0001140361-23-022968.txt : 20230504 0001140361-23-022968.hdr.sgml : 20230504 20230504162322 ACCESSION NUMBER: 0001140361-23-022968 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 63 CONFORMED PERIOD OF REPORT: 20230401 FILED AS OF DATE: 20230504 DATE AS OF CHANGE: 20230504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERRY GLOBAL GROUP, INC. CENTRAL INDEX KEY: 0001378992 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1001 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35672 FILM NUMBER: 23889145 BUSINESS ADDRESS: STREET 1: 101 OAKLEY STREET STREET 2: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 BUSINESS PHONE: 8124242904 MAIL ADDRESS: STREET 1: 101 OAKLEY STREET STREET 2: PO BOX 959 CITY: EVANSVILLE STATE: IN ZIP: 47710 FORMER COMPANY: FORMER CONFORMED NAME: BERRY GLOBAL GROUP INC DATE OF NAME CHANGE: 20170503 FORMER COMPANY: FORMER CONFORMED NAME: BERRY PLASTICS GROUP INC DATE OF NAME CHANGE: 20061024 10-Q 1 form10q.htm BERRY GLOBAL GROUP 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 001-35672
graphic

BERRY GLOBAL GROUP, INC.

A Delaware corporation
 101 Oakley Street, Evansville, Indiana, 47710
(812) 424-2904
 IRS employer identification number
20-5234618

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
BERY
New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  No 

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

Large Accelerated Filer 
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

There were 119.2 million shares of common stock outstanding at May 4, 2023.





CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Information included 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 contains 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” and subsequent periodic reports filed with the SEC 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.

2


Berry Global Group, Inc.
Form 10-Q Index
For Quarterly Period Ended April 1, 2023

Part I.
Financial Information
Page No.
 
Item 1.
Financial Statements:
 
   
4
   
5
   
6
   
7
   
8
 
Item 2.
15
 
Item 3.
21
 
Item 4.
21
Part II.
Other Information
 
 
Item 1.
22
 
Item 1A.
22
 
Item 2.
22
 
Item 6.
23
 
24


3


Part I. Financial Information

Item 1.
Financial Statements
Berry Global Group, Inc.
Consolidated Statements of Income
(Unaudited)
(in millions of dollars, except per share amounts)

   
Quarterly Period Ended
   
Two Quarterly Periods Ended
 
   
April 1, 2023
   
April 2, 2022
   
April 1, 2023
   
April 2, 2022
 
Net sales
 
$
3,288
   
$
3,775
   
$
6,348
   
$
7,348
 
Costs and expenses:
                               
Cost of goods sold
   
2,682
     
3,154
     
5,224
     
6,192
 
Selling, general and administrative
   
220
     
207
     
456
     
442
 
Amortization of intangibles
   
60
     
65
     
120
     
133
 
Restructuring and transaction activities
   
25
     
8
     
37
     
11
 
Operating income
   
301
     
341
     
511
     
570
 
Other expense
   
1
     
6
     
2
     
6
 
Interest expense
   
79
     
71
     
150
     
142
 
Income before income taxes
   
221
     
264
     
359
     
422
 
Income tax expense
   
47
     
59
     
79
     
96
 
Net income
 
$
174
   
$
205
   
$
280
   
$
326
 
                                 
Net income per share:
                               
Basic
 
$
1.44
   
$
1.53
   
$
2.29
   
$
2.42
 
Diluted
   
1.42
     
1.50
     
2.27
     
2.36
 






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

   
Quarterly Period Ended
   
Two Quarterly Periods Ended
 
   
April 1, 2023
   
April 2, 2022
   
April 1, 2023
   
April 2, 2022
 
Net income
 
$
174
   
$
205
   
$
280
   
$
326
 
Other comprehensive income, net of tax:
                               
Currency translation
   
60
     
37
     
201
     
15
 
Derivative instruments
   
(31
)
   
71
     
(32
)
   
100
 
Other comprehensive income
   
29
     
108
     
169
     
115
 
Comprehensive income
 
$
203
   
$
313
   
$
449
   
$
441
 

See notes to consolidated financial statements.

4


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

   
April 1, 2023
   
October 1, 2022
 
   
(Unaudited)
       
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
696
   
$
1,410
 
Accounts receivable
   
1,751
     
1,777
 
Finished goods
   
1,128
     
1,010
 
Raw materials and supplies
   
736
     
792
 
Prepaid expenses and other current assets
   
220
     
175
 
Total current assets
   
4,531
     
5,164
 
Noncurrent assets:
               
Property, plant and equipment
   
4,612
     
4,342
 
Goodwill and intangible assets
   
6,866
     
6,685
 
Right-of-use assets
   
507
     
521
 
Other assets
   
97
     
244
 
Total assets
 
$
16,613
   
$
16,956
 
                 
                 
Liabilities and stockholders’ equity
               
Current liabilities:
               
Accounts payable
 
$
1,350
   
$
1,795
 
Accrued employee costs
   
243
     
253
 
Other current liabilities
   
715
     
783
 
Current portion of long-term debt
   
12
     
13
 
Total current liabilities
   
2,320
     
2,844
 
Noncurrent liabilities:
               
Long-term debt
   
9,295
     
9,242
 
Deferred income taxes
   
575
     
707
 
Employee benefit obligations
   
162
     
160
 
Operating lease liabilities
   
414
     
429
 
Other long-term liabilities
   
552
     
378
 
Total liabilities
   
13,318
     
13,760
 
                 
Stockholders’ equity:
               
Common stock (119.2 and 124.2 million shares issued, respectively)
   
1
     
1
 
Additional paid-in capital
   
1,214
     
1,177
 
Retained earnings
   
2,314
     
2,421
 
Accumulated other comprehensive loss
   
(234
)
   
(403
)
Total stockholders’ equity
   
3,295
     
3,196
 
Total liabilities and stockholders’ equity
 
$
16,613
   
$
16,956
 

See notes to consolidated financial statements.

5


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

   
Two Quarterly Periods Ended
 
   
April 1, 2023
   
April 2, 2022
 
Cash Flows from Operating Activities:
           
Net income
 
$
280
   
$
326
 
Adjustments to reconcile net cash from operating activities:
               
Depreciation
   
279
     
284
 
Amortization of intangibles
   
120
     
133
 
Non-cash interest (income) expense, net
   
(27
)
   
8
 
Settlement of derivatives
   
36
     
 
Deferred income tax
   
(51
)
   
(43
)
Share-based compensation expense
   
30
     
28
 
Other non-cash operating activities, net
   
8
     
(14
)
Changes in working capital
   
(495
)
   
(714
)
Changes in other assets and liabilities
   
(12
)
   
(22
)
Net cash from operating activities
   
168
     
(14
)
                 
Cash Flows from Investing Activities:
               
Additions to property, plant and equipment, net
   
(385
)
   
(367
)
Acquisition of a business and other
   
(88
)
   
3
 
Net cash from investing activities
   
(473
)
   
(364
)
                 
Cash Flows from Financing Activities:
               
Proceeds from long-term borrowings
   
500
     
244
 
Repayments on long-term borrowings
   
(583
)
   
(9
)
Proceeds from issuance of common stock
   
18
     
22
 
Repurchase of common stock
   
(333
)
   
(351
)
Dividends paid
   
(65
)
   
 
Other, net
   
11
     
 
Net cash from financing activities
   
(452
)
   
(94
)
Effect of currency translation on cash
   
43
     
3
 
Net change in cash and cash equivalents
   
(714
)
   
(469
)
Cash and cash equivalents at beginning of period
   
1,410
     
1,091
 
Cash and cash equivalents at end of period
 
$
696
   
$
622
 

See notes to consolidated financial statements.

6


Berry Global Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in millions of dollars)

 
Quarterly Period Ended
 
Common
Stock
   
Additional
Paid-in Capital
   
Accumulated Other
Comprehensive Loss
   
Retained
Earnings
   
Total
 
Balance at December 31, 2022
 
$
1
   
$
1,199
   
$
(263
)
 
$
2,322
   
$
3,259
 
Net income
   
     
     
     
174
     
174
 
Other comprehensive income
   
     
     
29
     
     
29
 
Share-based compensation
   
     
7
     
     
     
7
 
Proceeds from issuance of common stock
   
     
13
     
     
     
13
 
Common stock repurchased and retired
   
     
(5
)
   
     
(150
)
   
(155
)
Dividends paid
   
     
     
     
(32
)
   
(32
)
Balance at April 1, 2023
 
$
1
   
$
1,214
   
$
(234
)
 
$
2,314
   
$
3,295
 
                                         
Balance at January 1, 2022
 
$
1
   
$
1,170
   
$
(289
)
 
$
2,412
   
$
3,294
 
Net income
   
     
     
     
205
     
205
 
Other comprehensive income
   
     
     
108
     
     
108
 
Share-based compensation
   
     
7
     
     
     
7
 
Proceeds from issuance of common stock
   
     
6
     
     
     
6
 
Common stock repurchased and retired
   
     
(9
)
   
     
(291
)
   
(300
)
Balance at April 2, 2022
 
$
1
   
$
1,174
   
$
(181
)
 
$
2,326
   
$
3,320
 

 
Two Quarterly Periods Ended
 
Common
Stock
   
Additional
Paid-in Capital
   
Accumulated Other
Comprehensive Loss
   
Retained
Earnings
   
Total
 
Balance at October 1, 2022
 
$
1
   
$
1,177
   
$
(403
)
 
$
2,421
   
$
3,196
 
Net income
   
     
     
     
280
     
280
 
Other comprehensive income
   
     
     
169
     
     
169
 
Share-based compensation
   
     
30
     
     
     
30
 
Proceeds from issuance of common stock
   
     
18
     
     
     
18
 
Common stock repurchased and retired
   
     
(11
)
   
     
(322
)
   
(333
)
Dividends paid
   
     
     
     
(65
)
   
(65
)
Balance at April 1, 2023
 
$
1
   
$
1,214
   
$
(234
)
 
$
2,314
   
$
3,295
 
                                         
Balance at October 2, 2021
 
$
1
   
$
1,134
   
$
(296
)
 
$
2,341
   
$
3,180
 
Net income
   
     
     
     
326
     
326
 
Other comprehensive income
   
     
     
115
     
     
115
 
Share-based compensation
   
     
28
     
     
     
28
 
Proceeds from issuance of common stock
   
     
22
     
     
     
22
 
Common stock repurchased and retired
   
     
(10
)
   
     
(341
)
   
(351
)
Balance at April 2, 2022
 
$
1
   
$
1,174
   
$
(181
)
 
$
2,326
   
$
3,320
 


See notes to consolidated financial statements.

7


Berry Global Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(tables in millions of dollars, except per share data)


1.  Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Berry Global Group, Inc. (“the Company,” “we,” or “Berry”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim reporting.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statementsIn 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.  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 SEC.


2.  Critical Accounting Policies and Recent Accounting Pronouncements

There have been no material changes in critical accounting policies from those described in our most recent Form 10-K.

Reference Rate Reform

In 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.  In 2022, the FASB issued ASU 2022-06, which deferred the sunset date of Topic 848 to December 31, 2024.  The Company is evaluating timing of adoption, but does not expect a material change to our consolidated financial statements or disclosures. 

3.  Revenue and Accounts Receivable


Our revenues are primarily derived from the sale of non-woven, flexible and rigid products to customers.  Revenue is recognized when performance obligations are satisfied, in an amount reflecting the consideration to which the Company expects to be entitled.  We consider the promise to transfer products to be our sole performance obligation.  If the consideration agreed to in a contract includes a variable amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method.  Our main source of variable consideration is customer rebates.  There are no material instances where variable consideration is constrained and not recorded at the initial time of sale.  Generally, our revenue is recognized at a point in time for standard promised goods at the time of shipment, when title and risk of loss pass to the customer.  The accrual for customer rebates was $95 million and $103 million at April 1, 2023 and October 1, 2022, respectively, and is included in Other current liabilities on the Consolidated Balance Sheets.  The Company disaggregates revenue based on reportable business segment, geography, and significant product line.  Refer to Note 10. Segment and Geographic Data for further information.


Accounts receivable are presented net of allowance for credit losses of $18 million and $18 million at April 1, 2023 and October 1, 2022, 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 factoring agreements, including customer-based supply chain financing programs, to sell certain receivables to third-party financial institutions.  Agreements which result in true sales of the transferred receivables, which occur when receivables are transferred without recourse to the Company, are reflected as a reduction of accounts receivable on the consolidated balance sheets and the proceeds are included in the cash flows from operating activities in the consolidated statements of cash flows.  The fees associated with the transfer of receivables for all programs were not material for any of the periods presented.

8

4.  Acquisition

Pro-Western Plastics

In March 2023, the Company acquired Pro-Western Plastics Ltd. (“Pro-Western”), a leading plastics injection molding company, for a purchase price of $88 million.  The acquired business will be operated within the Consumer Packaging North America 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 preliminary values at the acquisition date.  The Company has recognized $35 million of goodwill on this transaction primarily as a result of expected cost synergies and expects goodwill to be deductible for tax purposes.

5.  Restructuring and Transaction Activities

The table below includes the significant components of our restructuring and transaction activities, by reporting segment:

   
Quarterly Period Ended
   
Two Quarterly Periods Ended
 
   
April 1, 2023
   
April 2, 2022
   
April 1, 2023
   
April 2, 2022
 
Consumer Packaging International
 
$
12
   
$
5
   
$
15
   
$
7
 
Consumer Packaging North America
   
7
     
2
     
8
     
3
 
Health, Hygiene & Specialties
   
5
     
     
8
     
(1
)
Engineered Materials
   
1
     
1
     
6
     
2
 
Consolidated
 
$
25
   
$
8
   
$
37
   
$
11
 

The table below sets forth the activity with respect to the restructuring and transaction activities accrual at April 1, 2023:

 
Restructuring
             
   
Employee
Severance
and Benefits
   
Facility
Exit Costs
   
Non-cash
Impairment
Charges
   
Transaction
Activities
   
Total
 
Balance as of October 1, 2022
 
$
2
   
$
3
   
$
   
$
   
$
5
 
Charges
   
16
     
8
     
4
     
9
     
37
 
Non-cash items
   
     
     
(4
)
   
     
(4
)
Cash
   
(5
)
   
(9
)
   
     
(9
)
   
(23
)
Balance as of April 1, 2023
 
$
13
   
$
2
   
$
   
$
   
$
15
 

6.  Leases

The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles.

Supplemental lease information is as follows:

Leases
Classification
 
April 1, 2023
   
October 1, 2022
 
Operating leases:
             
Operating lease right-of-use assets
Right-of-use assets
 
$
507
   
$
521
 
Current operating lease liabilities
Other current liabilities
   
109
     
108
 
Noncurrent operating lease liabilities
Operating lease liability
   
414
     
429
 
Finance leases:
                 
Finance lease right-of-use assets
Property, plant, and equipment, net
 
$
34
   
$
38
 
Current finance lease liability
Current portion of long-term debt
   
9
     
9
 
Noncurrent finance lease liabilities
Long-term debt, less current portion
   
21
     
24
 

9

7.  Long-Term Debt

Long-term debt consists of the following:

Facility
Maturity Date
 
April 1, 2023
   
October 1, 2022
 
Term loan (a)
July 2026
 
$
3,390
     
3,440
 
Revolving line of credit
May 2024
   
     
 
0.95% First Priority Senior Secured Notes (b)
February 2024
   
279
     
800
 
1.00% First Priority Senior Secured Notes (c)
July 2025
   
761
     
686
 
1.57% First Priority Senior Secured Notes
January 2026
   
1,525
     
1,525
 
4.875% First Priority Senior Secured Notes
July 2026
   
1,250
     
1,250
 
1.65% First Priority Senior Secured Notes
January 2027
   
400
     
400
 
1.50% First Priority Senior Secured Notes (c)
July 2027
   
408
     
367
 
5.50% First Priority Senior Secured Notes
April 2028
   
500
     
 
4.50% Second Priority Senior Secured Notes
February 2026
   
291
     
298
 
5.625% Second Priority Senior Secured Notes
July 2027
   
500
     
500
 
Debt discounts and deferred fees
     
(42
)
   
(60
)
Finance leases and other
Various
   
45
     
49
 
Total long-term debt
     
9,307
     
9,255
 
Current portion of long-term debt
     
(12
)
   
(13
)
Long-term debt, less current portion
   
$
9,295
     
9,242
 
(a)
Effectively 80% fixed interest rate with interest rate swaps (see Note 8).
(b)
Indicates debt which has been classified as long-term debt in accordance with the Company's ability and intention to refinance such obligations on a long-term basis.
(c)
Euro denominated

During the quarter ended April 1, 2023, the Company issued $500 million aggregate principal amount of 5.50% first priority senior secured notes due 2028. The proceeds were used to repurchase a portion of the Company’s 0.95% first priority senior secured notes due 2024.

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


8.  Financial Instruments and Fair Value Measurements

In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors.  The Company may use derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies.  These financial instruments are not used for trading or other speculative purposes.

Cross-Currency Swaps

The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk.  The swap agreements mature June 2024 (€1,625 million) and July 2027 (£700 million).  In addition to cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations.  As of April 1, 2023, we had outstanding long-term debt of €785 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries.  When valuing cross-currency swaps the Company utilizes Level 2 inputs (substantially observable).

Interest Rate Swaps

The primary purpose of the Company’s interest rate swap activities is to manage interest expense variability associated with our outstanding variable rate term loan debt.  When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).

During fiscal 2023, the Company elected to cash settle existing interest rate swaps and received net proceeds of $36 million.  The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense through the term of the original swaps.  Following the settlement, the Company entered into interest rate swaps with matching notional amounts with expiration in June 2026.

10

As of April 1, 2023, 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 4.128%, (ii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 4.522%, (iii) a $473 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 3.961%, (iv) an $884 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 4.522%, and (v) a $500 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 3.672%. The Company's interest rate swap transactions all expire in June 2026.

The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized. Balances on a gross basis are as follows:

Derivative Instruments
Hedge Designation
Balance Sheet Location
 
April 1, 2023
   
October 1, 2022
 
Cross-currency swaps
Designated
Other assets
 
$
   
$
147
 
Cross-currency swaps
Designated
Other long-term liabilities
   
125
     
 
Interest rate swaps
Designated
Other assets
   
1
     
11
 
Interest rate swaps
Designated
Other long-term liabilities
   
39
     
3
 
Interest rate swaps
Not designated
Other long-term liabilities
   
113
     
117
 

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

   
Quarterly Period Ended
   
Two Quarterly Periods Ended
 
Derivative Instruments
 Statements of Income Location
 
April 1, 2023
   
April 2, 2022
   
April 1, 2023
   
April 2, 2022
 
Cross-currency swaps
Interest expense
 
$
(10
)
 
$
(4
)
 
$
(21
)
 
$
(7
)
Interest rate swaps
Interest expense
   
(11
)
   
12
     
(17
)
   
24
 

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 2022 assessment.  No impairment indicators were identified in the current quarter.

Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of April 1, 2023 and October 1, 2022, along with the impairment loss recognized on the fair value measurement during the period:

   
As of April 1, 2023
 
   
Level 1
   
Level 2
   
Level 3
   
Total
   
Impairment
 
Indefinite-lived trademarks
 
$
   
$
   
$
248
   
$
248
   
$
 
Goodwill
   
     
     
5,032
     
5,032
     
 
Definite lived intangible assets
   
     
     
1,586
     
1,586
     
 
Property, plant, and equipment
   
     
     
4,612
     
4,612
     
4
 
Total
 
$
   
$
   
$
11,478
   
$
11,478
   
$
4
 

   
As of October 1, 2022
 
   
Level 1
   
Level 2
   
Level 3
   
Total
   
Impairment
 
Indefinite-lived trademarks
 
$
   
$
   
$
247
   
$
247
   
$
 
Goodwill
   
     
     
4,832
     
4,832
     
 
Definite lived intangible assets
   
     
     
1,606
     
1,606
     
 
Property, plant, and equipment
   
     
     
4,342
     
4,342
     
 
Total
 
$
   
$
   
$
11,027
   
$
11,027
   
$
 

11

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 book value of our marketable long-term indebtedness exceeded fair value by $336 million as of April 1, 2023.  The Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable). 

9.  Income Taxes

On a year-to-date comparison to the statutory rate, the higher effective tax rate was negatively impacted by state taxes and global intangible low-taxed income provisions, partially offset by other discrete items.

10.  Segment and Geographic Data

The Company’s operations are organized into four reporting segments: Consumer Packaging International, Consumer Packaging North America, Health, Hygiene & Specialties, and Engineered Materials.  The structure is designed to align us with our customers, provide optimal service, drive future growth, and to facilitate synergies realization.

Selected information by reportable segment is presented in the following tables:

 
Quarterly Period Ended
   
Two Quarterly Periods Ended
 
   
April 1, 2023
   
April 2, 2022
   
April 1, 2023
   
April 2, 2022
 
Net sales:
                       
Consumer Packaging International
 
$
1,059
   
$
1,139
   
$
1,995
   
$
2,195
 
Consumer Packaging North America
   
774
     
880
     
1,537
     
1,732
 
Health, Hygiene & Specialties
   
677
     
822
     
1,340
     
1,640
 
Engineered Materials
   
778
     
934
     
1,476
     
1,781
 
Total net sales
 
$
3,288
   
$
3,775
   
$
6,348
   
$
7,348
 
Operating income:
                               
Consumer Packaging International
 
$
75
   
$
97
   
$
121
   
$
166
 
Consumer Packaging North America
   
93
     
85
     
164
     
131
 
Health, Hygiene & Specialties
   
34
     
69
     
68
     
131
 
Engineered Materials
   
99
     
90
     
158
     
142
 
Total operating income
 
$
301
   
$
341
   
$
511
   
$
570
 
Depreciation and amortization:
                               
Consumer Packaging International
 
$
77
   
$
82
   
$
151
   
$
164
 
Consumer Packaging North America
   
54
     
53
     
105
     
107
 
Health, Hygiene & Specialties
   
44
     
44
     
88
     
89
 
Engineered Materials
   
25
     
27
     
55
     
57
 
 Total depreciation and amortization
 
$
200
   
$
206
   
$
399
   
$
417
 

Selected information by geographical region is presented in the following tables:

 
Quarterly Period Ended
   
Two Quarterly Periods Ended
 
   
April 1, 2023
   
April 2, 2022
   
April 1, 2023
   
April 2, 2022
 
Net sales:
                       
United States and Canada
 
$
1,751
   
$
1,996
   
$
3,447
   
$
3,948
 
Europe
   
1,237
     
1,399
     
2,286
     
2,616
 
Rest of world
   
300
     
380
     
615
     
784
 
Total net sales
 
$
3,288
   
$
3,775
   
$
6,348
   
$
7,348
 

12

11.  Contingencies and Commitments

The Company is party to various legal proceedings involving routine claims which are incidental to its business.  Although the Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate liability would not be material to our financial position, results of operations or cash flows.

The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of business.


12.  Basic and Diluted Earnings Per Share

Basic net income or earnings per share ("EPS") is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.

Diluted EPS includes the effects of options and restricted stock units, if dilutive.

The following tables provide a reconciliation of the numerator and denominator of the basic and diluted EPS calculations:

   
Quarterly Period Ended
   
Two Quarterly Periods Ended
 
(in millions, except per share amounts)
 
April 1, 2023
   
April 2, 2022
   
April 1, 2023
   
April 2, 2022
 
Numerator
                       
Consolidated net income
 
$
174
   
$
205
   
$
280
   
$
326
 
Denominator
                               
Weighted average common shares outstanding - basic
   
120.7
     
133.8
     
122.2
     
134.6
 
Dilutive shares
   
1.8
     
3.1
     
1.1
     
3.4
 
Weighted average common and common equivalent shares outstanding - diluted
   
122.5
     
136.9
     
123.3
     
138.0
 
                                 
Per common share earnings
                               
Basic
 
$
1.44
   
$
1.53
   
$
2.29
   
$
2.42
 
Diluted
 
$
1.42
   
$
1.50
   
$
2.27
   
$
2.36
 

1.2 million and 2.6 million shares were excluded from the diluted EPS calculation for the quarterly and two quarterly periods ended April 1, 2023 as their effect would be anti-dilutive.  1.2 million and 1.3 million shares were excluded for the quarterly and two quarterly periods ended April 2, 2022. 

13

13.  Accumulated Other Comprehensive Loss

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

Quarterly Period Ended
 
Currency
Translation
   
Defined Benefit
Pension and Retiree
Health Benefit Plans
   
Derivative
Instruments
   
Accumulated Other
Comprehensive Loss
 
Balance at December 31, 2022
 
$
(314
)
 
$
(32
)
 
$
83
   
$
(263
)
Other comprehensive income (loss) before reclassifications
   
60
     
     
(21
)
   
39
 
Net amount reclassified
   
     
     
(10
)
   
(10
)
Balance at April 1, 2023
 
$
(254
)
 
$
(32
)
 
$
52
   
$
(234
)

   
Currency
Translation
   
Defined Benefit
Pension and Retiree
Health Benefit Plans
   
Derivative
Instruments
   
Accumulated Other
Comprehensive Loss
 
Balance at January 1, 2022
 
$
(176
)
 
$
(67
)
 
$
(46
)
 
$
(289
)
Other comprehensive income (loss) before reclassifications
   
37
     
     
69
     
106
 
Net amount reclassified
   
     
     
2
     
2
 
Balance at April 2, 2022
 
$
(139
)
 
$
(67
)
 
$
25
   
$
(181
)

Two Quarterly Periods Ended
 
Currency
Translation
   
Defined Benefit
Pension and Retiree
Health Benefit Plans
   
Derivative
Instruments
   
Accumulated Other
Comprehensive Loss
 
Balance at October 1, 2022
 
$
(455
)
 
$
(32
)
 
$
84
   
$
(403
)
Other comprehensive income (loss) before reclassifications
   
201
     
     
(16
)
   
185
 
Net amount reclassified
   
     
     
(16
)
   
(16
)
Balance at April 1, 2023
 
$
(254
)
 
$
(32
)
 
$
52
   
$
(234
)

   
Currency
Translation
   
Defined Benefit
Pension and Retiree
Health Benefit Plans
   
Derivative
Instruments
   
Accumulated Other
Comprehensive Loss
 
Balance at October 2, 2021
 
$
(154
)
 
$
(67
)
 
$
(75
)
 
$
(296
)
Other comprehensive income (loss) before reclassifications
   
15
     
     
95
     
110
 
Net amount reclassified
   
     
     
5
     
5
 
Balance at April 2, 2022
 
$
(139
)
 
$
(67
)
 
$
25
   
$
(181
)


14

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