Document/ExhibitDescriptionPagesSize 1: 10-Q Berry Global Group 10Q HTML 770K
2: EX-22 Subsidiary Guarantors HTML 92K
3: EX-31.1 Exh 31.1 Rule 13A-14(A)/15D-14(A) Certification of HTML 26K
the Chief Executive Officer
4: EX-31.2 Exh 31.2 Rule 13A-14(A)/15D-14(A) Certification of HTML 26K
the Chief Financial Officer
5: EX-32.1 Exh 32.1 Section 1350 Certification of the Chief HTML 19K
Executive Officer
6: EX-32.2 Exh 32.2 Section 1350 Certification of the Chief HTML 19K
Financial Officer
13: R1 Document and Entity Information HTML 72K
14: R2 Consolidated Statements of Income HTML 79K
15: R3 Consolidated Statements of Comprehensive Income HTML 48K
16: R4 Consolidated Balance Sheets HTML 136K
17: R5 Consolidated Balance Sheets (Parenthetical) HTML 21K
18: R6 Consolidated Statements of Changes in HTML 74K
Stockholders' Equity
19: R7 Consolidated Statements of Cash Flows HTML 89K
20: R8 Basis of Presentation HTML 23K
21: R9 Recent Accounting Pronouncements HTML 34K
22: R10 Revenue and Accounts Receivable HTML 35K
23: R11 Dispositions HTML 22K
24: R12 Restructuring and Transaction Activities HTML 56K
25: R13 Leases HTML 39K
26: R14 Long-Term Debt HTML 51K
27: R15 Financial Instruments and Fair Value Measurements HTML 79K
28: R16 Income Taxes HTML 23K
29: R17 Segment and Geographic Data HTML 121K
30: R18 Contingencies and Commitments HTML 22K
31: R19 Share Repurchase Program HTML 20K
32: R20 Basic and Diluted Net Income Per Share HTML 46K
33: R21 Accumulated Other Comprehensive Loss HTML 74K
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Restructuring Charges by Segment (Details)
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Restructuring Accrual Activity (Details)
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Cross-Currency Swaps (Details)
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Interest Rate Swaps (Details)
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Fair Value of Derivative and Location on
Consolidated Balance Sheets (Details)
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Effect of Derivatives on Consolidated Statements
of Income (Details)
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Assets Measured at Fair Value on Non-Recurring
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by Reportable Segment (Details)
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.01 par value per share
iBERY
iNew York Stock Exchange LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge Accelerated Filer☒
Accelerated Filer ☐
Non-Accelerated Filer ☐
Smaller Reporting Company i☐
Emerging Growth Company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
There were i135.3 million shares of common stock outstanding at August 5, 2021.
Information included in or incorporated by reference in Berry Global Group, Inc.’s filings with the U.S. Securities and Exchange Commission (the “SEC”) and press releases or other public statements, contain or may contain forward-looking statements. This report includes “forward-looking” statements with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. These statements contain words such as “believes,”“expects,”“may,”“will,”“should,”“would,”“could,”“seeks,”“approximately,”“intends,”“plans,”“estimates,”“project”, “outlook,”“anticipates” or “looking forward” or similar expressions
that relate to our strategy, plans, intentions, or expectations. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates, and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. All forward-looking statements are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Additionally, we caution readers that the list of important factors discussed in our most recent Form 10-K in the section titled “Risk Factors”may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.
Adjustments to reconcile net cash provided by operating activities:
Depreciation
i420
i412
Amortization of intangibles
i219
i226
Non-cash interest
i26
i18
Deferred income tax
(i53
)
i30
Share-based compensation expense
i34
i28
Other non-cash operating activities, net
i60
i23
Changes in working capital
(i278
)
(i93
)
Changes in other assets and liabilities
(i21
)
(i29
)
Net cash from operating activities
i912
i979
Cash Flows from Investing Activities:
Additions to property, plant and equipment, net
(i520
)
(i419
)
Divestitures
i165
i—
Settlement of net investment hedges
i—
i281
Other
i—
(i14
)
Net cash from investing activities
(i355
)
(i152
)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
i2,716
i1,202
Repayments on long-term borrowings
(i3,287
)
(i1,859
)
Proceeds from issuance of common stock
i57
i6
Debt financing costs
(i20
)
(i16
)
Net cash from financing activities
(i534
)
(i667
)
Effect of exchange rate changes on cash
i31
(i4
)
Net change in cash
i54
i156
Cash and cash equivalents at beginning of period
i750
i750
Cash and cash equivalents at end of period
$
i804
$
i906
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)
i
1. Basis of Presentation
iThe 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.iIn preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts and disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates. The Company’s U.S. based results for fiscal 2021 and fiscal 2020 are based on a fifty-three and fifty-two week period, respectively. iThe
extra week in fiscal 2021 occurred in the first quarter. In October 2020, the Company reorganized portions of its ifour operating segments in order to better align our various businesses for future growth. The Company has recast all prior period amounts to conform to this new reporting structure. /In
the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included, and all subsequent events up to the time of the filing have been evaluated. For further information, refer to the Company’s most recent Form 10-K filed with the Securities and Exchange Commission.
i
2. Recent Accounting Pronouncements
i
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) and issued subsequent amendments to the initial guidance. The new standard requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which includes historical experience, current conditions, and reasonable and supportable forecasts. The new standard also requires enhanced disclosure. The Company adopted the new standard beginning fiscal 2021 with no material impact to the Company’s consolidated financial statements. See Note 3. Revenue and Accounts Receivable.
Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point changes in assumed health care cost trend rates. The standard also adds requirements to disclose the reasons for significant gains and losses related to changes in the benefit obligations for the period and the accumulated benefit obligation (“ABO”) for plans with ABOs in excess of plan assets. The new standard will be effective for the Company beginning fiscal 2022. The Company is currently evaluating the impact of the adoption
of this standard to our disclosures.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740). The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The new standard will be effective for the Company beginning fiscal 2022. The Company is currently evaluating the impact of the adoption of this standard to the Company’s consolidated financial statements.
8
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This standard provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. ASU 2020-04 is effective upon issuance and generally can be applied through the end of calendar year 2022. The Company is currently evaluating the impact and whether it plans to adopt the optional expedients and exceptions provided under this new standard.
i
3. Revenue and Accounts Receivable
Our 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 to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main source of variable consideration is customer rebates. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Generally,
our revenue is recognized at a point in time for standard promised goods at the time of shipment, when title and risk of loss pass to the customer. The accrual for customer rebates was $i103 million and $i104
million at July 3, 2021 and September 26, 2020, respectively, and is included in Other current liabilities on the Consolidated Balance Sheets. The Company disaggregates revenue based on reportable business segment, geography, and significant product line. Refer to Note 10. Segment and Geographic Data for further information.
i
Accounts receivable, net are presented net of allowance for credit losses of $i22 million and $i25 million at July
3, 2021 and September 26, 2020, respectively. The Company records its current expected credit losses based on a variety of factors including historical loss experience and current customer financial condition. The changes to our current expected credit losses, write-off activity, and recoveries were not material for any of the periods presented.
/
The Company has entered into various qualifying factoring agreements to sell certain receivables to third-party financial institutions. The transfer of receivables is accounted for as a sale, without recourse. Net sales available under qualifying U.S. based programs were $i290 million and $i242
million for the quarterly periods ended July 3, 2021 and June 27, 2020, respectively. Net sales available under qualifying U.S. based programs were $i794 million and $i700
million for the three quarterly periods ended July 3, 2021 and June 27, 2020, respectively. There were iino/
amounts outstanding from financial institutions related to these programs. The fees associated with the transfer of receivables for all programs were not material for any of the periods presented.
i
4. Dispositions
During fiscal 2021, the Company completed the sale of its U.S. Flexible Packaging Converting business which was primarily operated in the Engineered Materials segment for net proceeds of $i140 million and its non-core Czech Republic Reaction Injection Molding business which was operated in the Consumer Packaging International segment for
net proceeds of $i22 million. A net pretax loss on the divestitures of $i22
million was recorded in fiscal 2021 within Restructuring and transaction activities on the Consolidated Statements of Income. The U.S. Flexible Packaging Converting business and the Czech Republic Reaction Injection Molding business recorded net sales during fiscal 2020 of $i203 million and $i41
million, respectively.
9
i
5. Restructuring and Transaction Activities
i
The table below includes the significant components of restructuring and transaction activities, by reporting segment:
The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles.
We recognize right-of-use assets and lease liabilities for leases with original lease terms greater than one year based on the present value of lease payments over the lease term using our incremental borrowing rate on a collateralized basis. Short-term leases, with original lease terms of less than one year, are not recognized on the balance sheet. We are party to certain leases, namely for manufacturing facilities, which offer renewal options to extend the original lease term. Renewal options are included in the right-of-use asset and lease liability based on our assessment of the probability that the options will be exercised.
Right-of-use assets obtained in exchange for new operating lease liabilities were $i19 million and $i53
million for the quarterly and three quarterly periods ended July 3, 2021, respectively.
In fiscal 2021, the Company issued $i800 million aggregate principal amount of i0.95%
first priority senior secured notes due 2024, $i1,525 million aggregate principal amount of i1.57%
first priority senior secured notes due 2026, and $i400 million aggregate principal amount of i1.65%
first priority senior secured notes due 2027. The proceeds were used to prepay a portion of the outstanding Term loans.
Debt extinguishment costs of $i26 million, primarily comprised of deferred debt discount and financing fees, were recorded in Other expense, net on the Consolidated Statements of Income upon the extinguishment of a portion of the Term loans and prepayments on the notes.
Debt discounts and deferred financing fees are presented net of Long-term debt, less the current portion on the Consolidated Balance Sheets and are amortized to Interest expense, net on the Consolidated Statements of Income through maturity.
i
8. Financial Instruments and Fair Value Measurements
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. The Company may use derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes.
Cross-Currency Swaps
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€i250 million), June 2024 (€i1,625
million) and July 2027 (£i700 million). In addition to cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of July 3, 2021, we had outstanding long-term debt of €i785
million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries. When valuing cross-currency swaps the Company utilizes Level 2 inputs (substantially observable).
11
Interest Rate Swaps
The primary purpose of the Company’s interest rate swap activities is to manage interest expense variability associated with our outstanding variable rate term loan debt. When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).
During fiscal 2021, the Company issued various fixed rate first priority senior secured notes and used the proceeds to prepay a portion of its variable rate Term loans. As a result, the Company de-designated a $i1 billion interest rate swap transaction that was set to expire in June 2026. The amounts included in Accumulated other comprehensive loss at the date
of de-designation are being amortized to Interest expense through the term of the original swap.
As of July 3, 2021, the Company effectively had (i) a $i450 million interest rate swap transaction that swaps a ione-month
variable LIBOR contract for a fixed annual rate of i1.398%, with an expiration in June 2026, (ii) a $i400
million interest rate swap transaction that swaps a ione-month variable LIBOR contract for a fixed annual rate of i1.916%
with an expiration in June 2026, (iii) a $i884 million interest rate swap transaction that swaps a ione-month variable
LIBOR contract for a fixed annual rate of i1.857%, with an expiration in June 2024, and (iv) a $i473
million interest rate swap transaction that swaps a ione-month variable LIBOR contract for a fixed annual rate of i2.050%,
with an expiration in June 2024.
i
The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized. Balances on a gross basis are as follows:
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 2020 assessment. No impairment indicators were identified in the current quarter.
12
i
Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of July 3, 2021 and September 26, 2020, along with the impairment loss recognized on the fair value measurement during the period:
The Company’s financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate and cross-currency swap agreements, and finance lease obligations. The fair value of our marketable long-term indebtedness exceeded book value by $i126 million as of July 3, 2021. The
Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable).
i
9. Income Taxes
In comparison to the statutory rate, the higher effective tax rate for the quarter and year-to-date was negatively impacted by state taxes and global intangible low-taxed income provisions.
i
10. Segment and Geographic Data
The Company’s operations are organized into ifour reporting segments: Consumer Packaging International, Consumer Packaging North America, Engineered Materials, and Health, Hygiene & Specialties. The structure is designed to align us with our customers, provide optimal service, drive future growth, and to facilitate synergies realization. In October 2020, the
Company realigned portions of our operating segments. As a result of these organizational realignments, we have recast prior period segment amounts resulting in the following Net sales movements for the three quarterly periods ended June 27, 2020: (1.) Tapes business: $i199 million from Engineered Materials to Health, Hygiene & Specialties, (2.) North American
Healthcare: $i216 million from Consumer Packaging North America to Consumer Packaging International and (3.) European Films: $i537
million from Consumer Packaging International to Engineered Materials.
13
i
Selected information by reportable segment is presented in the following tables:
The Company is party to various legal proceedings involving routine claims which are incidental to its business. Although the Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate liability would not be material to our financial statements.
The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of business.
i
12. Share Repurchase Program
iNo shares were repurchased during the three quarterly periods ended July 3, 2021. Authorized share repurchases of $i393
million remain available to the Company.
i
13. 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. iiNo/
shares were excluded from the diluted net income per share calculation for the quarterly and three quarterly periods ended July 3, 2021. For the quarterly and three quarterly periods ended June 27, 2020, i7.1 million and i7.1
million shares, respectively, were excluded from the diluted net income per share calculation as their effect would be anti-dilutive.
i
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted net income per share calculations.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Business. The Company’s operations are organized into four operating segments: Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Engineered Materials in order to better align our various businesses for future growth. The structure is designed to align us with our customers, provide improved service, drive future growth, and to facilitate synergies realization. The Consumer Packaging International segment primarily consists of containers, closures, dispensing systems, pharmaceutical devices and packaging, and technical components. The Consumer Packaging North America segment primarily consists of containers, foodservice items, closures, overcaps, bottles, and tubes. The Health, Hygiene & Specialties segment primarily consists of nonwoven specialty materials, tapes and adhesives,
and films used in hygiene, infection prevention, personal care, industrial, construction, and filtration applications. The Engineered Materials segment primarily consists of polyethylene-based film products, and can liners.
Acquisitions and Dispositions. 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 estimate the synergy realization based on the overall segment profitability post integration.
During fiscal 2021, the Company completed the sale of its U.S. Flexible Packaging Converting business which was primarily operated in the Engineered Materials segment for net proceeds of $140 million and its non-core Czech Republic Reaction Injection Molding business which was operated in the Consumer Packaging International segment for net proceeds of $22 million. A net pretax loss on the divestitures of $22 million was recorded in fiscal 2021 within Restructuring and transaction activities on the Consolidated Statements of Income. The U.S Flexible Packaging Converting business and the Czech Republic Reaction Injection Molding business recorded net sales during fiscal 2020 of $203 million and $41 million, respectively.
Raw Material Trends. Our primary raw material is plastic resin. Due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs, segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted when plastic resin costs decrease. This timing lag and competitor behaviors related to passing through raw material cost changes could affect our results as plastic resin costs fluctuate. In addition, we use other materials such as butyl rubber, adhesives, paper and packaging materials, linerboard, rayon, polyester fiber, and foil, in various manufacturing processes. These raw materials are available from multiple sources and we purchase from a variety of global suppliers. While temporary shortages of raw materials can occur, we expect to continue to successfully manage raw materials supplies without significant
supply interruptions.
Outlook.The Company is affected by general economic and industrial growth, plastic resin availability and affordability, and general industrial production. The COVID-19 pandemic has resulted in both advantaged and disadvantaged products within all segments. Our results are affected by both the duration certain products remain advantaged and timing of when disadvantaged products normalize. Our business has both geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes to our customers, improve manufacturing productivity and adapt to volume changes of our customers. In the near term, inflation will create a headwind for the
Company, which we believe will be offset by the continued favorable product mix associated with pivoting our assets to produce advantaged products in targeted markets. We continue to believe our underlying long-term demand fundamental in all divisions will remain strong as we focus on delivering protective solutions that enhance consumer safety and execute on the Company’s mission of “Always Advancing to Protect What’s Important.” For fiscal 2021, we project cash flow from operations of $1,575 million and $700 million of capital spending.
17
Results of Operations
Comparison of the Quarterly Period Ended July 3, 2021 (the “Quarter”) and the Quarterly Period Ended June 27, 2020 (the “Prior Quarter”)
Business integration expenses consist of restructuring and impairment charges, acquisition and divestiture related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview
Quarter
Prior Quarter
$ Change
% Change
Net sales
$
3,675
$
2,910
$
765
26
%
Cost of goods sold
3,049
2,272
777
34
%
Other operating expenses
283
291
(8
)
(3
)%
Operating income
$
343
$
347
$
(4
)
(1
)%
Net Sales: The net sales growth is primarily attributed to increased selling prices of $533 million due to the pass through of inflation, organic volume growth of 5%, and a $147 million favorable impact from foreign currency changes. These increases were partially offset by Prior Quarter divestiture sales of $62 million. The organic volume growth was primarily due to organic growth investments and continued recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, and an increase from foreign currency changes. These increases were partially offset by Prior Quarter divestiture cost of goods sold of $51 million.
Other operating expenses: The other operating expenses decrease is primarily attributed to a decrease in business integration expense and Prior Quarter divestiture operating expenses, partially offset by an increase in selling, general, and administrative expense.
Operating Income: The operating income decrease is primarily attributed to a $42 million unfavorable impact from price cost spread, and a $12 million increase in selling, general, and administrative expense, partially offset by a $24 million increase from the organic volume growth, and a $23 million favorable impact from foreign currency.
Consumer Packaging International
Quarter
Prior Quarter
$ Change
% Change
Net sales
$
1,095
$
904
$
191
21
%
Cost of goods sold
894
694
200
29
%
Other operating expenses
122
130
(8
)
(6
)%
Operating income
$
79
$
80
$
(1
)
(1
)%
Net Sales: The net sales growth in the Consumer Packaging International segment is primarily attributed to increased selling prices of $69 million due to the pass through of inflation, organic volume growth of 5%, and an $87 million favorable impact from foreign currency changes. The organic volume growth was primarily due to organic growth investments and continued recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, and an increase from foreign currency changes.
Other operating expenses: The other operating expenses decrease is primarily attributed to a decrease in business integration activities.
Operating Income: The operating income decrease is primarily attributed to a $24 million unfavorable impact from price cost spread and an increase in depreciation and amortization, partially offset by a $17 million favorable impact from foreign currency change, a $10 million decrease in business integration activities, and organic volume growth.
18
Consumer Packaging North America
Quarter
Prior Quarter
$ Change
% Change
Net sales
$
847
$
644
$
203
32
%
Cost of goods sold
716
511
205
40
%
Other operating expenses
55
55
—
—
Operating income
$
76
$
78
$
(2
)
(3
)%
Net Sales: The net sales growth in the Consumer Packaging North America segment is primarily attributed to increased selling prices of $164 million due to the pass through of inflation and organic volume growth of 6%. The organic volume growth was primarily due to continued recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to inflation and organic volume growth.
Operating Income: The operating income decrease is primarily attributed to a $12 million negative impact from price cost spread, partially offset by the organic volume growth.
Health, Hygiene & Specialties
Quarter
Prior Quarter
$ Change
% Change
Net sales
$
828
$
669
$
159
24
%
Cost of goods sold
664
522
142
27
%
Other operating expenses
51
52
(1
)
(2
)%
Operating income
$
113
$
95
$
18
19
%
Net Sales: The net sales growth in the Health, Hygiene & Specialties segment is primarily attributed to organic volume growth of 1%, increased selling prices of $134 million due to the pass through of inflation, and a $28 million favorable impact from foreign currency changes.
Cost of goods sold: The cost of goods sold increase is attributed to inflation and an increase from foreign currency changes.
Operating Income: The operating income increase is primarily attributed to a $15 million favorable impact from price cost spread.
Engineered Materials
Quarter
Prior Quarter
$ Change
% Change
Net sales
$
905
$
693
$
212
31
%
Cost of goods sold
775
545
230
42
%
Other operating expenses
55
54
1
2
%
Operating income
$
75
$
94
$
(19
)
(20
)%
Net Sales: The net sales growth in the Engineered Materials segment is primarily attributed to increased selling prices of $166 million due to the pass through of inflation, organic volume growth of 8%, and a $32 million favorable impact from foreign currency changes, partially offset by Prior Quarter divestiture sales of $41 million. The organic volume growth was primarily due to organic growth investments and continued recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, and an increase from foreign currency changes. These increases were partially offset by Prior Quarter divestiture cost of goods sold of $33 million.
Operating Income: The operating income decrease is primarily attributed to a $21 million negative impact from price cost spread, partially offset by the organic volume increase.
19
Other expense, net
Quarter
Prior Quarter
$ Change
% Change
Other expense, net
$
14
$
(7
)
$
21
(300
)%
The other expense in the Quarter is primarily attributed to debt extinguishment costs compared to a benefit from foreign currency changes related to the remeasurement of non-operating intercompany balances in the Prior Quarter.
Interest expense, net
Quarter
Prior Quarter
$ Change
% Change
Interest expense, net
$
76
$
110
$
(34
)
(31
)%
The interest expense decrease is primarily the result of repayments on long-term borrowings and recent refinancing activities (see Note 7).
Changes in Comprehensive Income
The $94 million improvement in comprehensive income from the Prior Quarter was primarily attributed to a $3 million improvement in net income, an $11 million favorable change in the fair value of derivative instruments, net of tax, and an $80 million favorable change in currency translation. As part of the overall risk management, the Company uses derivative instruments to (i) reduce our exposure to changes in interest rates attributed to the Company’s borrowings and (ii) reduce foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments
in fiscal 2021 versus fiscal 2020 is primarily attributed to the change in the forward interest and foreign exchange curves between measurement dates.
Comparison of the Three Quarterly Periods Ended July 3, 2021 (the “YTD”) and the Three Quarterly Periods Ended June 27, 2020 (the “Prior YTD”)
The Company’s U.S. based results for the YTD and Prior YTD are based on a forty and thirty-nine week period, respectively. Business integration expenses consist of restructuring and impairment charges, acquisition and divestiture related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview
YTD
Prior YTD
$ Change
% Change
Net sales
$
10,181
$
8,701
$
1,480
17
%
Cost of goods sold
8,273
6,959
1,314
19
%
Other operating expenses
928
912
16
2
%
Operating income
$
980
$
830
$
150
18
%
Net Sales: The net sales growth is primarily attributed to organic volume growth of 5%, increased selling prices of $714 million due to the pass through of inflation, a $289 million favorable impact from foreign currency changes, and a $131 million increase from extra shipping days in the YTD. These increases were partially offset by Prior YTD divestiture sales of $130 million. The organic volume growth was primarily due to organic growth investments, continued recovery of certain markets that had previously been facing COVID-19 headwinds, and higher demand in our advantaged health and hygiene products as the result of COVID-19.
Cost of goods sold: The cost of goods sold increase is attributed to organic volume growth, product mix, inflation, an increase from foreign currency changes, and an increase from extra shipping days in the YTD. These increases were partially offset by Prior YTD divestiture cost of goods sold of $106 million.
Operating Income: The operating income increase is primarily attributed to an $105 million increase from the organic volume growth, a $46 million favorable impact from foreign currency, and a $22 million benefit from extra shipping days in the YTD, partially offset by a $28 million increase in selling, general, and administrative expenses.
20
Consumer Packaging International
YTD
Prior YTD
$ Change
% Change
Net sales
$
3,143
$
2,804
$
339
12
%
Cost of goods sold
2,528
2,229
299
13
%
Other operating expenses
401
399
2
1
%
Operating income
$
214
$
176
$
38
22
%
Net Sales: The net sales growth in the Consumer Packaging International segment is primarily attributed to organic volume growth of 4% and a $202 million favorable impact from foreign currency changes. The organic volume growth was primarily due to organic growth investments and continued recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to organic volume growth, an increase from foreign currency changes, and an increase in depreciation.
Operating Income: The operating income increase is primarily attributed to a $25 million increase from the organic volume growth, a $35 million favorable impact from foreign currency, and a decrease in business integration activities, partially offset by a $19 million increase in depreciation and amortization and an $18 million unfavorable impact from price cost spread.
Consumer Packaging North America
YTD
Prior YTD
$ Change
% Change
Net sales
$
2,264
$
1,888
$
376
20
%
Cost of goods sold
1,871
1,528
343
22
%
Other operating expenses
181
169
12
7
%
Operating income
$
212
$
191
$
21
11
%
Net Sales: The net sales growth in the Consumer Packaging North America segment is primarily attributed to organic volume growth of 6%, increased selling prices of $220 million, and a $40 million increase from extra shipping days in the YTD. The organic volume growth was primarily due to recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, and an increase from extra shipping days in the YTD, partially offset by a decrease in depreciation.
Other operating expenses: The other operating expenses increase is primarily attributed an increase in selling, general, and administrative expense.
Operating Income: The operating income increase is primarily attributed to a $29 million increase from the organic volume growth and a $10 million decrease in depreciation and amortization, partially offset by an $18 million unfavorable impact from price cost spread and a $13 million increase in selling, general, and administrative expense.
Health, Hygiene & Specialties
YTD
Prior YTD
$ Change
% Change
Net sales
$
2,349
$
1,923
$
426
22
%
Cost of goods sold
1,846
1,535
311
20
%
Other operating expenses
180
180
—
—
Operating income
$
323
$
208
$
115
55
%
Net Sales: The net sales growth in the Health, Hygiene & Specialties segment is primarily attributed to organic volume growth of 8%, increased selling prices of $224 million due to the pass through of inflation, a $42 million increase from extra shipping days in the YTD, and a $33 million favorable impact from foreign currency changes. The organic volume growth was primarily due to organic growth investments and higher demand in our advantaged health and hygiene products as the result of COVID-19.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, an increase from extra shipping days in the YTD, and an increase from foreign currency changes.
Operating Income: The operating income increase is primarily attributed to a $38 million increase from the organic volume growth, and a $62 million favorable impact from price cost spread.
21
Engineered Materials
YTD
Prior YTD
$ Change
% Change
Net sales
$
2,425
$
2,086
$
339
16
%
Cost of goods sold
2,028
1,667
361
22
%
Other operating expenses
166
164
2
1
%
Operating income
$
231
$
255
$
(24
)
(9
)%
Net Sales: The net sales growth in the Engineered Materials segment is primarily attributed to increased selling prices of $249 million due to the pass through of inflation, a $44 million increase from extra shipping days in the YTD, organic volume growth of 4%, and a $54 million favorable impact from foreign currency changes, partially offset by Prior YTD divestiture sales of $95 million. The organic volume growth was primarily due to organic growth investments and continued recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, an increase from foreign currency changes, and an increase from extra shipping days in the YTD. These increases were partially offset by Prior YTD divestiture cost of goods sold of $78 million.
Operating Income: The operating income decrease is primarily attributed to a $36 million unfavorable impact from price cost spread,partially offset by a $13 million improvement from the organic volume growth.
Other expense, net
YTD
Prior YTD
$ Change
% Change
Other expense, net
$
45
$
6
$
39
650
%
The other expense increase is primarily attributed to debt extinguishment costs and foreign currency changes related to the remeasurement of non-operating intercompany balances.
Interest expense, net
YTD
Prior YTD
$ Change
% Change
Interest expense, net
$
257
$
339
$
(82
)
(24
)%
The interest expense decrease is primarily the result of repayments on long-term borrowings and recent refinancing activities (see Note 7).
22
Changes in Comprehensive Income
The $570 million improvement in comprehensive income from the Prior YTD was primarily attributed to a $141 million improvement in net income, a $250 million favorable change in currency translation, and a $178 million favorable change in the fair value of derivative instruments, net of tax. Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates. The change in currency translation in the YTD was primarily attributed to locations utilizing the euro, British pound sterling, Brazilian real, Canadian dollar, Chinese renminbi and Mexican peso as the functional currency. As part of the overall risk management, the
Company uses derivative instruments to (i) reduce our exposure to changes in interest rates attributed to the Company’s borrowings and (ii) reduce foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in fiscal 2021 versus fiscal 2020 is primarily attributed to the change in the forward interest and foreign exchange curves between measurement dates.
Liquidity and Capital Resources
Senior Secured Credit Facility
We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. At the end of the Quarter, the Company had no outstanding balance on its $850 million asset-based revolving line of credit that matures in May 2024. The Company was in compliance with all covenants at the end of the Quarter. (see Note 7)
Cash Flows
Net cash from operating activities decreased $67 million from the Prior YTD primarily attributed to changes in working capital from organic growth and inflation, partially offset by improved net income prior to non-cash activities.
Net cash used in investing activities increased $203 million from the Prior YTD primarily attributed to increased capital expenditures and proceeds from the settlement of cross-currency derivatives in the Prior YTD, partially offset by proceeds from the divestiture of business in the YTD.
Net cash used in financing activities decreased $133 million from the Prior YTD primarily attributed to lower net debt repayments, and higher proceeds from issuance of common stock.
Share Repurchases
No shares were repurchased during the quarter. Authorized share repurchases of $393 million remain available to the Company.
Liquidity Outlook
At July 3, 2021, our cash balance was $804 million, of which approximately 64% 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.
23
Summarized Guarantor Financial Information
Berry Global, Inc. (“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by its parent, Berry Global Group, Inc. (for purposes of this section, “Parent”) and substantially all of Issuer’s domestic subsidiaries. Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by Parent and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis. A guarantee of a guarantor subsidiary of the securities will terminate upon the following customary circumstances: the sale of the capital stock of such guarantor if such sale
complies with the indentures, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture or in the case of a restricted subsidiary that is required to guarantee after the relevant issuance date, if such guarantor no longer guarantees certain other indebtedness of Issuer. The guarantees of the guarantor subsidiaries are also limited as necessary to prevent them from constituting a fraudulent conveyance under applicable law and any guarantees guaranteeing subordinated debt are subordinated to certain other of the Company’s debts. Parent also guarantees Issuer’s term
loans and revolving credit facilities. The guarantor subsidiaries guarantee our term loans and are co-borrowers under our revolving credit facility.
Presented below is summarized financial information for the Parent, Issuer and guarantor subsidiaries on a combined basis, after intercompany transactions have been eliminated.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities. Our senior secured credit facilities are comprised of (i) $3.4 billion term loans and (ii) a $850 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 1.50%, and the margin for term loans is 1.75% per annum. As of period end, the LIBOR rate of approximately 0.10% was applicable to the term loans. A 0.25% change in LIBOR would increase our annual interest expense by $3 million on variable rate term loans.
We seek to minimize interest rate volatility risk through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. These financial instruments are not used for trading or other speculative purposes. At period end, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.398%, with an expiration in June 2026, (ii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.916% with an expiration in June 2026, (iii) a $884 million interest rate swap transaction that
swaps a one-month variable LIBOR contract for a fixed annual rate of 1.857%, with an expiration in June 2024, and (iv) a $473 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.050%, with an expiration in June 2024.
Foreign Currency Risk
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, British pound sterling, Brazilian real, Chinese renminbi, Canadian dollar and Mexican peso. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses. Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates and impact our Comprehensive income. A 10% decline in foreign currency exchange rates would have had a $29 million unfavorable impact on our Net income for the three quarterly periods ended July
3, 2021.
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€250 million), June 2024 (€1,625 million) and July 2027 (£700 million). In addition to cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of July 3, 2021, we had outstanding long-term debt of €785 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries.
25
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under applicable Securities and Exchange Commission regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the commission (such as this Form 10-Q) is recorded, processed, summarized, and reported on a timely basis.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
Part II. Other Information
Item 1. Legal Proceedings
There have been no material changes in legal proceedings from the items disclosed in our Form 10-K filed with the Securities and Exchange Commission.
Item 1A. Risk 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”. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Additionally, we caution readers that the list of risk factors discussed in our most recent Form 10-K may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
During the quarter, the Company did not repurchase any shares. As of July 3, 2021, $393 million of authorized shares remained available to purchase under the program.
Section 1350 Certification of the Chief Financial Officer.
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
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.
