10-Q 1 form10q.htm BERRY GLOBAL GROUP 10Q  

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 June 30, 2018
Commission File Number 001-35672

 

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

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the "Exchange Act"):
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes   No   
  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes No    
  
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer         Accelerated filer       Non-accelerated filer  Smaller reporting company      Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 12b-2 of the Exchange Act.    Yes      No  

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.  
Yes     No  
 
Class
 
Outstanding at August 3, 2018
Common Stock, $.01 par value per share
 
131.8 million shares
 
1

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events.  The forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."  These statements contain words such as "believes," "expects," "may," "will," "should," "would," "could," "seeks," "approximately," "intends," "plans," "estimates," "outlook," "anticipates" 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.  We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions.  While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.  All forward-looking statements are based upon information available to us on the date of this Form 10-Q. 
 
Readers should carefully review the factors discussed in our most recent Form 10-K in the section titled "Risk Factors" and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission.

2

Berry Global Group, Inc.
Form 10-Q Index
For Quarterly Period Ended June 30, 2018
 
Part I.
Financial Information
Page No.
 
Item 1.
Financial Statements:
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
Part II.
Other Information
 
 
Item 1.
 
Item 1A.
 
Item 6.
 
 
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
   
Three Quarterly Periods Ended
 
 
 
June 30, 2018
   
July 1, 2017
   
June 30, 2018
   
July 1, 2017
 
Net sales 
 
$
2,072
   
$
1,906
   
$
5,815
   
$
5,214
 
Costs and expenses:
                               
Cost of goods sold 
   
1,690
     
1,518
     
4,733
     
4,177
 
Selling, general and administrative 
   
119
     
128
     
366
     
373
 
Amortization of intangibles 
   
40
     
40
     
116
     
113
 
Restructuring and impairment charges
   
7
     
8
     
33
     
18
 
Operating income 
   
216
     
212
     
567
     
533
 
Other expense (income), net 
   
3
     
(1
)
   
17
     
18
 
Interest expense, net 
   
67
     
68
     
195
     
203
 
Income before income taxes 
   
146
     
145
     
355
     
312
 
Income tax expense (benefit)
   
36
     
38
     
(8
)
   
82
 
Net income
 
$
110
   
$
107
   
$
363
   
$
230
 
 
                               
Net income per share:
                               
Basic 
 
$
0.84
   
$
0.82
   
$
2.76
   
$
1.82
 
Diluted 
   
0.81
     
0.79
     
2.67
     
1.75
 
Outstanding weighted-average shares:
                               
Basic 
   
131.7
     
129.9
     
131.3
     
126.6
 
Diluted 
   
135.4
     
135.2
     
135.8
     
131.4
 
 

Consolidated Statements of Comprehensive Income
(Unaudited)
(in millions of dollars) 
 
 
 
Quarterly Period Ended
   
Three Quarterly Periods Ended
 
 
 
June 30, 2018
   
July 1, 2017
   
June 30, 2018
   
July 1, 2017
 
Net income
 
$
110
   
$
107
   
$
363
   
$
230
 
Currency translation 
   
(92
)
   
24
     
(109
)
   
4
 
Pension and other postretirement benefits
   
     
     
(1
)
   
13
 
Interest rate hedges 
   
6
     
(1
)
   
47
     
23
 
Provision for income taxes
   
(2
)
   
     
(13
)
   
(8
)
Other comprehensive income (loss), net of tax
   
(88
)
   
23
     
(76
)
   
32
 
Comprehensive income 
 
$
22
   
$
130
   
$
287
   
$
262
 
 
See notes to consolidated financial statements.

4

Berry Global Group, Inc.
Consolidated Balance Sheets
(in millions of dollars)
 
 
 
June 30, 2018
   
September 30, 2017
 
Assets
 
(Unaudited)
       
             
Current assets:
           
Cash and cash equivalents 
 
$
365
   
$
306
 
Accounts receivable (less allowance of $13)
   
932
     
847
 
Inventories:
               
Finished goods 
   
557
     
428
 
Raw materials and supplies 
   
398
     
334
 
 
   
955
     
762
 
Prepaid expenses and other current assets 
   
85
     
89
 
Total current assets 
   
2,337
     
2,004
 
Property, plant, and equipment, net 
   
2,507
     
2,366
 
Goodwill and intangible assets, net
   
4,157
     
4,061
 
Other assets 
   
41
     
45
 
Total assets 
 
$
9,042
   
$
8,476
 
                 
Liabilities
               
                 
Current liabilities:
               
Accounts payable 
 
$
726
   
$
638
 
Accrued expenses and other current liabilities 
   
401
     
463
 
Current portion of long-term debt 
   
35
     
33
 
Total current liabilities 
   
1,162
     
1,134
 
Long-term debt, less current portion 
   
5,910
     
5,608
 
Deferred income taxes 
   
334
     
419
 
Other long-term liabilities 
   
297
     
300
 
Total liabilities 
   
7,703
     
7,461
 
                 
Stockholders' equity
               
 
               
Common stock (131.8 and 130.9 million shares issued, respectively)
   
1
     
1
 
Additional paid-in capital 
   
860
     
823
 
Non-controlling interest 
   
3
     
3
 
Retained earnings
   
619
     
256
 
Accumulated other comprehensive loss 
   
(144
)
   
(68
)
Total stockholders' equity
   
1,339
     
1,015
 
Total liabilities and stockholders' equity
 
$
9,042
   
$
8,476
 
 
See notes to consolidated financial statements.

5

Berry Global Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in millions of dollars)
 
 
 
Three Quarterly Periods Ended
 
 
 
June 30, 2018
   
July 1, 2017
 
Cash Flows from Operating Activities:
           
Net income
 
$
363
   
$
230
 
Adjustments to reconcile net cash provided by operating activities:
               
Depreciation 
   
281
     
270
 
Amortization of intangibles 
   
116
     
113
 
Non-cash interest expense 
   
6
     
6
 
Settlement of interest rate hedges
   
30
     
 
Deferred income tax 
   
(71
)
   
39
 
Stock compensation expense 
   
20
     
16
 
Other non-cash operating activities, net 
   
15
     
26
 
Changes in working capital 
   
(240
)
   
(113
)
Changes in other assets and liabilities 
   
36
     
(7
)
Net cash from operating activities 
   
556
     
580
 
                 
Cash Flows from Investing Activities:
               
Additions to property, plant and equipment 
   
(270
)
   
(201
)
Proceeds from sale of assets 
   
3
     
4
 
Acquisition of business, net of cash acquired
   
(474
)
   
(515
)
Other investing activities, net
   
     
(1
)
Net cash from investing activities
   
(741
)
   
(713
)
                 
Cash Flows from Financing Activities:
               
Proceeds from long-term borrowings
   
497
     
545
 
Repayments on long-term borrowings 
   
(224
)
   
(427
)
Proceeds from issuance of common stock 
   
17
     
26
 
Payment of tax receivable agreement 
   
(37
)
   
(60
)
Debt financing costs
   
(1
)
   
(4
)
Net cash from financing activities 
   
252
     
80
 
Effect of exchange rate changes on cash 
   
(8
)
   
5
 
Net change in cash 
   
59
     
(48
)
Cash and cash equivalents at beginning of period 
   
306
     
323
 
Cash and cash equivalents at end of period 
 
$
365
   
$
275
 
 
See notes to consolidated financial statements.


6

Berry Global Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(tables in millions of dollars, except per share data)
 
1.  Basis of Presentation
 
The accompanying unaudited Condensed Consolidated Financial Statements of Berry Global Group, Inc. ("the Company," "we," or "Berry") have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts and disclosures at the date of the financial statements and during the reporting period.  Actual results could differ from those estimates.  Certain reclassifications have been made to prior periods to conform 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 2018, with the exception of the below, there have been no developments to the recently adopted accounting pronouncements from those disclosed in the Company's 2017 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 has evaluated a substantial portion of its contracts with key customers and is evaluating the provisions under the five-step model specified by the new standard.  While the Company continues to evaluate the potential impacts of the new standard, based on procedures to date we do not expect a material impact to the consolidated financial statements.  Adoption of the new standard will result in expanded revenue disclosures.  The Company plans to adopt the new standard which will be effective for the Company beginning in fiscal 2019 using the modified retrospective approach.

Hedges

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

Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income.  The new standard allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The new standard is effective for interim and annual periods beginning after December 15, 2018.  The Company is currently evaluating the impact of this standard.

7

3.  Acquisitions

AEP Industries Inc.

In January 2017, the Company acquired AEP Industries Inc. ("AEP") for a purchase price of $791 million, net of cash acquired.  A portion of the purchase price consisted of issuing 6.4 million of Berry common shares which were valued at $324 million at the time of closing.  AEP manufactures and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products for consumer, industrial, and agricultural applications.  The acquired business is operated in our Engineered Materials segment.  To finance the purchase, the Company entered into an incremental assumption agreement to increase the commitments under the Company's existing term loan credit agreement by $500 million due 2024.

Unaudited pro forma net sales were $5.5 billion for the three quarterly periods ended July 1, 2017.  The unaudited pro forma net income was $232 million for the three quarterly periods ended July 1, 2017.  The unaudited pro forma net sales and net income assume that the AEP acquisition had occurred at the beginning of the period.

Adchem Corp.

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

Clopay Plastic Products Company, Inc.

In February 2018, the Company acquired Clopay Plastic Products Company, Inc. ("Clopay") for a purchase price of $474 million, which is preliminary and subject to adjustment.  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 preliminary 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 not finalized the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed.  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 preliminary 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
   
118
 
Goodwill
   
123
 
Other assets and long-term liabilities
   
(1
)
(a) Includes a $3 million step up of inventory to fair value
 


4.  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 30, 2018 or September 30, 2017.  Gross amounts factored under these U.S. based programs at June 30, 2018 and September 30, 2017 were $108 million and $129 million, respectively.  The fees associated with transfer of receivables for all programs were not material for any of the periods presented.

8

5.  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 30, 2018
   
July 1, 2017
   
June 30, 2018
   
July 1, 2017
 
Engineered Materials
 
$
2
   
$
2
   
$
4
   
$
4
 
Health, Hygiene & Specialties 
   
4
     
4
     
26
     
8
 
Consumer Packaging 
   
1
     
2
     
3
     
6
 
Consolidated 
 
$
7
   
$
8
   
$
33
   
$
18
 
 
The table below sets forth the activity with respect to the restructuring accrual at June 30, 2018:
 
 
 
Employee Severance and Benefits
   
Facility Exit
Costs
   
Total
 
Balance at September 30, 2017
 
$
14
   
$
5
   
$
19
 
Charges 
   
31
     
2
     
33
 
Cash payments 
   
(30
)
   
(3
)
   
(33
)
Balance at June 30, 2018
 
$
15
   
$
4
   
$
19
 
 
6.  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 30, 2018
   
September 30, 2017
 
Employee compensation
 
$
109
   
$
147
 
Accrued taxes
   
73
     
90
 
Rebates
   
54
     
58
 
Interest 
   
38
     
36
 
Tax receivable agreement obligation
   
24
     
35
 
Restructuring
   
19
     
19
 
Accrued operating expenses
   
84
     
78
 
   
$
401
   
$
463
 
 
The following table sets forth the totals included in Other long-term liabilities on the Consolidated Balance Sheets:
 
 
 
June 30, 2018
   
September 30, 2017
 
Pension liability 
 
$
53
   
$
56
 
Lease retirement obligation
   
43
     
37
 
Deferred purchase price
   
41
     
46
 
Transition tax
   
36
     
 
Sale-lease back deferred gain
   
22
     
24
 
Derivative instruments
   
16
     
27
 
Tax receivable agreement obligation
   
13
     
34
 
Other 
   
73
     
76
 
 
 
$
297
   
$
300
 
 
7.  Long-Term Debt
 
Long-term debt consists of the following:
 
 
Maturity Date
 
June 30, 2018
   
September 30, 2017
 
Term loan 
February 2020
 
$
800
   
$
1,000
 
Term loan 
January 2021
   
814
     
814
 
Term loan 
October 2022
   
1,645
     
1,645
 
Term loan
January 2024
   
494
     
498
 
Revolving line of credit 
May 2020
   
     
 
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
     
 
Debt discounts and deferred fees 
     
(46
)
   
(48
)
Capital leases and other 
Various
   
138
     
132
 
Total long-term debt 
 
   
5,945
     
5,641
 
Current portion of long-term debt 
 
   
(35
)
   
(33
)
Long-term debt, less current portion
 
 
$
5,910
   
$
5,608
 
 
9

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

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

4 1/2% Second Priority Senior Secured Notes

In January 2018, the Company issued $500 million aggregate principal amount of 4.50% second priority senior secured notes due 2026.  Interest on these notes is due semiannually in February and August.  The Company recognized $4 million of debt discount related to this offering.  The net proceeds were used to fund the Clopay acquisition.

Term Loans

In November 2017, February 2018, and May 2018, the Company executed agreements to reduce interest rates under certain term loans.  The term loans with a maturity date of February 2020 and January 2021 bear interest at LIBOR plus 1.75%.  The term loans with a maturity date of October 2022 and January 2024 bear interest at LIBOR plus 2.00%.
During fiscal 2018, the Company has made $224 million of repayments on long-term borrowings using existing liquidity.
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.  For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

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

Cross-Currency Swaps

In November 2017, the Company entered into certain cross-currency swap agreements with a notional amount of 250 million euro to effectively convert a portion of our fixed-rate U.S. dollar denominated term loans, including the monthly interest payments, to fixed-rate euro-denominated debt.  The swap agreements mature in May 2022.  The risk management objective is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currencies and reduce the variability in the functional currency cash flows of a portion of the Company'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.

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.

10

In February 2013, the Company entered into a $1 billion interest rate swap transaction with an effective date of May 2016 and expiration in May 2019.  In June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.  The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense through the original term of the swap agreement.

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

In June 2018, the Company elected to settle two of its derivative instruments with expiration dates in June 2019 and September 2021, and received $9 million and $21 million, respectively. The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense through the original expiration dates for of each of the swap agreements.  The Company also entered into 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 of June 2018 and expiration in September 2021.
 
At June 30, 2018, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.000%, with an effective date in May 2017 and expiration in May 2022 and (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.808% with an effective date in June 2018 and expiration in September 2021.

The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized.  When valuing swaps the Company utilizes Level 2 inputs (substantially observable).  Balances on a gross basis as of the current period are as follows:
 
Derivative Instruments
Hedge Designation
Balance Sheet Location
 
June 30, 2018
   
September 30, 2017
 
Cross-currency swaps
Designated
Other long-term liabilities
 
$
10
   
$
 
Interest rate swaps
Designated
Other assets
   
12
     
1
 
Interest rate swaps
Not designated
Other assets
   
1
     
13
 
Interest rate swaps
Designated
Other long-term liabilities
   
4
     
15
 
Interest rate swaps 
Not designated
Other long-term liabilities
   
2
     
13
 
 
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 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
 
Cross-currency swaps
Interest expense, net
 
$
(2
)
 
$
   
$
(4
)
 
$
 
Foreign currency swaps 
Other expense, net
   
     
1
     
     
 
Interest rate swaps
Interest expense, net
   
(1
)
   
5
     
2
     
15
 
 
The amortization related to unrealized Interest rate swap interest income within Accumulated other comprehensive loss is expected to be $13 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.  The assets are adjusted to fair value only when the carrying values exceed the fair values.  The categorization of the framework used to price the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.  These assets include primarily 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 2017 assessment.  However, as a result of the existence of impairment indicators in our Health, Hygiene & Specialties - South America ("HHS-SA") reporting unit during the quarter, we concluded that an interim impairment test was necessary.  The reporting unit's fair value is estimated based on a market approach and a discounted cash flow analysis and is reconciled back to the current market capitalization for Berry Global Group, Inc. to ensure that the implied control premium is reasonable.  Our forecasts assumed overall revenue growth of 2% increasing to 4% in the terminal year, margins consistent with historical results, a discount rate of 14% applied to the forecasted cash flows, and capital expenditure levels consistent with historical spend.  The fair value of the HHS-SA reporting unit exceeded its carrying value by 5%.  However, future declines in valuation market multiples, sustained lower earnings, or macroeconomic challenges could impact future impairment tests.  The goodwill balance for the HHS-SA reporting unit as of June 30, 2018 was $92 million.

11

Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of June 30, 2018 and September 30, 2017, along with the impairment loss recognized on the fair value measurement during the period:
 
 
 
As of June 30, 2018
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Impairment
 
Indefinite-lived trademarks
 
$
   
$
   
$
248
   
$
248
   
$
 
Goodwill 
   
     
     
2,880
     
2,880
     
 
Definite lived intangible assets
   
     
     
1,029
     
1,029
     
 
Property, plant, and equipment
   
     
     
2,507
     
2,507
     
 
Total 
 
$
   
$
   
$
6,664
   
$
6,664
   
$
 
 
 
 
As of September 30, 2017
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Impairment
 
Indefinite-lived trademarks
 
$
   
$
   
$
248
   
$
248
   
$
 
Goodwill 
   
     
     
2,775
     
2,775
     
 
Definite lived intangible assets
   
     
     
1,038
     
1,038
     
 
Property, plant, and equipment
   
     
     
2,366
     
2,366
     
2
 
Total 
 
$
   
$
   
$
6,427
   
$
6,427
   
$
2
 
 
The Company's financial instruments consist primarily of cash and cash equivalents and long-term debt.  The book value of our marketable long-term indebtedness exceeded fair value by $22 million as of June 30, 2018.  The Company's long-term debt fair values were determined using Level 2 inputs as other significant observable inputs were not available.  
 
9.  Income Taxes
 
In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates.  As the Company has a September fiscal year-end, the lower corporate income tax rate will be phased in during fiscal 2018 and will be 21% in subsequent years.  Partially offsetting the lower corporate income tax, the Tax Act also eliminates certain domestic deductions that were previously included in our estimated annual tax rate.  As part of the transition to the new tax system, the Tax Act (i) imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries and (ii) requires the Company revalue our U.S. net deferred tax liability position to the lower federal base rate of 21%.  These transitional impacts resulted in a provisional transition benefit of $95 million for the first fiscal quarter, comprised of an estimated repatriation tax charge of $44 million (comprised of the U.S. repatriation taxes and foreign withholding taxes) and an estimated net deferred tax revaluation benefit of $139 million.  The estimated impact of the corporate income tax net reduction along with the transitional taxes were recorded to the Consolidated Statements of Income in the Company's first fiscal quarter.

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

The effective tax rate was 25% for the Quarter and was positively impacted by 1% from the share-based compensation excess tax benefit deduction, 1% from research and development credits, and a 2% benefit from the domestic manufacturing deduction.  These favorable items were partially offset by increases of 3% from U.S. state income taxes, 2% from foreign valuation allowance, and other discrete items.

12

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

   
Quarterly Period Ended
   
Three Quarterly Periods Ended
 
 
 
June 30, 2018
   
July 1, 2017
   
June 30, 2018
   
July 1, 2017
 
Net sales:
                       
Engineered Materials  
 
$
687
   
$
686
   
$
1,990
   
$
1,689
 
Health, Hygiene & Specialties 
   
726
     
606
     
2,009
     
1,773
 
Consumer Packaging 
   
659
     
614
     
1,816
     
1,752
 
Total net sales 
 
$
2,072
   
$
1,906
   
$
5,815
   
$
5,214
 
Operating income:
                               
Engineered Materials 
 
$
94
   
$
99
   
$
276
   
$
219
 
Health, Hygiene & Specialties 
   
62
     
53
     
140
     
164
 
Consumer Packaging 
   
60
     
60
     
151
     
150
 
Total operating income
 
$
216
   
$
212
   
$
567
   
$
533
 
Depreciation and amortization:
                               
Engineered Materials 
 
$
26
   
$
30
   
$
82
   
$
73
 
Health, Hygiene & Specialties 
   
51
     
46
     
146
     
136
 
Consumer Packaging 
   
59
     
56
     
169
     
174
 
 Total depreciation and amortization
 
$
136
   
$
132
   
$
397
   
$
383
 


 
 
June 30, 2018
    September 30, 2017  
Total assets:
           
Engineered Materials 
 
$
1,795
   
$
1,803
 
Health, Hygiene & Specialties 
   
3,963
     
3,496
 
Consumer Packaging 
   
3,284
     
3,177
 
Total assets 
 
$
9,042
   
$
8,476
 
                 
Total goodwill:
               
Engineered Materials 
 
$
550
   
$
545
 
Health, Hygiene & Specialties 
   
921
     
819
 
Consumer Packaging 
   
1,409
     
1,411
 
Total goodwill
 
$
2,880
   
$
2,775
 
 
Selected information by geographical region is presented in the following tables:
 
 
Quarterly Period Ended
 
Three Quarterly Periods Ended
 
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
 
Net sales:
               
North America
 
$
1,636
   
$
1,591
   
$
4,703
   
$
4,289
 
South America
   
193
     
85
     
347
     
246
 
Europe
   
181
     
165
     
577
     
482
 
Asia
   
62
     
65
     
188
     
197
 
Total net sales
 
$
2,072
   
$
1,906
   
$
5,815
   
$
5,214
 
 

 
 
June 30, 2018
   
September 30, 2017
Long-lived assets:
           
North America 
 
$
5,598
   
$
5,350
 
South America 
   
343
     
371
 
Europe 
   
459
     
467
 
Asia 
   
305
     
284
 
Total Long-lived assets
 
$
6,705
   
$
6,472
 

13

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

 
 
Quarterly Period Ended
   
Three Quarterly Periods Ended
 
(in percentages)
 
June 30, 2018
   
July 1, 2017
   
June 30, 2018
   
July 1, 2017
 
Net sales:
                       
Performance Materials
   
46
%
   
46
%
   
46
%
   
46
%
Engineered Products
   
54
     
54
     
54
     
54
 
Engineered Materials
   
100
%
   
100
%
   
100
%
   
100
%
                                 
Health
   
16
%
   
22
%
   
17
%
   
22
%
Hygiene
   
52
     
44
     
48
     
44
 
Specialties
   
32
     
34
     
35
     
34
 
Health, Hygiene & Specialties
   
100
%
   
100
%
   
100
%
   
100
%
                                 
Rigid Open Top
   
45
%
   
44
%
   
43
%
   
42
%
Rigid Closed Top
   
55
     
56
     
57
     
58
 
Consumer Packaging
   
100
%
   
100
%
   
100
%
   
100
%

11.  Contingencies and Commitments
 
The Company is party to various legal proceedings involving routine claims which are incidental to its business.  Although the Company's legal and financial liability with respect to such proceedings cannot be estimated with certainty, management believes that any ultimate liability would not be material to its financial statements.
 
The Company has various purchase commitments for raw materials, supplies, and property and equipment incidental to the ordinary conduct of business.
 
12.  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.  There were no shares excluded from the calculations as the effect of their conversion into shares of our common stock would be antidilutive.
 
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 30, 2018
   
July 1, 2017
   
June 30, 2018
   
July 1, 2017
 
Numerator
                       
Net income
 
$
110
   
$
107
   
$
363
   
$
230
 
Denominator
                               
Weighted average common shares outstanding - basic
   
131.7
     
129.9
     
131.3
     
126.6
 
Dilutive shares
   
3.7
     
5.3
     
4.5
     
4.8
 
Weighted average common and common equivalent shares outstanding - diluted
   
135.4
     
135.2
     
135.8
     
131.4
 
                                 
Per common share income
                               
Basic
 
$
0.84
   
$
0.82
   
$
2.76
   
$
1.82
 
Diluted
 
$
0.81
   
$
0.79
   
$
2.67
   
$
1.75
 
 

13.  Accumulated Other Comprehensive Loss
 
The components and activity of Accumulated other comprehensive loss are as follows: 
 
   
Currency Translation
   
Defined Benefit Pension and Retiree Health Benefit Plans
   
Interest Rate Swaps
   
Accumulated Other
Comprehensive
Loss
 
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
)

14

   
Currency Translation
   
Defined Benefit Pension and Retiree Health Benefit Plans
   
Interest Rate Swaps
   
Accumulated Other
Comprehensive
Loss
 
Balance at October 1, 2016
 
$
(82
)
 
$
(44
)
 
$
(22
)
 
$
(148
)
Other comprehensive income (loss) before reclassifications 
   
4
     
13
     
5
     
22
 
Net amount reclassified from accumulated other comprehensive income (loss)  
   
     
     
18
     
18
 
Provision for income taxes
   
     
     
(8
)
   
(8
)
Balance at July 1, 2017
 
$
(78
)
 
$
(31
)
 
$
(7
)
 
$
(116
)

14.  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 30, 2018
 
 
 
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non-
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Current assets
 
$
   
$
311
   
$
1,270
   
$
756
   
$
   
$
2,337
 
Intercompany receivable
   
332
     
2,101
     
     
     
(2,433
)
   
 
Property, plant, and equipment, net
   
     
79
     
1,688
     
740
     
     
2,507
 
Other assets
   
1,378
     
5,995
     
4,713
     
497
     
(8,385
)
   
4,198
 
Total assets
 
$
1,710
   
$
8,486
   
$
7,671
   
$
1,993
   
$
(10,818
)
 
$
9,042
 
 
                                               
Current liabilities
 
$
24
   
$
253
   
$
580
   
$
305
   
$
   
$
1,162
 
Intercompany payable
   
     
     
2,373
     
60
     
(2,433
)
   
 
Other long-term liabilities
   
347
     
6,049
     
85
     
60
     
     
6,541
 
Stockholders' equity
   
1,339
     
2,184
     
4,633
     
1,568
     
(8,385
)
   
1,339
 
Total liabilities and stockholders' equity
 
$
1,710
   
$
8,486
   
$
7,671
   
$
1,993
   
$
(10,818
)
 
$
9,042
 

15

 
 
September 30, 2017
 
 
 
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non-
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Current assets
 
$
   
$
116
   
$
1,113
   
$
775
   
$
   
$
2,004
 
Intercompany receivable
   
512
     
2,217
     
     
     
(2,729
)
   
 
Property, plant and equipment, net
   
     
80
     
1,564
     
722
     
     
2,366
 
 Other assets
   
992
     
5,335
     
4,583
     
533
     
(7,337
)
   
4,106
 
 Total assets
 
$
1,504
   
$
7,748
   
$
7,260
   
$
2,030
   
$
(10,066
)
 
$
8,476
 
 
                                               
Current liabilities
 
$
36
   
$
243
   
$
537
   
$
318
   
$
   
$
1,134
 
Intercompany payable
   
     
     
2,667
     
62
     
(2,729
)
   
 
Other long-term liabilities
   
453
     
5,707
     
99
     
68
     
     
6,327
 
Stockholders' equity
   
1,015
     
1,798
     
3,957
     
1,582
     
(7,337
)
   
1,015
 
Total liabilities and stockholders' equity
 
$
1,504
   
$
7,748
   
$
7,260
   
$
2,030
   
$
(10,066
)
 
$
8,476
 

Condensed Supplemental Consolidated Statements of Income
 
 
 
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
   
     
12
     
171
     
33
     
     
216
 
Other expense (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
 

 
 
Quarterly Period Ended July 1, 2017
 
 
 
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non-
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Net sales
 
$
   
$
152
   
$
1,325
   
$
429
   
$
   
$
1,906
 
Cost of goods sold
   
     
100
     
1,059
     
359
     
     
1,518
 
Selling, general and administrative
   
     
14
     
89
     
25
     
     
128
 
Amortization of intangibles
   
     
2
     
31
     
7
     
     
40
 
Restructuring and impairment charges
   
     
     
-
     
8
     
     
8
 
Operating income
   
     
36
     
146
     
30
     
     
212
 
Other expense (income), net
   
     
1
     
(1
)
   
(1
)
   
     
(1
)
Interest expense, net
   
     
5
     
47
     
16
     
     
68
 
Equity in net income of subsidiaries
   
(145
)
   
(109
)
   
     
     
254
     
 
Income before income taxes
   
145
     
139
     
100
     
15
     
(254
)
   
145
 
Income tax expense
   
38
     
32
     
     
6
     
(38
)
   
38
 
Net income
 
$
107
   
$
107
   
$
100
   
$
9
   
$
(216
)
 
$
107
 
Comprehensive net income
 
$
107
   
$
102
   
$
100
   
$
37
   
$
(216
)
 
$
130
 

16


 
 
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
 
                                                 
Consolidating Statement of Cash Flows
                                               
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 (to)/from subsidiaries
   
(17
)
   
(457
)
   
     
     
474
     
 
Intercompany
   
     
314
     
     
     
(314
)
   
 
Acquisition of business, net of cash acquired
   
     
     
(404
)
   
(70
)
   
     
(474
)
Other investing activities, net
   
     
     
     
     
     
 
Net cash from investing activities
   
(17
)
   
(148
)
   
(598
)
   
(138
)
   
160
     
(741
)
 
                                               
Cash Flow from Financing Activities
                                               
Proceeds from long-term debt
   
     
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
   
$
2
   
$
187
   
$
   
$
365
 
 
17


 
 
Three Quarterly Periods Ended July 1, 2017
 
 
 
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non-
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Net sales
 
$
   
$
441
   
$
3,556
   
$
1,217
   
$
   
$
5,214
 
Cost of goods sold
   
     
333
     
2,860
     
984
     
     
4,177
 
Selling, general and administrative
   
     
45
     
251
     
77
     
     
373
 
Amortization of intangibles
   
     
5
     
87
     
21
     
     
113
 
Restructuring and impairment charges
   
     
     
10
     
8
     
     
18
 
Operating income
   
     
58
     
348
     
127
     
     
533
 
Other expense (income), net
   
     
15
     
1
     
2
     
     
18
 
Interest expense, net
   
     
17
     
138
     
48
     
     
203
 
Equity in net income of subsidiaries
   
(312
)
   
(252
)
   
     
     
564
     
 
Income before income taxes
   
312
     
278
     
209
     
77
     
(564
)
   
312
 
Income tax expense
   
82
     
48
     
     
34
     
(82
)
   
82
 
Net income
 
$
230
   
$
230
   
$
209
   
$
43
   
$
(482
)
 
$
230
 
Comprehensive net income
 
$
230
   
$
245
   
$
209
   
$
60
   
$
(482
)
 
$
262
 
                                                 
Consolidating Statement of Cash Flows
                                               
Cash Flow from Operating Activities
 
$
   
$
31
   
$
420
   
$
129
   
$
   
$
580
 
Cash Flow from Investing Activities
                                               
Additions to property, plant, and equipment
   
     
(11
)
   
(160
)
   
(30
)
   
     
(201
)
Proceeds from sale of assets
   
     
1
     
3
     
     
     
4