding variable rate term loan debt. When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).
11
As of December 28, 2019, 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 expiration in May 2022, (ii) a $
1
billion interest rate swap transaction that swaps a
one-month
variable LIBOR contract for a fixed annual rate of
2.808
% with an expiration in September 2021, (iii) a $
400
million interest rate swap transaction that swaps a
one-month
variable LIBOR contract for a fixed annual rate of
2.533
% with an expiration in July 2023, (iv) a $
884
million interest rate swap transaction that swaps a
one-month
variable LIBOR contract for a fixed annual rate of
1.857
%, with an expiration in June 2024, and (v) a $
473
million interest rate swap transaction that swaps a
one-month
variable LIBOR contract for a fixed annual rate of
2.050
%, with an expiration in June 2024.
|
Derivative Instruments
|
Hedge Designation
|
Balance Sheet Location
|
December 28, 2019
|
September 28, 2019
|
||||||
|
Cross-currency swaps
|
Designated
|
Other assets
|
$
|
|
$
|
|
||||
|
Cross-currency swaps
|
Designated
|
Other long-term liabilities
|
|
|
||||||
|
Interest rate swaps
|
Designated
|
Other long-term liabilities
|
|
|
||||||
|
|
Quarterly Period Ended
|
||||||||
|
Derivative Instruments
|
Statements of Income Location
|
December 28, 2019
|
December 29, 2018
|
||||||
|
Cross-currency swaps
|
Interest expense, net
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Interest rate swaps
|
Interest expense, net
|
|
(
|
)
|
|||||
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 2019 assessment. No impairment indicators were identified in the current quarter.
|
|
As of December 28, 2019
|
|||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Impairment
|
||||||||||||||||
|
Indefinite-lived trademarks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Goodwill
|
|
|
|
|
|
|||||||||||||||
|
Definite lived intangible assets
|
|
|
|
|
|
|||||||||||||||
|
Property, plant, and equipment
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
|
As of September 28, 2019
|
|||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Impairment
|
||||||||||||||||
|
Indefinite-lived trademarks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Goodwill
|
|
|
|
|
|
|||||||||||||||
|
Definite lived intangible assets
|
|
|
|
|
|
|||||||||||||||
|
Property, plant, and equipment
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
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 fair value of our marketable long-term indebtedness exceeded book value by $
167
million as of December 28, 2019. The Company's long-term debt fair values were determined using Level 2 inputs as other significant observable inputs were not available.
12
9. Income Taxes
The effective tax rate was
31
% for the quarter and was negatively impacted by
4
% from foreign rate differential,
3
% from uncertain tax positions recognized in the quarter, and other discrete items.
10. Segment and Geographic Data
The Company's operations are organized into
four
reporting segments:
Consumer Packaging International, Consumer Packaging North America, Engineered Materials, and Health, Hygiene & Specialties. The structure is designed to align us with our customers, provide optimal service, drive future growth, and to facilitate synergies realization.
|
|
Quarterly Period Ended
|
|||||||
|
December 28, 2019
|
December 29, 2018
|
|||||||
|
Net sales:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Engineered Materials
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Total net sales
|
$
|
|
$
|
|
||||
|
Operating income:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Engineered Materials
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Total operating income
|
$
|
|
$
|
|
||||
|
Depreciation and amortization:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Engineered Materials
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Total depreciation and amortization
|
$
|
|
$
|
|
||||
|
|
Quarterly Period Ended
|
|||||||
|
December 28, 2019
|
December 29, 2018
|
|||||||
|
Net sales:
|
||||||||
|
United States & Canada
|
$
|
|
$
|
|
||||
|
Europe
|
|
|
||||||
|
Rest of world
|
|
|
||||||
|
Total net sales
|
$
|
|
$
|
|
||||
|
|
Quarterly Period Ended
|
|||||||
|
December 28, 2019
|
December 29, 2018
|
|||||||
|
Net sales:
|
||||||||
|
Packaging
|
|
|
||||||
|
Non-packaging
|
|
|
||||||
|
Consumer Packaging International
|
|
%
|
|
%
|
||||
|
Rigid Open Top
|
|
|
||||||
|
Rigid Closed Top
|
|
|
||||||
|
Consumer Packaging North America
|
|
%
|
|
%
|
||||
|
Core Films
|
|
|
||||||
|
Retail & Industrial
|
|
|
||||||
|
Engineered Materials
|
|
%
|
|
%
|
||||
|
Health
|
|
|
||||||
|
Hygiene
|
|
|
||||||
|
Specialties
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
%
|
|
%
|
||||
13
11. Contingencies and Commitments
The Company is party to various legal proceedings involving routine claims which are incidental to its business. Although the Company's legal and financial liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate liability would not be material to our financial statements.
The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of business.
12. Share Repurchase Program
13. 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 28, 2019,
7.2
million shares were excluded from the diluted net income per share calculation as their effect would be anti-dilutive.
|
|
Quarterly Period Ended
|
|||||||
|
(in millions, except per share amounts)
|
December 28, 2019
|
December 29, 2018
|
||||||
|
Numerator
|
||||||||
|
Consolidated net income
|
$
|
|
$
|
|
||||
|
Denominator
|
||||||||
|
Weighted average common shares outstanding - basic
|
|
|
||||||
|
Dilutive shares
|
|
|
||||||
|
Weighted average common and common equivalent shares outstanding - diluted
|
|
|
||||||
|
Per common share income
|
||||||||
|
Basic
|
$
|
|
$
|
|
||||
|
Diluted
|
$
|
|
$
|
|
||||
14. Accumulated Other Comprehensive Loss
|
Quarterly Period Ended
|
Currency
Translation
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
Derivative
Instruments
|
Accumulated Other
Comprehensive Loss
|
||||||||||||
|
Balance at September 28, 2019
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income before reclassifications
|
|
|
|
|
||||||||||||
|
Net amount reclassified from accumulated other comprehensive loss
|
|
|
|
|
||||||||||||
|
Provision for income taxes
|
|
|
(
|
)
|
|
|||||||||||
|
Balance at December 28, 2019
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
|
Currency
Translation
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
Derivative
Instruments
|
Accumulated Other
Comprehensive Loss
|
||||||||||||
|
Balance at September 29, 2018
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Other comprehensive loss before reclassifications
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Net amount reclassified from accumulated other comprehensive loss
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Provision for income taxes
|
|
|
|
|
||||||||||||
|
Balance at December 29, 2018
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
14
15. 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.
|
|
Quarterly Period Ended December 28, 2019
|
|||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
Net sales
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Cost of goods sold
|
|
|
|
|
|
|
||||||||||||||||||
|
Selling, general and administrative
|
|
|
|
|
|
|
||||||||||||||||||
|
Amortization of intangibles
|
|
|
|
|
|
|
||||||||||||||||||
|
Restructuring and transaction activities
|
|
|
|
|
|
|
||||||||||||||||||
|
Operating income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other expense (income), net
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||
|
Interest expense, net
|
|
|
|
|
|
|
||||||||||||||||||
|
Equity in net income of subsidiaries
|
(
|
)
|
(
|
)
|
|
|
|
|
||||||||||||||||
|
Income before income taxes
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Income tax expense
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Comprehensive net income
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
|
|
Quarterly Period Ended December 29, 2018
|
|||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
Net sales
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Cost of goods sold
|
|
|
|
|
|
|
||||||||||||||||||
|
Selling, general and administrative
|
|
|
|
|
|
|
||||||||||||||||||
|
Amortization of intangibles
|
|
|
|
|
|
|
||||||||||||||||||
|
Restructuring and transaction activities
|
|
|
|
|
|
|
||||||||||||||||||
|
Operating income (loss)
|
|
|
|
|
|
|
||||||||||||||||||
|
Other income, net
|
|
|
|
(
|
)
|
|
|
|||||||||||||||||
|
Interest expense, net
|
|
|
|
|
|
|
||||||||||||||||||
|
Equity in net income of subsidiaries
|
(
|
)
|
(
|
)
|
|
|
|
|
||||||||||||||||
|
Income before income taxes
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Income tax expense
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Comprehensive net income
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||
15
Condensed Supplemental Consolidated Balance Sheets
|
|
December 28, 2019
|
|||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
Current assets
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Intercompany receivable
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Property, plant, and equipment
|
|
|
|
|
|
|
||||||||||||||||||
|
Other assets
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Current liabilities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Intercompany payable
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Other long-term liabilities
|
|
|
|
|
|
|
||||||||||||||||||
|
Stockholders' equity
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Total liabilities and stockholders' equity
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
|
September 28, 2019
|
|||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
Current assets
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Intercompany receivable
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Property, plant and equipment
|
|
|
|
|
|
|
||||||||||||||||||
|
Other assets
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Current liabilities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Intercompany payable
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Other long-term liabilities
|
|
|
|
|
|
|
||||||||||||||||||
|
Stockholders' equity
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Total liabilities and stockholders' equity
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
16
Condensed Supplemental Consolidated Statements of Cash Flows
|
|
Quarterly Period Ended December 28, 2019
|
|||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
Cash Flow from Operating Activities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Cash Flow from Investing Activities
|
||||||||||||||||||||||||
|
Additions to property, plant, and equipment
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
(Contributions) distributions to/from subsidiaries
|
(
|
)
|
|
|
|
|
|
|||||||||||||||||
|
Acquisition of business
|
|
|
|
|
|
|
||||||||||||||||||
|
Divestiture of business
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Intercompany advances (repayments)
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Net cash from investing activities
|
(
|
)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Cash Flow from Financing Activities
|
||||||||||||||||||||||||
|
Repayments on long-term borrowings
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
||||||||||||||||||
|
Debt financing costs
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Changes in intercompany balances
|
|
|
(
|
)
|
(
|
)
|
|
|
||||||||||||||||
|
Net cash from financing activities
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
||||||||||||||||||
|
Net change in cash
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
|
Quarterly Period Ended December 29, 2018
|
|||||||||||||||||||||||
|
Parent
|
Issuer
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Eliminations
|
Total
|
|||||||||||||||||||
|
Cash Flow from Operating Activities
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||
|
Cash Flow from Investing Activities
|
||||||||||||||||||||||||
|
Additions to property, plant, and equipment
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
(Contributions) distributions to/from subsidiaries
|
|
(
|
)
|
|
|
|
|
|||||||||||||||||
|
Intercompany advances (repayments)
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Net cash from investing activities
|
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Cash Flow from Financing Activities
|
||||||||||||||||||||||||
|
Repayments on long-term borrowings
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
|
|
|
(
|
)
|
||||||||||||||||
|
Payment of tax receivable agreement
|
(
|
)
|
|
|
|
|
(
|
)
|
||||||||||||||||
|
Changes in intercompany balances
|
|
|
(
|
)
|
|
|
|
|||||||||||||||||
|
Net cash from financing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||
|
Effect of exchange rate changes on cash
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Net change in cash
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
16. Subsequent Events
In January 2020, the Company (i) issued €
700
million aggregate principal amount of
1.00
% first priority senior secured notes due 2025 and €
375
million aggregate principal amount of
1.50
% first priority senior secured notes due 2027 (the “Euro Notes”) and (ii) refinanced its existing $
4.25
billion Term loan maturing in July 2026, resulting in a
50
basis point interest rate reduction. The proceeds of the Euro Notes were used to prepay the entire outstanding amount of our existing euro denominated Term loan.
17
The following discussion should be read in conjunction with the consolidated financial statements of Berry Global Group, Inc. and its subsidiaries and the accompanying notes thereto, which information is included elsewhere herein. 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 under the section titled “Risk Factors”. Our actual results may differ materially from those contained in any forward-looking statements. Segment level discussion of the results is disclosed in a manner consistent with the organization structure at the end of the presented period
. Fiscal
2019
and fiscal
2020
are fifty-two week periods.
Executive Summary
Business.
The Company's operations are organized into four reporting segments: Consumer Packaging International, Consumer Packaging North America, Engineered Materials and Health, Hygiene & Specialties. The structure is designed to align us with our customers, provide optimal service, drive future growth, and to facilitate synergies realization. The Consumer Packaging International segment primarily consists of containers, closures, dispensing systems, pharmaceutical devices and packaging, polythene films, and technical components and includes the international portion of the recently acquired RPC Group Plc (“RPC”) business. The Consumer Packaging North America segment primarily consists of containers, foodservice items, closures, overcaps, bottles, prescription vials, and tubes. The Engineered Materials segment primarily consists of tapes and adhesives, polyethylene-based film products, can liners, 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.
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 estimate the synergy realization based on the overall segment profitability post integration.
RPC Group Plc
In July 2019, the Company completed the acquisition of RPC for aggregate consideration of $6.1 billion. RPC is a leading plastic product design and engineering company for packaging and select non-packaging markets, with 189 sites in 34 countries. RPC develops and manufactures a diverse range of products for a wide variety of customers, including many household names, and enjoys strong market positions in many of the end markets it serves and the geographical areas in which it operates. It uses a wide range of polymer conversion techniques and is also one of the largest plastic recyclers in Europe. The international based facilities are operated within the Consumer Packaging International segment with the remaining U.S. based facilities operated within the Consumer Packaging North America segment. The Company expects to realize annual cost synergies of $150 million of which an estimated $75 million is expected to be realized in fiscal 2020. See Note 4 to the Consolidated Financial Statements for further details on the acquisition of RPC.
Seal For Life
In July 2019, the Company completed the sale of our Seal For Life ("SFL") business which was operated in our Health, Hygiene & Specialties segment for net proceeds of $325 million. SFL recorded $96 million in net sales during fiscal 2019.
Raw Material Trends.
Our primary raw material is plastic resin. Polypropylene and polyethylene account for approximately 90% of our plastic resin pounds purchased. The three month simple average price per pound, as published by U.S. market indices, were as follows:
|
Polyethylene Butene Film
|
Polypropylene
|
|||||||||||||||||||||||
|
2020
|
2019
|
2018
|
2020
|
2019
|
2018
|
|||||||||||||||||||
|
1st quarter
|
$
|
.58
|
$
|
.64
|
$
|
.68
|
$
|
.58
|
$
|
.76
|
$
|
.71
|
||||||||||||
|
2nd quarter
|
—
|
.61
|
.69
|
—
|
.63
|
.75
|
||||||||||||||||||
|
3rd quarter
|
—
|
.63
|
.68
|
—
|
.62
|
.76
|
||||||||||||||||||
|
4th quarter
|
—
|
.59
|
.66
|
—
|
.62
|
.85
|
||||||||||||||||||
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 and competitor behaviors related to passing through raw material cost changes could affect our results as plastic resin costs fluctuate.
18
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. By providing advantaged products in targeted markets, we believe our Consumer Packaging business will continue to grow and our Engineered Materials and Health, Hygiene, & Specialties segments, will return to positive volumes in fiscal 2020. Furthermore, major investments in polyethylene and polypropylene globally should benefit the Company over the long-term. For fiscal 2020, we project cash flow from operations and free cash flow of $1,400 million and $800 million, respectively. The $800 million of free cash flow includes $600 million of capital spending, cash taxes of $160 million, cash interest costs of $500 million, and other cash uses of $90 million related to changes in working capital, acquisition integration expenses and costs to achieve synergies. For the definition of free cash flow and further information related to free cash flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.”
Results of Operations
Comparison of the Quarterly Period Ended December 28, 2019 (the "Quarter") and the Quarterly Period Ended December 29, 2018 (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
|
$
|
2,816
|
$
|
1,972
|
$
|
844
|
43
|
%
|
||||||||
|
Operating income
|
$
|
199
|
$
|
176
|
$
|
23
|
13
|
%
|
||||||||
|
Operating income percentage of net sales
|
7
|
%
|
9
|
%
|
||||||||||||
The net sales growth is primarily attributed to acquisition net sales of $1,080 million partially offset by prior period divestiture sales of $28 million and lower selling prices of $183 million due to the pass through of lower resin costs.
The operating income increase is primarily attributed to acquisition operating income of $45 million and an $8 million decrease in depreciation and amortization. These improvements were partially offset by a $20 million negative impact from price cost spread and
$12 million increase in selling, general and administrative expenses primarily
related to increased stock compensation expense attributed to the timing of issuing annual option awards to employees.
|
Consumer Packaging International
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
1,010
|
$
|
51
|
$
|
959
|
1,880
|
%
|
||||||||
|
Operating income
|
$
|
45
|
$
|
4
|
$
|
41
|
1,025
|
%
|
||||||||
|
Operating income percentage of net sales
|
4
|
%
|
8
|
%
|
||||||||||||
The net sales growth in the Consumer Packaging International segment is primarily attributed to acquisition net sales from the RPC acquisition.
The operating income increase is attributed to acquisition operating income from the RPC acquisition.
|
Consumer Packaging North America
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
680
|
$
|
601
|
$
|
79
|
13
|
%
|
||||||||
|
Operating income
|
$
|
49
|
$
|
33
|
$
|
16
|
48
|
%
|
||||||||
|
Operating income percentage of net sales
|
7
|
%
|
5
|
%
|
||||||||||||
The net sales growth in the Consumer Packaging North America segment is primarily attributed to acquisition net sales of $116 million related to the U.S. portion of the acquired RPC business and a 3% base volume improvement partially offset by
lower selling prices of $55 million due to the pass through of lower resin costs.
The operating income increase is primarily attributed to acquisition operating income of $11 million and
$9 million from positive price cost spread, partially offset by a
$4 million increase in selling, general and administrative expenses.
19
|
Engineered Materials
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
585
|
$
|
661
|
$
|
(76
|
)
|
(11
|
%)
|
|||||||
|
Operating income
|
$
|
70
|
$
|
93
|
$
|
(23
|
)
|
(25
|
%)
|
|||||||
|
Operating income percentage of net sales
|
12
|
%
|
14
|
%
|
||||||||||||
The net sales decline in the Engineered Materials segment is primarily attributed to lower selling prices of $61 million due to the pass through of lower resin costs and a 3% base volume decline due to softness in core films.
The operating income decrease is primarily attributed to a $18 million unfavorable impact from price cost spread and a $4 million impact from the base volume decline.
|
Health, Hygiene & Specialties
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
541
|
$
|
659
|
$
|
(118
|
)
|
(18
|
%)
|
|||||||
|
Operating income
|
$
|
35
|
$
|
46
|
$
|
(11
|
)
|
(24
|
%)
|
|||||||
|
Operating income percentage of net sales
|
6
|
%
|
7
|
%
|
||||||||||||
The net sales decline in the Health, Hygiene & Specialties segment is primarily attributed to lower selling prices of $67 million due to the pass through of lower resin costs, prior quarter sales of $28 million related to the divested SFL business and a $19 million decline as the result of a customer product transition.
The operating income decrease is primarily attributed to an $11 million unfavorable impact from price cost spread, prior quarter operating income of $9 million related to the divested SFL business, and a
$6 million increase in selling, general and administrative expenses. These negatives were
partially offset by an $8 million decline in business integration costs and a $7 million decrease in depreciation and amortization.
|
Other expense, net
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Other expense, net
|
$
|
13
|
$
|
—
|
$
|
13
|
N/A
|
|||||||||
The other expense
increase
is primarily attributed to
foreign currency changes related to the remeasurement of non-operating intercompany balances.
|
Interest expense, net
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Interest expense, net
|
$
|
118
|
$
|
64
|
$
|
54
|
84
|
%
|
||||||||
The interest expense increase is primarily attributed to the incremental debt facilities entered into as part of the RPC acquisition.
|
Income tax expense
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Income tax expense
|
$
|
21
|
$
|
24
|
$
|
(3
|
)
|
(13
|
%)
|
|||||||
The effective tax rate was 31% for the quarter and was negatively impacted by 4% from foreign rate differential, 3% from uncertain tax positions recognized in the quarter, and other discrete items.
Changes in Comprehensive Income
The $
85
million increase in Comprehensive income from Prior Quarter is primarily attributed to a $
71
million increase in currency translation and a $
30
million favorable change in the fair value of derivative instruments, net of tax, partially offset by a $
41
million
decline
in Net income. Currency translation changes are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. Dollar whereby assets and liabilities are translated from the respective functional currency into U.S. Dollars using period-end exchange rates. The change in currency translation was primarily attributed to locations utilizing the Euro, British pound sterling, Canadian Dollar and Chinese Renminbi 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
2020
versus fiscal
2019
is primarily attributed to a change in the forward interest curve between measurement dates.
20
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 $850 million asset-based revolving line of credit that matures in May 2024. 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.
Cash Flows
Net cash from operating activities increased $57 million from the Prior Quarter primarily attributed to improved net income before non-cash activities related to the RPC acquisition.
Net cash used in investing activities increased $73 million from the Prior Quarter primarily attributed to increased capital expenditures as a result of the recent RPC acquisition.
Net cash used in financing activities decreased $9 million from the Prior Quarter primarily attributed to lower share repurchases and tax receivable agreement payments; partially offset by higher debt repayments.
Share Repurchases
No shares were repurchased during the quarter. Authorized share repurchases of
$
393
million remain available to the Company.
Free Cash Flow
We define "free cash flow" as cash flow from operating activities less net additions to property, plant and equipment.
Based on our definition, our consolidated free cash flow is summarized as follows:
|
Quarterly Period Ended
|
||||
|
December 28, 2019
|
||||
|
Cash flow from operating activities
|
$
|
218
|
||
|
Additions to property, plant and equipment, net
|
(148
|
)
|
||
|
Free cash flow
|
$
|
70
|
||
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"). 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 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, 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. 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 28, 2019, our cash balance was $673 million, of which approximately 80% 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.
21
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities. Our senior secured credit facilities are comprised of (i) $7.4 billion term loans and (ii) a $850 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 1.50%, and the margin for term loans is 2.00% per annum. As of period end, the LIBOR rate of approximately 1.80% was applicable to the term loans. A 0.25% change in LIBOR would increase our annual interest expense by $11 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. At period end, 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 expiration in May 2022, (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.808% with an expiration in September 2021, (iii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.533% with an expiration in July 2023, (iv) a $884 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.857%, with an expiration in June 2024, and (v) a $473 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.050%, with an expiration in June 2024.
Foreign Currency Risk
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, British pound sterling, Brazilian real, Chinese renminbi, Canadian dollar and Mexican peso. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses. Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates and impact our Comprehensive income. A 10% decline in foreign currency exchange rates would have had an immaterial impact on our Net income for the three months ended December 28, 2019.
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€250 million) and June 2024 (€1,625 million and £700 million). In addition to the cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of December 28, 2019, we had outstanding long-term debt of €1,072 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries.
(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. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes in internal controls.
The Company is in the process of implementing our standardized control procedures within RPC and expects this to be completed during fiscal 2020.
There were no changes in our internal control over financial reporting that occurred during the quarter ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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. Except as set forth below, 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:
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risks associated with our substantial indebtedness and debt service;
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changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices to our customers on a timely basis;
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risks related to acquisitions or divestitures and integration of acquired businesses and their operations, and realization of anticipated cost savings and synergies;
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risk related to international business, including foreign currency exchange rate risk and the risks of compliance with applicable export controls, sanctions, anti-corruption laws and regulations;
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uncertainty regarding the United Kingdom’s withdrawal from the European Union and the outcome of future arrangements between the United Kingdom and the European Union;
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reliance on unpatented proprietary know-how and trade secrets;
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the phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate or modification of the method used to calculate LIBOR, which may adversely affect interest rates;
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increases in the cost of compliance with laws and regulations, including environmental, safety, anti-plastic legislation, production and product laws and regulations;
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employee shutdowns or strikes or the failure to renew effective bargaining agreements;
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risks related to disruptions in the overall economy and the financial markets that may adversely impact our business;
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risk of catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions;
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risks related to the failure of, inadequacy of, or attacks on our information technology systems and infrastructure;
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risks related to market acceptance of our developing technologies and products;
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general business and economic conditions, particularly an economic downturn;
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risks that our restructuring programs may entail greater implementation costs or result in lower cost savings than anticipated;
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ability of our insurance to fully cover potential exposures;
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risks related to future write-offs of substantial goodwill;
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risks of competition, including foreign competition, in our existing and future markets;
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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
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the other factors discussed in our most recent Form 10-K and in this Form 10-Q in the section titled "Risk Factors."
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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.
Issuer Repurchases of Equity Securities
During the quarter, the Company did not repurchase any shares. As of December 28, 2019, $393 million of authorized shares remained available to purchase under the program.
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Exhibit No.
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Description of Exhibit
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4.1
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Indenture, among Berry Global, Inc., certain guarantors party thereto, U.S. Bank National Association, as Trustee and Collateral Agent, and Elavon Financial Services DAC, as Paying Agent, Transfer Agent and Registrar, relating to the 1.00% First Priority Senior Secured Notes due 2025 and 1.50% First Priority Senior Secured Notes due 2027, dated January 2, 2020
(incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on January 2, 2020).
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10.1*
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31.1
*
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
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31.2
*
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
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32.1
*
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Section 1350 Certification of the Chief Executive Officer.
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32.2
*
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Section 1350 Certification of the Chief Financial Officer.
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101.INS
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Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
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101.SCH
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Inline XBRL Taxonomy Extension Schema Document.
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101.CAL
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Inline XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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Inline XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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Inline XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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104
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Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).
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Filed herewith
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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.
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Berry Global Group, Inc.
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January 31, 2020
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By:
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/s/ Mark W. Miles
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Mark W. Miles
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Chief Financial Officer
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TABLE OF CONTENTS
Part IprintItem 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