bpg10k2014.htm


 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
  
FORM 10-K
  
(Mark One)  
[X]    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the fiscal year ended September 27, 2014  
or    
[  ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  
  
Commission File Number 001-35672  
BERRY PLASTICS GROUP, INC.
(Exact name of registrant as specified in its charter) 
 
Delaware
20-5234618
(State or other jurisdiction  
of incorporation or organization)
 
(IRS employer  
identification number)
101 Oakley Street  
Evansville, Indiana
  
47710
(Address of principal executive offices)
(Zip code)
  
Registrant’s telephone number, including area code:  (812) 424-2904  
  
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share
New York Stock Exchange
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X ]  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[   ]No[X]  
 
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 such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes [X ]  No [  ]  
  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yes [ X]  No [  ]  
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]
 
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):          
      Large accelerated filer [  X  ]           Accelerated filer  [     ]              Non-accelerated filer [    ] Small reporting company [   ] 
  
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[   ]No[X]  
 
The aggregate market value of the common stock of the registrant held by non-affiliates was approximately $2.1 billion as of March 28, 2014, the last business day of the registrant’s most recently completed second fiscal quarter.  The aggregate market value was computed using the $22.46 closing price per share for such stock on the New York Stock Exchange on such date.  The calculation includes shares of the registrant’s common stock held by current executive officers, directors and affiliates whose ownership exceeded 5% as of such date.
 
As of November 24, 2014, there were approximately 118.2 million shares of the registrant’s common stock outstanding. 
 
DOCUMENTS INCORPORATED BY REFERENCE  
  
Portions of Berry Plastics Group, Inc.’s Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.   
 
 
 

 
   
 
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
This Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933  and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events.  The forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations".  You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “would,” “could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,”  “outlook,” “anticipates” or “looking forward” or similar expressions that relate to our strategy, plans or intentions.  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.  We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions.  While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.  All forward-looking statements are based upon information available to us on the date of this Form 10-K. 
 
All forward-looking information and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Some of the factors that we believe could affect our results include: 
 
  risks associated with our substantial indebtedness and debt service; 
  changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices on a timely basis; 
  performance of our business and future operating results; 
  risks related to our acquisition strategy and integration of acquired businesses; 
  reliance on unpatented know-how and trade secrets; 
  increases in the cost of compliance with laws and regulations, including environmental, safety, production and product laws and regulations; 
  risks related to disruptions in the overall economy and the financial markets that may adversely impact our business; 
  catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions; 
●  risks of competition, including foreign competition, in our existing and future markets; 
  general business and economic conditions, particularly an economic downturn; 
  risks that our restructuring programs may entail greater implementation costs or result in lower cost savings than anticipated;
  the ability of our insurance to cover fully our potential exposures; and
●  the other factors discussed in the section titled “Risk Factors.” 
 
We caution readers that the foregoing list of important 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 Form 10-K may not in fact occur.  Accordingly, investors should not place undue reliance on those statements.  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. 
 

 
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TABLE OF CONTENTS  
FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 2014  
 
   
Page
 
PART I
 
 
PART II
 
 
 
 
 
 
 
 
PART III
 
 
 
 
 
 
PART IV
 
 
     
  

 
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Item 1.  BUSINESS
 
(In millions of dollars, except as otherwise noted) 
 
General
 
Berry Plastics Group, Inc. (“Berry” or the “Company”) is a leading provider of value-added plastic consumer packaging and engineered materials with a track record of delivering high-quality customized solutions to our customers.  Representative examples of our products include drink cups, thin-wall containers, bottles, specialty closures, prescription vials, specialty films, adhesives and corrosion protection materials.  We sell our solutions predominantly into consumer-oriented end-markets, such as food and beverage, healthcare and personal care.   
 
We believe that we have created one of the largest product libraries in our industry, allowing us to be a comprehensive solution provider to our customers.  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 brand.  In fiscal 2014, no single customer represented more than approximately 2% of net sales and our top ten customers represented 17% of net sales.  We believe our manufacturing processes and our ability to leverage our scale to reduce expenses on items, such as raw materials, position us as a low-cost manufacturer relative to our competitors.
 
We organize our business into four operating divisions: Rigid Open Top, Rigid Closed Top, (which together make up our Rigid Packaging business), Engineered Materials, and Flexible Packaging.  Additional financial information about our business 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.   
 
Recent Acquisitions
 
Graphic Flexible Packaging LLC’s Flexible Plastics and Films
 
At the beginning of fiscal 2014, the Company acquired Graphic Flexible Packaging LLC’s flexible plastics and films business (“Graphic Plastics”) for a purchase price of $61 million, net of cash acquired.  Graphic Plastics is a producer of wraps, films, pouches, and bags for the food, medical, industrial, personal care, and pet food markets.  The Graphic Plastics business is operated in our Flexible Packaging segment.  To finance the purchase, the Company used existing liquidity.
 
Qingdao P&B Co., Ltd
 
In January 2014, the Company acquired the controlling interest (75%) of Qingdao P&B Co., Ltd (“P&B”) for a purchase price of $35 million, net of cash acquired.  P&B utilizes thermoform, injection, and automated assembly manufacturing processes to produce products for multiple markets across China as well as globally, most predominately serving the food and personal care markets.  P&B is operated in the Flexible Packaging segment.  To finance the purchase, the Company used existing liquidity.
 
Rexam Healthcare Containers and Closures
 
In June 2014, the Company acquired Rexam’s Healthcare Containers and Closures business (“C&C”) for a purchase price of $130 million, net of cash acquired.  The C&C business produces bottles, closures and specialty products for pharmaceutical and over-the-counter applications.  Facilities located in the United States are operated in the Rigid Closed Top segment, and locations outside the United States are operated in the Flexible Packaging segment.  To finance the purchase, the Company used existing liquidity.
 
Recent Developments  
 
2014 Cost Reduction Plan
 
In November 2013, the Company initiated a cost reduction plan designed to deliver approximately $27 million of cost savings and improved equipment utilization. This plan resulted in several plant rationalizations.  As a result of these plant rationalizations the Company has incurred over $55 million of costs during fiscal 2014 associated with facility consolidation, including severance and termination benefits, other costs associated with exiting facilities and non-cash asset impairment charges.
 
 
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Term Loan Refinancing
 
In January 2014, the Company entered into an incremental assumption agreement to increase the commitments under the Company’s existing term loan credit agreement by $1.125 billion.  The Company borrowed loans in an aggregate principal amount equal to the full amount of the commitments on such date. The incremental term loan bears interest at LIBOR plus 2.75% per annum with a LIBOR floor of 1.00%, matures in January 2021 and is subject to customary amortization. The proceeds from the incremental term loan, in addition to existing liquidity, were used to satisfy the outstanding term loan facility that was to mature in April 2015.  The Company recognized a $2 million loss on extinguishment of debt related to this refinancing.
 
5½% Second Priority Senior Secured Notes
 
In May 2014, the Company issued $500 million of 5½% second priority senior secured notes due 2022.  Interest on the 5½% second priority senior secured notes is due semi-annually on May 15 and November 15.  Proceeds from the issuance, in addition to existing liquidity, were used to satisfy and discharge all of the outstanding 9½% second priority senior secured notes.  The Company recognized a $33 million loss on extinguishment of debt related to this debt issuance.
 
Secondary Public Offerings
 
In February 2014, June 2014 and August 2014, certain funds affiliated with Apollo Global Management, LLC (“Apollo”) sold 9 million shares in a secondary public offering for proceeds of $205 million, 10 million shares in a secondary public offering for proceeds of $237 million and 14.7 million shares in a secondary public offering for proceeds of $360 million, respectively.  The Company received no proceeds and incurred fees of approximately $1 million related to these offerings.  Following these offerings, Apollo no longer had any equity ownership in the Company.
 
Interest Rate Swap
 
In March 2014, the Company entered into an interest rate swap transaction to manage cash flow variability associated with $1 billion of outstanding variable rate term loan debt. The agreement swapped the greater of a three-month variable LIBOR contract or 1.00% for a fixed three-year rate of 2.59%, with an effective date in February 2016 and expiration in February 2019.
 
Product Overview 
 
Rigid Packaging 
 
Our Rigid Packaging business primarily consists of containers, foodservice items, closures, overcaps, bottles, prescription containers, and tubes.  The largest end uses for our packages are consumer-oriented end markets such as food and beverage, retail mass marketers, healthcare, personal care and household chemical.  Many of our products are manufactured from proprietary molds that we develop and own, which we believe would result in significant costs to our customers to switch to a different supplier.  In addition to a complete product line, we have sophisticated decorating capabilities and in-house graphic arts and tooling departments, which allow us to integrate ourselves into, and, we believe, add significant value to, our customers’ packaging design processes.  Our primary competitors include Airlite, Letica, Polytainers, Silgan, Aptar Group, and Reynolds.  These competitors individually only compete on certain of our products, whereas we offer the entire selection of rigid products described below. 
 
Containers.  We manufacture a collection of nationally branded container products and also seek to develop customized container products for niche applications by leveraging our state-of-the-art design, decoration and graphic arts capabilities.  We believe this mix allows us to both achieve significant economies of scale, while also maintaining an attractive portfolio of specialty products.  Our container capacities range from four ounces to five gallons and are offered in various styles with accompanying lids, bails and handles, some of which we produce, as well as a wide array of decorating options.  We have long-standing supply relationships with many of the nation’s leading food and consumer products companies.  
 
Foodservice.  We believe that we are one of the largest providers of large size thermoformed polypropylene (“PP”) and injection-molded plastic drink cups in the United States.  We produce plastic cups that range in size from 12 to 64 ounces.  Primary markets for our plastic drink cups are quick service and family dining restaurants, convenience stores, stadiums and retail stores.  Many of our cups are decorated, often as promotional items, and we believe we have a reputation in the industry for innovative, state-of-the-art graphics. 
 
Closures and Overcaps.  We believe we are a leading producer of closures and overcaps across several of our product lines, including continuous-thread and child-resistant closures, as well as aerosol overcaps.  We currently sell our closures into numerous end markets, including household, chemical, healthcare, food/beverage and personal care.  In addition to traditional closures, we are a provider of a wide selection of custom closure solutions including fitments and plugs for medical applications, cups and spouts for liquid laundry detergent, and dropper bulb assemblies for medical and personal care applications.  Further, we believe that we are the leading domestic producer of injection-molded aerosol overcaps.  Our aerosol overcaps are used in a wide variety of consumer goods including spray paints, household and personal care products, insecticides and numerous other commercial and consumer products.  We believe our technical expertise and manufacturing capabilities provide us a low-cost position that has allowed us to become a leading provider of high-quality closures and overcaps to a diverse set of leading companies.  We believe our manufacturing advantage is driven by our position on the forefront of various technologies, including the latest in single- and bi-injection processes, precise reproduction of colors, automation and vision technology and proprietary packing technology that minimizes freight cost and warehouse space.  A majority of our overcaps and closures are manufactured from proprietary molds, which we design, develop, and own.  In addition to these molds, we utilize state-of-the art lining, assembly, and decorating equipment to enhance the value and performance of our products in the market. 
 
 
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Bottles and Prescription Containers.  Our bottle and prescription container businesses target markets similar to our closure business.  We believe, based on management estimates, that we have a leadership position in various food and beverage, vitamin and nutritional markets.  Additionally, we believe we are a leading supplier in the prescription container market, supplying a complete line of amber containers with both one-piece and two-piece child-resistant closures.  We offer an extensive line of stock polyethylene (“PE”) and polyethylene terephthalate (“PET”) bottles for the vitamin and nutritional markets.  Our design capabilities, along with internal engineering strength give us the ability to compete on customized designs to provide desired differentiation from traditional packages.  We also offer our customers decorated bottles with hot stamping, silk screening and labeling.
 
Tubes.  We offer a complete line of extruded and laminate tubes in a wide variety of sizes.  We believe that we are one of the largest suppliers of extruded plastic squeeze tubes in the United States.  Our focus and investments are made to ensure that we are able to meet the increasing trend towards large diameter tubes with high-end decoration.  We have several proprietary designs in this market that combine tube and closure that we believe are viewed as very innovative both in appearance and functionality.  The majority of our tubes are sold in the personal care market, focusing on products like facial/cold creams, shampoos, conditioners, bath/shower gels, lotions, sun care, hair gels, and anti-aging creams.  We also sell our tubes into the pharmaceutical and household chemical markets.  We believe that our ability to provide creative package designs, combined with a complementary line of closures, makes us a preferred supplier for many customers in our target markets. 
 
Engineered Materials 
 
Our Engineered Materials business primarily consists of pipeline corrosion protection solutions, tapes and adhesives, PE-based film products and can liners.  Our primary competitors include AEP, Canusa, Intertape, Sigma and 3M.  The Engineered Materials business primarily includes the following product groups: 
 
 Corrosion Protection Products.  We believe we are a leading global producer of anti-corrosion products to infrastructure, rehabilitation and new pipeline projects throughout the world.  We believe our products deliver superior performance across all climates and terrains for the purpose of sealing, coupling, and rehabilitation and corrosion protection of pipelines.  Products include heat-shrinkable coatings, single- and multi-layer sleeves, pipeline coating tapes, anode systems for cathodic protection, visco-elastic, and epoxy coatings.  These products are used in oil, gas, and water supply and construction applications.  Our customers primarily include contractors managing discrete construction projects around the world as well as distributors and applicators. 
 
Tape Products.  We believe we are a leading North American manufacturer of cloth and foil tape products.  Other tape products include high-quality, high-performance liners of splicing and laminating tapes, flame-retardant tapes, vinyl-coated and carton sealing tapes, electrical, double-faced cloth, masking, mounting, OEM, and medical and specialty tapes.  These products are sold under the NationalTM, Nashua®, and Polyken® brands in the United States.  Tape products are sold primarily through distributors and directly to end users and are used predominantly in industrial, HVAC, automotive, construction, and retail market applications.  In addition to serving our core tape end markets, we believe we are also a leading producer of tapes in the niche aerospace, construction and medical end markets.  We believe that our success in serving these additional markets is principally due to a combination of technical and manufacturing expertise leveraged in favor of customized applications. 
 
Retail Bags.  We manufacture and sell a diversified portfolio of PE-based film products to end users in the retail markets.  These products are sold under leading brands such as Ruffies® and Film-Gard®.  Our products include drop cloths and retail trash bags.  These products are sold primarily through wholesale outlets, hardware stores and home centers, paint stores, and mass merchandisers.
 
PVC Films.  We believe, based on management estimates, that we are a world leader in PVC films offering a broad array of PVC meat film.  Our products are used primarily to wrap fresh meats, poultry, and produce for supermarket applications.  In addition, we offer a line of boxed products for food service and retail sales.  We service many of the leading supermarket chains, club stores, and wholesalers.  We believe we are a leading innovator and specialize in lighter gauge sustainable solutions like our recent Revolution™ product line offering. 
 
 
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Institutional Can Liners.  We sell trash-can liners and food bags for offices, restaurants, schools, hospitals, hotels, municipalities, and manufacturing facilities.  We also sell products under the Big City®, Hospi-Tuff®, Plas-Tuff®, Rhino-X®, and Steel-Flex® brands.
 
Stretch and Shrink Films.  We produce 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 and shrink film products to a diverse mix of end users under the MaxTech®, PalleTech® and OptiMil® brands.
 
Flexible Packaging 
 
Our Flexible Packaging division consists of high barrier, multilayer film products as well as finished flexible packages such as pouches and includes various immaterial international operations.  The largest end uses for our flexible products are consumer-oriented end markets such as food and beverage, medical, and personal care.  Our primary competitors include Printpak, Clopay, Tredegar, and Bemis.  The Flexible Packaging division primarily includes the following product groups: 
 
Personal Care Films.  We believe we are a major supplier of component and packaging films used for personal care hygiene applications predominantly sold in North America and Latin America.  The end use applications include disposable baby diapers, feminine care, adult incontinence, hospital, and tissue and towel products.  Our Lifetime of Solutions™ approach promotes an innovation pipeline that seeks to integrate both product and equipment design into leading edge customer and consumer solutions. 
 
Food and Consumer Films.  We are a converter of printed bags, pouches, and rollstock.  Our manufacturing base includes integrated extrusion that combines with printing, laminating, bagmaking, Innolok®, and laser-score converting processes.  We believe we are a leading supplier of printed film products for the fresh bakery, tortilla, and frozen vegetable markets with brands such as SteamQuick® Film, Freshview™ bags, and Billboard™.  We also manufacture barrier films used for cereal, cookie, cracker and dry mix packages that are sold directly to food manufactures.
 
Converter Films.  We manufacture specialty coated and laminated products for a wide variety of packaging applications as well as a wide range of highly specialized, made-to-order film products ranging from mono layer to coextruded films having up to nine layers, lamination films sold primarily to flexible packaging converters and used for peelable lid stock, stand-up pouches, pillow pouches, and other flexible packaging formats.  The key end markets and applications for our products include healthcare, industrial and military pouches, roll wrap, multi-wall bags, and fiber drum packaging.  We also manufacture films for specialized industrial applications ranging from lamination film for carpet padding to films used in solar panel construction. 
 
International.  We manufacture products predominately serving the global food and personal care markets.  Our manufacturing base includes a variety of technologies used to produce a wide range of products.
 
Marketing and Sales
 
We reach our large and diversified customer base through our direct field sales force of dedicated professionals and the strategic use of distributors.  Our field sales, production and support staff meet with customers to understand their needs and improve our product offerings and services.  Our scale enables us to dedicate certain sales and marketing efforts to particular products, customers or geographic regions, when applicable, which enables us to develop expertise that we believe is valued by our customers.  In addition, because we serve common customers across segments, we have the ability to efficiently utilize our sales and marketing resources to minimize costs.  Highly skilled customer service representatives support the national field sales force.  In addition, inside sales representatives, marketing managers, and sales/marketing executives oversee the marketing and sales efforts.  Manufacturing and engineering personnel work closely with field sales personnel and customer service representatives to satisfy customers’ needs through the production of high-quality, value-added products and on-time deliveries. 
 
We believe that we have differentiated ourselves from competitors by building a reputation for high-quality products, customer service and innovation.  Our sales team monitors customer service in an effort to ensure that we remain the primary supplier for our key accounts.  This strategy requires us to develop and maintain strong relationships with our customers, including end users as well as distributors and converters.  We have a technical sales team with significant knowledge of our products and processes, particularly in specialized products.  This knowledge enables our sales and marketing team to work closely with our research and development organization and our customers to co-develop products and formulations to meet specific performance requirements.  This partnership approach enables us to further expand our relationships with our existing customer base, develop relationships with new customers and increase sales of new products. 
 
 
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Research, Product Development and Design  
 
We believe our technology base and research and development support are among the best in the plastics packaging industry.  Using three-dimensional computer-aided design technologies, our full-time product designers develop innovative product designs and models for the packaging market.  We can simulate the molding environment by running pilot systems for injection-molding, thermoform, compression blow molding machines and blown and cast film machines for research and development of new products.  Production molds are then designed and outsourced for production by various companies with which we have extensive experience and established relationships or built by our in-house tooling division located in Evansville, Indiana.  Our engineers oversee the mold-building process from start to finish.  Many of our customers work in partnership with our technical representatives to develop new, more competitive products.  We have enhanced our relationships with these customers by providing the technical service needed to develop products combined with our internal graphic arts support.  We also utilize our in-house graphic design department to develop color and styles for new rigid products.  Our design professionals work directly with our customers to develop new styles and use computer-generated graphics to enable our customers to visualize the finished product. 
 
Additionally, at our major technical centers, including our design studios in Evansville, Indiana, as well as facilities in Franklin, Kentucky and Chippewa Falls, Wisconsin; we prototype new ideas, conduct research and development of new products and processes, and qualify production systems that go directly to our facilities and into production.  With this combination of manufacturing simulation and quality systems support we are able to improve time to market and reduce cost.  We spent $32 million, $28 million, and $25 million on research and development in fiscal 2014, 2013 and 2012, respectively. 
 
Sources and Availability of Raw Materials
 
The most important raw material purchased by us is plastic resin. Our plastic resin purchasing strategy is to conduct business with only high-quality, dependable suppliers.  We believe that we have maintained strong relationships with our key suppliers and expect that such relationships will continue into the foreseeable future. The resin market is a global market and, based on our experience, we believe that adequate quantities of plastic resins will be available at market prices, but we can provide no assurances as to such availability or the prices thereof.  
 
We also purchase various other materials, including natural and butyl rubber, tackifying resins, chemicals and adhesives, paper and packaging materials, linerboard and foil. These materials are generally available from a number of suppliers.  
 
Employees 
 
At the end of fiscal 2014, we employed over 16,000 employees.  Approximately 11% of our employees are covered by collective bargaining agreements.  One of our eleven agreements, covering approximately 30 employees, was scheduled for renegotiation in October 2014 and was recently extended for three years.  There are an additional five agreements, representing approximately 60% of the remaining employees, due for renegotiation in fiscal 2015.  The remaining agreements expire after fiscal 2015.  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 rely on a combination of patents, trade secrets, unpatented know-how, trademarks, copyrights and other intellectual property rights, nondisclosure agreements and other protective measures to protect our proprietary rights.  While we consider our intellectual property to be important to our business in the aggregate, we do not believe that any individual item of our intellectual property portfolio is material to our current business.  The remaining duration of our patents ranges from one to approximately 20 years.
 
We employ various methods, including confidentiality and non-disclosure agreements with third parties, employees and consultants, to protect our trade secrets and know-how.  We have licensed, and may license in the future, patents, trademarks, trade secrets, and similar proprietary rights to and from third parties. 
 
Environmental Matters and Government Regulation
Our past and present operations and our past and present ownership and operations of real property are subject to extensive and changing federal, state, local, and foreign environmental laws and regulations pertaining to the discharge of materials into the environment, handling and disposition of waste, and cleanup of contaminated soil and ground water, or otherwise relating to the protection of the environment. We believe that we are in substantial compliance with applicable environmental laws and regulations. However, we cannot predict with any certainty that we will not in the future incur liability with respect to noncompliance with environmental laws and regulations, contamination of sites formerly or currently owned or operated by us (including contamination caused by prior owners and operators of such sites) or the off-site disposal of regulated materials, which could be material.
 
 
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We may from time to time be required to conduct remediation of releases of regulated materials at our owned or operated facilities.  None of our pending remediation projects are expected to result in material costs.  Like any manufacturer, we are also subject to the possibility that we may receive notices of potential liability in connection with materials that were sent to third-party recycling, treatment, and/or disposal facilities under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable state statutes, which impose liability for investigation and remediation of contamination without regard to fault or the legality of the conduct that contributed to the contamination, and for damages to natural resources.  Liability under CERCLA is retroactive, and, under certain circumstances, liability for the entire cost of a cleanup can be imposed on any responsible party.  We are not aware that any such notices are currently pending which are expected to result in material costs. 
 
The Food and Drug Administration (“FDA”) regulates the material content of direct-contact food and drug packages, including certain packages we manufacture pursuant to the Federal Food, Drug and Cosmetics Act.  Certain of our products are also regulated by the Consumer Product Safety Commission (“CPSC”) pursuant to various federal laws, including the Consumer Product Safety Act and the Poison Prevention Packaging Act.  Both the FDA and the CPSC can require the manufacturer of defective products to repurchase or recall such products and may also impose fines or penalties on the manufacturer.  Similar laws exist in some states, cities and other countries in which we sell our products.  In addition, laws exist in certain states restricting the sale of packaging with certain levels of heavy metals, imposing fines and penalties for noncompliance.  Although we believe that we use FDA approved resins and pigments in our products that directly contact food and drug products, and we believe our products are in material compliance with all applicable requirements, we remain subject to the risk that our products could be found not to be in compliance with such requirements. 
 
The plastics industry, including us, is subject to existing and potential federal, state, local and foreign legislation designed to reduce solid waste by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled content, various recycling requirements, disposal fees, and limits on the use of plastic products.  In particular, certain states have enacted legislation requiring products packaged in plastic containers to comply with standards intended to encourage recycling and increased use of recycled materials.  In addition, various consumer and special interest groups have lobbied from time to time for the implementation of these and other similar measures.  We believe that the legislation promulgated to date and such initiatives to date have not had a material adverse effect on us.  There can be no assurance that any such future legislative or regulatory efforts or future initiatives would not have a material adverse effect on us. 
 
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 practicable after they have been electronically filed with or furnished to the SEC.  Our internet address is www.berryplastics.com.  The information contained on our website is not being incorporated herein.
 
Item 1A.   RISK FACTORS
 
Our substantial indebtedness could affect our ability to meet our obligations and may otherwise restrict our activities. 
 
We have a significant amount of indebtedness.  As of the end of fiscal 2014, we had total indebtedness (including current portion) of $3,918 million with cash and cash equivalents totaling $129 million.  We would have been able to borrow a further $570 million under the revolving portion of our senior secured credit facilities, subject to the solvency of our lenders to fund their obligations and our borrowing base calculations.  We are permitted by the terms of our debt instruments to incur substantial additional indebtedness, subject to the restrictions therein.  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: 
 
 
 
8

 
In addition, the credit agreements and indentures governing our current indebtedness contain, and any future debt instruments would likely contain, financial and other restrictive covenants, which will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things: 
As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.  Furthermore, a failure to comply with these covenants could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition, and results of operations. 
 
Increases in resin prices or a shortage of available resin could harm our financial condition and results of operations. 
 
To produce our products, we use large quantities of plastic resins.  Plastic resins are subject to price fluctuations, including those arising from supply shortages and changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced.  Over the past several years, we have at times experienced rapidly increasing resin prices.  If rapid increases in resin prices continue, our revenue and profitability may be materially and adversely affected, both in the short term as we attempt to pass through changes in the price of resin to customers under current agreements and in the long term as we negotiate new agreements or if our customers seek product substitution. 
 
We source plastic resin primarily from major industry suppliers and we have long-standing relationships with certain of these suppliers.  We may not be able to arrange for other sources of resin in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types of grades of resin purchased from one or more of our suppliers.  In addition, the largest supplier of the Company’s total resin material requirements represented approximately 22% of purchases during fiscal 2014.  Any such shortage may materially negatively impact our competitive position versus companies that are able to better or more cheaply source resin. 
 
We may not be able to compete successfully and our customers may not continue to purchase our products. 
 
We face intense competition in the sale of our products and compete with multiple companies in each of our product lines.  We compete 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 metal, glass, paper and other packaging materials as well as plastic packaging materials made through different manufacturing processes.  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.  In addition, our success may depend on our ability to adapt to technological changes, and if we fail to enhance existing products and develop and introduce new products and new production technologies in a timely fashion in response to changing market conditions and customer demands, our competitive position could be materially and adversely affected.  Furthermore, some of our customers do and could in the future choose to manufacture the products they require for themselves.  Each of our product lines faces a different competitive landscape.  Competition could result in our products losing market share or our having to reduce our prices, either of which would have a material adverse effect on our business and results of operations and financial condition.  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. 
 
We may pursue and execute acquisitions, which could adversely affect our business. 
 
As part of our growth strategy, we plan to consider the acquisition of other companies, assets and product lines that either complement or expand our existing business and create economic value.  We cannot assure you that we will be able to consummate any such transactions or that any future acquisitions will be consummated at acceptable prices and terms. 
 
We continually evaluate potential acquisition opportunities in the ordinary course of business, including those that could be material in size and scope.  Acquisitions involve a number of special risks, including: 
 
 
9

 
 
We may become responsible for unexpected liabilities that we failed or were unable to discover in the course of performing due diligence in connection with historical acquisitions and any future acquisitions.  We have typically required selling stockholders to indemnify us against certain undisclosed liabilities.  However, we cannot assure you that indemnification rights we have obtained, or will in the future obtain, will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired.  Any of these liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations. 
 
In addition, we may not be able to successfully integrate future acquisitions without substantial costs, delays or other problems.  The costs of such integration could have a material adverse effect on our operating results and financial condition.  Although we conduct what we believe to be a prudent level of investigation regarding the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses.  Until we actually assume operating control of such businesses and their assets and operations, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired entities and their operations.  Furthermore, we may not realize all of the cost savings and synergies we expect to achieve from our current strategic initiatives due to a variety of risks, including, but not limited to, difficulties in integrating shared services with our business, higher than expected employee severance or retention costs, higher than expected overhead expenses, delays in the anticipated timing of activities related to our cost-saving plans and other unexpected costs associated with operating our business.  If we are unable to achieve the cost savings or synergies that we expect to achieve from our strategic initiatives, it could adversely affect our business, financial condition and results of operations. 
 
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 confidentiality 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.  Additionally, we have licensed, and may license in the future, patents, trademarks, trade secrets, and similar proprietary rights to third parties.  While we attempt to ensure that our intellectual property and similar proprietary rights are protected when entering into business relationships, third parties may take actions that could materially and adversely affect our rights or the value of our intellectual property, similar proprietary rights or reputation.  In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights, and, if not successful, we may not be able to protect the value of our intellectual property.  Any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome. 
 
Our success depends in part on our ability to obtain, or license from third parties, patents, trademarks, trade secrets and similar proprietary rights without infringing on the proprietary rights of third parties.  Although we believe our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products may infringe on the intellectual property rights of such persons.  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 have a material adverse effect on 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. 
 
 
10

 
Our operations are subject to federal, state, local, and foreign environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water, establish standards for the treatment, storage and disposal of solid and hazardous waste and require cleanup of contaminated sites.  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 with any certainty 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.  We have limited insurance coverage for potential environmental liabilities associated with historic and current operations and we do not anticipate increasing such coverage in the future.  We may also assume significant environmental liabilities in connection with acquisitions.  In addition, federal, state, local, and foreign governments could enact laws or regulations concerning environmental matters 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 in the U.S. Congress, state legislatures, and other legislative bodies.  While container legislation has been adopted in a few jurisdictions, similar legislation has been defeated in public referenda in several states, local elections and many state and local legislative sessions.  Although we believe that the 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 have a negative effect on our business. 
 
The FDA, regulates the material content of direct-contact food and drug packages we manufacture pursuant to the Federal Food, Drug and Cosmetic Act.  Furthermore, some of our products are regulated by the CPSC, pursuant to various federal laws, including the Consumer Product Safety Act and the Poison Prevention Packaging Act.  Both the FDA and the CPSC can require the manufacturer of defective products to repurchase or recall these products and may also impose fines or penalties on the manufacturer.  Similar laws exist in some states, cities and other countries in which we sell products.  In addition, laws exist in certain states restricting the sale of packaging with certain levels of heavy metals and imposing fines and penalties for noncompliance.  Although we use FDA-approved resins and pigments in our products that directly contact food and drug products and we believe our products are in material compliance with all applicable requirements, we remain subject to the risk that our products could be found not to be in compliance with these and other requirements.  A recall of any of our products or any fines and penalties imposed in connection with noncompliance could have a materially adverse effect on us.  See “Business—Environmental Matters and Government Regulation.” 
 
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 or otherwise, whether short or long-term, could have a material adverse effect on us. 
 
We depend on information technology systems and infrastructure to operate our business, system inadequacies or failures could harm our business. 
 
We rely on the efficient and uninterrupted operation of complex information technology systems and networks.  These systems and networks are potentially vulnerable to damage or interruption from a variety of sources, including energy or telecommunications failures, breakdowns, natural disasters, terrorism, war, computer malware or other malicious intrusions, and random attacks.  To date, system interruptions have been infrequent and have not had a material impact on the business.  However, there can be no assurance that these efforts will prevent future interruptions that would have a material adverse effect on our business
 
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. 
 
As of the end of our 2014 fiscal year, the net value of our goodwill and other intangibles was $2,471 million.  We are required to evaluate goodwill reflected on our balance sheet when circumstances indicate a potential impairment, or at least annually, under the impairment testing guidelines outlined in the standard.  Future changes in the cost of capital, expected cash flows, or other factors may cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write off goodwill for the amount of impairment.  If a future write-off is required, the charge could have a material adverse effect on our reported results of operations and net worth in the period of any such write-off. 
 
 
11

 
Disruptions in the overall economy and the financial markets may adversely impact our business. 
 
Our industry is affected by macroeconomic factors, including national, regional, and local economic conditions, employment levels, and shifts in consumer spending patterns.  Disruptions in the overall economy and volatility in the financial markets could reduce consumer confidence in the economy, negatively affecting consumer spending, which could be harmful to our financial position and results of operations.  In such event, decreased cash flow generated from our business may adversely affect our financial position and our ability to fund our operations.  In addition, major macroeconomic disruptions involving the financial markets could adversely affect our ability to access the credit markets and availability of financing for our operations.  
 
We had net losses in recent years and we may not be profitable in the future.  
 
We generated net income in three of our last five fiscal years; however, in the other two fiscal years, we incurred net losses of over $100 million per year. We may not generate net income from operations in the future, and continuing net losses may limit our ability to execute our strategy.  Factors contributing to our financial performance include non-cash impairment charges, depreciation/amortization on our long lived tangible and intangible assets, interest expense on our debt obligations as well as other factors more fully disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 
 
We are a holding company and rely on dividends and other payments, advances and transfers of funds from our subsidiaries to meet our obligations and pay dividends.  
 
Berry Plastics Group, Inc. has no direct operations and no significant assets other than ownership of 100% of the stock of Berry Plastics Corporation. Because Berry Plastics Group, Inc. conducts its operations through its subsidiaries, it depends on those entities for dividends and other payments to generate the funds necessary to meet its financial obligations, and to pay any dividends with respect to our common stock. Legal and contractual restrictions in the agreements governing current and future indebtedness of Berry Plastics Group, Inc.’s subsidiaries, as well as the financial condition and operating requirements of Berry Plastics Group, Inc.’s subsidiaries, may limit Berry Plastics Group, Inc.’s ability to obtain cash from its subsidiaries. The earnings from, or other available assets of, Berry Plastics Group, Inc.’s subsidiaries may not be sufficient to pay dividends or make distributions or loans to enable Berry Plastics Group, Inc. to pay dividends going forward. 
 
The requirements of having a class of publicly traded equity securities may strain our resources and distract management.
 
As a company with publicly traded equity securities, we are subject to additional reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act and the Sarbanes-Oxley Act of 2002, which we refer to as the “Sarbanes-Oxley Act.”  The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting.  Our independent public accountants auditing our financial statements are required to attest to the effectiveness of our internal control over financial reporting.  In order to continue to maintain the effectiveness of our disclosure controls and procedures and internal control over financial reporting significant resources and management oversight is required.
 
In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which we refer to as “Dodd-Frank” and which amended the Sarbanes-Oxley Act and other federal laws, has created uncertainty for public companies, and we cannot predict with any certainty the requirements of the regulations that will ultimately be adopted under Dodd-Frank or how such regulations will affect the cost of compliance for a company with publicly traded common stock.  There is likely to be continuing uncertainty regarding compliance matters because the application of these laws and regulations, which are subject to varying interpretations, may evolve over time as new guidance is provided by regulatory and governing bodies.  We intend to invest resources to comply with these evolving laws and regulations, which will result in increased general and administrative expenses and divert management’s time and attention from other business concerns.  Furthermore, if our compliance efforts differ from the activities that regulatory and governing bodies expect or intend due to ambiguities related to interpretation or practice, we may face legal proceedings initiated by such regulatory or governing bodies and our business may be harmed.  In addition, new rules and regulations may make it more difficult for us to attract and retain qualified directors and officers and will make it more expensive for us to obtain director and officer liability insurance.
 
Our international sales and operations are subject to applicable laws relating to trade, export controls, and foreign corrupt practices, the violation of which could adversely affect our operations.
 
We must comply with all applicable international trade, export and import laws and regulations of the United States and other countries. We are subject to export controls and economic sanctions laws and embargoes imposed by the U.S. Government. Changes in trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs. We are also subject to the Foreign Corrupt Practices Act and other anti-bribery laws that generally bar bribes or unreasonable gifts to foreign governments or officials. We have implemented safeguards and policies to discourage these practices by our employees and agents. However, our existing safeguards 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.
 
 
 
12

 
We may not be able to achieve cost savings as a result of our restructuring efforts and productivity and cost reduction initiatives.
 
From time to time we enter into cost reduction plans designed to deliver cost savings and improve equipment utilization. Our ability to achieve the anticipated cost savings and other benefits from these initiatives within the expected time frame is subject to many estimates and assumptions. Additionally, there are many factors which affect our ability to achieve savings as a result of productivity and cost reduction initiatives, such as difficult economic conditions, increased costs in other areas, the effects of and costs related to newly acquired entities, mistaken assumptions, and the other risk factors set forth herein. In addition, any actual savings may be balanced by incremental costs that were not foreseen at the time of the restructuring or cost reduction initiatives. As a result, anticipated savings may not be achieved on the timetable desired or at all. Additionally, while we execute these restructuring activities to achieve these savings, it is possible that our attention may be diverted from our ongoing operations which may have a negative impact on our ongoing operations.
 
Item 1B.   UNRESOLVED STAFF COMMENTS 
 
None 
 
Item 2.  PROPERTIES
 
We lease or own our principal offices and manufacturing facilities.  We believe that our property and equipment is well-maintained, in good operating condition and adequate for our present needs.  As of the end of fiscal 2014, the locations of our principal manufacturing facilities, by country, are as follows:  United States—77 locations (44 Rigid Packaging, 18 Engineered Materials, 15 Flexible Packaging); Canada—4 locations (1 Rigid Packaging, 2 Engineered Materials, 1 Flexible Packaging); Mexico—6 locations (3 Rigid Packaging, 2 Engineered Materials, 1 Flexible Packaging); India—2 locations (1 Engineered Materials, 1 Flexible Packaging), The Netherlands, Belgium, Germany and Australia (Engineered Materials); Brazil, Malaysia, and Singapore (Rigid Packaging); and China and France (Flexible Packaging).  The Evansville, Indiana facility serves as our world headquarters. 
 
We lease our facilities in the following locations:  Evansville, Indiana; Louisville, Kentucky; Lawrence, Kansas; Peosta, Iowa; Phoenix, Arizona; Quad Cities, Iowa; Phillipsburg, New Jersey; Bloomington, Indiana; Bowling Green, Kentucky; Syracuse, New York; Jackson, Tennessee; Danville, Kentucky; Pewaukee, Wisconsin; Des Moines, Iowa; Milwaukee, Wisconsin; Schaumburg, Illinois; Anaheim, California; Aurora, Illinois; Cranbury, New Jersey; Lathrop, California; Hanover, Maryland; Tacoma, Washington; Baltimore, Maryland; Atlanta, Georgia; Mexico City, Mexico; Dunkirk, New York; Goshen, Indiana; Westerlo, Belgium; Johor, India; Tlalnepantla, Mexico; Washington, New Jersey and Orillia, Canada. 
 
Item 3.  LEGAL PROCEEDINGS
 
We are 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. 
PART II
 
Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER 
 
Our common stock is listed on the New York Stock Exchange under the symbol “BERY”.  The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock reported on the New York Stock Exchange.
 
 
 
13

 
 
 
   
Fiscal 2014
   
Fiscal 2013
 
   
High
   
Low
   
High
   
Low
 
1st quarter (a) 
  $ 23.57     $ 18.12     $ 16.01     $ 13.48  
2nd quarter
    24.75       21.88       19.77       16.08  
3rd quarter
    25.84       22.13       24.15       17.02  
4th quarter
    26.21       23.80       24.99       19.71  
(a) Company began trading on the New York Stock Exchange on October 4, 2012
 
 
As of the date of this filing there were approximately 129 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 2013 and 2014 we did not declare or pay any cash dividends on our common stock. Any future determination as to the declaration and payment of dividends, if any, will depend on then existing conditions, contractual requirements and other factors our board of directors may deem relevant.  The terms of our senior secured credit facilities and the indentures governing our notes may restrict our ability to pay cash dividends on our common stock.  Our debt instruments contain covenants that restrict our ability to pay dividends on our common stock, as well as the ability of our subsidiaries to pay dividends to us.
 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
There were no shares of our common stock repurchased during fiscal 2014.
 
 Item 6.  SELECTED FINANCIAL DATA
 
   
Fiscal 2014
   
Fiscal 2013
   
Fiscal 2012
   
Fiscal 2011
   
Fiscal 2010
 
Statement of Operations Data:
                             
Net sales
  $ 4,958     $ 4,647     $ 4,766     $ 4,561     $ 4,257  
Cost of goods sold
    4,190       3,835       3,984       3,908       3,705  
Selling, general and administrative
    320       307       317       284       280  
Amortization of intangibles
    102       105       109       106       107  
Restructuring and impairment charges (a)
    30       14       31       221       41  
Operating income
    316       386       325       42       124  
                                         
Debt extinguishment
    35       64             68        
Other income, net
    (7 )     (7 )     (7 )     (7 )     (27 )
                                         
                                         
Interest expense, net
    221       244       328       327       313  
Income (loss) before income taxes
    67       85       4       (346 )     (162 )
Income tax expense (benefit)
    4       28       2       (47 )     (49 )
Consolidated net income (loss)
    63       57       2       (299 )     (113 )
Net income attributable to non-controlling interest
    1                          
Net income (loss) attributable to the Company
  $ 62     $ 57     $ 2     $ (299 )   $ (113 )
Comprehensive income (loss)
  $ 37     $ 86     $ 3     $ (324 )   $ (112 )
Net income (loss) available to Common Stockholders:
                                       
Basic
  $ 0.53     $ 0.50     $ 0.02     $ (3.55 )   $ (1.34 )
Diluted
    0.51       0.48       0.02       (3.55 )     (1.34 )
Balance Sheet Data (at period end):
                                       
Cash and cash equivalents
  $ 129     $ 142     $ 87     $ 42     $ 148  
Property, plant and equipment, net
    1,364       1,266       1,216       1,250       1,146  
Total assets
    5,268       5,135       5,106       5,217       5,344  
Long-term debt obligations, less current portion
    3,860       3,875       4,431       4,581       4,397  
Total liabilities
    5,369       5,331       5,558       5,668       5,474  
Stockholders’ equity (deficit)
    (114 )     (196 )     (475 )     (467 )     (141 )
Cash Flow and other Financial Data:
                                       
Net cash from operating activities
  $ 530     $ 464     $ 479     $ 327     $ 112  
Net cash from investing activities
    (422 )     (245 )     (255 )     (523 )     (852 )
Net cash from financing activities
    (119 )     (164 )     (179 )     90       878  
 
    (a)  Includes a goodwill impairment charge of $165 million in fiscal 2011
 
 
 
14

 
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion in conjunction with the consolidated financial statements of Berry Plastics Group, Inc. and its subsidiaries and the accompanying notes thereto, which information is included elsewhere herein.  This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section.  Our actual results may differ materially from those contained in any forward-looking statements. 
 
Overview 
 
Berry Plastics Group, Inc. (“Berry” or the “Company”) is a leading provider of value-added plastic consumer packaging and engineered materials with a track record of delivering high-quality customized solutions to our customers.  Representative examples of our products include drink cups, thin-wall containers, bottles, specialty closures, prescription vials, specialty films, adhesives and corrosion protection materials.  We sell our solutions predominantly into consumer-oriented end-markets, such as food and beverage, healthcare and personal care.   
 
We believe that we have created one of the largest product libraries in our industry, allowing us to be a comprehensive solution provider to our customers.  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 allow us to introduce new products we develop or acquire to a vast audience that is familiar with, and we believe partial to, our brand.  In fiscal 2014, no single customer represented more than approximately 2% of net sales and our top ten customers represented 17% of net sales.  We believe our manufacturing processes and our ability to leverage our scale to reduce expenses on items, such as raw materials, position us as a low-cost manufacturer relative to our competitors.  For example, we believe based on management estimates that we are one of the largest global purchasers of plastic resins which gives us scaled purchasing savings. 
 
 Executive Summary 
 
Business.  We operate in the following four segments: Rigid Open Top, Rigid Closed Top (together our Rigid Packaging business), Engineered Materials, and Flexible Packaging.  The Rigid Packaging business sells primarily containers, foodservice items, closures, overcaps, bottles, prescription containers, and tubes.  Our Engineered Materials segment primarily sells pipeline corrosion protection solutions, tapes and adhesives, PE-based film products and can liners.  The Flexible Packaging segment primarily sells high barrier, multilayer film products as well as finished flexible packages such as printed pouches.
 
Raw Material Trends.  Our primary raw material is plastic resin.  Polypropylene and polyethylene account for approximately 90% of our plastic resin purchases based on the pounds purchased.  Plastic resins are subject to price fluctuations, including those arising from supply shortages and changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced.  The average industry prices, as published in Chem Data, per pound were as follows by fiscal year:
 
   
Polyethylene Butene Film
   
Polypropylene
 
   
2014
   
2013
   
2012
   
2014
   
2013
   
2012
 
1st quarter
  $ .82     $ .69     $ .68     $ .89     $ .76     $ .79  
2nd quarter
    .85       .74       .76       .95       .96       .88  
3rd quarter
    .86       .77       .72       .91       .84       .85  
4th quarter
    .87       .79       .68       .92       .89       .71  
 
Due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs, segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted when plastic resin costs decrease.  This timing lag in passing through raw material cost changes could affect our results as plastic resin costs fluctuate. 
 
Outlook.  The Company is impacted 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 cost changes to our customers, improve manufacturing productivity and adapt to volume changes of our customers.  We seek to improve our overall profitability by implementing cost reduction programs associated with our manufacturing, selling and general and administrative expenses.
 
 
 
15

 
Recent Developments
 
 
2014 Cost Reduction Plan
 
In November 2013, the Company initiated a cost reduction plan designed to deliver approximately $27 million of cost savings and improved equipment utilization. This plan resulted in several plant rationalizations.  As a result of these plant rationalizations the Company has incurred over $55 million of costs during fiscal 2014 associated with facility consolidation, including severance and termination benefits, other costs associated with exiting facilities and non-cash asset impairment charges.
 
Term Loan Refinancing
 
In January 2014, the Company entered into an incremental assumption agreement to increase the commitments under the Company’s existing term loan credit agreement by $1.125 billion.  The Company borrowed loans in an aggregate principal amount equal to the full amount of the commitments on such date. The incremental term loan bears interest at LIBOR plus 2.75% per annum with a LIBOR floor of 1.00%, matures in January 2021 and is subject to customary amortization. The proceeds from the incremental term loan, in addition to existing liquidity, were used to satisfy the outstanding term loan facility that was to mature in April 2015.  The Company recognized a $2 million loss on extinguishment of debt related to this refinancing.
 
5½% Second Priority Senior Secured Notes
 
In May 2014, the Company issued $500 million of 5½% second priority senior secured notes due 2022.  Interest on the 5½% second priority senior secured notes is due semi-annually on May 15 and November 15.  Proceeds from the issuance, in addition to existing liquidity, were used to satisfy and discharge all of the outstanding 9½% second priority senior secured notes.  The Company recognized a $33 million loss on extinguishment of debt related to this debt issuance.
 
Secondary Public Offerings
 
In February 2014, June 2014 and August 2014, certain funds affiliated with Apollo Global Management, LLC (“Apollo”) sold 9 million shares in a secondary public offering for proceeds of $205 million, 10 million shares in a secondary public offering for proceeds of $237 million and 14.7 million shares in a secondary public offering for proceeds of $360 million, respectively.  The Company received no proceeds and incurred fees of approximately $1 million related to these offerings.  Following these offerings, Apollo no longer had any equity ownership in the Company.
 
Interest Rate Swap
 
In March 2014, the Company entered into an interest rate swap transaction to manage cash flow variability associated with $1 billion of outstanding variable rate term loan debt. The agreement swapped the greater of a three-month variable LIBOR contract or 1.00% for a fixed three-year rate of 2.59%, with an effective date in February 2016 and expiration in February 2019.
 
Recent Acquisitions
 
We have a long history of acquiring and integrating companies.  We maintain an opportunistic acquisition strategy, which is focused on improving our long-term financial performance, enhancing our market positions and expanding our product lines or, in some cases, providing us with a new or complementary product line.  In our acquisitions, 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. 
 
The Company has included the expected benefits of acquisition integrations within our unrealized synergies, which are in turn recognized in earnings after an acquisition has been fully integrated.  While the expected benefits on earnings is 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 have not allowed us to accurately separate realized synergies compared to what was initially identified, we measure the synergy realization based on the overall segment profitability post integration.  In connection with our acquisitions, we have in the past and may in the future incur charges related to reductions and rationalizations. 
 
We also include the expected impact of our restructuring plans within our unrealized synergies, which are in turn recognized in earnings after the restructuring plans are completed.  While the expected benefits on earnings is estimated at the commencement of each plan, due to the nature of the matters we are generally unable to accurately estimate or track what the ultimate effects have been due to movements of activities to multiple facilities. 
 
 
16

 
Graphic Flexible Packaging LLC’s Flexible Plastics and Films
 
In September 2013, the Company acquired Graphic Flexible Packaging LLC’s flexible plastics and films business (“Graphic Plastics”) for a purchase price of $61 million, net of cash acquired.  Graphic Plastics is a producer of wraps, films, pouches, and bags for the food, medical, industrial, personal care, and pet food markets.  The Graphic Plastics business is operated in the Flexible Packaging segment.  To finance the purchase, the Company used existing liquidity.
 
Qingdao P&B Co., Ltd
 
In January 2014, the Company acquired the controlling interest (75%) of Qingdao P&B Co., Ltd (“P&B”) for a purchase price of $35 million, net of cash acquired.  P&B utilizes thermoform, injection, and automated assembly manufacturing processes to produce products for multiple markets across China as well as globally, most predominately serving the food and personal care markets.  P&B is operated in the Flexible Packaging segment.  To finance the purchase, the Company used existing liquidity.
 
Rexam Healthcare Containers and Closures
 
In June 2014, the Company acquired Rexam’s Healthcare Containers and Closures business (“C&C”) for a purchase price of $130 million, net of cash acquired.  The C&C business produces bottles, closures and specialty products for pharmaceutical and over-the-counter applications.  Facilities located in the United States are operated in the Rigid Closed Top segment, and locations outside the United States are operated in the Flexible Packaging segment.  To finance the purchase, the Company used existing liquidity.
 
Discussion of Results of Operations for Fiscal 2014 Compared to Fiscal 2013  
 
Net Sales.  Net sales increased from $4,647 million in fiscal 2013 to $4,958 million in fiscal 2014.  This increase is primarily attributed to net sales from businesses acquired in the last twelve months of 4% and selling price increases of 4% due to higher resin prices shown above partially offset by volume declines.  The following discussion in this section provides a comparison of net sales by business segment.
 
   
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Net sales:
                       
Rigid Open Top
  $ 1,110     $ 1,127     $ (17 )     (2 %)
Rigid Closed Top
    1,469       1,387       82       6 %
Rigid Packaging
  $ 2,579     $ 2,514     $ 65       3 %
Engineered Materials
    1,455       1,397       58       4 %
Flexible Packaging
    924       736       188       26 %
Total net sales
  $ 4,958     $ 4,647     $ 311       7 %
 
Net sales in the Rigid Open Top segment decreased from $1,127 million in fiscal 2013 to $1,110 million in fiscal 2014 due to base volume declines of 5% and product realignment of 1% partially offset by net selling price increases of 4%.  The volume decline was primarily attributed to softness in thermoformed drink cups and container product offerings.  Net sales in the Rigid Closed Top segment increased from $1,387 million in fiscal 2013 to $1,469 million in fiscal 2014 as a result of net selling price increases of 2% and C&C acquisition volume of 4%.  The Engineered Materials segment net sales increased from $1,397 million in fiscal 2013 to $1,455 million in fiscal 2014 as a result of net selling price increases of 4% and base volume growth of 1% partially offset by exited business of 1%.  The Flexible Packaging segment net sales increased from $736 million in fiscal 2013 to $924 million in fiscal 2014 as a result of businesses acquired in the last twelve months of 22%, product realignment of 1% and net selling price increases of 5% partially offset by a 2% volume decline attributed to soft customer demand.
 
Operating Income.  Operating income decreased from $386 million (8% of net sales) in fiscal 2013 to $316 million (6% of net sales) in fiscal 2014.  This decrease is primarily attributed to $57 million increase in business integration expense, $27 million of raw material and freight cost inflation in excess of net selling price increases, $19 million from base volume declines described above and a $2 million increase in depreciation and amortization expense partially offset by $7 million benefit from businesses acquired in the last twelve months, $8 million decline in selling, general and administrative expenses and a $20 million improvement in manufacturing efficiencies.  The following discussion in this section provides a comparison of operating income by business segment.
 
 
 
17

 
 
 
   
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Operating income:
                       
Rigid Open Top
  $ 34     $ 123     $ (89 )     (72 %)
Rigid Closed Top
    132       130       2       2 %
Rigid Packaging
  $ 166     $ 253     $ (87 )     (34 %)
Engineered Materials
    125       116       9       8 %
Flexible Packaging
    25       17       8       47 %
Total operating income
  $ 316     $ 386     $ (70 )     (18 %)
 
Operating income for the Rigid Open Top segment decreased from $123 million (11% of net sales) in fiscal 2013 to $34 million (3% of net sales) in fiscal 2014.  This decrease is primarily attributed to $18 million from base volume declines, $10 million decline in operating performance in manufacturing, $48 million increase in business integration expense, $1 million increase in selling, general and administrative expenses and a $12 million decline in the relationship of net selling price to raw material and freight costs.  Operating income for the Rigid Closed Top segment increased from $130 million (9% of net sales) in fiscal 2013 to $132 million (9% of net sales) in fiscal 2014.  The increase is attributed to a $6 million decline in the relationship of net selling price to raw material costs, $1 million attributed to negative product mix, $3 million increase in business integration expenses and $1 million loss from businesses acquired in the last twelve months offset by $1 million decrease in depreciation and amortization, a $7 million improvement in operating performance in manufacturing and a $5 million improvement in selling, general and administrative expenses.  Operating income for the Engineered Materials segment increased from $116 million (8% of net sales) in fiscal 2013 to $125 million (9% of net sales) in fiscal 2014.  This increase is primarily attributed to a $19 million improvement in manufacturing operating performance, $7 million decline in restructuring and business integration expenses and a $4 million decline in selling, general and administrative expenses partially offset by $14 million of raw material cost inflation in excess of net selling prices, $2 million from exited business and a $5 million increase in depreciation and amortization expense.  Operating income for the Flexible Packaging segment increased from $17 million (2% of net sales) in fiscal 2013 to $25 million (3% of net sales) in fiscal 2014.  This increase is primarily attributed to $10 million benefit from businesses acquired in the last twelve months, $5 million gain in the relationship of net selling price to raw material costs, $4 million improvement in operating performance in manufacturing and a $2 million decline in depreciation and amortization expense partially offset by $13 million increase in business integration expense.
 
Debt Extinguishment. Debt extinguishment decreased from $64 million in fiscal 2013 to $35 million in fiscal 2014.  The decrease is primarily attributed to the various debt extinguishment costs that resulted from our incremental term loan restructuring and use of the proceeds from our initial public offering in fiscal 2013 compared to the debt extinguishment costs related to the discharge of the outstanding 9½% second priority senior secured notes in fiscal 2014.
 
Other Income.  Other income remained flat at $7 million in fiscal 2013 and fiscal 2014 primarily due to the change in the fair value of derivative instruments in fiscal 2013 offset by gains recognized on asset disposals and an adjustment to the tax receivable agreement obligation in fiscal 2014.
 
 Interest Expense.  Interest expense decreased from $244 million in fiscal 2013 to $221 million in fiscal 2014 primarily as the result of the various debt extinguishments and refinancings completed in the last twenty four months.
 
Income Tax Expense.  We recorded an income tax expense of $4 million in fiscal 2014, compared to $28 million in fiscal 2013.  The effective tax rate is impacted by the relative impact of discrete items and certain international entities for which a full valuation allowance is recognized and $20 million of federal and state research and development tax credits recognized in fiscal 2014.
 
Discussion of Results of Operations for Fiscal 2013 Compared to Fiscal 2012  
 
Net Sales.  Net sales decreased from $4,766 million in fiscal 2012 to $4,647 million in fiscal 2013.  This decrease is primarily attributed to lower selling prices of 1% and a volume decline of 2% related to soft customer demand, year-over-year adverse change in weather and reductions in raw material content partially offset by acquisition volume related to Stopaq and Prime Label and volume gains in certain of our product lines.  The following discussion in this section provides a comparison of net sales by business segment.
 
 
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Fiscal Year
             
   
2013
   
2012
   
$ Change
   
% Change
 
Net sales:
                       
Rigid Open Top
  $ 1,127     $ 1,229     $ (102 )     (8 %)
Rigid Closed Top
    1,387       1,438       (51 )     (4 %)
Rigid Packaging
  $ 2,514     $ 2,667     $ (153 )     (6 %)
Engineered Materials
    1,397       1,362       35       3 %
Flexible Packaging
    736       737       (1 )      
Total net sales
  $ 4,647     $ 4,766     $ (119 )     (2 %)
 
Net sales in the Rigid Open Top business decreased from $1,229 million in fiscal 2012 to $1,127 million in fiscal 2013 as a result of net selling price decreases of 3%, a volume decline of 2% and product realignment of 3%.  The volume decline is primarily related to soft customer demand and year-over-year adverse change in weather.  Net sales in the Rigid Closed Top business decreased from $1,438 million in fiscal 2012 to $1,387 million in fiscal 2013 as a result of net selling price decreases of 2% and a volume decline of 2%.  The volume decline is primarily attributed to general market softness and a reduction in raw material content.  The Engineered Materials business net sales increased from $1,362 million in fiscal 2012 to $1,397 million in fiscal 2013.  Product realignment of 3%, net selling price increases of 1% and acquisition volume related to Stopaq were partially offset by 2% volume declines attributed to soft customer demand.  Net sales in the Flexible Packaging business decreased from $737 million in fiscal 2012 to $736 million in fiscal 2013 as a result of a 2% volume decline attributed to factors discussed above partially offset by acquisition volume related to our Prime Label acquisition.
 
Operating Income.  Operating income increased from $325 million (7% of net sales) in fiscal 2012 to $386 million (8% of net sales) in fiscal 2013.  This increase is primarily attributed to $5 million from the relationship of net selling price to raw material costs, $12 million decrease in depreciation expense excluding the impact from acquisitions, $8 million decrease in amortization expense excluding the impact from acquisitions, $8 million decrease in selling, general and administrative expenses, $30 million decrease in business integration, $3 million from acquisitions and a $11 million decrease in non-cash impairment charges related to exited businesses partially offset by $1 million decline in operating performance in manufacturing and $15 million from sales volume declines described above.  The following discussion in this section provides a comparison of operating income by business segment. 
 
   
Fiscal Year
             
   
2013
   
2012
   
$ Change
   
% Change
 
Operating income:
                       
Rigid Open Top
  $ 123     $ 159     $ (36 )     (23 %)
Rigid Closed Top
    130       95       35       37 %
Rigid Packaging
  $ 253     $ 254     $ (1 )     1 %
Engineered Materials
    116       70       46       66 %
Flexible Packaging
    17       1       16        
Total operating income
  $ 386     $ 325     $ 61       19 %
 
Operating income for the Rigid Open Top business decreased from $159 million (13% of net sales) in fiscal 2012 to $123 million (11% of net sales) in fiscal 2013.  This decrease is primarily attributed to a $8 million decline in the relationship of net selling price to raw material costs, $7 million from sales volume declines described above, $11 million decline in operating performance in manufacturing, $4 million increase of selling, general and administrative expenses primarily attributed to costs associated with new product innovation, $5 million increase in business integration expenses and $1 million increase in depreciation and amortization expense.   Operating income for the Rigid Closed Top business increased from $95 million (7% of net sales) in fiscal 2012 to $130 million (9% of net sales) in fiscal 2013.  This increase is primarily attributed to a $24 million decline in business integration expenses, $1 million improvement in the relationship of net selling price to raw material costs, $6 million reduction of depreciation and amortization expense, $2 million of improved operating performance in manufacturing and $6 million decrease in selling, general and administrative expenses partially offset $4 million from sales volume declines described above.  Operating income for the Engineered Materials business increased from $70 million (5% of net sales) in fiscal 2012 to $116 million (8% of net sales) in fiscal 2013.  This increase is primarily attributed to a $11 million decrease in non-cash impairment charges related to exited businesses, $3 million from acquisitions, $9 million improvement in the relationship of net selling price to raw material costs, $9 million of improved operating performance in manufacturing, $7 million decrease in selling, general and administrative expenses, $5 million decrease in depreciation and amortization expense excluding the impact from acquisitions and a $5 million decrease in business integration expenses  partially offset by $3 million from sales volume declines described above.  Operating income for the Flexible Packaging business improved from $1 million in fiscal 2012 to $17 million (2% of net sales) in fiscal 2013.  This improvement is primarily attributed to a $6 million reduction of business integration expense, $10 million reduction of depreciation and amortization expense and a $3 million improvement in the relationship of net selling price to raw material costs partially offset by $1 million increase of selling, general and administrative expenses, $1 million decline in operating performance in manufacturing and $1 million from sales volume declines described above.
 
 
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Debt Extinguishment.  Debt extinguishment was $64 million during fiscal 2013 as a result of loss on extinguishment of debt attributed to $37 million of call premium and penalties, $19 million of deferred financing fees and $8 million of debt discount related to the debt extinguishment that resulted from our incremental term loan capital and the use of the proceeds from our initial public offering.
 
Other Income, Net. Other income was $7 million in fiscal 2013 and fiscal 2012, respectively.  These gains are attributed to the fair value adjustment for our interest rate swaps.
 
Interest Expense, Net.  Interest expense decreased from $328 million in fiscal 2012 to $244 million in fiscal 2013 primarily as the result of the interest savings that resulted from our incremental term loan restructure and initial public offering, which proceeds were used to pay off indebtedness.
 
Income Tax Expense.  Fiscal 2013, we recorded an income tax expense of $28 million or an effective tax rate of 33% compared to an income tax expense of $2 million or an effective tax rate of 50% in fiscal 2012.  The effective tax rate is impacted by the relative impact of discrete items and certain international entities for which a full valuation allowance is recognized.
 
Income Tax Matters 
 
The Company had unused United States federal operating loss carryforwards to offset future taxable income of $601 million as of fiscal 2014.  As of fiscal year-end 2014, the Company had state and foreign net operating loss carryforwards of $803 million and $106 million, respectively, which will be available to offset future taxable income.  If not used, the federal net operating loss carryforwards will expire in future years beginning 2025 through 2031.  AMT credit carryforwards totaling $9 million are available to the Company indefinitely to reduce future years’ federal income taxes.  The state net operating loss carryforwards will expire in future years beginning in 2015 through 2033.  The Company has $18 million and $4 million of federal and state Research and Development tax credits, respectively, that will expire in future years beginning 2027 through 2034.
 
The net operating losses are subject to an annual limitation under guidance from the Internal Revenue Code, however, all of the Company’s federal net operating loss carryforwards should be available for use within the next five years.  As part of the effective tax rate calculation, 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.  The Company has not provided a valuation allowance on its net federal net operating loss carryforwards in the United States 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.  Our valuation allowance against deferred tax assets was $56 million and $59 million at the end of fiscal 2014 and 2013, respectively, related to certain foreign and state deferred tax assets. 

In connection with the initial public offering, the Company entered into an income tax receivable agreement that provides for the payment to pre-initial public offering stockholders, option holders and holders of our stock appreciation rights, 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that are actually realized (or are deemed to be realized in the case of a change of control) as a result of the utilization of our and our subsidiaries’ net operating losses attributable to periods prior to the initial public offering.  Based on the Company's assumptions using various items, including valuation analysis and current tax law, the Company recorded an obligation of $313 million upon completion of the initial public offering, which was recognized as a reduction of Paid-in capital on the Consolidated Balance Sheets.  The Company made payments of $32 million and $5 million in fiscal 2014 and 2013, respectively.  In addition, a $39 million was paid in the first quarter of fiscal 2015. The balance at the end of fiscal 2014 was $273 million.
 
Liquidity and Capital Resources  
 
Senior Secured Credit Facility
 
We have senior secured credit facilities consisting of $2.5 billion of term loans and a $650 million asset based revolving line of credit (“Credit Facility”).  $1.1 billion of the term loans mature in January 2021, the remaining $1.4 billion of term loans mature in February 2020 and the revolving line of credit matures in June 2016, subject to certain conditions.  The availability under the revolving line of credit is the lesser of $650 million or based on a defined borrowing base which is calculated based on available accounts receivable and inventory.  The revolving line of credit allows up to $130 million of letters of credit to be issued instead of borrowings under the revolving line of credit.  At the end of fiscal 2014, the Company had no outstanding balance on the revolving credit facility, $37 million of outstanding letters of credit and a $43 million borrowing base reserve, resulting in unused borrowing capacity of $570 million under the revolving line of credit.  The Company was in compliance with all covenants at the end of fiscal 2014.
 
 
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We are obligated to sustain a minimum fixed charge coverage ratio of 1.0 to 1.0 under the revolving credit facility (tested quarterly) at any time when the aggregate unused capacity under the revolving credit facility is less than 10% of the lesser of the revolving credit facility commitments and the borrowing base (and for 10 business days following the date upon which availability exceeds such threshold) or during the continuation of an event of default.  Our fixed charge coverage ratio, as defined in the revolving credit facility, is calculated based on a numerator consisting of adjusted EBITDA less pro forma adjustments, income taxes paid in cash and capital expenditures, and a denominator consisting of scheduled principal payments in respect of indebtedness for borrowed money, interest expense and certain distributions.  At the end of fiscal 2014, the Company had unused borrowing capacity of $570 million under the revolving credit facility and thus was not subject to the minimum fixed charge coverage ratio covenant.  Our fixed charge ratio was 2.2 to 1.0 at the end of fiscal 2014.
 
Despite not having financial maintenance covenants, our debt agreements contain certain negative covenants.  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.  The term loan facility contains a negative covenant first lien secured leverage ratio covenant of 4.0 to 1.0 on a pro forma basis for a proposed transaction, such as an acquisition or incurrence of additional first lien debt.  Our first lien secured leverage ratio was 3.0 to 1.0 at the end of fiscal 2014.
 
A key financial metric utilized in the calculation of the first lien leverage ratio is Adjusted EBITDA as defined in the Company’s senior secured credit facilities.  The following table reconciles (i) our Adjusted EBITDA to operating income and (ii) our Adjusted Free Cash Flow to cash flow from operating activities, in each case, for fiscal 2014 and the quarterly period ended September 27, 2014:
 
 
         
Quarterly Period Ended
 
   
Fiscal 2014
   
September 27, 2014
 
Adjusted EBITDA                                                                    
  $ 830     $ 213  
Depreciation and amortization                                                                    
    (358 )     (97 )
Business optimization and other expense (a)
    (81 )     (18 )
Restructuring and impairment                                                                    
    (30 )     (2 )
Pro forma acquisitions                                                                    
    (18 )      
Unrealized cost savings                                                                    
    (27 )     (3 )
Operating income                                                                    
  $ 316     $ 93  
Cash flow from operating activities
  $ 530     $ 160  
                 
Net additions to property, plant and equipment
    (196 )     (29 )
Payments of tax receivable agreement
    (32 )      
Adjusted free cash flow                                                                    
  $ 302     $ 131  
Cash flow from investing activities
    (422 )     (30 )
Cash flow from financing activities
    (119 )     (45 )
(a) Includes business optimization and integration expenses and non-cash charges
               
 
Adjusted EBITDA and Adjusted Free Cash Flow, as presented in this document, are supplemental financial measures that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”).  Adjusted EBITDA and Adjusted Free Cash Flow are not GAAP financial measures and should not be considered as an alternative to operating or net income or cash flows from operating activities, in each case determined in accordance with GAAP.  We define “Adjusted EBITDA” as operating income before depreciation and amortization, and certain restructuring and business optimization charges and as adjusted for unrealized cost reductions and acquired businesses, including unrealized synergies, which are more particularly defined in our credit documents and the indentures governing our notes. Adjusted EBITDA is used by our lenders for debt covenant compliance purposes and by our management as one of several measures to evaluate management performance. While the determination of appropriate adjustments in the calculation of Adjusted EBITDA is subject to interpretation under the terms of the Credit Facility, management believes the adjustments described above are in accordance with the covenants in the Credit Facility.  Adjusted EBITDA eliminates certain charges that we believe do not reflect operations and underlying operational performance. Although we use Adjusted EBITDA as a financial measure to assess the performance of our business, the use of Adjusted EBITDA has important limitations, including that (1) Adjusted EBITDA does not represent funds available for dividends, reinvestment or other discretionary uses, or account for expenses and charges; (2) Adjusted EBITDA does not reflect cash outlays for capital expenditures or contractual commitments; (3) Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital; (4) Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on indebtedness; (5) Adjusted EBITDA does not reflect income tax expense or the cash necessary to pay income taxes; (6) Adjusted EBITDA excludes depreciation and amortization and, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements; and (7) Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations.
 
 
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We define “Adjusted Free Cash Flow” as cash flow from operating activities less additions to property, plant and equipment and payments of the tax receivable agreement. We use Adjusted 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. We believe Adjusted Free Cash Flow is useful to an investor in evaluating our liquidity because Adjusted 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 without regard to revenue and expense recognition, which can vary depending upon accounting methods. Although we use Adjusted Free Cash Flow as a liquidity measure to assess our ability to generate cash, the use of Adjusted Free Cash Flow has important limitations, including that: (1) Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our indebtedness; and (2) Adjusted Free Cash Flow removes the impact of accrual basis accounting on asset accounts and non-debt liability accounts
 
These non-GAAP financial measures may be calculated differently by other companies, including other companies in our industry, limiting their usefulness as comparative measures. Because of these limitations, you should consider Adjusted EBITDA and Adjusted Free Cash Flow alongside other performance measures and liquidity measures, including operating income, various cash flow metrics, net income and our other GAAP results.
 
Contractual Obligations and Off Balance Sheet Transactions 
 
Our contractual cash obligations at the end of fiscal 2014 are summarized in the following table which does not give any effect to the tax receivable agreement, including the $39 million payment made in October 2014, or income taxes payable as we cannot reasonably estimate the timing of future cash outflows associated with those commitments.
 
   
Payments due by period as of the end of fiscal 2014
 
   
Total
   
< 1 year
   
1-3 years
   
4-5 years
   
> 5 years
 
Long-term debt, excluding capital leases
  $ 3,809     $ 29     $ 51     $ 51     $ 3,678  
Capital leases (a)
    145       34       46       34       31  
Fixed interest rate payments
    698       106       211       211       170  
Variable interest rate payments (b)
    509       91       178       175       65  
Operating leases
    331       46       82       60       143  
Funding of pension and other postretirement obligations (c)
    5       5                    
Total contractual cash obligations
  $ 5,497     $ 311     $ 568     $ 531     $ 4,087  
 
(a) Includes anticipated interest of $16 million over the life of the capital leases.
(b) Based on applicable interest rates in effect end of fiscal 2014.
(c) Pension and other postretirement contributions have been included in the above table for the next fiscal year. The amount is the estimated contributions to our defined benefit plans. The assumptions used by the actuary in calculating the projection includes weighted average return on pension assets of approximately 8% for fiscal 2014. The estimation may vary based on the actual return on our plan assets. See footnotes to the Consolidated Financial Statements of this Form 10-K for more information on these obligations.
Note:      As part of the P&B acquisition, the non-controlling interest holder has a put option, and the Company has a call option on the remaining 25% interest in P&B that becomes effective three years from the date of purchase. Upon execution of the put or call option, the purchase price for the remaining equity interest will be determined based on the fair value at the date of execution. Redeemable non-controlling interest was $13 million as of fiscal 2014 and is not included in the above table.
 
Cash Flows from Operating Activities 
 
Net cash provided by operating activities increased from $464 million in fiscal 2013 to $530 million in fiscal 2014.  The change is primarily attributed to improved working capital.
 
Net cash from operating activities was $464 million for fiscal 2013 compared to $479 million of cash flows from operating activities for fiscal 2012.  The change is primarily attributed to additional working capital used in fiscal 2013 partially offset by improved operating performance and the settlement of an interest rate hedge for $16 million.
 
 
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Cash Flows from Investing Activities 
 
Net cash used in investing activities increased from $245 million in fiscal 2013 to $422 million in fiscal 2014 primarily as a result of an increase in acquisition activity related to C&C, Graphic Plastics and P&B partially offset by lower capital expenditures.
 
Net cash used for investing activities was $245 million for fiscal 2013 compared to net cash used of $255 million for fiscal 2012.  The change is primarily as a result of a decline in acquisition activity partially offset by increased capital expenditures.
 
Cash Flows from Financing Activities 
 
Net cash used in financing activities was $164 million in fiscal 2013 compared to $119 million in fiscal 2014.  The change is primarily attributed to a decline in long-term repayments, net of proceeds from the initial public offering, partially offset by the $32 million of tax receivable agreement payments.
 
Net cash used for financing activities was $164 million for fiscal 2013 compared to $179 million of cash used for financing activities for fiscal 2012.  This change is primarily attributed to proceeds from issuance of common stock and incremental term loan, which we utilized to repurchase the 11% Senior Subordinated Notes, Second Priority Senior Secured Floating Rate Notes, First Priority Senior Secured Floating Rate Notes, 101⁄4% Senior Subordinated and  81⁄4% First Priority Senior Secured Notes.
 
Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our senior secured credit facilities, will be adequate to meet our short-term liquidity needs over the next twelve months.  We base such belief on historical experience and the funds available under the senior secured credit facility.  In addition we believe that we have the business strategy and resources to generate free cash flow from operations in the long term.  We do not expect this free cash flow to be sufficient to cover all long-term debt obligations and intend to refinance these obligations prior to maturity.  However, we cannot predict our future results of operations and our ability to meet our obligations involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section in this Form 10-K.  In particular, increases in the cost of resin which we are unable to pass through to our customers on a timely basis or significant acquisitions could severely impact our liquidity.  At the end of fiscal 2014, our cash balance was $129 million, of which $85 million was domestic, and we had unused borrowing capacity of $570 million under our revolving line of credit. 
 
Critical Accounting Policies and Estimates 
 
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 accounting principles generally accepted in the United States.  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 are likely to differ from these estimates, but management does not believe such differences will materially affect our financial position or results of operations.  We believe that the following accounting policies are the most critical because they have the greatest impact on the presentation of our financial condition and results of operations. 
 
Revenue Recognition.  Revenue from the sales of products is recognized at the time title and risks and rewards of ownership pass to the customer (either when the products reach the free-on-board shipping point or destination depending on the contractual terms), there is persuasive evidence of an arrangement, the sales price is fixed and determinable and collection is reasonably assured. 
 
Accrued Rebates.  We offer various rebates to our customers in exchange for their purchases.  These rebate programs are individually negotiated with our customers and contain a variety of different terms and conditions.  Certain rebates are calculated as flat percentages of purchases, while others include tiered volume incentives.  These rebates may be payable monthly, quarterly, or annually.  The calculation of the accrued rebate balance involves significant management estimates, especially where the terms of the rebate involve tiered volume levels that require estimates of expected annual sales.  These provisions are based on estimates derived from current program requirements and historical experience.  We use all available information when calculating these reserves.  Our accrual for customer rebates was $50 million and $55 million as of the end of fiscal 2014 and 2013, respectively. 
 
Impairments of Long-Lived Assets.  In accordance with the guidance from the FASB for the impairment or disposal of long-lived assets we review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.  Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.  The impairment loss is measured by comparing the fair value of the asset to its carrying amount.  We recognized non-cash asset impairment of long-lived assets of $7 million, $5 million and $20 million in fiscal 2014, 2013 and 2012, respectively.
 
Goodwill and Other Indefinite Lived Intangible Assets.  We evaluate goodwill using a qualitative assessment to determine whether it is more likely than not that the fair value of any reporting unit is less that the carrying amount.  If we determine that the fair value of the reporting unit may be less than its carrying amount, we evaluate the goodwill of that reporting unit using a two-step impairment test.  Otherwise, we conclude that no impairment is indicated and we do not perform the two-step impairment test.
 
 
23

 
We conduct our business through four operating segments, Rigid Open Top, Rigid Closed Top (collectively Rigid Packaging), Engineered Materials and Flexible Packaging.  For purposes of conducting our annual goodwill impairment test, we have determined that we have six reporting units, Rigid Open Top, Rigid Closed Top, Engineered Materials, Flexible Packaging, Tapes and International.  Engineered Materials and Tapes operations comprise the Engineered Materials operating segment.  Flexible Packaging and International comprise the Flexible Packaging segment.  Our International reporting unit’s goodwill is primarily derived from the current fiscal year P&B and C&C acquisitions.  We determined that each of the components within our respective reporting units should be aggregated and tested at the respective level as one reporting unit.  We reached this conclusion because within each of our reporting units, we have similar products, production processes, markets served or management oversight which allows us to share assets and resources across the components.  We regularly re-align our production equipment and manufacturing facilities in order to take advantage of cost savings opportunities, obtain synergies and create manufacturing efficiencies.  In addition, we utilize our research and development centers, design center, tool shops, and graphics center which all provide benefits to each of the reporting units and work on new products that can benefit multiple components.  We also believe that the goodwill is recoverable from the overall operations of the unit given the similarity in production processes, synergies from leveraging the combined resources, common raw materials, common research and development, similar margins, management oversight and similar distribution methodologies.  There were no indicators of impairment in the fourth quarter that required us to perform a test for the recoverability of goodwill.
 
In conducting a qualitative assessment, the Company analyzes a variety of events or factors that may influence the fair value of the reporting unit, including, but not limited to the results of prior quantitative tests performed; changes in the carrying amount of the reporting unit; actual and projected operating results, primarily focused on revenue growth trends and earnings; relevant market data for both the company and its peer companies; industry outlooks; macroeconomic conditions; liquidity; changes in key personnel; and the Company’s competitive position.  Significant judgment is used to evaluate the totality of these events and factors to make the determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.
 
During the qualitative assessment process, based on a decline in operating results and changes in key personnel, the Company concluded that an impairment test was necessary for the Rigid Open Top reporting unit.  We first compared the book value of a reporting unit, including goodwill, with its fair value.  The fair value is estimated based on a market approach and a discounted cash flow analysis, also known as the income approach, and is reconciled back to the current market capitalization for Berry Plastics to ensure that the implied control premium is reasonable.  Our forecasts included overall revenue growth of 3-8% through and including the terminal year, which is 3%, and capital expenditure levels consistent with historical spend.  The fair value of the Rigid Open Top reporting unit exceeded its’ carrying value by 25% and thus the second step was not performed.  An incremental sustained decline of 10%-15% in earnings or a significant decline in market multiples could result in an impairment charge in the future.
 
Based on our estimated evaluation, we believe that the value of each of our reporting units is either equal to or higher than last year as supported by the growth in our overall market capitalization and total enterprise value.  Each of our reporting units experienced earnings growth with the exception of the Rigid Open Top reporting unit.  Our Rigid Open Top reporting unit has seen a decline in the current year related to some volume losses, selling price to raw material declines and manufacturing performance issues associated with facility consolidations.  Volume declines in operating performance have been offset by the development and launch of the Company’s Versalite product which will generate future revenues which were not contemplated in historical forecasts for the reporting unit.  Further, manufacturing performance is expected to recover in the future once the facility consolidations are complete.  Further, the market multiples for the Rigid Open Top peers continue to be strong and we maintain strong market positions with our product mix which continues to support that the historical valuations for this reporting unit are still substantially in excess of the carrying value.
 
Based on the favorable results of the qualitative assessment conducted on the first day of our fiscal fourth quarter for the Rigid Closed Top, Engineered Materials, Flexible Packaging, Tapes and International reporting units and the fair values for Rigid Open Top reporting unit exceeding its’ carrying value , there was no goodwill impairment charge recorded in 2014.
 
Goodwill as of September 27, 2014, by reporting unit is as follows:
 
 
 
 
24

 
 

   
Goodwill as of
September 27, 2014
 
Rigid Open Top
  $ 681  
Rigid Closed Top
    827  
Engineered Films
    52  
Tapes
    19  
Flexible Packaging
    61  
International
    19  
    $ 1,659  

We also performed our annual impairment test for fiscal 2014 of our indefinite lived intangible assets, which relates to the “Berry” trade name.  The cash flow assumptions, growth rates and risks to these cash flows are similar to those used in our analysis to determine the fair value of our combined Rigid Packaging businesses.  The annual impairment test did not result in any impairment as the fair value exceeded the carrying value.
 
Deferred Taxes and Effective Tax Rates.  We estimate the effective tax rates (“ETR”) and associated liabilities or assets for each of our legal entities of ours in accordance with authoritative guidance.  We use 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 United States and local tax laws as they apply to our legal entities and our overall tax structure.  Audits by local tax jurisdictions, including the United States Government, could yield different interpretations from our own and cause the Company to owe more taxes than originally recorded.  For interim periods, we accrue our tax provision at the ETR that we expect for the full year.  As the actual results from our various businesses vary from our estimates earlier in the year, we adjust the succeeding interim periods’ ETRs to reflect our best estimate for the year-to-date results and for the full year.  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 United States 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.  Changes in our valuation allowance could also impact our tax receivable agreement obligation.  Our valuation allowance against deferred tax assets was $56 million and $59 million as of the end of fiscal 2014 and 2013, respectively. 
 
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. 
 
Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Interest Rate Sensitivity
 
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities.  Our senior secured credit facilities are comprised of (i) $2.5 billion term loans and (ii) a $650 million revolving credit facility.  At September 27, 2014, the Company had no outstanding balance on the revolving credit facility.  Borrowings under our senior secured credit facilities bear interest, at our option, at either an alternate base rate or an adjusted LIBOR rate for a one-, two-, three- or six month interest period, or a nine- or twelve-month period, if available to all relevant lenders, in each case, plus an applicable margin.  The alternate base rate is the greater of (i) in the case of our term loans, Credit Suisse’s prime rate or, in the case of our revolving credit facility, Bank of America's prime rate and (ii) one-half of 1.0% over the weighted average of rates on overnight Federal Funds as published by the Federal Reserve Bank of New York.  At September 27, 2014, the LIBOR rate of 0.24% applicable to the term loans was below the LIBOR floor of 1.00%.  A 0.25% change in LIBOR would not have a material impact on our interest expense.
 
In February 2013, the Company entered into an interest rate swap transaction to manage cash flow variability associated with $1 billion of outstanding variable rate term loan debt (the "2013 Swap"). The agreement swapped the greater of a three-month variable LIBOR contract or 1.00% for a fixed three-year rate of 2.355%, with an effective date in May 2016 and expiration in May 2019.  In June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.  The offset is included in Accumulated other comprehensive income and will be amortized to Interest expense from May 2016 through May 2019, the original term of the swap agreement.
 
 
 
25

 
In March 2014, the Company entered into an interest rate swap transaction to manage cash flow variability associated with $1 billion of outstanding variable rate term loan debt (the "2014 Swap"). The agreement swaps the greater of a three-month variable LIBOR contract or 1.00% for a fixed three-year rate of 2.59%, with an effective date in February 2016 and expiration in February 2019.  The Company will record changes in fair value in Accumulated other comprehensive income.
 
Resin Cost Sensitivity
 
We are exposed to market risk from changes in plastic resin prices that could impact our results of operations and financial condition.  Our plastic resin purchasing strategy is to deal with only high-quality, dependable suppliers.  We believe that we have maintained strong relationships with these key suppliers and expect that such relationships will continue into the foreseeable future.  The resin market is a global market and, based on our experience, we believe that adequate quantities of plastic resins will be available at market prices, but we can give you no assurances as to such availability or the prices thereof.  If the price of resin increased or decreased by 5% it would result in a material change to our cost of goods sold.
 
 
26

 
 
 
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Index to Financial Statements
Reports of Independent Registered Public Accounting Firm
33
Consolidated Balance Sheets as of fiscal 2014 and 2013
35
Consolidated Statements of Income and Comprehensive Income for fiscal 2014, 2013 and 2012
36
Consolidated Statements of Changes in Stockholders' Equity as of fiscal 2014, 2013 and 2012
37
Consolidated Statements of Cash Flows for fiscal 2014, 2013 and 2012
38
Notes to Consolidated Financial Statements
39
 
Index to Financial Statement Schedules
 
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.
 
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 designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
 
In connection with the preparation of our Form 10-K as of and for the fiscal year ended September 27, 2014, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 27, 2014.  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 27, 2014.
 
Management’s Report on Internal Controls over Financial Reporting 
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projection of any evaluation of effectiveness to future periods is 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.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (1992 Framework) and has excluded current year acquisitions (Graphic Plastics, P&B and C&C).  The operations acquired from Graphics Plastics, P&B and C&C  represented approximately 6% of our consolidated total assets and 4% of our consolidated net sales as of and for the year ended September 27, 2014.
 
Based upon its assessment, management concluded that as of September 27, 2014, the Company’s internal controls over financial reporting were effective.  In addition, Ernst & Young LLP as of September 27, 2014, the Company’s independent registered public accounting firm, provided an attestation report on the Company’s internal control over financial reporting.
 
Changes in Internal Controls Over Financial Reporting
 
There have been no changes in our internal control over financial reporting occurred during the fourth quarter of fiscal 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
27

 
 
Item 9B.                        OTHER INFORMATION 
 
None.
 
PART III
 
Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
The information required by this Item, with the exception of the Code of Ethics disclosure below, is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with the 2015 Annual Meeting of Stockholders. 
 
Code of Ethics 
 
We have a Code of Business Ethics that applies to all 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. Our Code of Business Ethics can be obtained, free of charge, by contacting our corporate headquarters or can be obtained from the Corporate Governance section of the Company’s internet site.  
 
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 2015 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 2015 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 2015 Annual Meeting of Stockholders. 
 
Item 14.  PRINCIPAL ACCOUNTING 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 2015 Annual Meeting of Stockholders.
 

 
28

 

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.  
    

 
29

 

 
Report of Independent Registered Public Accounting Firm
 
 
The Board of Directors and Stockholders
 
Berry Plastics Group, Inc.
 
 
We have audited the accompanying consolidated balance sheets of Berry Plastics Group, Inc. as of September 27, 2014 and September 28, 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended September 27, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Berry Plastics Group, Inc. at September 27, 2014 and September 28 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 27, 2014, 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), Berry Plastics Group, Inc.’s internal control over financial reporting as of September 27, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(1992 framework)” and our report dated November 24, 2014 expressed an unqualified opinion thereon.
 
 
 
 
     /s/ Ernst & Young LLP  
 
 
 
 
 
 
Indianapolis, Indiana
 
November 24, 2014
 
 
   
 
   
 

 
30

 

 
Report of Independent Registered Public Accounting Firm
 
 
The Board of Directors and Stockholders
 
Berry Plastics Group, Inc.
 
 
We have audited Berry Plastics Group, Inc.’s internal control over financial reporting as of September 27, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Berry Plastics Group Inc.’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 Controls over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.
 
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.
 
In our opinion, Berry Plastics Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 27, 2014, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2014 consolidated financial statements of Berry Plastics Group, Inc. and our report dated November 24, 2014 expressed an unqualified opinion thereon. 
 
 
    /s/ Ernst & Young LLP  
 
 
 
Indianapolis, Indiana
 
November 24, 2014
 
 
 
31

 
 
 
Berry Plastics Group, Inc.
Consolidated Balance Sheets
       (in millions of dollars, except share data)  
 
   
September 27, 2014
   
September 28, 2013
 
Assets
           
Current assets:
           
 Cash and cash equivalents
  $ 129     $ 142  
Accounts receivable, net
    491       449  
 Inventories
    604       575  
 Deferred income taxes
    166       139  
 Prepaid expenses and other current assets
    42       32  
Total current assets
    1,432       1,337  
Property, plant and equipment, net
    1,364       1,266  
Goodwill, intangible assets and deferred costs, net
    2,471       2,520  
Other assets
    1       12  
Total assets
  $ 5,268     $ 5,135  
                 
Liabilities and stockholders' equity (deficit)
               
Current liabilities:
               
 Accounts payable
  $ 395     $ 337  
 Accrued expenses and other current liabilities
    314       276  
 Current portion of long-term debt
    58       71  
Total current liabilities
    767       684  
Long-term debt, less current portion
    3,860       3,875  
Deferred income taxes
    386       385  
Other long-term liabilities
    356       387  
Total liabilities
    5,369       5,331  
Commitments and contingencies
               
Redeemable Non-controlling interest
    13       -  
Stockholders' equity (deficit):
               
Common stock: ($0.01 par value;  400,000,000 shares authorized; 117,999,870 shares issued and 117,929,386 shares outstanding as of September 27, 2014; 115,895,927 shares issued and 115,825,443 shares outstanding as of September 28, 2013)
    1       1  
 Additional paid-in capital
    367       322  
 Non-controlling interest
    3       3  
 Accumulated deficit
    (442 )     (504 )
 Accumulated other comprehensive loss
    (43 )     (18 )
Total stockholders' equity (deficit)
    (114 )     (196 )
Total liabilities and stockholders' equity (deficit)
  $ 5,268     $ 5,135  
  
 
 See notes to consolidated financial statements.
 
 
 
32

 
 
Berry Plastics Group, Inc.
Consolidated Statements of Income
(in millions of dollars, except per share data) 
 
   
Fiscal years ended
 
   
September 27, 2014
   
September 28, 2013
   
September 29, 2012
 
Net sales
  $ 4,958     $ 4,647     $ 4,766  
Costs and expenses:
                       
 Cost of goods sold
    4,190       3,835       3,984  
 Selling, general and administrative
    320       307       317  
 Amortization of intangibles
    102       105       109  
 Restructuring and impairment charges
    30       14       31  
Operating income
    316       386       325  
                         
Debt extinguishment
    35       64       -  
Other income, net
    (7 )     (7     (7 )
Interest expense, net
    221       244       328  
Income before income taxes
    67       85       4  
Income tax expense
    4       28       2  
Consolidated net income
    63       57       2  
Net income attributable to non-controlling interests
    1       -       -  
Net income attributable to the Company
  $ 62     $ 57     $ 2  
Net income per share:
                       
   Basic (see footnote 14)
  $ 0.53     $ 0.50     $ 0.02  
   Diluted (see footnote 14)
  $ 0.51     $ 0.48     $ 0.02  
 
Berry Plastics Group, Inc.
Consolidated Statements of Comprehensive Income
(in millions of dollars) 
 
Consolidated net income
  $ 63     $ 57     $ 2  
   Currency translation
    (16 )     (5 )     6  
   Interest rate hedges
    (3 )     20       4  
Defined benefit pension and retiree health benefit plans
    (11 )     34       (14 )
Provision for income taxes related to other comprehensive income items
    5       (20 )     5  
Comprehensive income
    38       86       3  
Comprehensive income attributable to non-controlling interests
    1       -       -  
Comprehensive income attributable to the Company
  $ 37     $ 86     $ 3  
  
 
See notes to consolidated financial statements.

 
33

 

Berry Plastics Group, Inc.
      Consolidated Statements of Changes in Stockholders' Equity (Deficit)   
(in millions of dollars)  
 

   
Common
Stock
   
Additional
Paid-in Capital
   
Notes Receivable-Common Stock
   
Non Controlling Interest
   
Accumulated Other Comprehensive Loss
   
Accumulated Deficit
   
Total
 
Balance at October 1, 2011
  $ 1     $ 142     $ (2 )   $ 3     $ (48 )   $ (563 )   $ (467 )
Stock compensation expense
    -       2       -       -       -       -       2  
Interest rate hedge, net of tax
    -       -       -       -       3       -       3  
Fair value adjustment of redeemable stock
    -       (13 )     -       -       -       -       (13 )
Net income attributable to the Company
    -       -       -       -       -       2       2  
Currency translation
    -       -       -       -       6       -       6  
Defined benefit pension and retiree health benefit plans, net of tax
    -       -       -       -       (8 )     -       (8 )
Balance at September 29, 2012
  $ 1     $ 131     $ (2 )   $ 3     $ (47 )   $ (561 )   $ (475 )
Stock compensation expense
    -       16       -       -       -       -       16  
Repayment of note receivable
    -       -       2       -       -       -       2  
Proceeds from  issuance of common stock
    -       27       -       -       -       -       27  
Termination of redeemable shares
    -       23       -       -       -       -       23  
Proceeds from initial public offering
    -       438       -       -       -       -       438  
Obligation under tax receivable agreement
    -       (313 )     -       -       -       -       (313 )
Interest rate hedge, net of tax
    -       -       -       -       10       -       10  
Net income attributable to the Company
    -       -       -       -       -       57       57  
Currency translation
    -       -       -       -       (5 )     -       (5 )
Defined benefit pension and retiree health benefit plans, net of tax
    -       -       -       -       21       -       21  
Derivative amortization, net of tax
    -       -       -       -       3       -       3  
Balance at September 28, 2013
  $ 1     $ 322     $ -     $ 3     $ (18 )   $ (504 )   $ (196 )
Stock compensation expense
    -       15       -       -       -       -       15  
Proceeds from  issuance of common stock
    -       17       -