| Basis of Presentation and Summary of Significant Accounting Policies | 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 The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commissions. Periods presented in these financial statements include fiscal periods ending September 28, 2019 (“fiscal 2019 ”), September 29, 2018 (“fiscal 2018 ”), and September 30 , 2017 (“fiscal 2017 ”). The Company has recast certain prior period amounts to conform to current reporting. Fiscal 2019 , fiscal 2018 , and fiscal 2017 were fifty-two week periods. 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. Revenue Recognition Our revenues are primarily derived from the sale of plastic packaging 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 and cash discounts. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Generally our revenue is recognized at a point in time for standard promised goods at the time of shipment, when title and risk of loss pass to the customer. A small number of our contracts are for sales of products which are customer specific and cannot be repurposed. Sales for these products qualify for over time recognition and are immaterial to the Company. Our 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 include 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 $114 million and $58 million at September 28, 2019 and September 29, 2018, respectively, and is included in Accrued expenses and other current liabilities. Due to the nature of our sales transactions, we have elected the following practical expedients: (i) Shipping and handling costs are treated as fulfillment costs. Accordingly, shipping and handling costs are classified as a component of Cost of goods sold while amounts billed to customers are classified as a component of Net Sales; (ii) We exclude sales and similar taxes that are imposed on our sales and collected from customers; (iii) As our standard payment terms are less than one year, we do not assess whether a contract has a significant financing component. The Company disaggregates revenue based on reportable business segment, geography, and significant product line. Refer to Note 12. Segment and Geographic Data for further information. 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 13 % of purchases in fiscal 2019 . The Company uses a variety of suppliers to meet its resin requirements. Research and Development Research and development costs are expensed when incurred. The Company incurred research and development expenditures of $50 million, $45 million, and $45 million in fiscal 2019 , 2018 , and 2017 , 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 11. Stockholders’ Equity. Foreign Currency For the non-U.S. subsidiaries that account in a functional currency other than U.S. Dollars, assets and liabilities are translated into U.S. Dollars using period-end exchange rates. Sales and expenses are translated at the average exchange rates in effect during the period. Foreign currency translation gains and losses are included as a component of Accumulated other comprehensive income (loss) within Stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Income. Cash and Cash Equivalents All highly liquid investments purchased with a maturity of three months or less from the time of purchase are considered to be cash equivalents. Allowance for Doubtful Accounts The Company’s customers are located principally throughout the U.S. and Europe, without significant concentration with any one customer. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. 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:
2019 2018 2017
Allowance for doubtful accounts, beginning $ 13 $ 13 $ 8
Acquisition allowance for doubtful accounts 13 2 5
Bad debt expense 2 1 1
Write-offs against allowance — (3 ) (1 )
Allowance for doubtful accounts, ending $ 28 $ 13 $ 13 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 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 28, 2019 or September 29, 2018 . Gross amounts factored under these U.S. based programs at September 28, 2019 and September 29, 2018 were $284 million and $162 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 net realizable value and are valued using the first-in, first-out method. Management periodically reviews inventory balances, using recent and future expected sales to identify slow-moving and/or obsolete items. The cost of spare parts is charged to cost of goods sold when purchased. We evaluate our reserve for inventory obsolescence on a quarterly basis and review inventory on-hand to determine future salability. We base our determinations on the age of the inventory and the experience of our personnel. We reserve inventory that we deem to be not salable in the quarter in which we make the determination. We believe, based on past history and our policies and procedures, that our net inventory is salable. Inventory as of fiscal 2019 and 2018 was:
Inventories: 2019 2018
Finished goods $ 743 $ 503
Raw materials 581 384
$ 1,324 $ 887 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 $10 million, $9 million, and $7 million in fiscal 2019, 2018, and 2017, respectively. Property, plant and equipment as of fiscal 2019 and 2018 was:
Property, plant and equipment: 2019 2018
Land, buildings and improvements $ 1,549 $ 875
Equipment and construction in progress 6,090 4,242
7,639 5,117
Less accumulated depreciation (2,925 ) (2,629 )
$ 4,714 $ 2,488 Long-lived Assets Long-lived assets, including property, plant and equipment and definite lived intangible assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment," whenever facts and circumstances indicate that the carrying amount may not be recoverable. Specifically, this process involves comparing an asset’s carrying value to the estimated undiscounted future cash flows the asset is expected to generate over its remaining life. If this process were to result in the conclusion that the carrying value of a long-lived asset would not be recoverable, a write-down of the asset to fair value would be recorded through a charge to operations. 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. The Company recorded impairment charges totaling $8 million to property, plant and equipment assets in fiscal 2019. The company recorded no impairment charges in fiscal 2018. The Company recorded impairment charges totaling $2 million to property, plant and equipment assets in fiscal 2017 . Impairment charges are recorded in Restructuring and transaction activities on the Consolidated Statements of Income. 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, Tapes, and Engineered Materials. We determined that each of the components within our respective reporting units have similar economic characteristics and therefore should be aggregated. We reached this conclusion because within each of our 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 manufacturing facilities. We regularly re-align our production equipment and manufacturing facilities in order to take advantage of cost savings and manufacturing efficiency opportunities, and to realize cost synergies. 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 distinct management teams oversee operations and allocate resources across the entire region. In fiscal year 2019, 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 prior year step-one results. The HHS-SA reporting unit's fair value is estimated based on a market approach and a discounted cash flow analysis and is reconciled back to the current market capitalization for Berry to ensure that 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 discount rate of 13.5% applied to the forecasted cash flows, and capital expenditure levels consistent with historical spend. The fair value of the HHS-SA reporting unit exceeded its carrying value by 25% and thus no impairment was recorded. Additionally, based on prior year annual impairment evaluations the Company concluded that no impairment existed in fiscal 2018 and fiscal 2017. However, future declines in valuation market multiples, sustained lower earnings, or macroeconomic challenges could impact future impairment tests. In July 2019, after the completion of the RPC acquisition, the Company reorganized into four reporting segments in an effort to better align with our customers, provide improved service, drive future growth, and facilitate cost saving synergies. Post realignment, the Company completed a qualitative assessment and determined it is more likely than not 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 International Consumer Packaging North America Engineered Materials Health, Hygiene & Specialties Total
Balance as of fiscal 2017 $ 48 $ 1,411 $ 542 $ 774 $ 2,775
Foreign currency translation adjustment (2 ) (2 ) — (23 ) (27 )
Acquisitions — — 87 109 196
Balance as of fiscal 2018 $ 46 $ 1,409 $ 629 $ 860 $ 2,944
Foreign currency translation adjustment (73 ) (1 ) — 7 (67 )
Acquisitions 1,705 500 9 2 2,216
Dispositions — — — (42 ) (42 )
Balance as of fiscal 2019 $ 1,678 $ 1,908 $ 638 $ 827 $ 5,051 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 $112 million and $43 million as of fiscal 2019 and fiscal 2018, 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 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 15 years. Definite lived trademarks are being amortized using the straight-line method over the estimated life of the asset which is not more than 15 years. Other intangibles, which include technology and licenses, are being amortized using the straight-line method over the estimated life of the assets which range from 5 to 14 years. The Company 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 relief from royalty method and noted no impairment in fiscal 2019, 2018 and 2017.
Customer Relationships Trademarks Other Intangibles Accumulated Amortization Total
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
Foreign currency translation adjustment (56 ) (4 ) (2 ) 4 (58 )
Amortization expense — — — (194 ) (194 )
Acquisition/disposition intangibles 1,590 108 (22 ) 16 1,692
Netting of fully amortized intangibles (9 ) — — 9 —
Balance as of fiscal 2019 $ 3,407 $ 397 $ 161 $ (1,185 ) $ 2,780 Insurable Liabilities The Company records liabilities for the self-insured portion of workers’ compensation, health, product, general and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated based upon historical claims experience. Income Taxes The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the period in which the underlying transactions are recorded. Deferred taxes, with the exception of non-deductible goodwill, are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and such amounts as measured by tax laws. If the Company determines that a deferred tax asset arising from temporary differences is not likely to be utilized, the Company will establish a valuation allowance against that asset to record it at its expected realizable value. The Company recognizes uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company’s effective tax rate is dependent on many factors including: the impact of enacted tax laws in jurisdictions in which the Company operates; the amount of earnings by jurisdiction, due to varying tax rates in each country; and the Company’s ability to utilize foreign tax credits related to foreign taxes paid on foreign earnings that will be remitted to the U.S. Comprehensive Income (Loss) Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive 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) were as follows:
Currency Translation Defined Benefit Pension and Retiree Health Benefit Plans Derivative Instruments Accumulated Other Comprehensive Loss
Balance as of fiscal 2016 $ (82 ) $ (44 ) $ (22 ) $ (148 )
Other comprehensive loss 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 (127 ) 9 46 (72 )
Net amount reclassified from accumulated other comprehensive income (loss) — (6 ) 3 (3 )
Provision for income taxes — — (13 ) (13 )
Balance as of fiscal 2018 $ (175 ) $ (13 ) $ 32 $ (156 )
Other comprehensive income (71 ) (3 ) (135 ) (209 )
Net amount reclassified from accumulated other comprehensive income (loss) (a) — (52 ) 24 (28 )
Provision for income taxes (33 ) 12 28 7
Balance as of fiscal 2019 $ (279 ) $ (56 ) $ (51 ) $ (386 ) (a) See Note 4 for further discussion on amounts reclassified out of accumulated other comprehensive income (loss) related to interest rate swaps and Note 8 for amounts reclassified related to pensions. Pension Pension benefit costs include assumptions for the discount 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 Recognition In May 2014, the FASB issued a final standard on revenue recognition. Under the new standard, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the new standard effective for fiscal 2019 using the modified retrospective approach. The adoption of this standard did not have a material impact on the Company's consolidated financial statements. Leases In February 2016, the FASB issued ASU 2016-02, Leases (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 are required to adopt this standard using a modified retrospective transition method. The Company will adopt the standard beginning in fiscal 2020 and will recognize the cumulative effect of applying the new standard to retained earnings, which the Company does not expect to be material. The standard provides a number of optional practical expedients in transition. We expect to elect the “package of practical expedients”, which permits us not to reassess under the standard our prior conclusions about lease identification, lease classification and initial direct costs. The standard also provides practical expedients for the Company’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right-of-use (“ROU”) assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We anticipate recognizing ROU assets and related lease liabilities of approximately $600 million upon adoption of the standard. Credit Losses In June 2016, the FASB issued 2016-13, Financial Instruments - Credit Losses (Topic 326) and issued subsequent amendments to the initial guidance. The new standard requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which includes historical experience, current conditions, and reasonable and supportable forecasts. The new standard also requires enhanced disclosure. The new standard is effective for interim and annual periods beginning after December 15, 2019. The Company is in the process of evaluating this new standard, however, the Company does not expect the impact to be material. 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. The new standard is effective for interim and annual periods beginning after December 15, 2017 and should be applied on a retrospective basis. Early adoption is permitted. The Company adopted the new standard in fiscal 2019, the result of which did not have a material impact on our disclosures. Stranded Tax Effects In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The current standard, ASC Topic 740 - Income Taxes, requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. This includes the tax effects of items in accumulated other comprehensive income (“AOCI”) that were originally recognized in other comprehensive income, subsequently creating stranded tax effects. ASU 2018-02 allows a reclassification from AOCI to retained earnings for stranded tax effects specifically resulting from the U.S. federal government’s recently enacted tax bill, the Tax Cuts and Jobs Act. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted. The Company adopted ASU 2018-02 in fiscal 2018, the results of which did not have a material impact on the consolidated financial statements. 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 new standard will be effective for fiscal years ending after December 15, 2020. The Company is currently evaluating the impact of the adoption of this standard to our disclosures. |
