Item 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements of Berry Global Group, Inc. and its subsidiaries and the accompanying notes thereto, which information is included elsewhere herein. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section. Our actual results may differ materially from those contained in any forward-looking statements. Segment level discussion of the results is disclosed in a manner consistent with the organization structure at the end of the presented period.Outlook
The Company's fiscal year is based on fifty-two or fifty-three week periods. Fiscal 2018 and fiscal 2017 were fifty-two week periods and fiscal 2016 was a fifty-three week period.
Overview
Berry Global Group, Inc. ("Berry," "we," or the "Company") is a leading global supplier of a broad range of innovative non-woven, flexible, and rigid products used every day within consumer and industrial end markets. In fiscal 2018, no single customer represented more than 4% of net sales and our top ten customers represented 20% of net sales. We believe our manufacturing processes and our ability to leverage our scale to reduce expenses positions us as a low-cost manufacturer relative to our competitors.
Executive Summary
Business. The Company's operations are organized into three operating segments: Engineered Materials, Health, Hygiene & Specialties, and Consumer Packaging. The structure is designed to align us with our customers, provide improved service, and drive future growth in a cost efficient manner. The Engineered Materials segment primarily consists of tapes and adhesives, polyethylene based film products, can liners, printed films, and specialty coated, and laminated products. The Health, Hygiene & Specialties segment primarily consists of nonwoven specialty materials and films used in hygiene, infection prevention, personal care, industrial, construction and filtration applications. The Consumer Packaging segment primarily consists of containers, foodservice items, closures, overcaps, bottles, prescription containers, and tubes.
Raw Material Trends. Our primary raw material is plastic resin. Polypropylene and polyethylene account for approximately 90% of our plastic resin pounds purchased. The three month simple average price per pound, as published by the American market indexes, were as follows:
| | Polyethylene Butene Film | | | Polypropylene | |
| | 2018 | | | 2017 | | | 2016 | | | 2018 | | | 2017 | | | 2016 | |
1st quarter | | $ | .68 | | | $ | .56 | | | $ | .50 | | | $ | .71 | | | $ | .56 | | | $ | .57 | |
2nd quarter | | | .69 | | | | .58 | | | | .47 | | | | .75 | | | | .67 | | | | .62 | |
3rd quarter | | | .68 | | | | .60 | | | | .54 | | | | .76 | | | | .61 | | | | .58 | |
4th quarter | | | .66 | | | | .62 | | | | .56 | | | | .85 | | | | .62 | | | | .58 | |
Due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs, segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted in the short term when plastic resin costs decrease. This timing lag in passing through raw material cost changes could affect our results as plastic resin costs fluctuate.
Outlook.The Company is affected by general economic and industrial growth, plastic resinraw material availability, and affordability,cost inflation, supply chain disruptions, and general industrial production. The COVID-19 pandemic has resulted in both advantaged and disadvantaged products within all segments. During fiscal 2022, we anticipate a headwind as the advantaged products, particularly in our Health, Hygiene & Specialties segment, related to the COVID-19 pandemic moderate while recovery of disadvantaged products lags with the ultimate impact being affected by both the duration certain products remain advantaged and timing of when disadvantaged products normalize. Our business has both geographic and end-marketend 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. We believe there are long term growth opportunities within the health, pharmaceuticals, personal care and food packagingBy providing advantaged products in targeted markets, existing outside of North America, especially in Asia, where expected per capita consumption increases should result in organic market growth. In addition, while we continue to believe that long term dynamics of the resin marketsour underlying long-term demand fundamental in all divisions will be an advantage, we could have short-term headwinds in early fiscal 2019remain strong as we continue to focus on pricing initiativesdelivering protective solutions that enhance consumer safety and execute on the Company’s mission statement of “Always Advancing to fully recover the inflation we experienced in fiscal 2018.Protect What’s Important.” For fiscal 2019,2022, we project cash flow from operations between $1.8 to $1.7 billion, which includes the benefit from the lag in recovery of fiscal 2021 inflation, and adjusted free cash flow of $1,036 million and $670 million, respectively. The $670 million of adjustedbetween $1 billion to $900 million. Projected fiscal 2022 free cash flow includes $350assumes $800 million of capital spending and $16 million of payments under our tax receivable agreement. Within our adjusted free cash flow guidance, we are also assuming cash taxes of $149 million, cash interest costs of $270 million, and other cash uses of $45 million related to changes in working capital and items such as acquisition integration expenses and costs to achieve synergies.spending. For the definition of Adjusted free cash flow and further information related to Adjusted free cash flow as a non-GAAP financial measure, see "Liquidity“Liquidity and Capital Resources."”
Recent AcquisitionsDispositions
Our acquisition strategy is focused on improving our long-term financial performance, enhancing our market positions,During fiscal 2021, the Company completed the sale of its U.S. Flexible Packaging Converting business which was primarily operated in the Engineered Materials segment for net proceeds of $140 million and expanding our existing and complementary product lines. We seek to obtain businessesits non-core Czech Republic Reaction Injection Molding business which was operated in the Consumer Packaging International segment for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire. The Company has included the expected benefitsnet proceeds of acquisition integrations and restructuring plans within our unrealized synergies, which are in turn recognized in earnings after an acquisition has been fully integrated or the restructuring plan is completed. While the expected benefits on earnings is estimated at the commencement of each transaction, once the execution of the plan and integration occur, we are generally unable to accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to multiple facilities. As historical business combinations and restructuring plans have not allowed us to accurately separate realized synergies compared to what was initially identified, we measure the synergy realization based$22 million. A net pretax loss on the overall segment profitability post integration.
Laddawn, Inc.
In August 2018,divestitures of $22 million was recorded in fiscal 2021 within Restructuring and transaction activities on the Company acquired Laddawn, Inc. ("Laddawn") for a purchase priceConsolidated Statements of $242 million, which is preliminaryIncome. The U.S Flexible Packaging Converting business and subject to adjustment. Laddawn is a custom bag and film manufacturer with a unique-to-industry e-commerce sales platform. Laddawn reported $145 million inthe Czech Republic Reaction Injection Molding business recorded net sales for the twelve months ended July 31, 2018,during fiscal 2020 of $203 million and will be operated in our Engineered Materials segment. The Company expects to realize annual cost synergies of $5$41 million, with realization in fiscal 2019. To finance the purchase, the Company used existing liquidity.respectively.
Clopay Plastic Products Company, Inc.
In February 2018, the Company acquired Clopay Plastic Products Company, Inc. ("Clopay") for a purchase price of $475 million. Clopay is an innovator in the development of printed breathable films, elastic films, and laminates with product offerings uniquely designed for applications used in a number of markets including: hygiene, healthcare, construction and industrial protective apparel. The acquired business is operated in our Health, Hygiene & Specialties segment. The Company expects to realize annual cost synergies of $40 million with full realization expected in fiscal 2019. To finance the purchase, the Company issued $500 million aggregate principle amount of 4.5% second priority notes through a private placement offering.
Adchem Corp
In June 2017, the Company acquired Adchem Corp's ("Adchem") tapes business for a purchase price of $49 million. Adchem is a leader in the development of high performance adhesive tape systems for the automotive, construction, electronics, graphic arts, medical and general tape markets. The acquired business is operated in our Engineered Materials segment. To finance the purchase, the Company used existing liquidity.
AEP Industries Inc.
In January 2017, the Company acquired AEP Industries Inc. ("AEP") for a purchase price of $791 million, net of cash acquired. A portion of the purchase price consisted of issuing 6.4 million of Berry common shares which were valued at $324 million at the time of closing. AEP manufactures and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products with consumer, industrial, and agricultural applications. The acquired business is operated in our Engineered Materials segment. To finance the purchase, the Company entered into an incremental assumption agreement to increase the commitments under the Company's existing term loan credit agreement by $500 million due 2024. The Company estimates annual realized cost synergies of $80 million from the transaction.
Discussion of Results of Operations for Fiscal 20182021 Compared to Fiscal 20172020
Acquisition salesThe Company's U.S. based results for fiscal 2021 and operating income disclosed within this section represents the results from acquisitions for the current period.fiscal 2020 are based on a fifty-three and fifty-two week period, respectively. Business integration expenses consist of restructuring and impairment charges, acquisition and 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 2020 compared to fiscal year 2019 can be found on Form 8-K, Exhibit 99.1 filed with the SEC on September 2, 2021.
Consolidated Overview | Fiscal Year | | | | | | | Fiscal Year | | | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | | | 2021 | | | 2020 | | | $ Change | | | % Change | |
Net sales | | $ | 7,869 | | | $ | 7,095 | | | $ | 774 | | | | 11 | % | | $ | 13,850 | | | $ | 11,709 | | | $ | 2,141 | | | | 18 | % |
Cost of goods sold | | | | 11,352 | | | | 9,301 | | | | 2,051 | | | | 22 | % |
Other operating expenses | | | | 1,206 | | | | 1,229 | | | | (23 | ) | | | (2 | )% |
Operating income | | $ | 761 | | | $ | 732 | | | $ | 29 | | | | 4 | % | | $ | 1,292 | | | $ | 1,179 | | | $ | 113 | | | | 10 | % |
Operating income percentage of net sales | | | 10 | % | | | 10 | % | | | | | | | | | |
Net sales:The net sales growth of $774 million is primarily attributed to acquisition net sales of $624 million, organic sales growth of $92 million, and a $58 million favorable impact from foreign currency changes. The organic sales growth is primarily attributed to increased selling prices of $191$1,429 million due to the pass through of higher costinflation, organic volume growth of goods sold, partially offset by4%, a modest 1% volume decline.
The operating income increase of $29 million is primarily attributed to acquisition operating income of $62 million, a $46 million decrease in selling, general and administrative expense related to synergies and lower incentive compensation, a $26 million decrease in depreciation and amortization, and an $11 million favorable impact from foreign currency changes. These improvements were partially offset by a $96 million negative impact from under recovery of higher cost of goods sold, and a $12 million impact from the lower volumes.
Engineered Materials | Fiscal Year | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | |
Net sales | | $ | 2,672 | | | $ | 2,375 | | | $ | 297 | | | | 13 | % |
Operating income | | $ | 368 | | | $ | 316 | | | $ | 52 | | | | 16 | % |
Operating income percentage of net sales | | | 14 | % | | | 13 | % | | | | | | | | |
Net sales in the Engineered Materials segment grew by $297 million primarily attributed to acquisition net sales of $319 million, partially offset by an organic sales decline of $29 million. The organic sales decline is primarily related to increased selling prices of $54 million, being more than offset by a 3% volume decline as a result of business rationalizations within legacy AEP locations.
The operating income increase of $52 million is primarily attributed to acquisition operating income of $40 million, an $18 million decrease in depreciation and amortization expense, and an $8 million decrease in selling, general and administrative expenses. These improvements were partially offset by an $11 million negative impact from the lower volumes.
Health, Hygiene & Specialties | Fiscal Year | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | |
Net sales | | $ | 2,734 | | | $ | 2,369 | | | $ | 365 | | | | 15 | % |
Operating income | | $ | 202 | | | $ | 216 | | | $ | (14 | ) | | | (6 | )% |
Operating income percentage of net sales | | | 7 | % | | | 9 | % | | | | | | | | |
Net sales in the Health, Hygiene & Specialties segment grew by $365 million primarily attributed to acquisition net sales of $305 million, a $52$331 million favorable impact from foreign currency changes, and organica $131 million increase from extra shipping days in fiscal 2021. These increases were partially offset by fiscal 2020 divestiture sales growth of $9$190 million. The organic volume growth was primarily due to organic growth investments, continued recovery of certain markets that had previously been facing COVID-19 headwinds, and higher demand in our advantaged health and hygiene products as the result of COVID-19.
Cost of goods sold: The cost of goods sold increase is primarily attributed to organic volume growth, product mix, inflation, an increase from foreign currency changes, and extra shipping days in fiscal 2021. These increases were partially offset by fiscal 2020 divestiture cost of goods sold of $157 million.
Operating Income: The operating income increase is primarily attributed to a $100 million increase from the organic volume growth, a $55 million favorable impact from foreign currency changes, a $37 million decrease in business integration, and a $22 million benefit from extra shipping days in fiscal 2021. These improvements are partially offset by a $75 million impact from inflation and product mix, a $19 million increase in depreciation and amortization, and fiscal 2020 divestiture operating income of $18 million.
Consumer Packaging International | | Fiscal Year | | | | | | | |
| | 2021 | | | 2020 | | | $ Change | | | % Change | |
Net sales | | $ | 4,242 | | | $ | 3,789 | | | $ | 453 | | | | 12 | % |
Cost of goods sold | | | 3,416 | | | | 3,000 | | | | 416 | | | | 14 | % |
Other operating expenses | | | 509 | | | | 516 | | | | (7 | ) | | | (1 | )% |
Operating income | | $ | 317 | | | $ | 273 | | | $ | 44 | | | | 16 | % |
Net sales: The net sales growth in the Consumer Packaging International segment is primarily attributed to increased selling prices of $56$130 million due to the pass through of higher costinflation, organic volume growth of goods sold, partially offset by a 2% volume decline.
The operating income decrease of $14 million is primarily attributed to a $53 million negative impact from under recovery of higher cost of goods sold, a $7 million impact from lower volumes,3%, and a $12 million increase in business integration. These decreases were partially offset by a $22 million decrease in selling, general and administrative expenses, acquisition operating income of $22 million from the Clopay acquisition, and a $10$227 million favorable impact from foreign currency changes.changes, partially offset by fiscal 2020 divestiture sales of $22 million. The organic volume growth was primarily due to organic growth investments and recovery of certain markets that had previously been facing COVID-19 headwinds.
Consumer Packaging | Fiscal Year | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | |
Net sales | | $ | 2,463 | | | $ | 2,351 | | | $ | 112 | | | | 5 | % |
Operating income | | $ | 191 | | | $ | 200 | | | $ | (9 | ) | | | (5 | )% |
Operating income percentage of net sales | | | 8 | % | | | 9 | % | | | | | | | | |
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, an increase from foreign currency changes, and an increase in depreciation, partially offset by a decrease in business integration activities and fiscal 2020 divestiture cost of goods sold.
Operating Income: The operating income increase is primarily attributed to a $23 million increase from the organic volume growth, a $40 million favorable impact from foreign currency, and an $18 million decrease in business integration activities, partially offset by a $33 million unfavorable impact from price cost spread.
Consumer Packaging North America | | Fiscal Year | | | | | | | |
| | 2021 | | | 2020 | | | $ Change | | | % Change | |
Net sales | | $ | 3,141 | | | $ | 2,560 | | | $ | 581 | | | | 23 | % |
Cost of goods sold | | | 2,632 | | | | 2,051 | | | | 581 | | | | 28 | % |
Other operating expenses | | | 233 | | | | 234 | | | | (1 | ) | | | — | |
Operating income | | $ | 276 | | | $ | 275 | | | $ | 1 | | | | 0 | % |
Net sales: The net sales growth in the Consumer Packaging North America segment grew by $112 millionis primarily attributed to organic sales growth.volume growth of 4%, increased selling prices of $439 million due to the pass through of inflation, and a $40 million increase from extra shipping days in fiscal 2021. The organic volume growth was primarily due to organic growth investments and advantaged foodservice products as the result of COVID-19.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, and an increase from extra shipping days in fiscal 2021.
Operating Income: The operating income being flat is primarily attributed to a $27 million increase from the organic volume growth, an $11 million decrease in business integration activities, and a decrease in depreciation and amortization, partially offset by a $43 million unfavorable impact from price cost spread.
Engineered Materials | | Fiscal Year | | | | | | | |
| | 2021 | | | 2020 | | | $ Change | | | % Change | |
Net sales | | $ | 3,309 | | | $ | 2,766 | | | $ | 543 | | | | 20 | % |
Cost of goods sold | | | 2,794 | | | | 2,209 | | | | 585 | | | | 26 | % |
Other operating expenses | | | 214 | | | | 221 | | | | (7 | ) | | | (3 | )% |
Operating income | | $ | 301 | | | $ | 336 | | | $ | (35 | ) | | | (10 | )% |
Net sales: The net sales growth in the Engineered Materials segment is primarily attributed to increased selling prices of $81$475 million due to the pass through of higherinflation, organic volume growth of 4%, a $63 million favorable impact from foreign currency changes, and a $44 million increase from extra shipping days in fiscal 2021, partially offset by fiscal 2020 divestiture sales of $134 million. The organic volume growth was primarily due to organic growth investments and recovery of certain markets that had previously been facing COVID-19 headwinds.
Cost of goods sold: The cost of goods sold increase is attributed to inflation, organic volume growth, an increase from foreign currency changes, and a 1% volume improvement.an increase from extra shipping days in fiscal 2021. These increases were partially offset by Fiscal 2020 divestiture cost of goods sold of $110 million.
Operating Income: The operating income decrease of $9 million is primarily attributed to a $40$49 million negativeunfavorable impact from under recoveryprice cost spread and Fiscal 2020 divestiture operating income of $14 million,partially offset by a $14 million improvement from the organic volume growth and a $6 million benefit from extra shipping days in fiscal 2021.
Health, Hygiene & Specialties | | Fiscal Year | | | | | | | |
| | 2021 | | | 2020 | | | $ Change | | | % Change | |
Net sales | | $ | 3,158 | | | $ | 2,594 | | | $ | 564 | | | | 22 | % |
Cost of goods sold | | | 2,510 | | | | 2,041 | | | | 469 | | | | 23 | % |
Other operating expenses | | | 250 | | | | 258 | | | | (8 | ) | | | (3 | )% |
Operating income | | $ | 398 | | | $ | 295 | | | $ | 103 | | | | 35 | % |
Net sales: The net sales growth in the Health, Hygiene & Specialties segment is primarily attributed to organic volume growth of 5%, increased selling prices of $385 million due to the pass through of inflation, a $42 million increase from extra shipping days in fiscal 2021, and a $41 million favorable impact from foreign currency changes, partially offset by fiscal 2020 divestiture sales of $34 million. The organic volume growth was primarily due to organic growth investments and higher demand in our advantaged health and hygiene products as the result of COVID-19.
Cost of goods sold: The cost of goods sold partially offset by a $16 million decreaseincrease is attributed to inflation, organic volume growth, an increase from extra shipping days in selling, generalfiscal 2021, and administrative expenses, a $6 million favorable impactan increase from the volume improvement, and a $6 million decrease in business integration expense.foreign currency changes.
Other expense, net | Fiscal Year | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | |
Other expense, net | | $ | 25 | | | $ | 14 | | | $ | 11 | | | | 79 | % |
Operating Income: The other expenseoperating income increase of $11 million is primarily attributed to a year over year$36 million increase of $19from the organic volume growth, a $48 million favorable impact from price cost spread, an $8 million benefit from extra shipping days in unfavorablefiscal 2021, and a favorable impact from foreign currency changes.
Other expense, net | | Fiscal Year | | | | | | | |
| | 2021 | | | 2020 | | | $ Change | | | % Change | |
Other expense, net | | $ | 51 | | | $ | 31 | | | $ | 20 | | | | 65 | % |
The Other expense increase is primarily attributed to foreign currency changes related to the remeasurement of non-operating intercompany balances, partially offset by an $8 million decrease in debt extinguishment expense related to fewer term loan modifications in 2018 compared to 2017.balances.
Interest expense | Fiscal Year | | | | | | |
Interest expense, net | | | Fiscal Year | | | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | | | 2021 | | | 2020 | | | $ Change | | | % Change | |
Interest expense, net | | $ | 259 | | | $ | 269 | | | $ | (10 | ) | | | (4 | )% | | $ | 336 | | | $ | 435 | | | $ | (99 | ) | | | (23 | )% |
The interest expense decrease is primarily the result of $10 millionrepayments on long-term borrowings and recent refinancing activities (see Note 3).
Income tax expense | | Fiscal Year | | | | | | | |
| | 2021 | | | 2020 | | | $ Change | | | % Change | |
Income tax expense | | $ | 172 | | | $ | 154 | | | $ | 18 | | | | 12 | % |
The income tax expense increase is primarily attributed to reduced interest rates resulting from the term loan modifications, partially offset by additional expenses attributed to the $500 million 4.5% second priority senior secured notes (see Note 3).
Income tax (benefit) expense | Fiscal Year | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | |
Income tax (benefit) expense | | $ | (19 | ) | | $ | 109 | | | $ | (128 | ) | | | (117 | )% |
The income tax decrease of $128 million is primarily attributed to the $124 million provisional transition benefit recorded in fiscal 2018 as a result of the recent U.S. tax legislation (see Note 8). After the exclusion of the tax reform benefit, ourhigher pre-tax book income. Our effective tax rate for fiscal 2021 was 22%19% and was positively impacted by 3% from permanent foreign currency differences and 2% from the share-based compensation excess tax benefit, 2% from the release ofchange in foreign valuation allowances, 1% from research and development credits, and a 1% benefit from the domestic manufacturing deduction.allowance. These favorable items were partially offset by increases of 3% from U.S. state taxes and other discrete items. Refer to Note 6. Income Taxes for further information.
Comprehensive Income | Fiscal Year | | | | | | | Fiscal Year | | | | | | | |
| 2018 | | 2017 | | $ Change | | % Change | | | 2021 | | | 2020 | | | $ Change | | | % Change | |
Comprehensive Income | | $ | 408 | | | $ | 420 | | | $ | (12 | ) | | | (3 | %) | | $ | 988 | | | $ | 394 | | | $ | 594 | | | | 151 | % |
The $12 million decreaseincrease in comprehensive income is primarily attributed to a $161 million decrease in currency translation and a $35 million decrease in unrealized gains on the Company's pension plans, partially offset by a $156$174 million increase in net income, and a $21$123 million favorable change in currency translation, a $188 million favorable change in the fair value of interest rate hedges.hedges and a $109 million favorable change from unrealized gains on the Company’s pension plans. Currency translation gains are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. Dollardollar whereby assets and liabilities are translated from the respective functional currency into U.S. Dollarsdollars using period-end exchange rates. The change in currency translation was primarily attributed to locations utilizing the Euro,euro, British pound sterling, Brazilian Real,real and Canadian DollarChinese renminbi as their functional currency. The change in unrealized gains on pension plans in the current period were primarily attributable to actuarial losses from an increase in the underlying discount rate. As part of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest rates attributed to the Company'sCompany’s floating-rate borrowings and records changes to the fair value of these instruments in Accumulated other comprehensive income.income (loss). The change in fair value of these instruments in fiscal 20182021 versus fiscal 20172020 is primarily attributed to a change in the forward interest curve between measurement dates.
Discussion of Results of Operations for Fiscal 2017 Compared to Fiscal 2016
Acquisition sales and operating income disclosed within this section represents the historical results from acquisitions for the comparable prior year period. The remaining change disclosed represents the changes from the prior period on a combined basis. Business integration expenses consist of restructuring and impairment charges, acquisition related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Net sales | | $ | 7,095 | | | $ | 6,489 | | | $ | 606 | | | | 9 | % |
Operating income | | $ | 732 | | | $ | 581 | | | $ | 151 | | | | 26 | % |
Operating income percentage of net sales | | | 10 | % | | | 9 | % | | | | | | | | |
The net sales increase of $606 million is primarily attributed to acquisition net sales of $788 million and selling price increases of $60 million due to the pass through of higher resin prices, partially offset by a negative $136 million impact from a 2% base volume decline, $98 million from extra days in fiscal 2016, and a slight negative impact from foreign currency changes.
The operating income increase of $151 million is primarily attributed to acquisition operating income of $62 million, a $36 million decrease in integration and restructuring costs, a $35 million decrease in selling, general and administrative expense related to synergies and cost reductions, a $24 million improvement in our product mix and price/cost spread, a $16 million decrease in depreciation and amortization, and slight benefits from improved productivity in manufacturing and changes in foreign currency. These improvements were partially offset by a $20 million impact from the base volume decline and $10 million from extra days in fiscal 2016.
Engineered Materials | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Net sales | | $ | 2,375 | | | $ | 1,627 | | | $ | 748 | | | | 46 | % |
Operating income | | $ | 316 | | | $ | 182 | | | $ | 134 | | | | 74 | % |
Operating income percentage of net sales | | | 13 | % | | | 11 | % | | | | | | | | |
Net sales in the Engineered Materials segment increased by $748 million primarily attributed to acquisition net sales of $788 million, and selling price increases of $67 million due to the pass through of higher resin prices, partially offset by a $79 million negative impact from base volume declines, and $30 million from extra days in fiscal 2016. The base volume decline is primarily attributed to our decisions to rationalize certain lower margin products that we acquired from AEP in order to maximize earnings.
The operating income increase of $134 million is primarily attributed to acquisition operating income of $62 million, a $71 million improvement in our product mix and price/cost spread, a $13 million decrease in selling, general and administrative expenses, and slight benefits from improved productivity in manufacturing and changes in foreign currency, partially offset by a negative $8 million impact from lower base volumes, a $6 million increase in depreciation and amortization expense, and $4 million from extra days in fiscal 2016.
Health, Hygiene & Specialties | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Net sales | | $ | 2,369 | | | $ | 2,400 | | | $ | (31 | ) | | | (1 | )% |
Operating income | | $ | 216 | | | $ | 196 | | | $ | 20 | | | | 10 | % |
Operating income percentage of net sales | | | 9 | % | | | 8 | % | | | | | | | | |
Net sales in the Health, Hygiene & Specialties segment decreased by $31 million primarily attributed to extra days in fiscal 2016 of $25 million, selling price decreases of $23 million, and a slightly negative impact from foreign currency changes, partially offset by a $26 million positive impact from base volume improvements.
The operating income increase of $20 million is primarily attributed to a $27 million decrease in business integration and restructuring costs associated with the Avintiv acquisition, a $13 million improvement in productivity in manufacturing, a $12 million decrease in depreciation and amortization expense, a $5 million impact from base volumes, a $5 million decrease in selling, general and administrative expenses, and a slight benefit from changes in foreign currency. These improvements were partially offset by a $45 million decrease in our product mix and price/cost spread primarily related to inflation and market pressures within our South American business.
Consumer Packaging | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Net sales | | $ | 2,351 | | | $ | 2,462 | | | $ | (111 | ) | | | (5 | )% |
Operating income | | $ | 200 | | | $ | 203 | | | $ | (3 | ) | | | (1 | )% |
Operating income percentage of net sales | | | 9 | % | | | 8 | % | | | | | | | | |
Net sales in the Consumer Packaging segment decreased by $111 million primarily attributed to an $83 million negative impact from base volumes and $43 million from extra days in fiscal 2016, partially offset by selling price increases of $15 million due to the pass through of higher resin prices. The volume decline was primarily attributed to general market softness and our continued focus on volume, price, and mix in order to optimize earnings.
The operating income decrease of $3 million is primarily attributed to a base volume decline of $17 million, an $11 million negative impact from productivity in manufacturing, $5 million from extra days in fiscal 2016, and a slight decrease in our product mix and price/cost spread, partially offset by a $17 million decrease in selling, general and administrative expenses related to synergies from cost reductions, a $10 million decrease in depreciation and amortization expense, and a $5 million decrease in business integration and restructuring expense.
Other expense (income), net | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Other expense (income), net | | $ | 14 | | | $ | (18 | ) | | $ | 32 | | | | (178 | )% |
The other expense (income) increase of $32 million is primarily attributed to a $10 million non-cash defined benefit pension plan settlement, a $6 million charge related to a valuation adjustment to the tax receivable agreement in fiscal 2017, a year over year decline of $17 million in transactional foreign currency gains related to the remeasurement of non-operating intercompany balances, and a $6 million increase in debt extinguishment as a result of the 2017 term loan modifications.
Interest expense | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Interest expense, net | | $ | 269 | | | $ | 291 | | | $ | (22 | ) | | | (8 | )% |
The interest expense decrease of $22 million is primarily attributed to reduced interest rates resulting from the term loan modifications.
Income tax expense | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Income tax expense | | $ | 109 | | | $ | 72 | | | $ | 37 | | | | 51 | % |
The income tax expense increase of $37 million is primarily attributed to improved income before income taxes. Our effective tax rate was 24% in fiscal 2017. Our fiscal 2017 effective tax rate was lower than the U.S. federal statutory rate of 35% primarily due to a 2% benefit from lower tax rates in foreign jurisdictions, a 2% benefit from the U.S. research and development credit, a 7% benefit from share based compensation related to excess tax benefit deductions, and a 1% benefit from the Section 199 deduction. These favorable items were partially offset by an increase of 1% from the foreign valuation allowance.
Comprehensive Income | Fiscal Year | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | |
Comprehensive Income | | $ | 420 | | | $ | 207 | | | $ | 213 | | | | 103 | % |
The $213 million increase in comprehensive income is primarily attributed to a $104 million increase in net income, a $47 million increase due to unrealized gains on the Company's pension plans, net of tax, a $35 million increase in currency translation gains, and a $27 million favorable change in the fair value of interest rate hedges, net of tax. Currency translation gains 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 gains were primarily attributed to locations utilizing the Euro, Pound Sterling, and Brazilian Real as their functional currency. Unrealized gains on pension plans in the current period were primarily attributable to actuarial gains from an increase in the underlying discount rate. As part of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest rates attributed to the Company's floating-rate borrowings and records changes to the fair value of these instruments in Accumulated other comprehensive income. The change in fair value of these instruments in fiscal 2017 versus fiscal 2016 is primarily attributed to a change in the forward interest curve 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 $750an $850 million asset-based revolving line of credit that matures in May 2020.2024. At the end of fiscal 2018,2021, the Company had no outstanding balance on the revolving credit facility. The Company was in compliance with all covenants at the end of fiscal 2018 (see2021. Refer to Note 3).3. Long-Term Debt for further information.
Contractual Obligations and Off Balance Sheet Transactions
Our contractual cash obligations at the end of fiscal 2018 are summarized in the following table which does not give any effect to taxes as we cannot reasonably estimate the timing of future cash outflows.
| | Payments due by period as of the end of fiscal 2018 | |
| | Total | | | < 1 year | | | 1-3 years | | | 4-5 years | | | > 5 years | |
Long-term debt, excluding capital leases | | $ | 5,752 | | | $ | 5 | | | $ | 1,624 | | | $ | 2,455 | | | $ | 1,668 | |
Capital leases (a) | | | 149 | | | | 37 | | | | 59 | | | | 34 | | | | 19 | |
Fixed interest rate payments | | | 599 | | | | 110 | | | | 220 | | | | 187 | | | | 82 | |
Variable interest rate payments (b) | | | 530 | | | | 156 | | | | 246 | | | | 119 | | | | 9 | |
Operating leases | | | 420 | | | | 67 | | | | 107 | | | | 81 | | | | 165 | |
Total contractual cash obligations | | $ | 7,450 | | | $ | 375 | | | $ | 2,256 | | | $ | 2,876 | | | $ | 1,943 | |
(a) | Includes anticipated interest of $14 million over the life of the capital leases.
|
(b) | Based on applicable interest rates in effect end of fiscal 2018.
|
Cash Flows from Operating Activities
Net cash provided by operating activities increased $29$50 million from fiscal 2017 primarily attributed to the settlement of interest rate hedges, improved net income before depreciation, amortization and the net impact of the Tax Act.
Net cash provided by operating activities increased $118 million from fiscal 20162020 primarily attributed to improved net income before depreciation, amortization and otherprior to non-cash charges.activities, partially offset by working capital inflation.
Cash Flows from Investing Activities
Net cash used in investing activities increased $261$195 million from fiscal 20172020 primarily attributed to increased capital expenditures and higher acquisition spending compared to fiscal 2017.
Net cash used in investing activities decreased $1,805 millionproceeds from fiscal 2016 primarily attributed to the Avintiv acquisitionsettlement of cross-currency derivatives in fiscal 2016,2020, partially offset byfor the AEP and Adchem acquisitionsdivestiture of business in fiscal 2017.2021.
Cash Flows from Financing Activities
Net cash fromused in financing activities increased $339decreased $479 million from fiscal 20172020 primarily attributed to lower net repayments ofon long-term borrowings and a lower tax receivable agreement payment in fiscal 2018, partially offset by fiscal 2018 payments to repurchase common stock.borrowings.
Net cash from financing activities decreased $2,043 million from fiscal 2016 primarily attributed to 2016 net borrowings related to the Avintiv acquisition and $78 million purchase of noncontrolling interest, partially offset by a higher tax receivable agreement payment in fiscal 2017.
Share Repurchases
The Company'sCompany did not have any share repurchases totaled $35 million in fiscal 2018. The repurchases were completed using existing liquidity (see Note 12).2021 or 2020.
Adjusted Free Cash Flow
We define "Adjusted free"free cash flow" as cash flow from operating activities less net additions to property, plant and equipment and payments of the tax receivable agreement.equipment. Based on our definition, our consolidated adjusted free cash flow is summarized as follows:
| | Years Ended | |
| | September 29, 2018 | | | September 30, 2017 | | | October 1, 2016 | |
Cash flow from operating activities | | $ | 1,004 | | | $ | 975 | | | $ | 857 | |
Net additions to property, Additions to property, plant and equipment, net | | | (333 | ) | | | (263 | ) | | | (283 | ) |
Payments of tax receivable agreement | | | (37 | ) | | | (111 | ) | | | (57 | ) |
Adjusted free cash flow | | $ | 634 | | | $ | 601 | | | $ | 517 | |
| | Fiscal years ended | |
| | October 2, 2021 | | | September 26, 2020 | |
Cash flow from operating activities | | $ | 1,580 | | | $ | 1,530 | |
Additions to property, plant and equipment, net | | | (676 | ) | | | (583 | ) |
Free cash flow | | $ | 904 | | | $ | 947 | |
Adjusted free cash flow, as presented in this document, is a supplemental financial measure that is not required by, or presented in accordance with, generally accepted accounting principles in the U.S. ("GAAP"). Adjusted free cash flow is not a GAAP financial measure and should not be considered as an alternative to cash flow from operating activities or any other measure determined in accordance with GAAP. We use Adjusted free cash flow as a supplemental measure of liquidity becauseas it assists us in assessing our company's ability to fund its growth through its generation of cash, and believe it is useful to investors for such purpose. In addition, Adjusted free cash flow and similar measures are widely used by investors, securities analysts and other interested parties in our industry to measure a company's liquidity. Adjusted freecash. Free cash flow may be calculated differently by other companies, including other companies in our industry or peer group, limiting its usefulnessusefulness. Free cash flow is not a generally accepted accounting principles (“GAAP’) financial measure and should not be considered as a comparative measure.an alternative to any other measure determined in accordance with GAAP.
Liquidity Outlook
At the end of fiscal 2018,2021, our cash balance was $381$1,091 million, of which approximately 64% was primarily located outside the U.S. The Company has deemed cash located outside the U.S. to be indefinitely reinvested and will use for future international expansion. 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 overwith the next twelve months. We do not expect our free cash flow to be sufficientexception of funds needed to cover all long-term debt obligations andwhich we intend to refinance these obligations 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 $1.1 billion at the end of fiscal 2021. The computation of the deferred tax liability associated with unremitted earnings is not practicable.
In addition to projecting continued strong cash flow from operations
Summarized Guarantor Financial Information
Berry Global, Inc. (“Issuer”) has notes outstanding which are fully, jointly, severally, and adjusted free cash flows, basedunconditionally 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 current market conditions we anticipate continuing to repurchase our sharesa 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 first quartercase of fiscal 2019.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 | |
| | October 2, 2021 | |
Net sales | | $ | 7,070 | |
Gross profit | | | 1,503 | |
Earnings from continuing operations | | | 318 | |
Net income | | $ | 318 | |
Includes $15 million of income associated with intercompany activity with non-guarantor subsidiaries.
| | October 2, 2021 | | | September 26, 2020 | |
Assets | | | | | | |
Current assets | | $ | 2,293 | | | $ | 1,417 | |
Noncurrent assets | | | 5,979 | | | | 6,153 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current liabilities | | $ | 1,533 | | | $ | 841 | |
Intercompany payable | | | 629 | | | | 572 | |
Noncurrent liabilities | | | 11,083 | | | | 11,936 | |
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. Our estimates and judgments are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Accrued RebatesPensions. We offer various rebates The accounting for our pension plans requires us to our customers in exchange for their purchases. These rebate programs are individually negotiated with our customers and contain a variety of different terms and conditions. Certain rebates are calculated as flat percentages of purchases, while others include tiered volume incentives. These rebates may be payable monthly, quarterly,recognize the overfunded or annually. The calculationunderfunded status of the accrued rebatepension plans on our balance involvessheet. For these sponsored plans, the relevant accounting guidance requires that management estimates, especially wheremake certain assumptions relating to the termslong-term rate of the rebate involve tiered volume levels that require estimates of expected annual sales. These provisions are basedreturn on estimates derived from current program requirements and historical experience. We use all available information when calculating these reserves. Our accrual for customer rebates was $58 million and $58 million as of the end of fiscal 2018 and 2017, respectively.
Goodwill and Other Indefinite Lived Intangible Assets. We evaluate goodwill using a qualitative assessmentplan assets, discount rates used to determine whether it is more likely than not that the fairpresent value of any reporting unit is less that the carrying amount. If we determine that the fair value of the reporting unit may be less than its carrying amount, we evaluate the goodwill of that reporting unit using the one-step impairment test. Otherwise, we conclude that no impairment is indicatedfuture obligations and no further impairment test is performed.
For purposes of conducting our evaluation, we have seven reporting units, Health, Hygiene & Specialties ("HHS") – North America ("NA"), HHS – South America ("SA"), HHS – Europe ("EU"), HHS – Asia ("AS"), Consumer Packaging, Engineered Materials,expenses, salary inflation rates, mortality rates and Tapes.other assumptions. We determined that each of the components within our respective reporting units should be aggregated and tested at the respective level as one reporting unit. We reached this conclusion, because within each of our reporting units we have similar products, production processes, markets served, geographic region, and/or management oversight which allows us to share assets and resources across the components. We regularly re-align our production equipment and manufacturing facilities in order to take advantage of cost savings opportunities, obtain synergies and create manufacturing efficiencies. We utilize our research and development centers, design center, tool shops, and graphics center which all provide benefits to each of the reporting units and work on new products that can benefit multiple components. We also believe that the goodwillaccounting 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. The selection of assumptions is recoverable frombased on historical trends and known economic and market conditions at the overall operationstime of valuation, as well as independent studies of trends performed by our actuaries.
We review annually the unit givendiscount rate used to calculate the synergies from leveraging the combined resources, common raw materials, common research and development, similar margins, management oversight and similar distribution methodologies.
In conducting a qualitative assessment, we analyze a variety of events or factors that may influence the fairpresent value of the reporting unit, including, but not limited to the results of prior quantitative tests performed; changes in the carrying amount of the reporting unit; operating results; relevant market data for both the Company and its peer companies; industry outlooks; macroeconomic conditions; liquidity; changes in key personnel; and our competitive position. Significant judgmentpension plan liabilities. The discount rate used at each measurement date is used to evaluate the totality of these events and factors to make the determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.
We completed our qualitative screen as of the first day of the fourth fiscal quarter and determined that it was more likely than not that the fair value of each of our reporting units, with the exception of HHS-SA, was greater than the carrying value. We reached this conclusion based on strong valuations within the packaging industry and operating results of our reporting units.
Based on continued macroeconomic pressures in South America, we concluded that step one was necessary for our HHS-SA reporting unit. The reporting unit's fair value is estimatedset 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 and a discounted cash flow analysis and is reconciled back to set the current market capitalization for Berry to ensure thatdiscount rate. Additionally, the implied control premium is reasonable. Our forecasts included overall revenue growth of 2% increasing to 4% in the terminal year, margins consistent with historical results, a discountexpected long term rate of 14% appliedreturn on plan assets is derived for each benefit plan by considering the expected future long-term return assumption for each individual asset class. A single long-term return assumption is then derived for each plan based upon the plan’s target asset allocation. Refer to the forecasted cash flows, and capital expenditure levels consistent with historical spend. The fair value of the HHS-SA reporting unit exceeded its carrying value by 11% and thus no impairment was recorded. However, future declines in valuation market multiples, sustained lower earnings, or macroeconomic challenges could impact future impairment tests or may require a more frequent assessment.Note 7. Retirement Plans for further information.
The Company's fair value, carrying value, and goodwill balance for the HHS-SA reporting unit subject to step one of the annual goodwill impairment test for fiscal 2018 is as follows:
| Fair Value July 1, 2018 | | Carrying Value July 1, 2018 | | Goodwill as of September 29, 2018 | |
HHS – South America | | | 380 | | | | 342 | | | | 86 | |
We also performed our annual impairment test for fiscal 2018 of our indefinite lived intangible assets, which relates to the "Berry Global," "Reemay," "Typar," and "Chicopee" trade names. We performed a qualitative screen for the Berry Global tradename, which totaled $207 million at September 29, 2018 and a quantitative assessment for the recently acquired Avintiv tradenames that were valued on October 1, 2015 when acquired. The fair value is estimated based on the income approach using the revenue streams associated with each trade name. Our forecasted revenue growth for the Berry Global trade name ranged from 0-3% through and including the terminal year. In conducting our qualitative screen, we did not observe any changes in our long-term forecasted revenue growth for the Reemay and Typar trade names which ranged from 3-4%, and for the Chicopee trade name which was 1%. Future declines in revenue or operating performance could impact future impairment tests and our ability to recover the fair value of our indefinite lived tradenames.
Deferred Taxes and Effective Tax Rates. We estimate the effective tax rate ("ETR"(“ETR”) and associated liabilities or assets for each of our legal entities of ours in accordance with authoritative guidance. We useutilize 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. For interim periods, we accrue our tax provision at the ETR that we expect for the full year. As the actual results from our various businesses vary from our estimates earlier in the year, we adjust the succeeding interim periods' ETRs to reflect our best estimate for the year-to-date results and for the full year. As part of the ETR, if we determine that a deferred tax asset arising from temporary differences is not likely to be utilized, we will establish a valuation allowance against that asset to record it at its expected realizable value. In multiple foreign jurisdictions, the Company believes that it will not generate sufficient future taxable income to realize the related tax benefits. The Company has provided a full valuation allowance against its foreign net operating losses included within the deferred tax assets in multiple foreign jurisdictions. The Company has not provided a valuation allowance on its federal net operating losses in the U.S. because it has determined that future reversals of its temporary taxable differences will occur in the same periods and are of the same nature as the temporary differences giving rise to the deferred tax assets. Changes in our valuation allowance could also impact our tax receivable agreement obligation. Our valuation allowance against deferred tax assets was $93 million as of the fiscal years ended 2018 and 2017.Refer to Note 6. Income Taxes for further information.
Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective of the Company and its consolidated subsidiaries. This is not to suggest that other risk factors such as changes in economic conditions, changes in material costs, our ability to pass through changes in material costs, and others could not materially adversely impact our consolidated financial position, results of operations and cash flows in future periods.
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Risk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities. At September 29, 2018,As of October 2, 2021, our senior secured credit facilities are comprised of $3.7(i) $3.4 billion in term loans and a $750(ii) an $850 million revolving credit facility with no borrowings outstanding. The borrowingsBorrowings under theour senior secured credit facilities bear interest at a rate equal to an applicable margin plus LIBOR. The applicable margin for LIBOR rate borrowings under the revolving credit facility ranges from 1.25% to 1.75%1.50%, and the margin for the term loans range fromis 1.75% to 2.00% per annum. At September 29, 2018,As of October 2, 2021, the LIBOR rate of approximately 2.23%0.08% was applicable to the term loans. A 0.25% change in LIBOR would increase our annual interest expense by $6$3 million on variable rate term loans.
We seek to minimize interest rate volatility 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. As of year-end,October 2, 2021, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.000%1.398%, with an effective date in May 2017 and expiration in May 2022 andJune 2026, (ii) a $1 billion$400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.808%1.916% with an effective dateexpiration in June 2018 and2026, (iii) an $884 million interest rate swap transaction that swaps a one month variable LIBOR contract for a fixed annual rate of 1.857%, with an expiration in September 2021.June 2024, and (iv) a $473 million interest rate swap transaction that swaps a one month variable LIBOR contract for a fixed annual rate of 2.050%, with an expiration in June 2024.
Foreign Currency Exchange RatesRisk
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, Argentine peso, Chinese renminbi, Canadian dollar and Mexican peso. Significant fluctuations in currency exchange 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 a negative $6$44 million unfavorable impact on ourfiscal 2021 Net income.
In November 2017, we entered intoThe Company is party to certain cross-currency swap agreements with a notional amount of 250 million euroswaps to effectively converthedge a portion of our fixed-rate USD denominated term loans, including the monthly interest payments, to fixed-rate euro denominated debt.foreign currency risk. The swap agreements mature May 2022. The risk management objective is2022 (€250 million) and June 2024 (€1,625 million) and July 2027 (£700 million). In addition to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currencies and reduce the variability in the functional currency cash flows ofcross-currency swaps, we hedge a portion of our term loans. In the future, we may attempt to manage our foreign currency risk on our anticipated cash movements by entering intodesignating foreign currency forward contracts to offset potentialdenominated long-term debt as net investment hedges of certain foreign exchange gains or losses.operations. As of October 2, 2021, we had outstanding long-term debt of €785 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries.
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
| Page |
| 2321 |
| 2523 |
| 2624 |
| 2725 |
| 2826 |
| 2927 |
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 |
Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. | CONTROLS AND PROCEDURES |
Item 9A.CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.procedures
We maintain "disclosure“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 designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
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 September 29, 2018.October 2, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company'sCompany’s disclosure controls and procedures were effective as of September 29, 2018.October 2, 2021.
Management'sManagement’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. BecauseUnder the supervision and with the participation of its inherent limitations,our management, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is 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. In making this assessment, management usedusing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013 Framework)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 2, 2021.
The Company acquired Clopay and Laddawn during fiscal 2018, and management has excluded Clopay and Laddawn'seffectiveness of our internal control over financial reporting from our assessment of the effectiveness of our internal control as of September 29, 2018. Clopay and Laddawn represent approximately 8% and 6% of total and net assets, respectively, as of September 29, 2018 and 4% and 2% of net sales and net income, respectively, forOctober 2, 2021, has been audited by the year then ended.
Based on this assessment, management concluded that as of September 29, 2018, the Company's internal control over financial reporting was effective. The Company'sCompany’s independent registered public accounting firm, provided an attestationas stated in their report, on the Company's internal controls over financial reporting, which appears on page 24 of this Form 10-K.is included herein.
Changes in Internal Controls over Financial Reporting
The Company is in the process of implementing our standardized control procedures within Clopay and Laddawn and expects this to be completed during fiscal 2019.
There were no other changes in our internal control over financial reporting that occurred during the quarter ended September 29, 2018October 2, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. | OTHER INFORMATION |
Item 9B.OTHER INFORMATION
None.
Item 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
Item 10. | DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT, AND CORPORATE GOVERNANCE |
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 20192022 Annual Meeting of Stockholders.
Code of Ethics
We have a Global Code of Business Ethics that applies to all directors and employees, including our Chief Executive Officer and senior financial officers. These standards are designed to deter wrongdoing and to promote the highest ethical, moral, and legal conduct of all employees. 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. The Supplemental Code of Ethics sets the expectations as to how our senior leaders conduct themselves in dealings with the Company, customers, suppliers and coworkers and it further defines our commitment to compliance with the Company's policies, procedures and government regulations. 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'sCompany’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 |
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 20192022 Annual Meeting of Stockholders.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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 20192022 Annual Meeting of Stockholders.
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
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 20192022 Annual Meeting of Stockholders.
Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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 20192022 Annual Meeting of Stockholders.
PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
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 |
Item 16.FORM 10-K SUMMARY
None.
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders 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 29, 2018,October 2, 2021 and September 30, 2017, and26, 2020, the related consolidated statements of income, comprehensive income, changes in stockholders'stockholders’ equity and cash flows for each of the three years in the period ended September 29, 2018,October 2, 2021, and the related notes (collectively referred to as the "financial statements"“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Berry Global Group, Inc.the Company at September 29, 2018October 2, 2021 and September 30, 2017,26, 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2018,October 2, 2021, 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) (the "PCAOB")(PCAOB), Berry Global Group, Inc.'sthe Company’s internal control over financial reporting as of September 29, 2018,October 2, 2021, 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 16, 201818, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’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 U.S. 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 Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| | United Kingdom Defined Benefit Pension Obligation |
| | |
Description of the Matter | | At October 2, 2021 the aggregate United Kingdom (UK) defined benefit pension obligation was $888 million and exceeded the fair value of pension plan assets of $828 million, resulting in an underfunded defined benefit pension obligation of $60 million. As disclosed in Notes 1 and 8 to the consolidated financial statements, the Company recognizes the overfunded or underfunded status of its pension plans in the consolidated balance sheet. The obligations 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 and testing the completeness and accuracy of the underlying data, including the participant data used by management. 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 Berry Global Group, Inc.'sthe Company’s auditor since 1991.
Indianapolis, Indiana
November 16, 2018
18, 2021
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of Berry Global Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Berry Global Group, Inc.'s’s internal control over financial reporting as of September 29, 2018,October 2, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission "(2013(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 September 29, 2018,October 2, 2021, based on the COSO criteria.
As indicated in the accompanying Management's Report on Internal Controls over Financial Reporting, management's assessment and conclusion of the effectiveness of internal control over financial reporting did not include the internal controls of Clopay Plastic Products Company, Inc. and Laddawn, Inc., which are included in the 2018 consolidated financial statements of the Company and constituted 8% and 6% of total and net assets, respectively, as of September 29, 2018 and 4% and 2% of net sales and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Clopay and Laddawn.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the "PCAOB")(PCAOB), the consolidated balance sheets of Berry Global Group, Inc.the Company as of September 29, 2018October 2, 2021 and September 30, 2017, and26, 2020, the related consolidated statements of income, comprehensive income, changes in stockholders'stockholders’ equity and cash flows for each of the three years in the period ended September 29, 2018,October 2, 2021, and the related notes and our report dated November 16, 201818, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company'sCompany’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'sManagement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’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 U.S. 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'scompany’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 U.S. generally accepted accounting principles. A company'scompany’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 U.S. 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'scompany’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 16, 201818, 2021
Consolidated Statements of Income
(in millions of dollars)
| | Fiscal years ended | | | Fiscal years ended | |
| | September 29, 2018 | | | September 30, 2017 | | | October 1, 2016 | | | October 2, 2021 | | | September 26, 2020 | | | September 28, 2019 | |
Net sales | | $ | 7,869 | | | $ | 7,095 | | | $ | 6,489 | | | $ | 13,850 | | | $ | 11,709 | | | $ | 8,878 | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of goods sold | | | 6,438 | | | | 5,691 | | | | 5,202 | | | | 11,352 | | | | 9,301 | | | | 7,259 | |
Selling, general and administrative | | | 480 | | | | 494 | | | | 531 | | | | 867 | | | | 850 | | | | 583 | |
Amortization of intangibles | | | 154 | | | | 154 | | | | 143 | | | | 288 | | | | 300 | | | | 194 | |
Restructuring and impairment charges | | | 36 | | | | 24 | | | | 32 | | |
Restructuring and transaction activities | | | | 51 | | | | 79 | | | | (132 | ) |
Operating income | | | 761 | | | | 732 | | | | 581 | | | | 1,292 | | | | 1,179 | | | | 974 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other expense (income), net | | | 25 | | | | 14 | | | | (18 | ) | |
Interest expense, net | | | 259 | | | | 269 | | | | 291 | | |
Other expense | | | | 51 | | | | 31 | | | | 155 | |
Interest expense | | | | 336 | | | | 435 | | | | 329 | |
Income before income taxes | | | 477 | | | | 449 | | | | 308 | | | | 905 | | | | 713 | | | | 490 | |
Income tax (benefit) expense | | | (19 | ) | | | 109 | | | | 72 | | |
Income tax expense | | | | 172 | | | | 154 | | | | 86 | |
Net income | | $ | 496 | | | $ | 340 | | | $ | 236 | | | $ | 733 | | | $ | 559 | | | $ | 404 | |
Net income per share: | | | | | | | | | | | | | |
Basic (see Note 14) | | $ | 3.77 | | | $ | 2.66 | | | $ | 1.95 | | |
Diluted (see Note 14) | | $ | 3.67 | | | $ | 2.56 | | | $ | 1.89 | | |
Net income per share (refer to Note 11): | | | | | | | | | | | | | |
Basic | | | $ | 5.45 | | | $ | 4.22 | | | $ | 3.08 | |
Diluted | | | $ | 5.30 | | | $ | 4.14 | | | $ | 3.00 | |
Berry Global Group, Inc.
Consolidated Statements of Comprehensive Income
(in millions of dollars)
| | Fiscal years ended | | | Fiscal years ended | |
| | September 29, 2018 | | | September 30, 2017 | | | October 1, 2016 | | | October 2, 2021 | | | September 26, 2020 | | | September 28, 2019 | |
Net income | | $ | 496 | | | $ | 340 | | | $ | 236 | | | $ | 733 | | | $ | 559 | | | $ | 404 | |
Currency translation | | | (127 | ) | | | 34 | | | | (1 | ) | | | 124 | | | | 1 | | | | (104 | ) |
Pension and postretirement benefits | | | 3 | | | | 38 | | | | (23 | ) | | | 49 | | | | (60 | ) | | | (43 | ) |
Interest rate hedges | | | 49 | | | | 28 | | | | (14 | ) | |
Provision for income taxes | | | (13 | ) | | | (20 | ) | | | 9 | | |
Other comprehensive (loss) income, net of tax | | | (88 | ) | | | 80 | | | | (29 | ) | |
Derivative instruments | | | | 82 | | | | (106 | ) | | | (83 | ) |
Other comprehensive income (loss) | | | | 255 | | | | (165 | ) | | | (230 | ) |
Comprehensive income | | $ | 408 | | | $ | 420 | | | $ | 207 | | | $ | 988 | | | $ | 394 | | | $ | 174 | |
See notes to consolidated financial statements.
Consolidated Balance Sheets
(in millions of dollars)
| | September 29, 2018 | | | September 30, 2017 | | | October 2, 2021 | | | September 26, 2020 | |
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 381 | | | $ | 306 | | | $ | 1,091 | | | $ | 750 | |
Accounts receivable, net | | | 941 | | | | 847 | | |
Accounts receivable | | | | 1,879 | | | | 1,469 | |
Inventories | | | 887 | | | | 762 | | | | 1,907 | | | | 1,268 | |
Prepaid expenses and other current assets | | | 76 | | | | 89 | | | | 217 | | | | 330 | |
Total current assets | | | 2,285 | | | | 2,004 | | | | 5,094 | | | | 3,817 | |
Property, plant and equipment, net | | | 2,488 | | | | 2,366 | | |
Goodwill and intangible assets, net | | | 4,284 | | | | 4,061 | | |
Property, plant and equipment | | | | 4,677 | | | | 4,561 | |
Goodwill and intangible assets | | | | 7,434 | | | | 7,670 | |
Right-of-use assets | | | | 562 | | | | 562 | |
Other assets | | | 74 | | | | 45 | | | | 115 | | | | 91 | |
Total assets | | $ | 9,131 | | | $ | 8,476 | | | $ | 17,882 | | | $ | 16,701 | |
| | | | | | | | | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 783 | | | $ | 638 | | | $ | 2,041 | | | $ | 1,115 | |
Accrued expenses and other current liabilities | | | 416 | | | | 463 | | |
Accrued employee costs | | | | 336 | | | | 324 | |
Other current liabilities | | | | 788 | | | | 669 | |
Current portion of long-term debt | | | 38 | | | | 33 | | | | 21 | | | | 75 | |
Total current liabilities | | | 1,237 | | | | 1,134 | | | | 3,186 | | | | 2,183 | |
Long-term debt, less current portion | | | 5,806 | | | | 5,608 | | |
Long-term debt | | | | 9,439 | | | | 10,162 | |
Deferred income taxes | | | 365 | | | | 419 | | | | 568 | | | | 601 | |
Employee benefit obligations | | | | 276 | | | | 368 | |
Operating lease liabilities | | | | 466 | | | | 464 | |
Other long-term liabilities | | | 289 | | | | 300 | | | | 767 | | | | 831 | |
Total liabilities | | | 7,697 | | | | 7,461 | | | | 14,702 | | | | 14,609 | |
Commitments and contingencies | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Stockholders' equity: | | | | | | | | | |
Common stock (131.4 and 130.9 shares issued, respectively) | | | 1 | | | | 1 | | |
Stockholders’ equity: | | | | | | | | | |
Common stock (135.5 and 133.6 shares issued, respectively) | | | | 1 | | | | 1 | |
Additional paid-in capital | | | 867 | | | | 823 | | | | 1,134 | | | | 1,034 | |
Non-controlling interest | | | 3 | | | | 3 | | |
Retained earnings | | | 719 | | | | 256 | | | | 2,341 | | | | 1,608 | |
Accumulated other comprehensive loss | | | (156 | ) | | | (68 | ) | | | (296 | ) | | | (551 | ) |
Total stockholders' equity | | | 1,434 | | | | 1,015 | | |
Total liabilities and stockholders' equity | | $ | 9,131 | | | $ | 8,476 | | |
Total stockholders’ equity | | | | 3,180 | | | | 2,092 | |
Total liabilities and stockholders’ equity | | | $ | 17,882 | | | $ | 16,701 | |
See notes to consolidated financial statements.
Consolidated Statements of Changes in Stockholders'Stockholders’ Equity
(in millions of dollars)
| | Common Stock | | | Additional Paid-in Capital | | | Non-Controlling Interest | | | Accumulated Other Comprehensive Loss | | | Retained Earnings (Deficit) | | | Total | |
Balance at September 26, 2015 | | $ | 1 | | | $ | 406 | | | $ | 3 | | | $ | (119 | ) | | $ | (356 | ) | | $ | (65 | ) |
Share-based compensation expense | | | — | | | | 20 | | | | — | | | | — | | | | — | | | | 20 | |
Cumulative effect of excess tax benefit from the adoption of ASU 2016-09 | | | — | | | | — | | | | — | | | | — | | | | 36 | | | | 36 | |
Proceeds from issuance of common stock | | | — | | | | 26 | | | | — | | | | — | | | | — | | | | 26 | |
Interest rate hedge, net of tax | | | — | | | | — | | | | — | | | | (9 | ) | | | — | | | | (9 | ) |
Net income attributable to the Company | | | — | | | | — | | | | — | | | | — | | | | 236 | | | | 236 | |
Currency translation | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
Defined benefit pension and retiree health benefit plans, net of tax | | | — | | | | — | | | | — | | | | (19 | ) | | | — | | | | (19 | ) |
Other equity | | | — | | | | (3 | ) | | | — | | | | — | | | | — | | | | (3 | ) |
Balance at October 1, 2016 | | $ | 1 | | | $ | 449 | | | $ | 3 | | | $ | (148 | ) | | $ | (84 | ) | | $ | 221 | |
Share-based compensation expense | | | — | | | | 20 | | | | — | | | | — | | | | — | | | | 20 | |
Proceeds from issuance of common stock | | | — | | | | 31 | | | | — | | | | — | | | | — | | | | 31 | |
Interest rate hedge, net of tax | | | — | | | | — | | | | — | | | | 18 | | | | — | | | | 18 | |
Net income attributable to the Company | | | — | | | | — | | | | — | | | | — | | | | 340 | | | | 340 | |
Currency translation | | | — | | | | — | | | | — | | | | 34 | | | | — | | | | 34 | |
Defined benefit pension and retiree health benefit plans, net of tax | | | — | | | | — | | | | — | | | | 28 | | | | — | | | | 28 | |
Equity issuance, net (see Note 2) | | | — | | | | 323 | | | | — | | | | — | | | | — | | | | 323 | |
Balance at September 30, 2017 | | $ | 1 | | | $ | 823 | | | $ | 3 | | | $ | (68 | ) | | $ | 256 | | | $ | 1,015 | |
Share-based compensation expense | | | — | | | | 23 | | | | — | | | | — | | | | — | | | | 23 | |
Proceeds from issuance of common stock | | | — | | | | 23 | | | | — | | | | — | | | | — | | | | 23 | |
Common stock repurchased and retired | | | — | | | | (2 | ) | | | — | | | | — | | | | (33 | ) | | | (35 | ) |
Interest rate hedge, net of tax | | | — | | | | — | | | | — | | | | 36 | | | | — | | | | 36 | |
Net income attributable to the Company | | | — | | | | — | | | | — | | | | — | | | | 496 | | | | 496 | |
Currency translation | | | — | | | | — | | | | — | | | | (127 | ) | | | — | | | | (127 | ) |
Defined benefit pension and retiree health benefit plans, net of tax | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | 3 | |
Balance at September 29, 2018 | | $ | 1 | | | $ | 867 | | | $ | 3 | | | $ | (156 | ) | | $ | 719 | | | $ | 1,434 | |
| | Common Stock | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Total | |
Balance at September 29, 2018 | | $ | 1 | | | $ | 870 | | | $ | (156 | ) | | $ | 719 | | | $ | 1,434 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 404 | | | | 404 | |
Other comprehensive loss | | | 0 | | | | 0 | | | | (230 | ) | | | 0 | | | | (230 | ) |
Share-based compensation | | | 0 | | | | 27 | | | | 0 | | | | 0 | | | | 27 | |
Proceeds from issuance of common stock | | | 0 | | | | 55 | | | | 0 | | | | 0 | | | | 55 | |
Common stock repurchased and retired | | | 0 | | | | (3 | ) | | | 0 | | | | (69 | ) | | | (72 | ) |
Balance at September 28, 2019 | | $ | 1 | | | $ | 949 | | | $ | (386 | ) | | $ | 1,054 | | | $ | 1,618 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 559 | | | | 559 | |
Other comprehensive loss | | | 0 | | | | 0 | | | | (165 | ) | | | 0 | | | | (165 | ) |
Share-based compensation | | | 0 | | | | 33 | | | | 0 | | | | 0 | | | | 33 | |
Proceeds from issuance of common stock | | | 0 | | | | 30 | | | | 0 | | | | 0 | | | | 30 | |
Acquisition(a) | | | 0 | | | | 22 | | | | 0 | | | | 0 | | | | 22 | |
Adoption of ASC 842 | | | 0 | | | | 0 | | | | 0 | | | | (5 | ) | | | (5 | ) |
Balance at September 26, 2020 | | $ | 1 | | | $ | 1,034 | | | $ | (551 | ) | | $ | 1,608 | | | $ | 2,092 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 733 | | | | 733 | |
Other comprehensive income | | | 0 | | | | 0 | | | | 255 | | | | 0 | | | | 255 | |
Share-based compensation | | | 0 | | | | 40 | | | | 0 | | | | 0 | | | | 40 | |
Proceeds from issuance of common stock | | | 0 | | | | 60 | | | | 0 | | | | 0 | | | | 60 | |
Balance at October 2, 2021 | | $ | 1 | | | $ | 1,134 | | | $ | (296 | ) | | $ | 2,341 | | | $ | 3,180 | |
(a) | Represents noncontrolling interest |
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(in millions of dollars)
| | | Fiscal years ended | |
| | Fiscal years ended | | | October 2, 2021 | | | September 26, 2020 | | | September 28, 2019 | |
| | September 29, 2018 | | | September 30, 2017 | | | October 1, 2016 | | | | | | | | | | |
Cash Flows from Operating Activities: | | | | | | | | | | | | | | | | | | |
Net income | | $ | 496 | | | $ | 340 | | | $ | 236 | | | $ | 733 | | | $ | 559 | | | $ | 404 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments to reconcile net cash from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation | | | 384 | | | | 367 | | | | 382 | | | �� | 566 | | | | 545 | | | | 419 | |
Amortization of intangibles | | | 154 | | | | 154 | | | | 143 | | | | 288 | | | | 300 | | | | 194 | |
Non-cash interest expense | | | 4 | | | | 9 | | | | 9 | | | | 32 | | | | 27 | | | | 1 | |
Share-based compensation expense | | | 23 | | | | 20 | | | | 20 | | | | 40 | | | | 33 | | | | 27 | |
Deferred income tax | | | (86 | ) | | | 5 | | | | 31 | | | | (73 | ) | | | (96 | ) | | | (52 | ) |
Settlement of interest rate hedge | | | 30 | | | | — | | | | — | | |
Settlement of derivatives | | | | 0 | | | | 11 | | | | 19 | |
Transaction activities | | | | 0 | | | | 0 | | | | (38 | ) |
Other non-cash operating activities, net | | | 16 | | | | 25 | | | | (9 | ) | | | 49 | | | | 42 | | | | (1 | ) |
Changes in operating assets and liabilities: | | | | | | | | | | | — | | | | | | | | | | | | | |
Accounts receivable, net | | | (53 | ) | | | (41 | ) | | | (34 | ) | |
Accounts receivable | | | | (331 | ) | | | 49 | | | | 150 | |
Inventories | | | (79 | ) | | | 10 | | | | 9 | | | | (639 | ) | | | 48 | | | | 99 | |
Prepaid expenses and other assets | | | 18 | | | | 27 | | | | 21 | | | | (30 | ) | | | (12 | ) | | | 14 | |
Accounts payable and other liabilities | | | 97 | | | | 59 | | | | 49 | | | | 945 | | | | 24 | | | | (35 | ) |
Net cash from operating activities | | | 1,004 | | | | 975 | | | | 857 | | | | 1,580 | | | | 1,530 | | | | 1,201 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | (336 | ) | | | (269 | ) | | | (288 | ) | |
Proceeds from sale of assets | | | 3 | | | | 6 | | | | 5 | | |
Acquisition of business, net | | | (702 | ) | | | (515 | ) | | | (2,283 | ) | |
Other investing activities, net | | | — | | | | 4 | | | | (13 | ) | |
Additions to property, plant and equipment, net | | | | (676 | ) | | | (583 | ) | | | (399 | ) |
Divestiture of businesses | | | | 165 | | | | 0 | | | | 326 | |
Acquisition of business and purchase price derivatives | | | | 0 | | | | (14 | ) | | | (6,178 | ) |
Settlement of net investment hedges | | | | 0 | | | | 281 | | | | 0 | |
Net cash from investing activities | | | (1,035 | ) | | | (774 | ) | | | (2,579 | ) | | | (511 | ) | | | (316 | ) | | | (6,251 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | 498 | | | | 495 | | | | 2,490 | | | | 2,716 | | | | 1,202 | | | | 6,784 | |
Repayment of long-term borrowings | | | (335 | ) | | | (636 | ) | | | (524 | ) | | | (3,496 | ) | | | (2,436 | ) | | | (1,214 | ) |
Proceeds from issuance of common stock | | | 23 | | | | 31 | | | | 26 | | | | 60 | | | | 30 | | | | 55 | |
Repurchase of common stock | | | (33 | ) | | | — | | | | — | | | | 0 | | | | 0 | | | | (74 | ) |
Payment of tax receivable agreement | | | (37 | ) | | | (111 | ) | | | (57 | ) | | | 0 | | | | 0 | | | | (38 | ) |
Debt financing costs | | | (3 | ) | | | (5 | ) | | | (40 | ) | | | (21 | ) | | | (16 | ) | | | (87 | ) |
Purchase of non-controlling interest | | | — | | | | — | | | | (78 | ) | |
Net cash from financing activities | | | 113 | | | | (226 | ) | | | 1,817 | | | | (741 | ) | | | (1,220 | ) | | | 5,426 | |
Effect of currency translation on cash | | | (7 | ) | | | 8 | | | | — | | | | 13 | | | | 6 | | | | (7 | ) |
Net change in cash and cash equivalents | | | 75 | | | | (17 | ) | | | 95 | | | | 341 | | | | 0 | | | | 369 | |
Cash and cash equivalents at beginning of period | | | 306 | | | | 323 | | | | 228 | | | | 750 | | | | 750 | | | | 381 | |
Cash and cash equivalents at end of period | | $ | 381 | | | $ | 306 | | | $ | 323 | | | $ | 1,091 | | | $ | 750 | | | $ | 750 | |
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
Background
Berry Global Group, Inc. ("Berry," "we," or the "Company") is a leading global supplier of a broad range of innovative non-woven, flexible, and rigid products used every day within consumer and industrial end markets.
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 29, 2018 ("October 2, 2021 (“fiscal 2018"2021”), September 30, 2017 ("26, 2020 (“fiscal 2017"2020”), and September 28, 2019 (“fiscal 2019”). The Company's U.S. based results for fiscal 2021 are based on a fifty-three week period. Fiscal 2020 and fiscal 2019 were fifty-two week periods. In October 1, 2016 ("fiscal 2016").2020, the Company reorganized portions of its 4 operating segments in order to better align our various businesses for future growth. The Company has recast certainall prior period amounts to conform to current reporting. The Company's customers are located principally throughout the U.S., without significant concentration with any one customer. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Fiscal 2018 and fiscal 2017 were fifty-two week periods, and fiscal 2016 was a fifty-three week period.this new reporting structure. 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. Where our ownership of consolidated subsidiaries is less than 100% the non-controlling interests are reflected in Non-controlling interest.
Revenue Recognition and Accounts Receivable
RevenueOur revenues are primarily derived from the salessale of non-woven, flexible and rigid products to customers. Revenue is recognized when performance obligations are satisfied, in an amount reflecting the consideration to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main 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 risks and rewardsrisk of ownershiploss pass to the customer. The accrual for customer thererebates was $104 million and $104 million at October 2, 2021 and September 26, 2020, respectively, and is persuasive evidence of an arrangement,included in Other current liabilities on the sales price is fixed and determinable and collection is reasonably assured. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and discounts to customers are accounted for as reductions in gross sales to arrive at net sales. In accordance with the Revenue Recognition standards of the Accounting Standards Codification ("Codification" or "ASC"), theConsolidated Balance Sheets. The Company provides for these items as reductions ofdisaggregates revenue at the later of the date of the sale or the date the incentive is offered. These provisions are based on estimates derived from current program requirementsreportable business segment, geography, and historical experience.significant product line. Refer to Note 10. Segment and Geographic Data for further information.
Shipping, handling, purchasing, receiving, inspecting, warehousing, and other costs of distributionAccounts receivable are presented in Costnet of goods sold in the Consolidated Statementsallowance for credit losses of Income.$21 million and $25 million at October 2, 2021 and September 26, 2020, respectively. The Company classifies amounts charged torecords its customers for shipping and handling in Net sales in the Consolidated Statements of Income.
Purchases of Raw Materials and Concentration of Risk
The Company's most significant raw material used in the production of its products is plastic resin. The largest supplier of the Company's total resin material requirements represented approximately 16% of purchases in fiscal 2018. The Company usescurrent expected credit losses based on a variety of suppliersfactors including historical loss experience and current customer financial condition. The changes to meet its resin requirements.our current expected credit losses, write-off activity, and recoveries were not material for any of the periods presented.
The Company has entered into various factoring agreements, including customer-based supply chain financing programs, to sell certain receivables to third-party financial institutions. Agreements which result in true sales of the transferred receivables, which occur when receivables are transferred without recourse to the Company, are reflected as a reduction of 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 $45$90 million, $45$79 million, and $48$50 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively.
Share-Based Compensation
The Company utilizes the Black-Scholes option valuation model for estimating the fair value of stock options and amortizes the estimated fair value on a straight-line basis over the requisite service period. The share-based compensation plan is more fully described in Note 12.9. Stockholders’ Equity.
Foreign Currency
For the non-U.S. subsidiaries that account in a functional currency other than U.S. Dollars,dollars, assets and liabilities are translated into U.S. Dollarsdollars 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 income (loss) within stockholders'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.
Allowance for Doubtful Accounts
The Company's accounts receivable and related allowance for doubtful accounts are analyzed in detail on a quarterly basis and all significant customers with delinquent balances are reviewed to determine future collectability. The determinations are based on legal issues (such as bankruptcy status), past history, current financial and credit agency reports, and the experience of the credit representatives. Reserves are established in the quarter in which the Company makes the determination that the account is deemed uncollectible. The Company maintains additional reserves based on its historical bad debt experience. The following table summarizes the activity for fiscal years ended for the allowance for doubtful accounts:
| | 2018 | | | 2017 | | | 2016 | |
Allowance for doubtful accounts, beginning | | $ | 13 | | | $ | 8 | | | $ | 3 | |
Acquisition allowance for doubtful accounts | | | 2 | | | | 5 | | | | 6 | |
Bad debt expense | | | 1 | | | | 1 | | | | 1 | |
Write-offs against allowance | | | (3 | ) | | | (1 | ) | | | (2 | ) |
Allowance for doubtful accounts, ending | | $ | 13 | | | $ | 13 | | | $ | 8 | |
Accounts Receivable Factoring Agreements
The Company has entered into various factoring agreements, both in the U.S. and at a number of foreign subsidiaries, to sell certain receivables to unrelated third-party financial institutions. The Company accounts for these transactions in accordance with ASC 860, "Transfers and Servicing" ("ASC 860"). ASC 860 allows for the ownership transfer of accounts receivable to qualify for sale treatment when the appropriate criteria is met, which permits the Company to present the balances sold under the program to be excluded from Accounts receivable, net on the Consolidated Balance Sheets. Receivables are considered sold when (i) they are transferred beyond the reach of the Company and its creditors, (ii) the purchaser has the right to pledge or exchange the receivables, and (iii) the Company has surrendered control over the transferred receivables. In addition, the Company provides no other forms of continued financial support to the purchaser of the receivables once the receivables are sold.
There were no amounts outstanding from financial institutions related to U.S. based programs at September 29, 2018 or September 30, 2017. Gross amounts factored under these U.S. based programs at September 29, 2018 and September 30, 2017 were $162 million and $129 million, respectively. The fees associated with transfer of receivables for all programs were not material for any of the periods presented.
Inventories
Inventories are stated at the lower of cost or marketnet 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 20182021 and 20172020 was:
Inventories: | | 2018 | | | 2017 | | | 2021 | | | 2020 | |
Finished goods | | $ | 503 | | | $ | 428 | | | $ | 960 | | | $ | 708 | |
Raw materials | | | 384 | | | | 334 | | | | 947 | | | | 560 | |
| | $ | 887 | | | $ | 762 | | | $ | 1,907 | | | $ | 1,268 | |
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. The Company capitalized interest of $9 million, $7 million, and $6 million in fiscal 2018, 2017, and 2016, respectively. Property, plant and equipment as of fiscal 20182021 and 20172020 was:
Property, plant and equipment: | | 2021 | | | 2020 | |
Land, buildings and improvements | | $ | 1,699 | | | $ | 1,669 | |
Equipment and construction in progress | | | 6,800 | | | | 6,213 | |
| | | 8,499 | | | | 7,882 | |
Less accumulated depreciation | | | (3,822 | ) | | | (3,321 | ) |
| | $ | 4,677 | | | $ | 4,561 | |
Property, plant and equipment: | | 2018 | | | 2017 | |
Land, buildings and improvements | | $ | 875 | | | $ | 792 | |
Equipment and construction in progress | | | 4,242 | | | | 3,895 | |
| | | 5,117 | | | | 4,687 | |
Less accumulated depreciation | | | (2,629 | ) | | | (2,321 | ) |
| | $ | 2,488 | | | $ | 2,366 | |
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,“Property, Plant and Equipment,"” whenever facts and circumstances indicate that the carrying amount may not be recoverable. Specifically, this process involves comparing an asset'sasset’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. Fair value is determined based upon discounted cash flows or appraisals as appropriate. Long-lived assets that are held for sale are reported at the lower of the assets' carrying amount or fair value less costs related to the assets' disposition. We recorded impairment charges totaling $2 million and $3 million to property, plant and equipment assets to their net realizable valuables in connection with facility shutdowns during fiscal years 2017 and 2016, respectively. Impairment charges are recorded in Other expense (income), net in the Consolidated Statements of Income. There were no impairments in fiscal 2018.
Goodwill
The Company follows the principles provided by ASC 350, "Intangibles - Goodwill and Other." Goodwill is not amortized but rather reviewed annually for impairment. The Company performed its annual impairment evaluation on the first day of the fourth fiscal quarter. For purposes of conducting our annual goodwill impairment test, the Company determined that we have seven reporting units, Health, Hygiene & Specialties ("HHS") – North America ("NA"), HHS – South America ("SA"), HHS – Europe ("EU"), HHS – Asia ("AS"), Consumer Packaging, Engineered Materials, and Tapes. We determined that each of the components within our respective reporting units should be aggregated for our Consumer Packaging, Engineered Materials and Tapes reporting units. We reached this conclusion because within each of these three reporting units, we have similar products, management oversight, production processes, markets served, and/or common geographic region which allow us to share resources across the product lines. We regularly re-align our production equipment and manufacturing facilities in order to take advantage of cost savings opportunities, obtain synergies and create manufacturing efficiencies. In addition, we utilize our research and development centers, design center, tool shops, and graphics center which all provide benefits to each of the reporting units and work on new products that can benefit multiple product lines. We also believe that the goodwill is recoverable from the overall operations of the unit given our synergies from leveraging the combined resources, common raw materials, common research and development, similar margins and similar distribution methodologies. In our HHS segment, we operate in four geographical regions where our management teams for each geography oversee the operations and allocate the resources across the entire region. In fiscal year 2018, the Company applied the qualitative assessment and concluded that it was more likely than not that the fair value of each reporting unit exceeded the carrying amount except for the HHS-SA reporting unit due to continued macroeconomic pressures in South America. The Company completed step one in fiscal 2018, which concluded the fair value of the HHS-SA reporting unit exceeded its carrying value by 11% and thus no impairment was recorded. However, future declines in valuation market multiples, sustained lower earnings, or macroeconomic challenges could impact future impairment tests. In fiscal year 2017, the Company applied the qualitative assessment and concluded that it was more likely than not that the fair value of each reporting unit exceeded the carrying amount except for the HHS-SA and HHS-AS reporting units due to prior year quantitative tests performed and macroeconomic pressures in South America. The Company completed step one in fiscal 2017, which concluded the fair value of the HHS-SA and HHS-AS reporting units exceeded their carrying value by 9% and 49%, respectively, and thus no impairment was recorded. In fiscal year 2016, due to the segment realignment, the Company opted to perform a step one quantitative evaluation in accordance with ASC 350 to establish a baseline for the fair value of each reporting unit. The Company utilizes a combination of the discounted cash flow analysis and comparable company valuation methods to determine the fair values of its reporting units in accordance with ASC 820. The Company determined that the fair value of each reporting unit exceeded its carrying amount. The Company has recognized cumulative goodwill impairment charges of $165 million, which occurred in fiscal 2011.
The changes in the carrying amount of goodwill by reportable segment are as follows:
| | Consumer Packaging | | | Health, Hygiene & Specialties | | | Engineered Materials | | | Total | |
Balance as of fiscal 2016 | | $ | 1,520 | | | $ | 801 | | | $ | 85 | | | $ | 2,406 | |
Segment re-alignment | | | (110 | ) | | | 7 | | | | 103 | | | | — | |
Foreign currency translation adjustment | | | 1 | | | | 11 | | | | (1 | ) | | | 11 | |
Acquisitions, net | | | — | | | | — | | | | 358 | | | | 358 | |
Balance as of fiscal 2017 | | $ | 1,411 | | | $ | 819 | | | $ | 545 | | | $ | 2,775 | |
Foreign currency translation adjustment | | | (2 | ) | | | (26 | ) | | | 1 | | | | (27 | ) |
Acquisitions, net | | | — | | | | 109 | | | | 87 | | | | 196 | |
Balance as of fiscal 2018 | | $ | 1,409 | | | $ | 902 | | | $ | 633 | | | $ | 2,944 | |
| | Consumer Packaging International | | | Consumer Packaging North America | | | Engineered Materials | | | Health, Hygiene & Specialties | | | Total | |
Balance as of fiscal 2019 | | $ | 1,664 | | | $ | 1,691 | | | $ | 733 | | | $ | 963 | | | $ | 5,051 | |
Foreign currency translation adjustment | | | 32 | | | | 0 | | | | 0 | | | | (16 | ) | | | 16 | |
Final RPC purchase price valuation | | | 303 | | | | (151 | ) | | | 7 | | | | 0 | | | | 159 | |
Held for sale | | | 0 | | | | 0 | | | | (40 | ) | | | (13 | ) | | | (53 | ) |
Balance as of fiscal 2020 | | $ | 1,999 | | | $ | 1,540 | | | $ | 700 | | | $ | 934 | | | $ | 5,173 | |
Foreign currency translation adjustment | | | 36 | | | | 1 | | | | (1 | ) | | | 2 | | | | 38 | |
Dispositions | | | (19 | ) | | | 0 | | | | 0 | | | | 0 | | | | (19 | ) |
Balance as of fiscal 2021 | | $ | 2,016 | | | $ | 1,541 | | | $ | 699 | | | $ | 936 | | | $ | 5,192 | |
In fiscal year 2021, 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 strong valuations within the packaging industry and operating results of our reporting units, in addition to leveraging the quantitative test performed in fiscal 2020. As a result of our annual impairment evaluations the Company concluded that 0 impairment existed in fiscal 2021.
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 $43$77 million and $85 million as of fiscal 2021 and fiscal 2020, 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 | |
Balance as of fiscal 2019 | | $ | 3,407 | | | $ | 397 | | | $ | 161 | | | $ | (1,185 | ) | | $ | 2,780 | |
Foreign currency translation adjustment | | | 53 | | | | 7 | | | | 3 | | | | (2 | ) | | | 61 | |
Amortization expense | | | — | | | | — | | | | — | | | | (300 | ) | | | (300 | ) |
Final RPC purchase price valuation | | | (137 | ) | | | 118 | | | | (25 | ) | | | 0 | | | | (44 | ) |
Netting of fully amortized intangibles | | | 0 | | | | 0 | | | | (10 | ) | | | 10 | | | | 0 | |
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 | | | | 0 | |
Balance as of fiscal 2021 | | $ | 3,329 | | | $ | 525 | | | $ | 122 | | | $ | (1,734 | ) | | $ | 2,242 | |
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 1517 years. Definite lived trademarks are being amortized using the straight-line method over the estimated life of the assetassets which isare 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 assetassets which rangesrange from 5 to 14 years. The Company evaluates the remaining useful life of intangible assets on a periodic basis to determine whether events and circumstances warrant a revision to the remaining useful life. Certain trademarks that are expected to remain in use, which are indefinite lived intangible assets, are required to be reviewed for impairment annually. The Company has trademarks that total approximately $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 2021 and the relief from royalty method in fiscal 2020 and 2019 and noted no impairment in0 impairment.
Future amortization expense for definite lived intangibles as of fiscal 2018, 20172021 for the next five fiscal years is $262 million, $248 million, $236 million, $222 million, and 2016.$208 million each year for fiscal years ending 2022, 2023, 2024, 2025, and 2026, respectively.
| | Customer Relationships | | | Trademarks | | | Other Intangibles | | | Accumulated Amortization | | | Total | |
Balance as of fiscal 2016 | | $ | 1,690 | | | $ | 326 | | | $ | 182 | | | $ | (998 | ) | | $ | 1,200 | |
Adjustment for income taxes | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
Foreign currency translation adjustment | | | 6 | | | | (1 | ) | | | 1 | | | | (3 | ) | | | 3 | |
Amortization expense | | | — | | | | — | | | | — | | | | (154 | ) | | | (154 | ) |
Acquisition intangibles | | | 226 | | | | 9 | | | | 1 | | | | — | | | | 236 | |
Balance as of fiscal 2017 | | $ | 1,922 | | | $ | 335 | | | $ | 184 | | | $ | (1,155 | ) | | $ | 1,286 | |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | (17 | ) | | | (1 | ) | | | (2 | ) | | | 8 | | | | (12 | ) |
Amortization expense | | | — | | | | — | | | | — | | | | (154 | ) | | | (154 | ) |
Acquisition intangibles | | | 177 | | | | 9 | | | | 34 | | | | — | | | | 220 | |
Netting of fully amortized intangibles | | | (200 | ) | | | (50 | ) | | | (31 | ) | | | 281 | | | | — | |
Balance as of fiscal 2018 | | $ | 1,882 | | | $ | 293 | | | $ | 185 | | | $ | (1,020 | ) | | $ | 1,340 | |
Insurable Liabilities
The Company records liabilities for the self-insured portion of workers'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. Refer to Note 5. Commitments, Leases and Contingencies.
At October 2, 2021, annual lease commitments were as follows:
Fiscal Year | | Operating Leases | | | Finance Leases | |
2022 | | $ | 116 | | | $ | 15 | |
2023 | | | 100 | | | | 12 | |
2024 | | | 85 | | | | 11 | |
2025 | | | 76 | | | | 6 | |
2026 | | | 67 | | | | 6 | |
Thereafter | | | 253 | | | | 8 | |
Total lease payments | | | 697 | | | | 58 | |
Less: Interest | | | (118 | ) | | | (6 | ) |
Present value of lease liabilities | | $ | 579 | | | $ | 52 | |
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'sCompany’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'sCompany’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'sCompany’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 lossesincome (losses) include 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 | | | Interest Rate Swaps | | | Accumulated Other Comprehensive Loss | |
Balance as of fiscal 2015 | | $ | (81 | ) | | $ | (25 | ) | | $ | (13 | ) | | $ | (119 | ) |
Other comprehensive loss | | | (1 | ) | | | (25 | ) | | | (30 | ) | | | (56 | ) |
Net amount reclassified from accumulated other comprehensive income (loss) | | | — | | | | 2 | | | | 16 | | | | 18 | |
Provision for income taxes | | | — | | | | 4 | | | | 5 | | | | 9 | |
Balance as of fiscal 2016 | | $ | (82 | ) | | $ | (44 | ) | | $ | (22 | ) | | $ | (148 | ) |
Other comprehensive income | | | 34 | | | | 25 | | | | 7 | | | | 66 | |
Net amount reclassified from accumulated other comprehensive income (loss) | | | — | | | | 13 | | | | 21 | | | | 34 | |
Provision for income taxes | | | — | | | | (10 | ) | | | (10 | ) | | | (20 | ) |
Balance as of fiscal 2017 | | $ | (48 | ) | | $ | (16 | ) | | $ | (4 | ) | | $ | (68 | ) |
Other comprehensive income (loss) | | | (127 | ) | | | 9 | | | | 46 | | | | (72 | ) |
Net amount reclassified from accumulated other comprehensive income (loss) (a) | | | — | | | | (6 | ) | | | 3 | | | | (3 | ) |
Provision for income taxes | | | — | | | | — | | | | (13 | ) | | | (13 | ) |
Balance as of fiscal 2018 | | $ | (175 | ) | | $ | (13 | ) | | $ | 32 | | | $ | (156 | ) |
| | Currency Translation | | | Defined Benefit Pension and Retiree Health Benefit Plans | | | Derivative Instruments | | | Accumulated Other Comprehensive Loss | |
Balance as of fiscal 2018 | | $ | (175 | ) | | $ | (13 | ) | | $ | 32 | | | $ | (156 | ) |
Other comprehensive income (loss) | | | (104 | ) | | | 9 | | | | (107 | ) | | | (202 | ) |
Net amount reclassified from accumulated other comprehensive income (loss) | | | 0 | | | | (52 | ) | | | 24 | | | | (28 | ) |
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) | | | 0 | | | | (63 | ) | | | 31 | | | | (32 | ) |
Balance as of fiscal 2020 | | $ | (278 | ) | | $ | (116 | ) | | $ | (157 | ) | | $ | (551 | ) |
Other comprehensive income (loss) | | | 124 | | | | (5 | ) | | | 70 | | | | 189 | |
Net amount reclassified from accumulated other comprehensive income (loss) | | | 0 | | | | 54 | | | | 12 | | | | 66 | |
Balance as of fiscal 2021 | | $ | (154 | ) | | $ | (67 | ) | | $ | (75 | ) | | $ | (296 | ) |
(a) See Note 4 for further discussion on amounts reclassified out of accumulated other comprehensive income (loss) related to interest rate swaps and Note 9 for amounts reclassified related to pensions.
Accrued Rebates
The Company offers various rebates to customers based on purchases. These rebate programs are individually negotiated with customers and contain a variety of different terms and conditions. Certain rebates are calculated as flat percentages of purchases, while others included tiered volume incentives. These rebates may be payable monthly, quarterly, or annually. The calculation of the accrued rebate balance involves management estimates, especially where the terms of the rebate involve tiered volume levels that require estimates of expected annual sales. These provisions are based on estimates derived from current program requirements and historical experience. The accrual for customer rebates was $58 million and $58 million at the end of fiscal 2018 and 2017, respectively and is included in Accrued expenses and other current liabilities.
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. Periodically, the Company evaluates the discount rate and the expected return on plan assets in its defined benefit pension and retiree health benefit plans. In evaluating these assumptions, the Company considers many factors, including an evaluation of the discount rates, 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
Revenue RecognitionCredit Losses
In May 2014, the Financial Accounting Standards Board (FASB) issued a final standard on revenue recognition. Under the new standard, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In order to do so, an entity would follow the five-step process for in-scope transactions: 1) identify the contract with a customer, 2) identify the separate performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the separate performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, the provisions of the new standard are effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. An entity can apply the new revenue standard on a full retrospective approach to each prior reporting period presented or on a modified retrospective approach with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings.
The Company conducted an evaluation of contracts with key customers and the provisions under the five-step model specified by the new standard. The majority of the Company's revenue transactions consist of a single performance obligation to transfer promised goods for which revenue will be recorded consistently under both existing GAAP and the new standard. The Company evaluated whether the adoption may require acceleration of revenue for products produced byEffective September 27, 2020, the Company without an alternative use and when the Company would have a legally enforceable right of payment. Based on the Company's contract reviews, relevant laws, operational interviews, and other procedures, the Company concluded that the acceleration of revenue is required on a small number of contracts, the effects of which are not material. Accordingly, the new standard does not have a material effect on the Company's financial statements. However, adoption of the new standard will result in expanded revenue disclosures beginning in fiscal 2019. The Company plans to adopt the new standard which will be effective for the Company beginning in fiscal 2019 using the modified retrospective approach.
Leases
In February 2016, the FASB issuedadopted ASU 2016-02, Leases2016-13, Financial Instruments - Credit Losses (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new standard, the lessee of an operating lease will be required to do the following: 1) recognize a right-of-use asset and a lease liability in the statement of financial position, 2) recognize a single lease cost allocated over the lease term generally on a straight-line basis, and 3) classify all cash payments within operating activities on the statement of cash flows. Companies may adopt this standard using a modified retrospective approach or by applying a prospective approach with a cumulative-effect adjustment in the opening balance of retained earnings in the period of adoption. Amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of this standard, which will not be effective for the Company until fiscal 2020.
Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers to report the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. If a separate line item is not used to present the other components of net benefit cost, then the line item used in the income statement to present the other components of net benefit cost must be disclosed.326). The new standard is effectiverequires entities to measure all expected credit losses for interimmost financial assets held at the reporting date based on an expected loss model, which includes historical experience, current conditions, and annual periods beginning after December 15, 2017reasonable and should be applied on a retrospective basis. Early adoption is permitted.supportable forecasts. The Company does not expect the adoption of this standard todid not have a material impact on our disclosures.the Company's consolidated financial statements.
Hedges
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities in order to more closely align the results of hedge accounting with risk management activities through changes to the designation and measurement standard. The new standard is effective for interim and annual periods beginning after December 15, 2018. The effect of adoption should be reflected on all active hedges as of the beginning of the fiscal year of adoption. Early adoption is permitted. The Company has chosen to early adopt this standard for fiscal 2018, and did not experience a material impact on any of its active hedges.
Fair Value
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement. The new standard modifies disclosure requirements including removing requirements to disclose the valuation process for Level 3 measurements and adding requirements to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The new standard is effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of this standard to our disclosures.
Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point changes in assumed health care cost trend rates. The standard also adds requirements to disclose the reasons for significant gains and losses related to changes in the benefit obligations for the period and the accumulated benefit obligation (ABO) for plans with ABOs in excess of plan assets. The newCompany will adopt this standard will be effective for fiscal years ending after2022. We do not expect a material change to our disclosures.
Income Taxes
In December 15, 2020.2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740). The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The Company will adopt this standard effective for fiscal 2022. We do not expect a material change to our financial statements or disclosures.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This standard provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. ASU 2020-04 is effective upon issuance and generally can be applied through the end of calendar year 2022. The Company is currently evaluating whether it plans to adopt the impact of the adoption ofoptional expedients and exceptions provided under this standard to our disclosures.new standard.
2. AcquisitionsDispositions
Laddawn, Inc.
In August 2018,During fiscal 2021, the Company acquired Laddawn, Inc. ("Laddawn") for a purchase pricecompleted the sale of $242 million,its U.S. Flexible Packaging Converting business which is preliminary and subject to adjustment. Laddawn is a custom bag and film manufacturer with a unique-to-industry e-commerce sales platform. The acquired business iswas primarily operated in ourthe Engineered Materials segment. To financesegment for net proceeds of $140 million and was classified as held for sale in the purchase, the Company used existing liquidity. The acquisition has been accounted for under the purchase methodprior year with assets of accounting and accordingly, the purchase price has been allocated to the identifiable$162 million in other current assets and liabilities based on preliminary estimates of fair value at$25 million in other current liabilities. Additionally, the acquisition date. The results of Laddawn have been includedCompany sold its non-core Czech Republic Reaction Injection Molding business which was operated in the consolidated resultsConsumer Packaging International segment for net proceeds of $22 million. A net pretax loss on the Company since the date of the acquisition. The Company has not finalized the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed. The assets acquired and liabilities assumed consisted of working capital of $26 million, property and equipment of $39 million, intangible assets of $95 million, and goodwill of $82 million. The Company has recognized goodwill on this transaction primarily as a result of expected cost synergies, and expects goodwill to be deductible for tax purposes.
Clopay Plastic Products Company, Inc.
In February 2018, the Company acquired Clopay Plastic Products Company, Inc. ("Clopay") for a purchase price of $475 million, which is preliminary and subject to adjustment. Clopay is an innovator in the development of printed breathable films, elastic films, and laminates with product offerings uniquely designed for applications used in a number of markets including: hygiene, healthcare, construction and industrial protective apparel. The acquired business is operated within our Health, Hygiene & Specialties segment. To finance the purchase, the Company issued $500 million aggregate principal amount of 4.5% second priority notes through a private placement offering.
The acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on preliminary fair values at the acquisition date. The results of Clopay have been included in the consolidated results of the Company since the date of the acquisition. The Company has not finalized the allocation of the purchase price to the fair value of deferred taxes (including the assessment of uncertain tax positions), fixed assets, and certain working capital accounts. The Company has recognized goodwill on this transaction primarily as a result of expected cost synergies, and expects goodwill to be deductible for tax purposes. The following table summarizes the preliminary purchase price allocation and estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:
Working capital (a) | | $ | 70 | |
Property and equipment | | | 164 | |
Intangible assets | | | 125 | |
Goodwill | | | 110 | |
Other assets and long-term liabilities | | | 6 | |
(a) Includes a $3 million step up of inventory to fair value | |
Adchem Corp
In June 2017, the Company acquired Adchem Corp's ("Adchem") tapes business for a purchase price of $49 million. Adchem is a leader in the development of high performance adhesive tape systems for the automotive, construction, electronics, graphic arts, medical and general tape markets. The acquired business is operated in our Engineered Materials segment. To finance the purchase, the Company used existing liquidity. The acquisition has been accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on fair value estimates as of the acquisition date. The assets and assumed liabilities consisted of working capital of $10 million, property and equipment of $2 million, intangible assetsdivestitures of $22 million was recorded in fiscal 2021 within Restructuring and goodwilltransaction activities on the Consolidated Statements of $15 million.Income. The Company has recognized goodwill on this transaction primarily as a result of expected cost synergies,U.S. Flexible Packaging Converting business and expects goodwill to be deductible for tax purposes.
AEP Industries Inc.
In January 2017, the Company acquired AEP Industries Inc. ("AEP") for a purchase price of $791 million, net of cash acquired. A portion of the purchase price consisted of issuing 6.4 million of Berry common shares which were valued at $324 million at the time of closing. AEP manufactures and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products for consumer, industrial, and agricultural applications. The acquiredCzech Republic Reaction Injection Molding business is operated in our Engineered Materials segment. To finance the purchase, the Company entered into an incremental assumption agreement to increase the commitments under the Company's existing term loan credit agreement by $500 million due 2024.
When including AEP results for periods prior to the acquisition date, unaudited pro formarecorded net sales were $7.4 billion and $7.6 billion forduring fiscal 2017 and fiscal 2016, respectively. Unaudited pro forma net income was $3382020 of $203 million and $250$41 million, for fiscal 2017 and fiscal 2016, respectively. The unaudited pro forma net sales and net income assume that the acquisition had occurred as of the beginning of the period.
The unaudited pro forma information presented above is for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the AEP acquisition been consummated at the beginning of the period, nor is it necessarily indicative of future operating results. Further, the information reflects only pro forma adjustments for additional interest expense, depreciation, and amortization, net of the applicable income tax effects.
3. Long-Term Debt
Long-term debt consists of the following:
| Maturity Date | | | September 29, 2018 | | September 30, 2017 | |
Term loan | February 2020 | | $ | 800 | | | $ | 1,000 | | |
Term loan | January 2021 | | | 814 | | | | 814 | | |
Term loan | October 2022 | | | 1,545 | | | | 1,645 | | |
Facility | | Maturity Date | | 2021 | | | 2020 | |
Term loan | January 2024 | | | 493 | | | | 498 | | July 2026 | | $ | 3,440 | | | $ | 4,208 | |
Revolving line of credit | May 2020 | | | — | | | | — | | May 2024 | | | 0 | | | | 0 | |
5 1/2% Second Priority Senior Secured Notes | May 2022 | | | 500 | | | | 500 | | |
6% Second Priority Senior Secured Notes | October 2022 | | | 400 | | | | 400 | | |
5 1/8% Second Priority Senior Secured Notes | July 2023 | | | 700 | | | | 700 | | |
4 1/2% Second Priority Senior Secured Notes | February 2026 | | | 500 | | | | — | | |
0.95% First Priority Senior Secured Notes | | February 2024 | | | 800 | | | | 0 | |
1.00% First Priority Senior Secured Notes(a) | | July 2025 | | | 810 | | | | 814 | |
1.57% First Priority Senior Secured Notes | | January 2026 | | | 1,525 | | | | 0 | |
4.875% First Priority Senior Secured Notes | | July 2026 | | | 1,250 | | | | 1,250 | |
1.65% First Priority Senior Secured Notes | | January 2027 | | | 400 | | | | 0 | |
1.50% First Priority Senior Secured Notes(a) | | July 2027 | | | 434 | | | | 436 | |
4.50% Second Priority Senior Secured Notes | | February 2026 | | | 300 | | | | 500 | |
5.625% Second Priority Senior Secured Notes | | July 2027 | | | 500 | | | | 500 | |
Debt discounts and deferred fees | | | | (43 | ) | | | (48 | ) | | | | (77 | ) | | | (85 | ) |
Capital leases and other | Various | | | 135 | | | | 132 | | |
Finance leases and other | | Various | | | 78 | | | | 121 | |
Retired debt | | Various | | | 0 | | | | 2,493 | |
Total long-term debt | | | | 5,844 | | | | 5,641 | | | | | 9,460 | | | | 10,237 | |
Current portion of long-term debt | | | | (38 | ) | | | (33 | ) | | | | (21 | ) | | | (75 | ) |
Long-term debt, less current portion | | | $ | 5,806 | | | $ | 5,608 | | | | $ | 9,439 | | | $ | 10,162 | |
Fiscal 20182021 Activity
In January 2018,fiscal 2021, the Company issued $500$800 million aggregate principal amount of 4.50% second0.95% first priority senior secured notes due 2026. Interest on these2024, $1,525 million aggregate principal amount of 1.57% first priority senior secured notes is due semiannually in February2026, and August.$400 million aggregate principal amount of 1.65% first priority senior secured notes due 2027. The Company recognized $4 million of debt discount related to this offering. The net proceeds were used to fundprepay various more expensive secured notes and a portion of the Clopay acquisition.outstanding Term loan. Debt extinguishment costs of $27 million, primarily comprised of deferred debt discount and financing fees, were recorded in Other expense, net on the Consolidated Statements of Income upon the extinguishment of a portion of the Term loans and prepayments on the notes.
Berry Global, Inc. Senior Secured Credit Facility
Our wholly owned subsidiary Berry Global, Inc.'s’s senior secured credit facilities consist of $3.7$3.4 billion of term loans and a $750an $850 million asset-based revolving line of credit. The availability under the revolving line of credit is the lesser of $750$850 million or based on a defined borrowing base which is calculated based on available accounts receivable and inventory.
Based on market conditions, from time to time, the Company may reprice existing term loans in order to lower interest rates. As a result of repricing activities, the term loans with a maturity date of February 2020 and January 2021 bear interest at LIBOR plus 1.75%. The term loans with a maturity date of October 2022 and January 2024 bear interest at LIBOR plus 2.00%. Related to these repricings, the Company recorded a loss on debt extinguishment of $2 million, $10 million, and $4 million in fiscal 2018, 2017, and 2016, respectively, in Other expense (income), net in the Consolidated Statements of Income.
The term loan facility requires minimum quarterly principal payments, with the remaining amountis 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"“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'sCompany’s existing and future direct and indirect domestic subsidiaries. The guarantees of those obligations are secured by substantially all of the Company'sCompany’s assets as well as those of each domestic subsidiary guarantor. During fiscal 2018, the Company made $335 million of repayments on long-term borrowings using existing liquidity.
Despite not having financial maintenance covenants, our debt agreements contain certain negative covenants. We are in compliance willwith all covenants as of September 29, 2018.October 2, 2021. 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 20182021 are as follows:
Fiscal Year | | Maturities | | | Maturities |
2019 | | $ | 38 | | |
2020 | | | 837 | | |
2021 | | | 842 | | |
2022 | | | 27 | | | $ | 21 |
2023 | | | 2,458 | | | | 14 |
2024 | | | | 812 |
2025 | | | | 817 |
2026 | | | | 6,525 |
Thereafter | | | 1,685 | | | | 1,348 |
| | $ | 5,887 | | | $ | 9,537 |
Interest paid was $253318 million, $288$430 million, and $276$330 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively.
Debt discounts and deferred financing fees are presented net of Long-term debt, less the current portion in the Consolidated Balance Sheet and are amortized to Interest expense through maturity.
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 market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
To the extent hedging relationships are found to be effective, as determined by FASB guidance, changes in the fair value of the derivatives are offset by changes in the fair value of the related hedged item and recorded to Accumulated other comprehensive loss. Any identified ineffectiveness, or changesChanges 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 swap agreements mature May 2022 (€250 million), June 2024 (€1,625 million) and July 2027 (£700 million). In November 2017,addition to the 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 2, 2021, we had outstanding long-term debt of €785 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries. When valuing cross-currency swaps, the Company utilizes Level 2 inputs (substantially observable).
During fiscal 2020, the Company entered into certaintransactions to cash settle existing cross-currency swap agreements with a notional amountswaps and received proceeds of 250 million euro to effectively convert a portion of our fixed-rate U.S. dollar denominated term loans, including the monthly interest payments, to fixed-rate euro denominated debt.$281 million. The swap agreements mature in May 2022. The risk management objective is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currencies and reduce the variability in the functional currency cash flows of a portion of the Company's term loans. Changes in fair value of the derivative instruments are recognized insettlement impact has been included as a component of Currency translation within Accumulated other comprehensive loss, to offsetloss. Following the changes in the valuessettlement of the net investments being hedged.existing cross-currency swaps, we entered into new cross-currency swaps with matching notional amounts and maturity dates of the original swaps.
Interest Rate Swaps
The primary purpose of the Company'sCompany’s interest rate swap activities is to manage interest expense variability associated with our outstanding variable rate term loan debt. When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).
In February 2013,During fiscal 2021, the Company entered intoissued various fixed rate first priority senior secured notes and used the proceeds to prepay a $1portion of its variable rate Term loans. As a result, the Company de-designated a $1 billion interest rate swap transaction with an effective date of May 2016 and expirationthat was set to expire in May 2019. In June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement. The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense from May 2016 through May 2019, the original term of the swap agreement.
During fiscal 2017 the Company modified various term loan rates and maturities. In conjunction with these modifications the Company realigned existing swap agreements which resulted in the de-designation of the original hedge and re-designation of the modified swaps as an effective cash flow hedges.2026. The amounts included in Accumulated other comprehensive loss at the date of de-designation are being amortized to Interest expense through the termsterm of the original swaps.swap.
In June 2018, the Company elected to settle two of its derivative instruments with expiration dates in June 2019 and September 2021, and received $9 million and $21 million, respectively. The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense through the original expiration dates for of each of the swap agreements. The Company also entered into a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.808% with an effective date of June 2018 and expiration in September 2021.
As of fiscal 2018,October 2, 2021, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.000%1.398%, with an effectiveexpiration date in May 2017 and expiration in May 2022 andJune 2026, (ii) a $1 billion$400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.808%1.916% with an effectiveexpiration date in June 2018 and2026, (iii) an $884 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.857%, with an expiration in September 2021.June 2024, and (iv) a $473 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.050%, with an expiration in June 2024.
The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized. Balances on a gross basis are as follows;follows:
Derivatives Instruments | Hedge Designation | Balance Sheet Location | | 2018 | | | 2017 | | |
Derivative Instruments | | Hedge Designation | Balance Sheet Location | | 2021 | | | 2020 | |
Cross-currency swaps | Designated | Other long-term liabilities | | $ | 11 | | | $ | — | | Designated | Other long-term liabilities | | $ | 323 | | | $ | 270 | |
Interest rate swaps | Designated | Other assets | | | 16 | | | | 1 | | Designated | Other long-term liabilities | | | 82 | | | | 226 | |
Interest rate swaps | Not designated | Other assets | | | — | | | | 13 | | Not designated | Other long-term liabilities | | | 49 | | | | 0 | |
Interest rate swaps | Designated | Other long-term liabilities | | | — | | | | 15 | | |
Interest rate swaps | Not designated | Other long-term liabilities | | | 1 | | | | 13 | | |
The effect of the Company'sCompany’s derivative instruments on the Consolidated Statements of Income is as follows:
| | Fiscal years ended | | |
Derivatives instruments | Statement of Income Location | September 29, 2018 | | September 30, 2017 | | October 1, 2016 | | |
Derivative instruments | | Statements of Income Location | | 2021 | | | 2020 | | | 2019 | |
Cross-currency swaps (a) | | Interest expense | | $ | (8 | ) | | $ | (25 | ) | | $ | (19 | ) |
Cross-currency swaps(b) | Interest expense, net | | $ | (5 | ) | | $ | — | | | $ | — | | Other expense | | | 0 | | | | 0 | | | | 41 | |
Foreign currency swaps | Other (income) expense | | | — | | | | (2 | ) | | | 13 | | |
Foreign exchange forward contracts | | Other expense | | | 0 | | | | 0 | | | | 99 | |
Interest rate swaps | Interest expense, net | | $ | (1 | ) | | $ | 24 | | | $ | 16 | | Interest expense | | | 69 | | | | 32 | | | | 2 | |
The amortization related to unrealized losses in Accumulated other comprehensive loss is expected to be $11$9 million in the next 12 months. The Company'sCompany’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 fair value of our long-term indebtedness exceeded book value by $5$133 million as of fiscal 2018,2021, and $81$26 million as of fiscal 2017.2020. The Company'sCompany’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. See Note 2 for discussion of our acquisitions and the non-recurring fair value measurement considerations that were utilized in the purchase price allocation. The Company adjusts certain long-lived assets to fair value only when the carrying values exceed the fair values. The categorization of the framework used to value the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. These assets that are subject to our annual impairment analysis primarily include our definite lived and indefinite lived intangible assets, including Goodwillgoodwill and our property, plant and equipment. The Company reviews Goodwillgoodwill and other indefinite lived assets for impairment as of the first day of the fourth fiscal quarter each year, and more frequently if impairment indicators exist. The Company determined Goodwillgoodwill and other indefinite lived assets were not impaired in our annual fiscal 2018, 2017,2021, 2020, and 20162019 assessments.
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:
| | As of the end of fiscal 2018 | | | 2021 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | | |
Indefinite lived trademarks | | | $ | 0 | | | $ | 0 | | | $ | 248 | | | $ | 248 | | | $ | 0 | |
Goodwill | | | — | | | | — | | | | 2,944 | | | | 2,944 | | | | — | | | | 0 | | | | 0 | | | | 5,192 | | | | 5,192 | | | | 0 | |
Definite lived intangible assets | | | — | | | | — | | | | 1,092 | | | | 1,092 | | | | — | | | | 0 | | | | 0 | | | | 1,994 | | | | 1,994 | | | | 0 | |
Property, plant and equipment | | | — | | | | — | | | | 2,488 | | | | 2,488 | | | | — | | | | 0 | | | | 0 | | | | 4,677 | | | | 4,677 | | | | 1 | |
Total | | $ | — | | | $ | — | | | $ | 6,772 | | | $ | 6,772 | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 12,111 | | | $ | 12,111 | | | $ | 1 | |
| | As of the end of fiscal 2017 | | | 2020 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | | |
Indefinite lived trademarks | | | $ | 0 | | | $ | 0 | | | $ | 248 | | | $ | 248 | | | $ | 0 | |
Goodwill | | | — | | | | — | | | | 2,775 | | | | 2,775 | | | | — | | | | 0 | | | | 0 | | | | 5,173 | | | | 5,173 | | | | 0 | |
Definite lived intangible assets | | | — | | | | — | | | | 1,038 | | | | 1,038 | | | | — | | | | 0 | | | | 0 | | | | 2,249 | | | | 2,249 | | | | 0 | |
Property, plant and equipment | | | — | | | | — | | | | 2,366 | | | | 2,366 | | | | 2 | | | | 0 | | | | 0 | | | | 4,561 | | | | 4,561 | | | | 2 | |
Total | | $ | — | | | $ | — | | | $ | 6,427 | | | $ | 6,427 | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 12,231 | | | $ | 12,231 | | | $ | 2 | |
| | As of the end of fiscal 2016 | | | 2019 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Impairment | |
Indefinite-lived trademarks | | $ | — | | | $ | — | | | $ | 248 | | | $ | 248 | | | $ | — | | |
Indefinite lived trademarks | | | $ | 0 | | | $ | 0 | | | $ | 248 | | | $ | 248 | | | $ | 0 | |
Goodwill | | | — | | | | — | | | | 2,406 | | | | 2,406 | | | | — | | | | 0 | | | | 0 | | | | 5,051 | | | | 5,051 | | | | 0 | |
Definite lived intangible assets | | | — | | | | — | | | | 952 | | | | 952 | | | | — | | | | 0 | | | | 0 | | | | 2,532 | | | | 2,532 | | | | 0 | |
Property, plant and equipment | | | — | | | | — | | | | 2,224 | | | | 2,224 | | | | 3 | | | | 0 | | | | 0 | | | | 4,714 | | | | 4,714 | | | | 8 | |
Total | | $ | — | | | $ | — | | | $ | 5,830 | | | $ | 5,830 | | | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 12,545 | | | $ | 12,545 | | | $ | 8 | |
Valuation of Goodwill
5. Commitments, Leases and Indefinite Lived Intangible AssetsContingencies
ASC Topic 350 requires the Company to test goodwill for impairment at least annually. The Company conducted the impairment test on the first day of the fourth fiscal quarter, unless indications of impairment exist during an interim period. When assessing its goodwill for impairment, the Company utilizes a comparable company market approach weighted equally with a discounted cash flow analysis to determine the fair value of their reporting units and corroborate the fair values. The Company utilizes a relief from royalty method to value their indefinite lived trademarks and uses the forecasts that are consistent with those used in the reporting unit analysis (Note 1).
Valuation of Property, Plant and Equipment and Definite Lived Intangible Assets
The Company periodically realigns their manufacturing operations which results in facilities being closed and shut down and equipment transferred to other facilities or equipment being scrapped or sold. The Company utilizes appraised values to corroborate the fair value of the facilities and has utilized a scrap value based on prior facility shut downs to estimate the fair value of the equipment, which has approximated the actual value that was received. When impairment indicators exist, the Company will also perform an undiscounted cash flow analysis to determine the recoverability of the Company's long-lived assets. The Company incurred impairment charges of $2 million and $3 million related to property, plant and equipment in fiscal years 2017 and 2016, respectively. The Company did not incur an impairment charge on definite lived intangible assets in fiscal 2018, 2017, or 2016.
5. Goodwill and Intangible Assets
The following table sets forth the gross carrying amount and accumulated amortization of the Company's goodwill and intangible assets as of the fiscal year end:
| | 2018 | | | 2017 | | Amortization Period |
Goodwill | | $ | 2,944 | | | $ | 2,775 | | Indefinite lived |
| | | | | | | | | |
Customer relationships | | | 1,882 | | | | 1,922 | | 5 – 15 years |
Trademarks (indefinite lived) | | | 248 | | | | 248 | | Indefinite lived |
Trademarks (definite lived) | | | 45 | | | | 87 | | Not more than 15 years |
Other intangibles | | | 185 | | | | 184 | | 5 – 14 years |
Accumulated amortization | | | (1,020 | ) | | | (1,155 | ) | |
Intangible assets, net | | | 1,340 | | | | 1,286 | | |
Total goodwill and intangible assets, net | | $ | 4,284 | | | $ | 4,061 | | |
Future amortization expense for definite lived intangibles as of fiscal 2018 for the next five fiscal years is $157 million, $145 million, $133 million, $121 million, and $110 million each year for fiscal years ending 2019, 2020, 2021, 2022, and 2023, respectively.
6. Lease and Other Commitments and Contingencies
The Company leases certain property, plant and equipment under long-term lease agreements. Property, plant, and equipment under capital leases are reflected on the Company's balance sheet in property and equipment. The Company entered into new capital lease obligations totaling $31 million, $5 million, and $51 million during fiscal 2018, 2017, and 2016, respectively, with various lease expiration dates through 2027. The Company records amortization of capital leases in Cost of goods sold in the Consolidated Statement of Income. Assets under operating leases are not recorded on the Company's balance sheet. Operating leases expire at various dates in the future with certain leases containing renewal options. The Company had minimum lease payments or contingent rentals of $29 million and $27 million and asset retirement obligations of $10 million and $9 million as of fiscal 2018 and 2017, respectively. Total rental expense from operating leases was $72 million, $67 million, and $60 million in fiscal 2018, 2017, and 2016, respectively.
Future minimum lease payments for capital leases and non-cancellable operating leases with initial terms in excess of one year as of fiscal year end 2018 are as follows:
| | Capital Leases | | | Operating Leases | |
2019 | | $ | 37 | | | $ | 67 | |
2020 | | | 32 | | | | 56 | |
2021 | | | 27 | | | | 51 | |
2022 | | | 24 | | | | 44 | |
2023 | | | 10 | | | | 37 | |
Thereafter | | | 19 | | | | 165 | |
| | | 149 | | | $ | 420 | |
Less: amount representing interest | | | (14 | ) | | | | |
Present value of net minimum lease payments | | $ | 135 | | | | | |
The Company has entered into a series of sale-leaseback transactions, pursuant to which it sold certain facilities and is leasing these facilities back. The Company has a total deferred gain on these sale-leaseback transactions of $21 million at the end of fiscal 2018, and is amortizing this over the respective lease of the facility.
The Company also 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 2021, we employed approximately 47,000 employees, and approximately 20% of those employees were covered by collective bargaining agreements. The majority of these agreements are due for renegotiation in fiscal 2022. 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 three years.
Leases
Supplemental lease information is as follows:
Leases | Classification | | 2021 | | | 2020 | |
Operating leases: | | | | | | | |
Operating lease right-of-use assets | Right-of-use asset | | $ | 562 | | | $ | 562 | |
Operating lease liabilities | Other current liabilities | | | 113 | | | | 115 | |
Operating lease liabilities | Operating lease liability | | | 466 | | | | 464 | |
Finance leases: | | | | | | | | | |
Finance lease right-of-use assets | Property, plant, and equipment, net | | $ | 57 | | | $ | 78 | |
Current finance lease liabilities | Current portion of long-term debt | | | 14 | | | | 17 | |
Noncurrent finance lease liabilities | Long-term debt, less current portion | | | 38 | | | | 59 | |
Lease Type | Cash Flow Classification | Lease Expense Category | | 2021 | | | 2020 | |
Operating leases | Operating cash flows | Lease cost | | $ | 127 | | | $ | 120 | |
Finance leases | Operating cash flows | Interest expense | | | 2 | | | | 3 | |
Finance leases | Financing cash flows | | | | 23 | | | | 38 | |
Finance leases | _ | Amortization of right-of-use assets | | | 14 | | | | 24 | |
| | 2021 | | | 2020 | |
Weighted-average remaining lease term - operating leases | | 8 years | | | 8 years | |
Weighted-average remaining lease term - finance leases | | 4 years | | | 4 years | |
Weighted-average discount rate - operating leases | | | 4.5 | % | | | 4.6 | % |
Weighted-average discount rate - finance leases | | | 4.1 | % | | | 3.8 | % |
Right-of-use assets obtained in exchange for new operating lease liabilities were $60 million for fiscal 2021.
Litigation
The Company is party to various legal proceedings in addition to the above involving routine claims which are incidental to its business. Although the Company'sCompany’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.
Collective Bargaining Agreements
At the end of fiscal 2018, we employed approximately 24,000 employees, and approximately 18% of those employees are covered by collective bargaining agreements. The majority of these agreements are due for renegotiation in fiscal 2019. 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 three years.
7. Accrued Expenses, Other Current Liabilities and Other Long-Term Liabilities
The following table sets forth the totals included in Accrued expenses and other current liabilities as of fiscal year end.
| | 2018 | | | 2017 | |
Employee compensation, payroll, and other | | $ | 113 | | | $ | 147 | |
Accrued taxes | | | 72 | | | | 90 | |
Rebates | | | 58 | | | | 58 | |
Interest | | | 49 | | | | 36 | |
Tax receivable agreement obligation | | | 16 | | | | 35 | |
Restructuring | | | 13 | | | | 19 | |
Other | | | 95 | | | | 78 | |
| | $ | 416 | | | $ | 463 | |
The following table sets forth the totals included in Other long-term liabilities as of fiscal year end.
| | 2018 | | | 2017 | |
Lease retirement obligation | | $ | 39 | | | $ | 37 | |
Uncertain tax positions | | | 74 | | | | 59 | |
Pension liability | | | 45 | | | | 56 | |
Deferred purchase price | | | 40 | | | | 46 | |
Tax receivable agreement obligation | | | 23 | | | | 34 | |
Sale-lease back deferred gain | | | 21 | | | | 24 | |
Transition tax | | | 18 | | | | — | |
Derivative instruments | | | 12 | | | | 27 | |
Other | | | 17 | | | | 17 | |
| | $ | 289 | | | $ | 300 | |
8.6. 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.
In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates. As the Company has a September fiscal year-end, the lower corporate income tax rate will be phased in during fiscal 2018 and will be 21% in subsequent years. Partially offsetting the lower corporate income tax, the Tax Act also eliminates certain domestic deductions that were previously included in our estimated annual tax rate. As part of the transition to the new tax system, the Tax Act (i) imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries (ii) requires the Company revalue our U.S. net deferred tax liability position to the lower federal base rate of 21%, and (iii) imposes a tax on global intangible low-taxed income provisions ("GILTI"), which is applicable beginning in fiscal 2019. Given the complexity of the GILTI provisions, we are still evaluating its effects and have not yet determined our accounting policy.
The transitional impacts of the Tax Act resulted in a transition benefit of $124 million in fiscal 2018, which includes an estimated repatriation tax charge of $21 million (comprised of the U.S. repatriation taxes and foreign withholding taxes) and an estimated net benefit of $145 million from all other changes, including the estimated benefit from revaluing deferred taxes to the lower rate. The impact of the corporate income tax net reduction along with the transitional taxes were recorded to the Consolidated Statements of Income.
The ultimate impacts of the Tax Act may differ from the provisional amount, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. The accounting is expected to be complete by the end of our first quarter of fiscal 2019.
Significant components of income tax expense for the fiscal years ended are as follows:
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | | 2019 | |
Current | | | | | | | | | | | | | | | | | | |
U.S. | | | | | | | | | | | | | | | | | | |
Federal | | $ | 19 | | | $ | 40 | | | $ | — | | | $ | 56 | | | $ | 84 | | | $ | 60 | |
State | | | 8 | | | | 6 | | | | 5 | | | | 14 | | | | 12 | | | | 11 | |
Non-U.S. | | | 40 | | | | 58 | | | | 36 | | | | 175 | | | | 154 | | | | 67 | |
Total current | | | 67 | | | | 104 | | | | 41 | | | | 245 | | | | 250 | | | | 138 | |
| | | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | (72 | ) | | | 34 | | | | 35 | | | | 17 | | | | (29 | ) | | | (47 | ) |
State | | | 12 | | | | (10 | ) | | | 3 | | | | (6 | ) | | | (13 | ) | | | (3 | ) |
Non-U.S. | | | (26 | ) | | | (19 | ) | | | (7 | ) | | | (84 | ) | | | (54 | ) | | | (2 | ) |
Total deferred | | | (86 | ) | | | 5 | | | | 31 | | | | (73 | ) | | | (96 | ) | | | (52 | ) |
Expense for income taxes | | $ | (19 | ) | | $ | 109 | | | $ | 72 | | | $ | 172 | | | $ | 154 | | | $ | 86 | |
U.S. income from continuing operations before income taxes was $373$276 million, $313$206 million, and $168$229 million for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. Non-U.S. income from continuing operations before income taxes was $104$629 million, $136$507 million, and $140$261 million for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. The Company paid cash taxes of $200 million, $243 million, and $115 million in fiscal 2021, 2020, and 2019, respectively.
The reconciliation between U.S. Federal income taxes at the statutory rate and the Company'sCompany’s benefit for income taxes on continuing operations for fiscal year end isyears ended are as follows:
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | | 2019 | |
U.S. Federal income tax expense at the statutory rate | | $ | 117 | | | $ | 157 | | | $ | 108 | | | $ | 190 | | | $ | 150 | | | $ | 103 | |
Adjustments to reconcile to the income tax provision: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. state income tax expense | | | 12 | | | | 6 | | | | 8 | | | | 11 | | | | 6 | | | | 9 | |
Changes in state valuation allowance | | | — | | | | (9 | ) | | | 2 | | |
Research and development credits | | | (7 | ) | | | (7 | ) | | | (8 | ) | |
Federal and state credits | | | | (10 | ) | | | (14 | ) | | | (8 | ) |
Share-based compensation | | | (8 | ) | | | (33 | ) | | | (15 | ) | | | (8 | ) | | | (4 | ) | | | (12 | ) |
U.S. tax reform | | | (124 | ) | | | — | | | | — | | |
Permanent differences | | | — | | | | 2 | | | | 2 | | |
Tax law changes | | | | 11 | | | | 0 | | | | 0 | |
Withholding taxes | | | | 13 | | | | 15 | | | | 0 | |
Changes in foreign valuation allowance | | | (10 | ) | | | 3 | | | | (1 | ) | | | (14 | ) | | | (8 | ) | | | 13 | |
Foreign income taxed in the U.S. | | | — | | | | — | | | | 7 | | | | 12 | | | | 9 | | | | 3 | |
Manufacturing tax benefits | | | (6 | ) | | | (6 | ) | | | — | | |
Deduction of worthless investment | | | — | | | | — | | | | (9 | ) | |
Rate differences between U.S. and foreign | | | | (8 | ) | | | (6 | ) | | | 7 | |
Sale of subsidiary | | | | 16 | | | | 0 | | | | (38 | ) |
Permanent foreign currency differences | | | — | | | | (1 | ) | | | (8 | ) | | | (30 | ) | | | 0 | | | | 0 | |
Rate differences between U.S. and foreign | | | 3 | | | | (11 | ) | | | (14 | ) | |
Other | | | 4 | | | | 8 | | | | — | | | | (11 | ) | | | 6 | | | | 9 | |
Expense for income taxes | | $ | (19 | ) | | $ | 109 | | | $ | 72 | | | $ | 172 | | | $ | 154 | | | $ | 86 | |
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 year endyears ended are as follows:
| | 2018 | | | 2017 | | | 2021 | | | 2020 | |
Deferred tax assets: | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 4 | | | $ | 7 | | | $ | 3 | | | $ | 3 | |
Deferred gain on sale-leaseback | | | 6 | | | | 10 | | | | 4 | | | | 5 | |
Accrued liabilities and reserves | | | 28 | | | | 89 | | | | 101 | | | | 104 | |
Inventories | | | 9 | | | | 6 | | | | 13 | | | | 10 | |
Net operating loss carryforward | | | 212 | | | | 292 | | | | 273 | | | | 291 | |
Alternative minimum tax (AMT) credit carryforward | | | 8 | | | | 11 | | |
Interest expense carryforward | | | | 58 | | | | 28 | |
Derivatives | | | | 105 | | | | 127 | |
Lease liability | | | | 144 | | | | 147 | |
Research and development credit carryforward | | | 13 | | | | 18 | | | | 13 | | | | 11 | |
Federal and state tax credits | | | 10 | | | | 9 | | | | 13 | | | | 14 | |
Other | | | 19 | | | | 14 | | | | 42 | | | | 33 | |
Total deferred tax assets | | | 309 | | | | 456 | | | | 769 | | | | 773 | |
Valuation allowance | | | (93 | ) | | | (93 | ) | | | (126 | ) | | | (150 | ) |
Total deferred tax assets, net of valuation allowance | | | 216 | | | | 363 | | | | 643 | | | | 623 | |
Deferred tax liabilities: | | | | | | | | | | | | | | | | |
Property, plant and equipment | | | 239 | | | | 277 | | | | 430 | | | | 429 | |
Intangible assets | | | 306 | | | | 475 | | | | 563 | | | | 588 | |
Debt extinguishment | | | — | | | | 27 | | |
Leased asset | | | | 139 | | | | 142 | |
Other | | | 5 | | | | 3 | | | | 13 | | | | 11 | |
Total deferred tax liabilities | | | 550 | | | | 782 | | | | 1,145 | | | | 1,170 | |
Net deferred tax liability | | $ | (334 | ) | | $ | (419 | ) | | $ | (502 | ) | | $ | (547 | ) |
As of September 29, 2018, theThe Company had $31$66 million of net deferred tax assets recorded in Other assets, and $365$568 million of net deferred tax liabilities recorded in Deferred income taxes on the Consolidated Balance Sheets.
After Internal Revenue Code Section 382 ("Section 382") limitations,As of October 2, 2021, the Company has $357 million of U.S.recorded deferred tax assets related to federal, net operating loss carryforwards as of fiscal 2018, which will be available to offset future taxable income. As of fiscal year end 2018, the Company had state, and foreign net operating loss carryforwards of $1,114 millionlosses, interest expense, and $322 million, respectively, which will be available to offset future taxable income. If not used, the federal net operating loss carryforwards will expire in future years beginning 2024 through 2035. As a result of the elimination of AMT in the Tax Act, the Company's current AMT credit carryforwards totaling $8 milliontax credits. These attributes are available through the 2022 tax year to reduce those years' federal income taxes, after which any unclaimed balance becomes fully refundable. The state net operating loss carryforwards will expire in future yearsspread across multiple jurisdictions and generally have expiration periods beginning in 2018 through 2036. The foreign net operating loss carryforwards will expire in future years beginning in 20182021 while a portion remains available indefinitely. The CompanyEach attribute has $13 million of state Research and Development tax credits that will expire in future years beginning 2027 through 2037. In addition, the Company has $10 million of other state tax credits that will expire in future years beginning in 2019 through 2020.
In connection with the initial public offering, the Company entered into an income tax receivable agreement that providesbeen assessed for the payment to pre-initial public offering stockholders, option holders and holders of our stock appreciation rights, 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that are actually realized (or are deemed to be realized in the case of a change of control) as a result of the utilization of our and our subsidiaries' net operating losses attributable to periods prior to the initial public offering. Based on the Company's assumptions using various items, including valuation analysis and current tax law, the Company recorded an obligation of $313 million which was recognized as a reduction of Paid-in capital on the Consolidated Balance Sheets. The Company made payments of $37 million, $111 million, and $57 million in fiscal years 2018, 2017, and 2016, respectively. The balance at the end of fiscal 2018 was $39 million, and the Company made its fiscal 2019 payment of $16 million in October 2018.
The Company believes that it will not generate sufficient future taxable income to realize the tax benefits in certain foreign jurisdictions related to the deferred tax assets. The Company also has certain state net operating losses that may expire before they are fully utilized. Therefore, the Company has provided a valuation allowance against certain of its foreign deferred tax assetsrealization and a valuation allowance is recorded against certain of its statethe deferred tax assets included withinto bring the deferred tax assets. The change in ownership of Avintiv created limitations under Sec. 382 of the Internal Revenue Code on annual usage of Avintiv's net operating loss carryforwards. All of the Company's Federal net operating loss carryforwards should be available for use within the next 16 years and are not expected to expire unutilized. Prioramount recorded to the Company's acquisition of Avintiv, Avintiv was subject to certain ownership changes that resulted in the effective loss of certain NOLs. The NOLs effectively lost have been excluded from the opening balance sheet of Avintiv. As part of the effective tax rate calculation, if we determine that a deferred tax asset arising from temporary differences isamount more likely than not likely to be utilized, we will establish a valuation allowance against that asset to record it at its expected realizable value.realized. The Company has not provided a valuation allowance on its federal net operating loss carryforwards in the U.S. because it has determined that future reversals of its temporary taxable differences will occur in the same periods and are of the same nature as the temporary differences giving rise to the deferred tax assets. Our valuation allowance against deferred tax assets was $93$126 million and $150 million as of the fiscal years ended 20182021 and 2017,2020, respectively, related to the foreign and U.S. federal and state operations.
The Company paid cash taxes of $60 million, $41 million, and $43 million in fiscal 2018, 2017, and 2016, respectively.
The one-time repatriation tax, created withis permanently reinvested except to the passage ofextent the Tax Act, is based on our total post-1986foreign earnings and profits (E&P)are previously taxed or to the extent that we previously deferred from U.S. income taxes. We recorded a provisional amount forhave sufficient basis in our one-time repatriation tax liability resulting innon-U.S. subsidiaries to repatriate earnings on an increase in income tax expense of $21 million (comprised of the U.S. repatriation taxes and foreign withholding taxes). No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.free basis.
Uncertain Tax Positions
ASC 740 prescribes a recognition threshold of more-likely-than not to be sustained upon examination as it relates to the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The Company's policy is to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes.
The following table summarizes the activity related to our gross unrecognized tax benefits for fiscal year end:years ended:
| | 2018 | | | 2017 | | | 2021 | | | 2020 | |
Beginning unrecognized tax benefits | | $ | 59 | | | $ | 62 | | | $ | 168 | | | $ | 165 | |
Gross increases – tax positions in prior periods | | | 1 | | | | 1 | | | | 9 | | | | 13 | |
Gross decreases - tax positions in prior periods | | | | (6 | ) | | | (12 | ) |
Gross increases – current period tax positions | | | 19 | | | | 4 | | | | 6 | | | | 0 | |
Gross decreases – tax positions in prior periods | | | — | | | | (1 | ) | |
Gross increases – from RPC acquisition | | | | 0 | | | | 7 | |
Settlements | | | — | | | | (3 | ) | | | (4 | ) | | | (1 | ) |
Lapse of statute of limitations | | | (5 | ) | | | (4 | ) | | | (14 | ) | | | (4 | ) |
Ending unrecognized tax benefits | | $ | 74 | | | $ | 59 | | | $ | 159 | | | $ | 168 | |
As of fiscal year end 2018,2021, the amount of unrecognized tax benefitsbenefit that, if recognized, would affect our effective tax rate was $72$136 million and we had $23$43 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.
WeAs a result of global operations, we file income tax returns in the U.S. federal, various state and our subsidiarieslocal, and foreign jurisdictions and are routinely examined by various taxing authorities. Although we file U.S. federal, U.S. state, and foreign tax returns, our major tax jurisdiction is the U.S. The IRS has completed an examination of our 2003, 2010 and 2011 tax years. Our 2004 – 2009, and 2012 – 2016 tax years remain subject to examination by taxing authorities throughout the IRS. Avintiv's pre-acquisitionworld. Excluding potential adjustments to net operating losses, the U.S. federal and state income tax returns for the years 2004 – 2015 remainare no longer subject to examination byincome tax assessments for years before 2017. With few exceptions, the IRS. Companhia Providência Indústria e Comércio ("Providência") wasmajor foreign jurisdictions are no longer subject to certainincome tax claims at the time Providência was acquired by Avintiv and have been accountedassessments for in the financial statements as a deferred purchase price liability. There are various other on-going audits in various other jurisdictions that are not material to our financial statements.year before 2014.
9.7. Retirement Plans
The Company maintains defined benefit pension plans globally, which cover certain manufacturing facilities. The Company also maintains retiree health plans, which cover certain healthcare and life insurance benefits for certain retired employees and their spouses. Each of the defined benefit and retiree health plans are frozen plans. The Company uses fiscal year end as a measurement date for the retirement plans.
The Company also sponsors defined contribution 401(k) 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 $20$45 million, $18$40 million, and $10$26 million for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively.
The projectedNorth American defined benefit pension plans, which cover certain manufacturing facilities, are closed to future entrants. The majority of the retirement benefit obligations in the United Kingdom (“UK”) are defined benefit pension plans, and 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.
Most of the Company'sCompany’s German operations provide non-contributory pension plans. There is no external funding for these plans presented hereinalthough they are equalsecured by insolvency insurance required under German law. In general, the plans provide a fixed retirement benefit not related to the accumulated benefit obligationssalaries and are closed to new entrants. Germany represents $102 million of such plans. Mainland Europe’s total underfunded status.
The net amount of liability recognized is included in Other long-term liabilitiesEmployee Benefit Obligations on the Consolidated Balance Sheets. The Company uses fiscal year end as a measurement date for the retirement plans.
| | Defined Benefit Pension Plans | | | Retiree Health Plans | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Change in Projected Benefit Obligations (PBO) | | | | | | | | | | | | |
| | | | | | | | | | | | |
PBO at beginning of period | | $ | 330 | | | $ | 492 | | | $ | 7 | | | $ | 7 | |
Interest cost | | | 11 | | | | 11 | | | | — | | | | — | |
Actuarial loss (gain) | | | (17 | ) | | | (15 | ) | | | — | | | | — | |
Plan conversion (a) | | | — | | | | (139 | ) | | | — | | | | — | |
Benefit settlements | | | — | | | | (3 | ) | | | — | | | | — | |
Benefits paid | | | (17 | ) | | | (16 | ) | | | (1 | ) | | | — | |
PBO at end of period | | $ | 307 | | | $ | 330 | | | $ | 6 | | | $ | 7 | |
| | | | | | | | | | | | | | | | |
Change in Fair Value of Plan Assets | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Plan assets at beginning of period | | $ | 291 | | | $ | 418 | | | $ | — | | | $ | — | |
Actual return on plan assets | | | 3 | | | | 22 | | | | — | | | | — | |
Company contributions | | | — | | | | 7 | | | | 1 | | | | 1 | |
Plan conversion (a) | | | — | | | | (136 | ) | | | — | | | | — | |
Benefit settlements | | | — | | | | (2 | ) | | | — | | | | — | |
Benefits paid | | | (17 | ) | | | (18 | ) | | | (1 | ) | | | (1 | ) |
Plan assets at end of period | | | 277 | | | | 291 | | | | — | | | | — | |
Net amount recognized | | $ | (30 | ) | | $ | (39 | ) | | $ | (6 | ) | | $ | (7 | ) |
| | 2021 | | | 2020 | |
Change in Projected Benefit Obligations (PBO) | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | |
Beginning of period | | $ | 361 | | | $ | 888 | | | $ | 192 | | | $ | 1,441 | | | $ | 344 | | | $ | 827 | | | $ | 206 | | | $ | 1,377 | |
Service cost | | | 0 | | | | 1 | | | | 4 | | | | 5 | | | | 0 | | | | 0 | | | | 1 | | | | 1 | |
Interest cost | | | 8 | | | | 15 | | | | 1 | | | | 24 | | | | 10 | | | | 15 | | | | 1 | | | | 26 | |
Currency | | | 1 | | | | 48 | | | | 2 | | | | 51 | | | | 0 | | | | 31 | | | | 13 | | | | 44 | |
Actuarial loss (gain) | | | (12 | ) | | | (28 | ) | | | 9 | | | | (31 | ) | | | 30 | | | | 41 | | | | (7 | ) | | | 64 | |
Benefit settlements | | | (3 | ) | | | 0 | | | | (5 | ) | | | (8 | ) | | | (6 | ) | | | 0 | | | | (16 | ) | | | (22 | ) |
Benefits paid | | | (17 | ) | | | (36 | ) | | | (7 | ) | | | (60 | ) | | | (17 | ) | | | (26 | ) | | | (6 | ) | | | (49 | ) |
End of period | | $ | 338 | | | $ | 888 | | | $ | 196 | | | $ | 1,422 | | | $ | 361 | | | $ | 888 | | | $ | 192 | | | $ | 1,441 | |
| | 2021 | | | 2020 | |
Change in Fair Value of Plan Assets | | North America | | | UK | | | Mainland Europe | | | Total | | | North America | | | UK | | | Mainland Europe | | | Total | |
Beginning of period | | $ | 268 | | | $ | 769 | | | $ | 54 | | | $ | 1,091 | | | $ | 269 | | | $ | 729 | | | $ | 67 | | | $ | 1,065 | |
Currency | | | 1 | | | | 41 | | | | 1 | | | | 43 | | | | 0 | | | | 27 | | | | 4 | | | | 31 | |
Return on assets | | | 36 | | | | 28 | | | | 3 | | | | 67 | | | | 22 | | | | 21 | | | | (2 | ) | | | 41 | |
Contributions | | | 1 | | | | 26 | | | | 7 | | | | 34 | | | | 0 | | | | 18 | | | | 7 | | | | 25 | |
Benefit settlements | | | (3 | ) | | | 0 | | | | (5 | ) | | | (8 | ) | | | (6 | ) | | | 0 | | | | (16 | ) | | | (22 | ) |
Benefits paid | | | (17 | ) | | | (36 | ) | | | (7 | ) | | | (60 | ) | | | (17 | ) | | | (26 | ) | | | (6 | ) | | | (49 | ) |
End of period | | $ | 286 | | | $ | 828 | | | $ | 53 | | | $ | 1,167 | | | $ | 268 | | | $ | 769 | | | $ | 54 | | | $ | 1,091 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Underfunded status | | $ | (52 | ) | | $ | (60 | ) | | $ | (143 | ) | | $ | (255 | ) | | $ | (93 | ) | | $ | (119 | ) | | $ | (138 | ) | | $ | (350 | ) |
(a) During fiscal 2017, the Company contributed assets from a foreign defined benefit pension plan in order to convert the plan into a defined contribution plan. As a result of the transaction, the Company recognized a loss of $10 million related to the reclassification of amount previously deferred in Accumulated other comprehensive loss to the Consolidated Statements of Income.
At the end of fiscal 20182021, the Company had $31$128 million of net unrealized losses recorded in Accumulated other comprehensive loss on the Consolidated Balance Sheets. The Company expects $2$3 million to be realized in fiscal 2019, and the remaining to be recognized over the next 11 fiscal years.2022.
The following table presents significant weighted-average assumptions used to determine benefit obligation and benefit cost for the fiscal years ended:
| Defined Benefit Pension Plans | | Retiree Health Plan | | |
(Percentages) | | | 2021 |
2018 | | 2017 | | 2018 | | 2017 | | | North America | | UK | | Mainland Europe |
Weighted-average assumptions: | | | | | | | | | | | | | | |
Discount rate for benefit obligation | | | 4.0 | | | | 3.5 | | | | 3.8 | | | | 3.3 | | | | 2.5 | | | 2.2 | | | 1.0 |
Discount rate for net benefit cost | | | 3.5 | | | | 3.2 | | | | 3.3 | | | | 2.9 | | | | 2.2 | | | 1.6 | | | 0.8 |
Expected return on plan assets for net benefit costs | | | 6.1 | | | | 6.4 | | | | — | | | | — | | | | 6.1 | | | 4.1 | | | 2.0 |
(Percentages) | | 2020 |
| North America | | UK | | Mainland Europe |
Weighted-average assumptions: | | | | | | |
Discount rate for benefit obligation | | | 2.2 | | | 1.6 | | | 0.8 |
Discount rate for net benefit cost | | | 2.9 | | | 1.8 | | | 0.7 |
Expected return on plan assets for net benefit costs | | | 6.1 | | | 3.8 | | | 2.2 |
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. Health-care-cost trend rates were assumedA one quarter of a percentage point reduction of expected return on pension assets, mortality rate or discount rate applied to increase atthe pension liability would result in an annual rate of 7.0%. A one-percentage-pointimmaterial change in these assumed health care cost trend rates would not have a material impact on our postretirement benefit obligation.to the Company’s pension expense.
In accordance with the guidance from the FASB for employers'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, with the exception of the contribution of assets and conversion of the foreign defined benefit pension plan as described above.levels.
Fiscal 2018 Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | |
Fiscal 2021 Asset Category | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Cash and cash equivalents | | $ | 6 | | | $ | — | | | $ | — | | | $ | 6 | | | $ | 55 | | | $ | 0 | | | $ | 0 | | | $ | 55 | |
U.S. large cap comingled equity funds | | | — | | | | 67 | | | | — | | | | 67 | | | | 84 | | | | 0 | | | | 0 | | | | 84 | |
U.S. mid cap equity mutual funds | | | 50 | | | | — | | | | — | | | | 50 | | | | 50 | | | | 0 | | | | 0 | | | | 50 | |
U.S. small cap equity mutual funds | | | 3 | | | | — | | | | — | | | | 3 | | | | 2 | | | | 0 | | | | 0 | | | | 2 | |
International equity mutual funds | | | 15 | | | | — | | | | — | | | | 15 | | | | 14 | | | | 271 | | | | 0 | | | | 285 | |
Real estate equity investment funds | | | 3 | | | | — | | | | — | | | | 3 | | | | 7 | | | | 86 | | | | 101 | | | | 194 | |
Corporate bond mutual funds | | | 11 | | | | — | | | | — | | | | 11 | | | | 6 | | | | 0 | | | | 0 | | | | 6 | |
Corporate bonds | | | — | | | | 108 | | | | — | | | | 108 | | | | 0 | | | | 157 | | | | 40 | | | | 197 | |
Guaranteed investment account | | | — | | | | — | | | | 8 | | | | 8 | | |
International fixed income funds | | | 6 | | | | — | | | | — | | | | 6 | | | | 81 | | | | 161 | | | | 0 | | | | 242 | |
International insurance policies | | | | 0 | | | | 0 | | | | 52 | | | | 52 | |
Total | | $ | 94 | | | $ | 175 | | | $ | 8 | | | $ | 277 | | | $ | 299 | | | $ | 675 | | | $ | 193 | | | $ | 1,167 | |
Fiscal 2017 Asset Category | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | |
Fiscal 2020 Asset Category | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Cash and cash equivalents | | $ | 6 | | | $ | — | | | $ | — | | | $ | 6 | | | $ | 18 | | | $ | 18 | | | $ | 0 | | | $ | 36 | |
U.S. large cap comingled equity funds | | | — | | | | 61 | | | | — | | | | 61 | | | | 72 | | | | 27 | | | | 0 | | | | 99 | |
U.S. mid cap equity mutual funds | | | 57 | | | | — | | | | — | | | | 57 | | | | 49 | | | | 16 | | | | 0 | | | | 65 | |
U.S. small cap equity mutual funds | | | 3 | | | | — | | | | — | | | | 3 | | | | 3 | | | | 16 | | | | 0 | | | | 19 | |
International equity mutual funds | | | 14 | | | | — | | | | — | | | | 14 | | | | 12 | | | | 99 | | | | 0 | | | | 111 | |
Real estate equity investment funds | | | 4 | | | | — | | | | — | | | | 4 | | | | 3 | | | | 158 | | | | 91 | | | | 252 | |
Corporate bond mutual funds | | | 17 | | | | — | | | | — | | | | 17 | | | | 10 | | | | 0 | | | | 27 | | | | 37 | |
Corporate bonds | | | — | | | | 114 | | | | — | | | | 114 | | | | 0 | | | | 146 | | | | 0 | | | | 146 | |
Guaranteed investment account | | | — | | | | — | | | | 9 | | | | 9 | | |
International fixed income funds | | | 6 | | | | — | | | | — | | | | 6 | | | | 66 | | | | 209 | | | | 0 | | | | 275 | |
International insurance policies | | | | 0 | | | | 0 | | | | 51 | | | | 51 | |
Total | | $ | 107 | | | $ | 175 | | | $ | 9 | | | $ | 291 | | | $ | 233 | | | $ | 689 | | | $ | 169 | | | $ | 1,091 | |
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the fiscal year end:
| | Defined Benefit Pension Plans | | | Retiree Health Plan | |
2019 | | $ | 18 | | | $ | 1 | |
2020 | | | 18 | | | | 1 | |
2021 | | | 19 | | | | 1 | |
2022 | | | 19 | | | | — | |
2023 | | | 19 | | | | — | |
2024-2028 | | | 96 | | | | 2 | |
| | North America | | | UK | | | Mainland Europe | | | Total | |
2022 | | $ | 19 | | | $ | 35 | | | $ | 7 | | | $ | 61 | |
2023 | | | 19 | | | | 36 | | | | 7 | | | | 62 | |
2024 | | | 19 | | | | 36 | | | | 8 | | | | 63 | |
2025 | | | 20 | | | | 38 | | | | 7 | | | | 65 | |
2026 | | | 19 | | | | 38 | | | | 7 | | | | 64 | |
2027-2031 | | | 94 | | | | 209 | | | | 49 | | | | 352 | |
Net pension and retiree health benefit expense included the following components as of fiscal year end:years ended:
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | | 2019 | |
Service cost | | $ | — | | | $ | — | | | $ | 3 | | | $ | 5 | | | $ | 1 | | | $ | 2 | |
Interest cost | | | 11 | | | | 11 | | | | 16 | | | | 24 | | | | 26 | | | | 17 | |
Amortization of net actuarial loss | | | 2 | | | | 3 | | | | 2 | | | | 9 | | | | 5 | | | | 1 | |
Expected return on plan assets | | | (17 | ) | | | (17 | ) | | | (20 | ) | | | (51 | ) | | | (46 | ) | | | (24 | ) |
Net periodic benefit cost | | $ | (4 | ) | | $ | (3 | ) | | $ | 1 | | |
Net periodic benefit expense (income) | | | $ | (13 | ) | | $ | (14 | ) | | $ | (4 | ) |
Our defined benefit pension plan asset allocations as of fiscal year endyears ended are as follows:
| | 2018 | | | 2017 | | |
Asset Category | | | | | | | | 2021 | | | 2020 | |
Equity securities and equity-like instruments | | | 50 | % | | | 48 | % | | | 53 | % | | | 50 | % |
Debt securities and debt-like | | | 45 | | | | 47 | | | | 38 | | | | 42 | |
International insurance policies | | | | 4 | | | | 5 | |
Other | | | 5 | | | | 5 | | | | 5 | | | | 3 | |
Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
The Company'sCompany’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 $43$45 million of the Company'sCompany’s stock at the end of fiscal 2018.2021. The Company re-addresses the allocation of its investments on a regular basis.
10.
8. Restructuring and Impairment ChargesTransaction Activities
The Company has announced various restructuring plans in the last three fiscal years which included shutting down facilities in all three of the Company's operating segments.facilities. In all instances, the majority of the operations from rationalized facilities was transferred to other facilities within the respective division.
segment. During fiscal 2016,2019, 2020, and 2021, the Company did 0t shut down one facility in the Consumer Packaging division and announced the intention to shut down one additional Consumer Packaging facility. The twoany facilities accounted for approximately $36 million of annualwith significant net sales.
During fiscal 2017, the Company shut down one facility in the Health, Hygiene & Specialties division, which accounted for approximately $5 million of annual net sales, and completed the previously announced facility shut down in the Consumer Packaging division, which accounted for approximately $12 million of annual net sales.
During fiscal 2018, the Company shut down one facility in each of the Engineered Materials, Health, Hygiene & Specialties, and Consumer Packaging divisions, which accounted for approximately $10 million, $30 million, and $15 million of annual net sales, respectively.
Since 2016, total expected costs attributed to restructuring programs total $95 million with $3 million remaining to be recognized in the future.
| | Expected Total Costs | | | Cumulative Charges through Fiscal 2018 | | | To be Recognized in Future | |
Severance and termination benefits | | $ | 75 | | | $ | 75 | | | $ | — | |
Facility exit costs | | | 15 | | | | 12 | | | | 3 | |
Asset impairment | | | 5 | | | | 5 | | | | — | |
Total | | $ | 95 | | | $ | 92 | | | $ | 3 | |
The tablestable below sets forth the significant components of the restructuring and transaction activity charges recognized for the fiscal years ended, by segment:
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | | 2019 | |
Consumer Packaging International | | | $ | 56 | | | $ | 58 | | | $ | 54 | |
Consumer Packaging North America | | | | 0 | | | | 10 | | | | 12 | |
Engineered Materials | | $ | 6 | | | $ | 5 | | | $ | 3 | | | | (4 | ) | | | 6 | | | | 2 | |
Health, Hygiene & Specialties | | | 27 | | | | 11 | | | | 20 | | | | (1 | ) | | | 5 | | | | (200 | ) |
Consumer Packaging | | | 3 | | | | 8 | | | | 9 | | |
Consolidated | | $ | 36 | | | $ | 24 | | | $ | 32 | | | $ | 51 | | | $ | 79 | | | $ | (132 | ) |
The table below sets forth the activity with respect to the restructuring charges and the impact on our accrued restructuring reserves:
| | Employee Severance and Benefits | | | Facility Exit Costs | | | Non-cash Impairment Charges | | | Total | |
Balance as of fiscal 2016 | | $ | 7 | | | $ | 6 | | | $ | — | | | $ | 13 | |
Acquisition | | | 13 | | | | — | | | | — | | | | 13 | |
Charges | | | 18 | | | | 4 | | | | 2 | | | | 24 | |
Non-cash asset impairment | | | — | | | | — | | | | (2 | ) | | | (2 | ) |
Cash payments | | | (24 | ) | | | (5 | ) | | | — | | | | (29 | ) |
Balance as of fiscal 2017 | | $ | 14 | | | $ | 5 | | | $ | — | | | $ | 19 | |
Charges | | | 34 | | | | 2 | | | | — | | | | 36 | |
Cash payments | | | (39 | ) | | | (3 | ) | | | — | | | | (42 | ) |
Balance as of fiscal 2018 | | $ | 9 | | | $ | 4 | | | $ | — | | | $ | 13 | |
| | Restructuring | | | | | | | |
| | Employee Severance and Benefits | | | Facility Exit Costs | | | Non-cash Impairment Charges | | | Transaction Activities | | | Total | |
Balance as of fiscal 2019 | | $ | 2 | | | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 7 | |
Charges | | | 34 | | | | 9 | | | | 2 | | | | 34 | | | | 79 | |
Non-cash asset impairment | | | 0 | | | | 0 | | | | (2 | ) | | | 0 | | | | (2 | ) |
Cash | | | (26 | ) | | | (7 | ) | | | 0 | | | | (34 | ) | | | (67 | ) |
Balance as of fiscal 2020 | | $ | 10 | | | $ | 7 | | | $ | 0 | | | $ | 0 | | | $ | 17 | |
Charges | | | 11 | | | | 7 | | | | 1 | | | | 32 | | | | 51 | |
Non-cash asset impairment | | | 0 | | | | 0 | | | | (1 | ) | | | 0 | | | | (1 | ) |
Cash | | | (15 | ) | | | (9 | ) | | | 0 | | | | (32 | ) | | | (56 | ) |
Balance as of fiscal 2021 | | $ | 6 | | | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 11 | |
11. Related Party TransactionsSince 2019, cumulative costs attributed to restructuring programs total $86 million.
The Company made payments related to the income tax receivable agreement of $37 million and $111 million in fiscal 2018 and fiscal 2017, respectively. Apollo Global Management, LLC ("Apollo") received $89 million of the fiscal 2017 payment. Mr. Robert V. Seminara, a member of the Company's Board of Directors, has been employed by Apollo since 2003. Mr. Evan Bayh, a member of the Company's Board of Directors, has been employed by Apollo since 2011.
12. Stockholders'9. Stockholders’ Equity
Share Repurchases
In August 2018, the Company announced that its Board authorized a $500 million share repurchase program. Share repurchases will be made through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, or other transactions in accordance with applicable securities lawsNaN shares were repurchased during fiscal 2021 and in such amounts at such times as we deem appropriate based upon prevailing market and business conditions and other factors. The share repurchase program has no expiration date and may be suspended at any time.
2020. During fiscal 2018,2019, the Company repurchased approximately 731 thousand1.5 million shares for $35$72 million, at an average price of $47.75.$47.64. 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.
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 2018,2021, the Company amended the 2015 Berry Global Group, Inc. Long-Term Incentive Plan to authorize the issuance of 12.520.8 million shares, an increase of 58.3 million shares from the previous authorization.authorization.
The Company recognized total share-based compensation expense of $23$40 million, $20$33 million, and $20$27 million for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. The intrinsic value of options exercised in fiscal 20182021 was $35$58 million.
Information related to the equity incentive plans as of the fiscal year end isyears ended are as follows:
| | 2018 | | | 2017 | | | 2021 | | | 2020 | |
| | 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 | | | 10,760 | | | $ | 28.18 | | | | 11,716 | | | $ | 21.44 | | | | 11,460 | | | $ | 40.84 | | | | 10,263 | | | $ | 37.82 | |
Options granted | | | 1,453 | | | | 54.33 | | | | 1,820 | | | | 49.53 | | | | 1,946 | | | | 54.22 | | | | 2,562 | | | | 45.60 | |
Options exercised | | | (1,176 | ) | | | 18.62 | | | | (2,562 | ) | | | 12.07 | | | | (1,961 | ) | | | 32.23 | | | | (1,223 | ) | | | 24.96 | |
Options forfeited or cancelled | | | (293 | ) | | | 41.30 | | | | (214 | ) | | | 33.52 | | | | (143 | ) | | | 48.72 | | | | (142 | ) | | | 45.05 | |
Options outstanding, end of period | | | 10,744 | | | $ | 32.40 | | | | 10,760 | | | $ | 28.18 | | | | 11,302 | | | $ | 44.54 | | | | 11,460 | | | $ | 40.84 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Option price range at end of period | | $ | 3.04-54.33 | | | | | | | $ | 3.04-49.53 | | | | | | | $ | 3.04-54.33 | | | | | | | $ | 3.04-54.33 | | | | | |
Options exercisable at end of period | | | 5,154 | | | | | | | | 4,108 | | | | | | | | 5,260 | | | | | | | | 5,599 | | | | | |
Options available for grant at period end | | | 6,422 | | | | | | | | 2,875 | | | | | | |
Weighted average fair value of options granted during period | | $ | 17.84 | | | | | | | $ | 15.52 | | | | | | | $ | 16.36 | | | | | | | $ | 14.26 | | | | | |
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 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 with the following weighted average assumptions:
| 2018 | | 2017 | | 2016 | | | 2021 | | | 2020 | | | 2019 | |
Risk-free interest rate | | | 2.7 | % | | | 2.2 | % | | | 1.2 | % | | | 0.5 | % | | | 1.7 | % | | | 2.5 | % |
Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
Volatility factor | | | 26.1 | % | | | 26.0 | % | | | 25.7 | % | | | 30.4 | % | | | 27.2 | % | | | 26.3 | % |
Expected option life | 6.5 years | | 6.5 years | | 6.5 years | | | 6.0 years | | | 6.5 years | | | 6.5 years | |
For purposes of the valuation model in fiscal years 2018, 2017, and 2016, the Company used the simplified method due to the lack of historical data upon which to estimate the expected term.
The following table summarizes information about the options outstanding as of fiscal 2018:2021:
Range of Exercise Prices | | | Number Outstanding (in thousands) | | 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 |
| $ | 3.04-54.33 | | | | 10,744 | | | $ | 172 | | 6.5 years | | $ | 32.40 | | | | 5,154 | | | $ | 120 | | | $ | 25 | | 1.9 years |
Range of Exercise Prices | | | Number Outstanding (in thousands) | | | 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 |
$ | 3.04-54.33 | | | | 11,302 | | | $ | 193 | | 6.6 years | | $ | 44.54 | | | | 5,260 | | | $ | 115 | | | $ | 48 | | 1.8 years |
13.In fiscal 2021, the Company issued restricted stock units, which generally vest in equal installments over four years. Compensation cost is recorded based upon the fair value of the shares at the grant date.
| | 2021 | |
| | Number of Shares (in thousands) | | | Weighted Average Grant Price | |
Awards outstanding, beginning of period | | | 0 | | | $ | 0 | |
Awards granted | | | 203 | | | | 54.22 | |
Awards vested | | | (2 | ) | | | 54.22 | |
Awards forfeited or cancelled | | | (5 | ) | | | 54.22 | |
Awards outstanding, end of period | | | 196 | | | $ | 54.22 | |
The Company had equity incentive shares available for grant of 8.5 million and 2.7 million as of October 2, 2021 and September 26, 2020, respectively.
10. Segment and Geographic Data
Berry'sBerry’s operations are organized into three reportable4 reporting segments: Consumer Packaging International, Consumer Packaging North America, Engineered Materials, and Health, Hygiene & Specialties, and Engineered Materials.Specialties. The structure is designed to align us with our customers, provide improved service, and drive future growth in a cost efficient manner.
The Company has manufacturing and distribution centers in the U.S., Canada, Mexico, Belgium, France, Spain, United Kingdom, Italy, Germany, Brazil, Argentina, Colombia, Malaysia, India, China, and the Netherlands. The North American operation represents 82% of the Company's net sales, 84% of total long-lived assets, and 84% of the total assets. Selected information by reportable segment is presented in the following tables:
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | | 2019 | |
Net sales | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | | $ | 4,242 | | | $ | 3,789 | | | $ | 1,337 | |
Consumer Packaging North America | | | | 3,141 | | | | 2,560 | | | | 2,333 | |
Engineered Materials | | $ | 2,672 | | | $ | 2,375 | | | $ | 1,627 | | | | 3,309 | | | | 2,766 | | | | 2,460 | |
Health, Hygiene & Specialties | | | 2,734 | | | | 2,369 | | | | 2,400 | | | | 3,158 | | | | 2,594 | | | | 2,748 | |
Consumer Packaging | | | 2,463 | | | | 2,351 | | | | 2,462 | | |
Total | | $ | 7,869 | | | $ | 7,095 | | | $ | 6,489 | | | $ | 13,850 | | | $ | 11,709 | | | $ | 8,878 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | | $ | 317 | | | $ | 273 | | | $ | 62 | |
Consumer Packaging North America | | | | 276 | | | | 275 | | | | 177 | |
Engineered Materials | | $ | 368 | | | $ | 316 | | | $ | 182 | | | | 301 | | | | 336 | | | | 266 | |
Health, Hygiene & Specialties | | | 202 | | | | 216 | | | | 196 | | | | 398 | | | | 295 | | | | 469 | |
Consumer Packaging | | | 191 | | | | 200 | | | | 203 | | |
Total | | $ | 761 | | | $ | 732 | | | $ | 581 | | | $ | 1,292 | | | $ | 1,179 | | | $ | 974 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer Packaging International | | | $ | 341 | | | $ | 315 | | | $ | 106 | |
Consumer Packaging North America | | | | 224 | | | | 230 | | | | 198 | |
Engineered Materials | | $ | 109 | | | $ | 106 | | | $ | 82 | | | | 112 | | | | 117 | | | | 112 | |
Health, Hygiene & Specialties | | | 200 | | | | 184 | | | | 199 | | | | 177 | | | | 183 | | | | 197 | |
Consumer Packaging | | | 229 | | | | 231 | | | | 244 | | |
Total | | $ | 538 | | | $ | 521 | | | $ | 525 | | | $ | 854 | | | $ | 845 | | | $ | 613 | |
| | 2018 | | | 2017 | | | 2021 | | | 2020 | |
Total assets: | | | | | | | | | | | | |
Consumer Packaging International | | | $ | 7,800 | | | $ | 7,713 | |
Consumer Packaging North America | | | | 3,861 | | | | 3,320 | |
Engineered Materials | | $ | 1,998 | | | $ | 1,803 | | | | 2,331 | | | | 2,017 | |
Health, Hygiene & Specialties | | | 3,913 | | | | 3,496 | | | | 3,890 | | | | 3,651 | |
Consumer Packaging | | | 3,220 | | | | 3,177 | | |
Total assets | | $ | 9,131 | | | $ | 8,476 | | | $ | 17,882 | | | $ | 16,701 | |
Goodwill: | | | | | | | | | |
Engineered Materials | | $ | 633 | | | $ | 545 | | |
Health, Hygiene & Specialties | | | 902 | | | | 819 | | |
Consumer Packaging | | | 1,409 | | | | 1,411 | | |
Total goodwill | | $ | 2,944 | | | $ | 2,775 | | |
Selected information by geographygeographical region is presented in the following tables:
| | 2018 | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | | 2019 | |
Net sales: | | | | | | | | | | | | | | | | | | |
North America | | $ | 6,474 | | | $ | 5,850 | | | $ | 5,250 | | |
South America | | | 332 | | | | 333 | | | | 336 | | |
United States and Canada | | | $ | 7,351 | | | $ | 6,250 | | | $ | 6,293 | |
Europe | | | 807 | | | | 646 | | | | 661 | | | | 4,898 | | | | 4,223 | | | | 1,637 | |
Asia | | | 256 | | | | 266 | | | | 242 | | |
Rest of world | | | | 1,601 | | | | 1,236 | | | | 948 | |
Total net sales | | $ | 7,869 | | | $ | 7,095 | | | $ | 6,489 | | | $ | 13,850 | | | $ | 11,709 | | | $ | 8,878 | |
| | 2018 | | | 2017 | |
Long-lived assets: | | | | | | |
North America | | $ | 5,764 | | | $ | 5,303 | |
South America | | | 320 | | | | 418 | |
Europe | | | 463 | | | | 467 | |
Asia | | | 299 | | | | 284 | |
Total Long-lived assets | | $ | 6,846 | | | $ | 6,472 | |
| | 2021 | | | 2020 | |
Long-lived assets: | | | | | | |
United States and Canada | | $ | 6,682 | | | $ | 6,742 | |
Europe | | | 4,574 | | | | 4,665 | |
Rest of world | | | 1,532 | | | | 1,477 | |
Total long-lived assets | | $ | 12,788 | | | $ | 12,884 | |
Selected information by product line is presented in the following tables:
(in percentages) | | 2021 | | | 2020 | | | 2019 | |
Net sales: | | | | | | | | | |
Packaging | | | 81 | % | | | 80 | % | | | 85 | % |
Non-packaging | | | 19 | | | | 20 | | | | 15 | |
Consumer Packaging International | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | |
Rigid Open Top | | | 57 | % | | | 55 | % | | | 52 | % |
Rigid Closed Top | | | 43 | | | | 45 | | | | 48 | |
Consumer Packaging North America | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | |
Core Films | | | 63 | % | | | 58 | % | | | 49 | % |
Retail & Industrial | | | 37 | | | | 42 | | | | 51 | |
Engineered Materials | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | |
Health | | | 18 | % | | | 18 | % | | | 14 | % |
Hygiene | | | 47 | | | | 47 | | | | 48 | |
Specialties | | | 35 | | | | 35 | | | | 38 | |
Health, Hygiene & Specialties | | | 100 | % | | | 100 | % | | | 100 | % |
(in percentages) | | 2018 | | | 2017 | | | 2016 | |
Net sales: | | | | | | | | | |
Core Films | | | 46 | % | | | 49 | % | | | 72 | % |
Retail & Industrial | | | 54 | | | | 51 | | | | 28 | |
Engineered Materials | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | |
Health | | | 19 | % | | | 22 | % | | | 20 | % |
Hygiene | | | 43 | | | | 44 | | | | 45 | |
Specialties | | | 38 | | | | 34 | | | | 35 | |
Health, Hygiene & Specialties | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | |
Rigid Open Top | | | 44 | % | | | 43 | % | | | 42 | % |
Rigid Closed Top | | | 56 | | | | 57 | | | | 58 | |
Consumer Packaging | | | 100 | % | | | 100 | % | | | 100 | % |
14.11. Net Income per Share
Basic net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. For purposes of this calculation, stock options are considered to be common stock equivalents and are only included in the calculation of diluted net income per share when their effect is dilutive. There were no7 million and 5 million shares excluded from the calculationsfiscal 2020 and 2019 diluted net income per share calculation, respectively, as thetheir effect of their conversion into shares of our common stock would be antidilutive.anti-dilutive. There were 0 shares excluded from the fiscal 2021 calculation.
The following tables and discussion provide a reconciliation of the numerator and denominator of the basic and diluted net income per share computations.
(in millions, except per share amounts) | | 2021 | | | 2020 | | | 2019 | |
Numerator | | | | | | | | | |
Net income attributable to the Company | | $ | 733 | | | $ | 559 | | | $ | 404 | |
Denominator | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | 134.6 | | | | 132.6 | | | | 131.3 | |
Dilutive shares | | | 3.7 | | | | 2.5 | | | | 3.3 | |
Weighted average common and common equivalent shares outstanding - diluted | | | 138.3 | | | | 135.1 | | | | 134.6 | |
| | | | | | | | | | | | |
Per common share income | | | | | | | | | | | | |
Basic | | $ | 5.45 | | | $ | 4.22 | | | $ | 3.08 | |
Diluted | | $ | 5.30 | | | $ | 4.14 | | | $ | 3.00 | |
(in millions, except per share amounts) | | 2018 | | | 2017 | | | 2016 | |
Numerator | | | | | | | | | |
Net income attributable to the Company | | $ | 496 | | | $ | 340 | | | $ | 236 | |
Denominator | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | 131.4 | | | | 127.6 | | | | 120.8 | |
Dilutive shares | | | 3.8 | | | | 5.0 | | | | 4.2 | |
Weighted average common and common equivalent shares outstanding - diluted | | | 135.2 | | | | 132.6 | | | | 125.0 | |
| | | | | | | | | | | | |
Per common share income | | | | | | | | | | | | |
Basic | | $ | 3.77 | | | $ | 2.66 | | | $ | 1.95 | |
Diluted | | $ | 3.67 | | | $ | 2.56 | | | $ | 1.89 | |
15. Guarantor and Non-Guarantor Financial Information
Berry Global, Inc. ("Issuer") has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by its parent, Berry Global Group, Inc. (for purposes of this Note, "Parent") and substantially all of Issuer's domestic subsidiaries. Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by Parent and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis. A guarantee of a guarantor subsidiary of the securities will terminate upon the following customary circumstances: the sale of the capital stock of such guarantor if such sale complies with the indentures, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture or in the case of a restricted subsidiary that is required to guarantee after the relevant issuance date, if such guarantor no longer guarantees certain other indebtedness of the issuer. The guarantees of the guarantor subsidiaries are also limited as necessary to prevent them from constituting a fraudulent conveyance under applicable law and any guarantees guaranteeing subordinated debt are subordinated to certain other of the Company's debts. Parent also guarantees the Issuer's term loans and revolving credit facilities. The guarantor subsidiaries guarantee our term loans and are co-borrowers under our revolving credit facility. Presented below is condensed consolidating financial information for the Parent, Issuer, guarantor subsidiaries and non-guarantor subsidiaries. The Issuer and guarantor financial information includes all of our domestic operating subsidiaries; our non-guarantor subsidiaries include our foreign subsidiaries, certain immaterial domestic subsidiaries and the unrestricted subsidiaries under the Issuer's indentures. The Parent uses the equity method to account for its ownership in the Issuer in the Condensed Consolidating Supplemental Financial Statements. The Issuer uses the equity method to account for its ownership in the guarantor and non-guarantor subsidiaries. All consolidating entries are included in the eliminations column along with the elimination of intercompany balances.
Condensed Supplemental Consolidated Statements of Operations
| | Fiscal 2018 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Net sales | | $ | — | | | $ | 574 | | | $ | 5,465 | | | $ | 1,830 | | | $ | — | | | $ | 7,869 | |
Cost of goods sold | | | — | | | | 346 | | | | 4,558 | | | | 1,534 | | | | — | | | | 6,438 | |
Selling, general and administrative | | | — | | | | 63 | | | | 309 | | | | 108 | | | | — | | | | 480 | |
Amortization of intangibles | | | — | | | | 1 | | | | 127 | | | | 26 | | | | — | | | | 154 | |
Restructuring and impairment charges | | | — | | | | — | | | | 20 | | | | 16 | | | | — | | | | 36 | |
Operating income | | | — | | | | 164 | | | | 451 | | | | 146 | | | | — | | | | 761 | |
Other (income) expense, net | | | — | | | | 8 | | | | 8 | | | | 9 | | | | — | | | | 25 | |
Interest expense, net | | | — | | | | 8 | | | | 225 | | | | 26 | | | | — | | | | 259 | |
Equity in net income of subsidiaries | | | (477 | ) | | | (307 | ) | | | — | | | | — | | | | 784 | | | | — | |
Income (loss) before income taxes | | | 477 | | | | 455 | | | | 218 | | | | 111 | | | | (784 | ) | | | 477 | |
Income tax expense (benefit) | | | (19 | ) | | | (41 | ) | | | (2 | ) | | | 24 | | | | 19 | | | | (19 | ) |
Net income (loss) | | $ | 496 | | | $ | 496 | | | $ | 220 | | | $ | 87 | | | $ | (803 | ) | | $ | 496 | |
Currency translation | | | (127 | ) | | | (11 | ) | | | (3 | ) | | | (113 | ) | | | 127 | | | | (127 | ) |
Interest rate hedges | | | 49 | | | | 49 | | | | — | | | | — | | | | (49 | ) | | | 49 | |
Defined benefit pension and retiree health benefit plans | | | 3 | | | | — | | | | — | | | | 3 | | | | (3 | ) | | | 3 | |
Provision for income taxes related to other comprehensive income items | | | (13 | ) | | | (13 | ) | | | — | | | | — | | | | 13 | | | | (13 | ) |
Comprehensive income (loss) | | $ | 408 | | | $ | 521 | | | $ | 217 | | | $ | (23 | ) | | $ | (715 | ) | | $ | 408 | |
| | Fiscal 2017 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Net sales | | $ | — | | | $ | 587 | | | $ | 4,861 | | | $ | 1,647 | | | $ | — | | | $ | 7,095 | |
Cost of goods sold | | | — | | | | 438 | | | | 3,920 | | | | 1,333 | | | | — | | | | 5,691 | |
Selling, general and administrative | | | — | | | | 55 | | | | 335 | | | | 104 | | | | — | | | | 494 | |
Amortization of intangibles | | | — | | | | 6 | | | | 120 | | | | 28 | | | | — | | | | 154 | |
Restructuring and impairment charges | | | — | | | | — | | | | 14 | | | | 10 | | | | — | | | | 24 | |
Operating income | | | — | | | | 88 | | | | 472 | | | | 172 | | | | — | | | | 732 | |
Other (income) expense, net | | | — | | | | 8 | | | | (1 | ) | | | 7 | | | | — | | | | 14 | |
Interest expense, net | | | — | | | | 12 | | | | 229 | | | | 28 | | | | — | | | | 269 | |
Equity in net income of subsidiaries | | | (449 | ) | | | (341 | ) | | | — | | | | — | | | | 790 | | | | — | |
Income (loss) before income taxes | | | 449 | | | | 409 | | | | 244 | | | | 137 | | | | (790 | ) | | | 449 | |
Income tax expense (benefit) | | | 109 | | | | 69 | | | | — | | | | 40 | | | | (109 | ) | | | 109 | |
Net income (loss) | | $ | 340 | | | $ | 340 | | | $ | 244 | | | $ | 97 | | | $ | (681 | ) | | $ | 340 | |
Currency translation | | | 34 | | | | — | | | | — | | | | 34 | | | | (34 | ) | | | 34 | |
Interest rate hedges | | | 28 | | | | 28 | | | | — | | | | — | | | | (28 | ) | | | 28 | |
Defined benefit pension and retiree health benefit plans | | | 38 | | | | 25 | | | | — | | | | 13 | | | | (38 | ) | | | 38 | |
Provision for income taxes related to other comprehensive income items | | | (20 | ) | | | (20 | ) | | | — | | | | — | | | | 20 | | | | (20 | ) |
Comprehensive income (loss) | | $ | 420 | | | $ | 373 | | | $ | 244 | | | $ | 144 | | | $ | (761 | ) | | $ | 420 | |
| | Fiscal 2016 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Net sales | | $ | — | | | $ | 599 | | | $ | 4,220 | | | $ | 1,670 | | | $ | — | | | $ | 6,489 | |
Cost of goods sold | | | — | | | | 476 | | | | 3,388 | | | | 1,338 | | | | — | | | | 5,202 | |
Selling, general and administrative | | | — | | | | 72 | | | | 324 | | | | 135 | | | | — | | | | 531 | |
Amortization of intangibles | | | — | | | | 8 | | | | 107 | | | | 28 | | | | — | | | | 143 | |
Restructuring and impairment charges | | | — | | | | — | | | | 28 | | | | 4 | | | | — | | | | 32 | |
Operating income | | | — | | | | 43 | | | | 373 | | | | 165 | | | | — | | | | 581 | |
Other (income) expense, net | | | — | | | | 15 | | | | (211 | ) | | | 178 | | | | — | | | | (18 | ) |
Interest expense, net | | | — | | | | 36 | | | | 205 | | | | 50 | | | | — | | | | 291 | |
Equity in net income of subsidiaries | | | (308 | ) | | | (279 | ) | | | — | | | | — | | | | 587 | | | | — | |
Income (loss) before income taxes | | | 308 | | | | 271 | | | | 379 | | | | (63 | ) | | | (587 | ) | | | 308 | |
Income tax expense (benefit) | | | 72 | | | | 34 | | | | 8 | | | | 29 | | | | (71 | ) | | | 72 | |
Net income (loss) | | $ | 236 | | | $ | 237 | | | $ | 371 | | | $ | (92 | ) | | $ | (516 | ) | | $ | 236 | |
Currency translation | | | (1 | ) | | | — | | | | — | | | | (1 | ) | | | 1 | | | | (1 | ) |
Interest rate hedges | | | (14 | ) | | | (14 | ) | | | — | | | | — | | | | 14 | | | | (14 | ) |
Defined benefit pension and retiree health benefit plans | | | (23 | ) | | | (10 | ) | | | — | | | | (13 | ) | | | 23 | | | | (23 | ) |
Provision for income taxes related to other comprehensive income items | | | 9 | | | | 9 | | | | — | | | | — | | | | (9 | ) | | | 9 | |
Comprehensive income (loss) | | $ | 207 | | | $ | 222 | | | $ | 371 | | | $ | (106 | ) | | $ | (487 | ) | | $ | 207 | |
Condensed Supplemental Consolidated Balance Sheet
As of fiscal year end 2018
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 133 | | | $ | 4 | | | $ | 244 | | | $ | — | | | $ | 381 | |
Accounts receivable, net | | | — | | | | 42 | | | | 555 | | | | 344 | | | | — | | | | 941 | |
Intercompany receivable | | | 296 | | | | 1,907 | | | | — | | | | 49 | | | | (2,252 | ) | | | — | |
Inventories | | | — | | | | 56 | | | | 664 | | | | 167 | | | | — | | | | 887 | |
Prepaid expenses and other current | | | — | | | | 18 | | | | 17 | | | | 41 | | | | — | | | | 76 | |
Total current assets | | | 296 | | | | 2,156 | | | | 1,240 | | | | 845 | | | | (2,252 | ) | | | 2,285 | |
Property, plant and equipment, net | | | — | | | | 79 | | | | 1,684 | | | | 725 | | | | — | | | | 2,488 | |
Goodwill and intangible assets, net | | | — | | | | 79 | | | | 3,742 | | | | 463 | | | | — | | | | 4,284 | |
Investment in subsidiaries | | | 1,513 | | | | 6,151 | | | | 1,105 | | | | — | | | | (8,769 | ) | | | — | |
Other assets | | | 31 | | | | 17 | | | | 2 | | | | 24 | | | | — | | | | 74 | |
Total assets | | $ | 1,840 | | | $ | 8,482 | | | $ | 7,773 | | | $ | 2,057 | | | $ | (11,021 | ) | | $ | 9,131 | |
Liabilities and equity | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | — | | | $ | 42 | | | $ | 468 | | | $ | 273 | | | $ | — | | | $ | 783 | |
Accrued expenses and other current liabilities | | | 18 | | | | 146 | | | | 159 | | | | 93 | | | | — | | | | 416 | |
Intercompany payable | | | — | | | | — | | | | 2,252 | | | | — | | | | (2,252 | ) | | | — | |
Current portion of long-term debt | | | — | | | | 30 | | | | 8 | | | | — | | | | — | | | | 38 | |
Total current liabilities | | | 18 | | | | 218 | | | | 2,887 | | | | 366 | | | | (2,252 | ) | | | 1,237 | |
Long-term debt, less current portion | | | — | | | | 5,782 | | | | 23 | | | | 1 | | | | — | | | | 5,806 | |
Deferred income taxes | | | 365 | | | | — | | | | — | | | | — | | | | — | | | | 365 | |
Other long-term liabilities | | | 23 | | | | 163 | | | | 45 | | | | 58 | | | | — | | | | 289 | |
Total long-term liabilities | | | 388 | | | | 5,945 | | | | 68 | | | | 59 | | | | — | | | | 6,460 | |
Total liabilities | | | 406 | | | | 6,163 | | | | 2,955 | | | | 425 | | | | (2,252 | ) | | | 7,697 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total equity (deficit) | | | 1,434 | | | | 2,319 | | | | 4,818 | | | | 1,632 | | | | (8,769 | ) | | | 1,434 | |
Total liabilities and equity (deficit) | | $ | 1,840 | | | $ | 8,482 | | | $ | 7,773 | | | $ | 2,057 | | | $ | (11,021 | ) | | $ | 9,131 | |
Condensed Supplemental Consolidated Balance Sheet
As of fiscal year end 2017
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 18 | | | $ | 12 | | | $ | 276 | | | $ | — | | | $ | 306 | |
Accounts receivable, net | | | — | | | | 49 | | | | 503 | | | | 295 | | | | — | | | | 847 | |
Intercompany receivable | | | 512 | | | | 2,217 | | | | — | | | | — | | | | (2,729 | ) | | | — | |
Inventories | | | — | | | | 42 | | | | 567 | | | | 153 | | | | — | | | | 762 | |
Prepaid expenses and other current | | | — | | | | 7 | | | | 31 | | | | 51 | | | | — | | | | 89 | |
Total current assets | | | 512 | | | | 2,333 | | | | 1,113 | | | | 775 | | | | (2,729 | ) | | | 2,004 | |
Property, plant and equipment, net | | | — | | | | 80 | | | | 1,564 | | | | 722 | | | | — | | | | 2,366 | |
Goodwill and intangible assets, net | | | — | | | | 79 | | | | 3,476 | | | | 506 | | | | — | | | | 4,061 | |
Investment in subsidiaries | | | 992 | | | | 5,240 | | | | 1,105 | | | | — | | | | (7,337 | ) | | | — | |
Other assets | | | — | | | | 16 | | | | 2 | | | | 27 | | | | — | | | | 45 | |
Total assets | | $ | 1,504 | | | $ | 7,748 | | | $ | 7,260 | | | $ | 2,030 | | | $ | (10,066 | ) | | $ | 8,476 | |
Liabilities and equity | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | — | | | $ | 43 | | | $ | 356 | | | $ | 239 | | | $ | — | | | $ | 638 | |
Accrued expenses and other current liabilities | | | 36 | | | | 168 | | | | 181 | | | | 78 | | | | — | | | | 463 | |
Intercompany payable | | | — | | | | — | | | | 2,667 | | | | 62 | | | | (2,729 | ) | | | — | |
Current portion of long-term debt | | | — | | | | 32 | | | | — | | | | 1 | | | | — | | | | 33 | |
Total current liabilities | | | 36 | | | | 243 | | | | 3,204 | | | | 380 | | | | (2,729 | ) | | | 1,134 | |
Long-term debt, less current portion | | | — | | | | 5,579 | | | | 29 | | | | — | | | | — | | | | 5,608 | |
Deferred income taxes | | | 419 | | | | — | | | | — | | | | — | | | | — | | | | 419 | |
Other long-term liabilities | | | 34 | | | | 128 | | | | 70 | | | | 68 | | | | — | | | | 300 | |
Total long-term liabilities | | | 453 | | | | 5,707 | | | | 99 | | | | 68 | | | | — | | | | 6,327 | |
Total liabilities | | | 489 | | | | 5,950 | | | | 3,303 | | | | 448 | | | | (2,729 | ) | | | 7,461 | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Total equity (deficit) | | | 1,015 | | | | 1,798 | | | | 3,957 | | | | 1,582 | | | | (7,337 | ) | | | 1,015 | |
Total liabilities and equity (deficit) | | $ | 1,504 | | | $ | 7,748 | | | $ | 7,260 | | | $ | 2,030 | | | $ | (10,066 | ) | | $ | 8,476 | |
Condensed Supplemental Consolidated Statements of Cash Flows
| | Fiscal 2018 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Cash Flow from Operating Activities | | $ | — | | | $ | 133 | | | $ | 651 | | | $ | 220 | | | $ | — | | | $ | 1,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | — | | | | (5 | ) | | | (241 | ) | | | (90 | ) | | | — | | | | (336 | ) |
Proceeds from sale of assets | | | — | | | | — | | | | 3 | | | | — | | | | — | | | | 3 | |
(Contributions) distributions to/from subsidiaries | | | 10 | | | | (715 | ) | | | — | | | | — | | | | 705 | | | | — | |
Intercompany advances (repayments) | | | — | | | | 538 | | | | — | | | | — | | | | (538 | ) | | | — | |
Acquisition of business, net of cash acquired | | | — | | | | — | | | | (632 | ) | | | (70 | ) | | | — | | | | (702 | ) |
Net cash from investing activities | | | 10 | | | | (182 | ) | | | (870 | ) | | | (160 | ) | | | 167 | | | | (1,035 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | — | | | | 498 | | | | — | | | | — | | | | — | | | | 498 | |
Repayment of long-term borrowings | | | — | | | | (331 | ) | | | (3 | ) | | | (1 | ) | | | — | | | | (335 | ) |
Proceed from issuance of common stock | | | 23 | | | | — | | | | — | | | | — | | | | — | | | | 23 | |
Repurchase of common stock | | | (33 | ) | | | — | | | | — | | | | — | | | | — | | | | (33 | ) |
Payment of tax receivable agreement | | | (37 | ) | | | — | | | | — | | | | — | | | | — | | | | (37 | ) |
Debt financing costs | | | — | | | | (3 | ) | | | — | | | | — | | | | — | | | | (3 | ) |
Changes in intercompany balances | | | 37 | | | | — | | | | (418 | ) | | | (157 | ) | | | 538 | | | | — | |
Contribution from Parent | | | — | | | | — | | | | 632 | | | | 73 | | | | (705 | ) | | | — | |
Net cash from financing activities | | | (10 | ) | | | 164 | | | | 211 | | | | (85 | ) | | | (167 | ) | | | 113 | |
Effect of currency translation on cash | | | — | | | | — | | | | — | | | | (7 | ) | | | — | | | | (7 | ) |
Net change in cash and cash equivalents | | | — | | | | 115 | | | | (8 | ) | | | (32 | ) | | | — | | | | 75 | |
Cash and cash equivalents at beginning of period | | | — | | | | 18 | | | | 12 | | | | 276 | | | | — | | | | 306 | |
Cash and cash equivalents at end of period | | $ | — | | | $ | 133 | | | $ | 4 | | | $ | 244 | | | $ | — | | | $ | 381 | |
| | Fiscal 2017 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Cash Flow from Operating Activities | | $ | — | | | $ | 128 | | | $ | 647 | | | $ | 200 | | | $ | — | | | $ | 975 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | — | | | | (19 | ) | | | (209 | ) | | | (41 | ) | | | — | | | | (269 | ) |
Proceeds from sale of assets | | | — | | | | 1 | | | | 5 | | | | — | | | | — | | | | 6 | |
(Contributions) distributions to/from subsidiaries | | | (31 | ) | | | (484 | ) | | | — | | | | — | | | | 515 | | | | — | |
Intercompany advances (repayments) | | | — | | | | 428 | | | | — | | | | — | | | | (428 | ) | | | — | |
Acquisition of business, net of cash acquired | | | — | | | | — | | | | (515 | ) | | | — | | | | — | | | | (515 | ) |
Other investing activities, net | | | — | | | | 4 | | | | — | | | | — | | | | — | | | | 4 | |
Net cash from investing activities | | | (31 | ) | | | (70 | ) | | | (719 | ) | | | (41 | ) | | | 87 | | | | (774 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | — | | | | 495 | | | | — | | | | — | | | | — | | | | 495 | |
Repayment of long-term borrowings | | | — | | | | (632 | ) | | | (3 | ) | | | (1 | ) | | | — | | | | (636 | ) |
Proceed from issuance of common stock | | | 31 | | | | — | | | | — | | | | — | | | | — | | | | 31 | |
Payment of tax receivable agreement | | | (111 | ) | | | — | | | | — | | | | — | | | | — | | | | (111 | ) |
Debt financing costs | | | — | | | | (5 | ) | | | — | | | | — | | | | — | | | | (5 | ) |
Changes in intercompany balances | | | 111 | | | | — | | | | (433 | ) | | | (106 | ) | | | 428 | | | | — | |
Contribution from Parent | | | — | | | | — | | | | 515 | | | | — | | | | (515 | ) | | | — | |
Net cash from financing activities | | | 31 | | | | (142 | ) | | | 79 | | | | (107 | ) | | | (87 | ) | | | (226 | ) |
Effect of currency translation on cash | | | — | | | | — | | | | — | | | | 8 | | | | — | | | | 8 | |
Net change in cash and cash equivalents | | | — | | | | (84 | ) | | | 7 | | | | 60 | | | | — | | | | (17 | ) |
Cash and cash equivalents at beginning of period | | | — | | | | 102 | | | | 5 | | | | 216 | | | | — | | | | 323 | |
Cash and cash equivalents at end of period | | $ | — | | | $ | 18 | | | $ | 12 | | | $ | 276 | | | $ | — | | | $ | 306 | |
| | Fiscal 2016 | |
| | Parent | | | Issuer | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Total | |
Cash Flow from Operating Activities | | $ | — | | | $ | 103 | | | $ | 566 | | | $ | 188 | | | $ | — | | | $ | 857 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | | — | | | | (13 | ) | | | (239 | ) | | | (36 | ) | | | — | | | | (288 | ) |
Proceeds from sale of assets | | | — | | | | — | | | | 5 | | | | — | | | | — | | | | 5 | |
(Contributions) distributions to/from subsidiaries | | | (26 | ) | | | (2,234 | ) | | | — | | | | — | | | | 2,260 | | | | — | |
Intercompany advances (repayments) | | | — | | | | 96 | | | | — | | | | — | | | | (96 | ) | | | — | |
Acquisition of business, net of cash acquired | | | — | | | | — | | | | (368 | ) | | | (1,915 | ) | | | — | | | | (2,283 | ) |
Other investing activities, net | | | — | | | | (13 | ) | | | — | | | | — | | | | — | | | | (13 | ) |
Net cash from investing activities | | | (26 | ) | | | (2,164 | ) | | | (602 | ) | | | (1,951 | ) | | | 2,164 | | | | (2,579 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | — | | | | 2,490 | | | | — | | | | — | | | | — | | | | 2,490 | |
Repayment of long-term borrowings | | | — | | | | (450 | ) | | | (23 | ) | | | (51 | ) | | | — | | | | (524 | ) |
Proceeds from issuance of common stock | | | 26 | | | | — | | | | — | | | | — | | | | — | | | | 26 | |
Payment of tax receivable agreement | | | (57 | ) | | | — | | | | — | | | | — | | | | — | | | | (57 | ) |
Debt financing costs | | | — | | | | (40 | ) | | | — | | | | — | | | | — | | | | (40 | ) |
Purchase of non-controlling interest | | | — | | | | — | | | | (66 | ) | | | (12 | ) | | | — | | | | (78 | ) |
Changes in intercompany balances | | | 57 | | | | — | | | | (238 | ) | | | 85 | | | | 96 | | | | — | |
Contribution from Parent | | | — | | | | — | | | | 368 | | | | 1,892 | | | | (2,260 | ) | | | — | |
Net cash from financing activities | | | 26 | | | | 2,000 | | | | 41 | | | | 1,914 | | | | (2,164 | ) | | | 1,817 | |
Effect of currency translation on cash | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Net change in cash and cash equivalents | | | — | | | | (61 | ) | | | 5 | | | | 151 | | | | — | | | | 95 | |
Cash and cash equivalents at beginning of period | | | — | | | | 163 | | | | — | | | | 65 | | | | — | | | | 228 | |
Cash and cash equivalents at end of period | | $ | — | | | $ | 102 | | | $ | 5 | | | $ | 216 | | | $ | — | | | $ | 323 | |
16. Quarterly Financial Data (Unaudited)
The following table contains selected unaudited quarterly financial data for fiscal years ended.
| | 2018 | | | 2017 | |
| | First | | | Second | | | Third | | | Fourth | | | First | | | Second | | | Third | | | Fourth | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 1,776 | | | $ | 1,967 | | | $ | 2,072 | | | $ | 2,054 | | | $ | 1,502 | | | $ | 1,806 | | | $ | 1,906 | | | $ | 1,881 | |
Cost of goods sold | | | 1,447 | | | | 1,596 | | | | 1,690 | | | | 1,705 | | | | 1,206 | | | | 1,453 | | | | 1,518 | | | | 1,514 | |
Gross profit | | | 329 | | | | 371 | | | | 382 | | | | 349 | | | | 296 | | | | 353 | | | | 388 | | | | 367 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 163 | | | $ | 90 | | | $ | 110 | | | $ | 133 | | | $ | 51 | | | $ | 72 | | | $ | 107 | | | $ | 110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 1.24 | | | | 0.69 | | | | 0.84 | | | | 1.01 | | | | 0.42 | | | | 0.56 | | | | 0.82 | | | | 0.84 | |
Diluted | | | 1.20 | | | | 0.66 | | | | 0.81 | | | | 0.99 | | | | 0.40 | | | | 0.54 | | | | 0.79 | | | | 0.81 | |
Exhibit No | | Description of Exhibit |
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| | | Agreement and Plan of Merger,Rule 2.7 Announcement, dated as of July 30, 2015, by and among AVINTIV Inc., Berry Plastics Group, Inc., Berry Plastics Acquisition Corporation IX and Blackstone Capital Partners (Cayman) V L.P., as the security holder representative (the Exhibits and Disclosure Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the SEC upon request)March 8, 2019 (incorporated by reference to Exhibit 2.1 to the Company'sCompany’s Current Report on Form 8-K filed on August 5, 2015)March 14, 2019). |
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| | | Co-Operation Agreement, and Plan of Merger, dated as of August 24, 2016,March 8, 2019, by and among Berry PlasticsGlobal Group, Inc., Berry Plastics Corporation, Berry Plastics Acquisition Corporation XVI, Berry Plastics Acquisition Corporation XV, LLCGlobal International Holdings Limited and AEP Industries Inc. (the Exhibits and Disclosure Schedules have been omitted pursuant to Item 601(b)(2) of Regulation SK and will be provided to the SEC upon request)RPC Group Plc (incorporated by reference to Annex A Amendment No. 1Exhibit 2.2 to the Company's Registration Statement S-4 (Reg. No. 333-2138030Company’s Current Report on Form 8-K filed on November 8, 2016)March 14, 2019). |
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| | | First Supplemental Indenture, dated as of October 1, 2015, by and between Berry Plastics Corporation, Berry Plastics Group, Inc., the subsidiaries of Berry Plastics Corporation party thereto, Berry Plastics Escrow Corporation, and U.S. Bank National Association, as Trustee, relating to the Indenture, by and between Berry Plastics Escrow Corporation, as Issuer, and U.S. Bank, National Association, as Trustee, relating to the 6.00% second priority senior secured notes due 2022, dated October 1, 2015 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on October 6, 2015). |
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| | | Registration Rights Agreement, dated as of October 1, 2015, by and between Berry Plastics Corporation, Berry Plastics Group, Inc., each subsidiary of Berry Plastics Corporation identified therein, and Goldman, Sachs & Co., and Credit Suisse, on behalf of themselves and as representatives of the initial purchasers, relating to the 6.00% second priority senior secured notes due 2022 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on October 6, 2015). |
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| | | Indenture, by and between Berry Global Escrow Corporation and U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 4.875% First Priority Senior Secured Notes due 2026, dated June 5, 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 6, 2019). |
| | | Supplemental Indenture, among Berry Global Group, Inc., Berry Global, Inc., Berry Global Escrow Corporation, each of the parties identified as a Subsidiary Guarantor thereon, and U.S. Bank National Association, as Trustee, relating to the 4.875% First Priority Senior Secured Notes due 2026, dated July 1, 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on July 2, 2019). |
| | | Indenture, by and between Berry Global Escrow Corporation and U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 5.625% Second Priority Senior Secured Notes due 2027, dated June 5, 2019 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 6, 2019). |
| | | Supplemental Indenture, among Berry Global Group, Inc., Berry Global, Inc., Berry Global Escrow Corporation, each of the parties identified as a Subsidiary Guarantor thereon, and U.S. Bank National Association, as Trustee, relating to the 5.625% Second Priority Senior Secured Notes due 2027, dated July 1, 2019 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on July 2, 2019). |
| | | Indenture, among Berry Global, Inc., certain guarantors party thereto, U.S. Bank National Association, as Trustee and Collateral Agent, and Elavon Financial Services DAC, as Paying Agent, Transfer Agent and Registrar, relating to the 1.00% First Priority Senior Secured Notes due 2025 and 1.50% First Priority Senior Secured Notes due 2027, dated January 2, 2020 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 2, 2020). |
| | | Indenture among Berry Global, Inc., certain guarantors party thereto, U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 1.57% First Priority Senior Secured Notes due 2026, dated December 22, 2020 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 23, 2020). |
| | | First Supplemental Indenture, among Berry Global, Inc., certain guarantors party thereto, U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 1.57% First Priority Senior Secured Notes due 2026, dated March 4, 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 4, 2021). |
| | | Indenture among Berry Global, Inc., certain guarantors party thereto, U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 0.95% First Priority Senior Secured Notes due 2024, dated January 15, 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 15, 2021). |
| | | Indenture, among Berry Global, Inc., certain guarantors party thereto, U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 1.65% First Priority Senior Secured Notes due 2027, dated June 14, 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 14, 2021). |
| _ | | Registration Rights Agreement, by and between Berry Global, Inc., Berry Global Group, Inc., each subsidiary of Berry Global, Inc. identified therein, and Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, on behalf of themselves and as representatives of the initial purchasers, relating to the 1.57% First Priority Senior Secured Notes due 2026 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 23, 2020). |
| | | Registration Rights Agreement, by and between Berry Global, Inc., Berry Global Group, Inc., each subsidiary of Berry Global, Inc. identified therein, and Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, on behalf of themselves and as representatives of the initial purchasers, relating to the 0.95% First Priority Senior Secured Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 15, 2021). |
| | | Registration Rights Agreement, dated March 4, 2021, by and between Berry Global, Inc., Berry Global Group, Inc., each subsidiary of Berry Global, Inc. identified therein, and Citigroup Global Markets Inc. Goldman Sachs & Co. LLC and Wells Fargo Securities, LLC, on behalf of themselves and as representatives of the initial purchasers, relating to the 1.57% First Priority Senior Secured Notes due 2026 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 5, 2021). |
| | | Registration Rights Agreement, by and between Berry Global, Inc., Berry Global Group, Inc., each subsidiary of Berry Global, Inc. identified therein, and J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC, on behalf of themselves and as representatives of the initial purchasers, relating to the 1.65% First Priority Senior Secured Notes due 2027 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 14, 2021). |
| | | Description of Securities (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-K filed on November 11, 2019). |
| | | $650,000,000 Second850,000,000 Third Amended and Restated Revolving Credit Agreement, dated as of May 14, 2015,1, 2019, by and among Berry Plastics Corporation.Global, Inc., Berry PlasticsGlobal Group, Inc., certain domestic subsidiaries party thereto from time to time, Bank of America, N.A., as collateral agent and administrative agent, the lenders party thereto from time to time, and the financial institutions party thereto, which is attached to Amendment No. 4 to Amended and Restated Revolving Credit Agreement dated as of April 3, 2007 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 14, 2015). |
| | | Amendment No. 5 to the Amended and Restated Credit Agreement, dated as of March 24, 2017, by and among Berry Plastics Group, Inc., Berry Plastics Corporation, certain domestic subsidiaries party thereto, Bank of America, N.A., as collateral agent and administrative agent, and the lenders party thereto (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-K filed on November 21, 2017). |
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| | | Amendment No. 6 to the Amended and Restated Credit Agreement, dated as of March 24, 2017, by and among Berry Plastics Group, Inc., Berry Plastics Corporation, certain domestic subsidiaries party thereto, Bank of America, N.A., as collateral agent and administrative agent, and the lenders party thereto. (incorporated herein by reference to Exhibit 10.3 to the Company's Form 10-K filed on November 21, 2017). |
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| | | Amendment No. 7 to the Amended and Restated Credit Agreement, dated as of March 24, 2017, by and among Berry Plastics Group, Inc., Berry Plastics Corporation, certain domestic subsidiaries party thereto, Bank of America, N.A., as collateral agent and administrative agent, and the lendersfinancial institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company'sCompany’s Current Report on Form 8-K filed on March 27, 2017)May 6, 2019). |
| | | | U.S. $1,200,000,000 Second Amended and Restated Credit Agreement, dated as of April 3, 2007, by and among Berry Plastics Corporation formerly known as Berry Plastics Holding Corporation, Berry Plastics Group, Inc., Credit Suisse, Cayman Islands Branch, as collateral and administrative agent, the lenders party thereto from time to time, and the other financial institutions party thereto (incorporated herein by reference to Exhibit 10.1(b) to Berry Plastics Corporation's (File No. 033-75706-01)Corporation’s Current Report on Form 8-K filed on April 10, 2007). |
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| | | Second Amended and Restated Intercreditor Agreement, dated as of February 5, 2008, by and among Berry Plastics Group, Inc., Berry Plastics Corporation, certain subsidiaries identified as parties thereto, Bank of America, N.A. and Credit Suisse, Cayman Islands Branch as first lien agents, and U.S. Bank National Association, as successor in interest to Wells Fargo Bank, N.A., as trustee (incorporated herein by reference to Exhibit 10.3 to the Company'sCompany’s Annual Report on Form 10-K filed on November 23, 2015). |
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| | | U.S. $1,147,500,000 and $814,375,000 Incremental Assumption Agreement, dated as of February 10, 2017 by and among Berry Plastics Group, Inc., Berry Plastics Corporation and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term IK lender and Citibank, N.A., as incremental term JL lender therein. (incorporated by reference to Exhibit 10.7 to the Company'sCompany’s Annual Report on Form 10-K filed with the SEC on November 21, 2017). |
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| | | U.S. $1,644,750,000 and $498,750,000 Incremental Assumption Agreement, dated as of August 10, 2017, by and among Berry Plastics Group, Inc., Berry Plastics Corporation and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Wells Fargo Bank, National Association, as initial Term M lender and Wells Fargo Bank, National Association, as initial Term N lender therein (incorporated by reference to Exhibit 10.8 to the Company'sCompany’s Annual Report on Form 10-K filed with the SEC on November 21, 2017). |
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| | | U.S. $900,000,000 and $814,375,000 Incremental Assumption Agreement, dated as of November 27, 2017, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit SuiseSuisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term O Lender, and Citibank, N.A., as initial Term P Lender thereintherein. (incorporated by reference to Exhibit 10.1 to the Company'sCompany’s Quarterly Report on Form 10-Q filed with the SEC on February 7, 2018). |
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| | | U.S. $ 1,644,750,000 and $496,250,000 Incremental Assumption Agreement and Amendment, dated as of February 12, 2018, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term Q lender, and Citibank, N.A., as initial Term R lender therein (incorporated by reference to Exhibit 10.2 to the Company'sCompany’s Quarterly Report on Form 10-Q filed with the SEC on May 3, 2018). |
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| | | U.S. $800,000,000 and $814,375,000 Incremental Assumption Agreement, dated as of May 16, 2018, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term S lender, and Citibank, N.A., as initial Term T lender therein (incorporated by reference to Exhibit 10.1 to the Company'sCompany’s Quarterly Report on Form 10-Q filed with the SEC on August 3, 2018). |
| | | Incremental Assumption Agreement and Amendment, among Berry Global Group, Inc., Berry Global, Inc. and certain subsidiaries of Berry Global, Inc., as Loan Parties, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, Goldman Sachs Bank USA, as Initial Term U Lender, and Goldman Sachs Bank USA, as Initial Term V Lender, dated as of July 1, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 2, 2019). |
| | | Amendment and Waiver to Equipment Lease Agreement, dated as of January 19, 2011, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.16 to AVINTIV Specialty Materials Inc.'s’s Registration Statement Form S-4 (Reg. No. 333-177497) filed on October 25, 2011). |
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| † | | 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to Berry Plastics Corporation’s Registration Statement Form S-4 filed on November 2, 2006). |
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| | | | Form of 2016 Omnibus Amendment to Awards Granted Under the Berry Plastics Group, Inc. 2006 Equity Incentive Plan (incorporated(incorporated by reference to Exhibit 10.2 to the Company'sCompany’s Current Report on Form 8-K filed on July 22, 2016). |
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| | † | 2015). |
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| 10.33 | † | |
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| | | Employment Agreement, dated February 28, 1998, between Berry Plastics Corporation and Mark Miles, together with amendments dated February 28, 2003, September 13, 2006, December 31, 2008, and December 31, 2011 (incorporated herein by reference to Exhibit 10.40 to the Company'sCompany’s Annual Report on Form 10-K filed on November 30, 2016). |
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| † | | | Employment Agreement, dated December 16, 2010, between Berry Plastics Corporation and Jason Greene, together with amendments dated December 31, 2011 and July 20, 2016 (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed on November 23, 2020). |
| † | | Amended and Restated Berry Global Group, Inc. 2015 Long-Term Incentive Plan, effective February 24, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 25, 2021). |
| † | | Form of Employee Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 30, 2020). |
| † | | 21.1*Form of Employee Performance-Based Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 30, 2020). |
| † | | Form of Director Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 30, 2020). |
| * | | Subsidiaries of the Registrant. |
| * | | | List of Subsidiary Guarantors. |
| | * | | Consent of Independent Registered Public Accounting FirmFirm. |
| * | | | |
| 31.1 | * | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive OfficerOfficer. |
| * | | | |
| 31.2 | * | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial OfficerOfficer. |
| * | | | |
| 32.1 | * | Section 1350 Certification of the Chief Executive OfficerOfficer. |
| * | | Section 1350 Certification of the Chief Financial Officer. |
101.INS | | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
| 101. | * | Interactive Data Files |
101.SCH | | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | | | * | Filed herewith.Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101.) |
* | Filed or furnished herewith, as applicable. |
† | Management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 16th18th day of November, 2018.2021.
| BERRY GLOBAL GROUP, INC. | |
| | |
| By | /s/ Thomas E. Salmon | |
| | Thomas E. Salmon | |
| | Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature | | Title |
| Date |
| | | | |
/s/ Thomas E. Salmon | | Chief Executive Officer and Chairman of the Board of Directors and Director (Principal Executive Officer) | | November 16, 201818, 2021 |
Thomas E. Salmon | | | | |
| | | | |
/s/ Mark W. Miles | | Chief Financial Officer (Principal Financial Officer) | | November 16, 201818, 2021 |
Mark W. Miles | | | | |
| | | | |
/s/ James M. Till | | Executive Vice President and Controller (Principal Accounting Officer) | | November 16, 201818, 2021 |
James M. Till | | | | |
| | | | |
/s/ B. Evan Bayh | | Director | | November 16, 201818, 2021 |
B. Evan Bayh | | | | |
| | | | |
/s/ Jonathan F. Foster | | Director | | November 16, 201818, 2021 |
Jonathan F. Foster | | | | |
| | | | |
/s/ Idalene F. Kesner | | Director | | November 16, 201818, 2021 |
Idalene F. Kesner | | | | |
| | | | |
/s/ Jill A. Rahman | | Director | | November 18, 2021 |
Jill A. Rahman | | | | |
| | | | |
/s/ Carl J. Rickertsen | | Director | | November 16, 201818, 2021 |
Carl J. Rickertsen | | | |
| | | |
/s/ Ronald S. Rolfe | | Director | November 16, 2018 |
Ronald S. Rolfe | | | |
| | | |
/s/ Robert V. Seminara | | Director | November 16, 2018 |
Robert V. Seminara | | | |
| | | |
/s/ Paula Sneed | | Director | | November 16, 201818, 2021 |
Paula Sneed | | | | |
| | | | |
/s/ Robert A. Steele | | Director | | November 16, 201818, 2021 |
Robert A. Steele | | | | |
| | | | |
/s/ Stephen E. Sterrett | | Director | | November 16, 201818, 2021 |
Stephen E. Sterrett | | | | |
| | | | |
/s/ Scott B. Ullem | | Director | | November 16, 201818, 2021 |
Scott B. Ullem | | | | |