Weather related events could negatively impact our results of operations.
We may not be able to compete successfully and our customers may not continue to purchase our products.
We compete with multiple companies in each of our product lines on the basis of a number of considerations, including price, service, quality, product characteristics and the ability to supply products to customers in a timely manner. Our products also compete with various other substrates. Some of these competitive products are not subject to the impact of changes in resin prices, which may have a significant and negative impact on our competitive position versus substitute products. Additionally, consumer views on environmental considerations could potentially impact demand for our products that utilize fossil fuel based materials in their manufacturing. Our competitors may have financial and other resources that are substantially greater than ours and may be better able than us to withstand higher costs. Competition and product preference changes could result in our products losing market share or our having to reduce our prices, either of which could have a material adverse effect on our business, financial condition and results of operations. In addition, since we do not have long-term arrangements with many of our customers, these competitive factors could cause our customers to shift suppliers and/or packaging material quickly.
We may pursue and execute acquisitions or divestitures, which could adversely affect our business.
In the event of a catastrophic loss of one of our key manufacturing facilities, our business would be adversely affected.
While we manufacture our products in a large number of diversified facilities and maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our key manufacturing facilities due to accident, labor issues, weather conditions, natural disaster, pandemic or otherwise, whether short or long-term, could result in future losses.
Our relations with employees under collective bargaining agreements remain satisfactory and there have been no significant work stoppages or other labor disputes during the past threefour years. However, we may not be able to maintain constructive relationships with labor unions or trade councils and may not be able to successfully negotiate new collective bargaining agreements on satisfactory terms in the future.
We depend on information technology systems and infrastructure to operate our business, and increased cybersecurity threats, system inadequacies, and failures could disrupt our operations, compromise customer, employee, vendor and other data which could negatively affect our business.
We rely on the efficient and uninterrupted operation of information technology systems and networks. These systems and networks are vulnerable to increased threats and more sophisticated computer crime, energy interruptions, telecommunications failures, breakdowns, natural disasters, terrorism, war, computer malware or other malicious intrusions.
We also maintain and have access to data and information that is subject to privacy and security laws, regulations, and customer controls. Despite our efforts to protect such information, breaches, misplaced or lost data and programming damages could result in a negative impact on the business. While we have not had material system interruptions historically associated with these risks, there can be no assurance from future interruptions that could result in future losses.
Our substantial indebtedness could affect our ability to meet our obligations and may otherwise restrict our activities.
We have a significant amount of indebtedness, which requires significant interest payments. The amount of interest charges could increase materially due to rising interest rates as indebtedness is refinanced, interest rate swaps expire, or accounts receivable supply chain finance factoring grows. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations. Additionally, servicing the interest obligations of our existing indebtedness could limit our ability to respond to business opportunities, including growing our business through acquisitions or increased levels of capital expenditures.
Goodwill and other intangibles represent a significant amount of our net worth, and a future write-off could result in lower reported net income and a reduction of our net worth.
We have a substantial amount of goodwill. Future changes in market multiples, cost of capital, expected cash flows, or other external factors, may adversely affect our business and cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write off goodwill or indefinite lived intangible assets for the amount of impairment. If a future write-off is required, the charge could result in significant losses.
Our international operations pose risks to our business that may not be present with our domestic operations.
We are subject to foreign exchange rate risk, both transactional and translational, which may negatively affect our financial performance. Exchange rates between transactional currencies may change rapidly due to a variety of factors. Translational foreign exchange exposures result from exchange rate fluctuations in the conversion of entity functional currencies to U.S. dollars, our reporting currency, and may affect the reported value of our assets and liabilities and our income and expenses. In particular, our translational exposure may be impacted by movements in the exchange rate of the euro or the British pound sterling against the U.S. dollar.
Foreign operations are also subject to certain risks that are unique to doing business in foreign countries including shipping delays and supply chain challenges, disruption of energy, changes in applicable laws, including assessments of income and non-income related taxes, reduced protection of intellectual property, inability to readily repatriate cash to the U.S. effectively, and regulatory policies and various trade restrictions including potential changes to export taxes or countervailing and anti-dumping duties for exported products from these countries. Any of these risks could disrupt our business and result in significant losses.duties. We are also subject to the Foreign Corrupt Practices Act and other anti-bribery and anti-corruption laws that generally bar bribes or unreasonable gifts to foreign governments or officials. We have implemented safeguards, training and policies to discourage these practices by our employees and agents. However, our existing safeguards, training and policies to assure compliance and any future improvements may prove to be less than effective and our employees or agents may engage in conduct for which we might be held responsible. Ifif employees violate our policies, we may be subject to regulatory sanctions. ViolationsAny of these laws or regulationsrisks could disrupt our business and result in sanctions including fines, debarment from export privileges and penalties and could adversely affect our business, financial condition and results of operations.significant losses.
Current and future environmental and other governmental requirements could adversely affect our financial condition and our ability to conduct our business.
Changes in tax laws or changes in our geographic mix of earnings could have a material impact on our financial condition and results of operation.
We are subject to income and other taxes in the many jurisdictions in which we operate. Tax laws and regulations are complex and the determination of our global provision for income taxes and current and deferred tax assets and liabilities requires judgment and estimation. We are subject to routine examinations of our income tax returns, and tax authorities may disagree with our tax positions and assess additional tax. Our future income taxes could also be negatively impacted by our mix of earnings in the jurisdictions in which we operate being different than anticipated given differences in statutory tax rates in the countries in which we operate. In addition, tax policy efforts to raise global corporate tax rates could adversely impact our tax rate and subsequent tax expense.
We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.
In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality agreements with employees and consultants, customers and suppliers to protect our know-how and trade secrets. However, these methods and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any such litigation could be protracted and costly and could result in significant losses.
We may be subject to litigation and regulatory investigations and proceedings, including product liability claims, that could adversely affect our business operations and financial performance.
In the ordinary course of our business, we are involved in legal proceedings, including product liability claims, which may lead to financial or reputational damages. See Note 5. Commitments, Leases and Contingencies. We may also be subject to inquiries, inspections, investigations and proceedings by relevant regulatory and other governmental agencies. Given our global footprint, we are exposed to more uncertainty regarding the regulatory environment. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is typically uncertain, and any such proceedings or claims, regardless of merit, could be time consuming and expensive to defend and could divert management’s attention and resources. The possible outcomes of these proceedings could include adverse judgments, settlements, injunctions, fines, penalties or other results adverse to us that could harm our business, financial condition, results of operations and reputation and result in significant losses. Even if we are successful in defending ourselves against these actions, the costs of such defense may be significant to us.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Our primary manufacturing facilities by geographic area were as follows:
Geographic Region | | Total Facilities | | Leased Facilities | | Total Facilities | | Leased Facilities |
US and Canada | | 107 | | 19 | | 102 | | 18 |
Europe | | 119 | | 23 | | 110 | | 24 |
Rest of world | | 41 | | 24 | | 36 | | 15 |
Item 3. LEGAL PROCEEDINGS
Berry is party to various legal proceedings involving routine claims which are incidental to our business. Although our legalFor information see Note 5. Commitments, Leases and financial liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate liability would not be material to the business, financial condition, results of operations or cash flows.Contingencies
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock “BERY” is listed on the New York Stock Exchange. As of the date of this filing there were fewer than 500550 active record holders of the common stock, but we estimate the number of beneficial stockholders to be much higher as a number of our shares are held by brokers or dealers for their customers in street name. During fiscal 20212023 the Company declared and paid cash dividends of $0.25 per share for each quarter. During fiscal 2022 we did not declare or pay any cash dividends on our common stock.
Issuer Purchases of Equity Securities
The following table summarizes the Company's repurchases of its common stock during the Quarterly Period ended October 1, 2022.September 30, 2023.
Fiscal Period | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | Dollar Value of Shares that May Yet be Purchased Under the Program (in millions) (a) | | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | Dollar Value of Shares that May Yet be Purchased Under the Program (in millions) (a) | |
July | | | 132,000 | | | $ | 55.00 | | | | 132,000 | | | $ | 407 | | | | — | | | $ | — | | | | — | | | $ | 627 | |
August | | | 716,963 | | | | 57.13 | | | | 716,963 | | | | 366 | | | | 1,600,861 | | | | 63.96 | | | | 1,600,861 | | | | 524 | |
September | | | 440,850 | | | | 54.54 | | | | 440,850 | | | | 342 | | | | 1,313,690 | | | | 62.88 | | | | 1,313,690 | | | | 442 | |
Total | | | 1,289,813 | | | $ | 56.02 | | | | 1,289,813 | | | $ | 342 | | | | 2,914,551 | | | $ | 63.47 | | | | 2,914,551 | | | $ | 442 | |
(a) | All open market purchases during the quarter were made under the fiscal 20222023 authorization from our board of directors to purchase up to $1 billion of shares of common stock. (SeeSee Note 9. Stockholders' Equity and Note 12. Subsequent Events)Equity. |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Outlook
The Company is affected by general economic and industrial growth, raw material availability, cost inflation, supply chain disruptions, and general industrial production.consumption levels. Our business has both geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes to our customers, improve manufacturing productivity and adapt to volume changes of our customers. Despite global macro-economic challenges in the short-term attributed to continued rising inflation supply chain disruptions, currency devaluation and general market softness, in part because of the Russia-Ukraine conflict, we continue to believe our underlying long-term demand fundamentalfundamentals in all divisions will remain strong as we focus on delivering protective solutions that enhance consumer safety and by providing advantaged products in targeted markets.strong. For fiscal 2023,2024, we project cash flow from operations between $1.4$1.35 to $1.5$1.45 billion and free cash flow between $800 million to $900 million. Projected fiscal 20232024 free cash flow assumes $600$550 million of capital spending. For the definition of free cash flow and further information related to free cash flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.”
Recent Dispositions
During fiscal 2022, the Company completed the sale of its rotational molding business, which was operated in the Consumer Packaging International segment for net proceeds of $111 million. A pretax gain of $8 million was recorded in fiscal 2022 within Restructuring and transaction activities on the Consolidated Statements of Income. In fiscal 2021, the rotational molding business recorded net sales of $146 million.
Discussion of Results of Operations for Fiscal 20222023 Compared to Fiscal 20212022
The Company's U.S. based results for fiscal 20222023 and fiscal 20212022 are based on a fifty-two and fifty-three week period, respectively.periods. Business integration expenses consist of restructuring and impairment charges, divestiture related costs, and other business optimization costs. Tables present dollars in millions. A discussion and analysis regarding our results of operations for fiscal year 20212022 compared to fiscal year 20202021 can be found on Form 10-K, filed with the SEC onin November 18, 2021.2022.
Consolidated Overview | | Fiscal Year | | | | | | | | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Net sales | | $ | 14,495 | | | $ | 13,850 | | | $ | 645 | | | | 5 | % | | $ | 12,664 | | | $ | 14,495 | | | $ | (1,831 | ) | | | (13 | )% |
Cost of goods sold | | | 12,123 | | | | 11,352 | | | | 771 | | | | 7 | % | | | 10,354 | | | | 12,123 | | | | (1,769 | ) | | | (15 | )% |
Other operating expenses | | | 1,130 | | | | 1,206 | | | | (76 | ) | | | (6 | )% | | | 1,231 | | | | 1,130 | | | | 101 | | | | 9 | % |
Operating income | | $ | 1,242 | | | $ | 1,292 | | | $ | (50 | ) | | | (4 | )% | | $ | 1,079 | | | $ | 1,242 | | | $ | (163 | ) | | | (13 | )% |
Net sales: The net sales growthdecline is primarily attributed to increaseddecreased selling prices of $1,650$856 million primarily due to the pass throughpass-through of inflation, partially offset bylower resin costs, a $4206% volume decline, an $84 million unfavorable impact from foreign currency a 2% organic volume decline, a $131 million decrease from extra shipping days in fiscal 2021,changes, and fiscal 20212022 divestiture sales of $118$107 million. The volume decline is primarily attributed to supply chain disruptions, general market softness and the moderation of advantaged products related to the COVID-19 pandemic.customer destocking.
Cost of goods sold: The cost of goods sold increasedecrease is primarily attributed to product mix and inflation of $1,618 million, partially offset by a $352 million favorable impact from foreign currency,lower raw material prices, the 2% volume decline, extra shipping days in fiscal 2021, and fiscal 20212022 divestiture cost of goods sold, of $93 million.and an unfavorable impact from foreign currency changes.
Other operating expenses: The other operating expense decreaseexpenses increase is primarily attributed to a $36 million impact from foreign currency, a $22 million decreasean increase in amortization expensebusiness integration costs and fiscal 2021 divestiture other operating expenses.incentive-based compensation.
Operating Income: The operating income decrease is primarily attributed to a $32$134 million unfavorable impact from the volume decline, a $79 million unfavorable impact from increased business integration costs, a $33 million unfavorable impact from foreign currency changes, and a $49 million decreaseunfavorable impact from the organic volume decline, a $22 million decrease from extra shipping days in fiscal 2021,increased selling, general, and fiscal 2021 divestiture operating income of $16 million.administrative expenses primarily attributed to increased incentive-based compensation. These decreasesdeclines are partially offset by a $36 million decrease in business integration expense and a $30$139 million favorable impact from price cost spread and product mix.
Consumer Packaging International | | Fiscal Year | | | | | | | | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Net sales | | $ | 4,293 | | | $ | 4,242 | | | $ | 51 | | | | 1 | % | | $ | 4,031 | | | $ | 4,293 | | | $ | (262 | ) | | | (6 | )% |
Operating income | | $ | 346 | | | $ | 317 | | | $ | 29 | | | | 9 | % | | $ | 273 | | | $ | 346 | | | $ | (73 | ) | | | (21 | )% |
Net sales: The net sales growthdecline is primarily attributed to increased selling pricesa 5% volume decline, fiscal 2022 divestiture sales of $498$107 million, due to the pass through of inflation, partially offset byand a $299$60 million unfavorable impact from foreign currency and fiscal 2021 divestiture saleschanges, partially offset by increased selling prices of $84 million.$102 million due to the pass-through of European inflation. The volume decline is primarily attributed to general market softness.
Operating Income: The operating income increasedecrease is primarily attributed to a $46$39 million decrease inunfavorable impact from increased business integration activities,costs, a $2636 million unfavorable impact from the volume decline, a $17 million unfavorable impact from foreign currency changes, an unfavorable impact from increased selling, general, and administrative expenses, and an unfavorable impact from fiscal 2022 divestiture. These declines were partially offset by a $44 million favorable impact from price cost spread. These increases were partially offset by a $24 million impact from foreign currency, and fiscal 2021 divestiture operating income of $10 million.
Consumer Packaging North America | | Fiscal Year | | | | | | | | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Net sales | | $ | 3,548 | | | $ | 3,141 | | | $ | 407 | | | | 13 | % | | $ | 3,122 | | | $ | 3,548 | | | $ | (426 | ) | | | (12 | )% |
Operating income | | $ | 338 | | | $ | 276 | | | $ | 62 | | | | 22 | % | | $ | 346 | | | $ | 338 | | | $ | 8 | | | | 2 | % |
Net sales: The net sales growthdecline is primarily attributed to increaseddecreased selling prices of $470$344 million dueand a 3% volume decline. The volume decline is primarily attributed to the pass through of inflation,general market softness partially offset by a $40 million decrease from extra shipping daysgrowth in fiscal 2021.our foodservice market.
Operating Income: The operating income increase is primarily attributed to a $7267 million favorable impact from price cost spread, and a $10 million decrease in depreciation and amortization, partially offset by extra shipping days in fiscal 2021 and highera $21 million unfavorable impact from the volume decline, an $18 million unfavorable impact from increased business integration expense.costs, and an unfavorable impact from increased selling, general, and administrative expenses.
Engineered Materials | | Fiscal Year | | | | | | | | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Net sales | | $ | 3,488 | | | $ | 3,309 | | | $ | 179 | | | | 5 | % | | $ | 2,884 | | | $ | 3,488 | | | $ | (604 | ) | | | (17 | )% |
Operating income | | $ | 328 | | | $ | 301 | | | $ | 27 | | | | 9 | % | | $ | 333 | | | $ | 328 | | | $ | 5 | | | | 2 | % |
Net sales: The net sales growthdecline is primarily attributed to increaseddecreased selling prices of $500$292 million, due to the pass through of inflation, partially offset by a 5% organican 8% volume decline, and a $72$31 million unfavorable impact from foreign currency a $44 million decrease from extra shipping days in fiscal 2021, and fiscal 2021 divestiture sales of $34 million.changes. The volume decline is primarily attributed to general market softness product mix and supply chain disruptions.destocking.
Operating Income: The operating income increase is primarily attributed to a $76an $81 million favorable impact from price cost spread, partially offset by a $22$48 million decreaseunfavorable impact from the volume decline, fiscal 2021 divestiture operating income of $13 million and extra shipping days in fiscal 2021.an unfavorable impact from increased selling, general, and administrative expenses.
Health, Hygiene & Specialties | | Fiscal Year | | | | | | | | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Net sales | | $ | 3,166 | | | $ | 3,158 | | | $ | 8 | | | | 0 | % | | $ | 2,627 | | | $ | 3,166 | | | $ | (539 | ) | | | (17 | )% |
Operating income | | $ | 230 | | | $ | 398 | | | $ | (168 | ) | | | (42 | )% | | $ | 127 | | | $ | 230 | | | $ | (103 | ) | | | (45 | )% |
Net sales: The net sales growthdecline is primarily attributed to increaseddecreased selling prices of $180$322 million due to the pass through of inflation, partially offset by a 3% organic volume decline, a $49 million impact from foreign currency, and a $42 million decrease from extra shipping days in fiscal 2021.7% volume decline. The volume decline is primarily attributed to the moderation of advantaged products related to the COVID-19 pandemic.general market softness and customer destocking.
Operating Income: The operating income decrease is primarily attributed to a $138$52 million unfavorable impact from price cost spread, and negative product mix, a $14$30 million declineunfavorable impact from the volume decline, and extra shipping days in fiscal 2021an unfavorable impact from increased business integration costs.
Other expense, net | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | |
Other expense, net | | $ | 22 | | | $ | 51 | | | $ | (29 | ) | | | (57 | )% |
Other expense | | Fiscal Year | | | | | | | |
| | 2023 | | | 2022 | | | $ Change | | | % Change | |
Other expense | | $ | 31 | | | $ | 22 | | | $ | 9 | | | | 41 | % |
The Other expense decreaseincrease is primarily attributed to foreign currency changes related to the remeasurement of non-operating intercompany balances and debt extinguishment expense in fiscal 2021.
an adverse impact from our hyperinflationary Argentina subsidiaries.
Interest expense, net | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | |
Interest expense, net | | $ | 286 | | | $ | 336 | | | $ | (50 | ) | | | (15 | )% |
Interest expense | | Fiscal Year | | | | | | | |
| | 2023 | | | 2022 | | | $ Change | | | % Change | |
Interest expense | | $ | 306 | | | $ | 286 | | | $ | 20 | | | | 7 | % |
The interest expense decreaseincrease is primarily the result of foreign currency changes and repayments on long-term borrowings and refinancing activities in fiscal 2021.
Income tax expense | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | |
Income tax expense | | $ | 168 | | | $ | 172 | | | $ | (4 | ) | | | (2 | )% |
Our effective tax rate for fiscal 2022 was 18% and was positively impacted by 2% from a deferred rate revalue, 2% from federal and state tax credits, and 2% from lapse in uncertain tax positions. These favorable items werehigher interest rates partially offset by other discrete items. See Note 6. Income Taxes.an increased benefit from the amortization of settled interest rate swaps in fiscal 2022.
Comprehensive Income | | Fiscal Year | | | | | | | | | Fiscal Year | | | | | | | |
| | 2022 | | | 2021 | | | $ Change | | | % Change | | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Comprehensive Income | | $ | 659 | | | $ | 988 | | | $ | (329 | ) | | | (33 | )% | | $ | 676 | | | $ | 659 | | | $ | 17 | | | | 3 | % |
The decreaseincrease in comprehensive income is primarily attributed to a $425$416 million unfavorablefavorable change in currency translation, partially offset by a $77$157 million favorabledecrease in net income, a $155 million unfavorable change in the fair value of interest rate hedges, and a $33an $87 million increase in net income.unfavorable change from unrealized losses on the Company's pension plans. Currency translation losseschanges are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollar whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates. The change in currency translation was primarily attributed to locations utilizing the euro and British pound sterling and Chinese renminbi as their functional currency. As part of the overall risk management, the Company uses derivative instruments to (i) reduce our exposure to changes in interest rates attributed to the Company’s floating-rate borrowings and (ii) reduce foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive income (loss). The change in fair value of these instruments in fiscal 20222023 versus fiscal 20212022 is primarily attributed to a change in the forward interest curveand foreign exchange curves between measurement dates.
Liquidity and Capital Resources
Senior Secured Credit Facility
We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct our business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. We have a $1,050 millionAt the end of fiscal 2023, the Company had no outstanding balance on its $1.0 billion asset-based revolving line of credit that matures in May 2024. At the end of fiscal 2022, the Company had no outstanding balance on the revolving credit facility.June 2028. The Company was in compliance with all covenants at the end of fiscal 2022.2023. See Note 3. Long-Term Debt.
Cash Flows from Operating Activities
Net cash provided by operating activities decreased $17increased $52 million from fiscal 20212022 primarily attributed to working capital inflation,improvement, partially offset by derivativesa decline in net income and derivative settlements.
Cash Flows from Investing Activities
Net cash used in investing activities decreased $28increased $293 million from fiscal 20212022 primarily attributed to the acquisition of Pro-Western in fiscal 2023 compared to the proceeds from business divestitures and the settlement of net investment hedges partially offset by fewer proceeds for the divestiture of business compared toin fiscal 2021.2022. See Note 2. Acquisition.
Cash Flows from Financing Activities
Net cash used in financing activities decreased $37increased $367 million from fiscal 20212022 primarily attributed to lowerhigher net repayments on long-term borrowings and initiation of a quarterly dividend in fiscal 2023, partially offset by fiscal 2022 repurchases of common stock.lower share repurchases.
Dividends
In November 2022, the Company’s BoardThe Company declared and paid cash dividends of Directors authorized a quarterly cash dividend of $0.25 per share (See Note 12. Subsequent Events).
$127 million during fiscal 2023.
Share Repurchases
During fiscal 2022, theThe Company repurchased approximately 12.29.8 million shares for $709 million. The Company did not have any share repurchases$601 million and approximately 12.2 million shares for $709 million in fiscal 2021 or 2020. As2023 and fiscal 2022, respectively. See Note 9. Stockholders' Equity.
Free Cash Flow
We define "free cash flow" as cash flow from operating activities less net additions to property, plant and equipment. Based on our definition, our consolidated free cash flow is summarized as follows:
| | Fiscal years ended | | | Fiscal years ended | |
| | October 1, 2022 | | | October 2, 2021 | | | September 30, 2023 | | | October 1, 2022 | |
Cash flow from operating activities | | $ | 1,563 | | | $ | 1,580 | | | $ | 1,615 | | | $ | 1,563 | |
Additions to property, plant and equipment, net | | | (687 | ) | | | (676 | ) | | | (689 | ) | | | (687 | ) |
Free cash flow | | $ | 876 | | | $ | 904 | | | $ | 926 | | | $ | 876 | |
We use free cash flow as a supplemental measure of liquidity as it assists us in assessing our ability to fund growth through generation of cash. Free cash flow may be calculated differently by other companies, including other companies in our industry or peer group, limiting its usefulness. Free cash flow is not a generally accepted accounting principles (“GAAP’) financial measure and should not be considered as an alternative to any other measure determined in accordance with GAAP.
Liquidity Outlook
At the end of fiscal 2022,2023, our cash balance was $1,410$1,203 million, of which approximately 50%45% was located outside the U.S. We believe our existing and future U.S. based cash and cash flow from U.S. operations, together with available borrowings under our senior secured credit facilities, will be adequate to meet our short-term and long-term liquidity needs with the exception of funds needed to cover all long-term debt obligations which we intend to refinance prior to maturity. The Company has the ability to repatriate the cash located outside the U.S. to the extent not needed to meet operational and capital needs without significant restrictions. Our unremitted foreign earnings were $1.7$1.6 billion at the end of fiscal 2022.2023. The computation of the deferred tax liability associated with unremitted earnings is not practicable.
Summarized Guarantor Financial Information
Berry Global, Inc. (“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by its parent, Berry Global Group, Inc. (for purposes of this section, “Parent”) and substantially all of Issuer’s domestic subsidiaries. Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by Parent and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis. A guarantee of a guarantor subsidiary of the securities will terminate upon the following customary circumstances: the sale of the capital stock of such guarantor if such sale complies with the indentures, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture or in the case of a restricted subsidiary that is required to guarantee after the relevant issuance date, if such guarantor no longer guarantees certain other indebtedness of 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 summarized financial information for the Parent, Issuer and guarantor subsidiaries on a combined basis, after intercompany transactions have been eliminated.
| | Year Ended | | | Year Ended | |
| | October 1, 2022 | | | September 30, 2023 | |
Net sales | | $ | 7,654 | | | $ | 6,660 | |
Gross profit | | | 1,581 | | | | 1,611 | |
Earnings from continuing operations | | | 506 | | | | 410 | |
Net income (a) | | $ | 506 | | | $ | 410 | |
(a) Includes $39 million of income associated with intercompany activity with non-guarantor subsidiaries.
| | October 1, 2022 | | | October 2, 2021 | | | September 30, 2023 | | | October 1, 2022 | |
Assets | | | | | | | | | | | | |
Current assets | | $ | 2,432 | | | $ | 2,293 | | | $ | 1,975 | | | $ | 2,432 | |
Noncurrent assets | | | 6,137 | | | | 5,979 | | | | 5,997 | | | | 6,137 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Current liabilities | | $ | 1,536 | | | $ | 1,533 | | | $ | 1,363 | | | $ | 1,536 | |
Intercompany payable | | | 634 | | | | 629 | | | | 754 | | | | 634 | |
Noncurrent liabilities | | | 10,630 | | | | 11,083 | | | | 10,271 | | | | 10,630 | |
Critical Accounting Policies and Estimates
We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in the first note to our consolidated financial statements included elsewhere herein. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions.
Pensions. The accounting for our pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet. We believe that the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes. See Note 1. Basis of Presentation and Summary of Significant Accounting Policies and Note 7. Retirement Plans.
Deferred Taxes and Effective Tax Rates. We estimate the effective tax rate (“ETR”) and associated liabilities or assets for each of our legal entities in accordance with authoritative guidance. We utilize tax planning to minimize or defer tax liabilities to future periods. In recording ETRs and related liabilities and assets, we rely upon estimates, which are based upon our interpretation of U.S. and local tax laws as they apply to our legal entities and our overall tax structure. Audits by local tax jurisdictions, including the U.S. Government, could yield different interpretations from our own and cause the Company to owe more taxes than originally recorded. See Note 1. Basis of Presentation and Summary of Significant Accounting Policies and Note 6. Income Taxes.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities.facilities and accounts receivable supply chain finance factoring programs. As of October 1, 2022,September 30, 2023, our senior secured credit facilities are comprised of (i) $3.4$3.1 billion term loans and (ii) a $1,050 million$1.0 billion revolving credit facility with no borrowings outstanding. Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus LIBOR.SOFR. The applicable margin for LIBORSOFR rate borrowings under the revolving credit facility ranges from 1.25% to 1.50%, and the margin for the term loans is 1.75% per annum. As of October 1, 2022,September 30, 2023, the LIBORSOFR rate of approximately 3.14%5.54% was applicable to the term loans. A change of 0.25% change in LIBORon these floating interest rate exposures would increase our annual interest expense by $3 million on variable rate term loans.approximately $2 million.
We seek to manageminimize interest rate fluctuationsvolatility risk through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. These financial instruments are not used for trading or other speculative purposes. (SeeSee Note 4. Financial Instruments and Fair Value Measurements)Measurements.
Foreign Currency Risk
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, British pound sterling, Brazilian real, Chinese renminbi, Canadian dollar and Chinese renminbi.Mexican peso. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses. Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates and impact our Comprehensive income. A 10% decline in foreign currency exchange rates would have had an $18a $31 million unfavorable impact on fiscal 20222023 Net income. (SeeSee Note 4. Financial Instruments and Fair Value Measurements)Measurements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Index to Financial Statement Schedules
All schedules have been omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or notes thereto.
Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Form 10-K, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of October 1, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of October 1, 2022.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s internal controls over financial reporting were effective as of October 1, 2022.
The effectiveness of our internal control over financial reporting as of October 1, 2022, has been audited by the Company’s independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended October 1, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.OTHER INFORMATION
None.
Item 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth below, the information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2023 Annual Meeting of Stockholders.
We have a Global Code of Business Ethics that applies to all directors and employees, including our Chief Executive Officer and senior financial officers. We also have adopted a Supplemental Code of Ethics, which is in addition to the standards set by our Global Code of Business Ethics, in order to establish a higher level of expectation for the most senior leaders of the Company. Our Global Code of Business Ethics and Supplemental Code of Ethics can be obtained, free of charge, by contacting our corporate headquarters or can be obtained from the Corporate Governance section of the Investors page on the Company’s internet site. In the event that we make changes in, or provide waivers from, the provision of the Code of Business Ethics that the SEC requires us to disclose, we will disclose these events in the corporate governance section of our website within four business days following the date of such amendment or waiver.
Item 11.EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2023 Annual Meeting of Stockholders.
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item, is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2023 Annual Meeting of Stockholders.
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2023 Annual Meeting of Stockholders.
Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2023 Annual Meeting of Stockholders.
PART IV
Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The financial statements listed under Item 8 are filed as part of this report.
| 2. | Financial Statement Schedules |
Schedules have been omitted because they are either not applicable or the required information has been disclosed in the financial statements or notes thereto.
The exhibits listed on the Exhibit Index immediately following the signature page of this annual report are filed as part of this report.
Item 16.FORM 10-K SUMMARY
None.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Berry Global Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Berry Global Group, Inc. (the Company) as of September 30, 2023 and October 1, 2022, and October 2, 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended October 1, 2022,September 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2023 and October 1, 2022, and October 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended October 1, 2022,September 30, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of October 1, 2022,September 30, 2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 18, 202217, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accountsaccount or disclosuredisclosures to which it relates.
| | United Kingdom Defined Benefit Pension Obligation |
| | |
Description of the Matter | | At October 1, 2022September 30, 2023 the aggregate United Kingdom (UK) defined benefit pension obligation was $480 million and exceeded the fair value of pension plan assets, resulting in an underfunded defined benefit pension obligation.$505 million. As disclosed in Notes 1 and 7 to the consolidated financial statements, the Company recognizes the overfunded or underfunded status of its pension plans in the consolidated balance sheet. The obligationsobligation for these plans are actuarially determined and affected by assumptions, including discount rates and mortality rates. Auditing the UK defined benefit pension obligation is complex and required the involvement of our actuarial specialists due to the highly judgmental nature of actuarial assumptions (e.g., discount rates and mortality rates) used in the measurement process. These assumptions have a significant effect on the projected benefit obligation. |
| | |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the measurement and valuation of the UK defined benefit pension obligation. This included management’s review of the UK defined benefit pension obligation calculations and the significant actuarial assumptions used by management. To test the UK defined benefit pension obligation, we performed audit procedures that included, among others, evaluating the methodology used and the significant actuarial assumptions described above. We involved our actuarial specialists to assist with our audit procedures. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from prior year due to the change in service cost, interest cost, actuarial gains and losses, benefit payments, contributions and other activities. In addition, we evaluated management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation. As part of this assessment, we compared management’s selected discount rate to an independently developed range of reasonable discount rates. To evaluate the mortality rate assumption, we assessed whether the information is consistent with publicly available information, and whether any market data adjusted for entity-specific factors were applied. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1991.
Indianapolis, Indiana
November 18, 202217, 2023
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Berry Global Group, Inc.
Opinion on Internal Control overOver Financial Reporting
We have audited Berry Global Group, Inc.’s internal control over financial reporting as of October 1, 2022,September 30, 2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Berry Global Group, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 1, 2022,September 30, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2023 and October 1, 2022, and October 2, 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended October 1, 2022,September 30, 2023, and the related notes and our report dated November 18, 202217, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Indianapolis, Indiana
November 18, 202217, 2023
Consolidated Statements of Income
(in millions of dollars)
| | Fiscal years ended | | | Fiscal years ended | |
| | October 1, 2022 | | | October 2, 2021 | | | September 26, 2020 | | | September 30, 2023 | | | October 1, 2022 | | | October 2, 2021 | |
Net sales | | $ | 14,495 | | | $ | 13,850 | | | $ | 11,709 | | | $ | 12,664 | | | $ | 14,495 | | | $ | 13,850 | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of goods sold | | | 12,123 | | | | 11,352 | | | | 9,301 | | | | 10,354 | | | | 12,123 | | | | 11,352 | |
Selling, general and administrative | | | 850 | | | | 867 | | | | 850 | | | | 886 | | | | 850 | | | | 867 | |
Amortization of intangibles | | | 257 | | | | 288 | | | | 300 | | | | 243 | | | | 257 | | | | 288 | |
Restructuring and transaction activities | | | 23 | | | | 51 | | | | 79 | | | | 102 | | | | 23 | | | | 51 | |
Operating income | | | 1,242 | | | | 1,292 | | | | 1,179 | | | | 1,079 | | | | 1,242 | | | | 1,292 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other expense | | | 22 | | | | 51 | | | | 31 | | | | 31 | | | | 22 | | | | 51 | |
Interest expense | | | 286 | | | | 336 | | | | 435 | | | | 306 | | | | 286 | | | | 336 | |
Income before income taxes | | | 934 | | | | 905 | | | | 713 | | | | 742 | | | | 934 | | | | 905 | |
Income tax expense | | | 168 | | | | 172 | | | | 154 | | | | 133 | | | | 168 | | | | 172 | |
Net income | | $ | 766 | | | $ | 733 | | | $ | 559 | | | $ | 609 | | | $ | 766 | | | $ | 733 | |
Net income per share (see Note 11): | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 5.87 | | | $ | 5.45 | | | $ | 4.22 | | | $ | 5.07 | | | $ | 5.87 | | | $ | 5.45 | |
Diluted | | $ | 5.77 | | | $ | 5.30 | | | $ | 4.14 | | | $ | 4.95 | | | $ | 5.77 | | | $ | 5.30 | |
Berry Global Group, Inc.
Consolidated Statements of Comprehensive Income
(in millions of dollars)
| | Fiscal years ended | | | Fiscal years ended | |
| | October 1, 2022 | | | October 2, 2021 | | | September 26, 2020 | | | September 30, 2023 | | | October 1, 2022 | | | October 2, 2021 | |
Net income | | $ | 766 | | | $ | 733 | | | $ | 559 | | | $ | 609 | | | $ | 766 | | | $ | 733 | |
Currency translation | | | (301 | ) | | | 124 | | | | 1 | | | | 115 | | | | (301 | ) | | | 124 | |
Pension and postretirement benefits | | | 35 | | | | 49 | | | | (60 | ) | | | (52 | ) | | | 35 | | | | 49 | |
Derivative instruments | | | 159 | | | | 82 | | | | (106 | ) | | | 4 | | | | 159 | | | | 82 | |
Other comprehensive (loss) income | | | (107 | ) | | | 255 | | | | (165 | ) | | | 67 | | | | (107 | ) | | | 255 | |
Comprehensive income | | $ | 659 | | | $ | 988 | | | $ | 394 | | | $ | 676 | | | $ | 659 | | | $ | 988 | |
See notes to consolidated financial statements.
Consolidated Balance Sheets
(in millions of dollars)
| | October 1, 2022 | | | October 2, 2021 | | | September 30, 2023 | | | October 1, 2022 | |
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,410 | | | $ | 1,091 | | | $ | 1,203 | | | $ | 1,410 | |
Accounts receivable | | | 1,777 | | | | 1,879 | | | | 1,568 | | | | 1,777 | |
Inventories | | | 1,802 | | | | 1,907 | | | | 1,557 | | | | 1,802 | |
Prepaid expenses and other current assets | | | 175 | | | | 217 | | | | 205 | | | | 175 | |
Total current assets | | | 5,164 | | | | 5,094 | | | | 4,533 | | | | 5,164 | |
Property, plant and equipment | | | 4,342 | | | | 4,677 | | | | 4,576 | | | | 4,342 | |
Goodwill and intangible assets | | | 6,685 | | | | 7,434 | | | | 6,684 | | | | 6,685 | |
Right-of-use assets | | | 521 | | | | 562 | | | | 625 | | | | 521 | |
Other assets | | | 244 | | | | 115 | | | | 169 | | | | 244 | |
Total assets | | $ | 16,956 | | | $ | 17,882 | | | $ | 16,587 | | | $ | 16,956 | |
| | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 1,795 | | | $ | 2,041 | | | $ | 1,528 | | | $ | 1,795 | |
Accrued employee costs | | | 253 | | | | 336 | | | | 273 | | | | 253 | |
Other current liabilities | | | 783 | | | | 788 | | | | 902 | | | | 783 | |
Current portion of long-term debt | | | 13 | | | | 21 | | | | 10 | | | | 13 | |
Total current liabilities | | | 2,844 | | | | 3,186 | | | | 2,713 | | | | 2,844 | |
Long-term debt | | | 9,242 | | | | 9,439 | | | | 8,970 | | | | 9,242 | |
Deferred income taxes | | | 707 | | | | 568 | | | | 573 | | | | 707 | |
Employee benefit obligations | | | 160 | | | | 276 | | | | 193 | | | | 160 | |
Operating lease liabilities | | | 429 | | | | 466 | | | | 525 | | | | 429 | |
Other long-term liabilities | | | 378 | | | | 767 | | | | 397 | | | | 378 | |
Total liabilities | | | 13,760 | | | | 14,702 | | | | 13,371 | | | | 13,760 | |
| | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | |
Common stock (124.2 and 135.5 shares issued, respectively) | | | 1 | | | | 1 | | |
Common stock (115.5 and 124.2 shares issued, respectively) | | | | 1 | | | | 1 | |
Additional paid-in capital | | | 1,177 | | | | 1,134 | | | | 1,231 | | | | 1,177 | |
Retained earnings | | | 2,421 | | | | 2,341 | | | | 2,320 | | | | 2,421 | |
Accumulated other comprehensive loss | | | (403 | ) | | | (296 | ) | | | (336 | ) | | | (403 | ) |
Total stockholders’ equity | | | 3,196 | | | | 3,180 | | | | 3,216 | | | | 3,196 | |
Total liabilities and stockholders’ equity | | $ | 16,956 | | | $ | 17,882 | | | $ | 16,587 | | | $ | 16,956 | |
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(in millions of dollars)
| | Fiscal years ended | | | Fiscal years ended | |
| | October 1, 2022 | | | October 2, 2021 | | | September 26, 2020 | | | September 30, 2023 | | | October 1, 2022 | | | October 2, 2021 | |
| | | | | | | | | | | | | | | | | | |
Cash Flows from Operating Activities: | | | | | | | | | | | | | | | | | | |
Net income | | $ | 766 | | | $ | 733 | | | $ | 559 | | | $ | 609 | | | $ | 766 | | | $ | 733 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments to reconcile net cash from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation | | | 562 | | | | 566 | | | | 545 | | | | 575 | | | | 562 | | | | 566 | |
Amortization of intangibles | | | 257 | | | | 288 | | | | 300 | | | | 243 | | | | 257 | | | | 288 | |
Non-cash interest expense | | | 6 | | | | 32 | | | | 27 | | | | (61 | ) | | | 6 | | | | 32 | |
Share-based compensation expense | | | 39 | | | | 40 | | | | 33 | | | | 42 | | | | 39 | | | | 40 | |
Deferred income tax | | | (48 | ) | | | (73 | ) | | | (96 | ) | | | (117 | ) | | | (48 | ) | | | (73 | ) |
Other non-cash operating activities, net | | | (22 | ) | | | 49 | | | | 42 | | | | 22 | | | | (22 | ) | | | 49 | |
Settlement of derivatives | | | 201 | | | | — | | | | 11 | | | | 36 | | | | 201 | | | | — | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivable | | | (86 | ) | | | (331 | ) | | | 49 | | | | 294 | | | | (86 | ) | | | (331 | ) |
Inventories | | | (3 | ) | | | (639 | ) | | | 48 | | | | 343 | | | | (3 | ) | | | (639 | ) |
Prepaid expenses and other assets | | | 11 | | | | (30 | ) | | | (12 | ) | | | 1 | | | | 11 | | | | (30 | ) |
Accounts payable and other liabilities | | | (120 | ) | | | 945 | | | | 24 | | | | (372 | ) | | | (120 | ) | | | 945 | |
Net cash from operating activities | | | 1,563 | | | | 1,580 | | | | 1,530 | | | | 1,615 | | | | 1,563 | | | | 1,580 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment, net | | | (687 | ) | | | (676 | ) | | | (583 | ) | | | (689 | ) | | | (687 | ) | | | (676 | ) |
Acquisition of businesses | | | | (87 | ) | | | — | | | | — | |
Divestiture of businesses | | | 128 | | | | 165 | | | | — | | | | — | | | | 128 | | | | 165 | |
Acquisition of business and purchase price derivatives | | | — | | | | — | | | | (14 | ) | |
Settlement of net investment hedges | | | 76 | | | | — | | | | 281 | | | | — | | | | 76 | | | | — | |
Net cash from investing activities | | | (483 | ) | | | (511 | ) | | | (316 | ) | | | (776 | ) | | | (483 | ) | | | (511 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | — | | | | 2,716 | | | | 1,202 | | | | 496 | | | | — | | | | 2,716 | |
Repayment of long-term borrowings | | | (22 | ) | | | (3,496 | ) | | | (2,436 | ) | | | (869 | ) | | | (22 | ) | | | (3,496 | ) |
Proceeds from issuance of common stock | | | 27 | | | | 60 | | | | 30 | | | | 36 | | | | 27 | | | | 60 | |
Repurchase of common stock | | | (709 | ) | | | — | | | | — | | | | (601 | ) | | | (709 | ) | | | — | |
Dividends paid | | | | (127 | ) | | | — | | | | — | |
Debt financing costs | | | — | | | | (21 | ) | | | (16 | ) | | | (6 | ) | | | — | | | | (21 | ) |
Net cash from financing activities | | | (704 | ) | | | (741 | ) | | | (1,220 | ) | | | (1,071 | ) | | | (704 | ) | | | (741 | ) |
Effect of currency translation on cash | | | (57 | ) | | | 13 | | | | 6 | | | | 25 | | | | (57 | ) | | | 13 | |
Net change in cash and cash equivalents | | | 319 | | | | 341 | | | | — | | | | (207 | ) | | | 319 | | | | 341 | |
Cash and cash equivalents at beginning of period | | | 1,091 | | | | 750 | | | | 750 | | | | 1,410 | | | | 1,091 | | | | 750 | |
Cash and cash equivalents at end of period | | $ | 1,410 | | | $ | 1,091 | | | $ | 750 | | | $ | 1,203 | | | $ | 1,410 | | | $ | 1,091 | |
See notes to consolidated financial statements.
Consolidated Statements of Changes in Stockholders’ Equity
(in millions of dollars)
| | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | | | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | |
Balance at September 28, 2019 | | $ | 1 | | | $ | 949 | | | $ | (386 | ) | | $ | 1,054 | | | $ | 1,618 | | |
Net income | | | — | | | | — | | | | — | | | | 559 | | | | 559 | | |
Other comprehensive loss | | | — | | | | — | | | | (165 | ) | | | — | | | | (165 | ) | |
Share-based compensation | | | — | | | | 33 | | | | — | | | | — | | | | 33 | | |
Proceeds from issuance of common stock | | | — | | | | 30 | | | | — | | | | — | | | | 30 | | |
Acquisition(a) | | | — | | | | 22 | | | | — | | | | — | | | | 22 | | |
Adoption of ASC 842 | | | — | | | | — | | | | — | | | | (5 | ) | | | (5 | ) | |
Balance at September 26, 2020 | | $ | 1 | | | $ | 1,034 | | | $ | (551 | ) | | $ | 1,608 | | | $ | 2,092 | | | $ | 1 | | | $ | 1,034 | | | $ | (551 | ) | | $ | 1,608 | | | $ | 2,092 | |
Net income | | | — | | | | — | | | | — | | | | 733 | | | | 733 | | | | — | | | | — | | | | — | | | | 733 | | | | 733 | |
Other comprehensive income | | | — | | | | — | | | | 255 | | | | — | | | | 255 | | | | — | | | | — | | | | 255 | | | | — | | | | 255 | |
Share-based compensation | | | — | | | | 40 | | | | — | | | | — | | | | 40 | | | | — | | | | 40 | | | | — | | | | — | | | | 40 | |
Proceeds from issuance of common stock | | | — | | | | 60 | | | | — | | | | — | | | | 60 | | | | — | | | | 60 | | | | — | | | | — | | | | 60 | |
Balance at October 2, 2021 | | $ | 1 | | | $ | 1,134 | | | $ | (296 | ) | | $ | 2,341 | | | $ | 3,180 | | | $ | 1 | | | $ | 1,134 | | | $ | (296 | ) | | $ | 2,341 | | | $ | 3,180 | |
Net income | | | — | | | | — | | | | — | | | | 766 | | | | 766 | | | | — | | | | — | | | | — | | | | 766 | | | | 766 | |
Other comprehensive loss | | | — | | | | — | | | | (107 | ) | | | — | | | | (107 | ) | | | — | | | | — | | | | (107 | ) | | | — | | | | (107 | ) |
Share-based compensation | | | — | | | | 39 | | | | — | | | | — | | | | 39 | | | | — | | | | 39 | | | | — | | | | — | | | | 39 | |
Proceeds from issuance of common stock | | | — | | | | 27 | | | | — | | | | — | | | | 27 | | | | — | | | | 27 | | | | — | | | | — | | | | 27 | |
Common stock repurchased and retired | | | — | | | | (23 | ) | | | — | | | | (686 | ) | | | (709 | ) | | | — | | | | (23 | ) | | | — | | | | (686 | ) | | | (709 | ) |
Balance at October 1, 2022 | | $ | 1 | | | $ | 1,177 | | | $ | (403 | ) | | $ | 2,421 | | | $ | 3,196 | | | $ | 1 | | | $ | 1,177 | | | $ | (403 | ) | | $ | 2,421 | | | $ | 3,196 | |
Net income | | | | — | | | | — | | | | — | | | | 609 | | | | 609 | |
Other comprehensive income | | | | — | | | | — | | | | 67 | | | | — | | | | 67 | |
Share-based compensation | | | | — | | | | 42 | | | | — | | | | — | | | | 42 | |
Proceeds from issuance of common stock | | | | — | | | | 36 | | | | — | | | | — | | | | 36 | |
Common stock repurchased, retired and other | | | | — | | | | (24 | ) | | | — | | | | (583 | ) | | | (607 | ) |
Dividends paid | | | | — | | | | — | | | | — | | | | (127 | ) | | | (127 | ) |
Balance at September 30, 2023 | | | $ | 1 | | | $ | 1,231 | | | $ | (336 | ) | | $ | 2,320 | | | $ | 3,216 | |
(a) | Represents noncontrolling interest |
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
(in millions of dollars, except as otherwise noted)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Berry Global Group, Inc.’s (“Berry,” “we,” or the “Company”) consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commissions. Periods presented in these financial statements include fiscal periods ending September 30, 2023 (“fiscal 2023”), October 1, 2022 (“fiscal 2022”), and October 2, 2021 (“fiscal 2021”), and September 26, 2020 (“fiscal 2020”). The Company’s U.S. based results for fiscal 20222023 and fiscal 20202022 are based on a fifty-two week period. Fiscal 2021 was based on a fifty-three week period. The Company has evaluated subsequent events through the date the financial statements were issued.
The consolidated financial statements include the accounts of Berry and its subsidiaries, all of which includes our wholly owned and majority owned subsidiaries. The Company has certain foreign subsidiaries that report on a calendar period basis which we consolidate into our respective fiscal period. Intercompany accounts and transactions have been eliminated in consolidation.
During fiscal 2023, the Company announced that it has initiated a formal process to evaluate strategic alternatives for its Health, Hygiene and Specialties segment and has determined the segment does not meet the criteria of Held for Sale as of year end.
Revenue Recognition and Accounts Receivable
Our revenues are primarily derived from the sale of non-woven, flexible and rigid products to customers.products. Revenue is recognized when performance obligations are satisfied, in an amount reflecting the consideration to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main sources of variable consideration are customer rebates. 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 $106 million and $103 million at September 30, 2023 and $104 million at October 1, 2022, and October 2, 2021, 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. See Note 10. Segment and Geographic Data.
Accounts receivable are presented net of allowance for credit losses of $19 million and $18 million at September 30, 2023 and $21 million at October 1, 2022, and October 2, 2021, 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, includingprimarily 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 trade receivables, net 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 transfer of receivables for all programs were not material for any of the periods presented.
Research and Development
Research and development costs are expensed when incurred. The Company incurred research and development expenditures of $82 million, $81 million, $90 million, and $79$90 million in fiscal 2023, 2022, 2021, and 2020,2021, respectively.
Share-Based Compensation
The Company recognized total share-based compensation expense of $42 million, $39 million, $40 million, and $33$40 million for fiscal 2023, 2022, 2021, and 2020,2021, respectively. The share-based compensation plan is more fully described in Note 9. Stockholders’ Equity.
Foreign Currency
For the non-U.S. subsidiaries that account in a functional currency other than U.S. dollars, assets and liabilities are translated into U.S. dollars using period-end exchange rates. Sales and expenses are translated at the average exchange rates in effect during the period. Foreign currency translation gains and losses are included as a component of Accumulated other comprehensive loss within Stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Income.
Cash and Cash Equivalents
All highly liquid investments purchased with a maturity of three months or less from the time of purchase are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or net realizable value and are valued using the first-in, first-out method. Management periodically reviews inventory balances, using recent and future expected sales to identify slow-moving and/or obsolete items. The cost of spare parts is charged to cost of goods sold when purchased. We evaluate our reserve for inventory obsolescence on a quarterly basis and review inventory on-hand to determine future salability. We base our determinations on the age of the inventory and the experience of our personnel. We reserve inventory that we deem to be not salable in the quarter in which we make the determination. We believe, based on past history and our policies and procedures, that our net inventory is salable. Inventory as of fiscal 20222023 and 20212022 was:
Inventories: | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Finished goods | | $ | 1,010 | | | $ | 960 | | | $ | 933 | | | $ | 1,010 | |
Raw materials | | | 792 | | | | 947 | | | | 624 | | | | 792 | |
| | $ | 1,802 | | | $ | 1,907 | | | $ | 1,557 | | | $ | 1,802 | |
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets ranging from 15 to 40 years for buildings and improvements, 2 to 20 years for machinery, equipment, and tooling, and over the term of the agreement for capital leases. Leasehold improvements are depreciated over the shorter of the useful life of the improvement or the lease term. Repairs and maintenance costs are charged to expense as incurred. Property, plant and equipment as of fiscal 20222023 and 20212022 was:
Property, plant and equipment: | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Land, buildings and improvements | | $ | 1,602 | | | $ | 1,699 | | | $ | 1,693 | | | $ | 1,602 | |
Equipment and construction in progress | | | 6,916 | | | | 6,800 | | | | 7,570 | | | | 6,916 | |
| | | 8,518 | | | | 8,499 | | | | 9,263 | | | | 8,518 | |
Less accumulated depreciation | | | (4,176 | ) | | | (3,822 | ) | | | (4,687 | ) | | | (4,176 | ) |
| | $ | 4,342 | | | $ | 4,677 | | | $ | 4,576 | | | $ | 4,342 | |
Long-lived Assets
Long-lived assets, including property, plant and equipment and definite lived intangible assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment,” whenever facts and circumstances indicate that the carrying amount may not be recoverable. Specifically, this process involves comparing an asset’s carrying value to the estimated undiscounted future cash flows the asset is expected to generate over its remaining life. If this process were to result in the conclusion that the carrying value of a long-lived asset would not be recoverable, a write-down of the asset to fair value would be recorded through a charge to operations.
Goodwill
The changes in the carrying amount of goodwill by reportable segment are as follows:
| | Consumer Packaging International | | | Consumer Packaging North America | | | Engineered Materials | | | Health, Hygiene & Specialties | | | Total | | | Consumer Packaging International | | | Consumer Packaging North America | | | Engineered Materials | | | Health, Hygiene & Specialties | | | Total | |
Balance as of fiscal 2020 | | $ | 1,999 | | | $ | 1,540 | | | $ | 700 | | | $ | 934 | | | $ | 5,173 | | |
Foreign currency translation adjustment | | | 36 | | | | 1 | | | | (1 | ) | | | 2 | | | | 38 | | |
Dispositions | | | (19 | ) | | | — | | | | — | | | | — | | | | (19 | ) | |
Balance as of fiscal 2021 | | $ | 2,016 | | | $ | 1,541 | | | $ | 699 | | | $ | 936 | | | $ | 5,192 | | | $ | 2,016 | | | $ | 1,541 | | | $ | 699 | | | $ | 936 | | | $ | 5,192 | |
Foreign currency translation adjustment | | | (250 | ) | | | (1 | ) | | | (37 | ) | | | (18 | ) | | | (306 | ) | | | (250 | ) | | | (1 | ) | | | (37 | ) | | | (18 | ) | | | (306 | ) |
Dispositions | | | (54 | ) | | | — | | | | — | | | | — | | | | (54 | ) | | | (54 | ) | | | — | | | | — | | | | — | | | | (54 | ) |
Balance as of fiscal 2022 | | $ | 1,712 | | | $ | 1,540 | | | $ | 662 | | | $ | 918 | | | $ | 4,832 | | | $ | 1,712 | | | $ | 1,540 | | | $ | 662 | | | $ | 918 | | | $ | 4,832 | |
Foreign currency translation adjustment | | | | 81 | | | | 1 | | | | 17 | | | | 12 | | | | 111 | |
Pro-Western acquisition (See Note 2.) | | | | — | | | | 38 | | | | — | | | | — | | | | 38 | |
Balance as of fiscal 2023 | | | $ | 1,793 | | | $ | 1,579 | | | $ | 679 | | | $ | 930 | | | $ | 4,981 | |
In fiscal year 2022,2023, the Company completed a qualitative analysis to evaluate impairment of goodwill and concluded that it was more likely than not that the fair value for each reporting unit exceeded the carrying amount. We reached this conclusion based on the strongstable valuations within the packaging industry and operating results of our reporting units, in addition to leveragingvalue indications provided from third parties related to the quantitative test performed in fiscal 2020.Company's evaluation of strategic alternatives for the Health, Hygiene & Specialties segment. As a result of our annual impairment evaluations the Company concluded that no impairment existed in fiscal 2022.2023.
Deferred Financing Fees
Deferred financing fees are amortized to interest expense using the effective interest method over the lives of the respective debt agreements. Pursuant to ASC 835-30, the Company presents $60$34 million and $77$60 million as of fiscal 20222023 and fiscal 2021,2022, respectively, of debt issuance and deferred financing costs on the balance sheet as a deduction from the carrying amount of the related debt liability, instead of a deferred charge.
Intangible Assets
The changes in the carrying amount of intangible assets are as follows:
| | Customer Relationships | | | Trademarks | | | Other Intangibles | | | Accumulated Amortization | | | Total | | | Customer Relationships | | | Trademarks | | | Other Intangibles | | | Accumulated Amortization | | | Total | |
Balance as of fiscal 2020 | | $ | 3,323 | | | $ | 522 | | | $ | 129 | | | $ | (1,477 | ) | | $ | 2,497 | | |
Foreign currency translation adjustment | | | 32 | | | | 4 | | | | (1 | ) | | | (2 | ) | | | 33 | | |
Amortization expense | | | — | | | | — | | | | — | | | | (288 | ) | | | (288 | ) | |
Netting of fully amortized intangibles | | | (26 | ) | | | (1 | ) | | | (6 | ) | | | 33 | | | | — | | |
Balance as of fiscal 2021 | | $ | 3,329 | | | $ | 525 | | | $ | 122 | | | $ | (1,734 | ) | | $ | 2,242 | | | $ | 3,329 | | | $ | 525 | | | $ | 122 | | | $ | (1,734 | ) | | $ | 2,242 | |
Foreign currency translation adjustment | | | (172 | ) | | | (31 | ) | | | (1 | ) | | | 66 | | | | (138 | ) | | | (172 | ) | | | (31 | ) | | | (1 | ) | | | 66 | | | | (138 | ) |
Amortization expense | | | — | | | | — | | | | — | | | | (257 | ) | | | (257 | ) | | | — | | | | — | | | | — | | | | (257 | ) | | | (257 | ) |
Additions | | | — | | | | — | | | | 6 | | | | — | | | | 6 | | | | — | | | | — | | | | 6 | | | | — | | | | 6 | |
Balance as of fiscal 2022 | | $ | 3,157 | | | $ | 494 | | | $ | 127 | | | $ | (1,925 | ) | | $ | 1,853 | | | $ | 3,157 | | | $ | 494 | | | $ | 127 | | | $ | (1,925 | ) | | $ | 1,853 | |
Foreign currency translation adjustment | | | | 69 | | | | 12 | | | | 1 | | | | (27 | ) | | | 55 | |
Amortization expense | | | | — | | | | — | | | | — | | | | (243 | ) | | | (243 | ) |
Pro-Western acquisition (See Note 2.) | | | | 35 | | | | 3 | | | | — | | | | — | | | | 38 | |
Balance as of fiscal 2023 | | | $ | 3,261 | | | $ | 509 | | | $ | 128 | | | $ | (2,195 | ) | | $ | 1,703 | |
Customer relationships are being amortized using an accelerated amortization method which corresponds with the customer attrition rates used in the initial valuation of the intangibles over the estimated life of the relationships which range from 5 to 17 years. Definite lived trademarks are being amortized using the straight-line method over the estimated life of the assets which are not more than 15 years. Other intangibles, which include technology and licenses, are being amortized using the straight-line method over the estimated life of the assets which range from 5 to 14 years. The Company has trademarks that total $247$248 million that are indefinite lived and we test annually for impairment on the first day of the fourth quarter. We completed the annual impairment test of our indefinite lived trade names utilizing the qualitative method in 2023, 2022, and 2021 and the relief from royalty method in fiscal 2020 and noted no impairment.
Future amortization expense for definite lived intangibles as of fiscal 20222023 for the next five fiscal years is $232 million, $220$219 million, $207$204 million, $194$171 million, and $161$147 million each year for fiscal years ending 2023, 2024, 2025, 2026, 2027, and 2027,2028, respectively.
Insurable Liabilities
The Company records liabilities for the self-insured portion of workers’ compensation, health, product, general and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated based upon historical claims experience.
Leases
The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles. We recognize right-of-use assets and lease liabilities for leases with original lease terms greater than one year based on the present value of lease payments over the lease term using our incremental borrowing rate on a collateralized basis. Short-term leases, with original lease terms of less than one year, are not recognized on the balance sheet. We are party to certain leases, namely for manufacturing facilities, which offer renewal options to extend the original lease term. Renewal options are included in the right-of-use asset and lease liability based on our assessment of the probability that the options will be exercised. See Note 5. Commitments, Leases and Contingencies.
At October 1, 2022,September 30, 2023, annual lease commitments were as follows:
Fiscal Year | | Operating Leases | | | Finance Leases | | | Operating Leases | | | Finance Leases | |
2023 | | $ | 111 | | | $ | 11 | | |
2024 | | | 96 | | | | 9 | | | $ | 117 | | | $ | 10 | |
2025 | | | 85 | | | | 6 | | | | 106 | | | | 7 | |
2026 | | | 75 | | | | 8 | | | | 95 | | | | 9 | |
2027 | | | 65 | | | | 1 | | | | 83 | | | | 1 | |
2028 | | | | 70 | | | | 1 | |
Thereafter | | | 205 | | | | 3 | | | | 311 | | | | 3 | |
Total lease payments | | | 637 | | | | 38 | | | | 782 | | | | 31 | |
Less: Interest | | | (100 | ) | | | (5 | ) | | | (141 | ) | | | (3 | ) |
Present value of lease liabilities | | $ | 537 | | | $ | 33 | | | $ | 641 | | | $ | 28 | |
Income Taxes
The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the period in which the underlying transactions are recorded. Deferred taxes, with the exception of non-deductible goodwill, are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and such amounts as measured by tax laws. If the Company determines that a deferred tax asset arising from temporary differences is not likely to be utilized, the Company will establish a valuation allowance against that asset to record it at its expected realizable value. The Company recognizes uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company’s effective tax rate is dependent on many factors including: the impact of enacted tax laws in jurisdictions in which the Company operates; the amount of earnings by jurisdiction, due to varying tax rates in each country; and the Company’s ability to utilize foreign tax credits related to foreign taxes paid on foreign earnings that will be remitted to the U.S.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes net unrealized gains or losses resulting from currency translations of foreign subsidiaries, changes in the value of our derivative instruments and adjustments to the pension liability.
The accumulated balances related to each component of other comprehensive income (loss), net of tax before reclassifications were as follows:
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | | | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance as of fiscal 2019 | | $ | (279 | ) | | $ | (56 | ) | | $ | (51 | ) | | $ | (386 | ) | |
Other comprehensive income (loss) | | | 1 | | | | 3 | | | | (137 | ) | | | (133 | ) | |
Net amount reclassified from accumulated other comprehensive income (loss) | | | — | | | | (63 | ) | | | 31 | | | | (32 | ) | |
Balance as of fiscal 2020 | | $ | (278 | ) | | $ | (116 | ) | | $ | (157 | ) | | $ | (551 | ) | | $ | (278 | ) | | $ | (116 | ) | | $ | (157 | ) | | $ | (551 | ) |
Other comprehensive income (loss) | | | 124 | | | | (5 | ) | | | 70 | | | | 189 | | | | 124 | | | | (5 | ) | | | 70 | | | | 189 | |
Net amount reclassified from accumulated other comprehensive income (loss) | | | — | | | | 54 | | | | 12 | | | | 66 | | | | — | | | | 54 | | | | 12 | | | | 66 | |
Balance as of fiscal 2021 | | $ | (154 | ) | | $ | (67 | ) | | $ | (75 | ) | | $ | (296 | ) | | $ | (154 | ) | | $ | (67 | ) | | $ | (75 | ) | | $ | (296 | ) |
Other comprehensive income (loss) | | | (301 | ) | | | 32 | | | | 158 | | | | (111 | ) | | | (301 | ) | | | 32 | | | | 158 | | | | (111 | ) |
Net amount reclassified from accumulated other comprehensive income (loss) | | | — | | | | 3 | | | | 1 | | | | 4 | | | | — | | | | 3 | | | | 1 | | | | 4 | |
Balance as of fiscal 2022 | | $ | (455 | ) | | $ | (32 | ) | | $ | 84 | | | $ | (403 | ) | | $ | (455 | ) | | $ | (32 | ) | | $ | 84 | | | $ | (403 | ) |
Other comprehensive income (loss) | | | | 115 | | | | (53 | ) | | | 39 | | | | 101 | |
Net amount reclassified from accumulated other comprehensive income (loss) | | | | — | | | | 1 | | | | (35 | ) | | | (34 | ) |
Balance as of fiscal 2023 | | | $ | (340 | ) | | $ | (84 | ) | | $ | 88 | | | $ | (336 | ) |
Pension
The accounting for our pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet. The selection of assumptions is based on historical trends and known economic and market conditions at the time of valuation, as well as independent studies of trends performed by our actuaries. Pension benefit costs include assumptions for the discount rate, mortality rate, retirement age, and expected return on plan assets. Retiree medical plan costs include assumptions for the discount rate, retirement age, and health-care-cost trend rates. We review annually the discount rate used to calculate the present value of pension plan liabilities. The discount rate used at each measurement date is set based on a high-quality corporate bond yield curve, derived based on bond universe information sourced from reputable third-party indices, data providers, and rating agencies. In countries where there is no deep market in corporate bonds, we have used a government bond approach to set the discount rate. In evaluating other assumptions, the Company considers many factors, including an evaluation of expected return on plan assets and the health-care-cost trend rates of other companies; historical assumptions compared with actual results; an analysis of current market conditions and asset allocations; and the views of advisers.
Net Income Per Share
The Company calculates basic net income per share based on the weighted-average number of outstanding common shares. The Company calculates diluted net income per share based on the weighted-average number of outstanding common shares plus the effect of dilutive securities.
Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make extensive use of estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of sales and expenses. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the event or circumstances giving rise to such changes occur.
Recently Issued Accounting Pronouncements
Reference Rate Reform
In 2020,During fiscal 2023, the FASB issuedCompany adopted ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This standard provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. ASU 2020-04 is effective upon issuance and generally can be applied through the end of calendar year 2022. The Company plans to adopt this standardCompany's adoption did not result in fiscal 2023. We do not expect a material change to our consolidated financial statements or disclosures.
2. DispositionsAcquisition
Pro-Western Plastics
During fiscal 2022,2023, the Company completed the saleacquired Pro-Western Plastics Ltd. (“Pro-Western”), a leading plastics injection molding company, for a purchase price of its rotational molding$87 million. The acquired business which wasis operated inwithin the Consumer Packaging International segmentNorth America segment. To finance the purchase, the Company used existing liquidity. The acquisition has been accounted for net proceedsunder the purchase method of $111 million. A pretax gainaccounting and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on preliminary estimates of $8 million was recordedfair value at the acquisition date. The results of Pro-Western have been included in fiscal 2022 within Restructuringthe consolidated results of the Company since the date of acquisition. The Company has recognized goodwill on this transaction primarily as a result of expected cost synergies and transaction activities on the Consolidated Statements of Income. In fiscal 2021, the rotational molding business recorded net sales of $146 million.expects goodwill to be deductible for tax purposes.
3. Long-Term Debt
Long-term debt consists of the following:
Facility | Maturity Date | | 2022 | | | 2021 | | Maturity Date | | 2023 | | | 2022 | |
Term loan(a) | July 2026 | | $ | 3,440 | | | $ | 3,440 | | July 2026 (d) | | $ | 3,090 | | | $ | 3,440 | |
Revolving line of credit | May 2024 | | | — | | | | — | | June 2028 | | | — | | | | — | |
0.95% First Priority Senior Secured Notes(b) | February 2024 | | | 800 | | | | 800 | | February 2024 | | | 279 | | | | 800 | |
1.00% First Priority Senior Secured Notes(a)(c) | July 2025 | | | 686 | | | | 810 | | July 2025 | | | 741 | | | | 686 | |
1.57% First Priority Senior Secured Notes | January 2026 | | | 1,525 | | | | 1,525 | | January 2026 | | | 1,525 | | | | 1,525 | |
4.875% First Priority Senior Secured Notes | July 2026 | | | 1,250 | | | | 1,250 | | July 2026 | | | 1,250 | | | | 1,250 | |
1.65% First Priority Senior Secured Notes | January 2027 | | | 400 | | | | 400 | | January 2027 | | | 400 | | | | 400 | |
1.50% First Priority Senior Secured Notes(a)(c) | July 2027 | | | 367 | | | | 434 | | July 2027 | | | 397 | | | | 367 | |
5.50% First Priority Senior Secured Notes | | April 2028 | | | 500 | | | | — | |
4.50% Second Priority Senior Secured Notes | February 2026 | | | 298 | | | | 300 | | February 2026 | | | 291 | | | | 298 | |
5.625% Second Priority Senior Secured Notes | July 2027 | | | 500 | | | | 500 | | July 2027 | | | 500 | | | | 500 | |
Debt discounts and deferred fees | | | | (60 | ) | | | (77 | ) | | | | (34 | ) | | | (60 | ) |
Finance leases and other | Various | | | 49 | | | | 78 | | Various | | | 41 | | | | 49 | |
Total long-term debt | | | | 9,255 | | | | 9,460 | | | | | 8,980 | | | | 9,255 | |
Current portion of long-term debt | | | | (13 | ) | | | (21 | ) | | | | (10 | ) | | | (13 | ) |
Long-term debt, less current portion | | | $ | 9,242 | | | $ | 9,439 | | | | $ | 8,970 | | | $ | 9,242 | |
(a) | Effectively 88% fixed interest rate with interest rate swaps (see Note 4). |
(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. |
(d) | In October 2023, the Company extended the maturity date of $1,550 million of the Term Loans to 2029. |
During fiscal 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 on the Consolidated Statements of Income through maturity.
Berry Global, Inc. Senior Secured Credit Facility
Our wholly owned subsidiary Berry Global, Inc.’s senior secured credit facilities consist of $3.4$3.1 billion of term loans and a $1,050 million$1.0 billion asset-based revolving line of credit. The availability under the revolving line of credit is the lesser of $1,050 million$1.0 billion or based on a defined borrowing base which is calculated based on available accounts receivable and inventory. At the end of fiscal 2023, the Company had unused borrowing capacity of $760 million under the revolving line of credit.
The term loan facility is payable upon maturity. The Company may voluntarily repay outstanding loans under the senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to eurodollar loans. All obligations under the senior secured credit facilities are unconditionally guaranteed by the Company and, subject to certain exceptions, each of the Company’s existing and future direct and indirect domestic subsidiaries. The guarantees of those obligations are secured by substantially all of the Company’s assets as well as those of each domestic subsidiary guarantor.
Despite not having financial maintenance covenants, our debt agreements contain certain negative covenants. We are in compliance with all covenants as of October 1, 2022.September 30, 2023. The failure to comply with these negative covenants could restrict our ability to incur additional indebtedness, effect acquisitions, enter into certain significant business combinations, make distributions or redeem indebtedness.
Future maturities of long-term debt as of fiscal year end 20222023 are as follows:
Fiscal Year | | Maturities | | Maturities |
2023 | | $ | 13 | |
2024 | | | 810 | | $ | 289 |
2025 | | | 692 | | | 749 |
2026 | | | 6,523 | | | 6,167 |
2027 | | | 1,269 | | | 1,299 |
2028 | | | | 503 |
Thereafter | | | 8 | | | 7 |
| | $ | 9,315 | | $ | 9,014 |
Interest Net cash interestpaid was $289377 million, $318$281 million, and $430$311 million in fiscal 2023, 2022, 2021, and 2020,2021, respectively.
4. 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 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, 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. Changes in the fair value of a derivative not designated as a hedge, are recorded to the Consolidated Statements of Income.
Cross-Currency Swaps
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The Company settled its €250 million swap agreement which matured May 2022 for proceeds of $6 million. During fiscal 2022, the Company entered into additional transactions to cash settle existing cross-currency swaps and received proceeds of $70 million. The swap settlement impact has been included as a component of Currency translation within Accumulated other comprehensive loss. Following the settlement of the existing cross-currency swaps, we entered into new cross-currency swaps with matching notional amounts and maturity dates of the original swaps.
As of October 1, 2022, 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 October 1, 2022September 30, 2023, we had outstanding long-term debt of €785379 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 fluctuations associated with our outstanding variable rate term loan debt. When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).
During fiscal 2022,2023, the Company elected to cash settle existing interest rate swaps and received net proceeds of $201$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, of the interest rate swaps, weCompany entered into interest rate swaps with matching notional amounts and maturity dateswith expiration in June 2026.
As of October 1, 2022,September 30, 2023, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBORSOFR contract for a fixed annual rate of 4.128%4.043%, with an expiration date in June 2026, (ii) a $400 million interest rate swap transaction that swaps a one-month variable LIBORSOFR contract for a fixed annual rate of 4.117% with an expiration date in June 2026,4.451%, (iii) an $884 million interest rate swap transaction that swaps a one-month variable LIBORSOFR contract for a fixed annual rate of 3.573%4.451%, with an expiration in June 2024, and (iv) a $473 million interest rate swap transaction that swaps a one-month variable LIBORSOFR contract for a fixed annual rate of 4.370%3.869%, with an expirationand (v) a $500 million interest rate swap transaction that swaps a one-month variable SOFR contract for a fixed annual rate of 3.602%%. The Company's interest rate swap transactions all expire in June 2024.2026. See Note 12. Subsequent Events.
The Company records the fair value positionsBalances of allour 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 | | 2022 | | | 2021 | | Hedge Designation | Balance Sheet Location | | 2023 | | | 2022 | |
Cross-currency swaps | | Designated | Other assets | | $ | — | | | $ | 147 | |
Cross-currency swaps | Designated | Other assets | | $ | 147 | | | $ | — | | Designated | Other current liabilities | | | 66 | | | | — | |
Cross-currency swaps | Designated | Other long-term liabilities | | | — | | | | 323 | | Designated | Other long-term liabilities | | | 19 | | | | — | |
Interest rate swaps | Designated | Other assets | | | 11 | | | | — | | Designated | Other assets | | | 36 | | | | 11 | |
Interest rate swaps | Designated | Other long-term liabilities | | | 3 | | | | 82 | | Not designated | Other assets | | | 8 | | | | — | |
Interest rate swaps | Not designated | Other long-term liabilities | | | 117 | | | | 49 | | Designated | Other long-term liabilities | | | — | | | | 3 | |
Interest rate swaps | | Not designated | Other long-term liabilities | | | 104 | | | | 117 | |
The effect of the Company’s derivative instruments on the Consolidated Statements of Income is as follows:
Derivative instruments | Statements of Income Location | | 2022 | | | 2021 | | | 2020 | | Statements of Income Location | | 2023 | | | 2022 | | | 2021 | |
Cross-currency swaps | Interest expense | | $ | (21 | ) | | $ | (8 | ) | | $ | (25 | ) | Interest expense | | $ | (41 | ) | | $ | (21 | ) | | $ | (8 | ) |
Interest rate swaps | Interest expense | | | 40 | | | | 69 | | | | 32 | | Interest expense | | | (59 | ) | | | 40 | | | | 69 | |
The amortization related to unrealized losses in Accumulated other comprehensive loss is expected to be $27$36 million in the next 12 months. The Company’s financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate swap agreements, cross-currency swap agreements and capital lease obligations. The book value of our long-term indebtedness exceeded fair value by $381 million as of fiscal 2023 and by $561 million as of fiscal 2022, and fair value of our long-term indebtedness exceeded book value by $133 million as of fiscal 2021.2022. The Company’s long-term debt fair values were determined using Level 2 inputs as other significant observable inputs were not available.
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.
Included in the following tables are the major categories of assets and their current carrying values, that were measured at fair value on a non-recurring basis in the current year, along with the impairment loss recognized on the fair value measurement for the fiscal years then ended:
| | 2022 | | | 2023 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite lived trademarks | | $ | — | | | $ | — | | | $ | 247 | | | $ | 247 | | | $ | — | | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | |
Goodwill | | | — | | | | — | | | | 4,832 | | | | 4,832 | | | | — | | | | — | | | | — | | | | 4,981 | | | | 4,981 | | | | — | |
Definite lived intangible assets | | | — | | | | — | | | | 1,606 | | | | 1,606 | | | | — | | | | — | | | | — | | | | 1,455 | | | | 1,455 | | | | — | |
Property, plant and equipment | | | — | | | | — | | | | 4,342 | | | | 4,342 | | | | — | | | | — | | | | — | | | | 4,576 | | | | 4,576 | | | | 8 | |
Total | | $ | — | | | $ | — | | | $ | 11,027 | | | $ | 11,027 | | | $ | — | | | $ | — | | | $ | — | | | $ | 11,260 | | | $ | 11,260 | | | $ | 8 | |
| | 2021 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite lived trademarks | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | |
Goodwill | | | — | | | | — | | | | 5,192 | | | | 5,192 | | | | — | |
Definite lived intangible assets | | | — | | | | — | | | | 1,994 | | | | 1,994 | | | | — | |
Property, plant and equipment | | | — | | | | — | | | | 4,677 | | | | 4,677 | | | | 1 | |
Total | | $ | — | | | $ | — | | | $ | 12,111 | | | $ | 12,111 | | | $ | 1 | |
| | 2020 | | | 2022 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite lived trademarks | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | | | $ | — | | | $ | — | | | $ | 247 | | | $ | 247 | | | $ | — | |
Goodwill | | | — | | | | — | | | | 5,173 | | | | 5,173 | | | | — | | | | — | | | | — | | | | 4,832 | | | | 4,832 | | | | — | |
Definite lived intangible assets | | | — | | | | — | | | | 2,249 | | | | 2,249 | | | | — | | | | — | | | | — | | | | 1,606 | | | | 1,606 | | | | — | |
Property, plant and equipment | | | — | | | | — | | | | 4,561 | | | | 4,561 | | | | 2 | | | | — | | | | — | | | | 4,342 | | | | 4,342 | | | | — | |
Total | | $ | — | | | $ | — | | | $ | 12,231 | | | $ | 12,231 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 11,027 | | | $ | 11,027 | | | $ | — | |
5. Commitments, Leases and Contingencies
The Company has various purchase commitments for raw materials, supplies and property and equipment incidental to the ordinary conduct of business.
Collective Bargaining Agreements
At the end of fiscal 2022,2023, we employed approximately 46,00044,000 employees, and approximately 20% of those employees were covered by collective bargaining agreements. The majority of these agreements are due for renegotiation annually.
Leases
Supplemental lease information is as follows:
Leases | Classification | | 2022 | | | 2021 | | Classification | | 2023 | | | 2022 | |
Operating leases: | | | | | | | | | | | | | | |
Operating lease right-of-use assets | Right-of-use asset | | $ | 521 | | | $ | 562 | | Right-of-use asset | | $ | 625 | | | $ | 521 | |
Current operating lease liabilities | Other current liabilities | | | 108 | | | | 113 | | Other current liabilities | | | 116 | | | | 108 | |
Noncurrent operating lease liabilities | Operating lease liability | | | 429 | | | | 466 | | Operating lease liability | | | 525 | | | | 429 | |
Finance leases: | | | | | | | | | | | | | | | | | | |
Finance lease right-of-use assets | Property, plant, and equipment, net | | $ | 38 | | | $ | 57 | | Property, plant, and equipment, net | | $ | 32 | | | $ | 38 | |
Current finance lease liabilities | Current portion of long-term debt | | | 9 | | | | 14 | | Current portion of long-term debt | | | 9 | | | | 9 | |
Noncurrent finance lease liabilities | Long-term debt, less current portion | | | 24 | | | | 38 | | Long-term debt, less current portion | | | 19 | | | | 24 | |
Lease Type | Cash Flow Classification | Lease Expense Category | | 2022 | | | 2021 | | | Cash Flow Classification | | | Lease Expense Category | | | 2023 | | | 2022 | |
Operating leases | Operating cash flows | Lease cost | | $ | 132 | | | $ | 127 | | | Operating cash flows | | | Lease cost | | | $ | 141 | | | $ | 132 | |
Finance leases | Operating cash flows | Interest expense | | | 2 | | | | 2 | | | Operating cash flows | | | Interest expense | | | | 1 | | | | 2 | |
Finance leases | Financing cash flows | - | | | 19 | | | | 23 | | | Financing cash flows | | | - | | | | 5 | | | | 19 | |
Finance leases | - | Amortization of right-of-use assets | | | 9 | | | | 14 | | | - | | | Amortization of right-of-use assets | | | | 9 | | | | 9 | |
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Weighted-average remaining lease term - operating leases | | 7 years | | | 8 years | | | 9 years | | | 7 years | |
Weighted-average remaining lease term - finance leases | | 3 years | | | 4 years | | | 2 years | | | 3 years | |
Weighted-average discount rate - operating leases | | | 4.5 | % | | | 4.5 | % | | | 5.0 | % | | | 4.5 | % |
Weighted-average discount rate - finance leases | | | 4.5 | % | | | 4.1 | % | | | 4.5 | % | | | 4.5 | % |
Right-of-use assets obtained in exchange for new operating lease liabilities were $38$109 million for fiscal 2022.2023.
Litigation
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, the Company believes that any ultimate liability would not be material to its financial position, results of operations or cash flows.
6. Income Taxes
The Company is being taxed at the U.S. corporate level as a C-Corporation and has provided U.S. Federal, State and foreign income taxes. Significant components of income tax expense for the fiscal years ended are as follows:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Current | | | | | | | | | | | | | | | | | | |
U.S. | | | | | | | | | | | | | | | | | | |
Federal | | $ | 87 | | | $ | 56 | | | $ | 84 | | | $ | 118 | | | $ | 87 | | | $ | 56 | |
State | | | 20 | | | | 14 | | | | 12 | | | | 25 | | | | 20 | | | | 14 | |
Non-U.S. | | | 109 | | | | 175 | | | | 154 | | | | 107 | | | | 109 | | | | 175 | |
Total current | | | 216 | | | | 245 | | | | 250 | | | | 250 | | | | 216 | | | | 245 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | 4 | | | | 17 | | | | (29 | ) | | | (26 | ) | | | 4 | | | | 17 | |
State | | | (7 | ) | | | (6 | ) | | | (13 | ) | | | (26 | ) | | | (7 | ) | | | (6 | ) |
Non-U.S. | | | (45 | ) | | | (84 | ) | | | (54 | ) | | | (65 | ) | | | (45 | ) | | | (84 | ) |
Total deferred | | | (48 | ) | | | (73 | ) | | | (96 | ) | | | (117 | ) | | | (48 | ) | | | (73 | ) |
Expense for income taxes | | $ | 168 | | | $ | 172 | | | $ | 154 | | | $ | 133 | | | $ | 168 | | | $ | 172 | |
U.S. income from continuing operations before income taxes was $375 million, $449 million, $276 million, and $206$276 million for fiscal 2023, 2022, 2021, and 2020,2021, respectively. Non-U.S. income from continuing operations before income taxes was $367 million, $485 million, $629 million, and $507$629 million for fiscal 2023, 2022, 2021, and 2020,2021, respectively. The Company paid cash taxes of $240 million, $186 million, $200 million, and $243$200 million in fiscal 2023, 2022, 2021, and 2020,2021, respectively.
The reconciliation between U.S. Federal income taxes at the statutory rate and the Company’s benefit for income taxes on continuing operations for fiscal years ended are as follows:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
U.S. Federal income tax expense at the statutory rate | | $ | 196 | | | $ | 190 | | | $ | 150 | | | $ | 156 | | | $ | 196 | | | $ | 190 | |
Adjustments to reconcile to the income tax provision: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. state income tax expense | | | 20 | | | | 11 | | | | 6 | | | | 5 | | | | 20 | | | | 11 | |
Federal and state credits | | | (15 | ) | | | (10 | ) | | | (14 | ) | | | (18 | ) | | | (15 | ) | | | (10 | ) |
Share-based compensation | | | (3 | ) | | | (8 | ) | | | (4 | ) | | | — | | | | (3 | ) | | | (8 | ) |
Tax law changes | | | (17 | ) | | | 11 | | | | — | | | | — | | | | (17 | ) | | | 11 | |
Withholding taxes | | | 6 | | | | 13 | | | | 15 | | | | 10 | | | | 6 | | | | 13 | |
Changes in foreign valuation allowance | | | (5 | ) | | | (14 | ) | | | (8 | ) | | | 7 | | | | (5 | ) | | | (14 | ) |
Foreign income taxed in the U.S. | | | 8 | | | | 12 | | | | 9 | | | | 17 | | | | 8 | | | | 12 | |
Rate differences between U.S. and foreign | | | (8 | ) | | | (8 | ) | | | (6 | ) | | | (22 | ) | | | (8 | ) | | | (8 | ) |
Sale of subsidiary | | | — | | | | 16 | | | | — | | | | — | | | | — | | | | 16 | |
Permanent foreign currency differences | | | — | | | | (30 | ) | | | — | | | | — | | | | — | | | | (30 | ) |
Uncertain tax positions, net | | | | (20 | ) | | | (19 | ) | | | (5 | ) |
Other | | | (14 | ) | | | (11 | ) | | | 6 | | | | (2 | ) | | | 5 | | | | (6 | ) |
Expense for income taxes | | $ | 168 | | | $ | 172 | | | $ | 154 | | | $ | 133 | | | $ | 168 | | | $ | 172 | |
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability as of fiscal years ended are as follows:
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Deferred tax assets: | | | | | | | | | | | | |
Accrued liabilities and reserves | | $ | 75 | | | $ | 101 | | | $ | 72 | | | $ | 75 | |
Inventories | | | 11 | | | | 13 | | | | 13 | | | | 11 | |
Net operating loss carryforward | | | 235 | | | | 273 | | | | 274 | | | | 235 | |
Interest expense carryforward | | | 107 | | | | 58 | | | | 121 | | | | 107 | |
Derivatives | | | — | | | | 105 | | |
Lease liability | | | 134 | | | | 144 | | | | 159 | | | | 134 | |
Research and development credit carryforward | | | 13 | | | | 13 | | | | 13 | | | | 13 | |
Federal and state tax credits | | | 9 | | | | 13 | | | | 11 | | | | 9 | |
Capitalization research and development expenditures | | | | 39 | | | | — | |
Other | | | 48 | | | | 49 | | | | 38 | | | | 48 | |
Total deferred tax assets | | | 632 | | | | 769 | | | | 740 | | | | 632 | |
Valuation allowance | | | (104 | ) | | | (126 | ) | | | (114 | ) | | | (104 | ) |
Total deferred tax assets, net of valuation allowance | | | 528 | | | | 643 | | | | 626 | | | | 528 | |
Deferred tax liabilities: | | | | | | | | | | | | | | | | |
Property, plant and equipment | | | 450 | | | | 430 | | | | 471 | | | | 450 | |
Intangible assets | | | 471 | | | | 563 | | | | 437 | | | | 471 | |
Derivatives | | | 94 | | | | — | | | | 22 | | | | 94 | |
Leased asset | | | 131 | | | | 139 | | | | 155 | | | | 131 | |
Other | | | 24 | | | | 13 | | | | 22 | | | | 24 | |
Total deferred tax liabilities | | | 1,170 | | | | 1,145 | | | | 1,107 | | | | 1,170 | |
Net deferred tax liability | | $ | (642 | ) | | $ | (502 | ) | | $ | (481 | ) | | $ | (642 | ) |
The Company had $65$92 million of net deferred tax assets recorded in Other assets, and $707$573 million of net deferred tax liabilities recorded in Deferred income taxes on the Consolidated Balance Sheets.
As of October 1, 2022,September 30, 2023, the Company has recorded deferred tax assets related to federal, state, and foreign net operating losses, interest expense, and tax credits. These attributes are spread across multiple jurisdictions and generally have expiration periods beginning in 2021 while a portion remains available indefinitely. Each attribute has been assessed for realization and a valuation allowance is recorded against the deferred tax assets to bring the net amount recorded to the amount more likely than not to be realized. The valuation allowance against deferred tax assets was $104$114 million and $126$104 million as of the fiscal years ended 20222023 and 2021,2022, respectively, related to the foreign and U.S. federal and state operations.
The Company is permanently reinvested except to the extent the foreign earnings are previously taxed or to the extent that we have sufficient basis in our non-U.S. subsidiaries to repatriate earnings on an income tax free basis.
Uncertain Tax Positions
The following table summarizes the activity related to our gross unrecognized tax benefits for fiscal years ended:
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Beginning unrecognized tax benefits | | $ | 159 | | | $ | 168 | | | $ | 121 | | | $ | 159 | |
Gross increases – tax positions in prior periods | | | 2 | | | | 9 | | | | 17 | | | | 2 | |
Gross decreases - tax positions in prior periods | | | (19 | ) | | | (6 | ) | | | (11 | ) | | | (19 | ) |
Gross increases – current period tax positions | | | 13 | | | | 6 | | | | 12 | | | | 13 | |
Settlements | | | (9 | ) | | | (4 | ) | | | — | | | | (9 | ) |
Lapse of statute of limitations | | | (25 | ) | | | (14 | ) | | | (32 | ) | | | (25 | ) |
Ending unrecognized tax benefits | | $ | 121 | | | $ | 159 | | | $ | 107 | | | $ | 121 | |
As of fiscal year end 2022,2023, the amount of unrecognized tax benefit that, if recognized, would affect our effective tax rate was $104$105 million and we had $34$33 million accrued for payment of interest and penalties related to our uncertain tax positions. Our penalties and interest related to uncertain tax positions are included in income tax expense.
As a result of global operations, we file income tax returns in the U.S. federal, various state and local, and foreign jurisdictions and are routinely subject to examination by taxing authorities throughout the world. Excluding potential adjustments to net operating losses, the U.S. federal and state income tax returns are no longer subject to income tax assessments for years before 2018.2019. With few exceptions, the major foreign jurisdictions are no longer subject to income tax assessments for year before 2015.2016.
7. Retirement Plans
The Company sponsors defined contribution retirement plans covering substantially all employees. Contributions are based upon a fixed dollar amount for employees who participate and percentages of employee contributions at specified thresholds. Contribution expense for these plans was $40 million, $42 million, $45 million, and $40$45 million for fiscal 2023, 2022, 2021, and 2020,2021, respectively.
The majority of the North American and UK defined benefit pension plans, which cover certain manufacturing facilities, are closed to future entrants. The assets of all the plans are held in a separate trustee administered fund to meet long-term liabilities for past and present employees. The majority, $61$63 million, of Mainland Europe’s total underfunded status relates to non-contributory pension plans within our German operations. There is no external funding for these plans although they are secured by insolvency insurance required under German law. In general, the plans provide a fixed retirement benefit not related to salaries and are closed to new entrants.
The net amount of liability recognized is included in Employee Benefit Obligations on the Consolidated Balance Sheets. The Company uses fiscal year end as a measurement date for the retirement plans.
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Change in Projected Benefit Obligations (PBO) | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | |
Beginning of period | | $ | 338 | | | $ | 888 | | | $ | 196 | | | $ | 1,422 | | | $ | 361 | | | $ | 888 | | | $ | 192 | | | $ | 1,441 | | | $ | 252 | | | $ | 480 | | | $ | 124 | | | $ | 856 | | | $ | 338 | | | $ | 888 | | | $ | 196 | | | $ | 1,422 | |
Service cost | | | — | | | | 1 | | | | 5 | | | | 6 | | | | — | | | | 1 | | | | 4 | | | | 5 | | | | — | | | | — | | | | 4 | | | | 4 | | | | — | | | | 1 | | | | 5 | | | | 6 | |
Interest cost | | | 8 | | | | 17 | | | | 2 | | | | 27 | | | | 8 | | | | 15 | | | | 1 | | | | 24 | | | | 12 | | | | 26 | | | | 5 | | | | 43 | | | | 8 | | | | 17 | | | | 2 | | | | 27 | |
Currency | | | (1 | ) | | | (152 | ) | | | (30 | ) | | | (183 | ) | | | 1 | | | | 48 | | | | 2 | | | | 51 | | | | — | | | | 54 | | | | 11 | | | | 65 | | | | (1 | ) | | | (152 | ) | | | (30 | ) | | | (183 | ) |
Actuarial loss (gain) | | | (77 | ) | | | (244 | ) | | | (37 | ) | | | (358 | ) | | | (12 | ) | | | (28 | ) | | | 9 | | | | (31 | ) | | | (10 | ) | | | (26 | ) | | | (5 | ) | | | (41 | ) | | | (77 | ) | | | (244 | ) | | | (37 | ) | | | (358 | ) |
Benefit settlements | | | — | | | | — | | | | (5 | ) | | | (5 | ) | | | (3 | ) | | | — | | | | (5 | ) | | | (8 | ) | | | (20 | ) | | | — | | | | (1 | ) | | | (21 | ) | | | — | | | | — | | | | (5 | ) | | | (5 | ) |
Benefits paid | | | (16 | ) | | | (30 | ) | | | (7 | ) | | | (53 | ) | | | (17 | ) | | | (36 | ) | | | (7 | ) | | | (60 | ) | | | (16 | ) | | | (29 | ) | | | (7 | ) | | | (52 | ) | | | (16 | ) | | | (30 | ) | | | (7 | ) | | | (53 | ) |
End of period | | $ | 252 | | | $ | 480 | | | $ | 124 | | | $ | 856 | | | $ | 338 | | | $ | 888 | | | $ | 196 | | | $ | 1,422 | | | $ | 218 | | | $ | 505 | | | $ | 131 | | | $ | 854 | | | $ | 252 | | | $ | 480 | | | $ | 124 | | | $ | 856 | |
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Change in Fair Value of Plan Assets | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | |
Beginning of period | | $ | 286 | | | $ | 828 | | | $ | 53 | | | $ | 1,167 | | | $ | 268 | | | $ | 769 | | | $ | 54 | | | $ | 1,091 | | | $ | 228 | | | $ | 446 | | | $ | 40 | | | $ | 714 | | | $ | 286 | | | $ | 828 | | | $ | 53 | | | $ | 1,167 | |
Currency | | | (1 | ) | | | (146 | ) | | | (7 | ) | | | (154 | ) | | | 1 | | | | 41 | | | | 1 | | | | 43 | | | | — | | | | 51 | | | | 2 | | | | 53 | | | | (1 | ) | | | (146 | ) | | | (7 | ) | | | (154 | ) |
Return on assets | | | (41 | ) | | | (225 | ) | | | (2 | ) | | | (268 | ) | | | 36 | | | | 28 | | | | 3 | | | | 67 | | | | 29 | | | | (73 | ) | | | 1 | | | | (43 | ) | | | (41 | ) | | | (225 | ) | | | (2 | ) | | | (268 | ) |
Contributions | | | — | | | | 19 | | | | 8 | | | | 27 | | | | 1 | | | | 26 | | | | 7 | | | | 34 | | | | — | | | | 19 | | | | 8 | | | | 27 | | | | — | | | | 19 | | | | 8 | | | | 27 | |
Benefit settlements | | | — | | | | — | | | | (5 | ) | | | (5 | ) | | | (3 | ) | | | — | | | | (5 | ) | | | (8 | ) | | | (20 | ) | | | — | | | | (1 | ) | | | (21 | ) | | | — | | | | — | | | | (5 | ) | | | (5 | ) |
Benefits paid | | | (16 | ) | | | (30 | ) | | | (7 | ) | | | (53 | ) | | | (17 | ) | | | (36 | ) | | | (7 | ) | | | (60 | ) | | | (16 | ) | | | (29 | ) | | | (7 | ) | | | (52 | ) | | | (16 | ) | | | (30 | ) | | | (7 | ) | | | (53 | ) |
End of period | | $ | 228 | | | $ | 446 | | | $ | 40 | | | $ | 714 | | | $ | 286 | | | $ | 828 | | | $ | 53 | | | $ | 1,167 | | | $ | 221 | | | $ | 414 | | | $ | 43 | | | $ | 678 | | | $ | 228 | | | $ | 446 | | | $ | 40 | | | $ | 714 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Underfunded status | | $ | (24 | ) | | $ | (34 | ) | | $ | (84 | ) | | $ | (142 | ) | | $ | (52 | ) | | $ | (60 | ) | | $ | (143 | ) | | $ | (255 | ) | | $ | 3 | | | $ | (91 | ) | | $ | (88 | ) | | $ | (176 | ) | | $ | (24 | ) | | $ | (34 | ) | | $ | (84 | ) | | $ | (142 | ) |
At the end of fiscal 2022,2023, the Company had $65$112 million of net unrealized losses recorded in Accumulated other comprehensive loss on the Consolidated Balance Sheets. The Company expects less than $1 million to be realized in fiscal 2023.2024.
The following table presents significant weighted-average assumptions used to determine benefit obligation and benefit cost for the fiscal years ended:
(Percentages) | | 2022 | | 2023 |
| North America | | UK | | Mainland Europe | | North America | | UK | | Mainland Europe |
Weighted-average assumptions: | | | | | | | | | | | | |
Discount rate for benefit obligation | | | 5.1 | | | 5.2 | | | 3.6 | | | 5.6 | | | 5.5 | | | 4.1 |
Discount rate for net benefit cost | | | 2.5 | | | 2.1 | | | 1.0 | | | 5.1 | | | 5.2 | | | 3.7 |
Expected return on plan assets for net benefit costs | | | 6.1 | | | 4.2 | | | 2.1 | | | 6.1 | | | 5.7 | | | 2.6 |
(Percentages) | | 2021 | | 2022 |
| North America | | UK | | Mainland Europe | | North America | | UK | | Mainland Europe |
Weighted-average assumptions: | | | | | | | | | | | | |
Discount rate for benefit obligation | | | 2.5 | | | 2.2 | | | 1.0 | | | 5.1 | | | 5.2 | | | 3.6 |
Discount rate for net benefit cost | | | 2.2 | | | 1.6 | | | 0.8 | | | 2.5 | | | 2.1 | | | 1.0 |
Expected return on plan assets for net benefit costs | | | 6.1 | | | 4.1 | | | 2.0 | | | 6.1 | | | 4.2 | | | 2.1 |
In evaluating the expected return on plan assets, Berry considered its historical assumptions compared with actual results, an analysis of current market conditions, asset allocations, and the views of advisors. The return on plan assets is derived from target allocations and historical yield by asset type. A one quarter of a percentage point reduction of expected return on pension assets, mortality rate or discount rate applied to the pension liability would result in an immaterial change to the Company’s pension expense.
In accordance with the guidance from the FASB for employers’ disclosure about postretirement benefit plan assets the table below discloses fair values of each pension plan asset category and level within the fair value hierarchy in which it falls. There were no material changes or transfers between level 3 assets and the other levels.
Fiscal 2023 Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Cash and cash equivalents | | $ | 23 | | | $ | — | | | $ | — | | | $ | 23 | |
U.S. large cap comingled equity funds | | | 80 | | | | — | | | | — | | | | 80 | |
U.S. mid cap equity mutual funds | | | 33 | | | | — | | | | — | | | | 33 | |
U.S. small cap equity & Corporate bond mutual funds | | | 2 | | | | — | | | | — | | | | 2 | |
International equity mutual funds | | | 6 | | | | 33 | | | | — | | | | 39 | |
Real estate equity investment funds | | | — | | | | 21 | | | | 105 | | | | 126 | |
Corporate bonds | | | — | | | | 97 | | | | 70 | | | | 167 | |
International fixed income funds | | | 6 | | | | 158 | | | | — | | | | 164 | |
International insurance policies | | | — | | | | — | | | | 44 | | | | 44 | |
Total | | $ | 150 | | | $ | 309 | | | $ | 219 | | | $ | 678 | |
Fiscal 2022 Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Cash and cash equivalents | | $ | 14 | | | $ | — | | | $ | — | | | $ | 14 | |
U.S. large cap comingled equity funds | | | 69 | | | | — | | | | — | | | | 69 | |
U.S. mid cap equity mutual funds | | | 35 | | | | — | | | | — | | | | 35 | |
U.S. small cap equity & Corporate bond mutual funds | | | 4 | | | | — | | | | — | | | | 4 | |
International equity mutual funds | | | 9 | | | | 99 | | | | — | | | | 108 | |
Real estate equity investment funds | | | 4 | | | | 26 | | | | 94 | | | | 124 | |
Corporate bonds | | | — | | | | 128 | | | | 56 | | | | 184 | |
International fixed income funds | | | 5 | | | | 130 | | | | — | | | | 135 | |
International insurance policies | | | — | | | | — | | | | 41 | | | | 41 | |
Total | | $ | 140 | | | $ | 383 | | | $ | 191 | | | $ | 714 | |
Fiscal 2021 Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Cash and cash equivalents | | $ | 55 | | | $ | — | | | $ | — | | | $ | 55 | |
U.S. large cap comingled equity funds | | | 84 | | | | — | | | | — | | | | 84 | |
U.S. mid cap equity mutual funds | | | 50 | | | | — | | | | — | | | | 50 | |
U.S. small cap equity & Corporate bond mutual funds | | | 8 | | | | — | | | | — | | | | 8 | |
International equity mutual funds | | | 14 | | | | 271 | | | | — | | | | 285 | |
Real estate equity investment funds | | | 7 | | | | 86 | | | | 101 | | | | 194 | |
Corporate bonds | | | — | | | | 157 | | | | 40 | | | | 197 | |
International fixed income funds | | | 81 | | | | 161 | | | | — | | | | 242 | |
International insurance policies | | | — | | | | — | | | | 52 | | | | 52 | |
Total | | $ | 299 | | | $ | 675 | | | $ | 193 | | | $ | 1,167 | |
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the fiscal year end:
| | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | |
2023 | | $ | 19 | | | $ | 27 | | | $ | 7 | | | $ | 53 | | |
2024 | | | 18 | | | | 28 | | | | 8 | | | | 54 | | | $ | 18 | | | $ | 29 | | | $ | 9 | | | $ | 56 | |
2025 | | | 18 | | | | 28 | | | | 6 | | | | 52 | | | | 16 | | | | 30 | | | | 7 | | | | 53 | |
2026 | | | 19 | | | | 29 | | | | 6 | | | | 54 | | | | 16 | | | | 31 | | | | 6 | | | | 53 | |
2027 | | | 19 | | | | 30 | | | | 8 | | | | 57 | | | | 17 | | | | 32 | | | | 7 | | | | 56 | |
2028-2032 | | | 90 | | | | 164 | | | | 43 | | | | 297 | | |
2028 | | | | 17 | | | | 33 | | | | 8 | | | | 58 | |
2029-2033 | | | | 80 | | | | 179 | | | | 49 | | | | 308 | |
Net pension expense is recorded in Cost of goods sold and included the following components as of fiscal years ended:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Service cost | | $ | 6 | | | $ | 5 | | | $ | 1 | | | $ | 4 | | | $ | 6 | | | $ | 5 | |
Interest cost | | | 27 | | | | 24 | | | | 26 | | | | 43 | | | | 27 | | | | 24 | |
Amortization of net actuarial loss | | | 3 | | | | 9 | | | | 5 | | | | 1 | | | | 3 | | | | 9 | |
Expected return on plan assets | | | (51 | ) | | | (51 | ) | | | (46 | ) | | | (46 | ) | | | (51 | ) | | | (51 | ) |
Net periodic benefit expense (income) | | $ | (15 | ) | | $ | (13 | ) | | $ | (14 | ) | | $ | 2 | | | $ | (15 | ) | | $ | (13 | ) |
Our defined benefit pension plan asset allocations as of fiscal years ended are as follows:
Asset Category | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Equity securities and equity-like instruments | | | 47 | % | | | 53 | % | | | 41 | % | | | 47 | % |
Debt securities and debt-like | | | 45 | | | | 38 | | | | 49 | | | | 45 | |
International insurance policies | | | 6 | | | | 4 | | | | 7 | | | | 6 | |
Other | | | 2 | | | | 5 | | | | 3 | | | | 2 | |
Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
The Company’s retirement plan assets are invested with the objective of providing the plans the ability to fund current and future benefit payment requirements while minimizing annual Company contributions. The retirement plans held $31 million of the Company’s stock at the end of fiscal 2022.2023. The Company re-addresses the allocation of its investments on a regular basis.
8. Restructuring and Transaction Activities
In the current fiscal year, the Company initiated cost savings initiatives including plant rationalization in all four segments as part of the 2023 restructuring plan. The Company has announced various restructuring plans in the last three fiscal years which included shutting down facilities. In all instances, the majority ofexpects total cash and non-cash expense to be approximately $200 million, with the operations from rationalized facilities was transferredsavings intended to other facilities withincounter general economic softness. The initiatives are expected to be fully implemented by the respective segment. end of fiscal 2025. During fiscal 2020, 2021 and 2022, the Company did not shut down any facilities with significant net sales.
The table below sets forthincludes the significant components of theour restructuring and transaction activity chargesactivities recognized for the fiscal years ended, by reporting segment:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Consumer Packaging International | | $ | 10 | | | $ | 56 | | | $ | 58 | | | $ | 50 | | | $ | 10 | | | $ | 56 | |
Consumer Packaging North America | | | 5 | | | | — | | | | 10 | | | | 23 | | | | 5 | | | | — | |
Engineered Materials | | | 2 | | | | (4 | ) | | | 6 | | | | 7 | | | | 2 | | | | (4 | ) |
Health, Hygiene & Specialties | | | 6 | | | | (1 | ) | | | 5 | | | | 22 | | | | 6 | | | | (1 | ) |
Consolidated | | $ | 23 | | | $ | 51 | | | $ | 79 | | | $ | 102 | | | $ | 23 | | | $ | 51 | |
Transaction activities consist of acquisition, divestiture and other business optimization related costs. The table below sets forth the activity with respect to the restructuring charges and the impact on our accrued restructuring reserves:
| | Restructuring | | | | | | | | | Restructuring (a) | | | | | | | |
| | Employee Severance and Benefits | | | Facility Exit Costs | | | Non-cash Impairment Charges | | | Transaction Activities | | | Total | | | Employee Severance and Benefits | | | Facility Exit Costs | | | Non-cash Impairment Charges | | | Transaction Activities | | | Total | |
Balance as of fiscal 2020 | | $ | 10 | | | $ | 7 | | | $ | — | | | $ | — | | | $ | 17 | | |
Charges | | | 11 | | | | 7 | | | | 1 | | | | 32 | | | | 51 | | |
Non-cash asset impairment | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) | |
Cash | | | (15 | ) | | | (9 | ) | | | — | | | | (32 | ) | | | (56 | ) | |
Balance as of fiscal 2021 | | $ | 6 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 11 | | | $ | 6 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 11 | |
Charges | | | 7 | | | | 9 | | | | — | | | | 7 | | | | 23 | | | | 7 | | | | 9 | | | | — | | | | 7 | | | | 23 | |
Cash | | | (11 | ) | | | (11 | ) | | | — | | | | (7 | ) | | | (29 | ) | | | (11 | ) | | | (11 | ) | | | — | | | | (7 | ) | | | (29 | ) |
Balance as of fiscal 2022 | | $ | 2 | | | $ | 3 | | | $ | — | | | $ | — | | | $ | 5 | | | $ | 2 | | | $ | 3 | | | $ | — | | | $ | — | | | $ | 5 | |
Charges | | | | 39 | | | | 23 | | | | 8 | | | | 32 | | | | 102 | |
Non-cash items | | | | — | | | | — | | | | (8 | ) | | | — | | | | (8 | ) |
Cash | | | | (31 | ) | | | (25 | ) | | | — | | | | (32 | ) | | | (88 | ) |
Balance as of fiscal 2023 | | | $ | 10 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 11 | |
(a)Since 2020,2021, cumulative costs attributed to restructuring programs total $80$105 million.
9. Stockholders’ Equity
Share Repurchases
During fiscal 2023, the Company repurchased approximately 9.8 million shares for $601 million, at an average price of $61.00. During fiscal 2022, the Company repurchased approximately 12.2 million shares for $709 million, at an average price of $58.30. No shares were repurchased during fiscal 2021 and 2020. Authorized repurchases of $342 million remain available to the Company. 2021.
All share repurchases were immediately retired. Common stock was reduced by the number of shares retired at $0.01 par value per share. The Company allocates the excess purchase price over par value between additional paid-in capital and retained earnings. As of fiscal 2023, authorized repurchases of $442 million remain available to the Company.
Equity Incentive Plans
The Company has shareholder-approved stock plans under which options and restricted stock units have been granted to employees at the market value of the Company's stock on the date of grant. In fiscal 2021, the Company amended the 2015 Berry Global Group, Inc. Long-Term Incentive Plan to authorize the issuance of 20.8 million shares, an increase of 8.3 million shares from the previous authorization. The intrinsic value of options exercised in fiscal 20222023 was $10$27 million.
Information related to the equity incentive plans as of the fiscal years ended are as follows:
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
| | Number of Shares (in thousands) | | | Weighted Average Exercise Price | | | Number of Shares (in thousands) | | | Weighted Average Exercise Price | | | Number of Shares (in thousands) | | | Weighted Average Exercise Price | | | Number of Shares (in thousands) | | | Weighted Average Exercise Price | |
Options outstanding, beginning of period | | | 11,302 | | | $ | 44.54 | | | | 11,460 | | | $ | 40.84 | | | | 11,656 | | | $ | 47.33 | | | | 11,302 | | | $ | 44.54 | |
Options granted | | | 1,192 | | | | 66.47 | | | | 1,946 | | | | 54.22 | | | | 1,343 | | | | 56.93 | | | | 1,192 | | | | 66.47 | |
Options exercised | | | (752 | ) | | | 35.31 | | | | (1,961 | ) | | | 32.23 | | | | (1,041 | ) | | | 35.85 | | | | (752 | ) | | | 35.31 | |
Options forfeited or cancelled | | | (86 | ) | | | 51.72 | | | | (143 | ) | | | 48.72 | | | | (122 | ) | | | 53.96 | | | | (86 | ) | | | 51.72 | |
Options outstanding, end of period | | | 11,656 | | | $ | 47.33 | | | | 11,302 | | | $ | 44.54 | | | | 11,836 | | | $ | 49.36 | | | | 11,656 | | | $ | 47.33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Option price range at end of period | | $ | 16.00-66.47 | | | | | | | $ | 10.24-54.33 | | | | | | | $ | 21.00-66.47 | | | | | | | $ | 16.00-66.47 | | | | | |
Options exercisable at end of period | | | 6,718 | | | | | | | | 5,260 | | | | | | | | 7,349 | | | | | | | | 6,718 | | | | | |
Weighted average fair value of options granted during period | | $ | 20.73 | | | | | | | $ | 16.36 | | | | | | | $ | 17.53 | | | | | | | $ | 20.73 | | | | | |
Generally, options vest annually in equal installments commencing one year from the date of grant and have a vesting term of either four or five years, depending on the grant date, and an expiration term of 10 years from the date of grant. The fair value for options granted has been estimated at the date of grant using a Black-Scholes model generally withusing the following weighted averagekey assumptions:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Risk-free interest rate | | | 1.3 | % | | | 0.5 | % | | | 1.7 | % | | | 3.8 | % | | | 1.3 | % | | | 0.5 | % |
Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 1.7 | % | | | 0.0 | % | | | 0.0 | % |
Volatility factor | | | 29.7 | % | | | 30.4 | % | | | 27.2 | % | | | 31.0 | % | | | 29.7 | % | | | 30.4 | % |
Expected option life | | 6.0 years | | | 6.0 years | | | 6.5 years | | |
The following table summarizes information about the options outstanding as of fiscal 2022:2023:
Intrinsic Value of Outstanding (in millions) | Intrinsic Value of Outstanding (in millions) | | Weighted Remaining Contractual Life | | Weighted Exercise Price | | | Number Exercisable (in thousands) | | | Intrinsic Value of Exercisable (in millions) | | | Unrecognized Compensation (in millions) | | Weighted Recognition Period | Intrinsic Value of Outstanding (in millions) | | Weighted Remaining Contractual Life | | Number Exercisable (in thousands) | | | Intrinsic Value of Exercisable (in millions) | | | Unrecognized Compensation (in millions) | | Weighted Recognition Period |
$ | 46 | | 6.1 years | | $ | 47.33 | | | | 6,718 | | | $ | 42 | | | $ | 30 | | 1.3 years | 154 | | 5.7 years | | | 7,349 | | | $ | 117 | | | $ | 43 | | 1.4 years |
The Company's issued restricted stock units generally vest in equal installments over four years. Compensation cost is recorded based upon the fair value of the shares at the grant date.
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
| | Number of Shares (in thousands) | | | Weighted Average Grant Price | | | Number of Shares (in thousands) | | | Weighted Average Grant Price | | | Number of Shares (in thousands) | | | Weighted Average Grant Price | | | Number of Shares (in thousands) | | | Weighted Average Grant Price | |
Awards outstanding, beginning of period | | | 196 | | | $ | 54.22 | | | | — | | | $ | — | | | | 354 | | | $ | 61.99 | | | | 196 | | | $ | 54.22 | |
Awards granted | | | 232 | | | | 66.47 | | | | 203 | | | | 54.22 | | | | 434 | | | | 56.93 | | | | 232 | | | | 66.47 | |
Awards vested | | | (64 | ) | | | 54.70 | | | | (2 | ) | | | 54.22 | | | | (105 | ) | | | 61.46 | | | | (64 | ) | | | 54.70 | |
Awards forfeited or cancelled | | | (10 | ) | | | 60.30 | | | | (5 | ) | | | 54.22 | | | | (23 | ) | | | 59.75 | | | | (10 | ) | | | 60.30 | |
Awards outstanding, end of period | | | 354 | | | $ | 61.99 | | | | 196 | | | $ | 54.22 | | | | 660 | | | $ | 58.82 | | | | 354 | | | $ | 61.99 | |
The Company had equity incentive shares available for grant of 7.15.0 million and 8.57.1 million as of September 30, 2023 and October 1, 2022, and October 2, 2021, respectively.
10. Segment and Geographic Data
Berry’s operations are organized into four reporting segments: Consumer Packaging International, Consumer Packaging North America, Engineered Materials, and Health, Hygiene & Specialties. The structure is designed to align us with our customers, provide improved service, and drive future growth in a cost efficient manner.
Selected information by reportable segment is presented in the following tables:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Net sales | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 4,293 | | | $ | 4,242 | | | $ | 3,789 | | | $ | 4,031 | | | $ | 4,293 | | | $ | 4,242 | |
Consumer Packaging North America | | | 3,548 | | | | 3,141 | | | | 2,560 | | | | 3,122 | | | | 3,548 | | | | 3,141 | |
Engineered Materials | | | 3,488 | | | | 3,309 | | | | 2,766 | | | | 2,884 | | | | 3,488 | | | | 3,309 | |
Health, Hygiene & Specialties | | | 3,166 | | | | 3,158 | | | | 2,594 | | | | 2,627 | | | | 3,166 | | | | 3,158 | |
Total | | $ | 14,495 | | | $ | 13,850 | | | $ | 11,709 | | | $ | 12,664 | | | $ | 14,495 | | | $ | 13,850 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 346 | | | $ | 317 | | | $ | 273 | | | $ | 273 | | | $ | 346 | | | $ | 317 | |
Consumer Packaging North America | | | 338 | | | | 276 | | | | 275 | | | | 346 | | | | 338 | | | | 276 | |
Engineered Materials | | | 328 | | | | 301 | | | | 336 | | | | 333 | | | | 328 | | | | 301 | |
Health, Hygiene & Specialties | | | 230 | | | | 398 | | | | 295 | | | | 127 | | | | 230 | | | | 398 | |
Total | | $ | 1,242 | | | $ | 1,292 | | | $ | 1,179 | | | $ | 1,079 | | | $ | 1,242 | | | $ | 1,292 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | $ | 317 | | | $ | 341 | | | $ | 315 | | | $ | 310 | | | $ | 317 | | | $ | 341 | |
Consumer Packaging North America | | | 214 | | | | 224 | | | | 230 | | | | 217 | | | | 214 | | | | 224 | |
Engineered Materials | | | 112 | | | | 112 | | | | 117 | | | | 114 | | | | 112 | | | | 112 | |
Health, Hygiene & Specialties | | | 176 | | | | 177 | | | | 183 | | | | 177 | | | | 176 | | | | 177 | |
Total | | $ | 819 | | | $ | 854 | | | $ | 845 | | | $ | 818 | | | $ | 819 | | | $ | 854 | |
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Total assets: | | | | | | | | | | | | |
Consumer Packaging International | | $ | 6,993 | | | $ | 7,800 | | | $ | 6,217 | | | $ | 6,993 | |
Consumer Packaging North America | | | 3,992 | | | | 3,861 | | | | 4,312 | | | | 3,992 | |
Engineered Materials | | | 2,236 | | | | 2,331 | | | | 2,476 | | | | 2,236 | |
Health, Hygiene & Specialties | | | 3,735 | | | | 3,890 | | | | 3,582 | | | | 3,735 | |
Total assets | | $ | 16,956 | | | $ | 17,882 | | | $ | 16,587 | | | $ | 16,956 | |
Selected information by geographical region is presented in the following tables:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Net sales: | | | | | | | | | | | | | | | | | | |
United States and Canada | | $ | 7,907 | | | $ | 7,351 | | | $ | 6,250 | | | $ | 6,893 | | | $ | 7,907 | | | $ | 7,351 | |
Europe | | | 5,065 | | | | 4,898 | | | | 4,223 | | | | 4,559 | | | | 5,065 | | | | 4,898 | |
Rest of world | | | 1,523 | | | | 1,601 | | | | 1,236 | | | | 1,212 | | | | 1,523 | | | | 1,601 | |
Total net sales | | $ | 14,495 | | | $ | 13,850 | | | $ | 11,709 | | | $ | 12,664 | | | $ | 14,495 | | | $ | 13,850 | |
| | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Long-lived assets: | | | | | | | | | | | | |
United States and Canada | | $ | 6,826 | | | $ | 6,682 | | | $ | 6,893 | | | $ | 6,826 | |
Europe | | | 3,616 | | | | 4,574 | | | | 3,800 | | | | 3,616 | |
Rest of world | | | 1,350 | | | | 1,532 | | | | 1,361 | | | | 1,350 | |
Total long-lived assets | | $ | 11,792 | | | $ | 12,788 | | | $ | 12,054 | | | $ | 11,792 | |