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
July 2, 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
125.1
million shares of common stock
outstanding at August 4, 2022.
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 July 2, 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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21
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Item 4.
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21
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Part II.
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Other Information
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Item 1.
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22
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Item 1A.
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22
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Item 2.
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22
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Item 6.
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23
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24
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Part I. Financial Information
| 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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Three Quarterly Periods Ended
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|||||||||||||||
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July 2, 2022
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July 3, 2021
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July 2, 2022
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July 3, 2021
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|||||||||||||
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Net sales
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$
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$
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$
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$
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||||||||
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Costs and expenses:
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||||||||||||||||
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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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||||||||||||
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Other expense
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||||||||||||
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Interest expense
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||||||||||||
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Income before income taxes
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||||||||||||
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Income tax expense
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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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$
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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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$
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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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Three Quarterly Periods Ended
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|||||||||||||||
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July 2, 2022
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July 3, 2021
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July 2, 2022
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July 3, 2021
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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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$
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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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)
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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 (loss) income
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(
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)
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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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$
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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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July 2, 2022
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October 2, 2021
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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
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||||||
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Finished goods
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||||||
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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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||||||
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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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||||
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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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||||||
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Accumulated other comprehensive loss
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(
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)
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(
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)
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||||
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Total stockholders’ equity
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||||||
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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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Three Quarterly Periods Ended
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||||||||
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July 2, 2022
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July 3, 2021
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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 from 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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Non-cash interest expense
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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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Settlement of derivatives
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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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)
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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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||||
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Divestiture of businesses
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||||||
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Other investing activities
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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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||||
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Cash Flows from Financing Activities:
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||||||||
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Proceeds from long-term borrowings
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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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)
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||||
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Proceeds from issuance of common stock
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||||||
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Repurchase of common stock
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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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|||||
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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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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.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in millions of dollars)
|
Quarterly Period Ended
|
Common
Stock
|
Additional
Paid-in Capital
|
Accumulated Other
Comprehensive Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||
|
Balance at April 2, 2022
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Net income
|
|
|
|
|
|
|||||||||||||||
|
Other comprehensive income
|
|
|
(
|
)
|
|
(
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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
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
||||||||||||
|
Balance at July 2, 2022
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Balance at April 3, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Net income
|
|
|
|
|
|
|||||||||||||||
|
Other comprehensive loss
|
|
|
|
|
|
|||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|||||||||||||||
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|||||||||||||||
|
Balance at July 3, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Three Quarterly Periods Ended
|
Common
Stock
|
Additional
Paid-in Capital
|
Accumulated Other
Comprehensive Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||
|
Balance at October 2, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Net income
|
|
|
|
|
|
|||||||||||||||
|
Other comprehensive income
|
|
|
(
|
)
|
|
(
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)
|
|||||||||||||
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Share-based compensation
|
|
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|
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|
|||||||||||||||
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Proceeds from issuance of common stock
|
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|
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|
|||||||||||||||
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Common stock repurchased and retired
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
||||||||||||
|
Balance at July 2, 2022
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Balance at September 26, 2020
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Net income
|
|
|
|
|
|
|||||||||||||||
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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
|
|
|
|
|
|
|||||||||||||||
|
Balance at July 3, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
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. ASU 2020-04 is effective upon issuance and generally can be applied through the end of calendar year 2022. The Company is currently evaluating the impact and does not anticipate a material impact on
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 c
onsideration 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 $
101
million and $
104
million at July 2, 2022
and October 2, 2021, 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.
Accounts receivable are presented net of allowance for credit losses of $
19
million and $
21
million at July 2, 2022
and October 2, 2021, respectively. 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. Disposition
During fiscal 2022, the Company completed the sale of its rotational molding business, which was operated in the Consumer Packaging International segment for
net proceeds of $
108
million. In fiscal 2021, the rotational molding business recorded net sales of $
146
million.
5. Restructuring and Transaction Activities
The table below includes the significant components of restructuring and transaction activities, by reporting segment:
|
Quarterly Period Ended
|
Three Quarterly Periods Ended
|
|||||||||||||||
|
July 2, 2022
|
July 3, 2021
|
July 2, 2022
|
July 3, 2021
|
|||||||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Consumer Packaging North America
|
|
|
|
|
||||||||||||
|
Health, Hygiene & Specialties
|
|
|
|
|
||||||||||||
|
Engineered Materials
|
|
|
|
(
|
)
|
|||||||||||
|
Consolidated
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The table below sets forth the activity with respect to the restructuring and transaction activities accrual at July 2, 2022:
|
Restructuring
|
||||||||||||||||
|
Employee Severance
and Benefits
|
Facility
Exit Costs
|
Transaction
Activities
|
Total
|
|||||||||||||
|
Balance as of October 2, 2021
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Charges
|
|
|
|
|
||||||||||||
|
Cash
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Balance as of July 2, 2022
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
6. 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
|
July 2, 2022
|
October 2, 2021
|
||||||
|
Operating leases:
|
|||||||||
|
Operating lease right-of-use assets
|
|
$
|
|
$
|
|
||||
|
Current operating lease liabilities
|
|
|
|
||||||
|
Noncurrent operating lease liabilities
|
|
|
|
||||||
|
Finance leases:
|
|||||||||
|
Finance lease right-of-use assets
|
|
$
|
|
$
|
|
||||
|
Current finance lease liability
|
|
|
|
||||||
|
Noncurrent finance lease liabilities
|
|
|
|
||||||
|
Three Quarterly Periods Ended
|
||||||||||||
|
Lease Type
|
Cash Flow Classification
|
Lease Expense Category
|
July 2, 2022
|
July 3, 2021
|
||||||||
|
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 $
5
million and $
26
million for the quarterly and three quarterly periods ended July 2, 2022, respectively.
7. Long-Term Debt
Long-term debt consists of the following:
|
Facility
|
Maturity Date
|
July 2, 2022
|
October 2, 2021
|
||||||
|
Term loan
|
|
$
|
|
|
|||||
|
Revolving line of credit
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
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.
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 Company settled its €
250
million swap agreement which matured May 2022 for proceeds of $
6
million. As of July 2, 2022, the swap agreements mature June 2024 (€
1,625
million)
and July 2027 (£
700
million). In addition to 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 July 2, 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).
During fiscal 2022, the Company elected to cash settle existing interest rate swaps and received net proceeds of $
69
million. The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense through the term of the original swaps. Additionally, the
Company entered into $
450
million and $
400
million interest rate swap transactions that swap a
one-month
variable LIBOR contract for a fixed annual rate.
As of July 2, 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
2.765
%, 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
2.733
% with an expiration
in June 2026, (iii) 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 (iv) 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.
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
|
July 2, 2022
|
October 2, 2021
|
||||||
|
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 assets
|
|
|
||||||
|
Interest rate swaps
|
Not designated
|
Other long-term liabilities
|
|
|
||||||
The effect of the Company’s derivative instruments on the Consolidated Statements of Income is as
follows:
|
Quarterly Period Ended
|
Three Quarterly Periods Ended
|
||||||||||||||||
|
Derivative Instruments
|
Statements of Income Location
|
July 2, 2022
|
July 3, 2021
|
July 2, 2022
|
July 3, 2021
|
||||||||||||
|
Cross-currency swaps
|
Interest expense
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Interest rate swaps
|
Interest expense
|
|
|
|
|
||||||||||||
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 2021 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 July 2, 2022 and October 2, 2021,
along with the impairment loss recognized on the fair value measurement during the period:
|
As of July 2, 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 2, 2021
|
||||||||||||||||||||
|
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 $
456
million as of
July 2, 2022
. The Company’s
long-term debt fair values were determined using Level 2 inputs (substantially observable).
9. Income Taxes
On a year-to-date comparison to the statutory rate, the higher effective tax rate was negatively impacted by state taxes and global intangible low-taxed income provisions,
partially offset by 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, Health, Hygiene & Specialties, and Engineered Materials. The structure is designed to align us
with our customers, provide optimal service, drive future growth, and to facilitate synergies realization.
Selected information by reportable segment is presented in the following tables:
|
Quarterly Period Ended
|
Three Quarterly Periods Ended
|
|||||||||||||||
|
July 2, 2022
|
July 3, 2021
|
July 2, 2022
|
July 3, 2021
|
|||||||||||||
|
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
|
Three Quarterly Periods Ended
|
|||||||||||||||
|
July 2, 2022
|
July 3, 2021
|
July 2, 2022
|
July 3, 2021
|
|||||||||||||
|
Net sales:
|
||||||||||||||||
|
United States and Canada
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Rest of world
|
|
|
|
|
||||||||||||
|
Total net sales
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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
During the quarterly period ended July 2, 2022, the Company
repurchased and retired
5,114
thousand shares for $
286
million. For the three quarterly periods ended July 2, 2022, the Company repurchased and retired
10,870
thousand shares for $
637
million. Authorized share repurchases of $
414
million remain available to the Company.
13. Basic and Diluted Earnings Per Share
Basic net income or earnings per share ("EPS") is calculated by dividing the net income attributable to common stockholders by the weighted-average number of
common shares outstanding during the period, without consideration for common stock equivalents.
Diluted EPS includes the effects of options and restricted stock units, if dilutive.
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted EPS calculations:
|
Quarterly Period Ended
|
Three Quarterly Periods Ended
|
|||||||||||||||
|
(in millions, except per share amounts)
|
July 2, 2022
|
July 3, 2021
|
July 2, 2022
|
July 3, 2021
|
||||||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
14. 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 April 2, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss) before reclassifications
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Net amount reclassified
|
|
|
|
|
||||||||||||
|
Balance at July 2, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Currency
Translation
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
Derivative
Instruments
|
Accumulated Other
Comprehensive Loss
|
|||||||||||||
|
Balance at April 3, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income (loss) before reclassifications
|
|
|
(
|
)
|
|
|||||||||||
|
Net amount reclassified
|
|
|
|
|
||||||||||||
|
Balance at July 3, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Three Quarterly Periods Ended
|
Currency
Translation
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
Derivative
Instruments
|
Accumulated Other
Comprehensive Loss
|
||||||||||||
|
Balance at October 2, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income (loss) before reclassifications
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Net amount reclassified
|
|
|
|
|
||||||||||||
|
Balance at July 2, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Currency
Translation
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
Derivative
Instruments
|
Accumulated Other
Comprehensive Loss
|
|||||||||||||
|
Balance at September 26, 2020
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income before reclassifications
|
|
|
|
|
||||||||||||
|
Net amount reclassified
|
|
|
|
|
||||||||||||
|
Balance at July 3, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
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 containers, closures and dispensing systems, pharmaceutical devices and packaging, bottles and canisters, and
technical components. The Consumer Packaging North America segment primarily consists of containers and pails, foodservice, closures, overcaps, bottles, prescription vials, and tubes. The Health, Hygiene & Specialties segment primarily consists
of nonwoven specialty materials, tapes and adhesives, and films used in hygiene, infection prevention, personal care, industrial, construction, and filtration applications. 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. Supply shortages can lead to increased raw material price volatility, which we have experienced in recent quarters. Raw material price changes are generally passed on to customers through contractual price mechanisms over time and other
means. We expect supply chain challenges to continue throughout fiscal 2022 and will continue to work closely with our suppliers and customers in an effort to minimize any impact.
Outlook.
The Company is affected by general economic and industrial growth, raw material availability, cost inflation, supply chain disruptions, and general industrial production. The COVID-19
pandemic has resulted in both advantaged and disadvantaged products within all segments. During fiscal 2022, we have experienced a headwind as the advantaged products, particularly in our Health, Hygiene & Specialties segment, related to the
COVID-19 pandemic moderated while recovery of disadvantaged products lags with the ultimate impact being affected by both the duration certain products remain advantaged and timing of when disadvantaged products normalize. Our business has both
geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes to our customers, improve manufacturing
productivity and adapt to volume changes of our customers. We believe that by providing advantaged products in targeted markets, our underlying long-term demand fundamental in all divisions will remain strong as we focus on delivering protective
solutions that enhance consumer safety and execute on the Company’s mission statement of “Always Advancing to Protect What’s Important.” For fiscal 2022,
we project cash flow from operations of $1.5 billion, which assumes the benefit from the lag in recovery of inflation, an investment in working capital from inflation and additional inventory due to supply chain disruptions, and free cash flow of $750
million. Projected fiscal 2022 free cash flow assumes $750 million of capital spending. In addition, we repurchased approximately 11 million shares for $637 million in fiscal 2022
YTD and expect to purchase at least $700 million of shares in fiscal 2022. For the calculation 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 July 2, 2022 (the “Quarter”) and the Quarterly Period Ended July 3, 2021 (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
|
$
|
3,726
|
$
|
3,675
|
$
|
51
|
1
|
%
|
||||||||
|
Cost of goods sold
|
3,105
|
3,049
|
56
|
2
|
%
|
|||||||||||
|
Other operating expenses
|
285
|
283
|
2
|
1
|
%
|
|||||||||||
|
Operating income
|
$
|
336
|
$
|
343
|
$
|
(7
|
)
|
(2
|
)%
|
|||||||
Net Sales:
The net sales growth is primarily attributed to increased selling prices of $301 million due to the pass through of inflation. This increase was partially offset by an organic volume decline of 2%, a $151 million unfavorable
impact from foreign currency changes, and Prior Quarter divestiture sales of $16 million.
The volume decline is primarily attributed to general market softness in industrial markets and the moderation of advantaged products related to the
COVID-19 pandemic.
Cost of goods sold:
The cost of goods sold increase is attributed
to inflation, partially offset by the volume decline, a decrease from foreign currency changes, and Prior Quarter divestiture cost of goods sold of $12 million.
Operating Income:
The operating income
decrease
is
primarily attributed to a $22 million unfavorable impact from foreign currency, and an $11 million unfavorable impact from the volume decline
,
partially offset by a
$28 million favorable impact from price cost spread and product mix.
|
Consumer Packaging International
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
1,096
|
$
|
1,095
|
$
|
1
|
—
|
|||||||||
|
Operating income
|
$
|
82
|
$
|
79
|
$
|
3
|
4
|
%
|
||||||||
Net Sales:
The net sales growth in the Consumer Packaging
International segment is primarily attributed to increased selling prices of $138 million due to the pass through of inflation, partially offset by a $99 million unfavorable impact from foreign currency changes, an organic volume decline of 2%, and
Prior Quarter divestiture sales of $16 million. The volume decline is primarily attributed to market softness in industrial markets.
Operating Income:
The operating income increase is primarily attributed to
a $15 million
favorable impact from price cost spread and product
mix, and a decrease in depreciation and amortization expense, partially offset by a
$15 million unfavorable impact from foreign currency.
|
Consumer Packaging North America
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
927
|
$
|
847
|
$
|
80
|
9
|
%
|
||||||||
|
Operating income
|
$
|
104
|
$
|
76
|
$
|
28
|
37
|
%
|
||||||||
Net Sales:
The net sales growth in the Consumer Packaging North
America segment is primarily attributed to increased selling prices of $80 million due to the pass through of inflation.
Operating Income:
The operating income increase is primarily
attributed to a $30 million favorable impact from price cost spread.
|
Health, Hygiene & Specialties
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
788
|
$
|
828
|
$
|
(40
|
)
|
(5
|
)%
|
|||||||
|
Operating income
|
$
|
56
|
$
|
113
|
$
|
(57
|
)
|
(50
|
)%
|
|||||||
Net Sales:
The net sales decline in the Health, Hygiene & Specialties segment is primarily attributed to a 3% volume decline and a $17 million unfavorable impact from foreign currency changes.
The volume decline is
primarily attributed to the moderation of advantaged products related to the COVID-19 pandemic.
Operating Income:
The operating income decrease is primarily
attributed to a $49 million unfavorable impact from negative product mix, lag in recovering inflation, and an
unfavorable impact from foreign currency changes
.
|
Engineered Materials
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
915
|
$
|
905
|
$
|
10
|
1
|
%
|
||||||||
|
Operating income
|
$
|
94
|
$
|
75
|
$
|
19
|
25
|
%
|
||||||||
Net Sales:
The net sales growth in the Engineered Materials segment is primarily attributed to increased selling prices of $81 million due to the pass through of inflation, partially offset by a volume decline of 4% and a $35 million
unfavorable impact from foreign currency changes.
The volume decline is primarily attributed to pivoting the sales mix to higher value categories and general market softness.
Operating Income:
The operating income increase is primarily
attributed to a $29 million favorable impact from price cost spread, partially offset by an
unfavorable impact from foreign currency changes and
the volume decline.
|
Other expense, net
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Other expense, net
|
$
|
7
|
$
|
14
|
$
|
(7
|
)
|
(50
|
)%
|
|||||||
The other expense decrease is primarily attributed to debt extinguishment expense in the Prior Quarter, partially offset by unfavorable foreign currency
changes related to the remeasurement of non-operating intercompany balances in the Quarter.
|
Interest expense, net
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Interest expense, net
|
$
|
70
|
$
|
76
|
$
|
(6
|
)
|
(8
|
)%
|
|||||||
The interest expense decrease is primarily the
result of refinancing activities and repayment of borrowings in fiscal 2021.
Changes in Comprehensive Income
The $216 million decline in comprehensive income from the Prior Quarter is primarily attributed to a $250 million unfavorable change in currency translation, partially offset by a $13 million improvement in net income, and a
$21 million favorable change in
the fair value of derivative instruments, net of tax. 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. The change in currency translation in the QTD was primarily attributed to locations utilizing the euro, British pound sterling, Brazilian real, Canadian dollar, Chinese
renminbi and Mexican peso as the functional currency. As part of the overall risk management, the Company uses derivative instruments to (i) reduce our exposure to changes in interest rates attributed to the Company’s borrowings and (ii) reduce
foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in fiscal 2022 versus fiscal 2021 is primarily
attributed to the change in the forward interest and foreign exchange curves between measurement dates.
Comparison of the Three Quarterly Periods Ended July 2, 2022 (the “YTD”) and the Three Quarterly Periods Ended July 3, 2021 (the “Prior YTD”)
The Company’s U.S. based results for the YTD and Prior YTD are based on a twenty-six and twenty-seven week period, respectively.
Business integration expenses consist of restructuring and impairment charges, divestiture related costs, and other business optimization costs. Tables present dollars in millions.
|
Consolidated Overview
|
||||||||||||||||
|
YTD
|
Prior YTD
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
11,074
|
$
|
10,181
|
$
|
893
|
9
|
%
|
||||||||
|
Cost of goods sold
|
9,297
|
8,273
|
1,024
|
12
|
%
|
|||||||||||
|
Other operating expenses
|
871
|
928
|
(57
|
)
|
(6
|
)%
|
||||||||||
|
Operating income
|
$
|
906
|
$
|
980
|
$
|
(74
|
)
|
(8
|
)%
|
|||||||
Net Sales:
The net sales growth is primarily attributed to increased selling prices of $1.6 billion due to the pass through of inflation. This increase was partially offset by an organic volume decline of 2%, a $232 million unfavorable
impact from foreign currency changes, extra shipping days in the Prior YTD of $131 million, and Prior YTD divestiture sales of $78 million.
The volume decline is primarily attributed to supply chain disruptions, general market softness and
the moderation of advantaged products related to the COVID-19 pandemic.
Cost of goods sold:
The cost of goods sold increase is attributed
to inflation, partially offset by the volume decline, a decrease from foreign currency changes, extra shipping days in the Prior YTD, and Prior YTD divestiture cost of goods sold of $62 million.
Other operating expenses:
The other operating expenses decrease is
primarily attributed to a decrease in business integration expense, amortization expense, and selling, general, and administrative expense.
Operating Income:
The operating income decrease is
primarily attributed to a $37 million unfavorable impact from foreign currency, a $36 million unfavorable impact from the volume decline,
a
$12 million unfavorable impact from price cost spread,
a $22 million decrease from extra shipping days in the
Prior YTD,
and
a negative impact from Prior YTD divestiture operating income, partially offset by
a
$29 million decrease in business integration expense, and a decrease in depreciation and amortization expense.
|
Consumer Packaging International
|
||||||||||||||||
|
YTD
|
Prior YTD
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
3,290
|
$
|
3,143
|
$
|
147
|
5
|
%
|
||||||||
|
Operating income
|
$
|
248
|
$
|
214
|
$
|
34
|
16
|
%
|
||||||||
Net Sales:
The net sales growth in the Consumer Packaging
International segment is primarily attributed to increased selling prices of $398 million due to the pass through of inflation, partially offset by a $166 million unfavorable impact from foreign currency changes, and Prior YTD divestiture sales of $44
million.
Operating Income:
The operating income increase is primarily attributed to a $34 million decrease in business integration expense, a $20 million favorable impact from price cost spread, and a decrease in depreciation and
amortization expense, partially offset by
a $26 million unfavorable impact from foreign currency.
|
Consumer Packaging North America
|
||||||||||||||||
|
YTD
|
Prior YTD
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
2,659
|
$
|
2,264
|
$
|
395
|
17
|
%
|
||||||||
|
Operating income
|
$
|
235
|
$
|
212
|
$
|
23
|
11
|
%
|
||||||||
Net Sales:
The net sales growth in the Consumer Packaging North
America segment is primarily attributed to increased selling prices of $451 million due to the pass through of inflation, partially offset by a $40 million decrease from extra shipping days in the Prior YTD.
Operating Income:
The operating income increase is primarily attributed to a
$34 million favorable impact from price cost spread, partially offset by
a $7 million decrease from extra shipping days in the Prior YTD.
|
Health, Hygiene & Specialties
|
||||||||||||||||
|
YTD
|
Prior YTD
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
2,429
|
$
|
2,349
|
$
|
80
|
3
|
%
|
||||||||
|
Operating income
|
$
|
186
|
$
|
323
|
$
|
(137
|
)
|
(42
|
)%
|
|||||||
Net Sales:
The net sales growth in the Health, Hygiene & Specialties segment is primarily attributed to increased selling prices of $227 million due to the pass through of inflation, partially offset by a 3% volume decline,
a
$42 million decrease from extra shipping days in the Prior YTD, and
a $25 million unfavorable impact from foreign currency changes.
The volume decline is primarily
attributed to the moderation of advantaged products related to the COVID-19 pandemic.
Operating Income:
The operating income decrease is primarily
attributed to a $121 million unfavorable impact from price cost spread and negative product mix, and a decrease from extra shipping days in the Prior YTD.
|
Engineered Materials
|
||||||||||||||||
|
YTD
|
Prior YTD
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
2,696
|
$
|
2,425
|
$
|
271
|
11
|
%
|
||||||||
|
Operating income
|
$
|
237
|
$
|
231
|
$
|
6
|
3
|
%
|
||||||||
Net Sales:
The net sales growth in the Engineered Materials segment is primarily attributed to increased selling prices of $507 million due to the pass through of inflation, partially offset by a volume decline of 5%, a $44 million
decrease from extra shipping days in the Prior YTD,
a $41 million unfavorable impact from foreign currency changes, and Prior YTD divestiture sales of $34 million.
The volume decline is primarily attributed to supply chain disruptions.
Operating Income:
The operating income increase is primarily
attributed to a $42 million favorable impact from price cost spread, partially offset by a $14 million unfavorable impact from the volume decline, a $13 million impact from Prior YTD divestiture operating income, and a decrease from extra shipping days
in the Prior YTD.
|
Other expense
|
||||||||||||||||
|
YTD
|
Prior YTD
|
$ Change
|
% Change
|
|||||||||||||
|
Other expense
|
$
|
13
|
$
|
45
|
$
|
(32
|
)
|
(71
|
)%
|
|||||||
The other expense decrease is primarily attributed to foreign currency changes related to the remeasurement of non-operating intercompany balances and debt
extinguishment expense in the Prior YTD.
|
Interest expense
|
||||||||||||||||
|
YTD
|
Prior YTD
|
$ Change
|
% Change
|
|||||||||||||
|
Interest expense
|
$
|
212
|
$
|
257
|
$
|
(45
|
)
|
(18
|
)%
|
|||||||
The interest expense decrease is primarily the
result of refinancing activities and repayments of borrowings in fiscal 2021.
Changes in Comprehensive Income
The $262 million decline in comprehensive income from the Prior YTD was primarily attributed to a $340 million unfavorable change in currency translation, partially offset by a $28 million improvement in net income, and a
$50 million favorable change in
the fair value of derivative instruments, net of tax. 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. The change in currency translation in the YTD was primarily attributed to locations utilizing the euro, British pound sterling, Brazilian real, Canadian dollar, Chinese
renminbi and Mexican peso as the functional currency. As part of the overall risk management, the Company uses derivative instruments to (i) reduce our exposure to changes in interest rates attributed to the Company’s borrowings and (ii) reduce
foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in fiscal 2022 versus fiscal 2021 is primarily
attributed to the change in the forward interest and foreign exchange curves between measurement dates.
Liquidity and Capital Resources
Senior Secured Credit Facility
We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic
location of our liquidity needs, and (iii) the cost to access international cash balances. At the end of the Quarter, the Company had an outstanding balance of $170 million 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 decreased $567 million from the Prior YTD primarily attributed to working capital inflation and timing of payables in the YTD.
Net cash used in investing activities increased
$70 million from the Prior YTD primarily attributed to fewer proceeds from business divestitures and increased property, plant and equipment
spending.
Net cash used in financing activities decreased
$75 million from the Prior YTD primarily attributed to higher net borrowings, partially offset by repurchases of common stock in the YTD.
Share Repurchases
During fiscal 2022, the Company repurchased approximately 11
million shares for $637 million. Authorized share repurchases of $414 million remain available to the Company.
Free Cash Flow
Our consolidated free cash flow for the YTD and Fiscal 2022 Outlook are summarized as follows:
|
July 2, 2022
|
Fiscal 2022 Outlook
|
|||||||
|
Cash flow from operating activities
|
$
|
345
|
$
|
1,500
|
||||
|
Additions to property, plant and equipment, net
|
(556
|
)
|
(750
|
)
|
||||
|
Free cash flow
|
$
|
(211
|
)
|
$
|
750
|
|||
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 July 2, 2022, our cash balance was $527 million, which was primarily located outside the U.S. We believe our existing U.S. based cash and cash flow from U.S. operations, together with
available borrowings under our senior secured credit facilities, will be adequate to meet our short-term and long-term liquidity needs 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.
|
Three Quarterly Periods Ended
|
||||
|
July 2, 2022
|
||||
|
Net sales
|
$
|
5,772
|
||
|
Gross profit
|
956
|
|||
|
Earnings from continuing operations
|
319
|
|||
|
Net income
|
$
|
319
|
||
Includes $2 million of income associated with intercompany activity
with non-guarantor subsidiaries.
|
July 2, 2022
|
October 2, 2021
|
|||||||
|
Assets
|
||||||||
|
Current assets
|
$
|
2,008
|
$
|
2,293
|
||||
|
Noncurrent assets
|
6,040
|
5,979
|
||||||
|
Liabilities
|
||||||||
|
Current liabilities
|
$
|
1,225
|
$
|
1,533
|
||||
|
Intercompany payable
|
634
|
629
|
||||||
|
Noncurrent liabilities
|
10,812
|
11,083
|
||||||
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 $170 million 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 1.80% 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 8.)
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 $15 million
unfavorable impact on our Net income for the three quarterly periods ended July 2, 2022. (See Note 8.)
(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.
On February 24, 2022, Russia launched an invasion of Ukraine which has resulted in increased volatility in various sectors and markets. The extent and
duration of the military action, resulting sanctions and future market disruptions in the region are not currently known. While the Company’s sales and assets in Russia are immaterial, the effects of the hostilities and sanctions may spill over to
our customers and negatively impact their operations. Additionally, the ongoing military action along with the potential for a wider conflict could further increase market volatility and cause negative effects on regional and global economic
markets, industries, and companies.
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 July 2, 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)
|
||||||||||||
|
April
|
147,000
|
$
|
59.03
|
147,000
|
$
|
691
|
||||||||||
|
May
|
2,912,000
|
55.93
|
2,912,000
|
528
|
||||||||||||
|
June
|
2,055,150
|
55.51
|
2,055,150
|
414
|
||||||||||||
|
Total
|
5,114,150
|
$
|
55.85
|
5,114,150
|
$
|
414
|
||||||||||
| (a) |
All open market purchases during the quarter were made under the fiscal 2022 authorization from our board of directors to
purchase up to $1 billion of shares of common stock. (See Note 12.)
|
|
Exhibit No.
|
Description of Exhibit
|
|
|
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
|
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.
|
|||
|
August 4, 2022
|
By:
|
/s/ Mark W. Miles
|
|
|
Mark W. Miles
|
|||
|
Chief Financial Officer
|
|||
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint