Berry (BERY) - 2020 Q3 - Quarterly Report

Part I. Financial Information Financial Statements This section presents the unaudited Consolidated Financial Statements for the quarterly and three-quarterly periods ended June 27, 2020, highlighting significant increases in net sales and net income driven by the RPC Group Plc acquisition Consolidated Statements of Income Highlights (Quarterly) | Metric | Q3 2020 (ended June 27) ($ million) | Q3 2019 (ended June 29) ($ million) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $2,910 million | $1,937 million | +50.2% | | Operating Income | $347 million | $215 million | +61.4% | | Net Income | $191 million | $13 million | +1369.2% | | Diluted EPS | $1.42 | $0.10 | +1320.0% | Consolidated Statements of Income Highlights (Three Quarters) | Metric | YTD 2020 (ended June 27) ($ million) | YTD 2019 (ended June 29) ($ million) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $8,701 million | $5,859 million | +48.5% | | Operating Income | $830 million | $576 million | +44.1% | | Net Income | $364 million | $175 million | +108.0% | | Diluted EPS | $2.71 | $1.31 | +106.9% | Consolidated Balance Sheet Highlights | Metric | June 27, 2020 ($ million) | Sept 28, 2019 ($ million) | | :--- | :--- | :--- | | Total Assets | $16,731 million | $16,469 million | | Total Liabilities | $14,862 million | $14,851 million | | Long-term Debt | $10,690 million | $11,261 million | | Total Stockholders' Equity | $1,869 million | $1,618 million | Consolidated Statements of Cash Flows Highlights (Three Quarters) | Metric | YTD 2020 (ended June 27) ($ million) | YTD 2019 (ended June 29) ($ million) | | :--- | :--- | :--- | | Net cash from operating activities | $979 million | $571 million | | Net cash from investing activities | ($152) million | ($269) million | | Net cash from financing activities | ($667) million | ($430) million | Notes to Consolidated Financial Statements The notes detail accounting policies and financial data, including lease accounting, the significant financial impact of the RPC Group Plc acquisition, debt refinancing, and segment performance - The company adopted the new lease accounting standard (ASU 2016-02) effective September 29, 2019, resulting in the recognition of right-of-use assets of $563 million and operating lease liabilities of $579 million on the balance sheet as of June 27, 2020[15][35] - The acquisition of RPC Group Plc in July 2019 for $6.1 billion is a major driver of financial results, contributing $3,346 million in net sales and $245 million in operating income for the three quarters ended June 27, 2020[22][23] - In January 2020, the company issued €1.075 billion in new senior secured notes and refinanced a $4.25 billion term loan, resulting in a 50 basis point interest rate reduction and debt extinguishment costs of $18 million[40] Net Sales by Segment (Three Quarters Ended) | Segment | June 27, 2020 ($ million) | June 29, 2019 ($ million) | | :--- | :--- | :--- | | Consumer Packaging International | $3,125 million | $153 million | | Consumer Packaging North America | $2,104 million | $1,892 million | | Engineered Materials | $1,747 million | $1,910 million | | Health, Hygiene & Specialties | $1,725 million | $1,904 million | | Total Net Sales | $8,701 million | $5,859 million | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's performance, highlighting the significant impact of the RPC acquisition on sales and income growth, the mixed impact of the COVID-19 pandemic, and a positive outlook for fiscal 2020 Executive Summary and Outlook The company's performance was modestly impacted by COVID-19, with strong demand in healthcare and hygiene offsetting lower demand in food service and industrials, while the RPC acquisition remains a key growth driver with projected annual cost synergies - The COVID-19 pandemic has had a mixed impact, with lower demand in food service and industrial sectors being offset by higher consumer demand in healthcare, hygiene, and food product categories[66] - The company expects to realize annual cost synergies of $150 million from the RPC acquisition, with an estimated $85 million to be realized in fiscal 2020[69] Fiscal 2020 Financial Outlook | Metric | Projected Amount ($ million) | | :--- | :--- | | Cash Flow from Operations | $1,450 million | | Free Cash Flow | $830 million | | Capital Spending | $620 million | Results of Operations The analysis details a significant year-over-year increase in net sales and operating income for both the quarter and the nine-month period, primarily driven by the RPC acquisition, with varied segment performance due to market conditions Quarterly Net Sales Change Drivers (vs. Prior Quarter) | Driver | Impact on Net Sales ($ million) | | :--- | :--- | | Acquisition Net Sales (RPC) | +$1,092 million | | Base Volume Increase | +2% | | Lower Selling Prices | -$99 million | | Unfavorable FX | -$19 million | Year-to-Date Net Sales Change Drivers (vs. Prior YTD) | Driver | Impact on Net Sales ($ million) | | :--- | :--- | | Acquisition Net Sales (RPC) | +$3,346 million | | Base Volume Increase | +1% | | Lower Selling Prices | -$429 million | | Unfavorable FX | -$32 million | - The Health, Hygiene & Specialties segment reported a 14% base volume growth in the quarter, driving a 40% increase in operating income despite lower selling prices and unfavorable currency changes[82][83] - The Engineered Materials segment's net sales decreased by 10% in the quarter, primarily due to an 8% base volume decline reflecting the impact of COVID-19 on industrial markets[80] Liquidity and Capital Resources The company's strong liquidity position is evidenced by a cash balance of $906 million and no outstanding balance on its $850 million revolving credit facility, with net cash from operating activities increased significantly to $979 million for the nine-month period - As of June 27, 2020, the company had a cash balance of $906 million and no outstanding borrowings on its $850 million revolving line of credit[98][104] Free Cash Flow (Three Quarters Ended June 27, 2020) | Metric | Amount ($ million) | | :--- | :--- | | Cash flow from operating activities | $979 million | | Additions to property, plant and equipment, net | ($419) million | | Free cash flow | $560 million | - No shares were repurchased during the quarter, with $393 million remaining available under the authorized share repurchase program[100] Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from interest rate and foreign currency exchange rate changes through interest rate swaps and cross-currency swaps, and by designating foreign-denominated debt as net investment hedges - A hypothetical 0.25% change in LIBOR would increase the company's annual interest expense by $8 million on its variable rate term loans[110] - The company utilizes interest rate swaps to manage interest rate volatility, effectively fixing the rate on over $3.2 billion of its variable-rate term loan debt[111] - A hypothetical 10% decline in foreign currency exchange rates would have had a $20 million unfavorable impact on Net Income for the three quarterly periods ended June 27, 2020[112] - To hedge foreign currency risk, the company uses cross-currency swaps with notional amounts of €1.875 billion and £700 million, and has designated €785 million of long-term debt as a hedge of its net investment in euro-denominated subsidiaries[113] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, despite COVID-19 related restrictions negatively impacting the integration and implementation of standardized internal controls at the RPC business - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 27, 2020[116] - COVID-19 related travel and safety restrictions have negatively impacted the integration of the RPC business, specifically the implementation of standardized internal control procedures over financial reporting[117] Part II. Other Information Legal Proceedings The company reports no material changes in its legal proceedings from the disclosures made in its most recent Form 10-K - There have been no material changes in legal proceedings since the company's last Form 10-K filing[120] Risk Factors This section emphasizes the ongoing COVID-19 pandemic as a key risk factor that could have a material adverse impact on the business, financial condition, and operations, alongside other key operational risks like substantial indebtedness and raw material price volatility - The ongoing COVID-19 pandemic is identified as a key risk factor that could have a material adverse impact on the company's business, financial condition, liquidity, and results of operations[122][123] - Key operational risks highlighted include substantial indebtedness, changes in resin prices, risks related to acquisition integration (specifically RPC), and foreign currency exchange rate risk[124] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its equity securities during the quarter ended June 27, 2020, with $393 million remaining available under the authorized share repurchase program - No shares were repurchased by the company during the quarter[127] - As of June 27, 2020, $393 million remaining available for purchase under the company's share repurchase program[127] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL financial data files