SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 3, 20212, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number 001-35672
BERRY GLOBAL GROUP, INC.
A Delaware corporation | 101 Oakley Street, Evansville, Indiana, 47710 (812) 424-2904 | IRS employer identification number 20-5234618 |
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | BERY | New York Stock Exchange LLC |
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.
Large Accelerated Filer ☒ | Accelerated Filer ☐ | Non-Accelerated Filer ☐ | Smaller Reporting Company ☐ | Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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 134.9130.3 million shares of common stock outstanding at May 4, 2021.
5, 2022.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information included in 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 containcontains 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”,“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 April 3, 20212, 2022
Part I. | Financial Information | Page No. |
| Item 1. | Financial Statements: | |
| | | 4 |
| | | 5 |
| | | 6 |
| | | 7 |
| | | 8 |
| Item 2. | | 1715 |
| Item 3. | | 2522 |
| Item 4. | | 2623 |
Part II. | Other Information | |
| Item 1. | | 2724 |
| Item 1A. | | 2724 |
| Item 2. | | 2724 |
| Item 6. | | 2825 |
| | 2926 |
Part I. Financial Information
Item 1. | Financial Statements |
Consolidated Statements of Income
(Unaudited)
(in millions of dollars, except per share amounts)
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | | | April 2, 2022 | | | April 3, 2021 | | | April 2, 2022 | | | April 3, 2021 | |
Net sales | | $ | 3,370 | | | $ | 2,975 | | | $ | 6,506 | | | $ | 5,791 | | | $ | 3,775 | | | $ | 3,370 | | | $ | 7,348 | | | $ | 6,506 | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of goods sold | | | 2,706 | | | | 2,391 | | | | 5,224 | | | | 4,687 | | | | 3,154 | | | | 2,706 | | | | 6,192 | | | | 5,224 | |
Selling, general and administrative | | | 220 | | | | 204 | | | | 461 | | | | 433 | | | | 207 | | | | 220 | | | | 442 | | | | 461 | |
Amortization of intangibles | | | 73 | | | | 77 | | | | 147 | | | | 152 | | | | 65 | | | | 73 | | | | 133 | | | | 147 | |
Restructuring and transaction activities | | | 38 | | | | 19 | | | | 37 | | | | 36 | | | | 8 | | | | 38 | | | | 11 | | | | 37 | |
Operating income | | | 333 | | | | 284 | | | | 637 | | | | 483 | | | | 341 | | | | 333 | | | | 570 | | | | 637 | |
Other expense, net | | | 6 | | | | 0 | | | | 31 | | | | 13 | | |
Interest expense, net | | | 84 | | | | 111 | | | | 181 | | | | 229 | | |
Other expense | | | | 6 | | | | 6 | | | | 6 | | | | 31 | |
Interest expense | | | | 71 | | | | 84 | | | | 142 | | | | 181 | |
Income before income taxes | | | 243 | | | | 173 | | | | 425 | | | | 241 | | | | 264 | | | | 243 | | | | 422 | | | | 425 | |
Income tax expense | | | 62 | | | | 47 | | | | 114 | | | | 68 | | | | 59 | | | | 62 | | | | 96 | | | | 114 | |
Net income | | $ | 181 | | | $ | 126 | | | $ | 311 | | | $ | 173 | | | $ | 205 | | | $ | 181 | | | $ | 326 | | | $ | 311 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.35 | | | $ | 0.95 | | | $ | 2.32 | | | $ | 1.31 | | | $ | 1.53 | | | $ | 1.35 | | | $ | 2.42 | | | $ | 2.32 | |
Diluted | | | 1.32 | | | | 0.94 | | | | 2.28 | | | | 1.29 | | | | 1.50 | | | | 1.32 | | | | 2.36 | | | | 2.28 | |
Consolidated Statements of Comprehensive Income
(Unaudited)
(in millions of dollars)
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | | | April 2, 2022 | | | April 3, 2021 | | | April 2, 2022 | | | April 3, 2021 | |
Net income | | $ | 181 | | | $ | 126 | | | $ | 311 | | | $ | 173 | | | $ | 205 | | | $ | 181 | | | $ | 326 | | | $ | 311 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | |
Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | |
Currency translation | | | (73 | ) | | | (157 | ) | | | 105 | | | | (65 | ) | | | 37 | | | | (73 | ) | | | 15 | | | | 105 | |
Pension | | | 0 | | | | (1 | ) | | | 0 | | | | (1 | ) | |
Derivative instruments | | | 54 | | | | (109 | ) | | | 71 | | | | (96 | ) | | | 71 | | | | 54 | | | | 100 | | | | 71 | |
Other comprehensive income (loss) | | | (19 | ) | | | (267 | ) | | | 176 | | | | (162 | ) | | | 108 | | | | (19 | ) | | | 115 | | | | 176 | |
Comprehensive income (loss) | | $ | 162 | | | $ | (141 | ) | | $ | 487 | | | $ | 11 | | |
Comprehensive income | | | $ | 313 | | | $ | 162 | | | $ | 441 | | | $ | 487 | |
See notes to consolidated financial statements.
Consolidated Balance Sheets
(in millions of dollars)
| | April 3, 2021 | | | September 26, 2020 | | | April 2, 2022 | | | October 2, 2021 | |
| | (Unaudited) | | | | | | (Unaudited) | | | | |
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 843 | | | $ | 750 | | | $ | 622 | | | $ | 1,091 | |
Accounts receivable, net | | | 1,682 | | | | 1,469 | | |
Accounts receivable | | | | 1,996 | | | | 1,879 | |
Finished goods | | | 878 | | | | 708 | | | | 1,032 | | | | 960 | |
Raw materials and supplies | | | 682 | | | | 560 | | | | 932 | | | | 947 | |
Prepaid expenses and other current assets | | | 180 | | | | 168 | | | | 401 | | | | 217 | |
Assets held for sale | | | 50 | | | | 162 | | |
Total current assets | | | 4,315 | | | | 3,817 | | | | 4,983 | | | | 5,094 | |
Noncurrent assets: | | | | | | | | | | | | | | | | |
Property, plant, and equipment | | | 4,675 | | | | 4,561 | | |
Property, plant and equipment | | | | 4,650 | | | | 4,677 | |
Goodwill and intangible assets | | | 7,626 | | | | 7,670 | | | | 7,183 | | | | 7,434 | |
Right-of-use assets | | | 566 | | | | 562 | | | | 536 | | | | 562 | |
Other assets | | | 81 | | | | 91 | | | | 183 | | | | 115 | |
| | $ | 17,263 | | | $ | 16,701 | | | $ | 17,535 | | | $ | 17,882 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities and stockholders’ equity | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 1,412 | | | $ | 1,115 | | | $ | 1,651 | | | $ | 2,041 | |
Accrued employee costs | | | 321 | | | | 324 | | | | 250 | | | | 336 | |
Other current liabilities | | | 677 | | | | 644 | | | | 824 | | | | 788 | |
Current portion of long-term debt | | | 60 | | | | 75 | | | | 19 | | | | 21 | |
Liabilities held for sale | | | 28 | | | | 25 | | |
Total current liabilities | | | 2,498 | | | | 2,183 | | | | 2,744 | | | | 3,186 | |
Noncurrent liabilities: | | | | | | | | | | | | | | | | |
Long-term debt, less current portion | | | 9,822 | | | | 10,162 | | |
Long-term debt | | | | 9,627 | | | | 9,439 | |
Deferred income taxes | | | 575 | | | | 601 | | | | 569 | | | | 568 | |
Employee benefit obligations | | | 363 | | | | 368 | | | | 244 | | | | 276 | |
Operating lease liabilities | | | 467 | | | | 464 | | | | 443 | | | | 466 | |
Other long-term liabilities | | | 892 | | | | 831 | | | | 588 | | | | 767 | |
Total liabilities | | | 14,617 | | | | 14,609 | | | | 14,215 | | | | 14,702 | |
| | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | |
Common stock (134.8 and 133.6 million shares issued, respectively) | | | 1 | | | | 1 | | |
Common stock (130.4 and 135.5 million shares issued, respectively) | | | | 1 | | | | 1 | |
Additional paid-in capital | | | 1,101 | | | | 1,034 | | | | 1,174 | | | | 1,134 | |
Retained earnings | | | 1,919 | | | | 1,608 | | | | 2,326 | | | | 2,341 | |
Accumulated other comprehensive loss | | | (375 | ) | | | (551 | ) | | | (181 | ) | | | (296 | ) |
Total stockholders’ equity | | | 2,646 | | | | 2,092 | | | | 3,320 | | | | 3,180 | |
Total liabilities and stockholders’ equity | | $ | 17,263 | | | $ | 16,701 | | | $ | 17,535 | | | $ | 17,882 | |
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 | | | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | |
Balance at January 1, 2022 | | | $ | 1 | | | $ | 1,170 | | | $ | (289 | ) | | $ | 2,412 | | | $ | 3,294 | |
Net income | | | | 0 | | | | 0 | | | | 0 | | | | 205 | | | | 205 | |
Other comprehensive income | | | | 0 | | | | 0 | | | | 108 | | | | 0 | | | | 108 | |
Share-based compensation | | | | 0 | | | | 7 | | | | 0 | | | | 0 | | | | 7 | |
Proceeds from issuance of common stock | | | | 0 | | | | 6 | | | | 0 | | | | 0 | | | | 6 | |
Common stock repurchased and retired | | | | 0 | | | | (9 | ) | | | 0 | | | | (291 | ) | | | (300 | ) |
Balance at April 2, 2022 | | | $ | 1 | | | $ | 1,174 | | | $ | (181 | ) | | $ | 2,326 | | | $ | 3,320 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at January 2, 2021 | | $ | 1 | | | $ | 1,062 | | | $ | (356 | ) | | $ | 1,738 | | | $ | 2,445 | | | $ | 1 | | | $ | 1,062 | | | $ | (356 | ) | | $ | 1,738 | | | $ | 2,445 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 181 | | | | 181 | | | | 0 | | | | 0 | | | | 0 | | | | 181 | | | | 181 | |
Other comprehensive loss | | | 0 | | | | 0 | | | | (19 | ) | | | 0 | | | | (19 | ) | | | 0 | | | | 0 | | | | (19 | ) | | | 0 | | | | (19 | ) |
Share-based compensation | | | 0 | | | | 7 | | | | 0 | | | | 0 | | | | 7 | | | | 0 | | | | 7 | | | | 0 | | | | 0 | | | | 7 | |
Proceeds from issuance of common stock | | | 0 | | | | 32 | | | | 0 | | | | 0 | | | | 32 | | | | 0 | | | | 32 | | | | 0 | | | | 0 | | | | 32 | |
Balance at April 3, 2021 | | $ | 1 | | | $ | 1,101 | | | $ | (375 | ) | | $ | 1,919 | | | $ | 2,646 | | | $ | 1 | | | $ | 1,101 | | | $ | (375 | ) | | $ | 1,919 | | | $ | 2,646 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 28, 2019 | | $ | 1 | | | $ | 970 | | | $ | (281 | ) | | $ | 1,096 | | | $ | 1,786 | | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 126 | | | | 126 | | |
Other comprehensive loss | | | 0 | | | | 0 | | | | (267 | ) | | | 0 | | | | (267 | ) | |
Share-based compensation | | | 0 | | | | 5 | | | | 0 | | | | 0 | | | | 5 | | |
Proceeds from issuance of common stock | | | 0 | | | | 1 | | | | 0 | | | | 0 | | | | 1 | | |
Balance at March 28, 2020 | | $ | 1 | | | $ | 976 | | | $ | (548 | ) | | $ | 1,222 | | | $ | 1,651 | | |
Two Quarterly Periods Ended | | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | | | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | |
Balance at October 2, 2021 | | | $ | 1 | | | $ | 1,134 | | | $ | (296 | ) | | $ | 2,341 | | | $ | 3,180 | |
Net income | | | | 0 | | | | 0 | | | | 0 | | | | 326 | | | | 326 | |
Other comprehensive income | | | | 0 | | | | 0 | | | | 115 | | | | 0 | | | | 115 | |
Share-based compensation | | | | 0 | | | | 28 | | | | 0 | | | | 0 | | | | 28 | |
Proceeds from issuance of common stock | | | | 0 | | | | 22 | | | | 0 | | | | 0 | | | | 22 | |
Common stock repurchased and retired | | | | 0 | | | | (10 | ) | | | 0 | | | | (341 | ) | | | (351 | ) |
Balance at April 2, 2022 | | | $ | 1 | | | $ | 1,174 | | | $ | (181 | ) | | $ | 2,326 | | | $ | 3,320 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at September 26, 2020 | | $ | 1 | | | $ | 1,034 | | | $ | (551 | ) | | $ | 1,608 | | | $ | 2,092 | | | $ | 1 | | | $ | 1,034 | | | $ | (551 | ) | | $ | 1,608 | | | $ | 2,092 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 311 | | | | 311 | | | | 0 | | | | 0 | | | | 0 | | | | 311 | | | | 311 | |
Other comprehensive income | | | 0 | | | | 0 | | | | 176 | | | | 0 | | | | 176 | | | | 0 | | | | 0 | | | | 176 | | | | 0 | | | | 176 | |
Share-based compensation | | | 0 | | | | 28 | | | | 0 | | | | 0 | | | | 28 | | | | 0 | | | | 28 | | | | 0 | | | | 0 | | | | 28 | |
Proceeds from issuance of common stock | | | 0 | | | | 39 | | | | 0 | | | | 0 | | | | 39 | | | | 0 | | | | 39 | | | | 0 | | | | 0 | | | | 39 | |
Balance at April 3, 2021 | | $ | 1 | | | $ | 1,101 | | | $ | (375 | ) | | $ | 1,919 | | | $ | 2,646 | | | $ | 1 | | | $ | 1,101 | | | $ | (375 | ) | | $ | 1,919 | | | $ | 2,646 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at September 28, 2019 | | $ | 1 | | | $ | 949 | | | $ | (386 | ) | | $ | 1,054 | | | $ | 1,618 | | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 173 | | | | 173 | | |
Other comprehensive loss | | | 0 | | | | 0 | | | | (162 | ) | | | 0 | | | | (162 | ) | |
Share-based compensation | | | 0 | | | | 24 | | | | 0 | | | | 0 | | | | 24 | | |
Proceeds from issuance of common stock | | | 0 | | | | 3 | | | | 0 | | | | 0 | | | | 3 | | |
Adoption of lease accounting standard | | | 0 | | | | 0 | | | | 0 | | | | (5 | ) | | | (5 | ) | |
Balance at March 28, 2020 | | $ | 1 | | | $ | 976 | | | $ | (548 | ) | | $ | 1,222 | | | $ | 1,651 | | |
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
(in millions of dollars)
| | Two Quarterly Periods Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | March 28, 2020 | | | April 2, 2022 | | | April 3, 2021 | |
Cash Flows from Operating Activities: | | | | | | | | | | | | |
Net income | | $ | 311 | | | $ | 173 | | | $ | 326 | | | $ | 311 | |
Adjustments to reconcile net cash provided by operating activities: | | | | | | | | | |
Adjustments to reconcile net cash from operating activities: | | | | | | | | | |
Depreciation | | | 280 | | | | 277 | | | | 284 | | | | 280 | |
Amortization of intangibles | | | 147 | | | | 152 | | | | 133 | | | | 147 | |
Non-cash interest | | | 16 | | | | 9 | | |
Non-cash interest expense | | | | 8 | | | | 16 | |
Deferred income tax | | | (28 | ) | | | 12 | | | | (43 | ) | | | (28 | ) |
Share-based compensation expense | | | 28 | | | | 24 | | | | 28 | | | | 28 | |
Other non-cash operating activities, net | | | 51 | | | | 33 | | | | (14 | ) | | | 51 | |
Changes in working capital | | | (156 | ) | | | (114 | ) | | | (714 | ) | | | (156 | ) |
Changes in other assets and liabilities | | | (11 | ) | | | (33 | ) | | | (22 | ) | | | (11 | ) |
Net cash from operating activities | | | 638 | | | | 533 | | | | (14 | ) | | | 638 | |
| | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment, net | | | (364 | ) | | | (263 | ) | | | (367 | ) | | | (364 | ) |
Divestitures | | | 143 | | | | 0 | | |
Settlement of net investment hedges | | | 0 | | | | 246 | | |
Other | | | 0 | | | | (10 | ) | |
Divestiture of business | | | | 3 | | | | 143 | |
Net cash from investing activities | | | (221 | ) | | | (27 | ) | | | (364 | ) | | | (221 | ) |
| | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | 2,316 | | | | 1,202 | | | | 244 | | | | 2,316 | |
Repayments on long-term borrowings | | | (2,683 | ) | | | (1,484 | ) | | | (9 | ) | | | (2,683 | ) |
Proceeds from issuance of common stock | | | 39 | | | | 3 | | | | 22 | | | | 39 | |
Repurchase of common stock | | | | (351 | ) | | | 0 | |
Debt financing costs | | | (16 | ) | | | (17 | ) | | | 0 | | | | (16 | ) |
Net cash from financing activities | | | (344 | ) | | | (296 | ) | | | (94 | ) | | | (344 | ) |
Effect of exchange rate changes on cash | | | 20 | | | | (7 | ) | |
Net change in cash | | | 93 | | | | 203 | | |
Effect of currency translation on cash | | | | 3 | | | | 20 | |
Net change in cash and cash equivalents | | | | (469 | ) | | | 93 | |
Cash and cash equivalents at beginning of period | | | 750 | | | | 750 | | | | 1,091 | | | | 750 | |
Cash and cash equivalents at end of period | | $ | 843 | | | $ | 953 | | | $ | 622 | | | $ | 843 | |
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
The accompanying unaudited Condensed Consolidated Financial Statements of Berry Global Group, Inc. (“the Company,” “we,” or “Berry”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.statements. In preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts and disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.The Company’s U.S. based results for fiscal 20212022 and fiscal 20202021 are based on a fifty-threefifty-two and fifty-twofifty-three week period, respectively. The extra week in fiscal 2021 occurred in the first quarter.In October 2020, the Company reorganized portions of its 4 operating segments in order to better align our various businesses for future growth. The Company has recast all prior period amounts to conform to this new reporting structure. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included, and all subsequent events up to the time of the filing have been evaluated. For further information, refer to the Company’s most recent Form 10-K filed with the Securities and Exchange Commission.
2. Recent Accounting Pronouncements
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) and issued subsequent amendments to the initial guidance. The new standard requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which includes historical experience, current conditions, and reasonable and supportable forecasts. The new standard also requires enhanced disclosure. The Company adopted the new standard beginning fiscal 2021 with no material impact to the Company’s consolidated financial statements. See Note 3. Revenue and Accounts Receivable.
Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point changes in assumed health care cost trend rates. The standard also adds requirements to disclose the reasons for significant gains and losses related to changes in the benefit obligations for the period and the accumulated benefit obligation (“ABO”) for plans with ABOs in excess of plan assets. The new standard will be effective for the Company beginning fiscal 2022. The Company is currently evaluating the impact of the adoption of this standard to our disclosures.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740). The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The new standard will be effective for the Company beginning fiscal 2022. The Company is currently evaluating the impact of the adoption of this standard to the Company’s consolidated financial statements.
Reference Rate Reform
In March 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 whether it plans to adopt the optional expedients and exceptions provided under this new standard.
3. Revenue and Accounts Receivable
Our revenues are primarily derived from the sale of plastic packagingnon-woven, flexible and rigid products to customers. Revenue is recognized when performance obligations are satisfied, in an amount reflecting the consideration to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main source of variable consideration is customer rebates. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Generally, our revenue is recognized at a point in time for standard promised goods at the time of shipment, when title and risk of loss pass to the customer. The accrual for customer rebates was $90$101 million and $104 million at April 3,2, 2022 and October 2, 2021, and September 26, 2020, 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 net are presented net of allowance for credit losses of $21$19 million and $25$21 million at April 3,2, 2022 and October 2, 2021, and September 26, 2020, respectively. The Company records its current expected credit losses based on a variety of factors including historical loss experience and current conditions including the COVID-19 pandemic, and 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 qualifying factoring agreements, including customer-based supply chain financing programs, to sell certain receivables to third-party financial institutions. The transferAgreements which result in true sales of the transferred receivables, is accounted forwhich occur when receivables are transferred without recourse to the Company, are reflected as a sale, without recourse. Net sales available under qualifying U.S. based programs were $257 millionreduction of accounts receivable on the consolidated balance sheets and $236 million for the quarterly periods ended April 3, 2021 and March 28, 2020, respectively. Net sales available under qualifying U.S. based programs were $504 million and $458 million forproceeds are included in the two quarterly periods ended April 3, 2021 and March 28, 2020, respectively. There were 0 amounts outstandingcash flows from financial institutions related to these programs.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. DispositionsDisposition
During fiscal 2021,2022, the Company completed the sale of its U.S. Flexible Packaging Converting business which was primarily operated in the Engineered Materials segment for net proceeds of $140 million and is divesting a non-core Czech Republic Reaction Injection Moldingreached an initial agreement to sell our roto molding business which is operated in the Consumer Packaging International segment for an estimated sales priceexpected proceeds of approximately $22 million. A net pretax loss on the divestitures of $22$114 million, was recorded inwhich is preliminary and subject to adjustment at closing. The Company reported fiscal 2021 within Restructuring and transaction activities on the Consolidated Statements of Income. The U.S. Flexible Packaging Converting business and the Czech Republic Reaction Injection Molding business recorded net sales during fiscal 2020 of $203$146 million and $41 million, respectively.related to the business. For the period ended April 3, 2021,2, 2022, the Company has classified assets of $50$156 million and liabilities of $28$49 million as held for sale. The assets and liabilities held for sale are recorded in Prepaid expenses and other current assets, and Other current liabilities, respectively, on the Consolidated Balance Sheets.
5. Restructuring and Transaction Activities
The table below includes the significant components of restructuring and transaction activities, by reporting segment:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | | | April 2, 2022 | | | April 3, 2021 | | | April 2, 2022 | | | April 3, 2021 | |
Consumer Packaging International | | $ | 38 | | | $ | 14 | | | $ | 41 | | | $ | 24 | | | $ | 5 | | | $ | 38 | | | $ | 7 | | | $ | 41 | |
Consumer Packaging North America | | | 0 | | | | 3 | | | | 1 | | | | 4 | | | | 2 | | | | 0 | | | | 3 | | | | 1 | |
Health, Hygiene & Specialties | | | 0 | | | | 1 | | | | 0 | | | | 4 | | | | 0 | | | | 0 | | | | (1 | ) | | | 0 | |
Engineered Materials | | | 0 | | | | 1 | | | | (5 | ) | | | 4 | | | | 1 | | | | 0 | | | | 2 | | | | (5 | ) |
Consolidated | | $ | 38 | | | $ | 19 | | | $ | 37 | | | $ | 36 | | | $ | 8 | | | $ | 38 | | | $ | 11 | | | $ | 37 | |
The table below sets forth the activity with respect to the restructuring and transaction activities accrual at April 3, 2021:2, 2022:
| | Restructuring | | | | | | | |
| | Employee Severance and Benefits | | | Facility Exit Costs | | | Non-cash Impairment Charges | | | Transaction Activities | | | Total | |
Balance as of September 26, 2020 | | $ | 10 | | | $ | 7 | | | $ | 0 | | | $ | 0 | | | $ | 17 | |
Charges | | | 4 | | | | 2 | | | | 2 | | | | 29 | | | | 37 | |
Non-cash items | | | 0 | | | | 0 | | | | (2 | ) | | | (29 | ) | | | (31 | ) |
Cash | | | (9 | ) | | | (3 | ) | | | 0 | | | | 0 | | | | (12 | ) |
Balance as of April 3, 2021 | | $ | 5 | | | $ | 6 | | | $ | 0 | | | $ | 0 | | | $ | 11 | |
| | Restructuring | | | | | | | |
| | Employee Severance and Benefits | | | Facility Exit Costs | | | Transaction Activities | | | Total | |
Balance as of October 2, 2021 | | $ | 6 | | | $ | 5 | | | $ | 0 | | | $ | 11 | |
Charges | | | 3 | | | | 6 | | | | 2 | | | | 11 | |
Cash | | | (3 | ) | | | (7 | ) | | | (2 | ) | | | (12 | ) |
Balance as of April 2, 2022 | | $ | 6 | | | $ | 4 | | | $ | 0 | | | $ | 10 | |
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 | | April 3, 2021 | | | September 26, 2020 | | Classification | | April 2, 2022 | | | October 2, 2021 | |
Operating leases: | | | | | | | | | | | | | | |
Operating lease right-of-use assets | Right-of-use assets | | $ | 566 | | | $ | 562 | | Right-of-use assets | | $ | 536 | | | $ | 562 | |
Current operating lease liabilities | Other current liabilities | | | 116 | | | | 115 | | Other current liabilities | | | 110 | | | | 113 | |
Noncurrent operating lease liabilities | Operating lease liability | | | 467 | | | | 464 | | Operating lease liability | | | 443 | | | | 466 | |
Finance leases: | | | | | | | | | | | | | | | | | | |
Finance lease right-of-use assets | Property, plant, and equipment, net | | $ | 64 | | | $ | 78 | | Property, plant, and equipment, net | | $ | 47 | | | $ | 57 | |
Current finance lease liability | Current portion of long-term debt | | | 13 | | | | 17 | | Current portion of long-term debt | | | 13 | | | | 14 | |
Noncurrent finance lease liabilities | Long-term debt, less current portion | | | 49 | | | | 59 | | Long-term debt, less current portion | | | 30 | | | | 38 | |
Cash paid for amounts included in lease liabilities | | Two Quarterly Periods Ended April 3, 2021 | | | Two Quarterly Periods Ended March 28, 2020 | |
Operating cash flows from operating leases | | $ | 57 | | | $ | 57 | |
Operating cash flows from finance leases | | | 1 | | | | 1 | |
Financing cash flows from finance leases | | | 16 | | | | 17 | |
| | | | | | Two Quarterly Periods Ended | |
Lease Type | Cash Flow Classification | | Lease Expense Category | | | April 2, 2022 | | | April 3, 2021 | |
Operating | Operating | | Lease cost | | | $ | 62 | | | $ | 57 | |
Finance | Operating | | Interest expense | | | | 1 | | | | 1 | |
Finance | Financing | | - | | | | 9 | | | | 16 | |
Finance | - | | Amortization of right-of-use assets | | | | 5 | | | | 7 | |
Right-of-use assets obtained in exchange for new operating lease liabilities were $23$9 million and $34$21 million for the quarterly and two quarterly periods ended April 3, 2021,2, 2022, respectively.
7. Long-Term Debt
Long-term debt consists of the following:
Facility | Maturity Date | | April 3, 2021 | | | September 26, 2020 | | Maturity Date | | April 2, 2022 | | | October 2, 2021 | |
Term loan | July 2026 | | $ | 3,840 | | | | 4,208 | | July 2026 | | $ | 3,440 | | | | 3,440 | |
Revolving line of credit | May 2024 | | | 0 | | | | 0 | | May 2024 | | | 244 | | | | 0 | |
0.95% First Priority Senior Secured Notes | February 2024 | | | 800 | | | | 0 | | February 2024 | | | 800 | | | | 800 | |
1.00% First Priority Senior Secured Notes (a) | July 2025 | | | 823 | | | | 814 | | July 2025 | | | 776 | | | | 810 | |
1.57% First Priority Senior Secured Notes | January 2026 | | | 1,525 | | | | 0 | | January 2026 | | | 1,525 | | | | 1,525 | |
4.875% First Priority Senior Secured Notes | July 2026 | | | 1,250 | | | | 1,250 | | July 2026 | | | 1,250 | | | | 1,250 | |
1.65% First Priority Senior Secured Notes | | January 2027 | | | 400 | | | | 400 | |
1.50% First Priority Senior Secured Notes (a) | July 2027 | | | 441 | | | | 436 | | July 2027 | | | 416 | | | | 434 | |
5.125% Second Priority Senior Secured Notes | July 2023 | | | 200 | | | | 300 | | |
4.50% Second Priority Senior Secured Notes | February 2026 | | | 500 | | | | 500 | | February 2026 | | | 300 | | | | 300 | |
5.625% Second Priority Senior Secured Notes | July 2027 | | | 500 | | | | 500 | | July 2027 | | | 500 | | | | 500 | |
Debt discounts and deferred fees | | | | (87 | ) | | | (85 | ) | | | | (69 | ) | | | (77 | ) |
Finance leases and other | Various | | | 90 | | | | 121 | | Various | | | 64 | | | | 78 | |
Retired debt | Various | | | 0 | | | | 2,193 | | |
Total long-term debt | | | | 9,882 | | | | 10,237 | | | | | 9,646 | | | | 9,460 | |
Current portion of long-term debt | | | | (60 | ) | | | (75 | ) | | | | (19 | ) | | | (21 | ) |
Long-term debt, less current portion | | | $ | 9,822 | | | | 10,162 | | | | $ | 9,627 | | | | 9,439 | |
In fiscal 2021, the Company issued $800 million aggregate principal amount of 0.95% first priority senior secured notes due 2024, and $1,525 million aggregate principal amount of 1.57% first priority senior secured notes due 2026. The proceeds were used to prepay a portion of the outstanding Term loans.
Debt extinguishment costs of $14 million, primarily comprised of deferred debt discount and financing fees, were recorded in Other expense, net on the Consolidated Statements of Income upon the extinguishment of a portion of the Term loans.
Debt discounts and deferred financing fees are presented net of Long-term debt, less the current portion on the Consolidated Balance Sheets and are amortized to Interest expense, net on the Consolidated Statements of Income through maturity.
8. Financial Instruments and Fair Value Measurements
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. The Company may use derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes.
Cross-Currency Swaps
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€250 million), 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 April 3, 2021,2, 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).
As of April 3, 2021,2, 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 1.398%, with an expiration in June 2026, (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.835% with an expiration in June 2026, (iii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.916% with an expiration in June 2026, (iv)(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 (v)(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 | | April 3, 2021 | | | September 26, 2020 | | Hedge Designation | Balance Sheet Location | | April 2, 2022 | | | October 2, 2021 | |
Cross-currency swaps | Designated | Other long-term liabilities | | $ | 423 | | | $ | 270 | | Designated | Other long-term liabilities | | $ | 222 | | | $ | 323 | |
Interest rate swaps | Designated | Other long-term liabilities | | | 138 | | | | 226 | | Designated | Other assets | | | 45 | | | | 0 | |
Interest rate swaps | | Designated | Other long-term liabilities | | | 0 | | | | 82 | |
Interest rate swaps | | Not designated | Other assets | | | 26 | | | | 0 | |
Interest rate swaps | | Not designated | Other long-term liabilities | | | 68 | | | | 49 | |
The effect of the Company’s derivative instruments on the Consolidated Statements of Income is as follows:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
Derivative Instruments | Statements of Income Location | | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | | Statements of Income Location | | April 2, 2022 | | | April 3, 2021 | | | April 2, 2022 | | | April 3, 2021 | |
Cross-currency swaps | Interest expense, net | | $ | (1 | ) | | $ | (1 | ) | | $ | (4 | ) | | $ | (3 | ) | Interest expense | | $ | (4 | ) | | $ | (1 | ) | | $ | (7 | ) | | $ | (4 | ) |
Interest rate swaps | Interest expense, net | | | 17 | | | | 17 | | | | 34 | | | | 34 | | Interest expense | | | 12 | | | | 17 | | | | 24 | | | | 34 | |
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 20202021 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 April 3,2, 2022 and October 2, 2021, and September 26, 2020, along with the impairment loss recognized on the fair value measurement during the period:
| | As of April 3, 2021 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | 0 | | | $ | 0 | | | $ | 248 | | | $ | 248 | | | $ | 0 | |
Goodwill | | | 0 | | | | 0 | | | | 5,229 | | | | 5,229 | | | | 0 | |
Definite lived intangible assets | | | 0 | | | | 0 | | | | 2,149 | | | | 2,149 | | | | 0 | |
Property, plant, and equipment | | | 0 | | | | 0 | | | | 4,675 | | | | 4,675 | | | | 2 | |
Total | | $ | 0 | | | $ | 0 | | | $ | 12,301 | | | $ | 12,301 | | | $ | 2 | |
| | As of September 26, 2020 | | | As of April 2, 2022 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | 0 | | | $ | 0 | | | $ | 248 | | | $ | 248 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 248 | | | $ | 248 | | | $ | 0 | |
Goodwill | | | 0 | | | | 0 | | | | 5,173 | | | | 5,173 | | | | 0 | | | | 0 | | | | 0 | | | | 5,091 | | | | 5,091 | | | | 0 | |
Definite lived intangible assets | | | 0 | | | | 0 | | | | 2,249 | | | | 2,249 | | | | 0 | | | | 0 | | | | 0 | | | | 1,844 | | | | 1,844 | | | | 0 | |
Property, plant, and equipment | | | 0 | | | | 0 | | | | 4,561 | | | | 4,561 | | | | 2 | | | | 0 | | | | 0 | | | | 4,650 | | | | 4,650 | | | | 0 | |
Total | | $ | 0 | | | $ | 0 | | | $ | 12,231 | | | $ | 12,231 | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 11,833 | | | $ | 11,833 | | | $ | 0 | |
| | As of October 2, 2021 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | 0 | | | $ | 0 | | | $ | 248 | | | $ | 248 | | | $ | 0 | |
Goodwill | | | 0 | | | | 0 | | | | 5,192 | | | | 5,192 | | | | 0 | |
Definite lived intangible assets | | | 0 | | | | 0 | | | | 1,994 | | | | 1,994 | | | | 0 | |
Property, plant, and equipment | | | 0 | | | | 0 | | | | 4,677 | | | | 4,677 | | | | 1 | |
Total | | $ | 0 | | | $ | 0 | | | $ | 12,111 | | | $ | 12,111 | | | $ | 1 | |
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 fairbook value of our marketable long-term indebtedness exceeded bookfair value by $101$212 million as of April 3, 2021.2, 2022. The Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable).
9. Income Taxes
In comparison to the statutory rate, the higher effective tax rate for the quarter and year-to-date was negatively impacted by divestituresstate taxes and global intangible low-taxed income provisions.provisions, partially offset by other discrete items.
10. Segment and Geographic Data
The Company’s operations are organized into 4 reporting segments: Consumer Packaging International, Consumer Packaging North America, Engineered Materials, and Health, Hygiene & Specialties.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.In October 2020, the Company realigned portions of our operating segments. As a result of these organizational realignments, we have recast prior period segment amounts resulting in the following Net sales movements for the two quarterly periods ended March 28, 2020: (1.) Tapes business: $138 million from Engineered Materials to Health, Hygiene & Specialties, (2.) North American Healthcare: $142 million from Consumer Packaging North America to Consumer Packaging International and (3.) European Films: $347 million from Consumer Packaging International to Engineered Materials.
Selected information by reportable segment is presented in the following tables:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | | | April 2, 2022 | | | April 3, 2021 | | | April 2, 2022 | | | April 3, 2021 | |
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 1,060 | | | $ | 970 | | | $ | 2,048 | | | $ | 1,900 | | | $ | 1,139 | | | $ | 1,060 | | | $ | 2,195 | | | $ | 2,048 | |
Consumer Packaging North America | | | 731 | | | | 633 | | | | 1,417 | | | | 1,244 | | | | 880 | | | | 731 | | | | 1,732 | | | | 1,417 | |
Health, Hygiene & Specialties | | | 781 | | | | 644 | | | | 1,521 | | | | 1,254 | | | | 822 | | | | 781 | | | | 1,640 | | | | 1,521 | |
Engineered Materials | | | 798 | | | | 728 | | | | 1,520 | | | | 1,393 | | | | 934 | | | | 798 | | | | 1,781 | | | | 1,520 | |
Total net sales | | $ | 3,370 | | | $ | 2,975 | | | $ | 6,506 | | | $ | 5,791 | | | $ | 3,775 | | | $ | 3,370 | | | $ | 7,348 | | | $ | 6,506 | |
Operating income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 59 | | | $ | 53 | | | $ | 135 | | | $ | 96 | | | $ | 97 | | | $ | 59 | | | $ | 166 | | | $ | 135 | |
Consumer Packaging North America | | | 77 | | | | 69 | | | | 136 | | | | 113 | | | | 85 | | | | 77 | | | | 131 | | | | 136 | |
Health, Hygiene & Specialties | | | 114 | | | | 66 | | | | 210 | | | | 113 | | | | 69 | | | | 114 | | | | 131 | | | | 210 | |
Engineered Materials | | | 83 | | | | 96 | | | | 156 | | | | 161 | | | | 90 | | | | 83 | | | | 142 | | | | 156 | |
Total operating income | | $ | 333 | | | $ | 284 | | | $ | 637 | | | $ | 483 | | | $ | 341 | | | $ | 333 | | | $ | 570 | | | $ | 637 | |
Depreciation and amortization: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 87 | | | $ | 79 | | | $ | 170 | | | $ | 161 | | | $ | 82 | | | $ | 87 | | | $ | 164 | | | $ | 171 | |
Consumer Packaging North America | | | 54 | | | | 60 | | | | 111 | | | | 116 | | | | 53 | | | | 54 | | | | 107 | | | | 110 | |
Health, Hygiene & Specialties | | | 42 | | | | 46 | | | | 87 | | | | 93 | | | | 44 | | | | 42 | | | | 89 | | | | 87 | |
Engineered Materials | | | 29 | | | | 28 | | | | 59 | | | | 59 | | | | 27 | | | | 29 | | | | 57 | | | | 59 | |
Total depreciation and amortization | | $ | 212 | | | $ | 213 | | | $ | 427 | | | $ | 429 | | | $ | 206 | | | $ | 212 | | | $ | 417 | | | $ | 427 | |
Selected information by geographical region is presented in the following tables:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | |
Net sales: | | | | | | | | | | | | |
United States and Canada | | $ | 1,728 | | | $ | 1,705 | | | $ | 3,405 | | | $ | 3,218 | |
Europe | | | 1,257 | | | | 981 | | | | 2,350 | | | | 1,984 | |
Rest of world | | | 385 | | | | 289 | | | | 751 | | | | 589 | |
Total net sales | | $ | 3,370 | | | $ | 2,975 | | | $ | 6,506 | | | $ | 5,791 | |
Selected information by product line is presented in the following tables:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | |
Net sales: | | | | | | | | | | | | |
Packaging | | | 81 | | | | 83 | | | | 81 | | | | 83 | |
Non-packaging | | | 19 | | | | 17 | | | | 19 | | | | 17 | |
Consumer Packaging International | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | |
Rigid Open Top | | | 54 | | | | 55 | | | | 55 | | | | 56 | |
Rigid Closed Top | | | 46 | | | | 45 | | | | 45 | | | | 44 | |
Consumer Packaging North America | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | |
Health | | | 19 | | | | 15 | | | | 19 | | | | 14 | |
Hygiene | | | 45 | | | | 47 | | | | 45 | | | | 48 | |
Specialties | | | 36 | | | | 38 | | | | 36 | | | | 38 | |
Health, Hygiene & Specialties | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | |
Core Films | | | 64 | | | | 63 | | | | 61 | | | | 61 | |
Retail & Industrial | | | 36 | | | | 37 | | | | 39 | | | | 39 | |
Engineered Materials | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
| | April 2, 2022 | | | April 3, 2021 | | | April 2, 2022 | | | April 3, 2021 | |
Net sales: | | | | | | | | | | | | |
United States and Canada | | $ | 1,996 | | | $ | 1,728 | | | $ | 3,948 | | | $ | 3,405 | |
Europe | | | 1,399 | | | | 1,257 | | | | 2,616 | | | | 2,350 | |
Rest of world | | | 380 | | | | 385 | | | | 784 | | | | 751 | |
Total net sales | | $ | 3,775 | | | $ | 3,370 | | | $ | 7,348 | | | $ | 6,506 | |
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
NaNDuring the quarterly period ended April 2, 2022, the Company repurchased and retired 5,029 thousand shares were repurchased duringfor $300 million. For the two quarterly periods ended April 3, 2021.2, 2022, the Company repurchased and retired 5,756 thousand shares for $351 million. Authorized share repurchases of $393$700 million remain available to the Company.
13. Basic and Diluted Net IncomeEarnings 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 net income per share is calculated by dividingEPS includes the net income attributable to common stockholders by the weighted-average numbereffects of common share equivalents outstanding for the period determined using the treasury-stock methodoptions and the if-converted method. For purposes of this calculation,restricted stock options are considered to be common stock equivalents and are only included in the calculation of diluted net income per share when their effect isunits, if dilutive. For the six months ended April 3, 2021,3.2 million shares were excluded from the diluted net income per share calculation as their effect would be anti-dilutive. NaN shares were excluded from the diluted net income per share calculation for the three months ended April 3, 2021. For the three and six months ended March 28, 2020, 7.1 million and 7.1 million shares, respectively, were excluded.
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted net income per share calculations.EPS calculations:
| | Quarterly Period Ended | | | Two Quarterly Periods Ended | | | Quarterly Period Ended | | | Two Quarterly Periods Ended | |
(in millions, except per share amounts) | | April 3, 2021 | | | March 28, 2020 | | | April 3, 2021 | | | March 28, 2020 | | | April 2, 2022 | | | April 3, 2021 | | | April 2, 2022 | | | April 3, 2021 | |
Numerator | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated net income | | $ | 181 | | | $ | 126 | | | $ | 311 | | | $ | 173 | | | $ | 205 | | | $ | 181 | | | $ | 326 | | | $ | 311 | |
Denominator | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | 134.3 | | | | 132.4 | | | | 133.9 | | | | 132.4 | | | | 133.8 | | | | 134.3 | | | | 134.6 | | | | 133.9 | |
Dilutive shares | | | 2.5 | | | | 1.7 | | | | 2.7 | | | | 1.8 | | | | 3.1 | | | | 2.5 | | | | 3.4 | | | | 2.7 | |
Weighted average common and common equivalent shares outstanding - diluted | | | 136.8 | | | | 134.1 | | | | 136.6 | | | | 134.2 | | | | 136.9 | | | | 136.8 | | | | 138.0 | | | | 136.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Per common share income | | | | | | | | | | | | | | | | | |
Per common share earnings | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.35 | | | $ | 0.95 | | | $ | 2.32 | | | $ | 1.31 | | | $ | 1.53 | | | $ | 1.35 | | | $ | 2.42 | | | $ | 2.32 | |
Diluted | | $ | 1.32 | | | $ | 0.94 | | | $ | 2.28 | | | $ | 1.29 | | | $ | 1.50 | | | $ | 1.32 | | | $ | 2.36 | | | $ | 2.28 | |
1.2 million and 1.3 million shares, respectively, were excluded from the diluted EPS calculation for the quarterly and two quarterly periods ended April 2, 2022 as their effect would be anti-dilutive. For the two quarterly periods ended April 3, 2021, 3.2 million shares were excluded.
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 January 2, 2021 | | $ | (100 | ) | | $ | (116 | ) | | $ | (140 | ) | | $ | (356 | ) |
Other comprehensive income (loss) before reclassifications | | | (73 | ) | | | 0 | | | | 52 | | | | (21 | ) |
Net amount reclassified from accumulated other comprehensive loss | | | 0 | | | | 0 | | | | 2 | | | | 2 | |
Balance at April 3, 2021 | | $ | (173 | ) | | $ | (116 | ) | | $ | (86 | ) | | $ | (375 | ) |
Quarterly Period Ended | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at January 1, 2022 | | $ | (176 | ) | | $ | (67 | ) | | $ | (46 | ) | | $ | (289 | ) |
Other comprehensive income before reclassifications | | | 37 | | | | 0 | | | | 69 | | | | 106 | |
Net amount reclassified | | | 0 | | | | 0 | | | | 2 | | | | 2 | |
Balance at April 2, 2022 | | $ | (139 | ) | | $ | (67 | ) | | $ | 25 | | | $ | (181 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at December 28, 2019 | | $ | (187 | ) | | $ | (56 | ) | | $ | (38 | ) | | $ | (281 | ) |
Other comprehensive loss before reclassifications | | | (157 | ) | | | (1 | ) | | | (144 | ) | | | (302 | ) |
Net amount reclassified from accumulated other comprehensive loss | | | 0 | | | | 0 | | | | 35 | | | | 35 | |
Balance at March 28, 2020 | | $ | (344 | ) | | $ | (57 | ) | | $ | (147 | ) | | $ | (548 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at January 2, 2021 | | $ | (100 | ) | | $ | (116 | ) | | $ | (140 | ) | | $ | (356 | ) |
Other comprehensive income (loss) before reclassifications | | | (73 | ) | | | 0 | | | | 52 | | | | (21 | ) |
Net amount reclassified | | | 0 | | | | 0 | | | | 2 | | | | 2 | |
Balance at April 3, 2021 | | $ | (173 | ) | | $ | (116 | ) | | $ | (86 | ) | | $ | (375 | ) |
Two Quarterly Periods Ended | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at September 26, 2020 | | $ | (278 | ) | | $ | (116 | ) | | $ | (157 | ) | | $ | (551 | ) |
Other comprehensive income before reclassifications | | | 105 | | | | 0 | | | | 67 | | | | 172 | |
Net amount reclassified from accumulated other comprehensive loss | | | 0 | | | | 0 | | | | 4 | | | | 4 | |
Balance at April 3, 2021 | | $ | (173 | ) | | $ | (116 | ) | | $ | (86 | ) | | $ | (375 | ) |
Two Quarterly Periods Ended | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at October 2, 2021 | | $ | (154 | ) | | $ | (67 | ) | | $ | (75 | ) | | $ | (296 | ) |
Other comprehensive income before reclassifications | | | 15 | | | | 0 | | | | 95 | | | | 110 | |
Net amount reclassified | | | 0 | | | | 0 | | | | 5 | | | | 5 | |
Balance at April 2, 2022 | | $ | (139 | ) | | $ | (67 | ) | | $ | 25 | | | $ | (181 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at September 28, 2019 | | $ | (279 | ) | | $ | (56 | ) | | $ | (51 | ) | | $ | (386 | ) |
Other comprehensive loss before reclassifications | | | (65 | ) | | | (1 | ) | | | (148 | ) | | | (214 | ) |
Net amount reclassified from accumulated other comprehensive loss | | | 0 | | | | 0 | | | | 52 | | | | 52 | |
Balance at March 28, 2020 | | $ | (344 | ) | | $ | (57 | ) | | $ | (147 | ) | | $ | (548 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance at September 26, 2020 | | $ | (278 | ) | | $ | (116 | ) | | $ | (157 | ) | | $ | (551 | ) |
Other comprehensive income before reclassifications | | | 105 | | | | 0 | | | | 67 | | | | 172 | |
Net amount reclassified | | | 0 | | | | 0 | | | | 4 | | | | 4 | |
Balance at April 3, 2021 | | $ | (173 | ) | | $ | (116 | ) | | $ | (86 | ) | | $ | (375 | ) |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 in order to better align our various businesses for future growth.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, items, 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 polyethylene-based film products,stretch and shrink films, converter films, institutional can liners.
Acquisitionsliners, food and Dispositions. Our acquisition strategy is focused on improving our long-term financial performance, enhancing our market positions,consumer films, retail bags, and expanding our existing and complementary product lines. We seek to obtain businesses for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire. While the expected benefits on earnings is estimated at the commencement of each transaction, once the execution of the plan and integration occur, we are generally unable to accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to multiple facilities. As historical business combinations and restructuring plans have not allowed us to accurately separate realized synergies compared to what was initially identified, we estimate the synergy realization based on the overall segment profitability post integration.
During fiscal 2021, the Company completed the sale of its U.S. Flexible Packaging Converting business which was primarily operated in the Engineered Materials segment for net proceeds of $140 million and is divesting a non-core Czech Republic Reaction Injection Molding business which is operated in the Consumer Packaging International segment for an estimated sales price of approximately $22 million. A net pretax loss on the divestitures of $22 million was recorded in fiscal 2021 within Restructuring and transaction activities on the Consolidated Statements of Income. The U.S Flexible Packaging Converting business and the Czech Republic Reaction Injection Molding business recorded net sales during fiscal 2020 of $203 million and $41 million, respectively.agriculture films.
Raw Material Trends. Our primary raw material is plasticpolymer resin. Due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs, segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted when plastic resin costs decrease. This timing lag and competitor behaviors related to passing through raw material cost changes could affect our results as plastic resin costs fluctuate. 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. These raw materials are available from multiple sources and we purchase from a variety of global suppliers. 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 occur,lead to increased raw material price volatility, which we have experienced in recent quarters. Increases in the price of raw materials are generally able to be 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 successfully manage raw materials supplies without significant supply interruptions.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, plastic resinraw material availability, and affordability,cost inflation, supply chain disruptions, and general industrial production. The COVID-19 pandemic has resulted in both advantaged and disadvantaged products within all segments. Our results areDuring fiscal 2022, we anticipate a headwind as the advantaged products, particularly in our Health, Hygiene & Specialties segment, related to the COVID-19 pandemic moderate while recovery of disadvantaged products lags with the ultimate impact being affected by both the duration certain products remain advantaged and timing of when disadvantagedisadvantaged 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. In the near term, recent resin inflation will create a headwind for the Company, which weWe believe will be offsetthat by the continued favorable product mix associated with pivoting our assets to produce products related to COVID-19 protection. By providing advantaged products in targeted markets, we continue to believe our underlying long-term demand fundamental in all divisions will remain strong as we focus on delivering protective solutions that enhance consumer safety and execute on the Company’s mission statement of “Always Advancing to Protect What’s Important.” For fiscal 2021,2022, we project cash flow from operations between $1,675 to $1,575 million$1.75 billion and $700$1.65 billion, which assumes the benefit from the lag in recovery of inflation, improved supply chains, and free cash flow between $1 billion and $900 million. Projected fiscal 2022 free cash flow assumes $750 million of capital spending. In addition, we repurchased 5,756 thousand shares for $351 million in the first half of the fiscal year and expect to continue repurchases in the second half of the fiscal year if current valuations persist. 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 April 3, 20212, 2022 (the “Quarter”) and the Quarterly Period Ended March 28, 2020April 3, 2021 (the “Prior Quarter”)
Business integration expenses consist of restructuring and impairment charges, acquisition and divestiture related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 3,370 | | | $ | 2,975 | | | $ | 395 | | | | 13 | % | | $ | 3,775 | | | $ | 3,370 | | | $ | 405 | | | | 12 | % |
Cost of goods sold | | | 2,706 | | | | 2,391 | | | | 315 | | | | 13 | % | | | 3,154 | | | | 2,706 | | | | 448 | | | | 17 | % |
Other operating expenses | | | 331 | | | | 300 | | | | 31 | | | | 10 | % | | | 280 | | | | 331 | | | | (51 | ) | | | (15 | )% |
Operating income | | $ | 333 | | | $ | 284 | | | $ | 49 | | | | 17 | % | | $ | 341 | | | $ | 333 | | | $ | 8 | | | | 2 | % |
Net Sales: The net sales growth is primarily attributed to increased selling prices of $192$576 million due to the pass through of higher resin costs,inflation. This increase was partially offset by an organic volume growthdecline of 5%2%, and a $92$64 million favorableunfavorable impact from foreign currency changes. These increases were partially offset bychanges, extra shipping days in the Prior Quarter of $19 million, and Prior Quarter divestiture sales of $53$14 million. The organic volume growth wasdecline is primarily dueattributed to organic growth investments, modest recoverysupply chain disruptions and the moderation of certain markets that had previously been facingadvantaged products related to the COVID-19 headwinds, and higher demand in our advantaged health and hygiene products as the result of COVID-19.pandemic.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, partially offset by the organic volume growth, product mix, higher resin costs anddecline, a $74 million increasedecrease from foreign currency changes. These increases were partially offset bychanges, extra shipping days in the Prior Quarter, and Prior Quarter divestiture cost of goods sold of $42 million and a $19 million inventory step-up.$12 million.
Other operating expenses: The other operating expenses increasedecrease is primarily attributed to a $21 million increasedecrease in business integration expense and a $15 million increase in selling, general, and administrative expense.
Operating Income: The operating income increase is primarily attributed to a $35$37 million increase from the organic volume growth, a $19 million inventory step-up in the Prior Quarter related to the RPC acquisition, a $16 million favorable impact from price cost spread including synergies and product mix, and a $16 million favorable impact from foreign currency, partially offset by a $21 million increasedecrease in business integration expense, and a $15 million increasedecrease in selling, general, and administrative expense.expenses, partially offset by a $13 million unfavorable impact from price cost spread and negative product mix, a $12 million unfavorable impact from foreign currency, and a $10 million unfavorable impact from the volume decline.
Consumer Packaging International | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 1,060 | | | $ | 970 | | | $ | 90 | | | | 9 | % | | $ | 1,139 | | | $ | 1,060 | | | $ | 79 | | | | 7 | % |
Cost of goods sold | | | 842 | | | | 785 | | | | 57 | | | | 7 | % | |
Other operating expenses | | | 159 | | | | 132 | | | | 27 | | | | 20 | % | |
Operating income | | $ | 59 | | | $ | 53 | | | $ | 6 | | | | 11 | % | | $ | 97 | | | $ | 59 | | | $ | 38 | | | | 64 | % |
Net Sales: The net sales growth in the Consumer Packaging International segment is primarily attributed to organic volume growthincreased selling prices of 4%, and$144 million due to the pass through of inflation, partially offset by a $71$51 million favorableunfavorable impact from foreign currency changes. The organic volume growth was primarily due to recovery in emerging markets.
Cost of goods sold: The cost of goods sold increase is attributed to the organic volume growthchanges and a $57 million increase from foreign currency changes. These increases were partially offset by change in product mix and the Prior Quarter $19 million inventory step-up.
Other operating expenses: The other operating expenses increase is primarily attributed to a $24 million increase in business integration activities.divestiture sales of $14 million.
Operating Income: The operating income increase is primarily attributed to a $12$39 million favorabledecrease in business integration expense and a $4 million decrease in amortization expense, partially offset by a $9 million unfavorable impact from foreign currency, an $11 million increase from the organic volume growth, and a $19 million inventory step-up in the Prior Quarter, partially offset by a $24 million increase in business integration activities, and an increase in depreciation and amortization.currency.
Consumer Packaging North America | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 731 | | | $ | 633 | | | $ | 98 | | | | 15 | % | | $ | 880 | | | $ | 731 | | | $ | 149 | | | | 20 | % |
Cost of goods sold | | | 597 | | | | 508 | | | | 89 | | | | 18 | % | |
Other operating expenses | | | 57 | | | | 56 | | | | 1 | | | | 2 | % | |
Operating income | | $ | 77 | | | $ | 69 | | | $ | 8 | | | | 12 | % | | $ | 85 | | | $ | 77 | | | $ | 8 | | | | 10 | % |
Net Sales: The net sales growth in the Consumer Packaging North America segment is primarily attributed to increased selling prices of $60$155 million due to the pass through of higher resin costs and organic volume growth of 5%. The organic volume growth was primarily due to continued strength in closures, bottles and containers.
Cost of goods sold: The cost of goods sold increase is attributed to the organic volume growth, product mix and higher resin costs.inflation.
Operating Income: The operating income increase is primarily attributed to a $9an $11 million increase from the organic volume growth and a decrease in depreciation and amortization, partially offset by a negativefavorable impact from price cost spread.
Health, Hygiene & Specialties | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 822 | | | $ | 781 | | | $ | 41 | | | | 5 | % |
Operating income | | $ | 69 | | | $ | 114 | | | $ | (45 | ) | | | (39 | )% |
Net Sales: The net sales growth in the Health, Hygiene & Specialties segment is primarily attributed to organic volume growth of 8%, and increased selling prices of $83$82 million due to the pass through of higher resin costs. inflation, partially offset by a 3% volume decline, and a $10 million unfavorable impact from foreign currency changes. The organic volume growth wasdecline is primarily due to organic growth investments and higher demand in our advantage health and hygiene products as the result of COVID-19.
Cost of goods sold: The cost of goods sold increase is attributed to the organic volume growth, product mix and higher resin costs.moderation of advantaged products related to the COVID-19 pandemic.
Operating Income: The operating income increasedecrease is primarily attributed to a $12$39 million impact from the organic volume growth and a $31 million favorableunfavorable impact from price cost spread and negative product mix.
Engineered Materials | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Net sales | | $ | 798 | | | $ | 728 | | | $ | 70 | | | | 10 | % | | $ | 934 | | | $ | 798 | | | $ | 136 | | | | 17 | % |
Cost of goods sold | | | 658 | | | | 579 | | | | 79 | | | | 14 | % | |
Other operating expenses | | | 57 | | | | 53 | | | | 4 | | | | 8 | % | |
Operating income | | $ | 83 | | | $ | 96 | | | $ | (13 | ) | | | (14 | )% | | $ | 90 | | | $ | 83 | | | $ | 7 | | | | 8 | % |
Net Sales: The net sales growth in the Engineered Materials segment is primarily attributed to increased selling prices of $69$195 million due to the pass through of higher resin costs, organic volume growth of 3%, and a $15 million favorable impact from foreign currency changes,inflation, partially offset by Prior Quarter divestiture salesa volume decline of $43 million.
Cost of goods sold:6%. The cost of goods sold increasevolume decline is primarily attributed to the organic volume growth, product mix, higher resin costs, and a $13 million increase from foreign currency changes. These increases were partially offset by Prior Quarter divestiture cost of goods sold of $35 million.supply chain disruptions.
Operating Income: The operating income decreaseincrease is primarily attributed to a $10$13 million negativefavorable impact from price cost spread, andpartially offset by the unfavorable impact from the volume decline.
Other expense, net | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Other expense, net | | $ | 6 | | | $ | 6 | | | $ | — | | | | — | |
The other expense in the Quarter is primarily attributed to a loss on asset disposals. The Prior Quarter divestiture operating income.
Other expense, net | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Other expense, net | | $ | 6 | | | $ | — | | | $ | 6 | | | | N/A | |
The other expense is primarily attributed to debt extinguishment costs, partially offset by favorable foreign currency changes related to the remeasurement of non-operating intercompany balances.
Interest expense, net | | | | | | | | | | | | | | | | | | |
| | Quarter | | | Prior Quarter | | | $ Change | | | % Change | | | Quarter | | | Prior Quarter | | | $ Change | | | % Change | |
Interest expense, net | | $ | 84 | | | $ | 111 | | | $ | (27 | ) | | | (24 | )% | | $ | 71 | | | $ | 84 | | | $ | (13 | ) | | | (15 | )% |
The interest expense decrease is primarily the result of repayments on long-termrefinancing activities and repayment of borrowings in fiscal 2020 and recent refinancing activities (see Note 7).2021.
Changes in Comprehensive Income
The $303$151 million improvement in comprehensive income from the Prior Quarter wasis primarily attributed to a $55$24 million improvement in net income, a $163$17 million favorable change in the fair value of derivative instruments, net of tax, and an $84a $110 million favorable change in currency translation. 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 20212022 versus fiscal 20202021 is primarily attributed to the change in the forward interest and foreign exchange curves between measurement dates.
Comparison of the Two Quarterly Periods Ended April 3, 20212, 2022 (the “YTD”) and the Two Quarterly Periods Ended March 28, 2020April 3, 2021 (the “Prior YTD”)
The Company’s U.S. based results for the YTD and Prior YTD are based on a twenty-seventwenty-six and twenty-sixtwenty-seven week period, respectively. Business integration expenses consist of restructuring and impairment charges, acquisition and divestiture related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview | | | | | | | | | | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | | | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 6,506 | | | $ | 5,791 | | | $ | 715 | | | | 12 | % | | $ | 7,348 | | | $ | 6,506 | | | $ | 842 | | | | 13 | % |
Cost of goods sold | | | 5,224 | | | | 4,687 | | | | 537 | | | | 11 | % | | | 6,192 | | | | 5,224 | | | | 968 | | | | 19 | % |
Other operating expenses | | | 645 | | | | 621 | | | | 24 | | | | 4 | % | | | 586 | | | | 645 | | | | (59 | ) | | | (9 | )% |
Operating income | | $ | 637 | | | $ | 483 | | | $ | 154 | | | | 32 | % | | $ | 570 | | | $ | 637 | | | $ | (67 | ) | | | (11 | )% |
Net Sales: The net sales growth is primarily attributed to organic volume growth of 6%, increased selling prices of $181 million$1.3 billion due to the pass through of higher resin costs, a $142inflation. This increase was partially offset by an organic volume decline of 3%, extra days in the Prior YTD of $131 million, favorablean $81 million unfavorable impact from foreign currency changes, and a $131 million increase from extra shipping days in the YTD. These increases were partially offset by Prior QuarterYTD divestiture sales of $68$62 million. The organic volume growth wasdecline is primarily dueattributed to organic growth investments, modest recoverysupply chain disruptions and the moderation of certain markets that had previously been facingadvantaged products related to the COVID-19 headwinds, and higher demand in our advantaged health and hygiene products as the result of COVID-19.pandemic.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, partially offset by the organic volume growth, product mix, higher resin costs,decline, a $114 million increasedecrease from foreign currency changes, and a $101 million increase from extra shipping daydays in the YTD. These increases were partially offset byPrior YTD, and Prior YTD divestiture cost of goods sold of $55 million and a $19 million inventory step-up.$50 million.
Other operating expenses: The other operating expenses increasedecrease is primarily attributed to an $11 million increasea decrease in business integration expense, selling, general, and administrative expensesexpense, and an increaseamortization expense.
Operating Income: The operating income decrease is primarily attributed to a $54 million unfavorable impact from price cost spread, a $25 million unfavorable impact from the volume decline, a $22 million decrease from extra shipping days in the YTD.
Operating Income:Prior YTD, The operating income increase is primarily attributed to an $81a $15 million increase from the organic volume growth, a $33 million favorable impact from price cost spread including synergies and product mix, a $23 million favorableunfavorable impact from foreign currency, anda $22 million benefitnegative impact from extra shipping days in the YTD, and a $19 million inventory step-up in the Prior YTD related to the RPC acquisition,divestiture operating income, partially offset by an $11a $46 million increasedecrease in business integration expense, and a decrease in selling, general, and administrative expenses, and Prior YTD divestiture operating income.expenses.
Consumer Packaging International | | | | | | | | | | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | | | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 2,048 | | | $ | 1,900 | | | $ | 148 | | | | 8 | % | | $ | 2,195 | | | $ | 2,048 | | | $ | 147 | | | | 7 | % |
Cost of goods sold | | | 1,634 | | | | 1,535 | | | | 99 | | | | 6 | % | |
Other operating expenses | | | 279 | | | | 269 | | | | 10 | | | | 4 | % | |
Operating income | | $ | 135 | | | $ | 96 | | | $ | 39 | | | | 41 | % | | $ | 166 | | | $ | 135 | | | $ | 31 | | | | 23 | % |
Net Sales: The net sales growth in the Consumer Packaging International segment is primarily attributed to organic volume growthincreased selling prices of 4% and$260 million due to the pass through of inflation, partially offset by a $115$67 million favorableunfavorable impact from foreign currency changes partially offset by lower selling pricesand Prior YTD divestiture sales of $48$28 million. The organic volume growth was primarily due to recovery in emerging markets.
Cost of goods sold: The cost of goods sold increase is attributed to the organic volume growth and a $93 million increase from foreign currency changes. These increases were partially offset by change in product mix and a $19 million inventory step-up in the Prior YTD.
Other operating expenses: The other operating expenses increase is primarily attributed to an increase in business integration expense.
Operating Income: The operating income increase is primarily attributed to a $47 million decrease in business integration expense and a decrease in depreciation and amortization expense, partially offset byan $18$11 million increase from the organic volume growth, an $18 million favorableunfavorable impact from foreign currency and a $19$9 million inventory step-up in the Prior YTD related to the RPC acquisition, partially offset by an $18 million increase in business integration activities.unfavorable impact from price cost spread.
Consumer Packaging North America | | | | | | | | | | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | | | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 1,417 | | | $ | 1,244 | | | $ | 173 | | | | 14 | % | | $ | 1,732 | | | $ | 1,417 | | | $ | 315 | | | | 22 | % |
Cost of goods sold | | | 1,155 | | | | 1,017 | | | | 138 | | | | 14 | % | |
Other operating expenses | | | 126 | | | | 114 | | | | 12 | | | | 11 | % | |
Operating income | | $ | 136 | | | $ | 113 | | | $ | 23 | | | | 20 | % | | $ | 131 | | | $ | 136 | | | $ | (5 | ) | | | (4 | )% |
Net Sales: The net sales growth in the Consumer Packaging North America segment is primarily attributed to organic volume growth of 6%, increased selling prices of $56$371 million anddue to the pass through of inflation, partially offset by a $40 million increasedecrease from extra shipping days in the Prior YTD.The organic volume growth was primarily due to continued strength in closures, bottles and containers.
Cost of goods sold: The cost of goods sold increase is attributed to the organic volume growth, product mix, higher resin costs, and a $30 million increase from extra shipping day in the YTD.
Other operating expenses: The other operating expenses increase is primarily attributed an increase in selling, general, and administrative expense.
Operating Income: The operating income increasedecrease is primarily attributed to a $22 million increase from the organic volume growth and a $7 million benefitdecrease from extra shipping days in the YTD, partially offset by increased selling, general, and administrative expense.Prior YTD.
Health, Hygiene & Specialties | | | | | | | | | | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | | | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 1,521 | | | $ | 1,254 | | | $ | 267 | | | | 21 | % | | $ | 1,640 | | | $ | 1,521 | | | $ | 119 | | | | 8 | % |
Cost of goods sold | | | 1,182 | | | | 1,013 | | | | 169 | | | | 17 | % | |
Other operating expenses | | | 129 | | | | 128 | | | | 1 | | | | 1 | % | |
Operating income | | $ | 210 | | | $ | 113 | | | $ | 97 | | | | 86 | % | | $ | 131 | | | $ | 210 | | | $ | (79 | ) | | | (38 | )% |
Net Sales: The net sales growth in the Health, Hygiene & Specialties segment is primarily attributed to organic volume growth of 12%, increased selling prices of $90$225 million due to the pass through of higher resin costs,inflation, partially offset by a 4% volume decline, and a $42 million increasedecrease from extra shipping days in the YTD, partially offset by Prior YTD divestiture sales of $14 million. . The organic volume growth wasdecline is primarily due to organic growth investments and higher demand in our advantage health and hygiene products as the result of COVID-19.
Cost of goods sold: The cost of goods sold increase is attributed to supply chain disruptions and the organic volume growth, product mix, higher resin costs, and a $31 million increase from extra shipping day inmoderation of advantaged products related to the YTD. These increases were partially offset by Prior YTD divestiture cost of goods sold.COVID-19 pandemic.
Operating Income: The operating income increasedecrease is primarily attributed to a $36$61 million increase from the organic volume growth, a $47 million favorableunfavorable impact from price cost spread, including synergiesan $11 million unfavorable impact from the volume decline, and product mix, and a benefitan $8 million decrease from extra shipping days in the YTD.Prior YTD.
Engineered Materials | | | | | | | | | | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | | | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Net sales | | $ | 1,520 | | | $ | 1,393 | | | $ | 127 | | | | 9 | % | | $ | 1,781 | | | $ | 1,520 | | | $ | 261 | | | | 17 | % |
Cost of goods sold | | | 1,253 | | | | 1,122 | | | | 131 | | | | 12 | % | |
Other operating expenses | | | 111 | | | | 110 | | | | 1 | | | | 1 | % | |
Operating income | | $ | 156 | | | $ | 161 | | | $ | (5 | ) | | | (3 | )% | | $ | 142 | | | $ | 156 | | | $ | (14 | ) | | | (9 | )% |
Net Sales: The net sales growth in the Engineered Materials segment is primarily attributed to increased selling prices of $83$426 million due to the pass through of higher resin costs,inflation, partially offset by a volume decline of 5%, a $44 million increasedecrease from extra shipping days in the Prior YTD, organic volume growth of 2%, and a $22 million favorable impact from foreign currency changes, partially offset by Prior YTD divestiture sales of $54$34 million.
Cost of goods sold:The cost of goods sold increasevolume decline is primarily attributed to the organic volume growth, product mix, higher resin costs, an $18 million increase from foreign currency changes, and a $35 million increase from extra shipping day in the YTD. These increases were partially offset by Prior YTD divestiture cost of goods sold of $45 million.supply chain disruptions.
Operating Income: The operating income decrease is primarily attributed to a $15$13 million impact from Prior YTD divestiture operating income, a $9 million unfavorable impact from price cost spread and Prior YTD divestiture operating income. These decreases were partially offset by an improvement from the organic volume growth,decline, and a benefitdecrease from extra shipping days in the Prior YTD,. partially offset by a $13 million favorable impact from price cost spread.
Other expense, net | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Other expense, net | | $ | 31 | | | $ | 13 | | | $ | 18 | | | | 138 | % |
Other expense | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Other expense | | $ | 6 | | | $ | 31 | | | $ | (25 | ) | | | (81 | )% |
The other expense increasedecrease is primarily attributed to foreign currency changes related to the remeasurement of non-operating intercompany balances.balances in the Prior YTD.
Interest expense, net | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Interest expense, net | | $ | 181 | | | $ | 229 | | | $ | (48 | ) | | | (21 | )% |
Interest expense | | | | | | | | | |
| | YTD | | | Prior YTD | | | $ Change | | | % Change | |
Interest expense | | $ | 142 | | | $ | 181 | | | $ | (39 | ) | | | (22 | )% |
The interest expense decrease is primarily the result of refinancing activities and repayments on long-termof borrowings in fiscal 2020 and recent refinancing activities.2021.
Changes in Comprehensive Income
The $476$46 million improvementdecline in comprehensive income from the Prior YTD was primarily attributed to a $138$15 million improvement in net income, a $170$90 million favorableunfavorable change in currency translation, and a $167$29 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 20212022 versus fiscal 20202021 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 noan outstanding balance of $244 million on its $850$950 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. (see Note 7)
Cash Flows
Net cash from operating activities increased $105decreased $652 million from the Prior YTD primarily attributed to improved net income prior to non-cash activities.working capital inflation and timing of payables.
Net cash used in investing activities increased $194$143 million from the Prior YTD primarily attributed to increased capital expenditures andfewer proceeds from the settlement of cross-currency derivatives in the Prior YTD, partially offset by proceeds from the divestiture of business in the YTD.divestiture.
Net cash used in financing activities increased $48decreased $250 million from the Prior YTD primarily attributed to higher net debt repayments,borrowings, partially offset by higher proceeds from issuancerepurchases of common stock.stock in the YTD.
Share Repurchases
NoDuring fiscal 2022, the Company repurchased 5.8 million shares were repurchased during the quarter.for $351 million. Authorized share repurchases of $393$700 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:
| | April 2, 2022 | | | Fiscal 2022 Outlook | |
Cash flow from operating activities | | $ | (14 | ) | | $ | 1,650-1,750 | |
Additions to property, plant and equipment, net | | | (367 | ) | | | (750 | ) |
Free cash flow | | $ | (381 | ) | | $ | 900-1,000 | |
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 April 3, 2021,2, 2022, our cash balance was $843$622 million, of which approximately 80% 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 overwith the next twelve months. We do not expect our free cash flow to be sufficientexception of funds needed to cover all long-term debt obligations, andwhich we intend to refinance these obligations 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.
| | Two Quarterly Periods Ended | | | Two Quarterly Periods Ended | |
| | April 3, 2021 | | | April 2, 2022 | |
Net sales | | $ | 3,278 | | | $ | 3,813 | |
Gross profit | | | 641 | | | | 599 | |
Earnings from continuing operations | | | 167 | | | | 175 | |
Net income | | $ | 167 | | | $ | 175 | |
Includes $12$2 million of income associated with intercompany activity with non-guarantor subsidiaries.
| | April 3, 2021 | | | September 26, 2020 | |
Assets | | | | | | |
Current assets | | $ | 1,712 | | | $ | 1,417 | |
Noncurrent assets | | | 5,926 | | | | 6,153 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current liabilities | | $ | 1,048 | | | $ | 841 | |
Noncurrent liabilities | | | 11,619 | | | | 11,936 | |
Includes $715 million and $572 million of intercompany payables due to non-guarantor subsidiaries as of April 3, 2021 and September 26, 2020, respectively.
| | April 2, 2022 | | | October 2, 2021 | |
Assets | | | | | | |
Current assets | | $ | 2,033 | | | $ | 2,293 | |
Noncurrent assets | | | 6,044 | | | | 5,979 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current liabilities | | $ | 1,094 | | | $ | 1,533 | |
Intercompany payable | | | 634 | | | | 629 | |
Noncurrent liabilities | | | 11,097 | | | | 11,083 | |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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) $3.8$3.4 billion term loans and (ii) a $850$950 million revolving credit facility with no borrowings$244 million outstanding. Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus LIBOR. The applicable margin for LIBOR rate borrowings under the revolving credit facility ranges from 1.25% to 1.50%, and the margin for term loans is 1.75% per annum. As of period end, the LIBOR rate of approximately 0.12%0.46% was applicable to the term loans. A 0.25% change in LIBOR would increase our annual interest expense by $2$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. At period end, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.398%, with an expiration in June 2026, (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.835% with an expiration in June 2026, (iii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.916% with an expiration in June 2026, (iv) a $884 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.857%, with an expiration in June 2024, and (v) a $473 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.050%, with an expiration in June 2024.(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 an $18a $6 million unfavorable impact on our Net income for the two quarterly periods ended April 3, 2021.
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€250 million), 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 April 3, 2021, 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.
2, 2022. (See Note 8.)
Item 4. Controls and Procedures
(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 endedQuarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
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 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 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
DuringThe following table summarizes the quarter,Company's repurchases of its common stock during the Company did not repurchase any shares. As ofQuarterly Period ended April 3, 2021, $393 million of authorized shares remained available to purchase under the program.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) | |
January | | | 164,100 | | | $ | 61.75 | | | | 164,100 | | | $ | 990 | |
February | | | 2,405,334 | | | | 61.16 | | | | 2,405,334 | | | | 843 | |
March | | | 2,459,076 | | | | 58.05 | | | | 2,459,076 | | | | 700 | |
Total | | | 5,028,510 | | | $ | 59.66 | | | | 5,028,510 | | | $ | 700 | |
(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 |
3.1 | | |
3.2 | | |
4.1 | | |
4.2 | | Registration Rights Agreement, by and between Berry Global, Inc., Berry Global Group, Inc., each subsidiary of Berry Global, Inc. identified therein, and Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, on behalf of themselves and as representatives of the initial purchasers, relating to the 0.95% First Priority Senior Secured Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 15, 2021). |
4.3 | | |
4.4 | | Registration Rights Agreement, dated March 4, 2021, by and between Berry Global, Inc., Berry Global Group, Inc., each subsidiary of Berry Global, Inc. identified therein, and Citigroup Global Markets Inc. Goldman Sachs & Co. LLC and Wells Fargo Securities, LLC, on behalf of themselves and as representatives of the initial purchasers, relating to the 1.57% First Priority Senior Secured Notes due 2026 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 5, 2021). |
10.1 | | |
| | Subsidiary Guarantors |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
| | Section 1350 Certification of the Chief Executive Officer. |
| | 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). |
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. | |
| | | |
May 4, 20215, 2022 | By: | /s/ Mark W. Miles | |
| | Mark W. Miles | |
| | Chief Financial Officer | |