| 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 provider of value-added engineered materials, nonwoven specialty materials and consumer packaging with a track record of delivering high-quality customized solutions to our customers. We sell our products predominantly into stable, consumer-oriented end-markets, such as healthcare, personal care, and food and beverage. Our customers consist of a diverse mix of leading global, national, mid-sized regional and local specialty businesses. The size and scope of our customer network allows us to introduce new products we develop or acquire to a vast audience that is familiar with our business. Effective April 2017, the Company changed its name from Berry Plastics Group, Inc. to Berry Global Group, Inc. The new name is reflected throughout this Form 10-K. Common Shares of the Company stock continue to be traded on the New York Stock Exchange under the symbol BERY. In addition, Berry Plastics Corporation, a wholly owned subsidiary, changed its name to Berry Global, Inc. Basis of Presentation Periods presented in these financial statements include fiscal periods ending September 30, 2017 (“fiscal 2017”), October 1, 2016 (“fiscal 2016”), and September 26, 2015 (“fiscal 2015”). 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 2017 and fiscal 2015 were fifty-two week periods, and fiscal 2016 was a fifty-three week period. The Company has evaluated subsequent events through the date the financial statements were issued. The consolidated financial statements include the accounts of Berry and its subsidiaries, all of which includes our wholly owned and majority owned subsidiaries. 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 Revenue from the sales of products is recognized at the time title and risks and rewards of ownership pass to the customer, there is persuasive evidence of an arrangement, 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”), the Company provides for these items as reductions of 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 requirements and historical experience. Shipping, handling, purchasing, receiving, inspecting, warehousing, and other costs of distribution are presented in Cost of goods sold in the Consolidated Statements of Income. The Company classifies amounts charged to 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 15% of purchases in fiscal 2017. 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 $45 million, $48 million, and $33 million in fiscal 2017, 2016, and 2015, respectively. Stock-Based Compensation The compensation guidance of the FASB requires that the compensation cost relating to share-based payment transactions be recognized in financial statements based on alternative fair value models. The share-based compensation cost is measured based on the fair value of the equity or liability instruments issued. The Company’s share-based compensation plan is more fully described in Note 12. The Company recorded total stock compensation expense of $20 million, $20 million, and $21 million for fiscal 2017, 2016, and 2015, respectively. The Company utilizes the Black-Scholes option valuation model for estimating the fair value of the stock options. The model allows for the use of a range of assumptions. Expected volatilities utilized in the Black-Scholes model are based on implied volatilities from traded stocks of peer companies. Similarly, the dividend yield is based on historical experience and the estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The Company’s options have a ten year contractual life. For purposes of the valuation model in fiscal years 2017, 2016, and 2015, the Company used the simplified method for determining the granted options expected lives (see footnote 12). 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 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: 2017 2016 2015 Allowance for doubtful accounts, beginning $ 8 $ 3 $ 3 Acquisition allowance for doubtful accounts 5 6 — Bad debt expense 1 1 2 Write-offs against allowance (1 ) (2 ) (2 ) Allowance for doubtful accounts, ending $ 13 $ 8 $ 3 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 30, 2017 or October 1, 2016. Gross amounts factored under these U.S. based programs at September 30, 2017 and October 1, 2016 were $129 million and $118 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 market 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 2017 and 2016 was: Inventories: 2017 2016 Finished goods $ 428 $ 397 Raw materials 334 263 $ 762 $ 660 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 5 to 25 years for buildings and improvements, 2 to 10 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 $7 million, $6 million, and $6 million in fiscal 2017, 2016, and 2015, respectively. Property, plant and equipment as of fiscal 2017 and 2016 was: Property, plant and equipment: 2017 2016 Land, buildings and improvements $ 792 $ 667 Equipment and construction in progress 3,895 3,552 4,687 4,219 Less accumulated depreciation (2,321 ) (1,995 ) $ 2,366 $ 2,224 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. We recorded impairment charges totaling $2 million, $3 million, and $2 million to property, plant and equipment assets to their net realizable valuables in connection with facility shutdowns during fiscal years 2017, 2016, and 2015, respectively. Goodwill The Company follows the principles provided by ASC 350, "Intangibles - Goodwill and Other." Goodwill is not amortized but rather reviewed annually for impairment. In connection with the Company’s segment re-alignment, the Company performed a goodwill assessment before and after the segment realignment to determine if any impairment was present, noting that in each case the fair value of the reporting unit for each of historical reporting units exceeded its carrying value. The Company performed their 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, HHS – South America, HHS – Europe, HHS – Asia, 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 2017, the Company applied the qualitative assessment to determine whether it is more likely than not that the fair value of the reporting units may be less than the carrying amount, 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-South America and HHS-Asia reporting units due to prior year quantitative tests performed and macroeconomic pressures in South America. The Company completed step 1 in fiscal 2017, which concluded the fair value of the HHS – South America and HHS – Asia reporting units exceeded their carrying value by 9% and 49%, respectively, and thus no impairment was recorded. However, an incremental sustained decline of 10%-15% in earnings, or future declines in our peer companies, market capitalizations, or total enterprise value, as well as lower valuation market multiples could impact future impairment tests or may require a more frequent assessment. In fiscal year 2016, due to the segment realignment, the Company opted to perform a step 1 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. In fiscal 2015, the Company applied the qualitative assessment and determined that 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 Health, Hygiene & Specialties Engineered Materials Total Balance as of fiscal 2015 $ 1,520 $ 48 $ 84 $ 1,652 Foreign currency translation adjustment — 13 1 14 Acquisitions, net — 740 — 740 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 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 $48 million 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. In addition, the remaining $3 million of deferred charges, which relate to the Company’s revolving line of credit, are presented in Other assets. 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 asset which ranges 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. 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 certain 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 on the first day of the fourth quarter for each of our indefinite lived assets and noted no impairment in fiscal 2017, 2016 and 2015. Customer Relationships Trademarks Other Intangibles Accumulated Amortization Total Balance as of fiscal 2015 $ 1,159 $ 281 $ 106 $ (853 ) $ 693 Adjustment for income taxes (3 ) — — — (3 ) Foreign currency translation adjustment 11 — 1 (2 ) 10 Amortization expense — — — (143 ) (143 ) Acquisition intangibles 523 45 75 — 643 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 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 (loss) 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 (amounts below are net of taxes): Currency Translation Defined Benefit Pension and Retiree Health Benefit Plans Interest Rate Swaps Accumulated Other Comprehensive Loss Balance as of fiscal 2014 $ (36 ) $ (15 ) $ 8 $ (43 ) Other comprehensive loss (45 ) (16 ) (33 ) (94 ) Provision for income taxes — 6 12 18 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) (a) — 13 21 34 Provision for income taxes — (10 ) (10 ) (20 ) Balance as of fiscal 2017 $ (48 ) $ (16 ) $ (4 ) $ (68 ) (a) See footnote 4 for further discussion on amounts reclassified out of accumulated other comprehensive income (loss) related to interest rate swaps and footnote 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 significant 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 $54 million at the end of fiscal 2017 and 2016, respectively and is included in Accrued expenses and other current liabilities. 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 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. Early adoption for annual reporting periods beginning after December 15, 2016 is permitted. 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 plans to the adopt this new standard using the modified retrospective approach, and is currently evaluating the anticipated impact to the consolidated financial statements which will not be effective for the Company until fiscal 2019. 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 will be required to adopt this standard on a modified retrospective approach, and amendments in this guidance 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 guidance, which will not be effective for the Company until fiscal 2020. Goodwill In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, Step 2, which was previously used to compute the implied fair value of goodwill, was eliminated. This update requires an entity to perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment will be recognized in the amount by which a reporting unit's carrying amount exceeds its fair value. The loss recognized will not exceed the total amount of goodwill allocated to that reporting unit. The new guidance is effective for interim and annual periods beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted. The Company adopted this guidance for our fiscal 2017 goodwill testing. There was no impact to the consolidated financial statements as a result of the adoption of this guidance. 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 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 guidance 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 is currently evaluating the impact of this guidance. Hedges In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities in order to more closely align the results of hedge accounting with risk management activities through changes to the designation and measurement guidance. The new guidance 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 guidance for fiscal 2018, and does not expect a material impact on any of its active hedges. |
