| Basis of Presentation and Summary of Significant Accounting Policies | 1. Basis of Presentation and Summary of Significant Accounting Policies Berry’s Health, Hygiene and Specialties Global Nonwovens and Films business (“Spinco” or the “Company”) is a leading global supplier of a broad range of
innovative non-woven and related products that services global markets. We sell our products predominantly into stable, consumer-oriented end markets, such as healthcare, personal care and infection prevention. Our customers consist of a mix of
leading global, national, and mid-sized regional businesses. For the fiscal year ended September 28, 2024 (“fiscal 2024”), our top customer Basis of Presentation and Related Party Transactions The combined financial statements were prepared on a stand-alone basis derived from the financial statements and accounting records of
Berry. Combined financial statements reflect the historical results of operations, financial position and cash flows of Spinco as it was historically managed and adjusted to conform with accounting principles generally accepted in the United States of
America (U.S. GAAP). These combined financial statements are presented as if Spinco had operated on a stand-alone basis for fiscal periods ending September 28,2024 ("fiscal 2024"), September 30, 2023 (“fiscal 2023”), and October 1, 2022 (“fiscal
2022”). Spinco is primarily comprised of a combination of various subsidiary companies of Berry in certain jurisdictions and separate legal entities. Significant intercompany balances with Berry that are outside the transaction perimeter have been eliminated. The assets and liabilities in the combined
financial statements are wholly owned by Berry. As a result, the combined financial statements included herein may not necessarily be indicative of Spinco’s financial position, results of operations, or cash flows had it operated as a stand-alone
entity during the periods presented, nor are they indicative of the financial position or results of operations going forward. All significant transactions between Spinco and Berry have been included in the combined financial statements and are
considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statement of cash flows as a financing activity and in the
combined balance sheets as parent invested equity. In the combined statements of changes in parent invested equity, the Transfers to Parent, net is the net of a variety of intercompany transactions including collection of trade receivables, payment of
trade payables and accrued liabilities, settlement of charges for various allocated Berry expenses, and payment of taxes on Spinco’s behalf. The combined financial statements reflect the assets, liabilities and operations of the Spinco business. The Combined Financial Statements also include the
recognition of certain assets and liabilities that have historically been recorded at the Berry corporate level but which are specifically identifiable or otherwise attributable to Spinco. Spinco utilizes centralized functions of Berry to support its
operations, particularly in the U.S. Such expenses represent costs related, but not limited to, treasury, legal, accounting, insurance, information technology, human resources, and other services. These costs are included within the Corporate expense
allocation caption in the Combined Statements of Income. Where it is possible to specifically attribute such expenses to activities of Spinco, these amounts have been charged or credited directly to Spinco without allocation or apportionment.
Allocation of all other such expenses is based on a reasonable reflection of the utilization of service provided or benefits received by Spinco during the periods presented on a consistent basis, such as earnings metrics and sales. Spinco management
believes the assumptions underlying the combined financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by Spinco during the periods presented.
However, these shared expenses may not represent the amounts that would have been incurred had Spinco operated autonomously or independently from Berry. Actual costs that would have been incurred if Spinco had been a stand-alone company would depend on
multiple factors, including organizational structure and strategic decisions in various areas, including information technology and infrastructure. (See Note 6. Corporate Expense Allocation) Berry uses a centralized approach to cash management, particularly in the U.S. Accordingly, U.S. cash and cash equivalents are held by Berry at the corporate
level and were not attributed to Spinco for any of the periods presented. Cash and cash equivalents in the combined financial statements relate to foreign entities. Transfers of cash, both to and from Berry’s centralized cash management system, are
reflected as a component of Parent investment in Spinco on the combined balance sheets and as a financing activity within the accompanying combined statement of cash flows. Intercompany transactions between the Company and Parent have been included in
these combined financial statements and are forgiven at the time the transaction is recorded. Debt obligations of Berry have not been included in the combined financial statements of Spinco, because Spinco is not a party to the obligation between Berry
and the debt holders. The income tax provision in the combined statements of income has been calculated as if Spinco was operating on a stand-alone basis and filed separate tax
returns in the jurisdiction in which it operates. Spinco’s operations have historically been included in the Berry U.S. federal and state tax returns or non-U.S. jurisdictions tax returns. Berry’s global tax model has been developed based on its entire
portfolio of businesses. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of Spinco’s actual tax balances prior to or subsequent to Spinco operating as a stand-alone company. Revenue Recognition and Accounts Receivable 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. Generally, our revenue is recognized for standard promised goods at the time of shipment, when title and risk of loss pass to the customer. The Company
disaggregates revenue based on geography. See Note 8 Segment and Geographic Data. Accounts receivable are presented net of allowance for credit losses of $7 million and $6 million at September 28, 2024 and September 30, 2023, respectively. The Company
records its current expected credit losses based on a variety of factors including historical loss experience and current customer financial condition. The changes to our current expected credit losses, write-off activity, and recoveries were not
material for any of the periods presented. The Parent 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 Parent, are reflected as a reduction of trade accounts
receivable, net on the combined balance sheets and the proceeds are included in the cash flows from operating activities in the combined statements of cash flows. Research and Development Research and development costs are expensed when incurred. The Company incurred research and development expenditures of $13 million, $15 million, and $16 million in fiscal 2024, 2023, and 2022, respectively, which are included in Selling, general and administrative in the combined statements of income. Share-Based Compensation Spinco employees have historically participated in Berry’s stock incentive plans for key employees and directors, primarily in the form of options and
restricted stock units. Equity-based compensation expense has been either directly reported by or allocated to Spinco based on the awards and terms previously granted to Berry’s employees. These costs were primarily included within the Selling, general
and administrative caption of the Combined Statements of Income. Compensation expense for stock incentive plans is generally based on the grant-date fair value over the appropriate vesting period. The fair value for options granted has been estimated
at the date of grant using a Black-Scholes model. The fair value of RSU's is based upon the fair value of the shares at the grant date. 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 Parent
Invested Equity in the combined balance sheets. Gains and losses resulting from foreign currency transactions are included in Other (income) expense in the combined 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 with an expected useful life of less than 5 years 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,
including reserves of $15 million as of both fiscal 2024 and 2023 was:
Inventories:
2024
2023
Finished goods
$
156
$
145
Raw materials
103
98
$
259
$
243 Property, Plant and Equipment and Long-lived Assets 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 2024 and 2023 was:
Property, plant and equipment:
2024
2023
Land, buildings and improvements
$
376
$
383
Equipment and construction in progress
1,543
1,474
1,919
1,857
Less accumulated depreciation
(970
)
(859
)
$
949
$
998 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. No impairments were recorded in the periods presented. Goodwill The changes in the carrying amount of goodwill are as follows:
Americas
Rest of World
Total
Balance as of fiscal 2022
$
584
$
198
$
782
Foreign currency translation adjustment
5
7
12
Balance as of fiscal 2023
$
589
$
205
$
794
Goodwill impairment
—
(171
)
(171
)
Foreign currency translation adjustment
(4
)
5
1
Balance as of fiscal 2024
$
585
$
39
$
624 As part of the carve-out process for Intangible Assets
Customer Relationships
Trademarks
Other Intangibles
Total
Balance as of fiscal 2022 (a)
$
255
$
27
$
42
$
324
Foreign currency translation adjustment
1
—
1
2
Amortization expense
(44
)
—
(7
)
(51
)
Balance as of fiscal 2023
$
212
$
27
$
36
$
275
Foreign currency translation adjustment
—
—
—
—
Amortization expense
(41
)
—
(7
)
(48
)
Impairment
—
—
(1
)
(1
)
Balance as of fiscal 2024
$
171
$
27
$
28
$
226
(a)
Net of Amortization of: $354 million Customer relationships, $3million Trademarks, $41 million Other Intangibles 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 10 to 15 years. The Company has trademarks that total $26 million that are
indefinite lived and we test annually for impairment on the first day of the fourth quarter. 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 8 to 20
years. We completed the annual impairment test of our indefinite lived trademarks utilizing the qualitative method in 2024, 2023 and 2022 and
noted no impairment. Future amortization expense for definite lived intangibles as of fiscal 2024 for the next five fiscal years is $45 million, $40 million, $38 million, $29 million, and $23 million each year for fiscal years ending 2025, 2026,
2027, 2028, and 2029, respectively. 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 combined 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 3. Commitments, Leases and Contingencies. At September 28, 2024, annual lease commitments were as follows:
Fiscal Year
Operating Leases
Finance Leases
2025
$
12
$
—
2026
11
—
2027
9
—
2028
7
—
2029
5
—
Thereafter
12
—
Total lease payments
56
—
Less: Interest
(6
)
—
Present value of lease liabilities
$
50
$
— 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 combined 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. Spinco income taxes as presented are calculated on a separate return basis, although Spinco’s operations have historically been included in Berry’s U.S. federal
and state tax returns or non-U.S. jurisdictions tax returns. As Spinco has operations in many jurisdictions are unincorporated commercial units of Berry and its subsidiaries, stand-alone tax returns have not been filed for the operations in these
jurisdictions. Accordingly, Spinco’s tax results as presented are not necessarily reflective of the results that Spinco would have generated on a stand-alone basis. Spinco’s combined balance sheets reflect assumptions regarding the expected manner of
the spin-off of the Company that would result in Berry retaining certain tax attributes in a number of jurisdictions. As a result, the tax attributes that Berry would retain in these jurisdictions have been eliminated from the Spinco combined balance
sheets. The income tax expense of these items has been reflected in the combined statements of income, with a corresponding offset to Parent investment in Spinco. See Note 5. Income Taxes 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. The accumulated balances related to each component of other comprehensive income (loss), before reclassifications
were as follows:
Currency Translation
Accumulated Other Comprehensive Loss
Balance as of fiscal 2021
$
(162
)
$
(162
)
Other comprehensive income (loss)
(75
)
(75
)
Balance as of fiscal 2022
$
(237
)
$
(237
)
Other comprehensive income (loss)
66
66
Balance as of fiscal 2023
$
(171
)
$
(171
)
Other comprehensive income (loss)
3
3
Balance as of fiscal 2024
$
(168
)
$
(168
) 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 In November 2023, the FASB issued ASU No.2023-07 "Segment Reporting (Topic 280): Improvements to Reporting Segment Disclosures." The ASU was issued to improve
reportable segment disclosure requirements, primarily through enhanced disclosures of significant segment expenses that are regularly provided to the chief operating decision maker and included within segment profit and loss. This guidance is effective
for fiscal years beginning after December 15,2023, and interim periods within fiscal years beginning after December 15, 2024, with earl adoption permitted, and applied retrospectively to all prior periods presented in the financial statements. The
Company is currently evaluating the impact of adopting this guidance. In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU No.2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures."
The ASU was issued to improve transparency and disclosure requirements for the rate recognition, income taxes paid and other tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early
adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adopting this guidance. |
