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Accounting Firm
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
iCommon Stock, $0.01 par value per share
iBERY
iNew York Stock Exchange LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. iYes☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐iNo☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
iLarge Accelerated Filer☒
Accelerated filer ☐
Non-accelerated filer ☐
Small reporting company i☐
Emerging growth company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes i☐ No ☒
The aggregate market value of the common stock of the registrant held by non-affiliates was approximately $i4.6 billion as of March 27, 2020, the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value was computed using the closing sale price as reported on the New York Stock Exchange. As of November
23, 2020, there were i133.5 million shares of common stock outstanding.
Portions of Berry Global Group, Inc.’s Proxy Statement for its 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
Information included in or incorporated by reference in filings with the U.S. Securities and Exchange Commission (the “SEC”) and the Company’s press releases or other public statements, contain or may contain forward-looking statements. This report includes “forward-looking’ statements with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. These statements contain words such as “believes,”“expects,”“may,”“will,”“should,”“would,”“could,”“seeks,”“approximatly,”“intends,”“plans,”“estimates,”“project,”“outlook,”“anticipates”
or “looking forward” or similar expressions that relate to our strategy, plans, intentions, or expectations. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates, and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. All forward-looking statements are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by
law.
Additionally, we caution readers that the list of important factors discussed in the section titled “Risk Factors” may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.
(In millions of dollars, except as otherwise noted)
General
Berry Global Group, Inc. (“Berry,”“we,” or the “Company”) is a leading global supplier of a broad range of innovative rigid, flexible and non-woven products used every day within consumer and industrial end markets. 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. For the fiscal year ended September 26, 2020 (“fiscal 2020”), no single customer represented more than 5% of net sales and our top ten customers represented approximately 15% of net sales. We believe our manufacturing processes, manufacturing footprint and
our ability to leverage our scale to reduce costs, positions us as a low-cost manufacturer relative to our competitors.
Additional financial information about our segments is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Notes to Consolidated Financial Statements,” which are included elsewhere in this Form 10-K.
Segment Overview
Consumer Packaging International
The Consumer Packaging International segment primarily consists of the following product groups:
Closures and Dispensing Systems. We manufacture a wide range of closures, dispensing systems and applicators for a variety of end markets specializing in convenience, safety, security and e-commerce formats.
Pharmaceutical Devices and Packaging. We manufacture inhalers and dose counters in addition to bottles and vials for over-the-counter and prescription medicines.
Bottles and Canisters. We manufacture a collection packaging solutions for consumer and industrial applications across personal care, beverage, and food markets.
Polythene films. We manufacture polythene films for a diverse range of end markets, including agriculture and horticulture, construction, industrial, healthcare and waste services.
Recycling. We have capabilities to recycle both rigid and flexible end of life materials from industrial and consumer sources with a wide range of re-use applications across packaging and non-packaging formats.
Containers. We manufacture injection molded and thermoformed containers and lids across consumer and industrial packaging end markets.
Technical Components. We manufacture complex high-precision molds and molded components including temporary waste storage solutions and products manufactured using rotational molding technology for materials handling and specialty vehicles markets.
Consumer Packaging North America
The Consumer Packaging North America segment primarily consists of the following product groups:
Containers and Pails. We manufacture a collection of containers and pails for nationally branded and private label customers. These are offered in various styles with accompanying lids, bails and handles. Containers and lids are available decorated with in-mold-labeling, indirect flexographic print, digital printing, direct print, and other decoration technologies.
Foodservice. We manufacture lightweight polypropylene cups and lids for hot and cold beverages. Utilizing thermoforming and injection-molding, we offer mono-material cup and lid packaging solutions for simplification in post-consumer collection and compatibility with recycling systems. Our markets include quick service restaurants, fast casual dining, food service delivery, convenience stores, stadiums, and retail stores.
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Closures and Overcaps. We manufacture child-resistant, continuous-thread, and tamper evident closures, as well as aerosol overcaps. We sell our closures and overcaps into numerous end markets, including household chemical, healthcare, food and beverage, and personal care.
Bottles and Prescription Vials. We manufacture bottles and prescription vials utilizing widely recyclable materials which service various spirits, food and beverage, vitamin and nutritional, and personal care markets.
Tubes. We manufacture a complete line of extruded and laminate tubes in a wide variety of sizes and material blends including blends up to 70% post-consumer resin. The majority of our tubes are sold in the personal care market, but we also sell our tubes in the pharmaceutical and household chemical markets.
Engineered Materials
The Engineered Materials segment primarily includes the following product groups:
Stretch and Shrink Films. We manufacture both hand and machine-wrap stretch films and custom shrink films, which are used to prepare products and packages for storage and shipping. We sell stretch film products primarily through distribution and shrink film directly to a diverse mix of end users.
Converter Films. We manufacture sealant and barrier films for various flexible packaging converters companies. In addition, certain of our products are used for industrial applications, where converters use our films in finished products for various end market applications.
Institutional Can Liners. We manufacture trash-can liners and food bags for offices, restaurants, schools, hospitals, hotels, municipalities, and manufacturing facilities.
Tape Products. We manufacture cloth and foil tape products. Other tape products include high-quality, high-performance liners of splicing and laminating tapes, flame-retardant tapes, flashing and seaming tapes, double-faced cloth, masking, mounting, and medical and specialty tapes. Tape products are sold primarily through distributors and directly to end users for industrial, building and construction, and retail market applications.
Food and Consumer Films. We manufacture printed film products for the fresh bakery, tortilla, deli, and frozen vegetable markets. We also manufacture barrier films used for cereal, cookie, cracker and dry mix packages that are sold directly to food manufacturers.
Retail Bags. We manufacture a diversified portfolio of polyethylene-based film products to end users in the retail markets. Our products include drop cloths and retail trash bags. These products are sold primarily through grocery stores, hardware stores, home improvement centers, paint stores, and mass merchandiser outlets.
Agriculture Films. We manufacture agriculture films primarily used in the silage, green house and mulch applications.
Health, Hygiene & Specialties
The Health, Hygiene & Specialties segment primarily includes the following product groups:
Health Products. We manufacture medical garment materials, surgical drapes, household cleaning wipes, and face masks. The key end markets and application for these products is infection prevention.
Hygiene Products. We manufacture a broad collection of components for baby diapers, adult incontinence and other absorbent hygiene products, elastic films and laminates, and substrates for dryer sheets. The primary end market for these products is personal care.
Specialties Products. We manufacture a broad array of products and components for geosynthetics and filtration products servicing the specialty industrial markets.
Marketing, Sales, and Competition
We reach our large and diversified customer base through a direct sales force of dedicated professionals and the strategic use of distributors. Our scale enables us to dedicate certain sales and marketing efforts to particular products or customers, when applicable, which enables us to develop expertise that we believe is valued by our customers.
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The major markets in which the Company sells its products are highly competitive. Areas of competition include service, innovation, quality, and price. This competition is significant as to both the size and the number of competing firms. Competitors include but are not limited to Amcor, Silgan, Aptar, Reynolds, Intertape, 3M, Tredegar, Avgol, and Fitesa.
Raw Materials
Our primary raw material is plastic resin. In addition, we use other materials such as butyl rubber, adhesives, paper and packaging materials, linerboard, rayon, polyester fiber, and foil, in various manufacturing processes. These raw materials are available from multiple sources and in general we purchase from a variety of global suppliers. While temporary shortages of raw materials can occur, we expect to continue to successfully manage raw material supplies without significant supply interruptions.
Employees
Our commitment to the health and safety of our employees remains our number one priority as evidenced by our OSHA incident rate of approximately 1.0 being significantly lower than the industry average. Specifically related to the COVID-19 pandemic, our rigorous precautionary measures have included the formation of global and regional response teams that maintain contact with authorities and experts, restrictions on company travel, quarantine protocols, disinfection measures and other actions designed to help protect employees. We expect to continue these measures until the pandemic is adequately contained.
As of the end of fiscal 2020, we employed approximately 47,000 employees with approximately 20% of those employees being covered by collective bargaining agreements. The collective bargaining agreements covering a majority of these employees expire annually and as a result, are due for renegotiation in fiscal year ending 2021 (“fiscal 2021”). Our relations with employees under collective bargaining agreements remain satisfactory and there have been no significant work stoppages or other labor disputes during the past three years.
Patents, Trademarks and Other Intellectual Property
We customarily seek patent and trademark protection for our products and brands while seeking to protect our proprietary know-how. While important to our business in the aggregate, sales of any one individually patented product is not considered material to any specific segment or the consolidated results.
Environmental and Sustainability
Plastic continues to gain share as the preferred substrate across many of the applications in which we participate. This is driven by its superior capabilities – clarity, protection, design versatility, consumer safety, convenience and barrier properties, as well as its superior environmental performance. As the most resource-efficient substrate, the use of plastics reduces greenhouse gas emissions, energy consumption, water use, and waste generation compared to alternatives. In addition to reducing waste through lighter weight products, plastics also prevent significant waste generation by both protecting products through the supply chain and extending the shelf-life of food. For these reasons, we believe plastics is and will continue to be the most sustainable material.
Many of our customers have aggressive sustainability goals. Customers are increasingly interested in products that can help them achieve their goals and want to partner with companies that have similar ambitions. We are taking a science-based approach, using lifecycle assessment to inform our decision making process. We have teams dedicated to improving the circularity of our products – optimizing design for reuse, recycling or composting. We are also reducing our use of virgin, fossil fuels by increasing use of both recycled plastics and bioplastics, lightweighting our products, and increasing the use of renewable energy in our operations. We continue to launch new products and components in North America and Europe made with post-consumer resin. To meet growing demand for recycled content, we have entered into offtake agreements for both mechanically recycled and advanced recycled resins as well as expanded our own recycling operations in North America
and Europe. We are also partnering with the Ellen MacArthur Foundation, Alliance to End Plastic Waste and other leading companies in our efforts to create a more circular economy for plastics.
Available Information
We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments, if any, to those reports through our internet website as soon as reasonably practicable after they have been electronically filed with the SEC. Our internet address is www.berryglobal.com. The information contained on our website is not being incorporated herein.
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Item 1A. RISK FACTORS
Operational Risks
Effectively managing change and growth.
Ourfuture revenue and operating results will depend on our ability to effectively manage the anticipated growth and managing customer timelines. We are continuously investing in growth areas and expanding our operations, increasing our headcount and expanding into new product offerings. This growth has placed significant demands on our management as well as our financial and operational resources, and continued growth presents several challenges, including:
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expanding manufacturing capacity, maintaining quality and increasing production;
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identifying, attracting and retaining qualified personnel;
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increasing our regulatory compliance capabilities, particularly in new lines of business or product offerings;
Increases in resin prices or a shortage of available resin could harm our financial condition and results of operations.
Plastic resins are subject to price fluctuations and availability, due to external factors, such as the COVID-19 pandemic, that are beyond our control. Material shortages or our inability to timely pass through price increases to our customers may adversely affect our business, financial condition and results of operations.
We may not be able to compete successfully and our customers may not continue to purchase our products.
We compete with multiple companies in each of our product lines on the basis of a number of considerations, including price, service, quality, product characteristics and the ability to supply products to customers in a timely manner. Our products also compete with various other substrates. Some of these competitive products are not subject to the impact of changes in resin prices, which may have a significant and negative impact on our competitive position versus substitute products. Our competitors may have financial and other resources that are substantially greater than ours and may be better able than us to withstand higher costs. Competition could result in our products losing market share or our having to reduce our prices, either of which could have a material adverse effect on our business, financial condition and results of operations. In addition, since we do not have long-term arrangements with many of our customers, these competitive
factors could cause our customers to shift suppliers and/or packaging material quickly. Our success depends, in part, on our ability to respond timely to customer and market changes.
We may pursue and execute acquisitions or divestitures, which could adversely affect our business.
As part of our growth strategy, we consider transactions that either complement or expand our existing business and create economic value. Transactions involve special risks, including the potential assumption of unanticipated liabilities and contingencies as well as difficulties in integrating acquired businesses or carving-out divested businesses, which may result in substantial costs, delays or other problems that could adversely affect our business, financial condition and results of operations. Furthermore, we may not realize all of the synergies we expect to achieve from our current strategic initiatives due to a variety of risks. If we are unable to achieve the benefits that we expect to achieve from our strategic initiatives, it could adversely affect our business, financial condition and results of operations. Additionally, the impact of travel and safety restriction related to external factors, such as the COVID-19 pandemic,
could continue to negatively impact various integration activities and back office functions, which may adversely affect our business.
In the event of a catastrophic loss of one of our key manufacturing facilities, our business would be adversely affected.
While we manufacture our products in a large number of diversified facilities and maintain insurance covering our facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our key manufacturing facilities due to accident, labor issues, weather conditions, natural disaster, pandemic or otherwise, whether short or long-term, could result in significant losses.
Employee retention or the failure to renew collective bargaining agreements could disrupt our business.
While we have not had material issues historically with employee retention of qualified personnel, there can be no assurance we will be able to recruit, train, assimilate, motivate and retain employees in the future. Additionally, we may not be able to maintain constructive relationships with labor unions or trade councils. We may not be able to successfully negotiate new collective bargaining agreements on satisfactory terms in the future. The loss of a substantial number of these employees or a prolonged labor dispute could disrupt our business and result in significant losses.
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We depend on information technology systems and infrastructure to operate our business, and increased cybersecurity threats, system inadequacies, and failures could disrupt our operations, compromise customer, employee, vendor and other data which could negatively affect our business.
We rely on the efficient and uninterrupted operation of information technology systems and networks. These systems and networks are vulnerable to increased cybersecurity threats and more sophisticated computer crime, energy interruptions, telecommunications failures, breakdowns, natural disasters, terrorism, war, computer malware or other malicious intrusions.
We also maintain and have access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations, and customer controls. Despite our efforts to protect such information, security breaches, misplaced or lost data and programming damages could result in production downtimes, operational disruptions, transaction errors, loss of business opportunities, violation of privacy laws and legal liability, fines, penalties or negative publicity could result in a negative impact on the business. While we have not had material system interruptions historically associated with these risks, there can be no assurance that these advanced and persistent threats will prevent future interruptions that could result in significant losses.
Financial and Legal Risks
Our substantial indebtedness could affect our ability to meet our obligations and may otherwise restrict our activities.
We have a significant amount of indebtedness, which requires significant interest payments. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations.
Our substantial indebtedness could have important consequences. For example, it could:
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make it more difficult for us to satisfy our obligations under our indebtedness;
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limit our ability to borrow money for our working capital, capital expenditures, product development, debt service requirements or other corporate purposes;
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require us to dedicate a substantial portion of our cash flow to payments on our indebtedness, which would reduce the amount of cash flow available to fund working capital, capital expenditures, product development and other corporate requirements;
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increase our vulnerability to general adverse economic and industry conditions; and
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limit our ability to respond to business opportunities, including growing our business through acquisitions.
Uncertainty regarding the United Kingdom’s (“UK”) withdrawal from the European Union (“EU”) and the outcome of future arrangements between the UK and the EU could have a material adverse impact on us.
Following the UK’s referendum vote to leave the EU in June 2016 (commonly referred to as “Brexit”), the UK government formally notified the European Council of its decision to leave the EU. The UK will remain a member of the EU until the date on which a withdrawal agreement comes into force. While it is difficult to predict the effect of Brexit on the European and global economy, uncertainty regarding new or modified arrangements between the UK and the EU could have a material adverse effect on business activity (including the buying behavior of commercial and individual customers), the political stability and economic conditions in the UK, the EU and elsewhere.
Any of these developments, or the perception that any of these developments are likely to occur, could have a material adverse effect on economic growth or business activity in the UK, the Eurozone, or the EU, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, political systems or financial institutions and the financial and monetary system.
Goodwill and other intangibles represent a significant amount of our net worth, and a future write-off could result in lower reported net income and a reduction of our net worth.
We have a substantial amount of goodwill. Future changes in market multiples, cost of capital, expected cash flows, or other external factors, such as the COVID-19 pandemic may adversely affect our business and cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write off goodwill or indefinite lived intangible assets for the amount of impairment. If a future write-off is required, the charge could result in significant losses.
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Our international operations pose risks to our business that may not be present with our domestic operations.
Foreign operations are subject to certain risks that are unique to doing business in foreign countries. These risks include fluctuations in foreign currency exchange rates, inflation, economic or political instability, shipping delays in our products and receiving delays of raw materials, changes in applicable laws, including assessments of income and non-income related taxes, reduced protection of intellectual property, inability to readily repatriate cash to the U.S. effectively, and regulatory policies and various trade restrictions including potential changes to export taxes or countervailing and anti-dumping duties for exported products from these countries. Any of these risks could disrupt our business and result in significant losses. We are also subject to the Foreign Corrupt Practices Act and other anti-bribery and anti-corruption laws that generally bar bribes or unreasonable gifts to foreign governments or officials. We have implemented safeguards,
training and policies to discourage these practices by our employees and agents. However, our existing safeguards, training and policies to assure compliance and any future improvements may prove to be less than effective and our employees or agents may engage in conduct for which we might be held responsible. If employees violate our policies, we may be subject to regulatory sanctions. Violations of these laws or regulations could result in sanctions including fines, debarment from export privileges and penalties and could adversely affect our business, financial condition and results of operations.
Current and future environmental and other governmental requirements could adversely affect our financial condition and our ability to conduct our business.
While we have not been required historically to make significant capital expenditures in order to comply with applicable environmental laws and regulations, we cannot predict our future capital expenditure requirements because of continually changing compliance standards and environmental technology. Furthermore, violations or contaminated sites that we do not know about (including contamination caused by prior owners and operators of such sites or newly discovered information) could result in additional compliance or remediation costs or other liabilities, which could be material. In addition, federal, state, local, and foreign governments could enact laws or regulations concerning environmental matters, such as greenhouse gas emissions, that increase the cost of producing, or otherwise adversely affect the demand for, plastic products. Legislation that would prohibit, tax or restrict the sale or use of certain types of plastic and other containers,
and would require diversion of solid waste such as packaging materials from disposal in landfills, has been or may be introduced. Although we believe that any such laws promulgated to date have not had a material adverse effect on us, there can be no assurance that future legislation or regulation would not have a material adverse effect on us. Furthermore, a decline in consumer preference for plastic products due to environmental considerations could result in significant losses.
We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.
In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality agreements with employees and consultants, customers and suppliers to protect our know-how and trade secrets. However, these methods and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. Furthermore, no assurance can be given that we will not be subject to claims asserting
the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any such litigation could be protracted and costly and could result in significant losses.
8
Item 1B.UNRESOLVED STAFF COMMENTS
None.
Item 2.PROPERTIES
Our primary manufacturing facilities by geographic area were as follows:
Geographic Region
Total Facilities
Leased Facilities
US and Canada
118
29
Europe
137
33
Rest of world
48
28
Item 3.LEGAL PROCEEDINGS
Berry is party to various legal proceedings involving routine claims which are incidental to our business. Although our legal and financial liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate liability would not be material to the business, financial condition, results of operations or cash flows.
Item 4.MINE SAFETY DISCLOSURES
Not applicable.
9
PART II
Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock “BERY” is listed on the New York Stock Exchange. As of the date of this filing there were fewer than 500 active record holders of the common stock, but we estimate the number of beneficial stockholders to be much higher as a number of our shares are held by brokers or dealers for their customers in street name. During fiscal 2019 and 2020, we did not declare or pay any cash dividends on our common stock.
Issuer Purchases of Equity Securities
During the fourth quarter of fiscal 2020, the Company did not repurchase shares. As of September 26, 2020, $393 million of authorized shares remained available for purchase under the current repurchase program.
Item 6.SELECTED FINANCIAL DATA
The following table presents selected historical consolidated financial data derived from the consolidated financial statements of Berry Global Group, Inc. for the periods indicated. The financial data for our fiscal 2016 through fiscal 2020 should be read in conjunction with those consolidated financial statements, related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations. The table presented below is unaudited.
Fiscal 2020
Fiscal 2019
Fiscal 2018
Fiscal 2017
Fiscal 2016
Statement of Operations Data:
Net sales
$
11,709
$
8,878
$
7,869
$
7,095
$
6,489
Operating income
1,179
974
761
732
581
Net income
559
404
496
340
236
Net Income Per Share Data:
Basic, net income per share
$
4.22
$
3.08
$
3.77
$
2.66
$
1.95
Diluted, net income per share
4.14
3.00
3.67
2.56
1.89
Balance Sheet Data:
Total assets
$
16,701
$
16,469
$
9,131
$
8,476
$
7,653
Long-term debt obligations
10,237
11,365
5,844
5,641
5,755
Statement of Cash Flow Data:
Net cash from operating activities
$
1,530
$
1,201
$
1,004
$
975
$
857
Net cash from investing activities
(316
)
(6,251
)
(1,035
)
(774
)
(2,579
)
Net cash from financing activities
(1,220
)
5,426
113
(226
)
1,817
Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Berry Global Group, Inc. (“Berry,”“we,” or the “Company”) is a leading global supplier of a broad range of innovative rigid, flexible and non-woven products used every day within consumer and industrial end markets. 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. For fiscal year 2020, no single customer represented more than 5% of net sales and our top ten customers represented approximately 15% of net sales. We believe our manufacturing processes, manufacturing footprint and our ability to leverage our scale to reduce costs, positions us as a low-cost manufacturer relative
to our competitors.
10
Executive Summary
COVID-19. The ongoing pandemic has impacted various businesses and supply chains, including travel restrictions and the extended shutdown of certain industries in various countries. Due to the nature of the majority of our products, geographic footprint and end market diversity, on a consolidated net sales basis we have been modestly impacted with lower customer demand in food service and industrials being offset by higher consumer demand in our healthcare, hygiene and food product categories. The Company will continue to evaluate the potential impacts and closely monitor developments as they arise.
Business.The Company’s operations are organized into four reporting segments: Consumer Packaging International, Consumer Packaging North America, Engineered Materials and Health, Hygiene & Specialties. The structure is designed to align us with our customers, provide improved service, drive future growth, and to facilitate synergies realization. The Consumer Packaging International segment primarily consists of containers, closures, dispensing systems, pharmaceutical devices, polythene films, and technical components and includes the international portion of the acquired business of RPC Group Plc (“RPC”). The Consumer Packaging North America segment primarily consists of containers, foodservice items, closures, overcaps, bottles, prescription vials, and tubes. The Engineered Materials segment primarily consists of tapes and adhesives,
polyethylene-based film products, can liners, and specialty coated and laminated products. The Health, Hygiene & Specialties segment primarily consists of nonwoven specialty materials and films used in hygiene, infection prevention, personal care, industrial, construction, and filtration applications.
Outlook.The Company is affected by general economic and industrial growth, plastic resin availability and affordability, and general industrial production. Our business has both geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes to our customers, improve manufacturing productivity and adapt to volume changes of our customers. By providing advantaged products in targeted markets, we continue to believe our underlying long-term demand fundamental in all divisions will remain strong as we focus on delivering protective solutions that enhance consumer safety and execute on the Company’s mission statement
of “Always Advancing to Protect What’s Important.” For fiscal 2021, we project cash flow from operations between $1,625 to $1,525 million and free cash flow between $975 to $875 million. Projected fiscal 2021 free cash flow assumes $650 million of capital spending. For the definition of free cash flow and further information related to free cash flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.”
Recent Acquisitions and Dispositions
Our acquisition strategy is focused on improving our long-term financial performance, enhancing our market positions, and expanding our existing and complementary product lines. We seek to obtain businesses for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire. While the expected benefits on earnings are estimated at the commencement of each transaction, once the execution of the plan and integration occur, we are generally unable to accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to multiple facilities. As historical business combinations and restructuring plans have not allowed us to accurately separate realized synergies compared to what was initially identified, we estimate
the synergy realization based on the overall segment profitability post-integration.
RPC Group Plc Acquisition
In July 2019, the Company completed the acquisition of RPC for aggregate consideration of $6.1 billion. RPC is a leading plastic product design and engineering company for packaging and select non-packaging markets, with 189 sites in 34 countries. RPC develops and manufactures a diverse range of products for a wide variety of customers, including many household names, and enjoys strong market positions in many of the end markets it serves and the geographical areas in which it operates. It uses a wide range of polymer conversion techniques and is also one of the largest plastic recyclers in Europe. The international based facilities are operated within the Consumer Packaging International segment with the remaining U.S. based facilities operated within the Consumer Packaging North America segment. The
Company expects to realize annual cost synergies of $150 million of which an estimated $50 million is expected to be realized in fiscal 2021. Refer to Note 2. Acquisitions and Dispositions for further information.
11
Seal For Life Disposition
In July 2019, the Company completed the sale of its Seal For Life (“SFL”) business which was operated in our Health, Hygiene & Specialties segment for net proceeds of $326 million. A pretax gain of $214 million on the sale was recorded in Restructuring and transaction activities on the Consolidated Statements of Income.
U.S. Flexible Packaging Converting Disposition
In October 2020, the Company reached an initial agreement to sell its U.S. flexible packaging converting business which was primarily operated in the Engineered Materials segment for $140 million, which is preliminary and subject to adjustment at closing. The Company reported fiscal 2020 net sales of approximately $200 million related to the business.
Discussion of Results of Operations for Fiscal 2020 Compared to Fiscal 2019
Acquisition sales and operating income disclosed within this section represent the results from acquisitions for the current period. Business integration expenses consist of restructuring and impairment charges, acquisition related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview
Fiscal Year
2020
2019
$ Change
% Change
Net sales
$
11,709
$
8,878
$
2,831
32
%
Operating income
$
1,179
$
974
$
205
21
%
Operating income percentage of net sales
10
%
11
%
The net sales growth is primarily attributed to acquisition net sales of $3,346 million and an organic volume increase of 2%, partially offset by lower selling prices of $581 million due to the pass through of lower resin costs and Prior YTD divestiture sales of $96 million.
The operating income increase is primarily attributed to acquisition operating income of $245 million, an $87 million favorable impact from cost productivity and product mix, a $47 million favorable impact from the 2% organic volume increase, a $39 million inventory fair value step-up related to the RPC acquisition in the Prior YTD, a $35 million decrease in business integration expenses, and a $31 million decrease in depreciation and amortization. These improvements were partially offset by a $214 million unfavorable change from the Prior YTD gain on the sale of our SFL business, a $32 million increase in selling, general and administrative expense primarily related to higher accrued performance-based compensation, and Prior YTD divestiture operating income of $28 million.
Consumer Packaging International
Fiscal Year
2020
2019
$ Change
% Change
Net sales
$
4,195
$
1,229
$
2,966
241
%
Operating income
$
299
$
12
$
287
2,392
%
Operating income percentage of net sales
7
%
1
%
The net sales growth in the Consumer Packaging International segment is primarily attributed to net sales of $2,971 from the RPC acquisition, a $39 million favorable impact from foreign currency changes, and an organic volume increase of 1%, partially offset by lower selling prices of $56 million due to the pass through of lower resin costs.
The operating income increase is primarily attributed to acquisition operating income of $196 million, a $39 million inventory fair value step-up related to the RPC acquisition in the Prior YTD, a $21 million decrease in business integration costs, and a $21 million favorable impact from cost productivity and product mix.
Consumer Packaging North America
Fiscal Year
2020
2019
$ Change
% Change
Net sales
$
2,850
$
2,636
$
214
8
%
Operating income
$
320
$
234
$
86
37
%
Operating income percentage of net sales
11
%
9
%
The net sales growth in the Consumer Packaging North America segment is primarily attributed to acquisition net sales of $356 million related to the U.S. portion of the acquired RPC business and a 2% base volume improvement, partially offset by lower selling prices of $205 million due to the pass through of lower resin costs.
12
The operating income increase is primarily attributed to acquisition operating income of $47 million, a $27 million favorable impact from cost productivity and product mix, and a $16 million favorable impact from the base volume increase. These increases were partially offset by a $12 million increase in selling, general and administrative expenses.
Engineered Materials
Fiscal Year
2020
2019
$ Change
% Change
Net sales
$
2,334
$
2,538
$
(204
)
(8
)%
Operating income
$
317
$
318
$
(1
)
0
%
Operating income percentage of net sales
14
%
13
%
The net sales decrease in the Engineered Materials segment is primarily attributed to lower selling prices of $159 million due to the pass through of lower resin costs and a 2% organic volume decline primarily within our industrials business as a result of the impact of the COVID-19 pandemic.
The operating income decrease was modestly impacted by the organic volume decline and an increase in selling, general and administrative expenses. These increases were partially offset by a $12 million decrease in depreciation and amortization expense.
Health, Hygiene & Specialties
Fiscal Year
2020
2019
$ Change
% Change
Net sales
$
2,330
$
2,475
$
(145
)
(6
)%
Operating income
$
243
$
410
$
(167
)
(41
)%
Operating income percentage of net sales
10
%
17
%
The net sales decrease in the Health, Hygiene & Specialties segment is primarily attributed to lower selling prices of $164 million due to the pass through of lower resin costs, Prior YTD sales of $96 million related to the divested SFL business, and a $37 million unfavorable impact from foreign currency changes, partially offset by a 7% organic volume improvement.
The operating income decrease is primarily attributed to a $214 million unfavorable change from the Prior YTD gain on the sale of our SFL business, Prior YTD divestiture operating income of $28 million, and an $11 million increase in selling, general and administrative expenses. These decreases were partially offset by a $43 million favorable impact from cost productivity and product mix, a $36 million favorable impact from the organic volume improvement, and a $13 million decrease in depreciation and amortization expense.
Other expense, net
Fiscal Year
2020
2019
$ Change
% Change
Other expense, net
$
31
$
155
$
(124
)
(80
)%
The Other expense decrease is primarily attributed to Prior YTD charges for foreign exchange forward contracts of $99 million and cross currency swaps of $41 million related to the closing of the RPC acquisition.
Interest expense, net
Fiscal Year
2020
2019
$ Change
% Change
Interest expense, net
$
435
$
329
$
106
32
%
The interest expense increase is primarily attributed to the incremental debt facilities entered into as part of the RPC acquisition.
Income tax expense
Fiscal Year
2020
2019
$ Change
% Change
Income tax expense
$
154
$
86
$
68
79
%
The income tax expense increase is primarily attributed to higher pre-tax book income. Our effective tax rate for fiscal 2020 was 22% and was positively impacted by 2% from generation of federal and state credits and 1% from change in foreign valuation allowance. These favorable items were partially offset by 2% from withholding taxes, 1% from foreign income taxed in the U.S. and from other discrete items. Refer to Note 7. Income Taxes for further information.
13
Comprehensive Income
Fiscal Year
2020
2019
$ Change
% Change
Comprehensive Income
$
394
$
174
$
220
126
%
The increase in comprehensive income is primarily attributed to a $155 million increase in net income and a $105 million favorable change in currency translation, partially offset by a $23 million unfavorable change in the fair value of interest rate hedges and a $17 million decrease in unrealized gains on the Company’s pension plans. Currency translation gains are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollar whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates. The change in currency translation was primarily attributed to locations utilizing the euro, British pound sterling, Brazilian real and Chinese renminbi as their functional currency.
As part of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest rates attributed to the Company’s floating-rate borrowings and records changes to the fair value of these instruments in Accumulated other comprehensive income (loss). The change in fair value of these instruments in fiscal 2020 versus fiscal 2019 is primarily attributed to a change in the forward interest curve between measurement dates.
Discussion of Results of Operations for Fiscal 2019 Compared to Fiscal 2018
Acquisition sales and operating income disclosed within this section represent the results from acquisitions for the current period. Business integration expenses consist of restructuring and impairment charges, acquisition related costs, and other business optimization costs. Tables present dollars in millions.
Consolidated Overview
Fiscal Year
2019
2018
$ Change
% Change
Net sales
$
8,878
$
7,869
$
1,009
13
%
Operating income
$
974
$
761
$
213
28
%
Operating income percentage of net sales
11
%
10
%
The net sales growth is primarily attributed to acquisition net sales of $1,479 million partially offset by prior period divestiture sales of $20 million, a $48 million unfavorable impact from foreign currency changes, lower selling prices of $175 million due to the pass through of lower resin costs, a 1% decline as the result of a customer product transition and a 2% base volume decline.
The operating income increase is primarily attributed to a $214 million gain on the sale of our SFL business, acquisition operating income of $114 million, and a $37 million decrease in depreciation and amortization. These improvements were partially offset by an increase in business integration costs of $28 million, a $25 million negative impact from price cost spread, an $18 million unfavorable impact from foreign currency changes, a $39 million inventory fair value step-up, and a $26 million impact from lower base volumes.
Consumer Packaging International
Fiscal Year
2019
2018
$ Change
% Change
Net sales
$
1,229
$
215
$
1,014
472
%
Operating income
$
12
$
17
$
(5
)
(29
)%
Operating income percentage of net sales
1
%
8
%
The net sales growth in the Consumer Packaging International segment is primarily attributed to acquisition net sales from the RPC acquisition of $1,031 million.
The operating income decrease is primarily attributed to an increase in business integration costs of $52 million and a $36 million inventory fair value step-up related to the RPC acquisition partially offset by acquisition operating income of $82 million.
Consumer Packaging North America
Fiscal Year
2019
2018
$ Change
% Change
Net sales
$
2,636
$
2,463
$
173
7
%
Operating income
$
234
$
190
$
44
23
%
Operating income percentage of net sales
9
%
8
%
The net sales growth in the Consumer Packaging North America segment is primarily attributed to acquisition net sales of $133 million related to the U.S. portion of the acquired RPC business and a 2% base volume improvement partially offset by lower selling prices due to the pass through of lower resin costs.
14
The operating income increase is primarily attributed to acquisition operating income of $15 million, a $23 million decrease in depreciation and amortization, and a $13 million increase from the higher base volumes. These increases were partially offset by a $13 million increase in business integration costs primarily related to the RPC acquisition.
Engineered Materials
Fiscal Year
2019
2018
$ Change
% Change
Net sales
$
2,538
$
2,633
$
(95
)
(4
)%
Operating income
$
318
$
365
$
(47
)
(13
)%
Operating income percentage of net sales
13
%
14
%
The net sales decline in the Engineered Materials segment is primarily attributed to lower selling prices of $117 million due to the pass through of lower resin costs and a 5% base volume decline due to softness in industrial markets and supply chain disruption related to material qualifications. These decreases were partially offset by acquisition net sales of $151 million related mainly to the Laddawn acquisition.
The operating income decrease is primarily attributed to a $33 million unfavorable impact from price cost spread and a $23 million impact from the base volume decline partially offset by acquisition operating income of $6 million.
Health, Hygiene & Specialties
Fiscal Year
2019
2018
$ Change
% Change
Net sales
$
2,475
$
2,558
$
(83
)
(3
)%
Operating income
$
410
$
189
$
221
117
%
Operating income percentage of net sales
17
%
7
%
The net sales decline in the Health, Hygiene & Specialties segment is primarily attributed to lower selling prices of $40 million due to the pass through of lower resin costs, a 2% decline as the result of a customer product transition, a 3% base volume decline as a result of weakness in the North American baby care market, prior year sales of $20 million related to the divested SFL business and a $46 million unfavorable impact from foreign currency changes. These declines were partially offset by acquisition net sales of $164 million related to the Clopay acquisition.
The operating income increase is primarily attributed to a $214 million gain on the sale of our SFL business and a decrease in business integration costs of $30 million. These improvements were partially offset by a $15 million unfavorable impact from foreign currency changes and a $15 million impact from lower base volumes.
Other expense, net
Fiscal Year
2019
2018
$ Change
% Change
Other expense, net
$
155
$
25
$
130
520
%
The other expense increase is primarily attributed to losses related to the foreign exchange forward contracts of $99 million and cross-currency swaps of $41 million entered into for the closing of the RPC acquisition.
Interest expense, net
Fiscal Year
2019
2018
$ Change
% Change
Interest expense, net
$
329
$
259
$
70
27
%
The interest expense increase is primarily attributed to the incremental debt facilities entered into as part of the RPC acquisition.
Income tax (benefit) expense
Fiscal Year
2019
2018
$ Change
% Change
Income tax (benefit) expense
$
86
$
(19
)
$
105
(553
)%
The income tax expense increase is primarily attributed to the $124 million provisional transition benefit recorded in fiscal 2018 as a result of the recent U.S. tax legislation. Our effective tax rate for fiscal 2019 was 18% and was positively impacted by 6% from the sale of subsidiaries, 2% from share-based compensation and 2% from research and development credits. These favorable items were partially offset 2% from U.S. state taxes, 3% from foreign valuation allowances, 2% from foreign rate differential and other discrete items.
15
Comprehensive Income
Fiscal Year
2019
2018
$ Change
% Change
Comprehensive Income
$
174
$
408
$
(234
)
(57
)%
The decrease in comprehensive income is primarily attributed to a $92 million decrease in net income, a $160 million unfavorable change in the fair value of interest rate hedges, a $58 million decrease in unrealized gains on the Company’s pension plans, partially offset by a $56 million favorable change in currency translation. Currency translation gains are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollar whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates. The change in currency translation was primarily attributed to locations utilizing the euro, British pound sterling, Brazilian real and Chinese renminbi as their functional currency. As part
of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest rates attributed to the Company’s floating-rate borrowings and records changes to the fair value of these instruments in Accumulated other comprehensive income (loss). The change in fair value of these instruments in fiscal 2019 versus fiscal 2018 is primarily attributed to a change in the forward interest curve between measurement dates.
Liquidity and Capital Resources
Senior Secured Credit Facility
We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. We have an $850 million asset-based revolving line of credit that matures in May 2024. At the end of fiscal 2020, the Company had no outstanding balance on the revolving credit facility. The Company was in compliance with all covenants at the end of fiscal 2020. Refer to Note 3. Long-Term Debt for further information.
Contractual Obligations and Off Balance Sheet Transactions
Our contractual cash obligations at the end of fiscal 2020 are summarized in the following table which does not give any effect to retirement plans, Refer to Note 8. Retirement Plans, or taxes as we cannot reasonably estimate the timing of future cash outflows.
Payments due by period as of the end of fiscal 2020
Total
< 1 year
1-3 years
4-5 years
> 5 years
Long-term debt, excluding capital leases
$
10,246
$
59
$
1,851
$
1,638
$
6,698
Capital leases
86
20
40
13
13
Fixed interest rate payments
781
140
269
257
115
Variable interest rate payments (a)
881
191
345
257
88
Operating leases
703
118
190
139
256
Total contractual cash obligations
$
12,697
$
528
$
2,695
$
2,304
$
7,170
(a)
Based on applicable interest rates in effect end of fiscal 2020.
Cash Flows from Operating Activities
Net cash provided by operating activities increased $329 million from fiscal 2019 primarily attributed to improved net income prior to non-cash activities, partially offset by a reduction in the working capital benefit compared to fiscal 2019.
Net cash provided by operating activities increased $197 million from fiscal 2018 primarily attributed to decreases in working capital due to lower raw material costs partially offset by professional fees related to the RPC acquisition.
Cash Flows from Investing Activities
Net cash used in investing activities decreased $5,935 million from fiscal 2019 primarily attributed to lower acquisition and divestiture related activities, partially offset by increased capital expenditures.
Net cash used in investing activities increased $5,216 million from fiscal 2018 primarily attributed to increased capital expenditures, settlement of acquisition related derivatives, and higher acquisition spending partially offset by the sale of our SFL business.
16
Cash Flows from Financing Activities
Net cash used in financing activities changed $6,646 million from fiscal 2019 primarily attributed to $1.2 billion net repayments on long-term borrowings during fiscal 2020 compared to $5.6 billion net proceeds from long-term borrowings used to finance the RPC acquisition in fiscal 2019.
Net cash from financing activities increased $5,313 million from fiscal 2018 primarily attributed to proceeds from long-term borrowings to finance the RPC acquisition, partially offset by higher repayments on long-term borrowings.
Share Repurchases
The Company did not have any share repurchases in fiscal 2020. The Company’s share repurchases totaled $74 million in fiscal 2019.
Free Cash Flow
We define “free cash flow” as cash flow from operating activities less net additions to property, plant and equipment and payments of the tax receivable agreement which was terminated in fiscal 2019. Based on our definition, our consolidated free cash flow is summarized as follows:
Free cash flow, as presented in this document, is a supplemental financial measure that is not required by, or presented in accordance with, generally accepted accounting principles in the U.S. (“GAAP”). Free cash flow is not a GAAP financial measure and should not be considered as an alternative to cash flow from operating activities or any other measure determined in accordance with GAAP. We use free cash flow as a measure of liquidity because it assists us in assessing our company’s ability to fund its growth through its generation of cash, and believe it is useful to investors for such purpose. In addition, free cash flow and similar measures are widely used by investors, securities analysts and other interested parties in our industry to measure a company’s liquidity. Free cash flow may be calculated differently by other companies, including other companies
in our industry or peer group, limiting its usefulness as a comparative measure.
Liquidity Outlook
At the end of fiscal 2020, our cash balance was $750 million, which was primarily located outside the U.S. We believe our existing U.S. based cash and cash flow from U.S. operations, together with available borrowings under our senior secured credit facilities, will be adequate to meet our liquidity needs over the next twelve months. The Company has the ability to repatriate the cash located outside the U.S. to the extent not needed to meet operational and capital needs without significant restrictions. We do not expect our free cash flow to be sufficient to cover all long-term debt obligations and intend to refinance these obligations prior to maturity.
Summarized Guarantor Financial Information
Berry Global, Inc. (“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by its parent, Berry Global Group, Inc. (for purposes of this section, “Parent”) and substantially all of Issuer’s domestic subsidiaries. Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by Parent and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis. A guarantee of a guarantor subsidiary of the securities will terminate upon the following customary circumstances: the sale of the capital stock of such guarantor if such sale
complies with the indentures, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture or in the case of a restricted subsidiary that is required to guarantee after the relevant issuance date, if such guarantor no longer guarantees certain other indebtedness of the issuer. The guarantees of the guarantor subsidiaries are also limited as necessary to prevent them from constituting a fraudulent conveyance under applicable law and any guarantees guaranteeing subordinated debt are subordinated to certain other of the Company’s debts. Parent also guarantees the Issuer’s
term loans and revolving credit facilities. The guarantor subsidiaries guarantee our term loans and are co-borrowers under our revolving credit facility.
17
Presented below is summarized financial information for the Parent, Issuer and guarantor subsidiaries on a combined basis, after intercompany transactions have been eliminated.
We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in the first note to our consolidated financial statements included elsewhere herein. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions.
Acquisitions. We record acquisitions resulting in the consolidation of an enterprise using the purchase method of accounting. Under this method, the Company records the assets acquired, including intangible assets that can be identified and named, and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price in excess of the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Among other sources of relevant information, the Company uses independent appraisals and actuarial or other valuations to assist in determining the estimated fair values of the assets and liabilities. Various assumptions are used in the determination of these estimated fair values including discount rates, market
and volume growth rates, and other prospective financial information. Transaction costs associated with acquisitions are expensed as incurred. Refer to Note 2. Acquisitions and Dispositions for further information.
Pensions. The accounting for our pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet. For these sponsored plans, the relevant accounting guidance requires that management make certain assumptions relating to the long-term rate of return on plan assets, discount rates used to determine the present value of future obligations and expenses, salary inflation rates, mortality rates and other assumptions. We believe that the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes. The selection of assumptions is 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.
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. Additionally, the expected long term rate of return on plan assets is derived for each benefit plan by considering the expected future long-term return assumption for each individual asset class. A single long-term return assumption is then derived for each plan based upon the plan’s target asset allocation. Refer to Note 8. Retirement Plans for further information.
18
Goodwill and Other Indefinite Lived Intangible Assets. On an annual basis and at interim periods when circumstances require, we test the recoverability of goodwill and indefinite-lived intangible assets.
We elected to complete a step 1 quantitative test to evaluate impairment of goodwill in order to (1) reset the values of our new reporting units for future qualitative assessments and (2) determine if the carrying value of any reporting unit exceeded its fair value. This was completed on the first day of the fourth fiscal quarter of fiscal 2020. We utilized a discounted cash flow analysis in combination with a comparable company market approach to determine the fair value of each reporting unit. There were no indicators of impairment in the fourth quarter that required us to perform an additional test for the recoverability of goodwill.
After the completion of the step 1 quantitative test we determined that the fair value of each of our reporting units was greater than the carrying value. Future declines in our peer company and our market capitalizations and total enterprise value along with lower valuation market multiples or significant declines in operating performance could impact future impairment tests or may require a more frequent assessment.
The Company’s goodwill, fair value and carrying value of our reporting units are as follows:
Indefinite lived intangible assets are tested for impairment annually using both qualitative screens and quantitative assessments where appropriate and are written down to fair value based on either discounted cash flows or appraised values. Refer to Note 1. Basis of Presentation and Summary of Significant Accounting Policies for further information.
Deferred Taxes and Effective Tax Rates. We estimate the effective tax rate (“ETR”) and associated liabilities or assets for each of our legal entities in accordance with authoritative guidance. We utilize tax planning to minimize or defer tax liabilities to future periods. In recording ETRs and related liabilities and assets, we rely upon estimates, which are based upon our interpretation of U.S. and local tax laws as they apply to our legal entities and our overall tax structure. Audits by local tax jurisdictions, including the U.S. Government, could yield different interpretations from our own and cause the Company to owe more taxes than originally recorded. As part of the ETR, if we determine that a deferred tax asset arising from temporary differences is not likely to be utilized, we will establish a valuation allowance against
that asset to record it at its expected realizable value. In multiple foreign jurisdictions, the Company believes that it will not generate sufficient future taxable income to realize the related tax benefits. The Company has provided a full valuation allowance against its foreign net operating losses included within the deferred tax assets in multiple foreign jurisdictions. The Company has not provided a valuation allowance on its federal net operating losses in the U.S. because it has determined that future reversals of its temporary taxable differences will occur in the same periods and are of the same nature as the temporary differences giving rise to the deferred tax assets. Refer to Note 7. Income Taxes
for further information.
Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective of the Company and its consolidated subsidiaries. This is not to suggest that other risk factors such as changes in economic conditions, changes in material costs, our ability to pass through changes in material costs, and others could not materially adversely impact our consolidated financial position, results of operations and cash flows in future periods.
19
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities. As of September 26, 2020, our senior secured credit facilities are comprised of (i) $6.2 billion term loans and (ii) an $850 million revolving credit facility with no borrowings outstanding. Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus LIBOR. The applicable margin for LIBOR rate borrowings under the revolving credit facility ranges from 1.25% to 1.50%, and the margin for the term loans is 2.00% per annum. As of September 26, 2020, the LIBOR rate of approximately 0.18% was applicable to the term loans. A 0.25% change in LIBOR would increase our annual interest expense by $8 million on variable rate term loans.
We seek to minimize interest rate volatility risk through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. These financial instruments are not used for trading or other speculative purposes. As of September 26, 2020, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.398%, with an expiration in June 2026, (ii) a $1 billion interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.835% with an expiration in June 2026,
(iii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.916% with an expiration in June 2026, (iv) a $884 million interest rate swap transaction that swaps a one month variable LIBOR contract for a fixed annual rate of 1.857%, with an expiration in June 2024, and (v) a $473 million interest rate swap transaction that swaps a one month variable LIBOR contract for a fixed annual rate of 2.050%, with an expiration in June 2024.
Foreign Currency Risk
As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, British pound sterling, Brazilian real, Chinese renminbi, Canadian dollar and Mexican peso. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses. Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates and impact our Comprehensive income. A 10% decline in foreign currency exchange rates would have had a $32 million unfavorable impact on fiscal 2020 Net income.
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€250 million) and June 2024 (€1,625 million) and July 2027 (£700 million). In addition to the cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of September 26, 2020, we had outstanding long-term debt of €785 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries.
20
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All schedules have been omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or notes thereto.
21
Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Form 10-K, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 26, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 26, 2020.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s internal controls over financial reporting were effective as of September 26, 2020.
The effectiveness of our internal control over financial reporting as of September 26, 2020, has been audited by the Company’s independent registered public accounting firm, as stated in their report, which is included herein
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 26, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.OTHER INFORMATION
None.
22
PART III
Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth below, the information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2021 Annual Meeting of Stockholders.
Code of Ethics
We have a Code of Business Ethics that applies to all directors and employees, including our Chief Executive Officer and senior financial officers. These standards are designed to deter wrongdoing and to promote the highest ethical, moral, and legal conduct of all employees. We also have adopted a Supplemental Code of Ethics, which is in addition to the standards set by our Code of Business Ethics, in order to establish a higher level of expectation for the most senior leaders of the Company. The Supplemental Code of Ethics sets the expectations as to how our senior leaders conduct themselves in dealings with the Company, customers, suppliers and coworkers and it further defines our commitment to compliance with the
Company’s policies, procedures and government regulations. Our Code of Business Ethics and Supplemental Code of Ethics can be obtained, free of charge, by contacting our corporate headquarters or can be obtained from the Corporate Governance section of the Investors page on the Company’s internet site. In the event that we make changes in, or provide waivers from, the provisions of the Code of Business Ethics or Supplemental Code of Ethics that the SEC requires us to disclose, we will disclose these events in the corporate governance section of our website within four business days following the date of such amendment or waiver.
Item 11.EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2021 Annual Meeting of Stockholders.
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item, is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2021 Annual Meeting of Stockholders.
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2021 Annual Meeting of Stockholders.
Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2021 Annual Meeting of Stockholders.
23
PART IV
Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1.
Financial Statements
The financial statements listed under Item 8 are filed as part of this report.
2.
Financial Statement Schedules
Schedules have been omitted because they are either not applicable or the required information has been disclosed in the financial statements or notes thereto.
3.
Exhibits
The exhibits listed on the Exhibit Index immediately following the signature page of this annual report are filed as part of this report.
Item 16.FORM 10-K SUMMARY
None.
24
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Berry Global Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Berry Global Group, Inc. (the Company) as of September 26, 2020 and September 28, 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended September 26, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 26, 2020
and September 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 26, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 26, 2020, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 23, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for RPC Group Plc Business Combination
Description of the Matter
As discussed in Note 2 to the consolidated financial statements, in July 2019, the Company completed the acquisition of the entire outstanding share capital of RPC Group Plc (“RPC”), for aggregate consideration of $6.1 billion. The acquisition was accounted for under the purchase method of accounting and the assets acquired and liabilities assumed have been recorded based on estimates of fair value. The purchase price allocation for RPC was finalized during fiscal year 2020.
Auditing the Company’s accounting for the allocation of the purchase price for its acquisition of RPC was complex due to the overall significance of the RPC acquisition and the estimation uncertainty in determining the fair value of certain assets. The most
complex fair value determination related to the customer relationships intangible assets. The estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions. In particular, the significant inputs and assumptions used by the Company to estimate the fair value of the customer relationships intangible assets included prospective financial information that incorporated assumptions as to revenue growth rates, Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”) margins and the expected customer retention rate.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the estimation of the fair value of the customer relationships intangible assets. For example, we tested controls over management’s review of the projected revenue growth rates and EBITDA margins, and we tested controls over management’s review of the customer retention rate including management’s testing of the completeness and accuracy of the source information used to calculate the customer retention rates.
To test the estimate of the fair value of the customer relationships intangible assets, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the
Company in its analysis. We involved a specialist to assist in the auditing of key valuation assumptions. We compared the significant assumptions used by management to current industry and economic trends, historical results of the acquired business and to historical experience related to previous acquisitions of similar businesses and assessed economic factors that could affect the significant assumptions. We also performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the customer relationships intangible assets that would result from changes in the assumptions.
Valuation of Goodwill
Description of the Matter
At September 26, 2020, the Company had a goodwill balance of $5.1 billion. As discussed in Note 1 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. The Company’s goodwill is initially assigned to its reporting units as of the acquisition date. In fiscal 2020, the Company performed a quantitative goodwill impairment test for all of its reporting units. The fair value for each reporting unit is estimated based on a market approach and a discounted cash flow analysis and is reconciled to the
Company’s current market capitalization.
Auditing management’s annual goodwill impairment test for certain of the reporting units was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting unit. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair value to underlying assumptions about the future operating performance of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions in the prospective financial information such as the revenue growth rate, EBITDA margin, and terminal year growth rate, which are affected by expectations about future market or economic conditions.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above.
To test the estimated fair value, we, along with our valuation specialists, performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry and economic trends, changes in the
Company’s business model, customer base or product mix, historical operating results and other relevant factors that would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value that would result from changes in the assumptions. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Berry Global Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Berry Global Group, Inc.’s internal control over financial reporting as of September 26, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Berry Global Group, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 26, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 26, 2020 and September 28, 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended September 26, 2020, and the related notes and our report dated November 23, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Adjustments to reconcile net cash from operating activities:
Depreciation
i545
i419
i384
Amortization of intangibles
i300
i194
i154
Non-cash interest expense
i27
i1
i4
Share-based compensation expense
i33
i27
i23
Deferred income tax
(i96
)
(i52
)
(i86
)
Settlement of derivatives
i11
i19
i30
Transaction activities
i—
(i38
)
i—
Other non-cash operating activities, net
i42
(i1
)
i16
Changes in operating assets and liabilities:
Accounts receivable
i49
i150
(i53
)
Inventories
i48
i99
(i79
)
Prepaid expenses and other assets
(i12
)
i14
i18
Accounts payable and other liabilities
i24
(i35
)
i97
Net cash from operating activities
i1,530
i1,201
i1,004
Cash Flows from Investing Activities:
Additions to property, plant and equipment, net
(i583
)
(i399
)
(i333
)
Divestiture of business
i—
i326
i—
Acquisition of business and purchase price derivatives
(i14
)
(i6,178
)
(i702
)
Settlement of net investment hedges
i281
i—
i—
Net cash from investing activities
(i316
)
(i6,251
)
(i1,035
)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
i1,202
i6,784
i498
Repayment of long-term borrowings
(i2,436
)
(i1,214
)
(i335
)
Proceeds from issuance of common stock
i30
i55
i23
Repurchase of common stock
i—
(i74
)
(i33
)
Payment of tax receivable agreement
i—
(i38
)
(i37
)
Debt financing costs
(i16
)
(i87
)
(i3
)
Net cash from financing activities
(i1,220
)
i5,426
i113
Effect of currency translation on cash
i6
(i7
)
(i7
)
Net change in cash and cash equivalents
i—
i369
i75
Cash and cash equivalents at beginning of period
i750
i381
i306
Cash and cash equivalents at end of period
$
i750
$
i750
$
i381
See notes to consolidated financial statements.
30
Berry Global Group, Inc.
Notes to Consolidated Financial Statements
(in millions of dollars, except as otherwise noted)
i
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.
i
Basis of Presentation
The Company’s 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 26, 2020 (“fiscal 2020”), September 28, 2019 (“fiscal 2019”), and September 29, 2018 (“fiscal 2018”). The Company has recast certain prior period amounts to conform to current reporting. Fiscal 2020, fiscal 2019, and fiscal 2018 were fifty-two week periods. The
Company has evaluated subsequent events through the date the financial statements were issued.
i
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 and Accounts Receivable
i
Our revenues are primarily derived from the sale of non-woven, flexible and rigid products to customers. Revenue is recognized when performance obligations are satisfied, in an amount reflecting the consideration to which the Company expects to be entitled. We consider the promise to transfer products to be our sole performance obligation. If the consideration agreed to in a contract includes a variable amount, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer using the most likely amount method. Our main sources of variable consideration are customer rebates. The accrual for customer rebates was $i104
million and $i114 million at September 26, 2020 and September 28, 2019, 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. Refer to Note 12. Segment and Geographic Data for further information.
/
i
The Company has entered into various factoring agreements to sell certain receivables to third-party financial institutions. The transfer of receivables is accounted for as a sale, without recourse. Net sales available under qualifying U.S. based programs were $i931 million and $i940
million for the year ended September 26, 2020 and September 28, 2019, respectively. There were iino/
amounts outstanding from financial institutions related to these programs. The fees associated with transfer of receivables for all programs were not material for any of the periods presented.
/
i
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 i13% of purchases in fiscal 2020. The
Company uses a variety of suppliers to meet its resin requirements.
i
Research and Development
Research and development costs are expensed when incurred. The Company incurred research and development expenditures of $i79 million, $i50
million, and $i45 million in fiscal 2020, 2019, and 2018, respectively.
i
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.
31
i
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.
i
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.
i
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 allowance for doubtful accounts was $i25
million and $i28 million at September 26, 2020 and September 28, 2019, respectively.
i
Inventories
i
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 2020 and 2019 was:
Inventories:
2020
2019
Finished goods
$
i708
$
i743
Raw materials
i560
i581
$
i1,268
$
i1,324
i
Property, Plant and Equipment
i
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 i15 to i40
years for buildings and improvements, i2 to i20 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 2020 and 2019 was:
/
Property, plant and equipment:
2020
2019
Land, buildings and improvements
$
i1,669
$
i1,549
Equipment and construction in progress
i6,213
i6,090
i7,882
i7,639
Less accumulated depreciation
(i3,321
)
(i2,925
)
$
i4,561
$
i4,714
i
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.
32
i
Goodwill
i
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 2018
$
i46
$
i1,409
$
i629
$
i860
$
i2,944
Foreign currency translation adjustment
(i73
)
(i1
)
i—
i7
(i67
)
Acquisitions
i1,705
i500
i9
i2
i2,216
Dispositions
i—
i—
i—
(i42
)
(i42
)
Balance as of fiscal 2019
$
i1,678
$
i1,908
$
i638
$
i827
$
i5,051
Foreign currency translation adjustment
i32
i—
i—
(i16
)
i16
Final RPC purchase price valuation
i303
(i151
)
i7
i—
i159
Held for sale
i—
i—
(i40
)
(i13
)
(i53
)
Balance as of fiscal 2020
$
i2,013
$
i1,757
$
i605
$
i798
$
i5,173
In fiscal year 2020, the Company completed a step 1 quantitative test to evaluate impairment of goodwill. The fair value for each reporting unit 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 long-term growth of i3% and modest margin expansion attributed to capital investments,
and discount rates ranging from i9.0% to i11.5% being applied to the forecasted cash flows. As a result of our annual impairment evaluations
the Company concluded that ino impairment existed in fiscal 2020. However, future declines in valuation market multiples, sustained lower earnings, or macroeconomic challenges could impact future impairment tests.
The Company has recognized cumulative goodwill impairment charges of $i165 million, which occurred in fiscal 2011.
i
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 $i85 million and $i112
million as of fiscal 2020 and fiscal 2019, 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.
i
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 i5 to i17
years. Definite lived trademarks are being amortized using the straight-line method over the estimated life of the assets which are not more than i15 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 i5
to i14 years. The Company has trademarks that total $i248
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 iiino//
impairment in fiscal 2020, 2019 and 2018.
i
Customer
Relationships
Trademarks
Other
Intangibles
Accumulated
Amortization
Total
Balance as of fiscal 2018
$
i1,882
$
i293
$
i185
$
(i1,020
)
$
i1,340
Foreign currency translation adjustment
(i56
)
(i4
)
(i2
)
i4
(i58
)
Amortization expense
—
—
—
(i194
)
(i194
)
Acquisition intangibles
i1,590
i108
(i22
)
i16
i1,692
Netting of fully amortized intangibles
(i9
)
i—
i—
i9
i—
Balance as of fiscal 2019
$
i3,407
$
i397
$
i161
$
(i1,185
)
$
i2,780
Foreign currency translation adjustment
i53
i7
i3
(i2
)
i61
Amortization expense
—
—
—
(i300
)
(i300
)
Final RPC purchase price valuation
(i137
)
i118
(i25
)
i—
(i44
)
Netting of fully amortized intangibles
i—
i—
(i10
)
i10
i—
Balance as of fiscal 2020
$
i3,323
$
i522
$
i129
$
(i1,477
)
$
i2,497
/
33
i
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.
i
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.
i
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive income (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.
i
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 2017
$
(i48
)
$
(i16
)
$
(i4
)
$
(i68
)
Other comprehensive income (loss)
(i127
)
i9
i33
(i85
)
Net amount reclassified from accumulated other comprehensive income (loss)
i—
(i6
)
i3
(i3
)
Balance as of fiscal 2018
$
(i175
)
$
(i13
)
$
i32
$
(i156
)
Other comprehensive income (loss)
(i104
)
i9
(i107
)
(i202
)
Net amount reclassified from accumulated other comprehensive income (loss) (a)
i—
(i52
)
i24
(i28
)
Balance as of fiscal 2019
$
(i279
)
$
(i56
)
$
(i51
)
$
(i386
)
Other comprehensive income (loss)
i1
i3
(i137
)
(i133
)
Net amount reclassified from accumulated other comprehensive income (loss)
i—
(i63
)
i31
(i32
)
Balance as of fiscal 2020
$
(i278
)
$
(i116
)
$
(i157
)
$
(i551
)
(a)
Refer to Note 4. Financial Instruments and Fair Value Measurements and Note 8. Retirement Plans for further information.
i
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.
34
i
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.
i
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.
i
Recently Issued Accounting Pronouncements
Leases
Effective September 29, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), including all related amendments, using the modified retrospective approach and recognized the cumulative effect of adoption to retained earnings. Under the new standard, the lessee of an operating lease is 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. Refer to Note 6. Commitments, Leases and Contingencies for further information.
Credit Losses
In June 2016, the FASB issued ASU 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 will be effective for the Company beginning in fiscal 2021. The Company has completed its evaluation of this new standard and has determined that it will not have a material impact on our consolidated financial statements.
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 the Company beginning in fiscal 2022. The Company is currently evaluating the impact of the adoption of
this standard to our disclosures.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740). The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The new standard will be effective for the Company beginning fiscal 2022. The Company is currently evaluating the impact of the adoption of this new standard.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This standard provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. ASU 2020-04 is effective upon issuance and generally can be applied through the end of calendar year 2022. The Company is currently evaluating the impact and whether it plans to adopt the optional expedients and exceptions provided under this new standard.
35
i
2. Acquisitions and Dispositions
RPC Group Plc
In July 2019, the Company completed the acquisition of the entire outstanding share capital of RPC Group Plc (“RPC”), for aggregate consideration of $i6.1 billion. RPC is a leading plastic product design and engineering company for packaging and select non-packaging markets, with i189
sites in i34 countries. RPC develops and manufactures a diverse range of products for a wide variety of customers, including many household names, and enjoys strong market positions in many of the end markets it serves and the geographical areas in which it operates. It uses a wide range of polymer conversion techniques in both rigid and flexible plastics manufacturing, and is one of the largest plastic converters in Europe. The Consumer Packaging International segment primarily consists of the international based facilities, with the
remaining U.S. based facilities operated within the Consumer Packaging North America segment. The results of RPC have been included in the consolidated results of the Company since the date of the acquisition.
The acquisition has been accounted for under the purchase method of accounting. Under this method, the assets acquired and liabilities assumed have been recorded based on fair values as of the acquisition date. The Company has recognized goodwill on this transaction primarily as a result of expected cost synergies, and expects goodwill to be partially deductible for tax purposes.
The preliminary purchase price allocation has been updated for certain measurement period adjustments based on the final valuation resulting in a $i70 million increase in working capital, a $i201
million decrease in property, plant and equipment, a $i135 million decrease in customer relationships, a $i93
million net increase in trade names and other intangibles, a $i51 million decrease in deferred tax liabilities, and a $i22
million increase in noncontrolling interest. These adjustments resulted in corresponding adjustments to goodwill.
i
The following table summarizes the final purchase price allocation (in millions):
Consideration
Cash
$
i6,084
Total consideration transferred
i6,084
Identifiable assets acquired and liabilities assumed
Working capital(a)
i770
Property, plant and equipment
i2,174
Identifiable intangible assets
i1,670
Other assets
i2
Other long-term liabilities
(i875
)
Goodwill
i2,365
Net assets acquired and liabilities assumed
i6,106
Noncontrolling interest
(i22
)
Total consideration transferred
$
i6,084
(a)
Includes a $i58 million step up of inventory to fair value
To finance the purchase, the Company issued $i1,250 million aggregate principal amount of first priority senior secured notes due 2026, $i500
million aggregate principal amount of second priority senior secured notes due 2027, and entered into incremental term loans due July 2026, to fund the remainder of the purchase price.
When including RPC results for the periods prior to the acquisition date, unaudited pro forma net sales and net income were $i12.6 billion and $i465
million, respectively, for fiscal 2019. The unaudited pro forma net sales and net income assume that the RPC acquisition had occurred as of the beginning of the period.
Seal For Life
In July 2019, the Company completed the sale of its Seal For Life (“SFL”) business which was operated in our Health, Hygiene & Specialties reporting segment for net proceeds of $i325 million. A pretax gain on sale of $i214
million was recorded in fiscal 2019, within Restructuring and transaction activities on the Consolidated Statements of Income. SFL recorded $i96 million in net sales during fiscal 2019.
In January 2020, the Company (i) issued €i700 million aggregate principal amount of i1.00%
first priority senior secured notes due 2025 and €i375 million aggregate principal amount of i1.50%
first priority senior secured notes due 2027 (the “Euro notes”) and (ii) refinanced its existing $i4.25 billion Term loan maturing in July 2026, resulting in a i50
basis point interest rate reduction. The proceeds of the Euro notes were used to prepay the entire outstanding amount of our existing euro denominated Term loan. Debt extinguishment costs of $i18 million, primarily compromised of deferred debt discount and financing fees, were recorded in Other expense, net on the Consolidated Statements of Income upon the extinguishment of the euro Term loan.
Berry Global, Inc. Senior Secured Credit Facility
Our wholly owned subsidiary Berry Global, Inc.’s senior secured credit facilities consist of $i6.2 billion of term loans and an $i850
million asset-based revolving line of credit. The availability under the revolving line of credit is the lesser of $i850 million or based on a defined borrowing base which is calculated based on available accounts receivable and inventory.
The term loan facility requires minimum quarterly principal payments, with the remaining amount payable upon maturity. The Company may voluntarily repay outstanding loans under the senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to eurodollar loans. All obligations under the senior secured credit facilities are unconditionally guaranteed by the Company and, subject to certain exceptions, each of the Company’s existing and future direct and indirect domestic subsidiaries. The guarantees of those obligations
are secured by substantially all of the Company’s assets as well as those of each domestic subsidiary guarantor.
Despite not having financial maintenance covenants, our debt agreements contain certain negative covenants. We are in compliance with all covenants as of September 26, 2020. The failure to comply with these negative covenants could restrict our ability to incur additional indebtedness, effect acquisitions, enter into certain significant business combinations, make distributions or redeem indebtedness.
37
i
Future maturities of long-term debt as of fiscal year end 2020 are as follows:
Fiscal Year
Maturities
2021
$
i75
2022
i75
2023
i1,811
2024
i785
2025
i864
Thereafter
i6,712
$
i10,322
Interest paid was $i430 million, $i330 million, and $i253
million in fiscal 2020, 2019, and 2018, respectively.
Debt discounts and deferred financing fees are presented net of Long-term debt, less the current portion in the Consolidated Balance Sheet and are amortized to Interest expense through maturity.
i
4. Financial Instruments and Fair Value Measurements
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. The Company may use derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
To the extent hedging relationships are found to be effective, changes in the fair value of the derivatives are offset by changes in the fair value of the related hedged item and recorded to Accumulated other comprehensive loss. Any identified ineffectiveness, or changes in the fair value of a derivative not designated as a hedge, are recorded to the Consolidated Statements of Income.
Cross-Currency Swaps
The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€i250 million), June 2024 (€i1,625
million) and July 2027 (£i700 million). In addition to the cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of September 26, 2020, we had outstanding long-term debt of €i785
million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries. When valuing cross-currency swaps, the Company utilizes Level 2 inputs (substantially observable).
During fiscal 2020, the Company entered into transactions to cash settle existing cross-currency swaps and received proceeds of $i281 million. The swap settlement impact has been included as a component of Currency translation within Accumulated other comprehensive loss. Following the settlement of the existing cross-currency swaps, we entered into new cross-currency swaps
with matching notional amounts and maturity dates of the original swaps.
Interest Rate Swaps
The primary purpose of the Company’s interest rate swap activities is to manage interest expense variability associated with our outstanding variable rate term loan debt. When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).
During fiscal 2019, the Company entered into (i) a $i400 million interest rate swap transaction that swaps a ione-month
variable LIBOR contract for a fixed annual rate of i2.533% with an effective date of February 2019 and expiration in July 2023; (ii) a $i884
million interest rate swap transaction that swaps a ione-month variable LIBOR contract for a fixed annual rate of i1.857%,
with an effective date in July 2019 and expiration in June 2024, and (iii) a $i473 million interest rate swap transaction that swaps a ione-month
variable LIBOR contract for a fixed annual rate of i2.050%, with an effective date in July 2019 and expiration in June 2024.
38
During fiscal 2020, the Company entered into transactions to extend and recoupon its existing interest rate swaps. As of September 26, 2020, the Company effectively had (i) a $i450 million interest rate swap transaction that swaps a ione-month
variable LIBOR contract for a fixed annual rate of i1.398%, with an expiration date in June 2026, (ii) a $i1
billion interest rate swap transaction that swaps a ione-month variable LIBOR contract for a fixed annual rate of i1.835%
with an expiration date in June 2026, (iii) a $i400 million interest rate swap transaction that swaps a ione-month
variable LIBOR contract for a fixed annual rate of i1.916% with an expiration date in June 2026, (iv) an $i884
million interest rate swap transaction that swaps a ione-month variable LIBOR contract for a fixed annual rate of i1.857%,
with an expiration in June 2024, and (v) a $i473 million interest rate swap transaction that swaps a ione-month
variable LIBOR contract for a fixed annual rate of i2.050%, with an expiration in June 2024.
i
The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized. Balances on a gross basis are as follows:
Derivatives Instruments
Hedge Designation
Balance Sheet Location
2020
2019
Cross-currency swaps
Designated
Other assets
$
i—
$
i88
Cross-currency swaps
Designated
Other long-term liabilities
i270
i—
Interest rate swaps
Designated
Other long-term liabilities
i226
i81
i
The effect of the Company’s derivative instruments on the Consolidated Statements of Income is as follows:
The amortization related to unrealized losses in Accumulated other comprehensive loss is expected to be $i5 million in the next 12 months. The Company’s financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate swap agreements, cross-currency swap agreements
and capital lease obligations. The fair value of our long-term indebtedness exceeded book value by $i26 million as of fiscal 2020, and $i77 million as of fiscal 2019. The
Company’s long-term debt fair values were determined using Level 2 inputs as other significant observable inputs were not available.
Non-recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis when impairment indicators are present or when the Company completes an acquisition. The Company adjusts certain long-lived assets to fair value only when the carrying values exceed the fair values. The categorization of the framework used to value the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. These assets that are subject to our annual impairment analysis primarily include our definite lived and indefinite lived intangible assets, including goodwill and our property, plant and equipment. The
Company reviews goodwill and other indefinite lived assets for impairment as of the first day of the fourth fiscal quarter each year, and more frequently if impairment indicators exist. The Company determined goodwill and other indefinite lived assets were not impaired in our annual fiscal 2020, 2019, and 2018 assessments.
39
i
Included in the following tables are the major categories of assets and their current carrying values that were measured at fair value on a non-recurring basis in the current year, along with the impairment loss recognized on the fair value measurement for the fiscal years then ended:
As of the end of fiscal 2020
Level 1
Level 2
Level 3
Total
Impairment
Indefinite lived trademarks
$
i—
$
i—
$
i248
$
i248
$
i—
Goodwill
i—
i—
i5,173
i5,173
i—
Definite lived intangible assets
i—
i—
i2,249
i2,249
i—
Property, plant and equipment
i—
i—
i4,561
i4,561
i2
Total
$
i—
$
i—
$
i12,231
$
i12,231
$
i2
As of the end of fiscal 2019
Level 1
Level 2
Level 3
Total
Impairment
Indefinite lived trademarks
$
i—
$
i—
$
i248
$
i248
$
i—
Goodwill
i—
i—
i5,051
i5,051
i—
Definite lived intangible assets
i—
i—
i2,532
i2,532
i—
Property, plant and equipment
i—
i—
i4,714
i4,714
i8
Total
$
i—
$
i—
$
i12,545
$
i12,545
$
i8
As of the end of fiscal 2018
Level 1
Level 2
Level 3
Total
Impairment
Indefinite lived trademarks
$
i—
$
i—
$
i248
$
i248
$
i—
Goodwill
i—
i—
i2,944
i2,944
i—
Definite lived intangible assets
i—
i—
i1,092
i1,092
i—
Property, plant and equipment
i—
i—
i2,488
i2,488
i—
Total
$
i—
$
i—
$
i6,772
$
i6,772
$
i—
i
5. Goodwill and Intangible Assets
i
The following table sets forth the gross carrying amount and accumulated amortization of the Company’s goodwill and intangible assets as of the fiscal years ended:
2020
2019
Amortization Period
Goodwill
$
i5,173
$
i5,051
Indefinite lived
Customer relationships
i3,323
i3,407
i5 – i17 years
Trademarks (indefinite lived)
i248
i248
Indefinite lived
Trademarks (definite lived)
i274
i149
Not more than i15 years
Other intangibles
i129
i161
i5 – i14 years
Accumulated amortization
(i1,477
)
(i1,185
)
Intangible assets, net
i2,497
i2,780
Total goodwill and intangible assets, net
$
i7,670
$
i7,831
Future amortization expense for definite lived intangibles as of fiscal 2020 for the next five fiscal years is $i280 million, $i258
million, $i244 million, $i231 million, and $i219
million each year for fiscal years ending 2021, 2022, 2023, 2024, and 2025, respectively.
i
6. Commitments, Leases and Contingencies
The Company has various purchase commitments for raw materials, supplies and property and equipment incidental to the ordinary conduct of business.
Collective Bargaining Agreements
At the end of fiscal 2020, we employed approximately i47,000 employees, and approximately i20% of those employees were covered by collective bargaining
agreements. The majority of these agreements are due for renegotiation in fiscal 2021. Our relations with employees under collective bargaining agreements remain satisfactory and there have been no significant work stoppages or other labor disputes during the past ithree years.
40
Leases
During the first quarter of fiscal 2020, the Company adopted ASU 2016-02, Leases (Topic 842). The Company leases certain manufacturing facilities, warehouses, office space, manufacturing equipment, office equipment, and automobiles.
Under the new standard, 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.
We have elected the package of practical expedients which allows the Company to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. Additionally, we have elected the practical expedient to not separate lease and non-lease components for all asset classes.
Supplemental lease information is as follows:
i
Leases
Classification
2020
Assets
Operating lease right-of-use assets
Right-of-use asset
$
i562
Finance lease right-of-use assets
Property, plant, and equipment, net
i78
Current liabilities
Operating lease liabilities
Other current liabilities
$
i115
Finance lease liabilities
Current portion of long-term debt
i17
Non-current liabilities
Operating lease liabilities
Operating lease liability
$
i464
Finance lease liabilities
Long-term debt, less current portion
i59
/
41
i
Lease cost
2020
Operating lease cost
$
i120
Finance lease cost:
Amortization of right-of-use assets
i24
Interest on lease liabilities
i3
Total finance lease cost
i27
Short-term lease cost
i27
Total lease cost
$
i174
/
i
Cash paid for amounts included in lease liabilities
2020
Operating cash flows from operating leases
$
i120
Operating cash flows from finance leases
i3
Financing cash flows from finance leases
i38
/
i
2020
Weighted-average remaining lease term - operating leases
i8 years
Weighted-average remaining lease term - finance leases
i4 years
Weighted-average discount rate - operating leases
i4.6
%
Weighted-average discount rate - finance leases
i3.8
%
/
Right-of-use assets obtained in exchange for new operating lease liabilities were $i44 million for fiscal 2020.
The Company is party to various legal proceedings involving routine claims which are incidental to its business. Although the Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, the Company believes that any ultimate liability would not be material to its financial position, results of operations or cash flows.
i
7. Income Taxes
i
The Company is being taxed at the U.S. corporate level as a C-Corporation and has provided U.S. Federal, State and foreign income taxes. Significant components of income tax expense for the fiscal years ended are as follows:
2020
2019
2018
Current
U.S.
Federal
$
i84
$
i60
$
i19
State
i12
i11
i8
Non-U.S.
i154
i67
i40
Total current
i250
i138
i67
Deferred:
U.S.
Federal
(i29
)
(i47
)
(i72
)
State
(i13
)
(i3
)
i12
Non-U.S.
(i54
)
(i2
)
(i26
)
Total deferred
(i96
)
(i52
)
(i86
)
Expense for income taxes
$
i154
$
i86
$
(i19
)
U.S. income from continuing operations before income taxes was $i206 million, $i229
million, and $i373 million for fiscal 2020, 2019, and 2018, respectively. Non-U.S. income from continuing operations before income taxes was $i507
million, $i261 million, and $i104 million for fiscal 2020, 2019, and 2018,
respectively. The Company paid cash taxes of $i243 million, $i115 million, and $i60
million in fiscal 2020, 2019, and 2018, respectively.
43
i
The reconciliation between U.S. Federal income taxes at the statutory rate and the Company’s benefit for income taxes on continuing operations for fiscal years ended are as follows:
2020
2019
2018
U.S. Federal income tax expense at the statutory rate
$
i150
$
i103
$
i117
Adjustments to reconcile to the income tax provision:
U.S. state income tax expense
i6
i9
i12
Federal and state credits
(i14
)
(i8
)
(i7
)
Share-based compensation
(i4
)
(i12
)
(i8
)
Tax Cuts and Jobs Act
i—
i—
(i124
)
Withholding taxes
i15
i—
i—
Changes in foreign valuation allowance
(i8
)
i13
(i10
)
Foreign income taxed in the U.S.
i9
i3
i—
Manufacturing tax benefits
i—
i—
(i6
)
Rate differences between U.S. and foreign
(i6
)
i7
i3
Sale of subsidiary
i—
(i38
)
i—
Other
i6
i9
i4
Expense for income taxes
$
i154
$
i86
$
(i19
)
i
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability as of fiscal years ended are as follows:
2020
2019
Deferred tax assets:
Allowance for doubtful accounts
$
i3
$
i3
Deferred gain on sale-leaseback
i5
i5
Accrued liabilities and reserves
i104
i64
Inventories
i10
i9
Net operating loss carryforward
i291
i348
Interest expense carryforward
i28
i35
Derivatives
i127
i—
Lease liability
i147
i—
Research and development credit carryforward
i11
i12
Federal and state tax credits
i14
i11
Other
i33
i40
Total deferred tax assets
i773
i527
Valuation allowance
(i150
)
(i141
)
Total deferred tax assets, net of valuation allowance
i623
i386
Deferred tax liabilities:
Property, plant and equipment
i429
i487
Intangible assets
i588
i597
Leased asset
i142
i—
Included in held for sale
(i4
)
i—
Other
i15
i63
Total deferred tax liabilities
i1,170
i1,147
Net deferred tax liability
$
(i547
)
$
(i761
)
The Company had $i54 million of net deferred tax assets recorded in Other assets, and $i601
million of net deferred tax liabilities recorded in Deferred income taxes on the Consolidated Balance Sheets.
As of September 26, 2020, the Company has recorded deferred tax assets related to federal, state, and foreign net operating losses, interest expense, and tax credits. These attributes are spread across multiple jurisdictions and generally have expiration periods beginning in 2020 while a portion remains available indefinitely. Each attribute has been assessed for realization and a valuation allowance is recorded against the deferred tax assets to bring the net amount recorded to the amount more likely than not to be realized. The valuation allowance against deferred tax assets was $i150
million and $i141 million as of the fiscal years ended 2020 and 2019, respectively, related to the foreign and U.S. federal and state operations.
44
The Company is permanently reinvested except to the extent the foreign earnings are previously taxed or to the extent that we have sufficient basis in our non-U.S. subsidiaries to repatriate earnings on an income tax free basis.
Uncertain Tax Positions
i
The following table summarizes the activity related to our gross unrecognized tax benefits for fiscal years ended:
2020
2019
Beginning unrecognized tax benefits
$
i165
$
i74
Gross increases – tax positions in prior periods
i13
i2
Gross decreases - tax positions in prior periods
(i12
)
i—
Gross increases – current period tax positions
i—
i6
Gross increases – from RPC acquisition
i7
i88
Settlements
(i1
)
(i1
)
Lapse of statute of limitations
(i4
)
(i4
)
Ending unrecognized tax benefits
$
i168
$
i165
As of fiscal year end 2020, the amount of unrecognized tax benefit that, if recognized, would affect our effective tax rate was $i161 million and we had $i40
million accrued for payment of interest and penalties related to our uncertain tax positions. Our penalties and interest related to uncertain tax positions are included in income tax expense.
As a result of global operations, we file income tax returns in the U.S. federal, various state and local, and foreign jurisdictions and are routinely subject to examination by taxing authorities throughout the world. Excluding potential adjustments to net operating losses, the U.S. federal and state income tax returns are no longer subject to income tax assessments for years before 2016. With few exceptions, the major foreign jurisdictions are no longer subject to income tax assessments for year before 2014.
i
8. Retirement Plans
The Company sponsors defined contribution 401(k) retirement plans covering substantially all employees. Contributions are based upon a fixed dollar amount for employees who participate and percentages of employee contributions at specified thresholds. Contribution expense for these plans was $i40 million, $i26
million, and $i20 million for fiscal 2020, 2019, and 2018, respectively.
The North American defined benefit pension plans, which cover certain manufacturing facilities, are closed to future entrants. The majority of the retirement benefit obligations in the United Kingdom (“UK”) are defined benefit pension plans, and are closed to future entrants. The assets of all the plans are held in a separate trustee administered fund to meet long-term liabilities for past and present employees.
Most of the Company’s German operations provide non-contributory pension plans. There is no external funding for these plans although they are secured by insolvency insurance required under German law. In general, the plans provide a fixed retirement benefit not related to salaries and are closed to new entrants. Germany represents $i97 million of Mainland Europe’s
total underfunded status.
i
The net amount of liability recognized is included in Employee Benefit Obligations on the Consolidated Balance Sheets. The Company uses fiscal year end as a measurement date for the retirement plans.
Fiscal 2020
Fiscal 2019
Change in Projected Benefit Obligations (PBO)
North America
UK
Mainland Europe
Total
North America
UK
Mainland Europe
Total
Beginning of period
$
i344
$
i827
$
i206
$
i1,377
$
i307
$
i—
$
i—
$
i307
Acquisition
i—
i—
i—
i—
i—
i810
i209
i1,019
Service cost
i—
i—
i1
i1
i—
i—
i2
i2
Interest cost
i10
i15
i1
i26
i12
i4
i1
i17
Currency
i—
i31
i13
i44
i—
(i24
)
(i10
)
(i34
)
Actuarial loss (gain)
i30
i41
(i7
)
i64
i42
i44
i8
i94
Benefit settlements
(i6
)
i—
(i16
)
(i22
)
i—
i—
i—
i—
Benefits paid
(i17
)
(i26
)
(i6
)
(i49
)
(i17
)
(i7
)
(i4
)
(i28
)
End of period
$
i361
$
i888
$
i192
$
i1,441
$
i344
$
i827
$
i206
$
i1,377
45
Fiscal 2020
Fiscal 2019
Change in Fair Value of Plan Assets
North America
UK
Mainland Europe
Total
North America
UK
Mainland Europe
Total
Beginning of period
$
i269
$
i729
$
i67
$
i1,065
$
i277
$
i—
$
i—
$
i277
Acquisition
i—
i—
i—
i—
i—
i702
i70
i772
Currency
i—
i27
i4
i31
i—
(i22
)
(i3
)
(i25
)
Return on assets
i22
i21
(i2
)
i41
i9
i51
i2
i62
Contributions
i—
i18
i7
i25
i—
i5
i2
i7
Benefit settlements
(i6
)
i—
(i16
)
(i22
)
i—
i—
i—
i—
Benefits paid
(i17
)
(i26
)
(i6
)
(i49
)
(i17
)
(i7
)
(i4
)
(i28
)
End of period
$
i268
$
i769
$
i54
$
i1,091
$
i269
$
i729
$
i67
$
i1,065
Underfunded status
$
(i93
)
$
(i119
)
$
(i138
)
$
(i350
)
$
(i75
)
$
(i98
)
$
(i139
)
$
(i312
)
At the end of fiscal 2020, the Company had $i180 million of net unrealized losses recorded in Accumulated other comprehensive loss on the Consolidated Balance Sheets. The Company expects $i8
million to be realized in fiscal 2021.
i
The following table presents significant weighted-average assumptions used to determine benefit obligation and benefit cost for the fiscal years ended:
Fiscal 2020
(Percentages)
North America
UK
Mainland Europe
Weighted-average assumptions:
Discount rate for benefit obligation
i2.2
i1.6
i0.8
Discount rate for net benefit cost
i2.9
i1.8
i0.7
Expected return on plan assets for net benefit costs
i6.1
i3.8
i2.2
Fiscal 2019
(Percentages)
North America
UK
Mainland Europe
Weighted-average assumptions:
Discount rate for benefit obligation
i2.9
i1.8
i0.7
Discount rate for net benefit cost
i4.0
i2.3
i1.0
Expected return on plan assets for net benefit costs
i6.1
i4.3
i1.7
In evaluating the expected return on plan assets, Berry considered its historical assumptions compared with actual results, an analysis of current market conditions, asset allocations, and the views of advisors. The return on plan assets is derived from target allocations and historical yield by asset type. A one quarter of a percentage point reduction of expected return on pension assets or discount rate applied to the pension liability would result in an immaterial change to the Company’s pension expense.
i
In accordance with the guidance from the FASB for employers’ disclosure about postretirement benefit plan assets the table below discloses fair values of each pension plan asset category and level within the fair value hierarchy in which it falls. There were no material changes or transfers between level 3 assets and the other levels.
Fiscal 2020 Asset Category
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
i18
$
i18
$
i—
$
i36
U.S. large cap comingled equity funds
i72
i27
i—
i99
U.S. mid cap equity mutual funds
i49
i16
i—
i65
U.S. small cap equity mutual funds
i3
i16
i—
i19
International equity mutual funds
i12
i99
i—
i111
Real estate equity investment funds
i3
i158
i91
i252
Corporate bond mutual funds
i10
i—
i27
i37
Corporate bonds
i—
i146
i—
i146
International fixed income funds
i66
i209
i—
i275
International insurance policies
i—
i—
i51
i51
Total
$
i233
$
i689
$
i169
$
i1,091
46
Fiscal 2019 Asset Category
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
i15
$
i89
$
i—
$
i104
U.S. large cap comingled equity funds
i—
i124
i—
i124
U.S. mid cap equity mutual funds
i42
i—
i—
i42
U.S. small cap equity mutual funds
i3
i—
i—
i3
International equity mutual funds
i18
i94
i—
i112
Real estate equity investment funds
i3
i179
i75
i257
Corporate bond mutual funds
i12
i—
i—
i12
Corporate bonds
i—
i164
i14
i178
Guaranteed investment account
i—
i—
i8
i8
International fixed income funds
i73
i93
i—
i166
International insurance policies
i—
i—
i59
i59
Total
$
i166
$
i743
$
i156
$
i1,065
i
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the fiscal year end:
North America
UK
Mainland Europe
Total
2021
$
i19
$
i27
$
i6
$
i52
2022
i19
i26
i7
i52
2023
i19
i27
i6
i52
2024
i19
i29
i9
i57
2025
i19
i30
i7
i56
2026-2030
i94
i159
i51
i304
i
Net pension expense included the following components as of fiscal years ended:
2020
2019
2018
Service cost
$
i1
$
i2
$
i—
Interest cost
i26
i17
i11
Amortization of net actuarial loss
i5
i1
i2
Expected return on plan assets
(i46
)
(i24
)
(i17
)
Net periodic benefit expense (income)
$
(i14
)
$
(i4
)
$
(i4
)
i
Our defined benefit pension plan asset allocations as of fiscal years ended are as follows:
Asset Category
2020
2019
Equity securities and equity-like instruments
i50
%
i50
%
Debt securities and debt-like
i42
i33
International insurance policies
i5
i6
Other
i3
i11
Total
i100
%
i100
%
The Company’s retirement plan assets are invested with the objective of providing the plans the ability to fund current and future benefit payment requirements while minimizing annual Company contributions. The retirement plans held $i42
million of the Company’s stock at the end of fiscal 2020. The Company re-addresses the allocation of its investments on a regular basis.
i
9. Restructuring and Transaction Activities
The Company has announced various restructuring plans in the last three fiscal years which included shutting down facilities. In all instances, the majority of the operations from rationalized facilities was transferred to other facilities within the respective segment.
During fiscal 2018, the Company shut down iiione//
facility in each of the Engineered Materials, Health, Hygiene & Specialties, and Consumer Packaging North America segment, which accounted for approximately $i10 million, $i30
million, and $i15 million of annual net sales, respectively.
During fiscal 2019 and 2020, the Company did iino/t
shut down any facilities with significant net sales.
47
i
Since 2018, total expected costs attributed to restructuring programs total $i106 million with $i3 million remaining to be recognized in the
future.
/
Expected
TotalCosts
Cumulative
Chargesthrough
Fiscal 2020
To be
Recognized
in Future
Severance and termination benefits
$
i78
$
i78
$
i—
Facility exit costs
i18
i15
i3
Asset impairment
i10
i10
i—
Total
$
i106
$
i103
$
i3
The table below sets forth the significant components of the restructuring and transaction activity charges recognized for the fiscal years ended, by segment:
2020
2019
2018
Consumer Packaging International
$
i58
$
i54
$
i—
Consumer Packaging North America
i10
i12
i3
Engineered Materials
i6
i2
i6
Health, Hygiene & Specialties
i5
(i200
)
i27
Consolidated
$
i79
$
(i132
)
$
i36
i
The table below sets forth the activity with respect to the restructuring charges and the impact on our accrued restructuring reserves:
Employee Severance
and Benefits
Facility
ExitCosts
Non-cash
Impairment Charges
Transaction
Activities
Total
Balance as of fiscal 2018
$
i9
$
i4
$
i—
$
i—
$
i13
Charges(a)
i10
i4
i8
(i146
)
(i124
)
Non-cash asset impairment
i—
i—
(i8
)
i—
(i8
)
Cash
(i17
)
(i3
)
i—
i146
i126
Balance as of fiscal 2019
$
i2
$
i5
$
i—
$
i—
$
i7
Charges
i34
i9
i2
i34
i79
Non-cash asset impairment
i—
i—
(i2
)
i—
(i2
)
Cash
(i26
)
(i7
)
i—
(i34
)
(i67
)
Balance as of fiscal 2020
$
i10
$
i7
$
i—
$
i—
$
i17
(a)
Consists of $i214 million gain on the sale of our SFL business in 2019 offset by professional fees and other costs related to the RPC acquisition.
i
10. Related Party Transactions
The Company made payments related to the income tax receivable agreement of $i38 million in fiscal 2019. Apollo Global Management, LLC (“Apollo”) received $i29
million of the fiscal 2019 payment. Mr. Evan Bayh, a member of the Company’s Board of Directors, has been employed by Apollo since 2011. The agreement was terminated in fiscal 2019.
i
11. Stockholders’ Equity
Share Repurchases
In August 2018, the Company announced that its Board authorized a $i500 million share repurchase program. Share repurchases will be made through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, or other transactions in accordance with applicable securities laws and in such amounts at such times as we deem appropriate based upon prevailing market and business conditions and other factors. The share repurchase program has no expiration date and may
be suspended at any time.
48
iNo shares were repurchased during fiscal 2020. During fiscal 2019, the Company repurchased approximately i1,512
thousand shares for $i72 million, at an average price of $i47.64. All share repurchases were immediately retired. Common
stock was reduced by the number of shares retired at $i0.01 par value per share. The Company allocates the excess purchase price over par value between additional paid-in capital and retained earnings.
Equity Incentive Plans
In fiscal 2018, the Company amended the 2015 Berry Global Group, Inc. Long-Term Incentive Plan to authorize the issuance of i12.5 million shares, an increase of i5
million shares from the previous authorization.
The Company recognized total share-based compensation expense of $i33 million, $i27
million, and $i23 million for fiscal 2020, 2019, and 2018, respectively. The intrinsic value of options exercised in fiscal 2020 was $i28
million.
i
Information related to the equity incentive plans as of the fiscal years ended are as follows:
2020
2019
Number of Shares
(in thousands)
Weighted Average
Exercise Price
Number of Shares
(in thousands)
Weighted Average
Exercise Price
Options outstanding, beginning of period
i10,263
$
i37.82
i10,744
$
i32.40
Options granted
i2,562
i45.60
i2,259
i47.66
Options exercised
(i1,223
)
i24.96
(i2,476
)
i22.41
Options forfeited or cancelled
(i142
)
i45.05
(i264
)
i46.07
Options outstanding, end of period
i11,460
$
i40.84
i10,263
$
i37.82
Option price range at end of period
$
i3.04-i54.33
$
i3.04-i54.33
Options exercisable at end of period
i5,599
i4,720
Options available for grant at period end
i2,678
i5,099
Weighted average fair value of options granted during period
$
i14.26
$
i15.34
i
The fair value for options granted has been estimated at the date of grant using a Black-Scholes model, generally with the following weighted average assumptions:
2020
2019
2018
Risk-free interest rate
i1.7
%
i2.5
%
i2.7
%
Dividend yield
i0.0
%
i0.0
%
i0.0
%
Volatility factor
i27.2
%
i26.3
%
i26.1
%
Expected option life
i6.5 years
i6.5 years
i6.5 years
For purposes of the valuation model in fiscal years 2020, 2019, and 2018, the Company used the simplified method due to the lack of historical data upon which to estimate the expected term.
i
The following table summarizes information about the options outstanding as of fiscal 2020:
Range of
Exercise Prices
Number
Outstanding
(in thousands)
Intrinsic Value
of Outstanding
(in millions)
Weighted
Remaining
Contractual Life
Weighted
Exercise Price
Number
Exercisable
(in thousands)
Intrinsic Value
of Exercisable
(in millions)
Unrecognized
Compensation
(in millions)
Weighted
Recognition
Period
$
i3.04-i54.33
i11,460
$
i92
i6.8 years
$
i40.84
i5,599
$
i77
$
i4
i2.1 years
i
12. Segment and Geographic Data
Berry’s operations are organized into ifour reporting segments: Consumer Packaging International, Consumer Packaging North America, Engineered Materials, and Health, Hygiene & Specialties. The structure is designed to align us with our customers, provide improved service, and drive future growth in a cost efficient manner.
49
i
Selected information by reportable segment is presented in the following tables:
2020
2019
2018
Net sales
Consumer Packaging International
$
i4,195
$
i1,229
$
i215
Consumer Packaging North America
i2,850
i2,636
i2,463
Engineered Materials
i2,334
i2,538
i2,633
Health, Hygiene & Specialties
i2,330
i2,475
i2,558
Total
$
i11,709
$
i8,878
$
i7,869
Operating income
Consumer Packaging International
$
i299
$
i12
$
i17
Consumer Packaging North America
i320
i234
i190
Engineered Materials
i317
$
i318
i365
Health, Hygiene & Specialties
i243
i410
i189
Total
$
i1,179
$
i974
$
i761
Depreciation and amortization
Consumer Packaging International
$
i318
$
i93
$
i15
Consumer Packaging North America
i250
i216
i229
Engineered Materials
i105
i116
i108
Health, Hygiene & Specialties
i172
i188
i186
Total
$
i845
$
i613
$
i538
2020
2019
Total assets:
Consumer Packaging International
$
i7,575
$
i7,085
Consumer Packaging North America
i3,716
i4,243
Engineered Materials
i2,006
i1,862
Health, Hygiene & Specialties
i3,404
i3,279
Total assets
$
i16,701
$
i16,469
i
Selected information by geographical region is presented in the following tables:
2020
2019
2018
Net sales:
United States and Canada
$
i6,250
$
i6,293
$
i6,266
Europe
i4,223
i1,637
i759
Rest of world
i1,236
i948
i844
Total net sales
$
i11,709
$
i8,878
$
i7,869
2020
2019
Long-lived assets:
United States and Canada
$
i6,753
$
i7,021
Europe
i3,813
i3,654
Rest of world
i2,318
i2,037
Total long-lived assets
$
i12,884
$
i12,712
50
i
Selected information by product line is presented in the following tables:
(in percentages)
2020
2019
2018
Net sales:
Packaging
i82
%
i84
%
i100
%
Non-packaging
i18
i16
i—
Consumer Packaging International
i100
%
i100
%
i100
%
Rigid Open Top
i45
%
i45
%
i44
%
Rigid Closed Top
i55
i55
i56
Consumer Packaging North America
i100
%
i100
%
i100
%
Core Films
i38
%
i40
%
i41
%
Retail & Industrial
i62
i60
i59
Engineered Materials
i100
%
i100
%
i100
%
Health
i20
%
i15
%
i18
%
Hygiene
i52
i53
i51
Specialties
i28
i32
i31
Health, Hygiene & Specialties
i100
%
i100
%
i100
%
i
13. Net Income per Share
Basic net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. For purposes of this calculation, stock options are considered to be common stock equivalents and are only included in the calculation of diluted net income per share when their effect is dilutive. There were i7
million and i5 million shares excluded from the fiscal 2020 and 2019 diluted net income per share calculation, respectively, as their effect would be anti-dilutive. There were ino
shares excluded from the fiscal 2018 calculation.
i
The following tables and discussion provide a reconciliation of the numerator and denominator of the basic and diluted net income per share computations.
Weighted average common shares outstanding - basic
i132.6
i131.3
i131.4
Dilutive shares
i2.5
i3.3
i3.8
Weighted average common and common equivalent shares outstanding - diluted
i135.1
i134.6
i135.2
Per common share income
Basic
$
i4.22
$
i3.08
$
i3.77
Diluted
$
i4.14
$
i3.00
$
i3.67
51
i
14. Quarterly Financial Data (Unaudited)
i
The following table contains selected unaudited quarterly financial data for fiscal years ended.
2020
2019
First
Second
Third
Fourth
First
Second
Third
Fourth
Net sales
$
i2,816
$
i2,975
$
i2,910
$
i3,008
$
i1,972
$
i1,950
$
i1,937
$
i3,019
Cost of goods sold
i2,296
i2,391
i2,272
i2,342
i1,619
i1,578
i1,551
i2,511
Gross profit
i520
i584
i638
i666
i353
i372
i386
i508
Net income
$
i47
$
i126
$
i191
$
i195
$
i88
$
i74
$
i13
$
i229
Net income per share:
Basic
$
i0.36
$
i0.95
$
i1.44
$
i1.47
$
i0.67
$
i0.57
$
i0.10
$
i1.74
Diluted
$
i0.35
$
i0.94
$
i1.42
$
i1.44
$
i0.66
$
i0.55
$
i0.10
$
i1.69
The fourth fiscal quarter for 2019 includes certain unusual, nonrecurring items related to the acquisition of RPC and divestiture of our SFL business. Refer to Note 2. Acquisitions and Dispositions for further information.
i
15. Subsequent Events
U.S Flexible Packaging Converting Disposition
In October 2020, the Company reached an initial agreement to sell its U.S. flexible packaging converting business which was primarily operated in the Engineered Materials segment for $i140
million, which is preliminary and subject to adjustment at closing. The Company reported fiscal 2020 net sales of approximately $i200 million related to the sold business. For the period ended September
26, 2020, the Company has classified assets of $i162 million and liabilities of $i25
million as held for sale.
Business Reorganization
In October 2020, the Company reorganized portions of its ifour operating segments in order to better align our various businesses for future growth. This reorganization includes the following changes: (1) the Health, Hygiene & Specialties segment will include the Tapes business historically reported in our Engineered Materials segment, (2) the Consumer Packaging International segment will include the North American Healthcare business historically
operated in Consumer Packaging North America segment and (3) the Engineered Materials segment will include the European films business which was historically operated in the Consumer Packaging International segment. We will report results based on our reorganized structure beginning with our results for the first quarter of fiscal 2021.
Co-Operation Agreement, dated as of March 8, 2019, by and among Berry Global Group, Inc., Berry Global International Holdings Limited and RPC Group Plc (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on March 14, 2019).
Indenture, dated as of May 12, 2014, by and among Berry Plastics Corporation, the guarantors party thereto and U.S. Bank National Association, as Trustee, relating to the 5.50% second priority senior secured notes due 2022 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on May 13, 2014).
Indenture, dated as of June 5, 2015, by and among Berry Plastics Corporation, the guarantors party thereto and U.S. Bank National Association, as Trustee, relating to the 5.125% second priority senior secured notes due 2023 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 5, 2015).
Indenture, dated as of October 1, 2015, by and between Berry Plastics Escrow Corporation, as Issuer, and U.S. Bank National Association, as Trustee, relating to the 6.00% second priority senior secured notes due 2022 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 6, 2015).
First Supplemental Indenture, dated as of October 1, 2015, by and between Berry Plastics Corporation, Berry Plastics Group, Inc., the subsidiaries of Berry Plastics Corporation party thereto, Berry Plastics Escrow Corporation, and U.S. Bank National Association, as Trustee, relating to the Indenture, by and between Berry Plastics Escrow Corporation, as Issuer, and U.S. Bank, National Association, as Trustee, relating to the 6.00% second priority senior secured notes due 2022, dated October 1, 2015 (incorporated by reference
to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 6, 2015).
Registration Rights Agreement, dated as of October 1, 2015, by and between Berry Plastics Corporation, Berry Plastics Group, Inc., each subsidiary of Berry Plastics Corporation identified therein, and Goldman, Sachs & Co., and Credit Suisse, on behalf of themselves and as representatives of the initial purchasers, relating to the 6.00% second priority senior secured notes due 2022 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 6, 2015).
Indenture, by and between Berry Global Escrow Corporation and U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 4.875% First Priority Senior Secured Notes due 2026, dated June 5, 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 6, 2019).
Supplemental Indenture, among Berry Global Group, Inc., Berry Global, Inc., Berry Global Escrow Corporation, each of the parties identified as a Subsidiary Guarantor thereon, and U.S. Bank National Association, as Trustee, relating to the 4.875% First Priority Senior Secured Notes due 2026, dated July 1, 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on July 2, 2019).
Indenture, by and between Berry Global Escrow Corporation and U.S. Bank National Association, as Trustee and Collateral Agent, relating to the 5.625% Second Priority Senior Secured Notes due 2027, dated June 5, 2019 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 6, 2019).
Supplemental Indenture, among Berry Global Group, Inc., Berry Global, Inc., Berry Global Escrow Corporation, each of the parties identified as a Subsidiary Guarantor thereon, and U.S. Bank National Association, as Trustee, relating to the 5.625% Second Priority Senior Secured Notes due 2027, dated July 1, 2019 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on July 2, 2019).
Indenture, among Berry Global, Inc., certain guarantors party thereto, U.S. Bank National Association, as Trustee and Collateral Agent, and Elavon Financial Services DAC, as Paying Agent, Transfer Agent and Registrar, relating to the 1.00% First Priority Senior Secured Notes due 2025 and 1.50% First Priority Senior Secured Notes due 2027, dated January 2, 2020 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 2, 2020).
$850,000,000 Third Amended and Restated Revolving Credit Agreement, dated as of May 1, 2019, by and among Berry Global, Inc., Berry Global Group, Inc., the lenders party thereto, Bank of America, N.A., as collateral agent and administrative agent, and the financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 6, 2019).
U.S. $1,200,000,000 Second Amended and Restated Credit Agreement, dated as of April 3, 2007, by and among Berry Plastics Corporation formerly known as Berry Plastics Holding Corporation, Berry Plastics Group, Inc., Credit Suisse, Cayman Islands Branch, as collateral and administrative agent, the lenders party thereto from time to time, and the other financial institutions party thereto (incorporated by reference to Exhibit 10.1(b) to Berry Plastics Corporation’s Current Report on Form 8-K filed on April 10, 2007).
Second Amended and Restated Intercreditor Agreement, dated as of February 5, 2008, by and among Berry Plastics Group, Inc., Berry Plastics Corporation, certain subsidiaries identified as parties thereto, Bank of America, N.A. and Credit Suisse, Cayman Islands Branch as first lien agents, and U.S. Bank National Association, as successor in interest to Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on November 23, 2015).
U.S. $1,147,500,000 and $814,375,000 Incremental Assumption Agreement, dated as of February 10, 2017 by and among Berry Plastics Group, Inc., Berry Plastics Corporation and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term I lender and Citibank, N.A., as incremental term J lender therein. (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K filed on November 21, 2017).
U.S. $1,644,750,000 and $498,750,000 Incremental Assumption Agreement, dated as of August 10, 2017, by and among Berry Plastics Group, Inc., Berry Plastics Corporation and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Wells Fargo Bank, National Association, as initial Term M lender and Wells Fargo Bank, National Association, as initial Term N lender therein (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed on November 21, 2017).
U.S. $900,000,000 and $814,375,000 Incremental Assumption Agreement, dated as of November 27, 2017, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term O Lender, and Citibank, N.A., as initial Term P Lender therein. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on February 7, 2018).
U.S. $ 1,644,750,000 and $496,250,000 Incremental Assumption Agreement and Amendment, dated as of February 12, 2018, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term Q lender, and Citibank, N.A., as initial Term R lender therein (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 3, 2018).
U.S. $800,000,000 and $814,375,000 Incremental Assumption Agreement, dated as of May 16, 2018, by and among Berry Global Group, Inc., Berry Global, Inc. and certain of its subsidiaries referenced therein, Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders under the term loan credit agreement referenced therein, Citibank, N.A., as initial Term S lender, and Citibank, N.A., as initial Term T lender therein (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 3, 2018).
Incremental Assumption Agreement and Amendment, among Berry Global Group, Inc., Berry Global, Inc. and certain subsidiaries of Berry Global, Inc., as Loan Parties, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, Goldman Sachs Bank USA, as Initial Term U Lender, and Goldman Sachs Bank USA, as Initial Term V Lender, dated as of July 1, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 2, 2019).
Incremental Assumption Agreement and Amendment, among Berry Global Group, Inc., Berry Global, Inc. and certain subsidiaries of Berry Global, Inc., as Loan Parties, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, Goldman Sachs Bank USA, as Initial Term U Lender, and Goldman Sachs Bank USA, as Initial Term V Lender, dated as of July 1, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 2, 2019).
Amendment and Waiver to Equipment Lease Agreement, dated as of January 19, 2011, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.16 to AVINTIV Specialty Materials Inc.’s Registration Statement Form S-4 filed on October 25, 2011).
Second Amendment to Equipment Lease Agreement, dated as of October 7, 2011, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.17 to AVINTIV Specialty Materials Inc.’s Registration Statement Form S-4 filed on October 25, 2011).
Third Amendment to Equipment Lease Agreement, dated as of February 28, 2012, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.1 to AVINTIV Specialty Materials Inc.’s Quarterly Report on Form 10-Q filed on May 15, 2012).
Fourth Amendment to Equipment Lease Agreement, dated as of March 22, 2013, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.1 to AVINTIV Specialty Materials Inc.’s Quarterly Report on Form 10-Q filed on May 9, 2013).
Form of 2016 Omnibus Amendment to Awards Granted Under the Berry Plastics Group, Inc. 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 22, 2016).
Omnibus amendment to awards granted under the Berry Plastics Group, Inc., 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K filed on December 11, 2013).
Form of Performance-Based Stock Option Agreement of Berry Plastics Group, Inc. (incorporated by reference to Exhibit 10.9 to Berry Plastics Corporation’s Registration Statement Form S-4 filed on November 2, 2006).
Form of Accreting Stock Option Agreement of Berry Plastics Group, Inc. (incorporated by reference to Exhibit 10.10 to Berry Plastics Corporation’s Registration Statement Form S-4 filed on November 2, 2006).
Form of Time-Based Stock Option Agreement of Berry Plastics Group, Inc. (incorporated by reference to Exhibit 10.11 to Berry Plastics Corporation’s Registration Statement Form S-4 filed on November 2, 2006).
Omnibus amendment to awards granted under the Berry Plastics Group, Inc., 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed on December 11, 2013).
Form of 2016 Omnibus Amendment to Awards Granted Under the Berry Plastics Group, Inc. 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 22, 2016).
Form of 2016 Omnibus Amendment to Awards Granted Under the Berry Plastics Group, Inc. 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on July 22, 2016).
Fourth Amended and Restated Stockholders Agreement, by and among Berry Plastics Group, Inc., and the stockholders of the Corporation listed on schedule A thereto, dated as of January 15, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on January 30, 2015).
Senior Executive Employment Contract dated as of September 30, 2015 by and between PGI Specialty Materials Inc. and Jean Marc Galvez, together with the International Assignment Letter dated December 18, 2016 from Berry Global, Inc. (f/k/a Berry Plastics Corporation) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on February 7, 2018).
Section 1350 Certification of the Chief Financial Officer.
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
Management contract or compensatory plan or arrangement.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd day of November, 2020.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
