BERRY GLOBAL GROUP, INC.
10-Qs and 10-Ks
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 31, 2022
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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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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
121.4
million shares of common stock
outstanding at February 2, 2023.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in Berry Global Group, Inc.’s filings with
the U.S. Securities and Exchange Commission (the “SEC”) and press releases or other public statements contains or may contain forward-looking statements.
This report includes “forward-looking” statements with respect to our financial
condition, results of operations and business and our expectations or beliefs concerning future events. These statements contain words such as “believes,” “expects,” “may,” “will,” “should,” “would,” “could,” “seeks,” “approximately,” “intends,”
“plans,” “estimates,” “project,” “outlook,” “anticipates” or “looking forward” or similar expressions that relate to our strategy, plans, intentions, or expectations. All statements we make relating to our estimated and projected earnings, margins,
costs, expenditures, cash flows, growth rates, and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public
statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially
from those that we expected. All forward-looking statements are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise,
except as otherwise required by law.
Additionally, we caution readers that the list of important factors discussed
in our most
recent Form 10-K in the section titled “Risk Factors”
may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements
contained in this report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.
Form 10-Q Index
For Quarterly Period Ended December 31, 2022
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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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14
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Item 3.
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18
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Item 4.
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18
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Part II.
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Other Information
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Item 1.
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19
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Item 1A.
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19
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Item 2.
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19
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Item 6.
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20
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21
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| 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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||||||||
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December 31, 2022
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January 1, 2022
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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
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Interest expense
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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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||||||||
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Basic
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$
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$
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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 31, 2022
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January 1, 2022
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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, 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
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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.
Consolidated Balance Sheets
(in millions of dollars)
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December 31, 2022
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October 1, 2022
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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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Accounts receivable
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||||||
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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
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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.
Consolidated Statements of Cash Flows
(Unaudited)
(in millions of dollars)
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Quarterly Period Ended
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December 31, 2022
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January 1, 2022
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Cash Flows from Operating Activities:
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Net income
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$
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$
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Adjustments to reconcile net cash from operating activities:
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Depreciation
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Amortization of intangibles
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Non-cash interest (income) expense, net
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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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)
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Share-based compensation expense
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Other non-cash operating activities, net
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(
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)
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(
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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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Changes in other assets and liabilities
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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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(
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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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Net cash from investing activities
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(
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(
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Cash Flows from Financing Activities:
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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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)
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Dividends paid
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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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)
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Effect of currency translation on cash
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(
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)
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Net change in cash and cash equivalents
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(
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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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Cash and cash equivalents at end of period
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$
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$
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||||
See notes to consolidated financial statements.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in millions of dollars)
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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 October 1, 2022
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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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|||||||||||||||
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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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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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Dividends paid
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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 31, 2022
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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 October 2, 2021
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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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|||||||||||||||
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Other comprehensive income
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|||||||||||||||
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Share-based compensation
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|||||||||||||||
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Proceeds from issuance of common stock
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|||||||||||||||
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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 January 1, 2022
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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.
Notes to Consolidated Financial Statements
(Unaudited)
(tables in millions of dollars, except per share data)
1. Basis of Presentation
2.
Recent Accounting Pronouncements
Reference Rate Reform
In 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This
standard provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to
alternative reference rates, such as SOFR. In 2022, the FASB issued ASU 2022-06, which deferred the sunset date of Topic 848 to December 31, 2024. The Company is evaluating timing of adoption, but does not expect a material change to our consolidated
financial statements or disclosures.
3. Revenue and Accounts Receivable
Our revenues are primarily derived from the sale of non-woven, flexible and rigid products to customers. Revenue is recognized when performance obligations
are satisfied, in an amount reflecting the consideration to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable
amount, we estimate the amount of 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 is customer rebates.
There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Generally, our revenue is recognized at a point in
time for standard promised goods at the time of shipment, when title and risk of loss pass to the customer.
The accrual for customer rebates was $
111
million and $
103
million at December 31, 2022
and October 1, 2022, 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 9. Segment and Geographic Data for further information.
Accounts receivable are presented net of allowance for credit losses of $
18
million at December 31, 2022 and October 1, 2022. The Company records its current expected credit losses based on a variety of factors including historical loss experience and current customer financial condition. The changes to our current expected credit losses, write-off
activity, and recoveries were not material for any of the periods presented.
The Company has entered into various factoring agreements, including customer-based supply chain financing programs, to sell certain receivables to
third-party financial institutions. Agreements which result in true sales of the transferred receivables, which occur when receivables are transferred without recourse to the Company, are reflected as a reduction of accounts receivable on the
consolidated balance sheets and the proceeds are included in the cash flows from operating activities in the consolidated statements of cash flows. The fees associated with the transfer of receivables for all programs were not material for any of the
periods presented.
4. Restructuring and Transaction Activities
The table below includes the significant components of the restructuring and transaction activities, by reporting
segment:
|
Quarterly Period Ended
|
||||||||
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December 31, 2022
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January 1, 2022
|
|||||||
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Consumer Packaging International
|
$
|
|
$
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|
||||
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Consumer Packaging North America
|
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||||||
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Health, Hygiene & Specialties
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|
(
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)
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|||||
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Engineered Materials
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||||||
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Consolidated
|
$
|
|
$
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|
||||
The table below sets forth the activity with respect to the restructuring and transaction activities accrual at December 31, 2022:
|
Restructuring
|
||||||||||||||||
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Employee Severance
and Benefits
|
Facility
Exit Costs
|
Transaction
Activities
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Total
|
|||||||||||||
|
Balance at October 1, 2022
|
$
|
|
$
|
|
$
|
|
$
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|
||||||||
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Charges
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||||||||||||
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Cash payments
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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 31, 2022
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
5. Leases
The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles.
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.
Supplemental lease information is as follows:
|
Leases
|
Classification
|
December 31, 2022
|
October 1, 2022
|
||||||
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Operating leases:
|
|||||||||
|
Operating lease right-of-use assets
|
|
$
|
|
$
|
|
||||
|
Current operating lease liabilities
|
|
|
|
||||||
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Noncurrent operating lease liabilities
|
|
|
|
||||||
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Finance leases:
|
|||||||||
|
Finance lease right-of-use assets
|
|
$
|
|
$
|
|
||||
|
Current finance lease liabilities
|
|
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|
||||||
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Noncurrent finance lease liabilities
|
|
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|
||||||
|
Quarterly Period Ended
|
||||||||||||
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Lease Type
|
Cash Flow Classification
|
Lease Expense Category
|
December 31, 2022
|
January 1, 2022
|
||||||||
|
Operating
|
Operating
|
Lease cost
|
$
|
|
$
|
|
||||||
|
Finance
|
Operating
|
Interest expense
|
|
|
||||||||
|
Finance
|
Financing
|
-
|
|
|
||||||||
|
Finance
|
-
|
Amortization of right-of-use assets
|
|
|
||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities were $
18
million for the quarterly period ended December 31, 2022.
6. Long-Term Debt
Long-term debt consists of the following:
|
Facility
|
Maturity Date
|
December 31, 2022
|
October 1, 2022
|
||||||
|
Term loan
|
|
$
|
|
|
|||||
|
Revolving line of credit
|
|
|
|
||||||
|
|
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|
||||||
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|
||||||
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||||||
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||||||
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|
||||||
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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
|
$
|
|
|
||||||
| (a) |
|
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.
7.
Financial Instruments and Fair Value Measurements
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. The Company may use
derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes.
Cross-Currency Swaps
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature June 2024 (€
1,625
million) and July 2027 (£
700
million). In
addition to the cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of December 31, 2022, we had outstanding long-term debt of €
785
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).
As of December 31, 2022, 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
4.128
%, with an
expiration in June 2026, (ii) a $
400
million interest rate swap transaction that swaps a
one-month
variable LIBOR contract for a fixed annual rate of
4.117
% with an expiration
in June 2026, (iii) an $
884
million interest rate swap transaction that swaps a
one-month
variable LIBOR contract for a fixed annual rate of
3.573
%, with an
expiration in June 2024, and (iv) a $
473
million interest rate swap transaction that swaps a
one-month
variable LIBOR contract for a fixed annual rate of
4.370
%, with an
expiration in June 2024.
The Company records the fair value positions of all derivative financial instruments on a
net basis by counterparty for which a master netting arrangement is utilized. Balances on a gross basis are as follows:
|
Derivative Instruments
|
Hedge Designation
|
Balance Sheet Location
|
December 31, 2022
|
October 1, 2022
|
||||||
|
Cross-currency swaps
|
Designated
|
Other assets
|
|
|
||||||
|
Cross-currency swaps
|
Designated
|
Other long-term liabilities
|
|
|
||||||
|
Interest rate swaps
|
Designated
|
Other assets
|
|
|
||||||
|
Interest rate swaps
|
Designated
|
Other long-term liabilities
|
|
|
||||||
|
Interest rate swaps
|
Not designated
|
Other long-term liabilities
|
|
|
||||||
The effect of the Company’s derivative instruments, including the amortization of previously settled
swaps, on the Consolidated Statements of Income is as follows:
|
Quarterly Period Ended
|
|||||||||
|
Derivative Instruments
|
Statements of Income Location
|
December 31, 2022
|
January 1, 2022
|
||||||
|
Cross-currency swaps
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Interest rate swaps
|
|
(
|
)
|
|
|||||
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 2022 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 31, 2022 and October 1, 2022, along with the impairment loss recognized on the fair value measurement during the period:
|
As of December 31, 2022
|
||||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Impairment
|
||||||||||||||||
|
Indefinite-lived trademarks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Goodwill
|
|
|
|
|
|
|||||||||||||||
|
Definite lived intangible assets
|
|
|
|
|
|
|||||||||||||||
|
Property, plant, and equipment
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
As of October 1, 2022
|
||||||||||||||||||||
|
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
finance lease obligations. The book value of our marketable long-term indebtedness exceeded fair value by $
405
million as of December 31, 2022. The Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable).
8. Income Taxes
In comparison to the statutory rate, the higher effective tax rate for the quarter was negatively impacted by state taxes and global intangible low-taxed income provisions
due to our geographic mix of earnings.
9. Segment and Geographic Data
The Company’s operations are organized into
four
reporting segments:
Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Engineered Materials. The structure is designed to align us
with our customers, provide improved 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 31, 2022
|
January 1, 2022
|
|||||||
|
Net sales:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Engineered Materials
|
|
|
||||||
|
Total net sales
|
$
|
|
$
|
|
||||
|
Operating income:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Engineered Materials
|
|
|
||||||
|
Total operating income
|
$
|
|
$
|
|
||||
|
Depreciation and amortization:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Engineered Materials
|
|
|
||||||
|
Total depreciation and amortization
|
$
|
|
$
|
|
||||
Selected information by geographical region is presented in the following tables:
|
Quarterly Period Ended
|
||||||||
|
December 31, 2022
|
January 1, 2022
|
|||||||
|
Net sales:
|
||||||||
|
United States and Canada
|
$
|
|
$
|
|
||||
|
Europe
|
|
|
||||||
|
Rest of world
|
|
|
||||||
|
Total net sales
|
$
|
|
$
|
|
||||
10. Contingencies and Commitments
The Company is party to various legal proceedings involving routine claims which are incidental to its business. Although the Company’s legal and financial
liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate liability would not be material to our financial position, results of operations or cash flows.
The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of business.
11.
Basic and Diluted Earnings and Dividends Per Share
Basic net income or earnings per share ("EPS") is calculated by dividing the net income attributable to common stockholders by the weighted-average number of
common shares outstanding during the period, without consideration for common stock equivalents. Diluted EPS includes the effects of options and restricted stock units, if dilutive.
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted EPS calculations:
|
Quarterly Period Ended
|
||||||||
|
(in millions, except per share amounts)
|
December 31, 2022
|
January 1, 2022
|
||||||
|
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 earnings
|
||||||||
|
Basic
|
$
|
|
$
|
|
||||
|
Diluted
|
$
|
|
$
|
|
||||
For the three months ended December 31, 2022 and
January 1, 2022,
5.8
million and
0.9
million shares, respectively, were excluded from the diluted EPS calculation as their effect would be anti-dilutive.
The Company declared and paid dividends of $
0.25
per share for
the three months ended December 31, 2022
.
12. Accumulated Other Comprehensive Loss
The components and activity of Accumulated other comprehensive loss are as follows:
|
Quarterly Period Ended
|
Currency
Translation
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
Derivative
Instruments
|
Accumulated Other
Comprehensive Loss
|
||||||||||||
|
Balance at October 1, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Other comprehensive income before reclassifications
|
|
|
|
|
||||||||||||
|
Net amount reclassified from accumulated other comprehensive loss
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Balance at December 31, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Currency
Translation
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
Derivative
Instruments
|
Accumulated Other
Comprehensive Loss
|
|||||||||||||
|
Balance at October 2, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income before reclassifications
|
(
|
)
|
|
|
|
|||||||||||
|
Net amount reclassified from accumulated other comprehensive loss
|
|
|
|
|
||||||||||||
|
Balance at January 1, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Executive Summary
Business.
The Company’s operations are
organized into four operating segments: Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Engineered Materials. The structure is designed to align us with our customers, provide improved
service, drive future growth, and to facilitate synergies realization. The Consumer Packaging International segment primarily consists of closures and dispensing systems, pharmaceutical devices and packaging, bottles and canisters, and containers.
The Consumer Packaging North America segment primarily consists of containers and pails, foodservice, closures, bottles, prescription vials, and tubes. The Health, Hygiene & Specialties segment primarily consists of healthcare, hygiene,
specialties, and tapes. The Engineered Materials segment primarily consists of stretch and shrink films, converter films, institutional can liners, food and consumer films, retail bags, and agriculture films.
Raw Material Trends.
Our primary raw material is polymer resin. In addition, we use other materials such as butyl rubber, adhesives, paper and packaging materials, linerboard, rayon,
polyester fiber, and foil, in various manufacturing processes. While temporary industry-wide shortages of raw materials have occurred, we have historically been able to manage the supply chain disruption by working closely with our suppliers and
customers. Changes in the price of raw materials are generally passed on to customers through contractual price mechanisms over time, during contract renewals and other means.
Outlook.
The Company is affected by general economic and industrial growth, raw material availability, cost inflation, supply chain disruptions, and general industrial production. Our business has
both geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes to our customers, improve
manufacturing productivity, and adapt to volume changes of our customers. Despite global macro-economic challenges in the short-term attributed to persistent inflation, supply chain disruptions, currency devaluation and general market softness, in
part because of the Russia-Ukraine conflict, we continue to believe our underlying long-term demand fundamental in all divisions will remain strong as we focus on delivering protective solutions that enhance consumer safety and by providing advantaged
products in targeted markets. For fiscal 2023, we project cash flow from operations between $1.4 to $1.5 billion and free cash flow between
$800 million to $900 million. Projected fiscal 2023 free cash flow assumes $600 million of capital spending. 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 31, 2022 (the “Quarter”) and the Quarterly Period Ended January 1, 2022 (the “Prior Quarter”)
Business integration expenses consist of restructuring and impairment charges, divestiture related costs, and other business
optimization costs. Tables present dollars in millions.
|
Consolidated Overview
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
3,060
|
$
|
3,573
|
$
|
(513
|
)
|
(14
|
)%
|
|||||||
|
Cost of goods sold
|
2,542
|
3,038
|
(496
|
)
|
(16
|
)%
|
||||||||||
|
Other operating expenses
|
308
|
306
|
2
|
1
|
%
|
|||||||||||
|
Operating income
|
$
|
210
|
$
|
229
|
$
|
(19
|
)
|
(8
|
)%
|
|||||||
Net Sales: The net sales decline is primarily attributed to a 6% volume decline, decreased selling prices of $143 million, a $108 million unfavorable impact from foreign
currency changes, and Prior Quarter divestiture sales of $39 million. The volume decline is primarily attributed to general market softness and customer destocking as supply chains normalize.
Cost of goods sold:
The cost of goods sold decrease is primarily
attributed to lower raw material prices, the volume decline, foreign currency changes, and Prior Quarter divestiture cost of goods sold.
Operating Income:
The operating income decrease is
primarily attributed to a $33 million unfavorable impact from the volume decline, a $22 million unfavorable impact from foreign currency changes, and Prior Quarter
divestiture operating income of $5 million. These declines are partially offset by a $49 million favorable impact from price cost spread as a result of cost reductions and improved product mix.
|
Consumer Packaging International
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
936
|
$
|
1,056
|
$
|
(120
|
)
|
(11
|
)%
|
|||||||
|
Operating income
|
$
|
47
|
$
|
69
|
$
|
(22
|
)
|
(32
|
)%
|
|||||||
Net Sales:
The net sales decline in the Consumer Packaging International segment is
primarily
attributed to a $65 million unfavorable impact from foreign currency changes, a 5% volume decline, and Prior Quarter divestiture sales of $39 million, partially offset by increased selling prices of $40 million. The volume decline is primarily
attributed to general market softness and product mix.
Operating Income:
The operating income decrease is
primarily attributed to a $16 million unfavorable impact from foreign currency changes and a $10 million unfavorable impact from the volume decline, partially offset by a
favorable impact from price cost spread.
|
Consumer Packaging North America
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
764
|
$
|
852
|
$
|
(88
|
)
|
(10
|
)%
|
|||||||
|
Operating income
|
$
|
71
|
$
|
46
|
$
|
25
|
54
|
%
|
||||||||
Net Sales:
The net sales decline in the Consumer Packaging North America segment is
primarily
attributed to decreased selling prices of $62 million and a 3% volume decline. The volume decline is primarily attributed to general market softness partially offset by growth in the foodservice market.
Operating Income:
The operating income increase is
primarily attributed to a $34 million favorable impact from price cost spread as a result of cost reductions and improved product mix, partially offset by the volume decline
.
|
Health, Hygiene & Specialties
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
663
|
$
|
818
|
$
|
(155
|
)
|
(19
|
)%
|
|||||||
|
Operating income
|
$
|
34
|
$
|
62
|
$
|
(28
|
)
|
(45
|
)%
|
|||||||
Net Sales: The net sales decline in the Health, Hygiene & Specialties segment is primarily attributed to decreased selling prices of $72 million, an 8% volume decline,
and an $18 million unfavorable impact from foreign currency changes. The volume decline is primarily attributed to general market softness in specialties markets and customer destocking as supply chains normalize.
Operating Income:
The operating income decrease is
primarily attributed to a $19 million unfavorable impact from price cost spread and an $8 million decrease from the volume decline.
|
Engineered Materials
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
697
|
$
|
847
|
$
|
(150
|
)
|
(18
|
)%
|
|||||||
|
Operating income
|
$
|
58
|
$
|
52
|
$
|
6
|
12
|
%
|
||||||||
Net Sales: The net sales decline in the Engineered Materials segment is primarily attributed to a 9% volume decline, decreased selling prices of $49 million, and a $25
million unfavorable impact from foreign currency changes. The volume decline is primarily attributed to general market softness in industrial markets and customer destocking as supply chains normalize.
Operating Income:
The operating income increase is
primarily attributed to a $29 million favorable impact from price cost spread and product mix, partially offset by an $11 million decrease from the volume decline, an
increase in business integration expense, and an unfavorable impact from foreign currency changes.
Changes in Comprehensive Income
The $
118
million increase in Comprehensive income from Prior Quarter is primarily attributed to a $
163
million increase in currency translation, partially offset by a $
15
million
decline
in Net income and a $
30
million favorable change in the fair value of derivative instruments, net of tax. 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
and British pound sterling 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
2023
versus fiscal
2022
is primarily attributed to a change in the forward interest and foreign exchange curves between measurement dates.
Liquidity and Capital Resources
Senior Secured Credit Facility
We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic
location of our liquidity needs, and (iii) the cost to access international cash balances. At the end of the Quarter, the Company had no outstanding balance on its $1,050 million asset-based revolving line of credit that matures in May 2024. The Company was in compliance with all covenants at the end of the Quarter.
Cash Flows
Net cash from operating activities increased $71 million from the Prior Quarter primarily attributed to working capital improvement.
Net cash used in investing activities increased
$49 million from the Prior Quarter primarily attributed to increased investments in property, plant and equipment.
Net cash used in financing activities increased
$238 million from the Prior Quarter primarily attributed to increased share repurchases, higher repayments of long-term debt, and initiation of
a quarterly dividend in the Quarter.
Dividend Payments
During the quarter, the Company declared and paid a cash dividend of $0.25 per share.
Share Repurchases
During the quarter, the Company repurchased 2,989 thousand shares
for $178 million. The Company has $865
million remaining under its repurchase plan.
Free Cash Flow
Our consolidated free cash flow for the Quarter and Prior Quarter are summarized as follows:
|
December 31, 2022
|
January 1, 2022
|
|||||||
|
Cash flow from operating activities
|
$
|
(233
|
)
|
$
|
(304
|
)
|
||
|
Additions to property, plant and equipment, net
|
(211
|
)
|
(162
|
)
|
||||
|
Free cash flow
|
$
|
(444
|
)
|
$
|
(466
|
)
|
||
We use free cash flow as a supplemental measure of liquidity as it assists us in assessing our ability to fund growth through generation of cash. Free cash flow may be
calculated differently by other companies, including other companies in our industry or peer group, limiting its usefulness on a comparative basis. Free cash flow is not a financial measure presented in accordance with generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to any other measure determined in accordance with GAAP.
Liquidity Outlook
At December 31, 2022, our cash balance was $717 million, which was primarily located outside the U.S. We believe our existing and future U.S. based cash and cash flow from U.S. operations, together
with available borrowings under our senior secured credit facilities, will be adequate to meet our short-term and long-term liquidity needs with the exception of funds needed to cover all long-term debt obligations, which we intend to refinance prior
to maturity. The Company has the ability to repatriate the cash located outside the U.S. to the extent not needed to meet operational and capital needs without significant restrictions.
Summarized Guarantor Financial Information
Berry Global, Inc. (“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by its parent, Berry Global Group, Inc. (for purposes
of this section, “Parent”) and substantially all of Issuer’s domestic subsidiaries. Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by Parent and the guarantor
subsidiaries unconditionally guarantee such debt on a joint and several basis. A guarantee of a guarantor subsidiary of the securities will terminate upon the following customary circumstances: the sale of the capital stock of such guarantor if such
sale complies with the indentures, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture or in the case of a restricted subsidiary that is required to guarantee after the relevant issuance date,
if such guarantor no longer guarantees certain other indebtedness of Issuer. The guarantees of the guarantor subsidiaries are also limited as necessary to prevent them from constituting a fraudulent conveyance under applicable law and any guarantees
guaranteeing subordinated debt are subordinated to certain other of the Company’s debts. Parent also guarantees Issuer’s term loans and revolving credit facilities. The guarantor subsidiaries guarantee our term loans and are co-borrowers under our
revolving credit facility.
Presented below is summarized financial information for the Parent, Issuer and guarantor subsidiaries on a combined basis, after intercompany transactions have been
eliminated.
|
Quarterly Period Ended
|
||||
|
December 31, 2022
|
||||
|
Net sales
|
$
|
1,649
|
||
|
Gross profit
|
310
|
|||
|
Earnings from continuing operations
|
76
|
|||
|
Net income
|
$
|
76
|
||
Includes $2 million of expense associated with intercompany
activity with non-guarantor subsidiaries.
|
December 31, 2022
|
October 1, 2022
|
|||||||
|
Assets
|
||||||||
|
Current assets
|
$
|
1,736
|
$
|
2,432
|
||||
|
Noncurrent assets
|
5,986
|
6,137
|
||||||
|
Liabilities
|
||||||||
|
Current liabilities
|
$
|
1,102
|
$
|
1,536
|
||||
|
Noncurrent liabilities
|
10,651
|
10,630
|
||||||
Includes $635 million and $634 million of intercompany payables due to non-guarantor subsidiaries as of December 31, 2022 and October 1, 2022, respectively.
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) $3.4 billion term loans and (ii) a $1,050
million revolving credit facility with no balance outstanding. Borrowings under our senior secured credit facilities bear interest at a rate
equal to an applicable margin plus LIBOR or SOFR. The applicable margin for borrowings under the revolving credit facility ranges from 1.25% to
1.50%, and the margin for term loans is 1.75%
per annum. As of period end, the LIBOR rate of approximately 4.39% was applicable to the term loans. A 0.25% change in LIBOR would increase
our annual interest expense by $3 million on variable rate term loans.
We seek to minimize interest rate volatility risk through regular operating and financing activities and, when deemed appropriate, through the use of
derivative financial instruments. These financial instruments are not used for trading or other speculative purposes. (See Note 7.)
Foreign Currency Risk
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, British
pound sterling, Brazilian real, Chinese renminbi, Canadian dollar and Mexican peso. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses.
Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using
period-end exchange rates and impact our Comprehensive income. A 10% decline in foreign currency exchange rates would have had a $6 million
unfavorable impact on our Net income for the quarterly period ended December 31, 2022. (See Note 7.)
(a) Evaluation of disclosure controls and procedures.
Under applicable Securities and Exchange Commission regulations, management of a reporting company, with the participation of the principal executive officer
and principal financial officer, must periodically evaluate the company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be
disclosed by the reporting company in its periodic reports filed with the commission (such as this Form 10-Q) is recorded, processed, summarized, and reported on a timely basis.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and
operation of our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the Quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Part II. Other Information
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 and other periodic reports
filed with the Securities and Exchange Commission, including those under the heading “Risk Factors” and other information contained in this Quarterly Report. Realization of any of these risks could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
Additionally, we caution readers that the list of risk factors discussed
in our most recent
Form 10-K and other periodic reports
may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this
report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.
Issuer Repurchases of Equity Securities
The following table summarizes the Company's repurchases of its common stock during the Quarterly Period ended December 31, 2022.
|
Fiscal Period
|
Total Number of
Shares Purchased
|
Average Price
Paid Per Share
|
Total Number of Shares
Purchased as Part of Publicly
Announced Programs
|
Dollar Value of Shares that
May Yet be Purchased Under
the Program (in millions)
(a)
|
||||||||||||
|
October
|
-
|
$
|
-
|
-
|
$
|
1,042
|
||||||||||
|
November
|
942,588
|
57.86
|
942,588
|
988
|
||||||||||||
|
December
|
2,046,480
|
60.10
|
2,046,480
|
865
|
||||||||||||
|
Total
|
2,989,068
|
$
|
59.39
|
2,989,068
|
$
|
865
|
||||||||||
| (a) |
All open market purchases during the quarter were made under the 2023 authorization from our board of directors.
|
|
Exhibit No.
|
Description of Exhibit
|
|
|
10.1
†*
|
Berry Global Group, Inc. 2022 Dividend Equivalent Rights Plan.
|
|
|
10.2
†*
|
Form of Notice of Dividend Equivalent Rights Award under the Berry Global Group, Inc. 2022 Dividend Equivalent Rights Plan.
|
|
|
22.1
*
|
Subsidiary Guarantors.
|
|
|
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.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document).
|
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
104
|
Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).
|
| * |
Filed herewith
|
| ** |
Furnished herewith
|
† Management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
Berry Global Group, Inc.
|
|||
|
February 2, 2023
|
By:
|
/s/ Mark W. Miles
|
|
|
Mark W. Miles
|
|||
|
Chief Financial Officer
|
|||
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