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 30, 2023
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
115.9
million shares of common stock
outstanding at February 7, 2024.
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” and subsequent periodic reports filed with the SEC
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 30, 2023
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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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17
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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 5.
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20
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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 30, 2023
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December 31, 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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||||||||
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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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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 30, 2023
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December 31, 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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Derivative instruments
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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
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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 30, 2023
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September 30, 2023
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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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||||||||
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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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||||||||
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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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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 30, 2023
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December 31, 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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(
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)
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Settlement of derivatives
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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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Changes in working capital
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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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Net cash from operating activities
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(
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(
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Cash Flows from Investing Activities:
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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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Proceeds from long-term borrowings
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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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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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(
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)
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Other, net
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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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)
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Effect of currency translation on cash
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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 September 30, 2023
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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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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 30, 2023
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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 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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|||||||||||||||
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Other comprehensive income
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|
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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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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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$
|
|
$
|
|
|||||||||
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
In fiscal 2023, the Company announced that it initiated a formal process to evaluate strategic alternatives for its Health, Hygiene and Specialties segment and
has determined the segment does not meet the criteria of Held for Sale as of December 30, 2023.
2. Revenue and Accounts Receivable
Our revenues are primarily derived from the sale of non-woven, flexible and rigid products. 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 sources of variable consideration are
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 $
113
million and $
106
million at December 30, 2023 and September 30, 2023, 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 8. Segment and Geographic Data for further information.
Accounts receivable are presented net of allowance for credit losses of $
19
million at December 30, 2023 and September 30, 2023. The Company records 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 trade receivables,
net on the consolidated balance sheets and the proceeds are included in the cash flows from operating activities in the consolidated statements of cash flows.
3. Restructuring and Transaction Activities
In fiscal 2023, the Company initiated cost savings initiatives including plant
rationalization in all
four
segments as part of the 2023
restructuring plan. The Company expects total cash and non-cash expense of the plan to be approximately $
200
million, with the operations savings intended to counter general economic softness.
All
initiatives are
expected to be fully implemented by the end of fiscal 2025.
The table below includes the significant components of the restructuring and transaction activities, by reporting
segment:
|
Quarterly Period Ended
|
Restructuring Plan
|
|||||||||||
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December 30, 2023
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December 31, 2022
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Life to Date
|
||||||||||
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Consumer Packaging International
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$
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$
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$
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|
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Consumer Packaging North America
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Health, Hygiene & Specialties
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|
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|
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Flexibles
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|||||||||
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Consolidated
|
$
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|
$
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|
$
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|
||||||
The table below sets forth the activity with respect to the restructuring and transaction activities accrual at December 30, 2023:
|
Restructuring
|
||||||||||||||||
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Employee Severance
and Benefits
|
Facility
Exit Costs
|
Transaction
Activities
|
Total
|
|||||||||||||
|
Balance at September 30, 2023
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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Charges
|
|
|
|
|
||||||||||||
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Cash payments
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Balance at December 30, 2023
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
4. Leases
The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles.
Supplemental lease information is as follows:
|
Leases
|
Classification
|
December 30, 2023
|
September 30, 2023
|
||||||
|
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:
|
|||||||||
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Finance lease right-of-use assets
|
|
$
|
|
$
|
|
||||
|
Current finance lease liabilities
|
|
|
|
||||||
|
Noncurrent finance lease liabilities
|
|
|
|
||||||
5. Long-Term Debt
Long-term debt consists of the following:
|
Facility
|
Maturity Date
|
December 30, 2023
|
September 30, 2023
|
||||||
|
Term loan
(a)
|
|
$
|
|
|
|||||
|
Term loan
(a)
|
|
|
|
||||||
|
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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|
||||||
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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) |
|
| (b) |
|
| (c) |
|
During the quarter ended December 30, 2023, the Company extended the maturity date of $
1,550
million of its outstanding term loans to July 2029.
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.
6. 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 30, 2023, we had outstanding long-term debt of €
379
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
During fiscal 2024, the Company elected to cash settle
two
existing interest rate swaps and received net proceeds of $
19
million. The offset is included in Accumulated other comprehensive loss and is
being amortized to Interest expense through the term of the original swaps. Following the settlement, the Company entered into a $
450
million
and a $
500
million interest rate swap transaction with expiration in June 2029.
As of December 30, 2023, the Company effectively
had (i) a $
400
million interest rate swap transaction that swaps a
one-month
variable
SOFR contract for a fixed annual rate of
4.451
%, with an expiration in June 2026, (ii)
an $
884
million interest rate swap transaction that swaps a
one-month
variable SOFR contract for a fixed annual rate of
4.451
% with an expiration
in June 2026, (iii) a $
500
million
interest rate swap transaction that swaps a
one-month
variable SOFR contract for a fixed annual rate of
3.602
%, with an expiration in June 2026 (see Note. 12), (iv) a $
450
million interest rate swap transaction that swaps a
one-month
variable SOFR contract for a fixed annual rate of
4.553
%, with an expiration in June 2029, and (v) a $
500
million interest rate swap transaction that swaps a
one-month
variable SOFR contract for a fixed annual rate of
4.648
%,
with an expiration in June 2029.
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 30, 2023
|
September 30, 2023
|
||||||
|
Cross-currency swaps
|
Designated
|
Other current liabilities
|
|
|
||||||
|
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, 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 30, 2023
|
December 31, 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 2023 assessment. No impairment indicators were identified in the current
quarter.
Included in the following tables are the major categories of assets and their current carrying values, along with
the impairment loss recognized on the fair value measurement for the period then ended:
|
December 30, 2023
|
||||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Impairment
|
||||||||||||||||
|
Indefinite-lived trademarks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Goodwill
|
|
|
|
|
|
|||||||||||||||
|
Definite lived intangible assets
|
|
|
|
|
|
|||||||||||||||
|
Property, plant, and equipment
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
September 30, 2023
|
||||||||||||||||||||
|
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 $
221
million as of December 30, 2023. The Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable).
7. Income Taxes
In comparison to the statutory rate, the lower effective tax rate for the quarter was positively impacted by share-based stock compensation.
8. 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 Flexibles, formerly known as 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 30, 2023
|
December 31, 2022
|
|||||||
|
Net sales:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Flexibles
|
|
|
||||||
|
Total net sales
|
$
|
|
$
|
|
||||
|
Operating income (loss):
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Health, Hygiene & Specialties
|
(
|
)
|
|
|||||
|
Flexibles
|
|
|
||||||
|
Total operating income
|
$
|
|
$
|
|
||||
|
Depreciation and amortization:
|
||||||||
|
Consumer Packaging International
|
$
|
|
$
|
|
||||
|
Consumer Packaging North America
|
|
|
||||||
|
Health, Hygiene & Specialties
|
|
|
||||||
|
Flexibles
|
|
|
||||||
|
Total depreciation and amortization
|
$
|
|
$
|
|
||||
Selected information by geographical region is presented in the following tables:
|
Quarterly Period Ended
|
||||||||
|
December 30, 2023
|
December 31, 2022
|
|||||||
|
Net sales:
|
||||||||
|
United States and Canada
|
$
|
|
$
|
|
||||
|
Europe
|
|
|
||||||
|
Rest of world
|
|
|
||||||
|
Total net sales
|
$
|
|
$
|
|
||||
9. 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.
10. 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
|
||||||||
|
(in millions, except per share amounts)
|
December 30, 2023
|
December 31, 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 30, 2023 and December 31, 2022,
2.4
million and
5.8
million shares, respectively, were excluded from the diluted EPS calculation as their effect would be anti-dilutive.
11. 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 September 30, 2023
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Other comprehensive income before reclassifications
|
|
|
(
|
)
|
|
|||||||||||
|
Net amount reclassified from accumulated other comprehensive loss
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Balance at December 30, 2023
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
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
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
12. Subsequent Events
During January 2024, the Company issued $
800
million
aggregate principal amount of
5.650
% first priority senior secured notes due 2034. The proceeds were used to prepay the
0.95
%
First Priority Senior Secured Notes
due in February 2024 and a
portion of the existing term loan due in July 2026. As a result of the transaction, the Company also terminated its $
500
million interest rate
swap due in June 2026 for proceeds of $
4
million.
In February 2024, the Company announced plans for a spin-off and merger of its Health, Hygiene & Specialties segment (excluding Tapes) with Glatfelter
Corporation (“GLT”). Upon the completion of the transaction, shareholders of Berry will own approximately
ninety
percent of the new combined
company in addition to their continuing interest in Berry. The transaction is expected to be tax-free to Berry and its shareholders. The transaction is subject to certain customary closing conditions including, but not limited to, approval by GLT
shareholders, the effective filing of related registration statements, completion of a tax-free spin-off and receipt of certain required foreign anti-trust approvals.
Executive Summary
Business.
The Company’s operations
are organized into four operating segments: Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Flexibles, formerly known as Engineered Materials. The structure is designed to align us with our
customers, provide optimal service, drive future growth, and to facilitate synergy realization. The Consumer Packaging International segment primarily consists of closures and dispensing systems, pharmaceutical devices and packaging, bottles and
canisters, containers, and technical components. The Consumer Packaging North America segment primarily consists of containers and pails, foodservice, closures, bottles and prescription vials, and tubes. The Health, Hygiene & Specialties segment,
which is being evaluated for strategic alternatives, primarily consists of healthcare, hygiene, specialties, and tapes. The Flexibles 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 consumption levels. 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 continued rising inflation and general market softness, we continue to believe our underlying long-term fundamentals
in all divisions remain strong. For fiscal 2024, we project cash flow from operations between $1.35 to $1.45 billion and free cash flow
between $800 to $900 million. Projected fiscal 2024 free cash flow assumes $550 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 30, 2023 (the “Quarter”) and the Quarterly Period Ended December 31, 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
|
$
|
2,853
|
$
|
3,060
|
$
|
(207
|
)
|
(7
|
)%
|
|||||||
|
Cost of goods sold
|
2,379
|
2,542
|
(163
|
)
|
(6
|
)%
|
||||||||||
|
Other operating expenses
|
317
|
308
|
9
|
3
|
%
|
|||||||||||
|
Operating income
|
$
|
157
|
$
|
210
|
$
|
(53
|
)
|
(25
|
)%
|
|||||||
Net sales:
The net sales decline is primarily
attributed to decreased selling prices of $189 million due to the pass through of lower polymer costs and a 3% volume decline from continued general market softness, partially offset by a $64 million favorable impact from foreign currency changes.
Cost of goods sold:
The cost of goods sold decrease is
primarily attributed to lower raw material costs and the volume decline, partially offset by foreign currency changes.
Other operating expenses:
The other operating expenses
increase is primarily attributed to an increase in business integration costs.
Operating income:
The operating income decrease is
primarily attributed to a $20 million unfavorable impact from price cost spread related to the timing of passing through resin costs, a $16 million unfavorable
impact from the volume decline, a $15 million increase in depreciation and amortization expense, a $15 million unfavorable impact from hyperinflation in our Argentinian subsidiary and increased business integration costs. These declines were partially
offset by acquisition operating income and a $10 million favorable impact from foreign currency changes.
|
Consumer Packaging International
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
917
|
$
|
936
|
$
|
(19
|
)
|
(2
|
)%
|
|||||||
|
Operating income
|
$
|
31
|
$
|
47
|
$
|
(16
|
)
|
(34
|
)%
|
|||||||
Net sales:
The net sales decline in the Consumer Packaging International segment is
primarily attributed to decreased selling prices of $31 million and a 3% volume decline from general market softness, partially offset
by a $40 million favorable impact from foreign currency changes.
Operating income:
The operating income decrease is
primarily attributed to an $11 million unfavorable impact from price cost spread, a $7 million increase in depreciation and amortization expense, and an
unfavorable impact from the volume decline, partially offset by a favorable impact from foreign currency changes.
|
Consumer Packaging North America
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
699
|
$
|
764
|
$
|
(65
|
)
|
(9
|
)%
|
|||||||
|
Operating income
|
$
|
63
|
$
|
71
|
$
|
(8
|
)
|
(11
|
)%
|
|||||||
Net sales:
The net sales decline in the Consumer Packaging North America segment is
primarily attributed to decreased selling prices of $45 million and a 4% volume decline from general market softness particularly in
industrials, partially offset by acquisition sales of $11 million.
Operating income:
The operating income decrease is
primarily attributed to a $6 million unfavorable impact from the volume decline and a $5 million increase in depreciation and amortization expense, partially
offset by acquisition operating income.
|
Health, Hygiene & Specialties
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
603
|
$
|
663
|
$
|
(60
|
)
|
(9
|
)%
|
|||||||
|
Operating income (loss)
|
$
|
(3
|
)
|
$
|
34
|
$
|
(37
|
)
|
(109
|
)%
|
||||||
Net sales:
The net sales decline in the Health, Hygiene
& Specialties segment is primarily attributed to decreased selling prices of $64 million and a 2% volume decline from softness in our hygiene and specialty markets, partially offset by a $17 million favorable impact from foreign currency changes.
Operating income (loss):
The operating income decrease is
primarily attributed to a $15 million unfavorable impact from price cost spread, a $15 million unfavorable impact from hyperinflation in our Argentinian
subsidiary, and a $9 million increase in business optimization expense related to both plant rationalizations and costs associated with the formal process to evaluate strategic alternatives of the segment.
|
Flexibles
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Net sales
|
$
|
634
|
$
|
697
|
$
|
(63
|
)
|
(9
|
)%
|
|||||||
|
Operating income
|
$
|
66
|
$
|
58
|
$
|
8
|
14
|
%
|
||||||||
Net sales:
The net sales decline in the Flexibles
segment is primarily attributed to decreased selling prices of $49 million and a 3% volume decline in our industrial markets partially offset by growth in our premium protection film products in North America, partially offset by a favorable impact
from foreign currency changes.
Operating income:
The operating income increase is
primarily attributed to an $8 million favorable impact from price cost spread.
|
Other expense
|
||||||||||||||||
|
Quarter
|
Prior Quarter
|
$ Change
|
% Change
|
|||||||||||||
|
Other expense
|
$
|
12
|
$
|
1
|
$
|
11
|
1,100
|
%
|
||||||||
The other expense increase is primarily attributed to higher debt extinguishment and foreign currency changes related to the remeasurement of non-operating
intercompany balances in the Quarter.
Changes in Comprehensive Income
The $
125
million
decline
in Comprehensive income from the Prior Quarter is primarily attributed to a $
76
million
unfavorable
change in the fair value of derivative instruments, net of tax, and a $
47
million
decline
in Net income. Currency translation changes are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. Dollar whereby assets and liabilities are translated from the respective functional currency
into U.S. Dollars using period-end exchange rates. The change in currency translation was primarily attributed to locations utilizing the Euro 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
2024
versus
fiscal
2023
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 $1.0 billion asset-based revolving line of credit that matures in June 2028. The Company was in compliance with all covenants at the end of the Quarter.
Cash Flows
Net cash from operating activities increased $34 million from the Prior Quarter primarily attributed to working capital improvement and the settlement of derivatives in the Quarter, partially offset
by a decline in net income prior to non-cash activities.
Net cash used in investing activities decreased $28 million from the Prior Quarter primarily attributed to decreased investments in property, plant and equipment.
Net cash used in financing activities increased $64 million from the Prior Quarter primarily attributed to higher net repayments on long-term debt, partially offset by lower share repurchases.
Dividend Payments
During the quarter, the Company declared and paid cash dividends of $36 million.
Share Repurchases
During the quarter, the Company repurchased 106
thousand shares for $7 million. The Company has $435
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 30, 2023
|
December 31, 2022
|
|||||||
|
Cash flow from operating activities
|
$
|
(199
|
)
|
$
|
(233
|
)
|
||
|
Additions to property, plant and equipment, net
|
(183
|
)
|
(211
|
)
|
||||
|
Free cash flow
|
$
|
(382
|
)
|
$
|
(444
|
)
|
||
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 30, 2023, our cash balance was $507 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 30, 2023
|
||||
|
Net sales
|
$
|
1,506
|
||
|
Gross profit
|
297
|
|||
|
Earnings from continuing operations
|
67
|
|||
|
Net income
|
$
|
67
|
||
Includes $5 million of expense associated with
intercompany activity with non-guarantor subsidiaries.
|
December 30, 2023
|
September 30, 2023
|
|||||||
|
Assets
|
||||||||
|
Current assets
|
$
|
1,443
|
$
|
1,975
|
||||
|
Noncurrent assets
|
5,944
|
5,997
|
||||||
|
Liabilities
|
||||||||
|
Current liabilities
|
$
|
1,231
|
$
|
1,363
|
||||
|
Noncurrent liabilities
|
10,035
|
10,271
|
||||||
Includes $754 million of intercompany payables due to
non-guarantor subsidiaries as of December 30, 2023 and September 30, 2023, respectively.
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities and accounts receivable supply chain finance
factoring programs. Our senior secured credit facilities are comprised of (i) $2.8 billion term loans and (ii) a $1.0 billion revolving credit facility with no
borrowings outstanding. Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus SOFR. The applicable margin for SOFR rate borrowings under the revolving credit facility ranges from 1.25% to 1.50%, and the margin for the term
loans is 1.75% per annum. As of period end, the SOFR rate of approximately 5.38% was applicable to the term loans. A change of 0.25% on these floating interest rate exposures would increase our annual interest expense by approximately $1 million.
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 6.)
Foreign Currency Risk
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, British pound
sterling, Brazilian real, Chinese renminbi, Canadian dollar and Mexican peso. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses. Currency
translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end
exchange rates and impact our Comprehensive income. A 10% decline in foreign currency exchange rates would have had an $4 million unfavorable
impact on our Net income for the quarterly period ended December 30, 2023. (See Note 6.)
(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 most recent Form 10-K filed with the Securities and Exchange
Commission.
Before investing in our securities, we recommend that investors carefully consider the risks described in our most recent Form 10-K and subsequent periodic
reports filed with the Securities and Exchange Commission, including those under the heading “Risk Factors” 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 subsequent 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 30, 2023.
|
Fiscal Period
|
Total Number of
Shares Purchased
|
Average Price
Paid Per Share
|
Total Number of Shares
Purchased as Part of Publicly
Announced Programs
|
Dollar Value of Shares that
May Yet be Purchased Under
the Program (in millions)
(a)
|
||||||||||||
|
October
|
—
|
$
|
—
|
—
|
$
|
442
|
||||||||||
|
November
|
69,755
|
64.48
|
69,755
|
437
|
||||||||||||
|
December
|
35,934
|
65.40
|
35,934
|
435
|
||||||||||||
|
Total
|
105,689
|
$
|
64.79
|
105,689
|
$
|
435
|
||||||||||
| (a) |
All open market purchases during the quarter were made under the 2023 authorization from our board of directors.
|
Rule 10b5-1 Plan Elections
No officers or directors, as defined in Rule 16a-1(f),
adopted
,
modified and/or
terminated
a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as defined in Regulation S-K Item
408, during the first quarter of fiscal 2024.
|
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
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
Berry Global Group, Inc.
|
|||
|
February 7, 2024
|
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 5. Other InformationprintItem 6. Exhibitsprint