| Basis of Presentation and Summary of Significant Accounting Policies | 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation Berry Global Group, Inc.’s (“Berry,” “we,” or the “Company”) consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the U.S. (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commissions. Periods presented in these financial statements include fiscal periods ending September 30, 2023 (“fiscal 2023”), October 1, 2022 (“fiscal 2022”), and October 2, 2021 (“fiscal 2021”). The Company’s U.S. based results for fiscal 2023 and fiscal 2022 are based on a fifty-two week period. Fiscal 2021 was based on a fifty-three week period. The consolidated financial statements include the accounts of Berry and its subsidiaries, all of which includes our wholly owned and majority owned
subsidiaries. The Company has certain foreign subsidiaries that report on a calendar period basis which we consolidate into our respective fiscal period. Intercompany accounts and transactions have been eliminated in consolidation. During fiscal 2023, the Company announced that it has initiated a formal process to evaluate strategic alternatives for its Health, Hygiene and Specialties
segment and has determined the segment does not meet the criteria of Held for Sale as of year end. Revenue Recognition and Accounts Receivable Our revenues are primarily derived from the sale of non-woven, flexible and rigid products. Revenue is recognized when performance obligations are
satisfied, in an amount reflecting the consideration to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable
amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main sources of variable consideration are customer rebates. There
are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Generally, our revenue is recognized at a point in time for standard promised goods at the time of shipment, when title and risk of
loss pass to the customer. The accrual for customer rebates was $106 million and $103 million at September 30, 2023 and October 1, 2022, respectively, and is included in Other current liabilities on the Consolidated Balance Sheets. The Company disaggregates revenue based
on reportable business segment, geography, and significant product line. See Note 10. Segment and Geographic Data. Accounts receivable are presented net of allowance for credit losses of $19 million and $18 million at September 30, 2023 and October 1, 2022, respectively. The Company
records current expected credit losses based on a variety of factors including historical loss experience and current customer financial condition. The changes to our current expected credit losses, write-off activity, and recoveries were not material
for any of the periods presented. The Company has entered into various factoring agreements, primarily 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. Research and Development Research and development costs are expensed when incurred. The Company incurred research and development expenditures of $82 million, $81 million, and $90 million in fiscal 2023, 2022, and 2021, respectively. Share-Based Compensation The Company recognized total share-based compensation expense of $42
million, $39 million, and $40 million
for fiscal 2023, 2022, and 2021, respectively. The share-based compensation plan is more fully described in Note 9. Stockholders’ Equity. Foreign Currency For the non-U.S. subsidiaries that account in a functional currency other than U.S. dollars, assets and liabilities are translated into U.S. dollars using
period-end exchange rates. Sales and expenses are translated at the average exchange rates in effect during the period. Foreign currency translation gains and losses are included as a component of Accumulated other comprehensive loss within
Stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Income. Cash and Cash Equivalents All highly liquid investments purchased with a maturity of three months or less from the time of purchase are considered to be cash equivalents. Inventories Inventories are stated at the lower of cost or net realizable value and are valued using the first-in, first-out method. Management periodically reviews
inventory balances, using recent and future expected sales to identify slow-moving and/or obsolete items. The cost of spare parts is charged to cost of goods sold when purchased. We evaluate our reserve for inventory obsolescence on a quarterly basis
and review inventory on-hand to determine future salability. We base our determinations on the age of the inventory and the experience of our personnel. We reserve inventory that we deem to be not salable in the quarter in which we make the
determination. We believe, based on past history and our policies and procedures, that our net inventory is salable. Inventory as of fiscal 2023
and 2022 was:
Inventories:
2023
2022
Finished goods
$
933
$
1,010
Raw materials
624
792
$
1,557
$
1,802 Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed primarily by the straight-line method over the estimated useful
lives of the assets ranging from 15 to 40 years
for buildings and improvements, 2 to 20 years
for machinery, equipment, and tooling, and over the term of the agreement for capital leases. Leasehold improvements are depreciated over the shorter of the useful life of the improvement or the lease term. Repairs and maintenance costs are charged
to expense as incurred. Property, plant and equipment as of fiscal 2023 and 2022 was:
Property, plant and equipment:
2023
2022
Land, buildings and improvements
$
1,693
$
1,602
Equipment and construction in progress
7,570
6,916
9,263
8,518
Less accumulated depreciation
(4,687
)
(4,176
)
$
4,576
$
4,342 Long-lived Assets Long-lived assets, including property, plant and equipment and definite lived intangible assets are reviewed for impairment in accordance with ASC 360,
“Property, Plant and Equipment,” whenever facts and circumstances indicate that the carrying amount may not be recoverable. Specifically, this process involves comparing an asset’s carrying value to the estimated undiscounted future cash flows the
asset is expected to generate over its remaining life. If this process were to result in the conclusion that the carrying value of a long-lived asset would not be recoverable, a write-down of the asset to fair value would be recorded through a charge
to operations. Goodwill The changes in the carrying amount of goodwill by reportable segment are as follows:
Consumer Packaging International
Consumer Packaging North America
Engineered Materials
Health, Hygiene & Specialties
Total
Balance as of fiscal 2021
$
2,016
$
1,541
$
699
$
936
$
5,192
Foreign currency translation adjustment
(250
)
(1
)
(37
)
(18
)
(306
)
Dispositions
(54
)
—
—
—
(54
)
Balance as of fiscal 2022
$
1,712
$
1,540
$
662
$
918
$
4,832
Foreign currency translation adjustment
81
1
17
12
111
Pro-Western acquisition (See Note 2.)
—
38
—
—
38
Balance as of fiscal 2023
$
1,793
$
1,579
$
679
$
930
$
4,981 In fiscal year 2023, the Company completed a
qualitative analysis to evaluate impairment of goodwill and concluded that it was more likely than not that the fair value for each reporting unit exceeded the carrying amount. We reached this conclusion based on the stable valuations within the
packaging industry and operating results of our reporting units, in addition to value indications provided from third parties related to the Company's evaluation of strategic alternatives for the Health, Hygiene & Specialties segment. As a result
of our annual impairment evaluations the Company concluded that no impairment existed in fiscal 2023. Deferred Financing Fees Deferred financing fees are amortized to interest expense using the effective interest method over the lives of the respective debt agreements. Pursuant to ASC
835-30, the Company presents $34 million and $60
million as of fiscal 2023 and fiscal 2022,
respectively, of debt issuance and deferred financing costs on the balance sheet as a deduction from the carrying amount of the related debt liability, instead of a deferred charge. Intangible Assets The changes in the carrying amount of intangible assets are as follows:
Customer Relationships
Trademarks
Other Intangibles
Accumulated Amortization
Total
Balance as of fiscal 2021
$
3,329
$
525
$
122
$
(1,734
)
$
2,242
Foreign currency translation adjustment
(172
)
(31
)
(1
)
66
(138
)
Amortization expense
—
—
—
(257
)
(257
)
Additions
—
—
6
—
6
Balance as of fiscal 2022
$
3,157
$
494
$
127
$
(1,925
)
$
1,853
Foreign currency translation adjustment
69
12
1
(27
)
55
Amortization expense
—
—
—
(243
)
(243
)
Pro-Western acquisition (See Note 2.)
35
3
—
—
38
Balance as of fiscal 2023
$
3,261
$
509
$
128
$
(2,195
)
$
1,703 Customer relationships are being amortized using an accelerated amortization method which corresponds with the customer attrition rates used in the initial
valuation of the intangibles over the estimated life of the relationships which range from 5 to 17 years. Definite lived trademarks are being amortized using the straight-line method over the estimated life of the assets which are not more than 15 years. Other intangibles, which include technology and licenses, are being amortized using the straight-line method over the estimated life of the
assets which range from 5 to 14 years.
The Company has trademarks that total $248 million that are indefinite lived and we test annually for impairment on the first day of the fourth
quarter. We completed the annual impairment test of our indefinite lived trade names utilizing the qualitative method in 2023, 2022, and 2021 and noted no
impairment. Future amortization expense for definite lived intangibles as of fiscal 2023 for the next five fiscal years is $232 million, $219 million, $204 million, $171 million, and $147 million each year for fiscal years ending 2024, 2025, 2026, 2027, and 2028, respectively. Insurable Liabilities The Company records liabilities for the self-insured portion of workers’ compensation, health, product, general and auto liabilities. The determination of
these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated based upon historical claims experience. Leases The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles. We recognize
right-of-use assets and lease liabilities for leases with original lease terms greater than one year based on the present value of lease payments over the lease term using our incremental borrowing rate on a collateralized basis. Short-term leases,
with original lease terms of less than one year, are not recognized on the balance sheet. We are party to certain leases, namely for manufacturing facilities, which offer renewal options to extend the original lease term. Renewal options are included
in the right-of-use asset and lease liability based on our assessment of the probability that the options will be exercised. See Note 5. Commitments, Leases and Contingencies. At September 30, 2023, annual lease commitments were as follows:
Fiscal Year
Operating Leases
Finance Leases
2024
$
117
$
10
2025
106
7
2026
95
9
2027
83
1
2028
70
1
Thereafter
311
3
Total lease payments
782
31
Less: Interest
(141
)
(3
)
Present value of lease liabilities
$
641
$
28 Income Taxes The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the period in which the underlying transactions are recorded. Deferred taxes, with the
exception of non-deductible goodwill, are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and such amounts as measured by tax laws. If the Company determines that a deferred tax
asset arising from temporary differences is not likely to be utilized, the Company will establish a valuation allowance against that asset to record it at its expected realizable value. The Company recognizes uncertain tax positions when it is more
likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely
of being realized upon ultimate settlement. The Company’s effective tax rate is dependent on many factors including: the impact of enacted tax laws in jurisdictions in which the Company operates; the amount of earnings by jurisdiction, due to varying
tax rates in each country; and the Company’s ability to utilize foreign tax credits related to foreign taxes paid on foreign earnings that will be remitted to the U.S. Comprehensive Income (Loss) Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes net unrealized gains
or losses resulting from currency translations of foreign subsidiaries, changes in the value of our derivative instruments and adjustments to the pension liability. The accumulated balances related to each component of other comprehensive income (loss), net of tax before
reclassifications were as follows:
Currency Translation
Defined Benefit Pension and Retiree Health Benefit Plans
Derivative Instruments
Accumulated Other Comprehensive Loss
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)
—
54
12
66
Balance as of fiscal 2021
$
(154
)
$
(67
)
$
(75
)
$
(296
)
Other comprehensive income (loss)
(301
)
32
158
(111
)
Net amount reclassified from accumulated other comprehensive income (loss)
—
3
1
4
Balance as of fiscal 2022
$
(455
)
$
(32
)
$
84
$
(403
)
Other comprehensive income (loss)
115
(53
)
39
101
Net amount reclassified from accumulated other comprehensive income (loss)
—
1
(35
)
(34
)
Balance as of fiscal 2023
$
(340
)
$
(84
)
$
88
$
(336
) Pension The accounting for our pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet. The selection of
assumptions is based on historical trends and known economic and market conditions at the time of valuation, as well as independent studies of trends performed by our actuaries. Pension benefit costs include assumptions for the discount rate,
mortality rate, retirement age, and expected return on plan assets. Retiree medical plan costs include assumptions for the discount rate, retirement age, and health-care-cost trend rates. We review annually the discount rate used to calculate the
present value of pension plan liabilities. The discount rate used at each measurement date is set based on a high-quality corporate bond yield curve, derived based on bond universe information sourced from reputable third-party indices, data
providers, and rating agencies. In countries where there is no deep market in corporate bonds, we have used a government bond approach to set the discount rate. In evaluating other assumptions, the Company considers many factors, including an
evaluation of expected return on plan assets and the health-care-cost trend rates of other companies; historical assumptions compared with actual results; an analysis of current market conditions and asset allocations; and the views of advisers. Net Income Per Share The Company calculates basic net income per share based on the weighted-average number of outstanding common shares. The Company calculates diluted net income
per share based on the weighted-average number of outstanding common shares plus the effect of dilutive securities. Use of Estimates The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make extensive use of
estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of sales and expenses. Actual results could differ materially from these estimates.
Changes in estimates are recorded in results of operations in the period that the event or circumstances giving rise to such changes occur. Recently Issued Accounting Pronouncements Reference Rate Reform During fiscal 2023, the Company adopted ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (Topic 848). The Company's adoption did not result in a material change to our consolidated financial statements or disclosures. |
