UNITED STATES
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 December 30, 201729, 2018
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 Securities Exchange Act of 1934 (the "Exchange Act"):

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes  ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☒ No ☐  No 

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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 12b-2 of the Exchange Act.  Yes   ☐   No   ☐

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes  ☐     No  ☒

Class Outstanding at February 7, 20181, 2019
Common Stock, $.01 par value per share 131.2130.3 million shares

1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events.  The forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."  These statements contain words such as "believes," "expects," "may," "will," "should," "would," "could," "seeks," "approximately," "intends," "plans," "estimates," "outlook," "anticipates"“believes,” “expects,” “may,” “will,” “should,” “would,” “could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “outlook,” “anticipates” or "looking forward"“looking forward” or similar expressions that relate to our strategy, plans, intentions, or expectations.  All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements.  In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments.  These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected.  We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions.  While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.  All forward-looking statements are based upon information available to us on the date of this Form 10-Q. 

Readers should carefully review the factors discussed in our most recent Form 10-K in the section titled "Risk Factors" and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission.

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Berry Global Group, Inc.
Form 10-Q Index
For Quarterly Period Ended December 30, 201729, 2018

Part I.Financial InformationPage No.
 
Item 1.
Financial Statements:
 
  Consolidated Statements of Income and Comprehensive Income
4
  
Consolidated Balance Sheets
5
  
Consolidated Statements of Changes in Stockholders' Equity
6
Consolidated Statements of Cash Flows
67
  
Notes to Consolidated Financial Statements
78
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
1819
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
23
 
Item 4.
Controls and Procedures
24
Part II.Other Information 
 
Item 1.
Legal ProceedingProceedings
25
 
Item 1A.
Risk Factors
25
 
Item 6.2.
ExhibitsUnregistered Sales of Equity Securities and Use of Proceeds
26
 
SignatureItem 6.
Exhibits
27
Signature
28

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Part I. Financial Information

Item 1.Financial Statements

Berry Global Group, Inc.
Consolidated StatementStatements of Income
(Unaudited)
(in millions of dollars, except per share amounts)

 Quarterly Period Ended  Quarterly Period Ended 
 December 30, 2017  December 31, 2016  December 29, 2018  December 30, 2017 
Net sales  $1,776  $1,502  $1,972  $1,776 
Costs and expenses:                
Cost of goods sold   1,447   1,206   1,619   1,447 
Selling, general and administrative   117   113   124   117 
Amortization of intangibles   38   33   42   38 
Restructuring and impairment charges  11   4   11   11 
Operating income   163   146   176   163 
Other expense (income), net   9   (1)
Other (income) expense, net   —   9 
Interest expense, net   62   68   64   62 
Income before income taxes   92   79   112   92 
Income tax expense (benefit)  (71)  28   24   (71)
Net income  $163  $51  $88  $163 
                
Net income per share:                
Basic  $1.24  $0.42  $0.67  $1.24 
Diluted   1.20   0.40   0.66   1.20 
Outstanding weighted-average shares:                
Basic   131.0   122.0   131.1   131.0 
Diluted   136.0   127.8   133.8   136.0 

Consolidated Statements of Comprehensive Income
(Unaudited)
(in millions of dollars) 

 Quarterly Period Ended  Quarterly Period Ended 
 December 30, 2017  December 31, 2016  December 29, 2018  December 30, 2017 
Net income  $163  $51  $88  $163 
Currency translation   (24)  (45)  (4)  (24)
Pension and other postretirement benefits  (1)  —   —   (1)
Interest rate hedges   17   17   (24)  17 
Provision for income taxes  (4)  (6)  7   (4)
Other comprehensive loss, net of tax  (12)  (34)  (21)  (12)
Comprehensive income  $151  $17  $67  $151 

See notes to consolidated financial statements.

4
Berry Global Group, Inc.
Consolidated Balance Sheets
(in millions of dollars)

 December 30, 2017  September 30, 2017  December 29, 2018  September 29, 2018 
Assets (Unaudited)     (Unaudited)    
            
Current assets:            
Cash and cash equivalents  $228  $306  $293  $381 
Accounts receivable (less allowance of $13)  780   847   879   941 
Inventories:                
Finished goods   498   428   545   503 
Raw materials and supplies   380   334   411   384 
  878   762   956   887 
Prepaid expenses and other current assets   95   89   78   76 
Total current assets   1,981   2,004   2,206   2,285 
Property, plant, and equipment, net   2,363   2,366   2,457   2,488 
Goodwill and intangible assets, net  4,024   4,061   4,243   4,284 
Other assets   52   45   66   74 
Total assets  $8,420  $8,476  $8,972  $9,131 
                
Liabilities                
                
Current liabilities:                
Accounts payable  $666  $638  $715  $783 
Accrued expenses and other current liabilities   454   463   427   416 
Current portion of long-term debt   34   33   37   38 
Total current liabilities   1,154   1,134   1,179   1,237 
Long-term debt, less current portion   5,502   5,608   5,700   5,806 
Deferred income taxes   276   419   357   365 
Other long-term liabilities   314   300   281   289 
Total liabilities   7,246   7,461   7,517   7,697 
                
Stockholders' equity                
                
Common stock (131.1 and 130.9 million shares issued, respectively)  1   1 
Common stock (130.6 and 131.4 million shares issued, respectively)  1   1 
Additional paid-in capital   831   823   873   867 
Non-controlling interest   3   3   3   3 
Retained earnings  419   256   755   719 
Accumulated other comprehensive loss   (80)  (68)  (177)  (156)
Total stockholders' equity  1,174   1,015   1,455   1,434 
Total liabilities and stockholders' equity $8,420  $8,476  $8,972  $9,131 

See notes to consolidated financial statements.

5
Berry Global Group, Inc.
Consolidated Statements of Cash FlowsChanges in Stockholders' Equity
(Unaudited)
(in millions of dollars)

  Quarterly Period Ended 
  December 30, 2017  December 31, 2016 
Cash Flows from Operating Activities:      
Net income $163  $51 
Adjustments to reconcile net cash provided by operating activities:        
Depreciation   91   87 
Amortization of intangibles   38   33 
Non-cash interest expense   3   1 
Deferred income tax   (121)  14 
Stock compensation expense   4   3 
Other non-cash operating activities, net   6   (1)
Changes in working capital   (66)  (43)
Changes in other assets and liabilities   35   (2)
Net cash from operating activities   153   143 
         
Cash Flows from Investing Activities:        
Additions to property, plant and equipment   (94)  (65)
Proceeds from sale of assets   3   2 
Other investing activities, net  —   (1)
Net cash from investing activities  (91)  (64)
         
Cash Flows from Financing Activities:        
Repayments on long-term borrowings   (108)  (10)
Proceeds from issuance of common stock   4   5 
Payment of tax receivable agreement   (37)  (60)
Net cash from financing activities   (141)  (65)
Effect of exchange rate changes on cash   1   (6)
Net change in cash   (78)  8 
Cash and cash equivalents at beginning of period   306   323 
Cash and cash equivalents at end of period  $228  $331 
  Common Stock  Additional Paid-in Capital  Non-Controlling Interest  
Accumulated Other
Comprehensive Loss
  Retained Earnings  Total 
Balance at September 30, 2017 $1  $823  $3  $(68) $256  $1,015 
Share-based compensation expense  —   4   —   —   —   4 
Proceeds from issuance of common stock  —   4   —   —   —   4 
Interest rate hedges, net of tax  —   —   —   13   —   13 
Net income attributable to the Company  —   —   —   —   163   163 
Currency translation  —   —   —   (24)  —   (24)
Pension  —   —   —   (1)  —   (1)
Balance at December 30, 2017 $1  $831  $3  $(80) $419  $1,174 
                         
Balance at September 29, 2018 $1  $867  $3  $(156) $719  $1,434 
Share-based compensation expense  —   3   —   —   —   3 
Proceeds from issuance of common stock  —   5   —   —   —   5 
Common stock repurchased and retired  —   (2)  —   —   (52)  (54)
Interest rate hedges, net of tax  —   —   —   (17)  —   (17)
Net income attributable to the Company  —   —   —   —   88   88 
Currency translation  —   —   —   (4)  —   (4)
Balance at December 29, 2018 $1  $873  $3  $(177) $755  $1,455 

See notes to consolidated financial statements.


6
Berry Global Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in millions of dollars)

  Quarterly Period Ended 
  December 29, 2018  December 30, 2017 
Cash Flows from Operating Activities:      
Net income $88  $163 
Adjustments to reconcile net cash provided by operating activities:        
Depreciation   96   91 
Amortization of intangibles   42   38 
Non-cash interest expense   (1)  3 
Deferred income tax   4   (121)
Share-based compensation expense   3   4 
Other non-cash operating activities, net   4   6 
Changes in working capital   (71)  (66)
Changes in other assets and liabilities   (4)  35 
Net cash from operating activities   161   153 
         
Cash Flows from Investing Activities:        
Additions to property, plant and equipment   (75)  (94)
Proceeds from sale of assets   —   3 
Net cash from investing activities  (75)  (91)
         
Cash Flows from Financing Activities:        
Repayments on long-term borrowings   (110)  (108)
Proceeds from issuance of common stock   5   4 
Repurchase of common stock  (52)  — 
Payment of tax receivable agreement   (16)  (37)
Net cash from financing activities   (173)  (141)
Effect of exchange rate changes on cash   (1)  1 
Net change in cash   (88)  (78)
Cash and cash equivalents at beginning of period   381   306 
Cash and cash equivalents at end of period  $293  $228 

See notes to consolidated financial statements.

7
Berry Global Group, Inc.
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.  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.  Certain reclassifications have been made to prior periods to conform withto current reporting.  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.
2.  Recently Issued Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting standards updates to the FASB's Accounting Standards Codification.  During fiscal 2018,2019, with the exception of the below, there have been no developments to the recently adopted accounting pronouncements from those disclosed in the Company's 20172018 Annual Report on Form 10-K that are considered to have a material impact on our unaudited consolidated financial statements.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB)FASB issued a final standard on revenue recognition.  Under the new standard, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  For public entities, the provisions of the new standard are effective for annual reporting periods beginning after December 15, 2017 and interim periods therein.  An entity can apply the new revenue standard on a full retrospective approach to each prior reporting period presented or on a modified retrospective approach with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings.

The Company plans to adoptadopted the new standard which at a minimum will result in expanded revenue disclosures,effective for fiscal 2019 using the modified retrospective approach,approach.  The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  Under the new standard, the lessee of an operating lease will be required to do the following: 1) recognize a right-of-use asset and a lease liability in the statement of financial position, 2) recognize a single lease cost allocated over the lease term generally on a straight-line basis, and 3) classify all cash payments within operating activities on the statement of cash flows.  Companies are required to adopt this standard using a modified retrospective transition method.  Amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is currently evaluating the impact to the consolidated financial statementsof this standard, which will be effective for the Company beginning in fiscal 2019.2020.

3.  Revenue Recognition

HedgesOur revenues are primarily derived from the sale of plastic packaging products to customers.  Revenue is recognized when performance obligations are satisfied, in an amount reflecting the consideration the Company expects to be entitled.  We consider the promise to transfer products to be our sole performance obligation.  If the consideration agreed to in a contract includes a variable amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method.  Our main sources of variable consideration are customer rebates and cash discounts.  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.  A small number of our contracts are for sales of products which are customer specific and cannot be repurposed. Sales for these products qualify for over time recognition and are immaterial to the Company.

8
Our rebate programs are individually negotiated with customers and contain a variety of different terms and conditions.  Certain rebates are calculated as flat percentages of purchases, while others included tiered volume incentives.  These rebates may be payable monthly, quarterly, or annually.  The calculation of the accrued rebate balance involves management estimates, especially where the terms of the rebate involve tiered volume levels that require estimates of expected annual sales.  These provisions are based on estimates derived from current program requirements and historical experience.  The accrual for customer rebates was $64 million and $58 million at December 29, 2018 and September 29, 2018, respectively, and is included in Accrued expenses and other current liabilities.

Due to the nature of our sales transactions, we have elected the following practical expedients: (i) Shipping and handling costs are treated as fulfillment costs. Accordingly, shipping and handling costs are classified as a component of Cost of goods sold while amounts billed to customers are classified as a component of Net Sales; (ii) We exclude sales and similar taxes that are imposed on our sales and collected from customers; (iii) As our standard payment terms are less than one year, we did not assess whether a contract has a significant financing component.

The Company disaggregates revenue based on reportable business segment, geography, and significant product line.  Refer to Note 11. Operating Segments for further information.

4.  Acquisitions

Laddawn, Inc.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities in order to more closely align the results of hedge accounting with risk management activities through changes to the designation and measurement guidance.  The new guidance is effective for interim and annual periods beginning after December 15, 2018.  The effect of adoption should be reflected on all active hedges as of the beginning of the fiscal year of adoption.  The Company has chosen to early adopt this guidance for fiscal 2018, and the adoption of this guidance did not have a material impact on any of its active hedges.

3.Acquisitions
AEP Industries Inc.

In January 2017, the Company acquired AEP IndustriesLaddawn, Inc. ("AEP"Laddawn") for a purchase price of $791$242 million, net of cash acquired.  A portion of the purchase price consisted of issuing 6.4 million of Berry common shares which were valued at $324 million at the time of closing.  AEP manufacturesis preliminary and markets an extensivesubject to adjustment.  Laddawn is a custom bag and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products for consumer, industrial, and agricultural applications.film manufacturer with a unique-to-industry e-commerce sales platform.  The acquired business is operated in our Engineered Materials segment.  To finance the purchase, the Company entered into an incremental assumption agreement to increase the commitments under the Company'sused existing term loan credit agreement by $500 million due 2024.liquidity.

7
The acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on fair values at the acquisition date.  The results of AEP have been included in the consolidated results of the Company since the date of the acquisition.  The Company has recognized Goodwill on this transaction primarily as a result of expected cost synergies, and does not expect Goodwill to be deductible for tax purposes.  The following table summarizes the allocation of purchase price and the fair values of the assets acquired and liabilities assumed at the date of the acquisition:

Working capital (a) $139 
Property and equipment  223 
Intangible assets  214 
Goodwill  347 
Historical AEP debt assumed  (7)
Other assets and long-term liabilities  (125)
(a) Includes a $5 million step up of inventory to fair value 

Unaudited pro forma net sales and net income were $1.8 billion and $51 million, respectively, for the quarterly period ended December 31, 2016.  The unaudited pro forma net sales and net income assume that the AEP acquisition had occurred at the beginning of the period.

Adchem Corp.

In June 2017, the Company acquired Adchem Corp.'s ("Adchem") tapes business for a purchase price of $49 million, which the Company financed using existing liquidity.  Adchem is a leader in the development of high performance adhesive tape systems for the automotive, construction, electronics, graphic arts, medical and general tape markets.  The acquired business is operated in our Engineered Materials segment.  The acquisition has been accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on preliminary estimates of fair value at the acquisition date.  The results of AdchemLaddawn have been included in the consolidated results of the Company since the date of the acquisition.  The Company has not finalized the allocationsallocation of the purchase price to the fair value of deferred taxes (including assessment of uncertain tax positions), fixedthe assets acquired and certain working capital accounts.liabilities assumed.  The assets acquired and liabilities assumed consisted of working capital of $10$26 million, property and equipment of $2$39 million, intangible assets of $22$98 million, and goodwill of $15$79 million.  The working capital includes a $2 million step up of inventory to fair value.  The Company has recognized Goodwillgoodwill on this transaction primarily as a result of expected cost synergies, and expects Goodwillgoodwill to be deductible for tax purposes.

4. Accounts Receivable Factoring Agreements
Clopay Plastic Products Company, Inc.

In February 2018, the Company acquired Clopay Plastic Products Company, Inc. ("Clopay") for a purchase price of $475 million.  Clopay is an innovator in the development of printed breathable films, elastic films, and laminates with product offerings uniquely designed for applications used in a number of markets including: hygiene, healthcare, construction and industrial protective apparel.  The acquired business is operated within our Health, Hygiene & Specialties segment.  To finance the purchase, the Company issued $500 million aggregate principal amount of 4.5% second priority notes through a private placement offering.

The acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on fair values at the acquisition date.  The results of Clopay have been included in the consolidated results of the Company since the date of the acquisition.  The Company has recognized goodwill on this transaction primarily as a result of expected cost synergies, and expects goodwill to be deductible for tax purposes.  The following table summarizes the purchase price allocation and estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:

Working capital (a) $70 
Property and equipment  164 
Intangible assets  125 
Goodwill  111 
Other assets and long-term liabilities  5 
(a) Includes a $3 million step up of inventory to fair value

9
5.  Accounts Receivable Factoring Agreements

The Company has entered into various factoring agreements, both in the U.S. and at a number of foreign subsidiaries, to sell certain receivables to unrelated third-party financial institutions. The Company accounts for these transactions in accordance with ASC 860, "Transfers and Servicing" ("ASC 860").  ASC 860 allows for the ownership transfer of accounts receivable to qualify for sale treatment when the appropriate criteria is met, which permits the Company to present the balances sold under the program to be excluded from Accounts receivable, net on the Consolidated Balance Sheets.  Receivables are considered sold when (i) they are transferred beyond the reach of the Company and its creditors, (ii) the purchaser has the right to pledge or exchange the receivables, and (iii) the Company has surrendered control over the transferred receivables.  In addition, the Company provides no other forms of continued financial support to the purchaser of the receivables once the receivables are sold.

There were no amounts outstanding from financial institutions related to U.S. based programs at December 30, 201729, 2018 or September 30, 2017.29, 2018.  Gross amounts factored under these U.S. based programs at December 30, 201729, 2018 and September 30, 201729, 2018 were $118$212 million and $129$162 million, respectively.  The fees associated with transfer of receivables for all programs were not material for any of the periods presented.

5. Restructuring and Impairment Charges
6.  Restructuring and Impairment Charges

The Company incurred restructuring costs related to severance and facility exit costs of $11 million and $4 million for both the quarterly periodsperiod ended December 29, 2018 and December 30, 2017, and December 31, 2016, respectively.  The costs incurred in the quarter relate primarily to severance charges associated with acquisition integrations.  The tables below set forth the significant components of the restructuring charges recognized, by segment:

 Quarterly Period Ended  Quarterly Period Ended 
 December 30, 2017  December 31, 2016  December 29, 2018  December 30, 2017 
Consumer Packaging  $1  $2  $—  $1 
Health, Hygiene & Specialties   10   2   10   10 
Engineered Materials   —   —   1   — 
Consolidated  $11  $4  $11  $11 

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The table below sets forth the activity with respect to the restructuring accrual at December 30, 2017:29, 2018:

 Employee Severance and Benefits  
Facility Exit
Costs
  Total  Employee Severance and Benefits  
Facility Exit
Costs
  Non-cash Impairment Charges  Total 
Balance at September 30, 2017 $14  $5  $19 
Balance at September 29, 2018 $9   4   —  $13 
Charges   10   1   11   3   1   7   11 
Non-cash asset impairment  —   —   (7)  (7)
Cash payments   (7)  (1)  (8)  (6)  (1)  —   (7)
Balance at December 30, 2017 $17  $5  $22 
Balance at December 29, 2018 $6   4   —  $10 

6.Accrued Expenses, Other Current Liabilities and Other Long-Term Liabilities
7.  Accrued Expenses, Other Current Liabilities and Other Long-Term Liabilities

The following table sets forth the totals included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets:

 December 30, 2017  September 30, 2017  December 29, 2018  September 29, 2018 
Employee compensation $122  $147  $106  $113 
Accrued taxes  107   90   79   72 
Rebates  59   58   64   58 
Interest   34   36   43   49 
Tax receivable agreement obligation  24   35   12   16 
Restructuring  22   19   10   13 
Accrued operating expenses  86   78   113   95 
 $454  $463  $427  $416 

The following table sets forth the totals included in Other long-term liabilities on the Consolidated Balance Sheets:

 December 30, 2017  September 30, 2017  December 29, 2018  September 29, 2018 
Uncertain tax positions $68  $67 
Deferred purchase price  43   40 
Pension liability  $53  $56   42   45 
Deferred purchase price  46   46 
Lease retirement obligation  42   37   40   39 
Sale-lease back deferred gain  21   21 
Transition tax  36   —   18   18 
Interest rate swaps  26   27 
Sale-lease back deferred gain  23   24 
Derivative instruments  13   12 
Tax receivable agreement obligation  13   34   12   23 
Other   75   76   24   24 
 $314  $300  $281  $289 

7. 10
8.  Long-Term Debt

Long-term debt consists of the following:

 Maturity Date December 30, 2017   September 30, 2017  Maturity Date December 29, 2018  September 29, 2018 
Term loan February 2020 $900  $1,000 February 2020 $700  $800 
Term loan January 2021  814   814 January 2021  814   814 
Term loan October 2022  1,645   1,645 October 2022  1,545   1,545 
Term loanJanuary 2024  496   498 January 2024  493   493 
Revolving line of credit May 2020  —   — May 2020  —   — 
5 1/8% Second Priority Senior Secured Notes
July 2023  700   700 
5 1/2% Second Priority Senior Secured Notes
May 2022  500   500 May 2022  500   500 
6% Second Priority Senior Secured NotesOctober 2022  400   400 October 2022  400   400 
5 1/8% Second Priority Senior Secured Notes
July 2023  700   700 
4 1/2% Second Priority Senior Secured Notes
February 2026  500   500 
Debt discounts and deferred fees    (46)  (48)   (40)  (43)
Capital leases and other Various  127   132 Various  125   135 
Total long-term debt    5,536   5,641    5,737   5,844 
Current portion of long-term debt    (34)  (33)   (37)  (38)
Long-term debt, less current portion  $5,502  $5,608   $5,700  $5,806 
9

The Company was in compliance with all debt covenants for all periods presented.

Debt discounts and deferred financing fees are presented net of Long-term debt, less the current portion on the Consolidated Balance Sheets and are amortized to Interest expense through maturity.

Term Loans

In November 2017, the Company executed an amendment to lower interest rates under certain term loans.  The term loans maturing inwith a maturity date of February 2020 and January 2021 bear interest at LIBOR plus 2.00% with no LIBOR floor.1.75%.  The term loans maturing inwith a maturity date of October 2022 and January 2024 bear interest at LIBOR plus 2.25% with no LIBOR floor.2.00%.
During fiscal 2018,2019, the Company has made $108$110 million of repayments on long-term borrowings using existing liquidity.  As a result of the current year prepayments and modifications, the Company recorded a $1 million loss on debt extinguishment in Other expense (income), net, reflecting the write-off of deferred financing fees and debt discounts, net of amortization associated with the portion of debt that was considered extinguished.
8.
9.  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.  For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

To the extent hedging relationships are found to be effective, as determined by FASB guidance, changes in the fair value of the derivatives are offset by changes in the fair value of the related hedged item and recorded to Accumulated other comprehensive loss. Any identified ineffectiveness, or changes in the fair value of a derivative not designated as a hedge, is recorded to the Consolidated Statements of Income.

Cross-Currency Swaps

In November 2017, theThe Company entered intois party to certain cross-currency swap agreements with a notional amount of 250 million euro to effectively convert a portion of our fixed-rate U.S. dollar denominated term loans, including the monthly interest payments, to fixed-rate euro-denominated debt.  The swap agreements mature in May 2022.  The risk management objective is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currencies and reduce the variability in the functional currency cash flows of a portion of the Company'sCompany’s term loans.  Changes in fair value of the derivative instruments are recognized in a component of Accumulated other comprehensive loss, to offset the changes in the values of the net investments being hedged.

11
Interest Rate Swaps

The primary purpose of the Company'sCompany’s interest rate swap activities is to manage cash flow variability associated with our outstanding variable rate term loan debt.
In February 2013, the Company entered into a $1 billion interest rate swap transaction with an effective date of May 2016 and expiration in May 2019.  In June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.  The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense from May 2016 through May 2019, the original term of the swap agreement.

During fiscal 2017 the Company modified various term loan rates and maturities.  In conjunction with these modifications the Company realigned existing swap agreements which resulted in the de-designation of the original hedge and re-designation of the modified swaps as effective cash flow hedges.  The amounts included in Accumulated other comprehensive loss at the date of de-designation are being amortized to Interest expense through the terms of the original swaps.

AtAs of December 30, 2017,29, 2018, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.00%2.000%, with an effective date in May 2017 and expiration in May 2022 and (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.5190%2.808% with an effective date in March 2017 and expiration in June 2019, (iii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.0987% with an effective date in February 20172018 and expiration in September 2021.

10
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.  When valuing swaps the Company utilizes Level 2 inputs (substantially observable).  Balances on a gross basis as of the current period are as follows:

Derivatives InstrumentsHedge DesignationBalance Sheet Location December 30, 2017  September 30, 2017 Hedge DesignationBalance Sheet Location December 29, 2018  September 29, 2018 
Cross-currency swapsDesignatedOther long-term liabilities $15  $— DesignatedOther long-term liabilities $3  $11 
Interest rate swapsDesignatedOther assets  7   1 DesignatedOther assets  7   16 
Interest rate swapsNot designatedOther assets  8   13 DesignatedOther long-term liabilities  10   — 
Interest rate swapsDesignatedOther long-term liabilities  1   15 Not designatedOther long-term liabilities  —   1 
Interest rate swaps Not designatedOther long-term liabilities  10   13 

The effect of the Company's derivative instruments on the Consolidated Statements of Income is as follows:

   Quarterly Period Ended    Quarterly Period Ended 
Derivatives instrumentsStatement of Operations LocationDecember 30, 2017 December 31, 2016 Statement of Operations LocationDecember 29, 2018 December 30, 2017 
Cross-currency swapsInterest expense, net $(1) $— 
Foreign currency swaps Other expense (income), net  —   1 Other (income) expense, net $(4) $2 
Interest rate swapsInterest expense, net  2   5 Interest expense, net  (2)  (1)

The amortization related to unrealized losses in Accumulated other comprehensive loss is expected to be $2$9 million in the next 12 months.

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 20172018 assessment.  An incremental sustained earnings decline of 10-15%No impairment indicators were identified in the Health, Hygiene & Specialties - South America reporting unit, or future declines in our peer companies, market capitalizations, or total enterprise value, as well as lower valuation market multiples could impact future impairment tests.current quarter.

Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of December 30, 201729, 2018 and September 30, 2017,29, 2018, along with the impairment loss recognized on the fair value measurement during the period:

 As of December 30, 2017  As of December 29, 2018 
 Level 1  Level 2  Level 3  Total  Impairment  Level 1  Level 2  Level 3  Total  Impairment 
Indefinite-lived trademarks $—  $—  $248  $248  $—  $—  $—  $248  $248  $— 
Goodwill   —   —   2,777   2,777   —   —   —   2,941   2,941   — 
Definite lived intangible assets  —   —   999   999   —   —   —   1,054   1,054   — 
Property, plant, and equipment  —   —   2,363   2,363   —   —   —   2,457   2,457   7 
Total  $—  $—  $6,387  $6,387  $—  $—  $—  $6,700  $6,700  $7 

  As of September 30, 2017 
  Level 1  Level 2  Level 3  Total  Impairment 
Indefinite-lived trademarks $—  $—  $248  $248  $— 
Goodwill   —   —   2,775   2,775   — 
Definite lived intangible assets  —   —   1,038   1,038   — 
Property, plant, and equipment  —   —   2,366   2,366   2 
Total  $—  $—  $6,427  $6,427  $2 
12
  As of September 29, 2018 
  Level 1  Level 2  Level 3  Total  Impairment 
Indefinite-lived trademarks $—  $—  $248  $248  $— 
Goodwill   —   —   2,944   2,944   — 
Definite lived intangible assets  —   —   1,092   1,092   — 
Property, plant, and equipment  —   —   2,488   2,488   — 
Total  $—  $—  $6,772  $6,772  $— 

The Company's financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate and cross-currency swap agreements, and capital lease obligations.  The fairbook value of our long-term indebtedness exceeded bookfair value by $61$45 million as of December 30, 2017.29, 2018.  The Company's long-term debt fair values were determined using Level 2 inputs as other significant observable inputs were not available.  

1110.  Income Taxes
9. Income Taxes

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"“Tax Act”).  The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates.  As the Company has a September fiscal year-end, the lower corporate income tax rate will be phased in during fiscal 2018 and will be 21% in subsequent years.  Partially offsetting the lower corporate income tax,transitional impacts of the Tax Act also eliminates certain domestic deductions that were previously included in our estimated annual tax rate.  The estimated impact of the corporate income tax net reduction along with the transitional taxes, discussed below, were recorded to the Consolidated Statements of Income in the quarter.

As part of the transition to the new tax system, the Tax Act (i) imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries and (ii) requires the Company revalue our U.S. net deferred tax liability position to the lower federal base rate of 21%.  These transitional impacts resulted in a provisional transition benefit of $95 million in the quarterly period ended December 30, 2017.  During the Quarter, the Company completed the accounting for the quarter, comprised ofTax Act, resulting in an estimated repatriation tax charge of $44 million (comprised of the U.S. repatriation taxes and foreign withholding taxes) and an estimated net deferred tax revaluation benefit of $139 million.  After exclusion of this benefit, theimmaterial change from fiscal 2018.

The effective tax rate was 26%21% for the Quarterquarterly period ended December 29, 2018 and was positively impacted by 3%2% from the share-based compensation excess tax benefit deduction, 1% from research and a 2% benefit from the domestic manufacturing deduction.development credits, and other discrete items.  These favorable items were partially offset by increases of 3%4% from U.S. state income taxes 2% from foreign valuation allowance, 1% from higher tax rates in foreign jurisdictions, and other discrete items.

The changes included in the Tax Act are broad and complex.  The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts.  The Securities and Exchange Commission has issued guidance that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts.  We currently anticipate finalizing and recording any resulting adjustments by the end of fiscal 2018.
11.  Operating Segments

10. Operating Segments
The Company's operations are organized into three operating segments: Engineered Materials, Health, Hygiene & Specialties, and Consumer Packaging.  The structure is designed to align us with our customers, provide optimal service, and drive future growth in a cost efficient manner.  Selected information by reportable segment is presented in the following tables: 

 Quarterly Period Ended  Quarterly Period Ended 
 December 30, 2017  December 31, 2016  December 29, 2018  December 30, 2017 
Net sales:            
Engineered Materials  $648  $383  $669  $648 
Health, Hygiene & Specialties   577   570   702   577 
Consumer Packaging   551   549   601   551 
Total net sales  $1,776  $1,502  $1,972  $1,776 
Operating income:                
Engineered Materials  $88  $53  $94  $88 
Health, Hygiene & Specialties   37   59   49   37 
Consumer Packaging   38   34   33   38 
Total operating income $163  $146  $176  $163 
Depreciation and amortization:                
Engineered Materials  $29  $17  $31  $29 
Health, Hygiene & Specialties   46   44   54   46 
Consumer Packaging   54   59   53   54 
Total depreciation and amortization $129  $120  $138  $129 

 December 30, 2017  September 30, 2017  December 29, 2018  September 29, 2018 
Total assets:            
Engineered Materials $1,753  $1,803  $1,964  $1,998 
Health, Hygiene & Specialties   3,475   3,496   3,811   3,913 
Consumer Packaging   3,192   3,177   3,197   3,220 
Total assets  $8,420  $8,476  $8,972  $9,131 
        
Total goodwill:        
Engineered Materials $630  $633 
Health, Hygiene & Specialties   903   902 
Consumer Packaging   1,408   1,409 
Total goodwill  $2,941  $2,944 

1213
Selected information by geography is presented in the following tables:

Quarterly Period Ended Quarterly Period Ended 
December 30, 2017 December 31, 2016 December 29, 2018 December 30, 2017 
Net sales:        
North America $1,466  $1,204  $1,605  $1,466 
South America  74   80   96   74 
Europe  170   149   204   170 
Asia  66   69   67   66 
Total net sales $1,776  $1,502  $1,972  $1,776 
                
December 30, 2017 September 30, 2017 December 29, 2018 September 29, 2018 
Long-lived assets:                
North America $5,313  $5,350  $5,685  $5,764 
South America  358   371   332   320 
Europe  470   467   451   463 
Asia  298   284   298   299 
Total long-lived assets: $6,439  $6,472  $6,766  $6,846 

Selected information by product line is presented in the following tables:

  Quarterly Period Ended 
  December 30, 2017  December 31, 2016 
Net sales:      
Performance Materials  45   73 
Engineered Products  55   27 
Engineered Materials  100%  100%
         
Health  19   20 
Hygiene  44   46 
Specialties  37   34 
Health, Hygiene & Specialties  100%  100%
         
Rigid Open Top  43   42 
Rigid Closed Top  57   58 
Consumer Packaging  100%  100%

Goodwill  

The changes in the carrying amount of goodwill by reportable segment are as follows: 
  Engineered Materials  
Health, Hygiene
& Specialties
  Consumer Packaging  Total 
Balance as of September 30, 2017 $545  $819  $1,411  $2,775 
Acquisitions, net  4   —   —   4 
Foreign currency translation adjustment  —   (2)  —   (2)
Balance as of December 30, 2017 $549  $817  $1,411  $2,777 
  Quarterly Period Ended 
  December 29, 2018  December 30, 2017 
Net sales:      
Performance Materials  39   43 
Engineered Products  61   57 
Engineered Materials  100%  100%
         
Health  18   19 
Hygiene  52   44 
Specialties  30   37 
Health, Hygiene & Specialties  100%  100%
         
Rigid Open Top  44   43 
Rigid Closed Top  56   57 
Consumer Packaging  100%  100%

12.  Contingencies and Commitments

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, management believes that any ultimate liability would not be material to its financial statements.

The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of business.
1314
13.  Share Repurchase Program
12. Basic and Diluted Net Income Per Share

In fiscal 2018, the Company announced a $500 million share repurchase program.  Berry may repurchase shares through the open market, privately negotiated transactions, or other programs, subject to market conditions.  This authorization has no expiration date and may be suspended at any time.

During the quarterly period ended December 29, 2018, the Company repurchased approximately 1,132 thousand shares for $54 million.  As of December 29, 2018, $412 million of authorized share repurchases remain available to the Company.

14.  Basic and Diluted Net Income Per Share

Basic net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.  Diluted net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method.  For purposes of this calculation, stock options are considered to be common stock equivalents and are only included in the calculation of diluted net income per share when their effect is dilutive.  ThereFor the three months ended December 29, 2018, 3 million shares were no shares excluded from the calculationsdiluted net income per share calculation as thetheir effect of their conversion into shares of our common stock would be antidilutive.anti-dilutive.

The following tables provide a reconciliation of the numerator and denominator of the basic and diluted net income per share calculations.calculations:
 Quarterly Period Ended  Quarterly Period Ended 
(in millions, except per share amounts) December 30, 2017  December 31, 2016  December 29, 2018  December 30, 2017 
Numerator            
Consolidated net income $163  $51  $88  $163 
Denominator                
Weighted average common shares outstanding - basic  131.0   122.0   131.1   131.0 
Dilutive shares  5.0   5.8   2.7   5.0 
Weighted average common and common equivalent shares outstanding - diluted  136.0   127.8   133.8   136.0 
                
Per common share income                
Basic $1.24  $0.42  $0.67  $1.24 
Diluted $1.20  $0.40  $0.66  $1.20 
13. 
15.  Accumulated Other Comprehensive Loss

The components and activity of Accumulated other comprehensive loss are as follows: 

 Currency Translation  Defined Benefit Pension and Retiree Health Benefit Plans  Interest Rate Swaps  
Accumulated Other
Comprehensive
Loss
  
Currency
Translation
  
Defined Benefit
Pension and Retiree
Health Benefit Plans
  
Interest
Rate Swaps
  
Accumulated Other
Comprehensive
Loss
 
Balance at September 30, 2017  $(48) $(16) $(4) $(68)
Balance at September 29, 2018  $(175) $(13) $32  $(156)
Other comprehensive income (loss) before reclassifications   (24)  (1)  14   (11)  (4)  —   (22)  (26)
Net amount reclassified from accumulated other comprehensive income (loss)   —   —   3   3   —   —   (2)  (2)
Provision for income taxes  —   —   (4)  (4)  —   —   7   7 
Balance at December 30, 2017 $(72) $(17) $9  $(80)
Balance at December 29, 2018 $(179) $(13) $15  $(177)

  Currency Translation  Defined Benefit Pension and Retiree Health Benefit Plans  Interest Rate Swaps  
Accumulated Other
Comprehensive
Loss
 
Balance at October 1, 2016 $(82) $(44) $(22) $(148)
Other comprehensive income (loss) before reclassifications   (45)  —   12   (33)
Net amount reclassified from accumulated other comprehensive income (loss)    —   —   5   5 
Provision for income taxes  —   —   (6)  (6)
Balance at December 31, 2016 $(127) $(44) $(11) $(182)
  
Currency
Translation
  
Defined Benefit
Pension and Retiree
Health Benefit Plans
  
Interest
Rate Swaps
  
Accumulated Other
Comprehensive
Loss
 
Balance at September 30, 2017 $(48) $(16) $(4) $(68)
Other comprehensive income (loss) before reclassifications   (24)  (1)  14   (11)
Net amount reclassified from accumulated other comprehensive income (loss)    —   —   3   3 
Provision for income taxes  —   —   (4)  (4)
Balance at December 30, 2017 $(72) $(17) $9  $(80)

1415
14. 16.  Guarantor and Non-Guarantor Financial Information 

Berry Global, Inc. ("Issuer"(“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by its parent, Berry Global Group, Inc. (for purposes of this Note, "Parent"“Parent”) and substantially all of Issuer'sIssuer’s domestic subsidiaries.  Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by Parent and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis.  A guarantee of a guarantor subsidiary of the securities will terminate upon the following customary circumstances:  the sale of the capital stock of such guarantor if such sale complies with the indentures, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture or in the case of a restricted subsidiary that is required to guarantee after the relevant issuance date, if such guarantor no longer guarantees certain other indebtedness of the issuer.  The guarantees of the guarantor subsidiaries are also limited as necessary to prevent them from constituting a fraudulent conveyance under applicable law and any guarantees guaranteeing subordinated debt are subordinated to certain other of the Company'sCompany’s debts.  Parent also guarantees the Issuer'sIssuer’s term loans and revolving credit facilities.  The guarantor subsidiaries guarantee our term loans and are co-borrowers under our revolving credit facility.  Presented below is condensed consolidating financial information for the Parent, Issuer, guarantor subsidiaries and non-guarantor subsidiaries.  The Issuer and guarantor financial information includes all of our domestic operating subsidiaries; our non-guarantor subsidiaries include our foreign subsidiaries, certain immaterial domestic subsidiaries and the unrestricted subsidiaries under the Issuer'sIssuer’s indentures.  The Parent uses the equity method to account for its ownership in the Issuer in the Condensed Consolidating Supplemental Financial Statements.  The Issuer uses the equity method to account for its ownership in the guarantor and non-guarantor subsidiaries.  All consolidating entries are included in the eliminations column along with the elimination of intercompany balances.

Condensed Supplemental Consolidated Balance SheetStatements of Income

  December 30, 2017 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non—
Guarantor
Subsidiaries
  Eliminations  Total 
Current assets  —   126   1,127   728   —   1,981 
Intercompany receivable  334   2,286   —   —   (2,620)  — 
Property, plant, and equipment, net  —   73   1,564   726   —   2,363 
Other assets  1,152   5,401   4,555   528   (7,560)  4,076 
Total assets $1,486  $7,886  $7,246  $1,982  $(10,180) $8,420 
                         
Current liabilities  24   279   560   291   —   1,154 
Intercompany payable  —   —   2,571   49   (2,620)  — 
Other long-term liabilities  288   5,649   90   65   —   6,092 
Stockholders' equity  1,174   1,958   4,025   1,577   (7,560)  1,174 
Total liabilities and stockholders' equity $1,486  $7,886  $7,246  $1,982  $(10,180) $8,420 
  Quarterly Period Ended December 29, 2018 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non-Guarantor
Subsidiaries
  Eliminations  Total 
Net sales $—  $141  $1,377  $454  $—  $1,972 
Cost of goods sold  —   85   1,142   392   —   1,619 
Selling, general and administrative  —   13   87   24   —   124 
Amortization of intangibles  —   —   36   6   —   42 
Restructuring and impairment charges  —   —   7   4   —   11 
Operating income  —   43   105   28   —   176 
Other expense (income), net  —   1   1   (2)  —   — 
Interest expense, net  —   5   45   14   —   64 
Equity in net income of subsidiaries  (112)  (67)  —   —   179   — 
Income before income taxes  112   104   59   16   (179)  112 
Income tax expense  24   16   —   8   (24)  24 
Net income $88  $88  $59  $8  $(155) $88 
Comprehensive net income $88  $79  $59  $(4) $(155) $67 

  September 30, 2017 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non—
Guarantor
Subsidiaries
  Eliminations  Total 
Current assets  —   116   1,113   775   —   2,004 
Intercompany receivable  512   2,217   —   —   (2,729)  — 
Property, plant and equipment, net  —   80   1,564   722   —   2,366 
 Other assets  992   5,335   4,583   533   (7,337)  4,106 
 Total assets $1,504  $7,748  $7,260  $2,030  $(10,066) $8,476 
                         
Current liabilities  36   243   537   318   —   1,134 
Intercompany payable  —   —   2,667   62   (2,729)  — 
Other long-term liabilities  453   5,707   99   68   —   6,327 
Stockholders' equity  1,015   1,798   3,957   1,582   (7,337)  1,015 
Total liabilities and stockholders' equity $1,504  $7,748  $7,260  $2,030  $(10,066) $8,476 
  Quarterly Period Ended December 30, 2017 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non-Guarantor
Subsidiaries
  Eliminations  Total 
Net sales $—  $138  $1,225  $413  $—  $1,776 
Cost of goods sold  —   106   989   352   —   1,447 
Selling, general and administrative  —   12   80   25   —   117 
Amortization of intangibles  —   —   31   7   —   38 
Restructuring and impairment charges  —   —   7   4   —   11 
Operating income (loss)  —   20   118   25   —   163 
Other income, net  —   5   7   (3)  —   9 
Interest expense, net  —   5   43   14   —   62 
Equity in net income of subsidiaries  (92)  (72)  —   —   164   — 
Income before income taxes  92   82   68   14   (164)  92 
Income tax expense  (71)  (81)  —   10   71   (71)
Net income $163  $163  $68  $4  $(235) $163 
Comprehensive net income $163  $160  $68  $(5) $(235) $151 

1516
Condensed Supplemental Consolidated Balance Sheets

  December 29, 2018 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non-Guarantor
Subsidiaries
  Eliminations  Total 
Current assets  —   214   1,243   749   —   2,206 
Intercompany receivable  248   1,878   —   28   (2,154)  — 
Property, plant, and equipment, net  —   79   1,660   718   —   2,457 
Other assets  1,593   6,326   4,808   486   (8,904)  4,309 
Total assets $1,841  $8,497  $7,711  $1,981  $(11,058) $8,972 
                         
Current liabilities  18   248   621   292   —   1,179 
Intercompany payable  —   —   2,154   —   (2,154)  — 
Other long-term liabilities  368   5,851   58   61   —   6,338 
Stockholders' equity  1,455   2,398   4,878   1,628   (8,904)  1,455 
Total liabilities and stockholders' equity $1,841  $8,497  $7,711  $1,981  $(11,058) $8,972 

  September 29, 2018 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non-Guarantor
Subsidiaries
  Eliminations  Total 
Current assets  —   249   1,240   796   —   2,285 
Intercompany receivable  296   1,907   —   49   (2,252)  — 
Property, plant and equipment, net  —   79   1,684   725   —   2,488 
 Other assets  1,544   6,247   4,849   487   (8,769)  4,358 
 Total assets $1,840  $8,482  $7,773  $2,057  $(11,021) $9,131 
                         
Current liabilities  18   218   635   366   —   1,237 
Intercompany payable  —   —   2,252   —   (2,252)  — 
Other long-term liabilities  388   5,945   68   59   —   6,460 
Stockholders' equity  1,434   2,319   4,818   1,632   (8,769)  1,434 
Total liabilities and stockholders' equity $1,840  $8,482  $7,773  $2,057  $(11,021) $9,131 

Condensed Supplemental Consolidated Statements of OperationsCash Flows

  Quarterly Period Ended December 30, 2017 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non-
Guarantor
Subsidiaries
  Eliminations  Total 
Net sales $—  $138  $1,225  $413  $—  $1,776 
Cost of goods sold  —   106   989   352   —   1,447 
Selling, general and administrative  —   12   80   25   —   117 
Amortization of intangibles  —   —   31   7   —   38 
Restructuring and impairment charges  —   —   7   4   —   11 
Operating income  —   20   118   25   —   163 
Other expense (income), net  —   5   7   (3)  —   9 
Interest expense, net  —   5   43   14   —   62 
Equity in net income of subsidiaries  (92)  (72)  —   —   164   — 
Income before income taxes  92   82   68   14   (164)  92 
Income tax expense  (71)  (81)  —   10   71   (71)
Consolidated net income $163  $163  $68  $4  $(235) $163 
Comprehensive net income $163  $160  $68  $(5) $(235) $151 
                         
Consolidating Statement of Cash Flows                        
Cash Flow from Operating Activities $—  $35  $139  $(21) $—  $153 
Cash Flow from Investing Activities                        
Additions to  property, plant, and equipment  —   (3)  (61)  (30)  —   (94)
Proceeds from sale of assets  —   —   —   3   —   3 
(Contributions) distributions to/from subsidiaries  (4)  4   —   —   —   — 
Intercompany advances (repayments)  —   69   —   —   (69)  — 
Net cash from investing activities  (4)  70   (61)  (27)  (69)  (91)
                         
Cash Flow from Financing Activities                        
Repayments on long-term borrowings  —   (106)  (2)  —   —   (108)
Proceeds from issuance of common stock  4   —   —   —   —   4 
Payment of tax receivable agreement  (37)  —   —   —   —   (37)
Changes in intercompany balances  37   —   (86)  (20)  69   — 
Net cash from financing activities  4   (106)  (88)  (20)  69   (141)
                         
Effect of exchange rate changes on cash  —   —   —   1   —   1 
                         
Net change in cash  —   (1)  (10)  (67)  —   (78)
Cash and cash equivalents at beginning of period  —   18   12   276   —   306 
Cash and cash equivalents at end of period $—  $17  $2  $209  $—  $228 
  Quarterly Period Ended December 29, 2018 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non-Guarantor
Subsidiaries
  Eliminations  Total 
Cash Flow from Operating Activities $—  $55  $155  $(49) $—  $161 
Cash Flow from Investing Activities                        
Additions to  property, plant, and equipment  —   —   (59)  (16)  —   (75)
Proceeds from sale of assets  —   —   —   —   —   — 
(Contributions) distributions to/from subsidiaries  47   (47)  —   —   —   — 
Intercompany advances (repayments)  —   38   —   —   (38)  — 
Net cash from investing activities  47   (9)  (59)  (16)  (38)  (75)
                         
Cash Flow from Financing Activities                        
Repayments on long-term borrowings  —   (108)  (2)  —   —   (110)
Proceeds from issuance of common stock  5   —   —   —   —   5 
Repurchase of common stock  (52)  —   —   —   —   (52)
Payment of tax receivable agreement  (16)  —   —   —   —   (16)
Changes in intercompany balances  16   —   (93)  39   38   — 
Net cash from financing activities  (47)  (108)  (95)  39   38   (173)
                         
Effect of exchange rate changes on cash  —   —   —   (1)  —   (1)
                         
Net change in cash  —   (62)  1   (27)  —   (88)
Cash and cash equivalents at beginning of period  —   133   4   244   —   381 
Cash and cash equivalents at end of period $—  $71  $5  $217  $—  $293 

  Quarterly Period Ended December 31, 2016 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non—
Guarantor
Subsidiaries
  Eliminations  Total 
Net sales $—  $143  $979  $380  $—  $1,502 
Cost of goods sold  —   116   789   301   —   1,206 
Selling, general and administrative  —   42   75   (4)  —   113 
Amortization of intangibles  —   2   25   6   —   33 
Restructuring and impairment charges  —   —   4   —   —   4 
Operating income (loss)  —   (17)  86   77   —   146 
Other income, net  —   4   —   (5)  —   (1)
Interest expense, net  —   6   45   17   —   68 
Equity in net income of subsidiaries  (79)  (92)  —   —   171   — 
Income before income taxes  79   65   41   65   (171)  79 
Income tax expense  28   14   —   14   (28)  28 
Consolidated net income $51  $51  $41  $51  $(143) $51 
Comprehensive net income $51  $62  $41  $6  $(143) $17 
16
                         
Consolidating Statement of Cash Flows                        
Cash Flow from Operating Activities $—  $(19) $120  $42  $—  $143 
Cash Flow from Investing Activities                        
Additions to property, plant, and equipment  —   (2)  (50)  (13)  —   (65)
Proceeds from sale of assets  —   1   1   —   —   2 
(Contributions) distributions to/from subsidiaries  (5)  5   —   —   —   — 
Intercompany advances (repayments)  —   39   —   —   (39)  — 
Other investing activities, net  —   (1)  —   —   —   (1)
Net cash from investing activities  (5)  42   (49)  (13)  (39)  (64)
                         
Cash Flow from Financing Activities                        
Repayments on long-term borrowings  —   (9)  (1)  —   —   (10)
Proceeds from issuance of common stock  5   —   —   —   —   5 
Payment of tax receivable agreement  (60)  —   —   —   —   (60)
Changes in intercompany balances  60   —   (67)  (32)  39   — 
Net cash from financing activities  5   (9)  (68)  (32)  39   (65)
                         
Effect of exchange rate changes on cash  —   —   —   (6)  —   (6)
                         
Net change in cash  —   14   3   (9)  —   8 
Cash and cash equivalents at beginning of period  —   102   5   216   —   323 
Cash and cash equivalents at end of period $—  $116  $8  $207  $—  $331 

15. Subsequent Events

In January 2018, the Company issued $500 million aggregate principal amount of 4.50% second priority senior secured notes due 2026 (the "Notes") through a private placement offering.  The net proceeds from the Notes were used to fund the acquisition of Clopay Plastic Products Company, Inc. ("Clopay").

In February 2018, the Company acquired Clopay for a purchase price of $475 million, which is preliminary and subject to adjustment.  Clopay manufactures printed breathable films and is an innovator in the development of elastic films and laminates with product offerings uniquely designed for applications used in a number of markets including: hygiene, healthcare, construction and industrial protective apparel.  Clopay will be operated within the Health, Hygiene and Specialties segment.
17
  Quarterly Period Ended December 30, 2017 
  Parent  Issuer  
Guarantor
Subsidiaries
  
Non-Guarantor
Subsidiaries
  Eliminations  Total 
Cash Flow from Operating Activities $—  $35  $139  $(21) $—  $153 
Cash Flow from Investing Activities                        
Additions to property, plant, and equipment  —   (3)  (61)  (30)  —   (94)
Proceeds from sale of assets  —   —   —   3   —   3 
(Contributions) distributions to/from subsidiaries  (4)  4   —   —   —   — 
Intercompany advances (repayments)  —   69   —   —   (69)  — 
Other investing activities, net  —   —   —   —   —   — 
Net cash from investing activities  (4)  70   (61)  (27)  (69)  (91)
                         
Cash Flow from Financing Activities                        
Repayments on long-term borrowings  —   (106)  (2)  —   —   (108)
Proceeds from issuance of common stock  4   —   —   —   —   4 
Payment of tax receivable agreement  (37)  —   —   —   —   (37)
Changes in intercompany balances  37   —   (86)  (20)  69   — 
Net cash from financing activities  4   (106)  (88)  (20)  69   (141)
                         
Effect of exchange rate changes on cash  —   —   —   1   —   1 
                         
Net change in cash  —   (1)  (10)  (67)  —   (78)
Cash and cash equivalents at beginning of period  —   18   12   276   —   306 
Cash and cash equivalents at end of period $—  $17  $2  $209  $—  $228 

18
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in our most recent Form 10-K in the section titled "Risk Factors" and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission.  As a result, our actual results may differ materially from those contained in any forward-looking statements.  The forward-looking statements referenced within this report should be read with the explanation of the qualifications and limitations included herein.  Fiscal 20172018 and fiscal 20182019 are fifty-two week periods.

Executive Summary

Business.  The Company's operations are organized into three operating segments: Engineered Materials, Health, Hygiene & Specialties, and Consumer Packaging.  The structure is designed to align us with our customers, provide optimal service, and drive future growth in a cost efficient manner.  The Engineered Materials segment primarily consists of tapes and adhesives, polyethylene based film products, can liners, printed films, and specialty coated, and laminated products.  The Health, Hygiene & Specialties segment primarily consists of nonwoven specialty materials and films used in hygiene, infection prevention, personal care, industrial, construction and filtration applications.  The Consumer Packaging segment primarily consists of containers, foodservice items, closures, overcaps, bottles, prescription containers, and tubes.

Acquisitions.  Our acquisition strategy is focused on improving our long-term financial performance, enhancing our market positions, and expanding our existing and complementary product lines. We seek to obtain businesses for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire.  While the expected benefits on earnings is estimated at the commencement of each transaction, once the execution of the plan and integration occur, we are generally unable to accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to multiple facilities. As historical business combinations and restructuring plans have not allowed us to accurately separate realized synergies compared to what was initially identified, we measure the synergy realization based on the overall segment profitability post integration.
Laddawn, Inc.

AEP Industries Inc.
In January 2017,August 2018, the Company acquired AEP IndustriesLaddawn, Inc. ("AEP"Laddawn") for a purchase price of $791$242 million, which is preliminary and subject to adjustment.  Laddawn is a custom bag and film manufacturer with a unique-to-industry e-commerce sales platform.  Laddawn reported $145 million in net of cash acquired.  A portion ofsales for the purchase price consisted of issuing 6.4 million of Berry common shares which were valued at $324 million at the time of closing.  AEP manufacturestwelve months ended July 31, 2018, and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products with consumer, industrial, and agricultural applications.  The acquired business is operated in our Engineered Materials segment.  To finance the purchase, the Company entered into an incremental assumption agreement to increase the commitments under the Company's existing term loan credit agreement by $500 million due 2024.  The Company expects to realize annual cost synergies of approximately $80$5 million from the AEP transaction with full realization expected in fiscal 2018.

Adchem Corp.

In June 2017, the Company acquired Adchem Corp.'s ("Adchem") tapes business for a purchase price of $49 million.  Adchem is a leader in the development of high performance adhesive tape systems for the automotive, construction, electronics, graphic arts, medical and general tape markets.  The acquired business is operated in our Engineered Materials segment.2019.  To finance the purchase, the Company used existing liquidity.

Clopay Plastic Products Company, Inc.
 
In February 2018, the Company acquired Clopay Plastic Products Company, Inc. ("Clopay") for a purchase price of $475 million, which is preliminary and subject to adjustment.million.  Clopay manufactures printed breathable films and is an innovator in the development of printed breathable films, elastic films, and laminates with product offerings uniquely designed for applications used in a number of markets including: hygiene, healthcare, construction and industrial protective apparel.  Clopay will beThe acquired business is operated within thein our Health, Hygiene and& Specialties segment.  The Company expects to realize annual cost synergies of approximately $20$40 million from the completion of the Clopay transaction.with full realization expected in fiscal 2019.  To finance the purchase, the Company used the proceeds from theissued $500 million Notes (see footnote 15).aggregate principle amount of 4.5% second priority notes through a private placement offering.

Raw Material Trends.  Our primary raw material is plastic resin consisting primarily of polypropylene and polyethylene. Plastic resins are subject to price fluctuations, including those arising from supply shortages and changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced. The three month simple average price per pound, as published by U.S. market indexes, was as follows:
18

 Polyethylene Butene Film  Polypropylene  Polyethylene Butene Film  Polypropylene 
 2018  2017  2016  2018  2017  2016  2019  2018  2017  2019  2018  2017 
1st quarter $.87  $.75  $.69  $.84  $.69  $.70  $.64  $.68  $.56  $.76  $.71  $.56 
2nd quarter  —   .77   .66   —   .80   .75   —   .69   .58   —   .75   .67 
3rd quarter  —   .79   .73   —   .74   .71   —   .68   .60   —   .76   .61 
4th quarter  —   .81   .75   —   .75   .71   —   .66   .62   —   .85   .62 

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 in passing through raw material cost changes could affect our results as plastic resin costs fluctuate. 

19
Outlook.  The Company is impactedaffected by general economic and industrial growth, plastic resin availability and affordability, and general industrial production.  Our business has both geographic and end-market diversity, which reduces the effect of any one of these factors on our overall performance.  Our results are affected by our ability to pass through raw material and other cost changes to our customers, improve manufacturing productivity and adapt to volume changes of our customers.  We believe there are long term growth opportunities within the health, pharmaceuticals, personal care and food packaging markets existing outside of North America, especially in developing countries,Asia, where expected per capita consumption increases should result in organic market growth.  In addition, while weWe continue to believe that long term dynamics of the resin markets will be an advantage to Berry,advantageous. Planned capacity expansions in polyethylene in North America and recent declines in global oil should benefit the short term challenges to regional transportation systems and higher raw material prices in part as a result of resin supply disruptions, as well as macroeconomic pressures in South America could create short-term headwinds for early fiscal 2018.Company.  For fiscal 2018, including the impact from the recent Clopay transaction,2019, we project cash flow from operations and adjusted free cash flow of $1,007$1,036 million and $630$670 million, respectively.  Our fiscal 2018 projections assume negative $40The $670 million in working capital due to the recent raw material inflation, $340of adjusted free cash flow includes $350 million of capital spending and cash interest costs$16 million of $250 million.payments under our tax receivable agreement.  Within our adjusted free cash flow guidance, we are also assuming cash taxes to be $160of $149 million, including the $37cash interest costs of $270 million, payment made in the first quarter under the Company's tax receivable agreement and an estimated $50 million of cash tax savings related to the Tax Cuts and Jobs Act ( the "Tax Act"), along with other cash uses of $50$45 million related to changes in working capital and items such as acquisition integration expenses and costs to achieve synergies.  For the definition of Adjusted free cash flow and further information related to Adjusted free cash flow as a non-GAAP financial measure, see "Liquidity“Liquidity and Capital Resources."”
 
Results of Operations

Comparison of the Quarterly Period Ended December 30, 201729, 2018 (the "Quarter") and the Quarterly Period Ended December 31, 201630, 2017 (the "Prior Quarter")
 
Acquisition (businesses acquired in the last twelve months) sales and operating income disclosed within this section represents the results from acquisitions for the current period.  Business integration expenses consist of restructuring and impairment charges, acquisition related costs, and other business optimization costs.  Tables present dollars in millions.

Consolidated Overview                 
Quarter Prior Quarter $ Change % Change Quarter Prior Quarter $ Change  % Change 
Net sales $1,776  $1,502  $274   18% $1,972  $1,776  $196   11%
Operating income $163  $146  $17   12% $176  $163  $13   8%
Operating income percentage of net sales  9%  10%          9%  9%        

The net sales increase of $274$196 million from Prior Quarter is primarily attributed to acquisition net sales of $267$158 million and organic sales growth of $49 million, partially offset by an $18$11 million favorableunfavorable impact from foreign currency translation, and increases inchanges.  The organic sales growth is primarily attributed to increased selling prices of $82 million due to the pass through of higher resin prices.  These increase arecost of goods sold, partially offset by a 1% base2% volume decline.

The operating income increase of $17$13 million from Prior Quarter is primarily attributed to a $10 million decrease in business integration costs, a $6 million decrease in depreciation and amortization, acquisition operating income of $26$3 million, and a $3 million impact from improvement in price cost spread.  These increases are partially offset by a $4 million unfavorable impact from volume and a $4 million unfavorable impact from foreign currency changes.

Engineered Materials        
 Quarter Prior Quarter $ Change % Change 
Net sales $669  $648  $21   3%
Operating income $94  $88  $6   7%
Percentage of net sales  14%  14%        

Net sales in the Engineered Materials segment increased by $21 million from Prior Quarter primarily attributed to acquisition net sales of $35 million, partially offset by an $11organic sales decline of $13 million.  The organic sales decline is primarily attributed to a 3% volume decline as the result of strong volumes in the Prior Quarter, offset by increased selling prices of $8 million due to the pass through of higher cost of goods sold.

The operating income increase of $6 million from Prior Quarter is primarily attributed to a $6 million impact from improvement in price cost spread and a $3 million decrease in depreciation and amortization, partially offset by a negative $3 million impact from volume.

Health, Hygiene & Specialties        
 Quarter Prior Quarter $ Change % Change 
Net sales $702  $577  $125   22%
Operating income $49  $37  $12   32%
Percentage of net sales  7%  6%        

20
Net sales in the Health, Hygiene & Specialties segment increased by $125 million from Prior Quarter primarily attributed to acquisition net sales of $123 million and organic sales growth of $12 million, partially offset by a $10 million unfavorable impact from foreign currency changes.  The organic sales growth is primarily attributed to increased selling prices of $39 million due to the pass through of higher cost of goods sold, partially offset by a 5% volume decline as a result of general market softness in hygiene and administrative expensesspecialties.

The operating income increase of $12 million from Prior Quarter is primarily attributed to a $10 million decrease in business integration costs, a $6 million impact from improvement in price cost reductions,spread, acquisition operating income of $3 million, and a $7$2 million decrease in depreciation and amortization.  These increases are partially offset by an $18a negative $5 million impact from volume and a $3 million unfavorable impact from foreign currency changes.

Consumer Packaging        
 Quarter Prior Quarter $ Change % Change 
Net sales $601  $551  $50   9%
Operating income $33  $38  $(5)  (13%)
Percentage of net sales  5%  7%        

Net sales in the Consumer Packaging segment increased by $50 million from Prior Quarter primarily attributed to organic sales growth.  The organic sales growth is primarily attributed to increased selling prices of $35 million due to the pass through of higher cost of goods sold and a 3% volume improvement.

The operating income decrease of $5 million from Prior Quarter is primarily attributed to a negative $9 million impact from under recovery of higher cost of goods sold, a $5 million increase in business integration and restructuring costs, and a $4 million unfavorable impact from the volume decline.
Engineered Materials        
 Quarter Prior Quarter $ Change % Change 
Net sales $648  $383  $265   69%
Operating income $88  $53  $35   66%
Percentage of net sales  14%  14%        
19
Net sales in the Engineered Materials segment increased by $265 million from Prior Quarter primarily attributed to acquisition net sales of $267 million and a $6 million increase in selling prices due to the pass through of higher resin prices, partially offset by a 2% base volume decline.favorable $4 million impact from volume.

Other (income) expense, net        
 Quarter Prior Quarter $ Change % Change 
Other (income) expense, net $—  $9  $(9)  100%

The operating income increaseother (income) expense, net decrease of $35$9 million from Prior Quarter is primarily attributed to acquisition operating income of $26 million, a $4 million favorable impact from improvement in price cost spread, and a $4 million decrease in depreciation and amortization.
Health, Hygiene & Specialties        
 Quarter Prior Quarter $ Change % Change 
Net sales $577  $570  $7   1%
Operating income $37  $59  $(22)  (37%)
Percentage of net sales  6%  10%        
Net sales in the Health, Hygiene & Specialties segment increased by $7 million from Prior Quarter primarily attributed to a $16 million favorable impact from currency translation, partially offset by a 1% base volume decline. 
The operating income decrease of $22 million from Prior Quarter is primarily attributed to a $17 million negative impact from under recovery of higher cost of goods sold related to inflation and market pressure in South America, a $6 million increase in business integration and restructuring costs, and a slight increase in depreciation and amortization expense, partially offset by a $4 million decrease in selling, general and administrative expenses.
Consumer Packaging        
 Quarter Prior Quarter $ Change % Change 
Net sales $551  $549  $2   0%
Operating income $38  $34  $4   12%
Percentage of net sales  7%  6%        
Net sales in the Consumer Packaging segment increased by $2 million from Prior Quarter primarily attributed to an $8 million impact from selling price increases due to the pass through of higher resin prices, partially offset by a 1% base volume decline.
The operating income increase of $4 million from Prior Quarter is primarily attributed to a $5 million decrease in depreciation and amortization expense and a $5 million decrease in selling, general and administrative expense, partially offset by a $5 million unfavorable impact from under recovery of higher cost of goods sold.
Other expense (income), net        
 Quarter Prior Quarter $ Change % Change 
Other expense (income), net $9  $(1) $10   1,000%
The other expense (income), net increase of $10 million from Prior Quarter is primarily attributed to a $4 million tax receivable agreement revaluation as a result of tax reform, a $3 million loss on asset disposal in the Quarter and unfavorable 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 $62  $68  $(6)  (9%) $64  $62  $2   3%

The interest expense decreaseincrease of $6$2 million from Prior Quarter is primarily attributed to additional expenses from the $500 million 4.5% second priority senior secured notes used to fund the Clopay acquisition, partially offset by lower interest rates on our term loans as a result of term loan modifications and reduced indebtedness.repayments on long-term borrowings in fiscal 2018.

Income tax expense (benefit)                
Quarter Prior Quarter $ Change % Change Quarter Prior Quarter $ Change % Change 
Income tax expense (benefit) $(71) $28  $(99)  (354%) $24  $(71) $95   (134%)

The income tax expense (benefit) decrease of $99$95 million from the Prior Quarter is primarily attributed to an increase in income before taxes and the $95 million provisional transition benefit recorded in the Prior Quarter as a result of the recent U.S. tax legislation more fully described in footnote 9. After exclusion of the transitional benefit, thereform.  The effective tax rate was 26%21% for the Quarter and was positively impacted by 3%2% from the share-based compensation excess tax benefit deduction, 1% from research and a 2% benefit from the domestic manufacturing deduction.development credits, and other discrete items.  These favorable items were partially offset by increases of 3%4% from U.S. state income taxes 2% from foreign valuation allowance, 1% from higher tax rates in foreign jurisdictions, and other discrete items.
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Changes in Comprehensive Income (Loss)

The $134$84 million improvementdecrease in Comprehensive income (loss) from Prior Quarter is primarily attributed to a $112$75 million improvementdecline in Net income and a $21$30 million favorable changedecrease in the fair value of interest rate hedges, net of tax, partially offset by a $20 million increase in currency translation, which is net of a negative $15 million related to the cross-currency swap.translation.  Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. DollarsDollar 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 Quarter was primarily attributed to locations utilizing the euroEuro, Brazilian Real, and Canadian Dollar as thetheir functional currency.  As part of the overall risk management, the Company uses derivative instruments to reduce exposure to (i) changes in interest rates attributed to the Company'sCompany’s floating-rate borrowings and (ii) currency risk relatedrecords changes to net investmentsthe fair value of these instruments in foreign subsidiaries.Accumulated other comprehensive loss.  The change in fair value of these instruments is included in Accumulated other comprehensive loss.  The $2 million favorable change in fair value of these instruments in the Quarterfiscal 2019 versus Prior Quarterfiscal 2018 is primarily attributed to an increasea change in the forward interest curve between measurement dates.

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Liquidity and Capital Resources

Senior Secured Credit Facility

We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.  We have a $750 million asset-based revolving line of credit that matures in May 2020.  At the end of the Quarter, the Company had no outstanding balance on the revolving credit facility.  The Company was in compliance with all covenants at the end of the Quarter (see footnote 7 to the Notes to the Consolidated Financial Statements incorporated herein)Note 8).

Cash Flows

Net cash from operating activities increased $10$8 million from the Prior Quarter primarily attributed to improved net income before depreciation, amortization and the net impact of the recently announced U.S. tax legislation,deferred income taxes, partially offset by an increase in working capital due to higher raw material costs.capital.

Net cash fromused in investing activities increased $27decreased $16 million from the Prior Quarter primarily attributed to increaseddecreased capital expenditures compared to the Prior Quarter.

Net cash fromused in financing activities increased $76$32 million from the Prior Quarter primarily attributed to increased repayments on our term loansshare repurchases, partially offset by lower tax receivable agreement payments.

Share Repurchases

We repurchased $54 million of our common stock in the Quarter. Share repurchases were completed using existing liquidity.

Adjusted Free Cash Flow

We define "Adjusted free cash flow" as cash flow from operating activities less net additions to property, plant and equipment and payments of the tax receivable agreement.

Based on our definition, our consolidated adjusted free cash flow is summarized as follows:

 Quarterly Period Ended  Quarterly Period Ended 
 December 30, 2017  December 31, 2016  December 29, 2018  December 30, 2017 
Cash flow from operating activities $153  $143  $161  $153 
Additions to property, plant and equipment, net  (91)  (63)  (75)  (91)
Payments of tax receivable agreement  (37)  (60)  (16)  (37)
Adjusted free cash flow $25  $20  $70  $25 

Adjusted free cash flow, as presented in this document, is a supplemental financial measure that is not required by, or presented in accordance with, generally accepted accounting principles in the U.S. ("GAAP").  Adjusted free cash flow is not a GAAP financial measure and should not be considered as an alternative to cash flow from operating activities or any other measure determined in accordance with GAAP.   We use Adjusted free cash flow as a measure of liquidity because it assists us in assessing our company'scompany’s ability to fund its growth through its generation of cash, and believe it is useful to investors for such purpose. In addition, Adjusted free cash flow and similar measures are widely used by investors, securities analysts and other interested parties in our industry to measure a company's liquidity.  Adjusted free cash flow may be calculated differently by other companies, including other companies in our industry, limiting its usefulness as a comparative measure.

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Liquidity Outlook

At December 30, 2017,29, 2018, our cash balance was $228$293 million, of which approximately 90%75% was located outside the U.S.  We believe our existing U.S. based cash and cash flow from U.S. operations, together with available borrowings under our senior secured credit facilities, will be adequate to meet our liquidity needs over the next twelve months.  We do not expect our free cash flow to be sufficient to cover all long-term debt obligations and intend to refinance these obligations prior to maturity.  However, we cannot predict our future results of operations and our ability to meet our obligations involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors"“Risk Factors” section of our most recent Form 10-K filed with the Securities and Exchange Commission and in this Form 10-Q, if any.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities.  AtAs of December 30, 2017,29, 2018, our senior secured credit facilities are comprised of (i) $3.9$3.6 billion term loans and (ii) a $750 million revolving credit facility with no borrowings outstanding.  Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus LIBOR.  The applicable margin for LIBOR rate borrowings under the revolving credit facility ranges from 1.25% to 1.75%, and the margin for the term loans range from 1.75% to 2.00% to 2.25% per annum with a 0% LIBOR floor.  Atannum.  As of December 30, 2017,29, 2018, the LIBOR rate of approximately 1.56%2.50% was applicable to the term loans.  A 0.25% change in LIBOR would increase our annual interest expense by $4$5 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.
As of December 30, 2017,29, 2018, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.00%2.000%, with an effective date in May 2017 and expiration in May 2022 and (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.5190%2.808% with an effective date in March 2017 and expiration in June 2019, (iii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.0987% with an effective date in February 20172018 and expiration in September 2021.

Foreign Currency Exchange Rates

As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Brazilian real, Argentine peso, Chinese yuan,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 a negative $6 million impact on our annual Net Income.income.

In November 2017, theThe Company entered intois party to certain cross-currency swap agreements with a notional amount of 250 million euro to effectively convert a portion of our fixed-rate U.S. dollar denominated term loans, including the monthly interest payments, to fixed ratefixed-rate euro-denominated debt.  The swap agreements mature May 2022.  The risk management objective is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currencies and reduce the variability in the functional currency cash flows of a portion of the Company'sCompany’s term loans.  In the future, we may attempt to manage our foreign currency risk on our anticipated cash movements by entering into foreign currency forward contracts to offset potential foreign exchange gains or losses.

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Item 4.
Item 4.  Controls and ProceduresControls and Procedures

(a)(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 December 30, 2017.29, 2018.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 30, 2017,29, 2018, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.

(b)(b) Changes in internal controls.

There were no changes in our internal control over financial  reporting that occurred during the quarter ended December 30, 201729, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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Part II.  Other Information

Item 1.
Legal Proceedings
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.

Item 1A.
Item 1A.  Risk FactorsRisk Factors
 
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.  In additionThere were not material changes to the Company's risk factors as described in our most recent Form 10-K filed with the Securities and Exchange Commission, investors should consider the following risk factor.

The final impacts of the Tax Cuts and Jobs Act could be materially different from our current estimates.

The Tax Cuts and Jobs Act was signed into law in December 2017. The new law made numerous changes to federal corporate tax law that we expect will significantly reduce our effective tax rate in future periods.  The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from our current estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts.Commission.

Forward-looking Statements and Other Factors Affecting Future Results.

All forward-looking information and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include: 
 
●risks associated with our substantial indebtedness and debt service; 
●changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices on a timely basis; 
●performance of our business and future operating results; 
●risks related to our acquisition strategyacquisitions and integration of acquired businesses; 
●reliance on unpatented proprietary know-how and trade secrets; 
●increases in the cost of compliance with laws and regulations, including environmental, safety, and production and product laws and regulations; 
●risks related to disruptions in the overall economy and the financial markets that may adversely impact our business; 
●risk of catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions; 
●risks of competition, including foreign competition, in our existing and future markets; 
●risks related to the market acceptance of our developing technologies and products;
●general business and economic conditions, particularly an economic downturn; 
●risks that our restructuring programprograms may entail greater implementation costs or result in lower cost savings than anticipated;
●the ability of our insurance to cover fully ourcover potential exposures;
●risks of competition, including foreign competition, in our existing and future markets;
●new legislation or new regulations and the Company's corresponding interpretations of either may affect our business and consolidated financial condition and results of operations; and
●the other factors discussed in our most recent Form 10-K and in this Form 10-Q in the section titled "Risk Factors." 

We caution readers that the foregoing list of important factors may not contain all of the material factors that are important to you.  In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Form 10-Q may not in fact occur.  Accordingly, investors should not place undue reliance on those statements.  We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.


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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

In August 2018, the Company announced a $500 million share repurchase program that has no expiration date and may be suspended at any time.  The following table summarizes the Company's repurchases of its common stock during the Quarterly Period ended December 29, 2018.

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) 
Fiscal October  212,328  $44.02   212,328  $456 
Fiscal November  139,094   49.72   139,094   449 
Fiscal December  781,015   47.86   781,015   412 
  Total  1,132,437  $47.37   1,132,437  $412 



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Item 6.  Exhibits

Item 6.Exhibit No.Exhibits
 
3.1
Amended and Restated BylawsDescription of Berry Global Group, Inc., effective November 30, 2017 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on November 30, 2017).
4.1
Indenture, by and between Berry Global, Inc., Berry Global Group, Inc., the subsidiaries of Berry Global, Inc. party thereto, and U.S. Bank National Association, as Trustee, relating to the 4.500% second priority senior secured notes due 2026, dated January 26, 2018 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on January 29, 2018).
10.1*
U.S. $900,000,000 and $814,375,000 Incremental Assumption Agreement, dated as of November 27, 2017, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term O lender and  Citibank, N.A., as initial Term P lender therein.
10.2*
Senior Executive Employment Contract dated as of September 30, 2015 between PGI Specialty Materials Inc. and Jean Marc Galvez, together with the International Assignment Letter dated December 18, 2016 from Berry Global, Inc.  (f/k/a Berry Plastics Corporation).
31.1* 
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2* 
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1* 
Section 1350 Certification of the Chief Executive Officer.
32.2* 
Section 1350 Certification of the Chief Financial Officer.
101. Interactive Data Files.

*Filed herewith.herewith

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SIGNATURESIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Berry Global Group, Inc. 
    
February 7, 20181, 2019By:/s/ Mark W. Miles 
  Mark W. Miles 
  Chief Financial Officer 



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