N
otes 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 to 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. 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 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 2018 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 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 adopted the new standard effective for fiscal 2019 using the modified retrospective 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 has made substantial progress analyzing its lease contracts and has developed business processes and internal controls in preparation for the new standard. We are currently evaluating the financial statement impact to the Company as well as the expanded disclosure requirements. The new standard will be effective for the Company beginning fiscal 2020.
Credit Losses
In June 2016, the FASB issued 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 new standard is effective for interim and annual periods beginning after December 15, 2019. The Company is in the process of evaluating this new standard, however, the Company does not anticipate this to have a material impact.
3. Revenue Recognition
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 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.
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 $60 million and $58 million at June 29, 2019 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 2018, the Company acquired Laddawn, Inc. ("Laddawn") for a purchase price of $241 million. Laddawn is a custom bag and 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 used existing liquidity.
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 the fair value at the acquisition date. The results of Laddawn have been included in the consolidated results of the Company since the date of the acquisition. The assets acquired and liabilities assumed consisted of working capital of $27 million, property and equipment of $39 million, intangible assets of $84 million, and goodwill of $91 million. The working capital includes a $3 million step up of inventory to fair value. 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.
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
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 June 29, 2019 or September 29, 2018. Gross amounts factored under these U.S. based programs at June 29, 2019 and September 29, 2018 were $241 million and $162 million, respectively. The fees associated with transfer of receivables for all programs were not material for any of the periods presented.
6. Restructuring and Impairment Charges
The Company incurred restructuring costs related to severance charges associated with acquisition integrations and facility exit costs.
The tables below set forth the significant components of the restructuring charges recognized, by segment:
|
|
Quarterly Period Ended
|
|
|
Three Quarterly Periods Ended
|
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
Engineered Materials
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
4
|
|
Health, Hygiene & Specialties
|
|
|
1
|
|
|
|
4
|
|
|
|
13
|
|
|
|
26
|
|
Consumer Packaging
|
|
|
1
|
|
|
|
1
|
|
|
|
4
|
|
|
|
3
|
|
Consolidated
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
18
|
|
|
$
|
33
|
|
The table below sets forth the activity with respect to the restructuring accrual at June 29, 2019:
|
|
Employee
Severance and
Benefits
|
|
|
Facility
Exit Costs
|
|
|
Non-cash
Impairment
Charges
|
|
|
Total
|
|
Balance at September 29, 2018
|
|
$
|
9
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
13
|
|
Charges
|
|
|
7
|
|
|
|
4
|
|
|
|
7
|
|
|
|
18
|
|
Non-cash asset impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Cash payments
|
|
|
(13
|
)
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(16
|
)
|
Balance at June 29, 2019
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
8
|
|
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:
|
|
June 29, 2019
|
|
|
September 29, 2018
|
|
Derivative instruments
|
|
$
|
138
|
|
|
$
|
—
|
|
Employee compensation
|
|
|
99
|
|
|
|
113
|
|
Accrued taxes
|
|
|
66
|
|
|
|
72
|
|
Rebates
|
|
|
60
|
|
|
|
58
|
|
Interest
|
|
|
41
|
|
|
|
49
|
|
Tax receivable agreement obligation
|
|
|
12
|
|
|
|
16
|
|
Restructuring
|
|
|
8
|
|
|
|
13
|
|
Accrued operating expenses
|
|
|
98
|
|
|
|
95
|
|
|
|
$
|
522
|
|
|
$
|
416
|
|
The following table sets forth the totals included in Other long-term liabilities on the Consolidated Balance Sheets:
|
|
June 29, 2019
|
|
|
September 29, 2018
|
|
Derivative instruments
|
|
$
|
79
|
|
|
$
|
12
|
|
Uncertain tax positions
|
|
|
67
|
|
|
|
67
|
|
Deferred purchase price
|
|
|
45
|
|
|
|
40
|
|
Pension liability
|
|
|
42
|
|
|
|
45
|
|
Lease retirement obligation
|
|
|
41
|
|
|
|
39
|
|
Sale-lease back deferred gain
|
|
|
20
|
|
|
|
21
|
|
Transition tax
|
|
|
17
|
|
|
|
18
|
|
Tax receivable agreement obligation
|
|
|
10
|
|
|
|
23
|
|
Other
|
|
|
24
|
|
|
|
24
|
|
|
|
$
|
345
|
|
|
$
|
289
|
|
8. Long-Term Debt
Long-term debt consists of the following:
Facility
|
Maturity Date
|
|
June 29, 2019
|
|
|
September 29, 2018
|
|
Term loan
|
February 2020
(a)
|
|
$
|
450
|
|
|
$
|
800
|
|
Term loan
|
January 2021
|
|
|
814
|
|
|
|
814
|
|
Term loan
|
October 2022
|
|
|
1,545
|
|
|
|
1,545
|
|
Term loan
|
January 2024
|
|
|
489
|
|
|
|
493
|
|
Revolving line of credit
|
May 2024
|
|
|
—
|
|
|
|
—
|
|
5
1
/
2
% Second Priority Senior Secured Notes
|
May 2022
|
|
|
500
|
|
|
|
500
|
|
6% Second Priority Senior Secured Notes
|
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
|
|
|
|
(36
|
)
|
|
|
(43
|
)
|
Capital leases and other
|
Various
|
|
|
106
|
|
|
|
135
|
|
Total long-term debt
|
|
|
|
5,468
|
|
|
|
5,844
|
|
Current portion of long-term debt
|
|
|
|
(29
|
)
|
|
|
(38
|
)
|
Long-term debt, less current portion
|
|
|
$
|
5,439
|
|
|
$
|
5,806
|
|
(a)
The Company classifies the term loan as long-term based on our refinancing in July 2019 (see Note 17 for further information).
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, net through maturity.
Revolving Line of Credit
In May 2019, the Company amended and extended its existing revolving line of credit from total capacity of $750 million maturing in May 2020 to $850 million maturing in May 2024.
During fiscal 2019, the Company has made $383 million of repayments on long-term borrowings using existing liquidity.
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
The Company is party to certain cross-currency swap agreements with a notional amount of €250 million 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’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.
Cross-Currency Swaps – RPC Acquisition
In preparation of the July 2019 RPC Group Plc (“RPC”) acquisition, the Company entered into certain cross-currency swap agreements with notional amounts of €1,625 million and £700 million to effectively convert a portion of our U.S. dollar denominated term loans, including the monthly interest payments, to fixed-rate euro and fixed-rate pound sterling denominated debt. The swap agreements mature in June 2024. The risk management objective is to manage foreign currency risk relating to net investments in portions of the RPC business denominated in foreign currencies and reduce the variability in the functional currency cash flows of a portion of the Company’s term loans. Due to the post Quarter closing of the RPC acquisition, the contracts were not designated as hedges as of June 29, 2019. For the three months ended June 29, 2019, the Company recognized an unrealized loss of $18 million in Other expense, net in the Consolidated Statements of Income.
Foreign Exchange Forward Contracts — RPC Acquisition
In preparation of the July 2019 RPC acquisition, the Company entered into certain foreign exchange forward contracts to partially mitigate the currency exchange rate risk associated with the GBP denominated purchase price. At June 29, 2019, the Company had outstanding forward contracts totaling £2.7 billion. For the quarter ended June 29, 2019, the Company recognized an unrealized loss of $120 million in Other expense, net in the Consolidated Statement of Income associated with the forward contracts.
Interest Rate Swaps
The primary purpose of the Company’s interest rate swap activities is to manage cash flow variability associated with our outstanding variable rate term loan debt.
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.
As of June 29, 2019, 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 2.000%, with an effective date in May 2017 and expiration in May 2022, (ii) a $1 billion interest rate swap transaction that swaps a one month variable LIBOR contract for a fixed annual rate of 2.808% with an effective date in June 2018 and expiration in September 2021, (iii) a $400 million interest rate swap transaction that swaps a one month variable LIBOR contract for a fixed annual rate of 2.533% with an effective date in February 2019 and expiration in July 2023, (iv) a $884 million interest rate swap transaction that swaps a one month variable LIBOR contract plus 250 basis point spread for a fixed annual rate of 4.357%, with an effective date in July 2019 and expiration in June 2024, and (v) a $473 million interest rate swap transaction that swaps a one month variable LIBOR contract plus 250 basis point spread for a fixed annual rate of 4.550%, with an effective date in July 2019 and expiration in June 2024.
The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized. The categorization of the framework used to value the instruments is considered Level 2, due to the analysis that incorporates observable market inputs including foreign currency spot and forward rates, various interest rate curves, and obtained from pricing data quoted by various banks, third party sources and foreign currency dealers. Balances on a gross basis are as follows:
Derivatives Instruments
|
Hedge Designation
|
Balance Sheet Location
|
|
June 29, 2019
|
|
|
September 29, 2018
|
|
Cross-currency swaps
|
Designated
|
Other assets
|
|
$
|
4
|
|
|
$
|
—
|
|
Cross-currency swaps
|
Designated
|
Other long-term liabilities
|
|
|
—
|
|
|
|
11
|
|
Cross-currency swaps
|
Not designated
|
Other long-term liabilities
|
|
|
18
|
|
|
|
—
|
|
Interest rate swaps
|
Designated
|
Other assets
|
|
|
—
|
|
|
|
16
|
|
Interest rate swaps
|
Designated
|
Other long-term liabilities
|
|
|
61
|
|
|
|
—
|
|
Interest rate swaps
|
Not designated
|
Other long-term liabilities
|
|
|
—
|
|
|
|
1
|
|
Foreign exchange forward contracts
|
Not designated
|
Other current liabilities
|
|
|
138
|
|
|
|
—
|
|
The effect of the Company's derivative instruments on the Consolidated Statements of Income is as follows:
|
|
|
Quarterly Period Ended
|
|
|
Three Quarterly Periods Ended
|
|
Derivative Instruments
|
Statements of Income Location
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
Cross-currency swaps
(a)
|
Interest expense, net
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
(5
|
)
|
|
$
|
(4
|
)
|
Cross-currency swaps
(b)
|
Other expense, net
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
Foreign exchange forward contracts
|
Other expense, net
|
|
|
120
|
|
|
|
—
|
|
|
|
138
|
|
|
|
—
|
|
Interest rate swaps
|
Interest expense, net
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(13
|
)
|
|
|
2
|
|
(a)
Designated
(b)
Not designated
The amortization related to unrealized losses in Accumulated other comprehensive loss is expected to be $5 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 2018 assessment. No impairment indicators were identified in the current quarter.
Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of June 29, 2019
and September 29, 2018
, along with the impairment loss recognized on the fair value measurement during the period:
|
|
As of June 29, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Impairment
|
|
Indefinite-lived trademarks
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
248
|
|
|
$
|
248
|
|
|
$
|
—
|
|
Goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
2,911
|
|
|
|
2,911
|
|
|
|
—
|
|
Definite lived intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
956
|
|
|
|
956
|
|
|
|
—
|
|
Property, plant, and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
2,451
|
|
|
|
2,451
|
|
|
|
7
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,566
|
|
|
$
|
6,566
|
|
|
$
|
7
|
|
|
|
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, foreign exchange forward contracts, and capital lease obligations. The fair value of our marketable long-term indebtedness exceeded book value by $29 million as of June 29, 2019. The Company's long-term debt fair values were determined using Level 2 inputs as other significant observable inputs were not available.
10. 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”). The transitional impacts of the Tax Act resulted in a transition benefit of $95 million in the nine month period ended June 30, 2018.
During the quarter, the Company recorded a $120 million loss on foreign exchange forward contracts related to the acquisition of RPC resulting in a $30 million tax benefit. After excluding the foreign exchange forward contract loss, the effective tax rate would be 19% for the quarter and was positively impacted by a 6% reduction in share-based compensation excess tax benefit deduction and a 3% benefit from the research and development credit. These favorable items were offset by increases of 3% from U.S. State income taxes, 1% from foreign valuation allowance, 3% from the annual GILTI inclusion and other discrete items.
The effective tax rate was 19% for the three quarterly periods ended June 29, 2019 and was positively impacted by 7% from the share-based compensation excess tax benefit deduction, 2% from research and development credits, and 4% from other discrete items. These favorable items were offset by increases of 3% from U.S. state income taxes, 3% from foreign valuation allowance, 3% from the annual GILTI inclusion, and other discrete items.
11. 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
|
|
|
Three Quarterly Periods Ended
|
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Materials
|
|
$
|
639
|
|
|
$
|
687
|
|
|
$
|
1,936
|
|
|
$
|
1,990
|
|
Health, Hygiene & Specialties
|
|
|
646
|
|
|
|
726
|
|
|
|
2,031
|
|
|
|
2,009
|
|
Consumer Packaging
|
|
|
652
|
|
|
|
659
|
|
|
|
1,892
|
|
|
|
1,816
|
|
Total net sales
|
|
$
|
1,937
|
|
|
$
|
2,072
|
|
|
$
|
5,859
|
|
|
$
|
5,815
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Materials
|
|
$
|
83
|
|
|
$
|
94
|
|
|
$
|
251
|
|
|
$
|
276
|
|
Health, Hygiene & Specialties
|
|
|
65
|
|
|
|
62
|
|
|
|
171
|
|
|
|
140
|
|
Consumer Packaging
|
|
|
67
|
|
|
|
60
|
|
|
|
154
|
|
|
|
151
|
|
Total operating income
|
|
$
|
215
|
|
|
$
|
216
|
|
|
$
|
576
|
|
|
$
|
567
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered Materials
|
|
$
|
28
|
|
|
$
|
26
|
|
|
$
|
88
|
|
|
$
|
82
|
|
Health, Hygiene & Specialties
|
|
|
49
|
|
|
|
51
|
|
|
|
153
|
|
|
|
146
|
|
Consumer Packaging
|
|
|
50
|
|
|
|
59
|
|
|
|
156
|
|
|
|
169
|
|
Total depreciation and amortization
|
|
$
|
127
|
|
|
$
|
136
|
|
|
$
|
397
|
|
|
$
|
397
|
|
|
|
June 29, 2019
|
|
|
September 29, 2018
|
|
Total assets:
|
|
|
|
|
|
|
Engineered Materials
|
|
$
|
1,931
|
|
|
$
|
1,998
|
|
Health, Hygiene & Specialties
|
|
|
3,738
|
|
|
|
3,913
|
|
Consumer Packaging
|
|
|
3,140
|
|
|
|
3,220
|
|
Total assets
|
|
$
|
8,809
|
|
|
$
|
9,131
|
|
|
|
|
|
|
|
|
|
|
Total goodwill:
|
|
|
|
|
|
|
|
|
Engineered Materials
|
|
$
|
641
|
|
|
$
|
632
|
|
Health, Hygiene & Specialties
|
|
|
861
|
|
|
|
902
|
|
Consumer Packaging
|
|
|
1,409
|
|
|
|
1,410
|
|
Total goodwill
|
|
$
|
2,911
|
|
|
$
|
2,944
|
|
Selected information by geography is presented in the following tables:
|
|
Quarterly Period Ended
|
|
|
Three Quarterly Periods Ended
|
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
1,591
|
|
|
$
|
1,759
|
|
|
$
|
4,791
|
|
|
$
|
4,835
|
|
South America
|
|
|
87
|
|
|
|
70
|
|
|
|
271
|
|
|
|
215
|
|
Europe
|
|
|
200
|
|
|
|
181
|
|
|
|
614
|
|
|
|
577
|
|
Asia
|
|
|
59
|
|
|
|
62
|
|
|
|
183
|
|
|
|
188
|
|
Total net sales
|
|
$
|
1,937
|
|
|
$
|
2,072
|
|
|
$
|
5,859
|
|
|
$
|
5,815
|
|
|
|
June 29, 2019
|
|
|
September 29, 2018
|
|
Long-lived assets:
|
|
|
|
|
|
|
North America
|
|
$
|
5,611
|
|
|
$
|
5,764
|
|
South America
|
|
|
328
|
|
|
|
320
|
|
Europe
|
|
|
380
|
|
|
|
463
|
|
Asia
|
|
|
311
|
|
|
|
299
|
|
Total Long-lived assets
|
|
$
|
6,630
|
|
|
$
|
6,846
|
|
Selected information by product line is presented in the following tables:
|
|
Quarterly Period Ended
|
|
|
Three Quarterly Periods Ended
|
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials
|
|
|
40
|
|
|
|
41
|
|
|
|
39
|
|
|
|
41
|
|
Engineered Products
|
|
|
60
|
|
|
|
59
|
|
|
|
61
|
|
|
|
59
|
|
Engineered Materials
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
|
|
|
18
|
|
|
|
18
|
|
|
|
18
|
|
|
|
17
|
|
Hygiene
|
|
|
49
|
|
|
|
50
|
|
|
|
51
|
|
|
|
51
|
|
Specialties
|
|
|
33
|
|
|
|
32
|
|
|
|
31
|
|
|
|
32
|
|
Health, Hygiene & Specialties
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rigid Open Top
|
|
|
47
|
|
|
|
45
|
|
|
|
45
|
|
|
|
43
|
|
Rigid Closed Top
|
|
|
53
|
|
|
|
55
|
|
|
|
55
|
|
|
|
57
|
|
Consumer Packaging
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
12. 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.
13. Share Repurchase Program
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 June 29, 2019, the Company did not repurchase any shares. For the three quarterly periods ended June 29, 2019, the Company repurchased approximately 1,512 thousand shares for $72 million. As of June 29, 2019, $393 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. For the three and nine months ended June 29, 2019, 1
million and
2
million shares, respectively, we
re excluded from the diluted net income per share calculation as their effect would be anti-dilutive.
The following tables provide a reconciliation of the numerator and denominator of the basic and diluted net income per share calculations.
|
|
Quarterly Period Ended
|
|
|
Three Quarterly Periods Ended
|
|
(in millions, except per share amounts)
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
|
June 29, 2019
|
|
|
June 30, 2018
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13
|
|
|
$
|
110
|
|
|
$
|
175
|
|
|
$
|
363
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
131.5
|
|
|
|
131.7
|
|
|
|
131.0
|
|
|
|
131.3
|
|
Dilutive shares
|
|
|
2.7
|
|
|
|
3.7
|
|
|
|
3.0
|
|
|
|
4.5
|
|
Weighted average common and common equivalent shares outstanding - diluted
|
|
|
134.2
|
|
|
|
135.4
|
|
|
|
134.0
|
|
|
|
135.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.84
|
|
|
$
|
1.34
|
|
|
$
|
2.76
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.81
|
|
|
$
|
1.31
|
|
|
$
|
2.67
|
|
15. Accumulated Other Comprehensive Loss
The components and activity of Accumulated other comprehensive loss are as follows:
Quarterly Period Ended
|
|
Currency
Translation
|
|
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
|
|
Interest
Rate Swaps
|
|
|
Accumulated Other
Comprehensive
Loss
|
|
Balance at March 30, 2019
|
|
$
|
(173
|
)
|
|
$
|
(13
|
)
|
|
$
|
—
|
|
|
$
|
(186
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
10
|
|
|
|
—
|
|
|
|
(44
|
)
|
|
|
(34
|
)
|
Net amount reclassified from accumulated other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
12
|
|
Balance at June 29, 2019
|
|
$
|
(163
|
)
|
|
$
|
(13
|
)
|
|
$
|
(35
|
)
|
|
$
|
(211
|
)
|
|
|
Currency
Translation
|
|
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
|
|
Interest
Rate Swaps
|
|
|
Accumulated Other
Comprehensive
Loss
|
|
Balance at March 31, 2018
|
|
$
|
(65
|
)
|
|
$
|
(17
|
)
|
|
$
|
26
|
|
|
$
|
(56
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(92
|
)
|
|
|
—
|
|
|
|
7
|
|
|
|
(85
|
)
|
Net amount reclassified from accumulated other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Balance at June 30, 2018
|
|
$
|
(157
|
)
|
|
$
|
(17
|
)
|
|
$
|
30
|
|
|
$
|
(144
|
)
|
Three Quarterly Periods Ended
|
|
Currency
Translation
|
|
|
Defined Benefit
Pension and Retiree
Health Benefit Plans
|
|
|
Interest
Rate Swaps
|
|
|
Accumulated Other
Comprehensive
Loss
|
|
Balance at September 29, 2018
|
|
$
|
(175
|
)
|
|
$
|
(13
|
)
|
|
$
|
32
|
|
|
$
|
(156
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
12
|
|
|
|
—
|
|
|
|
(82
|
)
|
|
|
(70
|
)
|
Net amount reclassified from accumulated other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
23
|
|
Balance at June 29, 2019
|
|
$
|
(163
|
)
|
|
$
|
(13
|
)
|
|
$
|
(35
|
)
|
|
$
|
(211
|
)
|
|
|
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
|
|
|
(109
|
)
|
|
|
(1
|
)
|
|
|
42
|
|
|
|
(68
|
)
|
Net amount reclassified from accumulated other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
5
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Balance at June 30, 2018
|
|
$
|
(157
|
)
|
|
$
|
(17
|
)
|
|
$
|
30
|
|
|
$
|
(144
|
)
|
16. Guarantor and Non-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 Note, “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 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’s debts. Parent also guarantees the 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 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’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 Sheet
|
|
June 29, 2019
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Current assets
|
|
$
|
—
|
|
|
$
|
203
|
|
|
$
|
1,160
|
|
|
$
|
816
|
|
|
$
|
—
|
|
|
$
|
2,179
|
|
Intercompany receivable
|
|
|
203
|
|
|
|
1,762
|
|
|
|
—
|
|
|
|
24
|
|
|
|
(1,989
|
)
|
|
|
—
|
|
Property, plant, and equipment, net
|
|
|
—
|
|
|
|
80
|
|
|
|
1,655
|
|
|
|
716
|
|
|
|
—
|
|
|
|
2,451
|
|
Other assets
|
|
|
1,688
|
|
|
|
6,402
|
|
|
|
4,740
|
|
|
|
426
|
|
|
|
(9,077
|
)
|
|
|
4,179
|
|
Total assets
|
|
$
|
1,891
|
|
|
$
|
8,447
|
|
|
$
|
7,555
|
|
|
$
|
1,982
|
|
|
$
|
(11,066
|
)
|
|
$
|
8,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
12
|
|
|
$
|
356
|
|
|
$
|
513
|
|
|
$
|
275
|
|
|
$
|
—
|
|
|
$
|
1,156
|
|
Intercompany payable
|
|
|
—
|
|
|
|
—
|
|
|
|
1,989
|
|
|
|
—
|
|
|
|
(1,989
|
)
|
|
|
—
|
|
Other long-term liabilities
|
|
|
333
|
|
|
|
5,650
|
|
|
|
57
|
|
|
|
67
|
|
|
|
—
|
|
|
|
6,107
|
|
Stockholders' equity
|
|
|
1,546
|
|
|
|
2,441
|
|
|
|
4,996
|
|
|
|
1,640
|
|
|
|
(9,077
|
)
|
|
|
1,546
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,891
|
|
|
$
|
8,447
|
|
|
$
|
7,555
|
|
|
$
|
1,982
|
|
|
$
|
(11,066
|
)
|
|
$
|
8,809
|
|
|
|
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 Income
|
|
Quarterly Period Ended June 29, 2019
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
139
|
|
|
$
|
1,358
|
|
|
$
|
440
|
|
|
$
|
—
|
|
|
$
|
1,937
|
|
Cost of goods sold
|
|
|
—
|
|
|
|
43
|
|
|
|
1,139
|
|
|
|
375
|
|
|
|
—
|
|
|
|
1,557
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
13
|
|
|
|
84
|
|
|
|
28
|
|
|
|
—
|
|
|
|
125
|
|
Amortization of intangibles
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
|
|
5
|
|
|
|
—
|
|
|
|
38
|
|
Restructuring and impairment charges
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2
|
|
Operating income
|
|
|
—
|
|
|
|
83
|
|
|
|
101
|
|
|
|
31
|
|
|
|
—
|
|
|
|
215
|
|
Other expense (income), net
|
|
|
—
|
|
|
|
135
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
136
|
|
Interest expense, net
|
|
|
—
|
|
|
|
5
|
|
|
|
51
|
|
|
|
15
|
|
|
|
—
|
|
|
|
71
|
|
Equity in net income of subsidiaries
|
|
|
(8
|
)
|
|
|
(51
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
Income before income taxes
|
|
|
8
|
|
|
|
(6
|
)
|
|
|
50
|
|
|
|
15
|
|
|
|
(59
|
)
|
|
|
8
|
|
Income tax expense
|
|
|
(5
|
)
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
14
|
|
|
|
5
|
|
|
|
(5
|
)
|
Net income
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
50
|
|
|
$
|
1
|
|
|
$
|
(64
|
)
|
|
$
|
13
|
|
Comprehensive net income
|
|
$
|
13
|
|
|
$
|
(24
|
)
|
|
$
|
50
|
|
|
$
|
13
|
|
|
$
|
(64
|
)
|
|
$
|
(12
|
)
|
|
|
Quarterly Period Ended June 30, 2018
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
147
|
|
|
$
|
1,452
|
|
|
$
|
473
|
|
|
$
|
—
|
|
|
$
|
2,072
|
|
Cost of goods sold
|
|
|
—
|
|
|
|
121
|
|
|
|
1,173
|
|
|
|
396
|
|
|
|
—
|
|
|
|
1,690
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
14
|
|
|
|
70
|
|
|
|
35
|
|
|
|
—
|
|
|
|
119
|
|
Amortization of intangibles
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
6
|
|
|
|
—
|
|
|
|
40
|
|
Restructuring and impairment charges
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
3
|
|
|
|
—
|
|
|
|
7
|
|
Operating income (loss)
|
|
|
—
|
|
|
|
12
|
|
|
|
171
|
|
|
|
33
|
|
|
|
—
|
|
|
|
216
|
|
Other income, net
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
3
|
|
Interest expense, net
|
|
|
—
|
|
|
|
5
|
|
|
|
46
|
|
|
|
16
|
|
|
|
—
|
|
|
|
67
|
|
Equity in net income of subsidiaries
|
|
|
(146
|
)
|
|
|
(128
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
274
|
|
|
|
—
|
|
Income before income taxes
|
|
|
146
|
|
|
|
135
|
|
|
|
124
|
|
|
|
15
|
|
|
|
(274
|
)
|
|
|
146
|
|
Income tax expense
|
|
|
36
|
|
|
|
25
|
|
|
|
3
|
|
|
|
8
|
|
|
|
(36
|
)
|
|
|
36
|
|
Net income
|
|
$
|
110
|
|
|
$
|
110
|
|
|
$
|
121
|
|
|
$
|
7
|
|
|
$
|
(238
|
)
|
|
$
|
110
|
|
Comprehensive net income
|
|
$
|
110
|
|
|
$
|
133
|
|
|
$
|
121
|
|
|
$
|
(104
|
)
|
|
$
|
(238
|
)
|
|
$
|
22
|
|
|
|
Three Quarterly Periods Ended June 29, 2019
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
417
|
|
|
$
|
4,097
|
|
|
$
|
1,345
|
|
|
$
|
—
|
|
|
$
|
5,859
|
|
Cost of goods sold
|
|
|
—
|
|
|
|
204
|
|
|
|
3,403
|
|
|
|
1,147
|
|
|
|
—
|
|
|
|
4,754
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
50
|
|
|
|
259
|
|
|
|
83
|
|
|
|
—
|
|
|
|
392
|
|
Amortization of intangibles
|
|
|
—
|
|
|
|
—
|
|
|
|
102
|
|
|
|
17
|
|
|
|
—
|
|
|
|
119
|
|
Restructuring and impairment charges
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
7
|
|
|
|
—
|
|
|
|
18
|
|
Operating income
|
|
|
—
|
|
|
|
163
|
|
|
|
322
|
|
|
|
91
|
|
|
|
—
|
|
|
|
576
|
|
Other expense (income), net
|
|
|
—
|
|
|
|
154
|
|
|
|
2
|
|
|
|
3
|
|
|
|
—
|
|
|
|
159
|
|
Interest expense, net
|
|
|
—
|
|
|
|
14
|
|
|
|
142
|
|
|
|
45
|
|
|
|
—
|
|
|
|
201
|
|
Equity in net income of subsidiaries
|
|
|
(216
|
)
|
|
|
(188
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
404
|
|
|
|
—
|
|
Income before income taxes
|
|
|
216
|
|
|
|
183
|
|
|
|
178
|
|
|
|
43
|
|
|
|
(404
|
)
|
|
|
216
|
|
Income tax expense
|
|
|
41
|
|
|
|
8
|
|
|
|
—
|
|
|
|
33
|
|
|
|
(41
|
)
|
|
|
41
|
|
Net income
|
|
$
|
175
|
|
|
$
|
175
|
|
|
$
|
178
|
|
|
$
|
10
|
|
|
$
|
(363
|
)
|
|
$
|
175
|
|
Comprehensive net income
|
|
$
|
175
|
|
|
$
|
122
|
|
|
$
|
178
|
|
|
$
|
8
|
|
|
$
|
(363
|
)
|
|
$
|
120
|
|
|
|
Three Quarterly Periods Ended June 30, 2018
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
424
|
|
|
$
|
4,026
|
|
|
$
|
1,365
|
|
|
$
|
—
|
|
|
$
|
5,815
|
|
Cost of goods sold
|
|
|
—
|
|
|
|
322
|
|
|
|
3,265
|
|
|
|
1,146
|
|
|
|
—
|
|
|
|
4,733
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
44
|
|
|
|
233
|
|
|
|
89
|
|
|
|
—
|
|
|
|
366
|
|
Amortization of intangibles
|
|
|
—
|
|
|
|
—
|
|
|
|
96
|
|
|
|
20
|
|
|
|
—
|
|
|
|
116
|
|
Restructuring and impairment charges
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
13
|
|
|
|
—
|
|
|
|
33
|
|
Operating income
|
|
|
—
|
|
|
|
58
|
|
|
|
412
|
|
|
|
97
|
|
|
|
—
|
|
|
|
567
|
|
Other expense (income), net
|
|
|
—
|
|
|
|
5
|
|
|
|
8
|
|
|
|
4
|
|
|
|
—
|
|
|
|
17
|
|
Interest expense, net
|
|
|
—
|
|
|
|
14
|
|
|
|
134
|
|
|
|
47
|
|
|
|
—
|
|
|
|
195
|
|
Equity in net income of subsidiaries
|
|
|
(355
|
)
|
|
|
(287
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
642
|
|
|
|
—
|
|
Income before income taxes
|
|
|
355
|
|
|
|
326
|
|
|
|
270
|
|
|
|
46
|
|
|
|
(642
|
)
|
|
|
355
|
|
Income tax expense
|
|
|
(8
|
)
|
|
|
(37
|
)
|
|
|
4
|
|
|
|
25
|
|
|
|
8
|
|
|
|
(8
|
)
|
Net income
|
|
$
|
363
|
|
|
$
|
363
|
|
|
$
|
266
|
|
|
$
|
21
|
|
|
$
|
(650
|
)
|
|
$
|
363
|
|
Comprehensive net income
|
|
$
|
363
|
|
|
$
|
387
|
|
|
$
|
266
|
|
|
$
|
(79
|
)
|
|
$
|
(650
|
)
|
|
$
|
287
|
|
Condensed Supplemental Consolidated Statements of Cash Flows
|
|
Three Quarterly Periods Ended June 29, 2019
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Cash Flow from Operating Activities
|
|
$
|
—
|
|
|
$
|
109
|
|
|
$
|
448
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
571
|
|
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
(180
|
)
|
|
|
(91
|
)
|
|
|
—
|
|
|
|
(271
|
)
|
Proceeds from sale of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(Contributions) distributions to/from subsidiaries
|
|
|
31
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Intercompany advances (repayments)
|
|
|
—
|
|
|
|
193
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(193
|
)
|
|
|
—
|
|
Acquisition of business, net of cash acquired
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Net cash from investing activities
|
|
|
31
|
|
|
|
162
|
|
|
|
(178
|
)
|
|
|
(91
|
)
|
|
|
(193
|
)
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments on long-term borrowings
|
|
|
—
|
|
|
|
(377
|
)
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(383
|
)
|
Proceeds from issuance of common stock
|
|
|
43
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43
|
|
Repurchase of common stock
|
|
|
(74
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(74
|
)
|
Payment of tax receivable agreement
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16
|
)
|
Changes in intercompany balances
|
|
|
16
|
|
|
|
—
|
|
|
|
(267
|
)
|
|
|
58
|
|
|
|
193
|
|
|
|
—
|
|
Net cash from financing activities
|
|
|
(31
|
)
|
|
|
(377
|
)
|
|
|
(272
|
)
|
|
|
57
|
|
|
|
193
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
(126
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
—
|
|
|
|
133
|
|
|
|
4
|
|
|
|
244
|
|
|
|
—
|
|
|
|
381
|
|
Cash and cash equivalents at end of period
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
2
|
|
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
255
|
|
|
|
Three Quarterly Periods Ended June 30, 2018
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Cash Flow from Operating Activities
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
480
|
|
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
556
|
|
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(194
|
)
|
|
|
(71
|
)
|
|
|
—
|
|
|
|
(270
|
)
|
Proceeds from sale of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
(Contributions) distributions to/from subsidiaries
|
|
|
(17
|
)
|
|
|
(457
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
474
|
|
|
|
—
|
|
Intercompany advances (repayments)
|
|
|
—
|
|
|
|
314
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(314
|
)
|
|
|
—
|
|
Acquisition of business, net of cash acquired
|
|
|
—
|
|
|
|
—
|
|
|
|
(404
|
)
|
|
|
(70
|
)
|
|
|
—
|
|
|
|
(474
|
)
|
Net cash from investing activities
|
|
|
(17
|
)
|
|
|
(148
|
)
|
|
|
(598
|
)
|
|
|
(138
|
)
|
|
|
160
|
|
|
|
(741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
|
—
|
|
|
|
497
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
497
|
|
Repayments on long-term borrowings
|
|
|
—
|
|
|
|
(219
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(224
|
)
|
Proceeds from issuance of common stock
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
Payment of tax receivable agreement
|
|
|
(37
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(37
|
)
|
Contribution from Parent
|
|
|
—
|
|
|
|
—
|
|
|
|
404
|
|
|
|
70
|
|
|
|
(474
|
)
|
|
|
—
|
|
Debt financing costs
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Changes in intercompany balances
|
|
|
37
|
|
|
|
—
|
|
|
|
(291
|
)
|
|
|
(60
|
)
|
|
|
314
|
|
|
|
—
|
|
Net cash from financing activities
|
|
|
17
|
|
|
|
277
|
|
|
|
108
|
|
|
|
10
|
|
|
|
(160
|
)
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
—
|
|
|
|
158
|
|
|
|
(10
|
)
|
|
|
(89
|
)
|
|
|
—
|
|
|
|
59
|
|
Cash and cash equivalents at beginning of period
|
|
|
—
|
|
|
|
18
|
|
|
|
12
|
|
|
|
276
|
|
|
|
—
|
|
|
|
306
|
|
Cash and cash equivalents at end of period
|
|
$
|
—
|
|
|
$
|
176
|
|
|
$
|
13
|
|
|
$
|
187
|
|
|
$
|
—
|
|
|
$
|
365
|
|
17. Subsequent Events
RPC Group Plc
In July 2019, the Company completed the acquisition of the entire outstanding share capital of RPC Group Plc (“RPC”), for aggregate consideration of approximately $6.5 billion (including refinancing of RPC’s net debt), which is preliminary and subject to adjustment. RPC is a leading plastic product design and engineering company for packaging and selected non-packaging markets,with 189 sites in 34 countries. RPC develops and manufactures a diverse range of products for a wide variety of customers, including many household names, and enjoys strong market positions in many of the end-markets it serves and the geographical areas in which it operates. It uses a wide range of polymer conversion techniques in both rigid and flexible plastics manufacture, and is now one of the largest plastic converters in Europe, combining both the development of innovative packaging and technical solutions for its customers with good levels of service and support. The acquired business will be primarily operated in a new Consumer Packaging International reporting segment.
To finance the all-cash purchase, the Company issued $1,250 million aggregate principal amount of 4.875% first priority senior secured notes due 2026, $500 million aggregate principal amount of 5.625% second priority senior secured notes due 2027, and entered into an incremental assumption agreement to provide incremental $4,250 million and €1,075 million term loans, due July 2026. Additionally, proceeds of the term loan were used to refinance the Company's existing $450 million term loan due February 2020.
The acquisition will be accounted for under the purchase method of accounting and the purchase price will be allocated to the identifiable assets and liabilities. Given the timing of the acquisition, a preliminary purchase price allocation is not yet available.
Unaudited, estimated pro forma net sales and net income was approximately $12.9 billion and $530 million, respectively, for fiscal 2018. The unaudited pro forma net sales and net income assume that the RPC acquisition had occurred as of the beginning of the respective period. This unaudited pro forma information provided is preliminary and subject to change, for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the RPC acquisition been consummated at the beginning of the respective period, nor is it necessarily indicative of future operating results.
Seal For Life
In July 2019, the Company completed the sale of its Seal For Life ("SFL") business within our Health, Hygiene & Specialties reporting segment for total proceeds of approximately $330 million, which is preliminary and subject to adjustment. The SFL business has annual sales of approximately $120 million. For the period ended June 29, 2019, the Company has classified assets of $108 million and liabilities of $21 million as held for sale. We are in the process of evaluating the transaction and its impact on our financial statements and expect to record a gain in Other expense, net in the Consolidated Statements of Income.